I plan to revive True Dough and carry on with it when I relocate to DC, USA (!) for an internship.
I’m not sure about the direction this blog will take, so I’ll wing it like everything else. It might turn American for a few months, but as a stranger to DC I might have time to keep tabs on both countries -- or perhaps focus on relations between the two...
In today’s Toronto Star, Ross Finnie and Alex Usher propose a voucher program to promote quality graduate research. I haven’t formed an opinion yet, but at very least it seems much better than the current system of government-to-institution transfers.
How to expand graduate education in Canada, by Ross Finnie and Alex Usher. Toronto Star (Feb 22):
On the supply side, new money needs to flow in ways that will foster the twin goals of expansion and quality.
Traditional measures, such as increasing government-to-government or government-to-institution transfers, or putting more money into research, would help, but offer limited guarantees that the money will promote expansion of graduate education where we need it most.
An alternative approach would be to attach funding to students directly, varying the amounts with the assessed standing of the student, based on grades, exams and other criteria.
Such a voucher-type system would encourage institutions to improve the quality of their programs as they compete for students, while also giving them the means to expand.
Channelling money through students would incorporate the much-vaunted benefits of the "single-payer" approach that generates efficiencies for our publicly funded health system, while opening up the "market" for graduate education.
In short, an intelligently structured set of transfers to universities based on the number of highly qualified graduate students they enrol would strengthen incentives to offer high-quality postgraduate education. The new resources these transfers brought to institutions would allow expansion of the system precisely where quality was best.
Students, who naturally want to enrol in the best programs they can, would themselves direct the funds toward the higher-quality programs. It is a market-type solution, with market-type efficiencies, though financed entirely with public money.
By working with microdata and using hourly wages, I make several contributions to our understanding of how the CUSFTA tariff cuts affected earnings. First, by using hourly earnings and controlling for individual characteristics, I am able to isolate the effect of CUSFTA on the wage rate, which is a measure of the price of labour. Previous studies have worked with average weekly earnings for broad groups of workers. Changes in weekly earnings may come from a combination of price changes, changes in the composition of workers forming the group, and changes in the number of hours worked per week. Second, I am able to compare the response in the union and non-union sectors, which may have important implications for understanding the political economy of trade policy. My results indicate that the CUSFTA cuts resulted in a decline in the wages of those workers in sectors facing the largest cuts relative to the wages of the workers in sectors that already had low tariffs prior to CUSFTA. This result holds for both the union and the non-union sector. Wages in the union sector are also found to be responsive to changes in the industry-specific real exchange rate and to other sectoral shocks; no similar response is found in the non-union sector.
The deep lesson here is that, just as moving to freer trade does indeed upset some economic apple carts, so, too, does protection upset some economic apple carts. Given that both free trade and protection cause some specific job and business losses, protection cannot be justified -- as so many try to justify it -- by pointing to people whose economic expectations will be upset by freer trade. Free-trade advocates can counter with similar accounts.
Of course, free trade's justification cannot, then, be found in the fact that protection upsets some economic expectations. Free trade's proper economic justification is, in part, this: given that both free trade and the "prohibitory system" "destroy" some jobs and "create" others, it's best to let commerce and industry be guided by market signals and consumer sovereignty so that each producer is more likely than under protection to specialize in that occupation for which he, she, or it has a genuine comparative advantage. Thus will grow the wealth of nations.
Since skills cannot be transferred between industries, workers may be better off remaining in a declining industry at a lower wage than they would be by moving to an industry for which they have no skills. As a result, shifts in demand result in persistent changes to the wage.
I've learned a lot from The Vancouver Housing Blog since I discovered it in December, so I'm sad to see that VHB is exiting the blogosphere ("at least for awhile"). I hope he'll be back.
In...The Growth of Nations, I tried to spell out the reasons for my skepticism [of cross-country growth regressions]. I emphasized three problems, which I called the simultaneity problem (it is hard to disentangle cause and effect), the multicollinearity problem (most of the potential determinants of growth are correlated with each other and imperfectly measured, making it hard to figure out which is the true determinant), and the degrees-of-freedom problem (there are more plausible hypotheses than data points).
