Worthwhile Canadian Initiative

Great Recession Versus Great Depression for Canada

With all the doom and gloom with respect to slowing Canadian economic growth and talk of secular stagnation, it is useful to look at a comparison between the last few years in Canada with what transpired during the Great Depression.  References are often made that the 2008-09 Recession and its aftermath is a period comparable to the Great Depression.

What Happened to Historical Statistics of Canada?

For whatever reason, Statistics Canada has changed the nature of the access to its web version of Historical Statistics of Canada.  Until recently, the electronic version of this classic work of data (with paper editions published in 1965 and 1983) covering Canada from 1867 to the mid 1970s provided the tables of the assorted sections in HTML, PDF and CSV formats.  That has changed and not exactly for the better.

Fiscal Policy, the Eurozone, and Ontario under Bob Rae

This post is mostly questions, not answers. I am hoping the commenters will write this post for me. Because I don't have a comparative advantage at this sort of thing.

[BTW, JP Koning has an excellent post, much better than this, drawing a parallel between Greece's proposed and Alberta's 1936 parallel currency.]

Four practical things journalists could do to improve economics coverage in the media

1. Find better stories.

The Canadian media does a pretty good job of covering Statistics Canada and OECD news releases, and think tank reports. Where they lag behind the US is in coverage of academic research. 

Take, for example, a paper published in Canadian Public Policy last year by Luc Godbout, Yves Trudel and Suzie St-Cerny on the rate of return that Canadians can expect to receive on their contributions to the Canada Pension Plan. It shows someone who retired in the mid-1990s could expect to receive a 10 percent rate of return on their Canada Pension Plan contributions, but late boomers, Gen-Xers and subsequent generations can expect a rate of return closer to 2 percent.

The Growth of the Local Public Sector

The rising expense of local government services is increasingly capturing the attention of pundits and policy makers alike.  The rising cost of policing and fire services in particular and their effects on local budgets and ratepayers, has drawn the attention of Canadian municipal leaders.  What is also interesting is the overall growth in local government employment in general over the last decade at rates much greater than the growth in total employment.

Ontario and Its Neighbours

I suppose I have become somewhat obsessed with Ontario’s economy and its performance but here I go again with a few comparisons. Ontario is strategically located on the Great Lakes-St. Lawrence waterway adjacent to the huge population of the US northeast.  Its neighbours are trade partners and markets as well as economic competitors.  How does Ontario stack up to its immediate American and Canadian neighbors – namely, Minnesota, Wisconsin, Michigan, Ohio, Pennsylvania and New York, and then Manitoba and Quebec?

VAR vs WTF!?

Vector auto regressions (VARs) are supposed to tell us how the economy would respond over time if hit by a shock, by looking at past patterns of responses to shocks. A "shock" means "a deviation of one of the variables in the VAR from the level that was forecast by the VAR". And "shocks" include policy shocks.

1. Suppose at its next meeting the Bank of Canada increased the overnight rate from 0.75% to 1.50%. And suppose this was a totally unexpected move. And suppose a computer glitch meant that the Bank's statement explaining why it had done this was never published. How would markets react to the shock?

2. Now ask exactly the same question, but suppose the Bank of Canada instead reduced the overnight rate from 0.75% to 0.00%. How would markets react to the shock?

A VAR would give exactly opposite answers to those two questions. If you take the answer to the first question, reverse all the signs, you would get the answer to the second question. (That's only strictly true for a linear model.)

I think the answers to the two questions would be pretty much the same. The immediate response would be: "WTF!?".

Ontario Budget Commentary

Well, another Ontario budget has come and gone.  The government still plans to balance its budget by 2017.  According to the budget projections it will do this largely by increasing revenues and restricting expenditure growth. 

The Federal Deficit: A Long Term View

In honour of the 2015 Federal Budget and the balancing of the budget, why not a retrospective on Canadian federal government deficits since 1867.  In the period from 1867 to 2014, the Federal government has run a deficit in 108 out of 148 years or 73 percent of the time. In nominal terms, the federal budget balance has ranged from a deficit of 55.598 billion dollars in 2009 to a surplus of 19.891 billion dollars in 2000. Perhaps a better indicator of the size of the budget balances over time would be in relation to national output - that is a deficit to GNP or GDP ratio.

Fiscal Ships

“We're two ships that pass in the night, And we smile when we say it's alright
We're still here, It's just that we're out of sight
Like those ships that pass in the night”  Barry Manilow

Next week is a double-header of sorts for economists interested in Canadian public finance – a Federal budget on Tuesday and the Ontario budget on Thursday.  The Federal government is generally expected to balance its budget notwithstanding all the recent hand-wringing over the “atrocious” economy.  Ontario on the other hand will once again make a faith based fiscal statement that it is on track to balance its budget by 2017.

