Worthwhile Canadian Initiative

Canadian Exceptionalism in Compensation

The Parliamentary Budget Office's most recent release "The Fiscal Impact of Federal Personnel Expenses: Trends and Developments"  provides some interesting statistics on the amounts of employee compensation paid by Canada’s federal government.  According to the report: “in 2011-12, Canada’s federal personnel expenses were $43.8 B, or 2.55 per cent of GDP. These expenses supported a workforce of 375,500 employees and provided approximately $114,100 on average in total compensation per employee.”  Media reports attributed to the President of the Treasury Board claiming that these average compensation amounts were inaccurate and that actual compensation was lower (Tony Clement said the average compensation was closer to $95,000) were rebutted by the PBO with an information update.  As entertaining as all this was, the fact is that any discussion of public employee compensation in Canada should cover more than just the federal government and that it might be more appropriate to compare us to where we stand relative to other countries.

Mark Carney and NGDPLPT

Mark Carney said:

"If yet further stimulus were required, the policy framework itself would likely have to be changed.¹⁹ For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP (Chart 4).

Bank of Canada research shows that, under normal circumstances, the gains from better exploiting the expectations channel through a history-dependent framework are likely to be modest, and may be further diluted if key conditions are not met.  Most notably, people must generally understand what the central bank is doing - an admittedly high bar.²⁰

However, when policy rates are stuck at the zero lower bound, there could be a more favourable case for NGDP targeting. The exceptional nature of the situation, and the magnitude of the gaps involved, could make such a policy more credible and easier to understand.²¹

Of course, the benefits of such a regime change would have to be weighed carefully against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation-targeting framework."

I may update this later. Busy days.

As the World Turns

Several posts ago, I presented some numbers by Angus Maddison on the evolution of global GDP output shares over the period 1500 to 2001 which showed that Asia’s share of world GDP declined from 1500 to about the mid 20^th century but has since been rising.  I decided to try and do a bit of an update using the IMF’s World Economic Outlook 2012 Data Tables which provide GDP in US purchasing power parity dollars up to 2011 and then estimates after that to the year 2017.  The results are both simple and complex.

Resource Revenue Retention: New Twists on an Old Idea?

In a post on iPolitics, author and journalist Madelaine Drohan discusses the move by the PQ government in Quebec to embrace the Generations Fund - a sovereign wealth fund created by the Liberal government of Jean Charest in 2006.  The original plan was to invest water power and mining royalties into a fund whose income would be used to pay down the provincial debt.  The fund was apparently valued at 4.3 billion dollars at the end of March 2012 and the recent PQ budget has directed that starting in 2015-16, all mining royalty revenues – about 325 million dollars a year – would go into the fund.  Given the prospect of future mining development in Quebec’s North under the auspices of the Plan Nord, this fund could grow substantially in the future.

$600b debt x (2% inflation + 2.5% real growth) = $27b

Just a little bit of simple debt and deficit arithmetic. Let's adjust the deficit for long run inflation and long run real growth. That cuts the deficit by around $27 billion.

Carney's Departure: The Bigger Picture

Well, it has been an exciting couple of days in Canada on the policy side given the juxtaposition of the following news: 1) the federal by-election results suggest a more competitive political environment for the federal Conservatives in the stronghold of Alberta 2) the world-class City of Toronto is deposing its Mayor over a conflict of interest involving a high-school football team 3) the federal government is raising the limit on tax-free savings account contributions by 500 dollars and 4) Mark Carney is heading off to the Bank of England.  What’s the connection?

Mark Carney to the Bank of England

You might think I have a lot to say about this. (A top UK newspaper just emailed asking me to write something.) I don't.

I have very little to say. And what I do have to say is fairly obvious.

I think Britain needs him more than Canada does, because the British economy is in worse shape than the Canadian economy. (I was touching wood as I wrote that, because, for example, Canadian house prices have been falling a little recently and I can't be certain that they won't fall a lot.) And the Bank of England is more involved in supervising financial intermediaries than is the Bank of Canada, and that would probably be Mark Carney's comparative advantage.

I can think of two good candidates (I'm not going to say who) to replace him as Governor at the Bank of Canada. There are almost certainly many other good candidates whom I know nothing about. I hadn't heard of Mark Carney before he became Governor.

Some people are very good at networking and knowing who's who. I'm not one of those people. My guess is that almost all journalists are very good at networking, and that most economists are bad at networking. The reason we became economists in the first place was probably because we were no good at remembering lots of people and their names, so we didn't do very well in history or literature.

Why Harper is Not Going to Halifax

The provincial premiers are meeting on the economy in Halifax today and tomorrow and Prime Minister Harper will not be joining them.  Several of them have offered up expressions of surprise and disappointment and have lamented the absence of the Prime Minister. The operatic drama that often characterizes exchanges at federal-provincial meetings has been absent the last few years given that one of the chief actors refuses to come.  I suppose the premiers are unwilling to replicate the Clint Eastwood approach to political discourse and simply address an empty chair.

Growing Ontario One Report at a Time

The Conference Board of Canada has chimed in on what ails Ontario and how to get it moving in a recently released report titled Needed: A Comprehensive Growth Strategy for Ontario. The report argues that after rebounding from the 2008-09 recession, Ontario has slipped into tepid growth of around 2 percent annually and needs a comprehensive economic growth strategy to improve its long-term growth potential. What is to be done?

