The OEA Conference: Harmony and Discordance

The Ottawa Economics Association (OEA) held a conference today and yesterday evening. The usual suspects were in attendance saying the usual things:

• Mark Carney spoke about the need for China to understand the risks of the “paradox of thrift” (see my post from earlier today) that will be unleashed by fiscal consolidation.
• Don Drummond sang from the productivity choir book and noted that Canada has broadly the right macroeconomic picture, at least if we keep/get our fiscal house in order.
• Christopher Ragan warned us of the double threat of an aging population and fiscal armageddon (movie version out soon).
• Jack Mintz told us all to move along because there really isn’t a pension problem.
• And Brian Lee Crowley urged everyone to do their bit for the demographic iceberg by getting off their lazy butts and working til they drop because people who work past retirement tend to be healthier than those who don’t (tell that to the guy with black lung disease and don’t forget my mom who only volunteers — not in the labour force after all — 24-7 to make up for the services gaps caused by funding cutbacks).  Brian also reminded us that he has great faith in the market’s ability to bring about blessed equilibrium, whatever that looks like.

Pretty much your complete neoliberal agenda packed into a bit more than a dozen hours of things you’ve heard a million times before.

And then there was Armine.  A brave woman she is. Talked about strange foreign concepts like “inequality” and the growth of “part-time labour” and “casual labour” and “household debt” and low saving rates.  She cracked a joke about quality not quantity which elicited some snickers and a few nods of opprobium from the up-tight crowd.  And then the questions — from where I stood, they were the only critical questions in the whole conference.  Not surprising I suppose. Economists tend not to like lefty ideas but all the same.  A short recap and rebuttal.

Question 1

fuzzy bummed Dept of Finance official : “Why should we worry about the saving rate and rising debt loads when household assets in part or in whole offset these trends?”

Armine: Well, umm, because debt cannot be sustained forever.

Arun: HELLO fuzzy bummed Dept of Finance official — ever hear of something called the 2007-2008-2009 financial crisis?  Didn’t over-leveraged households with stupendous asset wealth, on paper anyway, have something to do with that?  And by the way, why are we so nonplussed by household debt but freaked out by government debt when the latter has (a) far less debt relative to income (GDP) than former; and (b) far more ability than the former to sustain its debt (even setting aside the modern monetary theory (MMT) perspective).

Question 2

Wrinkle bummed academic or bureaucrat (couldn’t tell which): Armine, your numbers on income distribution (by decile if memory serves) would, on the surface, seem to be cause for concern since everyone below the median seems stuck in a real income rut (while the upper deciles have seen income grow) but isn’t there a lot of mobility between deciles?

Armine:  Listen, we don’t have the money to do longitudinal studies so this is the best we can do and besides, the literature tells us that mobility has diminished over time and, worse yet, these trends hold despite vast increases in human capital (what we used to call “education” and “experience) and increasing labour force participation (more two-income households essentially).

Arun DuBois: HELLO wrinkle bummed person — INEQUALITY matters.  See work by Lars Osberg for whys and hows.

ADDENDA:

• At one point in her talk, Armine seemed to suggest that policymakers are encouraging people to save or at least trying to tell a story about the need to increase private saving (she can correct me if I’m wrong) but this is only partially true — the Bank of Canada has mused in that direction but the Department of Finance has gone in the other direction, suggesting — as per Mintz and the person who questioned Armine from Finance — that there really is no saving problem whatsoever because of rising asset prices.  This would appear to be part of a concerted messaging effort to deflect any and all calls for action on the pension file, especially any government solutions to the issue.

• Armine, at times, made comments that implicitly bought into the idea that there’s some sort of imminent need for fiscal consolidation.  I understand why it makes strategic sense to say that, especially in this kind of forum, but I think progressives tie their hands behind their back when they play into this discourse, especially to the extent they ignore some of the hugely important research findings from modern monetary theory.  I won’t get into it here but Bill Mitchell has some wonderful blog posts that do this argument considerably more justice.