SSHRC Grant Trends in Economics

Well, the past week saw notifications go out to academic economists on the results of their 2014-15 Social Science and Humanities Research Council of Canada (SSHRC) Insight Grant applications.  Needless to say, there will be a lot of unhappy campers but then there always are when it comes to grant application success.   Needless to say, unhappiness has probably been on an upward trend given the fall in success rates not just in economics but across all disciplines.  The outcomes in economics are an interesting example of recent trends.

A Resource Bust and Yet...

The OECD has cut its growth forecast for Canada citing the drop in oil and commodity prices.  With all the talk about the slowdown in the Canadian economy picking up steam and slow growth as a result of the drop in oil prices that began last spring, one might expect some job losses to start emerging in places like Calgary or Regina.  Interestingly enough, most Canadian CMAs have continued to grow their employment over the course of the last twelve months.

The Fuss Over TFSAs

Well, there seems to be a fair amount of fuss over the proposed doubling of the contribution limit to Tax Free Savings Accounts(TFSAs).  Kevin Milligan says the case for raising the annual TFSA limit is shaky as the benefit will be mostly to high wealth households rather than those at the middle or bottom of the wealth distribution.  There have been reports by the Broadbent Institute (the Kesselman study) as well as the Parliamentary Budget Office that also raise concerns about how over time the implementation of the expanded limit will increase the size of the tax exempt base and erode future government revenues.  Indeed, my WCI colleague Frances sees this as part of a long term agenda to constrain the size of government. 

Steve Poloz on inflation targeting

Stephen Poloz is Governor of the Bank of Canada. Here is the speech he delivered at Western. The whole thing is worth reading.

Perhaps I'm reading too much into it. But I see a tension in Steve's speech. He recognises that Divine Coincidence has failed, and that inflation targeting has failed. But he doesn't want to change the "quasi-constitutional" (I think that was David Laidler's phrase?) 2% inflation target.

Canadian Convergence

Mark Brown and Ryan MacDonald at Statistics Canada have just released a Research Paper on Canadian provincial convergence and divergence of per capita household disposable income from 1926 to 2011.  They find that while there has been convergence over time, it has proceeded in fits and starts with periods of external shock such as the Great Depression or resource booms leading to periods of divergence. 

Is Poloz Pulling down the Loonie?

Bank of Canada Governor Stephen Poloz insists he is not talking down the Canadian dollar and its depreciation relative to the US dollar is the result of economic developments – in particular the fall in oil prices.  So is oil driving down the dollar? How about a quick and dirty regression?

Instrument independence vs target independence under flexible exchange rates

Sebastian Edwards (HT Mark Thoma) says that monetary policy independence under flexible exchange rates is an illusion. This conflates instrument independence with target independence. Instrument independence is always an illusion, given the target. Target independence is not an illusion.

Another Canadian Debt Ranking

Statistics Canada has released provisional estimates of the Canadian Government Finance Statistics (CGFS) for financial flows and the balance sheets of general government and government business enterprises for the period 2007 to 2012. The net liabilities per capita picture for provincial and territorial governments has changed since the 2008 global financial crisis.

Interest rates, exchange rates, and the Bank of Canada

Last week the Bank of Canada cut the overnight rate of interest from 1.00% to 0.75%. The exchange rate dropped 2 cents (about 2.5%) on the news. [Update: I forgot to add (because I figured Canadians already knew it, but then remembered others probably wouldn't) that the Bank of Canada has "done nothing" (with interest rates) for the last 4 years, but the exchange rate has dropped about 20% over the last 2 years. And that's important background for my story.]

Consider a very simple economy with only two goods: apples and bananas. It's a non-monetary economy; apple producers and banana producers swap apples and bananas because people produce only one good but like to consume both goods. So there's a relative price of apples to bananas, Pa/Pb. People borrow and lend apples at a real interest rate Ra (I give you 1 apple today, you promise to give me 1+Ra apples next year); and borrow and lend bananas at a real interest rate Rb (I give you 1 banana today, you promise to give me 1+Rb bananas next year). If people expect (strictly, expect with certainty) that Pa/Pb will stay the same in future, then Ra and Rb will be exactly the same. Because if Ra < Rb, all borrowers would want to borrow in apples, and all lenders would want to lend in bananas, so it couldn't be an equilibrium.

Ontario Finances Not Quite On Target This Year

As Ontario moves into budget season, it is instructive to take a quick look at the finances to date as revealed in the most recent Ontario Economic Outlook and Fiscal Review which was presented November 2014.  Ontario’s aim then as no doubt now was to have the budget balanced by 2017-18.   According to the Review, between 2013-14 and 2017-18, total expenditures (including the reserve) were expected to rise from 126.4 to 134.5 billion dollars – an increase of 6.4 percent.  Meanwhile, revenues are expected to rise from 115.9 to 134.5 billion dollars – an increase of 16 percent.  Over a four year period, one can estimate that total expenditures are expected to grow about 1.6 percent annually and revenues about 4 percent annually.