Consumers’ confusion over generics and non-equivalent copies continues to present a serious challenge to manufacturers of legitimate, off-patent medicines in Mexico…. There are an estimated 120 firms currently producing non-original medicines of varying quality in Mexico.
The Mexican pharmaceutical market regulator, COFEPRIS, has called for the national competition authority PROFECO to help pursue manufacturers of so-called "miracle drugs". In an interview with the Diario Monitor newspaper, COFEPRIS chief Juan Antonio Garcia Villa estimates that the trade is worth approximately US$900 million per year, and that it has been partly responsible for a surge in Adverse Drug Reactions (ADRs) in Mexico from around 300 per year in 2000 to nearly 9,000 in 2006. The rising rates of deaths and intoxications have come despite the fact that effective pharmacovigilance is still "virgin territory" for Mexico, according to Garcia Villa. Significance: After years of crackdowns, legal reforms and forced inspections (see Mexico: 10 June 2005: ), efforts to halt the trade in these products continue to be ineffectual.
We consider the effects of three different forms of government intervention: taxes or bans on advertising, counter-advertising and taxes on profits or goods. If advertising is just misinformation, then taxes or bans on advertising yield second best options that weakly dominate all other government interventions. Counter-advertising where the government tries to refute private firms is sub-optimal because it creates a costly advertising response by the private firms. Price caps and taxes on consumption can be welfare enhancing, but they yield less social surplus than directly taxing or limiting advertising. A change in the tax code that stops firms from deducting advertising expenses is equivalent to a tax on advertising and yields similar results.
Both COFEPRIS and PROFECO are members of the Mexico-U.S.-Canada Health Fraud Group (MUCH), a trilateral body that joins competition authorities and healthcare regulators in the three countries in an effort to stamp out bogus medicines. However, despite a constant stream of enforcement actions on both sides of the border, little can be done to stamp out illegal television advertisements for these products in Mexico, with many ads broadcast from U.S. soil. Within Mexico, a more vigorous attitude from PROFECO would be welcome, as the chronically under-resourced COFEPRIS is unlikely to overcome this threat to public health by itself.
(The "dose of sex," by the way, has to do with the skimpily-dressed models that help sell Mr. Gonzalez’s services and products.)Victor Gonzalez has come up with a novel prescription for business success here: cheap drugs, cheap doctors -- and a dose of sex.Mr. Gonzalez, 57, is shaking up Mexico's health-care system and changing the way drugs are sold here. By spotting gaps in the country's drug market and regulations, he is able to offer low-cost medicines and inexpensive care to millions who lacked both. By raising awareness of generics as an alternative to pricey brand-name drugs, he has revived the fortunes of domestic makers and posed a threat to the U.S. and European pharmaceutical companies that dominate Latin America.
According to [Prof Greg Mankiw], "economists ... have found that a 10% increase in the price [of cigarettes] causes a 4% reduction in the quantity demanded. Teenagers are found to be especially sensitive to the price of cigarettes: a 10% increase in the price causes a 12% drop in teenage smoking."
In practice, however, the link between price and smoking seems a little less direct and a lot more uncertain. Real cigarette prices in Canada (using Ontario as a measure) have rolled up and down by as much as 80% over the last 20 years, with impacts on smoking prevalence that are far from clear. The link between price and
smoking is certainly far from the mechanical one implied by Prof. Mankiw...We appear to be witnessing a decline in smoking, including among teenagers, but the movement in smoking rates seems strangely disconnected from price. Teen smoking declined between 1993 and 2001, for example, at a time when prices first fell and then remained flat. We also know that smoking is now subject to the greatest onslaught of regulation short of an outright ban. What role has price really played?
Could it be, in the case of gasoline taxes, that people have a much better idea of the economics of prices and demand than economists? Using price to change behaviour and shift demand forces all individuals to make major compromising decisions. Large numbers would have to continue to consume gasoline at high prices, forcing them to curb their consumption of something else. That's the result planners want, but it is not obvious to consumers that it will work or that it is fair. Look what happened to tobacco.