One of These Countries is Not Like the Others

Given that the Finance Minister is presenting the Federal Fiscal Update today in Fredericton, it is instructive to review some fiscal comparisons right out of the release of the 2012 Federal Fiscal Reference Tables (which in turn used the OECD Economic Outlook May 2012 numbers for the international comparison).  Figure 1 plots the ratio of total general government receipts to GDP for the period 1991 to 2011 for the G-7 while Figure 2 plots expenditures as a share of GDP.

Forward guidance, borrowing degrees of freedom, and the inflation target horizon

This is something I do not understand very well. I'm writing this to try to help me think about it more clearly.

Eight times a year, at each Fixed Announcement Date, the Bank of Canada does two things: it announces a target for the overnight rate until the next FAD; it provides some "forward guidance" about future targets for the overnight rate. That forward guidance receives as much attention as the current target. Here's a recent example from Kevin Carmichael at the Globe and Mail.

A good "dumb" question to ask would be: "Why does the Bank bother with forward guidance at all?"

Provincial Debt Update

The 2012 Federal Fiscal Reference tables are out and the information on provincial net debt is interesting especially when the growth of net debt is considered.

You can't estimate Optimal Currency Areas that way

The better the Bank of Canada is doing its job, the more it will appear that the Bank of Canada should be broken in two. The worse the ECB does its job, the more it will appear that the Eurozone is an Optimal Currency Area. If central banks were even slightly more competent than random number generators, then the existing set of currency areas would probably appear worse than an equal number of currency areas chosen at random.

Forecasting Deficits Ontario Style

One of my most piercing electoral memories is the 1993 federal election debate that featured then Prime Minister Kim Campbell, Jean Chretien, Audrey McLaughlin, Preston Manning and Lucien Bouchard.  The part that always sticks in my mind is Lucien Bouchard’s persistent questioning of Campbell with respect to the size of the deficit in the 1993 budget.  Campbell seemingly dodges the question as Bouchard intones:  “What has been the real deficit?”  “Its a simple question, yes or no”

Is Ontario Breaking the “Golden Rule”?

Ontario’s government is now engaged in public sector restraint and reform tackling its doctors and teachers in an effort to wrestle down its 15 billion dollar deficit.  Soon it will be turning its attention to universities.  Indeed, work is already underway on an ambitious plan to reform the university sector which according to reports on the activities of colleges, universities and training minister Glen Murray includes having only three year BAs, year round class offerings, standardized first and second year course offerings that are transferrable across institutions, more experiential learning, student centered learning and an online university.

Resources and the Economic Future

Well, it was one of those interesting coincidences.  Natural Resources Minister Joe Oliver unveiled new figures generated by Natural Resources Canada that apparently demonstrate that natural resources account for almost 20 percent of economic activity in Canada.

What’s Up with Carney & Flaherty?

Well, I’m still sifting through my thoughts trying to exactly understand what was behind the corporate “dead money” debate last week.  After a speech to the Canadian Auto Workers, Bank of Canada Governor Mark Carney drew attention to the rising amounts of cash in the bank accounts of Canadian firms and commented to the effect that Canadian firms were not doing enough to drive economic growth and create new jobs.  According to the August 22^nd Globe and Mail:

"The level of caution could be viewed as excessive," he said. Referring to corporate managers, he added, "Their job is to put money to work and if they can't think of what to do with it, they should give it back to their shareholders."

Economic Forecasting: Is Google Trends the Future?

Google Trends is a quick and popular way to assess the importance of ideas, events and trends by looking at the results of people’s web searches.  In fact, as is well known, it has been used to study flu activity based on searches for flu related terms. And, right here on WCI, it has been used to study marital discord  and the holiday spirit. Indeed, it can also provide economic information and is apparently even becoming a way to supplement economic forecasting tools.  If the searches for something are trending up, it is suggestive that it is growing in importance as an economic force.

Why is Ontario's Government Being So Mean to Its Teachers?

Being in Toronto for the Rimini Conference in Economics and Finance 2012 and standing in the shadow of Queen’s Park has led me to contemplate why the Ontario government  is suddenly being so mean to its teachers.  After years of Dalton McGuinty as the education premier with an expansion of education funding and programs, the government does seem to have become rather uncharacteristically harsh-imposing new contracts to prevent wages increases.

Bureaucratic Entropy?

The Association of Ontario Municipalities is having its annual conference August 19-22 in Ottawa, the mother city of all governments in Canada.  Among the items on the agenda are the keynote address on:  “new secrets to leadership with five powerful tools to improve negotiation effectiveness”, a speech by Ontario’s premier (followed by the opposition leaders the day after), and concurrent sessions of how to build a better school, fiscal sustainability of infrastructure and managing municipal risk.  This is even a session called “Bring Back the Wild” which my councilors and city officials should find of interest given the recent spate of bear and alleged cougar sightings in Thunder Bay.  And of course, my personal favorite is “The Beer Store: Your Partner in Economic and Environmental Success” sponsored of course by The Beer Store. What you won’t find on the agenda is a discussion of bureaucratic entropy.