recession

This CollegeHumor parody eTrade ad has been making the rounds. In light of the recent stock market “correction”, what is underscored is there is a two-tiered market, as Jon Stewart claimed when he had Jim Cramer on The Daily Show in 2009—one for the powers that be and one for the rest of us. Economic sociology blasts apart the naïve assumption that markets have “atomized” agents guided by rational choice. There are embedded social networks and institutional factors that create information asymmetries, with the deck stacked in favour of those “in the know”. The individual investor and those relying on the market through defined contribution plans, IRAs, etc. for their retirements might relate to this parody ad far too well. Oh, how we should long for the days of the defined benefit pension.

As an aside, as one who has ditched the ivory tower for navigating the entrepreneurial waters, I can say one thing that I knew all along, but is abundantly clear in so many ways—the system is geared towards business and doors open that are closed to individuals, save for those with great means.

In light of the threat of the “r” word—recession, it’s easy to second-guess the “jobless recovery” and US economic policy aimed at bailouts {Obama style} and propping up the capital markets. While corporations are better off than they were three years ago, they have grown accustomed to sitting on cash and extracting more out of the labour force because it’s a buyers’ market. The unanimous consensus is that the economic indicators aren’t rosy and the prospects for US GDP growth are dim. The political focus on deficits is the last thing that the economy needed.

Was the stock market yet another bubble that’s about to burst? Canada’s housing bubble should cause worries, as well, as Canadian unemployment is still relatively high. Of course, Canada’s Finance Minister, Jim Flaherty, refuses to acknowledge there’s a housing bubble, hoping the Canadian economy grows out of any and all predicaments, which is exactly what Obama, Geithner, et al were hoping from day one.

Greetings from Kingston, Ontario. Happy Civic Holiday/Provincial Day weekend to many Canadian readers.

José’s post on the Democrats and the Voting Income Gap got me thinking about historical unemployment, which was 9.6% in June of 2010. One of the things to recall is that recessions and episodes of nationwide high unemployment tend to be short. Mobilizing lower income voters and increasing numbers of the middle class should be easier for the Democrats over time, if The Big Recession persists. Moreover, it’s not clear that the Republicans are offering platforms that are resonating outside of their base.

Looking at the Canadian unemployment rates, there are lingering eras with years of rates being over 8%. Generally speaking, these eras of high unemployment correspond with the rise of the fortunes of the New Democrats, a left-centre pro-labour party.

The NDP saw surges in Parliamentary seats in the elections of 1984 and 1997, in the midst of eras of high unemployment. Currently, the NDP is polling relatively strongly, although so are the Greens, which may fragment the vote on the left. Stephen Harper’s minority Conservative government is hanging on because the Liberal Party is in disarray, with both of the major parties {Liberals & Conservatives} being relatively unpopular.

Lessons for the US?

It’s the economy, stupid. The Big Recession is hitting the middle class and rhetoric is only going to go so far. A big question is whether Democrats are willing move beyond centrist policies and if {a big if} they go towards Keynesianism, how will that be implemented?

Song:: Heaven 17-‘This Is Mine’

Twitterversion:: [blog] The politics of unemployment. Looking at economic eras in Canada & the US #ThickCulture @Prof_K

Notes from north of 49ºN.

I now live in a relatively small country, ranked 36th. in population, at 33.7M {versus 306.7M in the US}, but in the top 10 in terms of economies with a GDP of $1.3T {#9 ranking}, versus 13.8T for the US {#1 ranking}.  I mention this, as I wonder about scale and innovation, i.e., can smaller countries effectively compete in technology in a global environment?  One of my interests in innovation is biotechnology, a “new economy” area focusing on better outcomes for “health, the environment, and for industrial, agricultural and energy production.”  Advances in genetics are creating a race for companies and countries, with the idea of dominating the biotech field in order to enjoying profits and prosperity.

Last summer, I saw on a Canadian network a segment on how Canadian government investments in biotech were getting bought up by US firms, implying that the relatively small Canadian government was, in part, subsidizing innovations flowing south of the border.  The Matthew effect kicks in, as rich get richer and the poor get poorer, given that Canadian firms were being snapped up by US firms with deep pockets, transferring value southward.  According to a Globe & Mail article {click on license option}, another issue is that Canadian venture capital is lacking, so Canadian biotech firms often are capitalized by US venture capital firms that like to keep close tabs on operations and encourage offices/operations in the US.

Well, is Canada even a player in this biotech area?