Mark Thoma at Economist’s View has a cool new idea. He writes:
I am going to try something. It is based upon The Economist's decision to publish all of their letters to the editor in a blog. I have created a blog called "Your Views." Anyone can post there.
The quality of Canada’s new and existing jobs is slipping, concludes CIBC economist Benjamin Tal after calculating the latest Job Quality Index (JQI), which is based on compensation (70% of the index) and job stability. Tal suggests that the JQI is slipping because self-employment is rising (not necessarily a bad thing if it’s encouraging workers into the labour force who had previously outsiders) and/or unskilled workers are being used as substitutes for skilled workers because Canadians lack the right skills. For the purposes of this report, "chronic" low income was defined as being in low income at least four of the first five years in Canada. The report found that nearly one in five (18.5%) of recent immigrants who arrived between 1992 and 2000 were in low income at least four years during their first five years in Canada. This was more than twice the corresponding rate of around 8% among Canadian-born people.
For the group that arrived in 1993, the five-year chronic low-income rate was 20.5%. For those who arrived in 2000, it had declined to 16.2% as the economy improved.
There were two possible reasons for the decline: the more favorable labour market-related characteristics of immigrants entering in the late 1990s, and improving economic conditions (business cycle). The report found immigrant characteristics accounted for virtually none of the improvement; improving economic conditions accounted for the majority.
Overall, the large rise in educational attainment of entering immigrants and the shift to the skilled class immigrant had only a very small effect on poverty outcomes as measured by the probability of entry, exit and chronic rates.
This is because by the early 2000s, skilled class entering immigrants were actually more likely to enter low income and be in chronic low income than their family class counterparts.
In addition, the small advantage that the university educated entering immigrants had over, say, the high school educated in the early 1990s had largely disappeared by 2000, as the number of highly educated immigrants rose.
Changes in entering immigrant characteristics did alter the composition of the immigrants in chronic low income.
Among those who arrived in 2000, 52% of those in chronic low income were skilled economic immigrants. About 41% had university degrees, up from 13% in the 1993 cohort.
… With respect to immigrant class, immigrants in the skilled economic class were more likely to enter low income than their family class counterparts, possibly because the family class immigrants often entered an already economically established family. This relative disadvantage observed for the skilled class increased significantly over the 1992 to 2004 period, when the number of skilled class immigrants rose. However, this should not necessarily be interpreted as meaning that individuals in the economic class do worse in the labour market (i.e., in term of individual earnings) than their family class counterparts. The opposite has historically been the case.
Here’s a fun map from Carl Størmer that compares the GDP of U.S. states to other nations.
What are the chances that Canada will export water to the U.S. in the foreseeable future? Slim, says the Canadian government. But maybe there's a better alternative to the US's water woes: the exportation of water-intensive commodities.
Although bulk water itself is not a tradable commodity, agricultural commodities – that generally consume a lot of water during production – are increasingly being traded. As a result, water use within a nation is no longer an appropriate indicator of national water demand, at least not if one takes the consumer’s perspective. ...The water footprint of a country is defined as the volume of water needed for the production of the goods and services consumed by the inhabitants of the country. The internal water footprint is the volume of water used from domestic water resources; the external water footprint is the volume of water used in other countries to produce goods and services imported and consumed by the inhabitants of the country.
Canada's dependence on U.S. produce, and the water it contains, raises ethical as well as economic considerations. As the Council of Canadians often asserts, the United States is beginning to run out of water. ("We live next to a superpower," says Maude Barlow, who is the council. "And the superpower is getting mighty thirsty.") But the United States uses the bulk of its fresh water in the production of food — more than 80 per cent of water it consumes. And Canadians are principal beneficiaries. We get 60 per cent of the fruits and vegetables that we eat from the United States. Canadians, so to speak, are drinking the United States dry. Is it not in our national interest to replace this precious water — if only to keep the food coming?…In one academic study published last year by UNESCO, two economists (A.Y. Hoekstra and A.K. Chapagain) looked at this issue from the perspective of the Netherlands… The academic conclusion: "International trade can result in water savings provided water-intensive commodities are traded from countries with high water productivity to countries with lower productivity."
All factors considered, Canada helps save the world's water supply by buying California lettuce and Florida oranges.
