Monthly Archives: October 2014
Making two macroeconomic fallacies true
This will be a confusing post, because I'm writing it to try to get my head clear on something. And it's still not clear. There are no answers here: only questions, and strange thoughts. 1. Lots of people believe the Inflation Fallacy: "Inflation makes us worse off because a 1% rise in prices means we […]
New CIHI Health Numbers: Health Care Cost Curve Still Bending
The Canadian Institute for Health Information has released its 2014 edition of health spending data – National Health Expenditure Trends, 1975 to 2014 – and the numbers seem to show a continuing trend towards slower growth of health expenditures in Canada.
Will somebody please think of the Data Generating Process!
Or: "Should Finance People be allowed out unaccompanied by a macroeconomist?". If the central bank is doing its job right, monetary policy ought to appear to be irrelevant. The Economist says (HT Mark Thoma) "Interest rates do not seem to affect investment as economists assume", and this means that monetary policy is irrelevant. (Let's just […]
The New Mercantilists
In its search for new revenues, Ontario commissioned a government panel to examine how to wring more money out of government assets. In recent days, the panel led by TD Bank CEO Ed Clark has revealed several ideas including selling off Hydro One’s distribution business, restructuring Ontario Power Generation so it provides more revenues and […]
Old-fashioned stability, and robustness
There are two different monetary policies. The green monetary policy gives you the green AD curve, and the red monetary policy gives you the red AD curve. Both monetary policies give you exactly the same equilibrium P* and Y*. (You can interpret P* as the price level, or as the inflation rate, as you wish.) […]
How to deliver tax relief for Canadian families
In the 1960s, my mother's monthly family allowance cheque paid for a week's groceries. In 2011, the median Canadian two-parent family had an income of just over $90,000. At that level of net income, a family with two children receives Canada Child Tax Benefit worth $87 per month. That doesn't come close to paying for […]
Tax cuts should deliver equity, or efficiency, or both. Income splitting does neither.
The ideal tax system reflects a compromise between two conflicting goals: equity and efficiency. Equity requires that those who are able to pay more taxes do so. It means taxing the rich and giving to the poor, in thereby reducing inequality and ameliorating poverty. Hence equity demands relatively high marginal tax rates. Efficiency, on the […]
John Cochrane’s “Monetary Policy with Interest on Reserves”
I am going to give what I think is the intuition behind John Cochrane's paper (pdf), that is the subject of his recent post. (Or maybe what I'm doing is reverse-engineering his model's results.) The key result of his paper is the "Neo-Fisherian" finding that an increase in the rate of interest set by the […]
The federal government should not cut taxes
The federal government has announced that, once the budget is in balance, its first priority will be "to provide tax relief to hard-working Canadian families." In 2013, the federal deficit had shrunk to $13 billion. This year it may disappear entirely. But it does not follow that the federal government should cut taxes. The deficit […]
Government Dependency – Recent CMA Building Permit Composition in Canada
Ultimately all economics is local. Ontario municipalities are in the final throes of a municipal election race and in my own community the question of municipal economic development via public sector construction spending has come up. The concern is that much of the economic activity in my community over the last four years has been […]
Worthwhile Canadian Initiative 
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