Not so good anti-anti-stimulus arguments

In a recent post on his blog, Paul Krugman takes issue with the anti-stimulus argument that additional government spending is bad because economic theory says that privately allocated spending is more welfare-enhancing, and therefore tax cuts are preferable. Krugman's claim is that stimulus spending is about public goods not private goods. And, he writes, "there's nothing, even in Econ 101, that clearly favors (sic) private spending on private goods over public spending on public goods."

But, I ask, if it is economically desirable to increase expenditures on public goods, doesn't this imply that current expenditures are already below the optimal level? If this is true then what governments ought to be doing is permanently increasing their spending in those areas. Public goods should be provided at the economically efficient level whether we are or not we are in a recession. So Krugman's argument is not so much an argument for a spending-based "stimulus" as it is for a government that fully performs it's public good function.

When it comes to an actual stimulus, the government should be primarily focused on boosting demand where it has actually fallen. So if the current crisis is mostly a shock to consumer demand, then shouldn't the government be chiefly engaged in re-igniting private consumption? Which is a reason why a temporary GST reduction (with a phase-out!) and an EI expansion are the best policies.

The Madoff Economy

As always, Paul Krugman's insights give you something to think about.

This Week in Economics

After spewing alarmist rhetoric re: the dire state of the economy in an effort to usurp the crown, the Liberals are now criticizing Stephen Harper for his new-found pessimism. Rather hypocritical, but hey! it's the Liberal Party of Canada. What did you expect?

For his part, Harper seems to have surrendered to his political opponents by reversing his previously restrained stance on fiscal stimulus.

Jim Flaherty is also adopting a more concerned attitude (at least publicly). He has recruited an ad hoc "council of economic advisers" to provide input for the new federal budget. The council's members, chosen without much regard to party allegiance, have an impressive combined collection of business experience and acumen. But of the 11 councilors, only one, Dr. Jack Mintz of the C.D. Howe Institute, is an economist. The business community certainly has a lot to offer, but an economic council ought to have economists. President-elect Barack Obama understands this. He has recruited heavily from the ranks of the academic economists. The most notable appointments are Christina Romer of UC Berkeley as the new chair of the Council of Economic Advisers and Lawernce Summers of Harvard as the new director of the National Economic Council.

How do you solve a problem like grand theft auto?

Winnipeg is notorious for it's elevated incidence of car theft. But the city has found a new way to alleviate the problem: the exile of car thieves to Saskatchewan, Canada's dumping ground.

The Transit User's Problem

The New York Times Magazine recently published Year in Ideas 2008. Many interesting ideas were profiled, the more exotic of which include never-ending bubble wrap and spray-on condoms. Amongst the economics ideas, my favourite is the Bus-Wait Formula:

You arrive at the bus stop to catch the ride to work, but the bus isn’t
there. Your destination isn’t very far, so you think, Hmm, maybe I should just
walk. But then you might find yourself halfway between stops when the bus whips
past, which would be deeply annoying. What to do? Should you walk or should you
wait?

This question has plagued commuters for years, but this year three
undergraduate students at Harvard and Cal Tech decided to resolve it. “We were
sick of sitting at a bus stop, not seeing the bus and torturing ourselves over
whether we should start walking,” says Scott Kominers, a Harvard student
studying math, economics and ethnomusicology. So Kominers and his co-authors,
Justin Chen and Robert Sinnott, drew up the problem as a classic game theory
dilemma, began crunching the numbers and, three pages later, had their answer:
You should probably wait — and whatever you do, don’t second-guess
yourself.

Buses, after all, are usually punctual and move much faster than you.
If you start walking and catch the bus halfway through your journey, you might
consider yourself fortunate — but even then you won’t have gotten to your
destination any faster. What’s more, Kominers — like a good economist — points
out that waiting allows you to “optimize” your time, because you could get some
work done while hanging out at the bus stop. There’s also a practical problem
with walking, because people who decide to walk usually pause at each stop to
see if a bus is coming, which drags their journey out. “You think you’re not
slowing down if you stop, but you’re adding a bunch of time each time,” Kominers
adds.

Mind you, their equation breaks down in extreme cases. If your journey is
relatively short — less than a mile — and you suspect the next bus is half an
hour away, they calculate that you should walk. (Though you should walk
decisively, without dallying at each stop along the way.) But since most trips
involve more-punctual buses and longer journeys, waiting is, far more
frequently, the winning strategy. Or as Kominers concludes with some delight,
“Laziness almost always works.”

This is an interesting problem that I have encountered on a practical level many times in my life, especially since I often have short transfers on my transit journeys. Some comments on the methodology:

(a) The authors suggest that the way to optimize your time is by waiting at the bus stop and getting some work done. How might the analysis change if the benefits of exercise are also considered?

