Category: Uncategorized

Here is one MR reader request, from RW Rogers:

Is it true that Canadian financial institutions have been relatively unscathed by the recent worldwide economic turmoil and that they were relatively unscathed during the Great Depression? If yes, why?

The Great Depression is a straightforward story, here is an excerpt from Paul Kedrosky:

Despite being adjacent geographically and tightly connected economically, banks failed in Canada and the U.S. at very different rates. Specifically, no Canadian banks failed in the period, while more than 8,000 U.S. banks failed.

Why? Among other reasons is the different structure of the systems, with Canadian banks having a branch banking structuring, making them less tied to any specific region or customer. For their part U.S. banks in the period were larger in number but smaller in assets, with far more single-branch banks in the U.S. than in Canada (where there were virtually none). The larger branch network created resilience, not just in terms of assets but in terms of markets.

What about the noughties?  Nick Rowe makes some relevant points: Canada has fewer major banks and they are more tightly regulated, hold more capital, and housing is not encouraged so much by law.  It is harder to walk away from an underwater mortgage.  Here is Megan McArdle on Canada.  Simon Johnson explains why the Canadian model cannot work for the US.  Most significantly, the U.S. banking system is in part the Canadian banking system, not so much for deposits but for high-risk activities.  That makes Canadian banking look safer, but of course Canada as a country bears a lot of risk from when the U.S. banking system goes bad.

That is a request from Hoover.  Catherine Rampell writes:

In February, for example, just 64.2 percent of adults were either in a job or actively looking for one, representing the lowest participation rate in 25 years.

At the same link you will see evidence that the number is likely to decline.  Some women are less eager to work, some men are quitting the search for work, and there is a general aging of the population.  Fewer students work while they are in school.  Here are further links to future projections.

That’s hardly the end of work but one thing dramatic recessions can do is to reveal new pieces of information.  By overturning the table, we (sometimes) see which pieces of the puzzle did not fit in the first place.  One result of this recession is that we will revise downwards our estimate of the labor force participation rate, both current and future.

A few questions are:

1. What is the political economy of a world where so few people work?

2. What kind of low-rent areas will evolve to accommodate some of these people?

3. Will we in fact move to some form of a guaranteed annual income?

Note that the answer to #2 will affect the feasibility of #3.  And our current notion of “protecting all the old people” against major health care catastrophes may someday be seen as an anachronism.  The more progress medicine makes, the harder this will be to achieve and afford.  Feasible future equilibria all seem to involve death panels, which actually may make #3 seem more attractive, relatively speaking, than spending so much money on Medicare.  Rationally or not, once the moral principle is admitted of not giving everyone absolute protection against every extreme health care event, this may encourage a shift toward cash transfers.