Unlike other big WTO members such as the European Union and Japan, the US cannot sign a Doha deal where it loses benefits for farmers but gains export markets for its manufacturers and service companies. The power of the farm lobby means the US needs new export markets for agriculture to make up for any cuts in subsidies. This puts it on collision course with the "Group of 33" developing countries that want to protect their small-scale farmers.
Don Boudreaux over at Café Hayek pointed to an article by Gary Becker and Richard Posner ($) published in yesterday’s Wall Street Journal. Here’s an excerpt:
An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers' output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.Surely, just like the minimum wage, other regulations on labour also have a greater impact on certain industries relative to others. I started thinking about this when another commentator asked why the U.S. doesn’t adopt a 35-hour work week. Here’s most of what I posted in response on Café Hayek:
….regulations on hours worked can be just as painful to certain sectors as minimum wage requirements. First, it does seem odd that 40 hours is considered to be a "natural" and permanent level (although, I think the French have already proven what a failure the 35-hour week can be). Second, I can’t understand how an obligatory set of hours can be optimal for ALL industry sectors. Perhaps regulations on hours of work distorts the ability of each sector to find its own "natural" level through heuristic means, or whatever, thus hampering productivity and efficiency in certain sectors. I’ll explain.
Any strict regulation on hours worked, be it 40 hours or whatever, may not work for all sectors for at least two reasons: i) some sectors are productive in spurts (I’m reminded of a post on freexchange where a reader notes that "anyone building a house or undertaking a project that requires a number of diversified tasks comes up against the brick wall of inefficiency" when faced with regulations on hours worked); and ii) not all sectors have the same firm-size make-up. An IMF report shows that moving from a 40-hour to a 35-hour work week encouraged French workers in "large firms to take second jobs or to move to small firms where the 35-hour work week is not obligatory." In other words, while a 35-hour work week might be optimal for sectors comprised of small firms, it is likely not optimal for larger corporations, the backbone of our economy.
I just wanted to take note of the subject of work hour regulations here because I thought it might be interesting to sometime explore its impact on various industry sectors. Perhaps some industries have more to gain from a barrier-free labour market than others. Further, perhaps the existence of certain regulations on labour distorts the "natural" sectoral make-up of a nation's economy.I agree that it should be up to the company how many hours one should work - up to some maximum allowed under law under at-will labor. I mean, as long as you know the terms before you agree to the work, companies should have a lot of flexibility.
The Provincial Investment Climate Index objectively evaluates the public policies that create and sustain a positive investment climate. It ranks each province on a scale of one to 10.
Alberta earned the highest score, 8.9 out of 10, and was clearly Canada's top province for policies that encourage and sustain a positive investment climate. BC followed in second position but some distance behind with a score of 6.0 out of 10. Saskatchewan is third with a score of 5.3 out of 10. The three western provinces were the only ones with an overall score above 5.0.
Ontario was fourth overall with a score of 5.0 while Quebec, with a score of 3.0, was ninth.
The low scores for Quebec and Ontario are among the most worrying aspects of this year's report. These two provinces are extremely important to the Canadian economy, yet they have chosen to implement policies that are not conducive to attracting investment.
I must be in a strange mood, because I nearly busted a rib laughing at this Onion piece. And yet,... should I have?
h/t The Healthcare Economist
From "Migrant Power," The Economist, Jan. 16
As migration changes, shorter-term movements will bring migrants home with wealth accumulated abroad and human capital in the form of knowledge and new institutional norms that can improve domestic life. The American experience suggests that, for all the fears that Mexican culture is overwhelming the domestic variety, the influence is more likely to go the other way. Tyler Cowen, an economist who does field work in Mexico, points out that American influences—whether consumer tastes, a greater inclination to give to charity or more enthusiasm for democracy—are stronger there than anywhere else in Latin America. The spread of values, in other words, may be just as influential as the remittance of cash.
What if you could auction off a logo at Christie's or Sotheby's (nyse: BID - news - people ) to determine the notoriously tough-to-measure market value of a brand?One prism through which to measure the perceived value of global brands is the contemporary art world, and in particular the sale prices of the works of Wang Guangyi, one of the leading lights of the post-1989 Political Pop Art movement in China ... Wang is the Andy Warhol of the Chinese art scene--at once criticizing commercialism and profiting by including famous brand names in his works.
