Believe those who are seeking the truth. Doubt those who find it. Andre Gide


Monday, September 24, 2012

How Canada Saved Its Bacon

Interesting to see that Canada's former finance minister (and prime minister) Paul Martin issuing a "stern warning" to U.S. policymakers; see here.

The similarity between the current U.S. slump and what happened to Canada in the 1990s is quite interesting, and I've written about it here: The Great Canadian Slump: Can it Happen in the U.S.?
 
I know that economists like Tiff Macklem and Pierre Fortin debated the issue some time in the mid 1990s, but I haven't really seen any work on the subject since then. If I recall correctly, I believe that Fortin was ascribing blame to the Bank of Canada, and possibly Paul Martin's "austerity" measures. Macklem (and coauthors) did not share the same view.

If you know of any more recent work that investigates the great Canadian slump, please pass it along.

5 comments:

  1. Brian Lee Crowley's book might be of interest (he is a "political" economist):

    http://www.macdonaldlaurier.ca/mli-library/books/northern-light-lessons-for-america-from-canadas-fiscal-fix/

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  2. Related - "Lessons for U.S. from Canada's "basket case" moment"

    http://www.reuters.com/article/2011/11/21/us-crisis-idUSTRE7AK0EP20111121

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    Replies
    1. Wow...that's very interesting. Thank you.

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  3. David, you wrote in 2010:

    The main point I want to convey here for Americans is that the prospect of a prolonged jobless recovery, with persistently high unemployment rates, is not outside the realm of possibility. Such an episode has occurred in the recent past and, moreover, it occurred in an economy that is more similar to the U.S. than perhaps any other (in particular, Canada is not Japan).

    FWIWorth, on June 22, 2007, when Bear Stearns pledged a collateralized loan of up to $3.2 billion to "bail out" one of its funds I concluded that everything wrong with our economy (recall Noah Smith's argument that is has been broken since the 1970s) had come home to roost and that it was over here. Frankly, the conclusion was an article of faith. I believed that Buffett and Munger understand CDOs, and especially synthetic CDOs, and that they were nuclear weapons that would destroy large parts of the American economy and hold us hostage for many many more years (for example, it is impossible to attack all the underwater home loans without setting off synthetic CDOs). (Further example, initial reports are that QE3 isn't working because banks will not make mortgage loans out of fear that Fannie and Freddie will put non-performing loans back to the banks).

    I read your blog because you seem to have some insight into all of this. As I say, in 2007 I concluded that it was over here and nothing has changed my mind about that. You post in 2010 and above confirm such.

    Now to the point and my frustration with you. You seem unwillingly to do two things. First, to honestly look forward and to say, from where we stand now, if we ever recover it will be X long, here are the human costs between now and X and this is what we should do about reducing those human costs. Second, between now and X, there is Y that we can do, nothing more, nothing less.

    IOW, you just seem to sit on a fence.

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  4. I believed that Buffett and Munger understand CDOs, and especially synthetic CDOs, and that they were nuclear weapons that would destroy large parts of the American economy and hold us hostage for many many more years (for example china manufacturing

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