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Intergenerational mobility over time and space

This is Lecture 7 of the course ECON 85600, “Inequality, Economic Opportunity, and Public Policy,” that my class and I are now conducting online. You are welcome to participate, and can review all the course materials at https://milescorak.com/equality-of-opportunity/teaching/ .

Warning: this is likely to interest social scientists in sociology, economics, or other fields, interested in developing a specialized knowledge of the subject!

Read more…

Public policy in competitive markets, for the bad and for the good

In this seventh lecture of Economics for Everyone, we address the nature of government intervention in perfectly competitive markets.

Perfectly competitive markets lead to efficient outcomes, in the sense that no one can be made better off without making someone worse off. But that doesn’t mean we like the outcomes, that they are fair or justice, and as a result governments are often pressured, or even captured, to intervene, sometimes not for the broader social good, but for the benefit of a few to the cost of many.

At the same time competitive markets don’t always lead to efficient outcomes because prices don’t may not reflect all social costs and benefits. So we may have too much, or too little ,of some goods if we let the market work. Governments are often pressure to intervene for the benefit of many, but also at the costs  of some.

In this lecture, we work through a number of practical examples to illustrate rent-seeking behaviour in which a group can capture government policy to their benefit, and we also discuss market failures, and the consensus view of economists that these should be corrected with appropriate taxation. Agricultural support programs are one example, and putting a price on carbon is another.

Download the presentation for Lecture 7, “Understanding public policy in competitive markets” as a pdf, and if you like listen to narrated version.

Big government, just in time

Big government road into town just in time, but alas when he jumped off his bronco and reached for his six-gun it became clear he wasn’t just-in-time government.

What is clear from the COVID-19 crisis is that we should always choose our leaders with one thing in mind: character.

Character determines how they will stand up to the unexpected. That’s what matters, and whether it is Legault or Ford, Kenney or Horgan, whether Nenshi or Tory, and yes of course whether it is Trudeau, Canadians feel they are all passing the test.

Opinion polling shows that strong majorities see their leaders as doing a good job responding to COVID-19. And it’s impressive, their sensibility to consult, their conviction to act. Now, when we need them, they’ve all shown up, just in time.

Source: Angus Reid, March 26, 2020, http://angusreid.org/covid-19-healthcare-confidence/

“Think Big” has become the guidepost for these abnormal times, but we can’t be governed by character alone. Good governance needs an infrastructure that can deliver, and thank goodness Canadians can also count on a professional public service. But at the same time we fear its muscles can’t flex in real time.

The biggest stumble of the past week was the Trudeau/Morneau over-reach in the first draft of Bill C-13, an attempt to skirt parliamentary oversight and seize control over taxing and spending for two years. Not immediately tasteful, not in character, and certainly not contributing to the we-are-in-it-together spirit that is crucial for good governance and success.

This over-reach was probably driven more by insecurity than by partisanship, springing from having to look through the veil of uncertainty that has fallen over Ottawa. Staring into the mirror and seeing no reassuring reflection, the Minister of Finance wished for a pot of gold, just in case, you never know, down the road, we may need it.

Insecurity about a fluid situation, and insecurity about how quickly programs can be delivered, flows out of clogged government plumbing, a hard constraint on Big Think: for years we’ve neglected, cut, denigrated, and now the public service has a tough time doing just-in-time.

Employment Insurance, that grand social insurance scheme born from the disaster of the Great Depression, intended to offer income support to all in need, to insure against the great social risks we collectively face, risks that would bankrupt private insurers in no time, how is it performing during a collective crisis of the very kind it was intended to address?

It is straining, with computer code written in the 1980s running its servers, processing power and devoted personnel stretched to the limit, overcrowded service centers that are now shut down. The public service is doing the best it can with old plumbing.

Ottawa mandarins often muse about an “all of government approach,” a busting across the silos of different ministries to address all aspects of a policy challenge. But the biggest silos of all have never been breached, those between policy development and service delivery. And now the delivery plumbing is conditioning the choices that Big Thinkers can make.

What is also clear from the COVID-19 crisis is that we should always be investing and innovating in public service delivery, something easy to ignore in normal times.

There is no doubt that the income support programs the federal government moved quickly out of the drawing room and into legislation last week were designed with an eye, not simply to whether they were big enough, but how they would be delivered. The cheques won’t be in the mail for weeks. In times of Corona, that’s a lifetime.