M&M's ("The Great Criticism" series: M&M'S)
Oil on canvas, 1993, Sale price: $180,000 Estimate: $150,000-$180,000, Sotheby's New YorkSale: Contemporary Asian Art, Sept. 20, 2006
This report focuses on retail food market dynamics and how they affect food price variation across store formats. The differences in prices across store formats are especially noteworthy when compared with standard measures of food price inflation over time. Over the past 20 years, annual food price changes, as measured by the CPI, have averaged just 3 percent per year, while food prices for similar products can vary by more than 10 percent across store formats at any one point in time. Since the current CPI for food does not fully take into account the lower price option of nontraditional retailers, a gap exists between price changes as measured using scanner data versus the CPI estimate, even for the relatively low food inflation period of 1998-2003. This study estimates that the CPI for dairy products overstates food price change by 0.5 to 2.5 percentage points per year for dairy, eggs, and butter/margarine.
Stock markets are shrinking as mergers and acquisitions take shares out of public hands faster than companies add them through equity sales. The value of U.S. shares dropped last year by the most since 1984 and the European market narrowed for the first time, according to Citigroup Inc. Last year's $3.68 trillion in takeovers, led by AT&T Inc.'s $86 billion purchase of BellSouth Corp., outweighed the biggest year for initial public offerings since at least 1999.
The contraction may continue in 2007 as dealmaking accelerates. M&A will rise by at least 10 percent this year, analysts at Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. forecast. Private-equity investors alone have $1.6 trillion to spend, Morgan Stanley estimates.
"Corporations and the private-equity crowd both appear to still be on a buying spree," said Eric Bjorgen at Leuthold Weeden Capital Management in Minneapolis, which oversees $2.8 billion. "Less supply implies higher prices. That's bullish."
The reductions helped lift the Standard and Poor's 500 Index and the Dow Jones Stoxx 600 Index in Europe to the highest in six years. Stock buybacks also climbed to an all-time high. Last week, the S&P 500 fell 0.6 percent to 1409.71 and the Stoxx 600 gained 0.1 percent to 365.69.Buyout funds and companies may wind up paying too much as they vie over acquisitions. It may "end badly" for stock investors later this year, said Jason Trennert, chief investment strategist at Strategas Research Partners LLC in New York.
Top Priority
"Given the sheer amount of money that's been raised, it seems to me that there's a chance that this could be taken to an extreme," he said. "Fads tend to take on a life of their own."
How do poor families spend so much more money than they earn? By one measure — the National Council of Welfare — the average poor Canadian family spends $4,855 a year more than the $14,366 it receives as income, a difference of 33 per cent. By another measure — the Fraser Institute — the average poor Canadian family spends $9,370 more than the $9,114 it receives as income, a difference of more than 100 per cent.
* * * * * *
How does Statscan determine the income of the poor? It asks them. How does it determine the spending of the poor? It asks them. What's the source of the "bonus bucks" that the poor spend? Perhaps, in one of its surveys, Statscan should ask them. We can, meantime, only speculate.
Off-the-table earnings. Wanton use of credit cards. Gifts from more affluent family members. Academic scholarships. (Many postgraduate students are, by LICO logic, poverty-stricken.) But Canada's basic information on poverty remains dubious.
No one knows whether the poor, in their reports, minimize the money they either earn or otherwise get. It shouldn't be surprising if they do. Everyone else does it all the time.
Statistics Canada’s main surveys of consumption patterns are not very reliable, particularly when it comes to measuring the consumption of the very poor. Household surveys (formerly the SCF and the SLID) have been shown by Statistics Canada to produce significantly lower estimates of the incidence of low income than Census and tax data, likely because of under-sampling at the low end of the income distribution. (See Marc Frenette, David Green and Garnett Picot "Rising Income Inequality in the 1990s" in David Green and Jon Kesselman (Eds) Dimensions of Inequality in Canada, UBC Press, 2006.)
