Worthwhile Canadian Initiative

Canada's dark anti-matter

The IMF released its annual report on the Canadian economy the other day. Nothing very much to report, which is understandable: the economy is operating at capacity, inflation is low and stable, and the government has been running a surplus for almost a decade now.

There was an interesting tidbit in their forecasts: thanks to a current account surplus that is projected to stay in the range of 2-3% of GDP, Canada's net international investment position (NIIP) will go positive for the first time ever within the next five years.

Equity and Quebec's daycare program

One of the Conservatives' election campaign promises was to provide financial support to parents directly, to the tune of $1,200 per child. Progressive-minded commentators have condemned this policy in no uncertain terms; their preferred model runs more along the lines of the Quebec government's $7/day (formerly $5/day) program. Maybe it shouldn't.

At the meetings of the Canadian Economics Association in Montreal last month, the Innis Lecture was given by my colleague Jean-Yves Duclos. The title of his talk was 'Equity and Equality', and he offered the Quebec daycare program as a classic case of a policy that appears to be progressive, but which turns out not to be.

Factor shares: Cobb-Douglas vs Stolper-Samuelson

Labour's share of income in the US is at the low end of its usual  range of variation:
The long-run stability of this ratio plays an important role in macroeconomic modelling, namely the widespread use of the Cobb-Douglas functional form for production functions.

Over the past 25 years, the ratio of (exports + imports)/GDP has more than doubled. Shouldn't this have had some some sort of effect on the composition of output and factor income?

It's very likely that it has. If the US has a comparative advantage in industries that make use of high-skilled workers, than we'd expect that the share of income that went to unskilled workers would decline, while that of skilled workers would increase. Put the two together, and the effect on the labour share of income may very well be a wash. (Although the effect on income inequality would certainly be noticeable).

The apparent stability of the labour share of income may be masking an important transition in the US economy, one that most macroeconomic models are unable to capture.

On the welfare benefits of the estate tax

Much recent discussion on the estate tax. How bad can it be if heirs and heiresses don't fully appreciate their good fortune?

The Bank of Canada and the Fed face very different problems

Up until recently, the Bank of Canada and the Fed have pretty much followed similar paths. This is less a case of the Bank slavishly following the Fed's lead than the fact that they've been generally facing similar policy challenges.

But this cycle seems to be quite different.

Stanford watch: Let's bring back mercantilism!

In today's Globe and Mail, Jim Stanford is upset with plans to liberalise trade between Canada and South Korea. He thinks it's a bad idea because Canada has a trade deficit with South Korea:

Mr. Harper, the double-double set thinks your idea tanks:

...There's one federal initiative elbowing its way onto the political radar screen, however, that badly flunks the Tim Hortons sniff test. Ottawa is negotiating a free-trade deal with South Korea, one that would likely serve as a template for subsequent deals with Japan and China. Despite increasingly agitated opposition from some of Canada's most important industries, federal negotiators have fast-tracked the talks — meeting the Koreans every six weeks, seeking a deal by year's end.

This represents the reincarnation of the good, old-fashioned, elitist approach to policy-making. Only a true policy wonk, armed with ethereal printouts from a computable, general-equilibrium economic model, could seriously claim the average Canadian will receive any measurable benefit whatsoever from a deal with far-off Korea.

Canada and Korea have a modest, oddly unbalanced, trading relationship. Canada exports less than $3-billion worth of products to Korea each year, mostly resources (coal, wood pulp, and aluminum are the biggest). We import twice that much from Korea, mostly high-tech manufactures: motor vehicles, computers, and electronics. The result is a $3-billion deficit, equivalent to the loss of about 15,000 Canadian jobs.

This imbalance got much worse following Korea's 1997 financial crisis. Korea's exports to Canada are up 90 per cent since 1997, while our sales to Korea are actually 10 per cent lower. Korea has relied on export-led growth, while tightly capping imports (through various tools, including macroeconomic levers, taxation policy, and creative non-tariff barriers). A NAFTA-style trade deal would have even less luck undoing these Korean practices than it had with the Americans.

Two-thirds of our deficit with Korea reflects one-way trade in autos. Korea exports 130,000 vehicles to Canada per year, versus all of 400 going back the other way. Sales by Korean producers in Canada are already surging, and a trade agreement will make it worse.

There isn't a single industrial sector in Canada whose leaders have identified exports to Korea as a significant opportunity for future growth. (When pressed on this question, federal officials cite fisheries, forestry, and agriculture — but even in these sectors, industry associations are silent.) Many sectors have spoken against the deal, most notably auto.

Pathetic.

Average and median earnings

Daniel Gross' NYT column (h/t to New Economist) makes the oft-repeated point that  an increase in average incomes doesn't necessarily mean that most people are better off; it could also mean that the distribution of incomes is getting more unequal.

Canada's been seeing some positive employment and wage data, recently. But is it just a skewed mirage?

Oil prices and the Canadian dollar: A mystery solved

In an earlier post, I noted that the relationship between the CAD-USD exchange rate and oil prices hasn't always strong as it has apparently been over the past few years. Since I hadn't been able to sort this problem out on my own, I went into last weekend's session on this topic organised by the Bank of Canada at the meetings of the Canadian Economics Association with a certain amount of the hope. Happily, I wasn't disappointed.

My first job, my first publication

There's been some discussion recently about the importance of a freshly-minted academic's first job. My first job was a non-tenure-track appointment at the University of Western Ontario, and I was glad to get it: academic jobs were scarce then, and UWO is a good school.

The job also made it possible to spend more time with some close friends who were finishing off their graduate studies at UWO. One day, soon after I moved to London, they suggested that I submit something to the student newspaper's 'Academics' section, reserved for professors' contributions. "What would I write about?" I asked, "I just started." So I wrote about that, and it turned into my first publication. Here it is, as it appeared in The Gazette on Tuesday, November 27th, 1990: