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Is there a Canadian economics, or just economics done by Canadians?

June 3, 2016

This is the 50th anniversary of the Canadian Economics Association, and it is natural to wonder how Canadian economics has changed, even if there is such a distinct thing as “Canadian Economics.” The annual meetings kicked off with a session on “Fifty Years of Canadian Economics.”

The economics profession starts out with distinct national styles, whether in Sweden, Austria, or in Canada, and Robert Diamond from Brock University began the session by speaking on “Fifty Years of Canadian Economics”, a period that marks a  transition from “Canadian economics” to “economics in Canada.”

In 1966 the decision was made to split the Canadian Economics and Political Science Association, which had existed since 1935. Harry Johnson, a prominent trade theorist with a strong international reputation put forward a motion as president of CEPSA to split the association, and it was accepted. This reflected a general split in political economy departments in the major universities, including McGill, Saskatchewan and the University of Toronto. The CEPSA had a long heritage, dating back to an Ottawa meeting in September 1913, with origins in the discussions of eight Canadian economists when they were together at the American Economics Association meetings in Boston in 1912.

At first Canadian economics were few in number, and were speaking to themselves. It was only in the 1960s that the number of economists started to grow as a result of  increasing internationalization of the profession, and a strong involvement in public policy. Mabel Timlin was the first prominent women in Canadian economics, the author of an important book on Keynesian economics. But it was only in 1994 that the Association had its first female president, Alice Orcutt Nakamura.

Diamond concluded by lamenting the fact that the profession has become so fragmented. We have immediate access to research, but read in more narrow and narrow areas because—to echo Adam Smith—the division of labour has been driven by the extent of the market.

Evelyn Forget of the University of Manitoba spoke about the changing ways in which economists use data for policy. Lawerence Klein was the god father of the use of data by developing macro economic forecasting models, and his influence at the Wharton school extended to Canada. “Project Link” was a project to bring together models from a number of countries in a consistent way, and had a certain importance in this field. This is still an ongoing project, but there is much more focus now on data for micro-simulation, and also the direct use of administrative data.

Forget focused on the use of administrative data, and noted that Manitoba is at the forefront of developing a micro data depository, which is a population based data set tracking Manitobans through linkages of over 100 administrative data sets dating back to the early 1970s, and linked to data on social programs—education, child and family services, among others—as well as to longitudinal surveys from Statistics Canada. Effectively this data links two or three generations of people, essentially following a child from before birth, through all interactions with the health care system, child services, to adulthood and use of income assistance, social housing. The data includes school grades and the capacity to follow children as they move through the province.

Data has moved from macro with limited computing power, to an astounding amount of detail at the micro level, with intensive computing power. These very powerful administrative data remain underused, and are certainly subject to privacy and confidentiality concerns. “I’m ending with a challenge. I think this is the future,” a clear signal to younger researchers in the room.

Pierre Fortin spoke about a more specific topic, inflation control. “If you are a kid here, 45 years or younger, the only inflation you’ve experienced is 2% inflation. But inflation in Canada has been a rock’n roll experience.”

The Vietnam era saw a creeping up of inflation because of excessive government spending, that was validated by monetary policy.

Bob Mundell invented the workhorse model of open economy economics, that through Rudi Dornbusch became known internationally. Louis Rasminsky, the governor of the Bank of Canada, argued that the Phillips curve was vertical, a claim that preceded the standard publications on this issue by Americans. The Taylor Rule, the interest rate reaction function, was anticipated by John Helliwell in the 1960s.

Food and price shocks of the 1970s generated wage price spirals, supply shocks that were anticipated by Grant Reuber and John Helliwell. In addition, many others pointed out that structural policy changes influenced the drift of the Phillips Curve, meaning changes in unemployment insurance and minimum wages.

Clarence Barber and John McCallum and others argued for gradualism, but this was abandoned in the 1980s, controlling inflation through money aggregates was seen as impractical because of changes in financial markets. The result was two deep recessions, one in the early 1980s and another in the early 1990s, that kicked the breadth out of inflation.