(b) The model should also incorporate the likelihood that the next scheduled bus will simply fail to show up. I was a transit user in Winnipeg for several years and know first hand that during periods of intemperate weather (read: deep freeze), the probability of a bus break-down is much higher. Transit users will consider this when taking decisions. Especially since walking is a more efficient method of maintaining body temperature than standing still.

Bubblegum Psych

Interesting article about the psychological motivation to market crashes.

The Sunny Side of the Bust

Business cycles in action here, and apparently cyclists are in action too, which benefits your health and the environment. So don't sweat the recession, just sweat it out.

Messrs. Premier, tear down these walls!

Here's some good news, especially since we can expect more job losses in the coming months.

And if a house be divided against itself...

Many critics of the Liberal-NDP proposed coalition pointed out that both parties explicitly rejected such an arrangement during the recent election campaign. Now that Parliament has been prorogued and enthusiasm for the coalition has begun to wane, Liberal leadership hopeful Bob Rae has emerged as its champion. I admire Rae's commitment to an alliance which is quickly falling into disfavour among Liberals [Michael Ignatieff, for example, did not refer to the coalition once in today's email to his supporters] as it is an idea to which he has ardently given his support in the past. For example, Rae wrote on his blog this past September: "We need to build a progressive coalition to defeat the Harperites."

However, in the same post Rae scolded the NDP for their self-interested attacks on the Liberals and the Greens. "The point is not to criticize Harper," he wrote. "It is to replace him. And the NDP can't do that, because in the end it will always revert to the Two Themes: class warfare and character assassination."

Bob Rae saves his harshest disapproval for the leader: "Jack Layton thinks he's Obama. What a joke."

One wonders how the Liberal party ever thought it could successfully co-govern with the Dippers when the party's most prominent coalitionist considers "Jack Layton's NDP" to be both inept and delusional. What a joke.

Lakehead's New Motto: "We Play Nice"

In an effort to surpass its rivals Queen's and Carleton in political correctness, the student union at Lakehead University has passed an amendment to its constitution that enforces a "civil atmosphere" amongst its clubs. The new rules state:

• Campaigns must be positive in nature and cannot slander the opposing stance of the campaign
• All club publications shall not have content that may be deemed as offensive or in bad taste to any identifiable group
• Members of the club are not allowed to impose belief(s) or practice(s) of the club to anyone who does not give them consent to outside of the club’s meetings
  

Clubs at the university will be allowed to set up booths but are not allowed to approach students. According to the union, this ensures that no one will have beliefs or views "imposed" upon them. The new rule outlaws unsolicited distribution of material, say an advertisement for club-sponsored charity event or lecture. It is not clear whether the student union wishes to extend the freedom from belief imposition to the classroom where, according to my sources, students are routinely subjected to views, beliefs and opinions.

As to the ban on clubs doing or saying anything critical or offensive, the student union retains the authority to decide what is and what is not acceptable.

A Stimulating Summer

The lack of a "fiscal stimulus" is ostensibly the issue over which the Liberals, NDP, and Bloc have decided to oust the Harper minority and form a coalition government. The Conservatives, the coalition partners claim, did not present a sufficiently bold "fiscal stimulus package" in last week's fiscal update. As such, they failed to protect Canadians from the growing global downturn and the coalition partners have decided to step in and do it for them.

There are many things about this situation on which I could comment. But let's ignore for the moment the fact that the update actually did present some useful measures to lubricate the flow of credit and allowed for further fiscal action in the next budget. And that the true catalyst was probably the removal of party subsidies. Let's also ignore the fact that neither the Liberals nor the NDP, who now wish to rule based on their ability to implement a large-scale fiscal stimulus package in the range of $30 billion, ran on non-stimulating platforms that expressly promised to avoid deficit spending. Let's further ignore the fact that the coalition is as vague about how their $30 billion package will be spent as the Conservatives were about possible future expenditures. Let's also ignore the fact that the economic literature is far from conclusive about the benefits of large fiscal stimulus packages to alleviate short run fluctuations in an economy (like Canada) that has not entered a severe recession. In fact, there are already automatic stabilizers (like employment insurance) at work to provide a "stimulative" effect.

Instead, what I want to point out is this: there may have already been a fiscal stimulus in the Canadian economy. See, the thing about government intervention in business cycles is that the timing is very hard to get right. Frankly any action taken by the Conservatives or the Liberals-NDP will probably not have an impact until near the end of the downturn or when the economy has already begun to recover. It takes time for this type of policy to have the right effect. Ideally, a fiscal package (if needed) would have been implemented long before it was needed.