Our governments have to think big, but they can only implement incrementally, a couple of quick steps forward, another back. Events are moving too fast, capacity is too limited, for Canadians to expect otherwise, even if what they really need is both big and just-in-time government.

When Trudeau’s team first came to power they were enamoured with the idea of governing with data. Measure outcomes, set targets, recalibrate in the face of results, and move forward with a “there’s more to do” attitude. But lags in information and delivery make all that fall short.

There is always a big gap between intention and result, never mind in times of crisis, and that gap has to be filled with the trust that character instils in partners and citizens.

Trust gives us the assurance that the cheque is indeed in the mail, and character, now more than ever, needs to deliver. It can’t stumble too many times, before trust rides away.

The geography of intergenerational mobility in Canada and the United States

This is Lecture 8 of the course ECON 85600, “Inequality, Economic Opportunity, and Public Policy,” that my class and I are now conducting online. You are welcome to participate, and can review all the course materials at https://milescorak.com/equality-of-opportunity/teaching/ .

Warning: this is likely to interest social scientists in sociology, economics, or other fields, interested in developing a specialized knowledge of the subject!

Read more…

“When we talk about economics, there’s something known as a demand curve with elasticity”

“We might as reasonably dispute,” Alfred Marshall wrote in his famous economics textbook first published in 1890, “whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production.”

Prices are determined in the marketplace, through the communication between buyers and sellers, jointly through a negotiation reflecting their willingness to pay, and their costs of offering. Marshall offered us these tools, the demand curve and the supply curve, to understand price determination in perfectly competitive markets. And he also characterized them, and used them to illustrate price determination in a wide variety of examples.

As a part of this he introduced the notion of “elasticity,” a concept that Congresswoman Alexandria Ocasio-Cortez learned well in her economics courses, and used to drive home what she felt were some important lessons in understanding health care. Listen to her.

And so this week’s class in our course, Economics for Everyone, is about elasticity. If she can understand it, so can you. If she can use it, so can you. And that is what we do in the lecture: define the concept, and show how it is used to understand market outcomes for some policy relevant examples.

Download the presentation for Lecture 6, “Understanding and Using Demand and Supply Curves” as a pdf, and if you like listen to narrated version.

A letter to the Canadian Prime Minister, with two suggestions for next steps in dealing with #COVID19

Prime Minister,

I certainly hope you and yours are well.

I was in New York City up until last weekend. Earlier in the previous week the university where I work announced that it was moving all courses online, and closing the campus. There was really no further need for me to stay in the City, but my initial thought was to wait it out, and decide later on when to return to Canada.

I started to have second thoughts when a student emailed me for advice just after President Trump announced that travel from Europe to the United States would be banned. He’s from Mexico, and said that he trusted the Mexican health care system more than the American, and wanted my advice on whether he should return home.

If that wasn’t enough to give me pause, when I saw the twitter feed of the Minister of Foreign Affairs  on Saturday evening recommending “that Canadian travellers return to Canada via commercial means while they remain availableI immediately bought myself a ticket for a next day flight to Canada. I arrived last Sunday evening, and have been in self-isolation since. I’m glad to be home given the events of the last week.

It is certainly time for government to step up, and history will judge the fall out of this pandemic in terms of how well societies govern themselves: professionally and efficiently, scientifically and socially, and with a sense of reciprocity and trust that strengthens community. I hope you and your cabinet take to heart a message that one of my colleagues has written in an article called “The Real Pandemic Danger Is Social Collapse.”

… the main (perhaps even the sole) objective of economic policy today should be to prevent social breakdown. Advanced societies must not allow economics, particularly the fortunes of financial markets, to blind them to the fact that the most important role economic policy can play now is to keep social bonds strong under this extraordinary pressure.

Good governance, not just a good health care system, is one of the reasons I’m glad to be home. I have been watching your daily press briefings with a good deal of admiration. And I am also impressed with both the design and speed with which the government has been able to roll out the package of reforms earlier this week, an effort that has no doubt been supported by legions of professional public servants working around the clock.

You promised that these reforms are just the first step in a fast moving and dynamic situation. I can’t pretend to understand the complete situation, hardly have full information, and can’t offer wide-ranging suggestions on what the next steps might be. But here are two suggestions that come from my limited areas of expertise. Read more…

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