According to 2006 OECD data, Canada is a player in terms of the number of firms {532}, the number of patents {ranked #6 in 2004}, and revenues {$83M}, along with an 11% compound annual growth rate {CAGR} of revenues from 1999-2005.

Given how collaboration and capital are now global, does it even matter where innovations are incubated?  A study by Bagchi-Sen & Scully {2004} is illuminating.  They divide biotech forms into two categories:: high R&D intensity and low R&D intensity.  Each has a different take with respect to strategies within the context of globalization::

• High R&D Intensity:: Ties to local universities/Canadian researchers & collaboration with pharmaceutical companies, but desire global capital inflows.  Prototypical firm is in health theraputics.
• Low R&D Intensity:: Emphasis on local production and development of Canadian market.  Focus on strategic alliances with foreign firms.  Prototypical firm is in diagnostics or agricultural biotech.

In terms of innovation policy, this brings up interesting food for thought for Canadian politicians in light of this recession.  Thanks to Barack Obama, Canada’s large neighbour to the south is pumping $21.5B of stimulus towards science and technology, which begs the question, how will this affect Canada?

It makes sense that Canadian policy would encourage the projects of low-intensity R&D firms with ties to the US, as these firms:: may be able to capitalize on relationships with stimulus-receiving firms, will develop innovations for the Canadian market, and will be focused on local Canadian production and manufacturing.  The high-intensity R&D firms could use funding {hint:: even more than $1B+CAN stimulus} that focuses on spurring innovations and the building of a sustainable base of Canadian talent and resources.  Dalton McGuinty’s {Liberal Premiere} efforts in Ontario might be a step in the right direction, but I’m not seeing clearly how this all fits together with an economic recovery plan.  Biotech. is not without risks, particularly with respect to agricultural biotech, which consumers are uncertain of.  Activists have alerted consumers with terms like “Frankenfood” for genetically-modified organisms {GMOs} and Monsanto’s lawsuits against journalists and farmers don’t help the cause.  So, maybe ag. biotech is a lose, but developing Canadian competitive advantage in innovations, in terms of other forms of biotech, nanotechnologies, clean energy, and green collar jobs, may provide fertile terrain for politicians and policymakers.

Well, enough of this talk of the “new economy” of biotech and innovations, what about the old economy, still prevalent in many parts of Canada?  Globalization has drawn Stephen Harper’s {Prime Minister} Conservative government into bailout fever to the tune of $9.5B, in order to secure that 16% of GM’s production remains in Canada.  This includes $3.1B that the Province of Ontario ponied up by Dalton McGuinty’s government.  Unfortunately, this might only save 4,400 jobs, after projected layoffs, according to CBC::

Given how the Tories and the Grits have played their cards in this {along with playing a current game of Federal “chicken”}, I see an opportunity for the NDP to make inroads with their platform based on developing new technologies and saving jobs.  Alas, more on “GMfail” and job losses in Canada in a future post.

So, it looks like nation matters, but in a global milieu.  Nothing surprising.  If you were to advise Canadian politicians, should new technologies {e.g., biotech, green, energy} be developed more aggressively {or at least explored} and does it make sense to commit billions to save jobs with an untested GM restructuring?

Twitterversion:: #newblogpost How should Canada compete {bio}tech, given globalzatn, US domnce, & recession? #GMfail bailout, good idea? http://bit.ly/18bBq8 @Prof_K

Song:: Genetic Engineering – Orchestral Manoeuvres In The Dark

Video::

Flowing Data has a great compendium of visualizations of the current economic crisis. Here’s my favorite (from The New York Times):

Nice balance between simplicity and complexity…kinda’ like good social science 🙂

One of my students sent me this interesting graphic that suggests we’re getting there.

This graph suggests that our stock market losses are equivalent to the losses during the great depression for the same time period.  Granted, this represents only one data point. Here’s another:

Nearly one in five own more than homes are worth – Time Magazine.

There is plenty of counter-data to suggest that we’re in a slowdown.  Unemployment is “only” 9.1 percent, a far cry from the 25% unemployment during the peak of the great depression.  I’m more interested in the question of how and when we construct a depression. Rahm Emmanuel has achieved conservative blog infamy for saying “Never let a serious crisis go to waste.”  Indeed, the Obama administration has initiated an agressive policy agenda (education, health care, environment, budget, bank bailout, housing, etc.)   The policy might fit the times, but Emannuel’s sentiment  reflects the investment an activist government has in constructing a depression.  An increasing amount of data suggests that “if the construction fits, wear it.”