Indeed, this is exactly what the Conservatives argue, referring to their cut to the GST and their planned cuts to the corporate tax rate. I'm not convinced that either of these policies will have a huge impact. But forgive me a quasi-partisan moment and allow me to make the Conservatives' case for them: their pre-election spending spree may actually act as a stimulus for Canada.

I found this list of spending announcements for the summer of 2008 on the Canadian Taxpayers Federation website. They count over $19 billion of new spending. Not all of the money will be spent in 2009, but many of the items fall into the categories that the coalition now says are possible stimulative expenditures. That is, innovation, infrastructure, skills development, and economic development. Here is a list of some of the bigger items.

Innovation & Research

• Asthma/Allergy Research, McMaster 12 mil
• SSHRC, NSERC, and CIHR 10 mil
• Fuel Efficient Auto Technologies, Ford Motor Company 80 mil
• Landing Gear Technology Research, Heroux Devtek Inc. 27 mil
  

Infrastructure

• City of Calgary transportation 34.5mil
• Baie de Beauport park 18.3m
• Queenston Plaza, Niagara-on-the-Lake 62mil
• Canada-BC Municipal Rural Infrastructure Fund 147mil
• Winfield-Oyama Highway Project 33.6mil
• ontario infrastructure 6.2 billion
• Toronto public transit including subway extensions 731.7mil
• Champlain Bridge, Montreal 1.0 billion
• Ports, Rimouski and Baie Comeau 53.3mil
• Infrastructure, Government of Quebec 4.0 billion
• Highway Improvement, Government of Quebec 231mil
• Highways, Government of British Columbia 163.7mil
• Military Base Expansion, CFB Trenton 500mil
• Infrastructure, Government of Manitoba 718mil
• Highways, Government of New Brunswick 68.75mil

Skills Development

• Roadmap for Linguistic Duality in Canada 2008-2013 1.1 billion (not sure what this is exactly)
  
• Retraining, Government of Newfoundland and Labrador 46mil
• Job Training, Government of PEI 39mil
• Aboriginal Skills and Employment Partnership, various 11.4mil
  

Economic Development and Support

• Various Northen Ontario initiatives 23mil
• Bombardier Inc. 350mil
• Tobacco Farmers bailout 300mil
• Joint Strike Fighter Program, Bristol Aerospace 43.4mil
• Ships, Lockheed Martin, Gatineau, QC 2.0 billion
• Settlement Services for Immigrants 22.2mil
• Ship Building, Nordane Shipping 12mil
• Reopening Ford Motor Company factory in Windsor, 80mil
  

The infrastructure spending is especially impressive. A lot of the money has been given to the provinces for specific projects (Quebec and Ontario in particular!). So to a great extent the provinces have a role in accelerating those projects to provide the stimulus.

The NDP and Liberals joined the CTF at the time in criticizing the Conservatives for their handling of what were previously balanced public finances. There were a ton of items on the list (the CTF's document is 19 pages long) and so there is more than a little validity to accusations that the Conservatives were trying to spend their way to a majority.

But the point of this post is that the Conservatives, in spending an incredible amount of money this past summer, may have inadvertently provided some sort of stimulus package during the high-rolling summer. And the summer was exactly the right time for any necessary fiscal action to take place.

To stimulate or not to stimulate?

The rhetoric out of the coalition camp makes it seem as though every other major economy is injecting billions of dollars into their economies. Not so. For good or ill, Germany is also showing fiscal restraint during the global downturn.

Of course, it's not exactly true that the Harper government is presiding over a stimulus-free zone. I did a very brief Google search and found a few examples of pre-election spending that would be very much like the stimuli the LPC-NPC will propose (but probably better researched). There are probably more but I don't feel like looking.

• $80 million cheque to help Ford reopen a mothballed engine plant in Windsor which had been making V-6 engines and will now begin manufacturing small, fuel-efficient engines
• another $80 million to help Ford develop an R&D centre in Windsor as a part of a new policy called the Automotive Innovation Fund
• deal that will invest a whoppping $4 billion of federal funds into roads, bridges, and other public infrastructure projects in Quebec

Indeed, federal infrastructure spending is due for a massive increase in 2009. The Conservatives also claim that their planned permanent tax cuts (e.g. corporate rate rollback) are part of the stimulus plan. I don't know whether these expenditures were intended to be part of a "stimulus package". But yes or no, the timing was at least correct.

Hot for teacher? Not exactly.