December saw 62,000 new jobs, taking the jobless rate to a 30-year low.
a) self employment is a stepping stone to other workb) self employment is a stepping stone to retirementc) self employment persists in periods of poor job growth
Why would Canada's construction sector be more productive than the U.S. sector despite having smaller establishment sizes (ie. fewer employees in each establishment)?
Source of graphs: Don Drummond, TD economist (2005).
The theory of financial options provides guidance with respect to setting the level of the passport fee. The value to the holders of the passport package over any period equals the sum of the values of each option in the package. In turn, each option has a value equal to the probability it will be exercised in the period, times the value the holder gains from its exercise. Different holders of the passport package would attach different values to each element. A law abiding citizen who values avoiding a year in a foreign jail at $60,000 would be willing to pay $6 a year for the privilege of repatriation if they have a 1/100 percent chance of spending a year in a foreign jail. Someone more criminally inclined may be willing to pay much more.
Like financial options, the options in the passport package are exercised when they are "in the money"; that is, when the value of the object optioned exceeds the strike price at which the option can be exercised. In the same way, passport options are exercised only when their holders perceive that the benefits from exercising exceed the costs.
Often this will be dictated by events. The benefits from higher education become attractive when a student wants to come to Canada to study; the prisoner exchange becomes valuable to someone facing jail in a foreign land; and the option of evacuation and assured entry to Canada will be exercised in times of war and domestic upheaval. The parallel with financial options goes further: if people fail to renew their passport, the option expires out of the money. To make the package self-supporting, the fees would have to cover the cost of underwriting the exercise of the options. The revenues of the package would depend on the reaction of non-resident citizens. Some would judge that the value of the package exceeds the fee and opt to pay, while others would let their passports lapse and lose the benefits. If 20 percent of current non-resident citizens opted not to pay the fee, a $500 fee for five-year renewals would raise roughly $200 million per year.
John F. Kennedy’s appeal, "ask not what your country can do for you — ask what you can do for your country" was a high mark for the rhetoric inspired by citizenship. Its message, however, is at odds with reality. People do weigh the benefits and costs of citizenship in deciding which and how many passports they carry. Some become and remain citizens of countries where they never intend to live.
Tim Haab points to an interesting article:
Researchers at the University of Washington say all that holiday baking and eating has an environmental impact — Puget Sound is being flavored by cinnamon and vanilla.
[...]
So far, the research has turned up no evidence that snickerdoodles are harming sea creatures, but their research does lead to some serious environmental questions. Fish rely heavily on their sense of smell to locate food, for example, and, in the case of salmon, to find their way back to their home stream to spawn.
Tim’s environmental solution:
I propose a Christmas cookie cap and trade system. You are each hereby allocated one dozen cookie permits per month. These permits are fully bankable and tradeable and can be saved for the Christmas cookie season. I will monitor your consumption and be mandated to take any unpermitted cookies off your hands. I will dispose of them as I see fit.
I question Tim’s motives. Why stop at cookies? A true environmental martyr would be happy to monitor the giving of unwanted Christmas sweaters (see below) that are produced (and disposed of) every year.
Given that the textile industry uses toxic chemicals to bleach and dye yarn, perhaps the production of Christmas sweaters is worse for the environment than the vanilla and cinnamon inputs used in household kitchens. The tighter the cap on Christmas sweaters, the better, in my mind.
This paper analyses the aggregate relationships between traffic accidents and real economic activity in Spain during the last 30 years. Our general approach is based on two basic assumptions: (1) the number of accidents depends on the use of cars and other exogenous variables, and (2) the level of economic activity affects variation in the stock of cars, as well as degree of utilization. We propose a novel turning point characterization for monthly seasonal data that allows to check whether economic and road accident cycles coincide and, to date the beginning and end of their respective cycles. Empirical results from this section are important in establishing posterior causal models and whether or not economic activity and road accidents have a common component in the long run and a varying lead-lag relationship, depending on the cycles. These models will be the basis to check when Spain will achieve the European Union figures in terms of the fatalities/accidents ratio under different scenarios. Empirical results as well as historical experiences from other European countries proved that reducing fatalities is not only a question of diminishing accidents rates.