In the late 1980s, expanded Central Bank independence was developed and followed the New Zealand example to adopt a zero inflation target of 2%. There is every indication that over these 25 years inflation expectations have been anchored in the Bank of Canada’s 1 to 3 % band. But it was later shown that this policy probably made sacrifice ratios worse, not better, because of how convex the long-run Phillips curve was. The Bank would be better to act pre-emptively.

Between 1992 and 1997 unemployment rates averaged 10%, but inflation did not fall because of downward nominal wage rigidity. The long run Canadian Phillips curve was convex in the low inflation range. “You might not agree with this, but you are wrong!”

The 2008/09 recession was systemic, not strategic as in the past. There is now a new kind of uncertainty. The near zero lower bound for the interest rates means the room for Canadian monetary policy to respond is much more limited, leaving the Bank of Canada with only option to try to influence the long end of interest rates, “or beg fiscal policy for help.” Fiscal policy, however, is less reliable because of politics. As a result output and employment are likely to be below potential. This is why the inflation target should be raised to 4%. Fortin laments that his best prediction is that this will not happen, and the Bank and the government will opt for the status quo.

He concluded by saying that his three macro-economic heroes are Bob Mundell, John Helliwell, and Chuck Friedman. These three economists made major contributions in the early part of this period. It is not a coincidence that there have not been major contributions since as most applied macro economic research is now focused on American issues and data, not on specific Canadian problems that have wider implications in other countries. Fortin said that he has no heroes in macro economics in the more recent era.

[ If you have a deeper interest, then download the prepared text of Professor Fortin’s comments, or download the full paper upon which they are based. ]

John Helliwell, who participated in the first meeting of the Canadian Economics Association, began by saying: “I’m going to take you back to the middle of 1967, it happened to be Canada’s 100th birthday but also almost exactly the time that modern computers were influencing the social sciences.”

The structure of social science was living involved a huge expansion in undergraduate studies, and the temptation was to motivate graduate studies by the need for teaching assistants and teaching staff. This, Tony Scott argued, was wrong. We should focus on graduate studies as producing world-class researchers without setting limits on who can come into the country, and by focusing on creating quality within that could stand the test everywhere.

At the 25th anniversary Helliwell said that he surveyed what had happened, and was pleased to find that Tony Scott’s dream had come true. By the 1980s over 60% of Canadian professors had a Canadian PhD, rising from 7%. This should be celebrated.

The journal and the association were a pair, they were central for having a profession, to cultivate and reward talent in a national association. Professor Helliwell has now reconsidered this in a way to better understand Scott’s original goals. The need to gather and talk, is not enough. There is a pressure to keep specializing, and less capacity to link with others. The national association is an important part of giving people the chance to get to know each other face-to-face.

He pointed out that as he spoke there were 25 parallel sessions going on with an attendance of maybe 5 or 6 being most common. There is therefore a need to think about the mechanisms for sharing and exchange. It is not necessary to address the paper, the most important thing is to meet the author.

The journal used to be used more proactively in making an association. Supplements were common to speak on issue of concern, like say the Carter Commission, and many other issues.

Those were admirable goals, achieved in the first 25 years, but we have not since given them the same attention in thinking about how we should organize and have some fun!

Mike Veall, the editor of Canadian Public Policy, began by saying that the size of the market and the computer have certainly changed the profession. Relatively soon after the formation of the Canadian Economics Association a new journal, now 42 years old, was started. Canadian Public Policy has changed significantly in its content. Tony Scott, John Vanderkamp, and others were instrumental in starting the journal, which in some sense was characterized by the significant policy and organizational developments in economics. Emery and Simpson (2012) document the reduction in Canadian policy content in Canadian universities.

Veall looked at the first five and the most recent five years of the journal in order to paint a picture of evolving content. Economics dominated and continues to dominate the pages of the journal with over 70% of the content, there being a small decline in the proportion of political science. There are now more women authors, from less than 5% to fully a third in more recent years. Topics have not changed that much, for example there is no trend in the interest in redistribution or transfer policy, a current hot issue. Same goes for the environment, about 3% of articles in each sub period.

There has been much more emphasis on the provincial governments, and less on the Federal government. In the late 1970s there were no articles dealing with gender issues, but now about 10% of articles address this issue.

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From → economics

One Comment
  1. mvalpy permalink

    Thanks, Miles. Useful and helpful.

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