A response to “The Decline of Canadian Economics,” by Herb Emery, Wayne Simpson and Stephen Tapp, which appeared in our September-October 2013 issue.
In order to maintain the close-to-world-class status of our premier economics departments we have resorted to hiring the best available professors. This is key to ensuring that our students have access to the latest developments in the key elements in the economists’ tool set — micro, macro and math/econometrics. Where work on Canadian policy issues is consistent with this training requisite, we do well on the policy front. This is true not only for monetary and fiscal policy but as well for those areas that lend themselves to the application of econometric analyses, such as large longitudinal and cross-section data bases relating to immigration/migration, labour markets and income distribution.
The challenge arises when it relates to policy areas where institutions matter, since the neoclassical model is not only institution-free but also embraces the legal/ideological principles embedded in the English common law individualist-capitalist model (e.g., “life, liberty and the pursuit of happiness” in the US constitutional rhetoric) and not, for example, the continental European civil law communitarian-capitalist model (e.g., the “equality of living conditions” embodied in the German Constitution, or France’s “liberté, égalité, fraternité”). It is easy to level an individualist-capitalism critique of civil-law Quebec’s high taxes and spending, its enhanced role of the state in the economic sphere (“Quebec Inc.”) and more recently its move toward secularism. But this is not far off the policies of the civil-law continental Europeans. These and other institutional features such as the division of powers, federalism and the complexities of the social policy envelope among many others are not all that well understood by Canadian-born economists, let alone the foreign-born (or -trained).
However, we have adjusted extremely well to this challenge. The Canadian government offers a special recruitment and training program to attract highly qualified young economists. Through four six-month rotations, the program gives candidates experience in various departments, exposing them to a whole range of policy issues. More generally, it is much easier for governments to provide the needed institutional knowledge than to upgrade a candidate’s skill sets.
The academy has also adjusted to this with a proliferation of public policy schools that combine institutional knowledge with academic skills, where the graduates end up in government, business and voluntary sector positions. But the most important adjustment has been the rise of public policy institutes, on the one hand, and the increasing competence of newspaper columnists, who have a much broader reach than the academic channels and often draw on the research of professors, on the other.
My conclusion is twofold: 1) that Canadian economics is in good shape with respect to both theory and policy, and 2) that reacting to a partial equilibrium analysis (i.e., like the Simpson and Emery study) before taking account of the more general picture outlined above may do more harm than good.