Ontario's elementary school teachers have rejected the province's contract offer (which includes a 12.55% raise over the next four years), obstensibly over unequal per-student funding and the gap in preparation times relative to their secondary school counterparts. The elementary school teachers want funding and prep time equalized. The current offer stipulates that elementary teachers receive 240 minutes of prep per week while secondary teachers receive 375 hours. All other teacher unions have approved the contract; the failure of the elementary teacher's union to the same by Sunday's deadline rescinds the offer and replaces it with a new one that involves a raise of just 2% for each of the next two years. This observer wonders whether there is any practical reason other than self-interest to equalize funding and preparation time across levels of education (surely high school sports and band programs are more expensive than elementary music and field day programs!). But my interest is not really in these negotiations. Rather, the story has motivated me to comment on a broader issue in the labour market for teachers.

There seems to be a wide consensus that workers should be paid according to the perceived value that society places on their (combined) output. Teachers, who are responsible for the education of our children, are highly considered workers and therefore viewed as "underpaid". Skilled athletes, whose performances entertain rather than sustain, are frequently viewed as "overpaid". But in a market economy, wages are not determined solely by the willingness of employers to pay. The relevant economic concept is "SUPPLY and demand", not "demand". If the market functions properly, wages adjust so that the supply of labour is equal to the demand for labour.

Why am I bringing this up? To point out that current compensation of teachers, driven by the unionized bargaining process, has generated a surplus of qualified teachers. The Ontario College of Teachers most recent Transition to Teaching report states that "by 2006 the excess of new teachers beyond retirement needs had reached 7,000 annually". The story is similar in other provinces. It is now common for newly licensed teachers to wait several years before finding regular, full-time work. Most people in their mid-20s know several education grads who have struggled to find a permanent position.

This surplus of teachers is not spread evenly across various subgroups. French-language and math/science/technology teachers tend to fare better in their search for work relative to English-language primary/humanities teachers. For example, only 1/3 of the English-language Primary-Junior teachers in Ontario's class of 2005 had found regular work two years after graduation whereas 3/4 of French-language teachers from the same class had been hired into permanent positions. [The fact that the market for elementary teachers is more over-supplied than that for secondary teachers makes their union's demands all the more untenable]

There are two ways to fix this chronic over-supply of teachers.

(a) Restrict the number of teaching licenses that are awarded. This could be done in several ways. For example, a simple cut to the number available spots. That is, limit the number of openings in teachers' colleges. Not only would this decrease the surplus but it may also act as a signal to prospective education students, causing less enthusiastic applicants to look elsewhere. But this may not be ideal as it would involve additional evaluation costs and/or unfair rationing. There could instead be new measures to emphasize the needs that exist, i.e. science and technology, in the application process. Another possibility would be to increase tuition in teacher's college (especially for the most over-supplied groups). A sufficient increase in fees will divert students away from education.

(b) Allow wages and benefits to adjust downward. The fact is that the high levels of compensation given to teachers have drawn an excessive amount of labour into the market. Were the free market allowed to operate, wages would decline leading some potential teachers to exit the market. As wages fall schools will also be more inclined to hire more teachers. The process ends when equilibrium is restored.

Option (b) is the preferred market-based solution to our problem. The end result would be higher employment, smaller salaries, and fewer struggling entrants. Is that better than the current situation? Presently-employed teachers and their union would say no because they would be net losers. But those on the outside looking in would definitely gain. And everybody (public included) would benefit from lower student-teacher ratios. But, as mentioned, the labour market for teachers is unionized, and so option (b) is unlikely to occur. The provincial government, then, needs to find a way to ensure that fewer students enter education programs. The incentive structure is flawed and the surplus will only grow as the fertility rate declines. If nothing is done, this flagrant misallocation of resources will continue unabated.

Of course, the Ontario government may not agree that the surplus of qualified teachers is a problem.

UPDATE: The Province of Ontario has extended the deadline for the Elementary Teachers' Federation to sign the contract offer until Friday.

Misc. Thoughts

It's been a while before I posted anything here. Before I start doing so again, here are some thoughts on some issues from the past few months. I'm sure I had a lot more opinions to share with you my beloved audience but these are the ones I remember, in chronological order.

Olympics: When it comes to sports, we are a country of drama queens. We bemoan the lacklustre efforts of our athletes when no medals are forthcoming and demand increased funding. Demands which, invariably, will be forgotten only weeks later. Nobody cares about our swimmers and rowers between Olympics. Of course, the disappoinment of the first week is forgotten once we start winning medals in the events where we are actually expected to perform well.

EU-Canada FTA: Great announcement from Foreign Affairs. Liberalizing trade with the EU is a great thing for Canada. The Canadian goverment has started a trend of signing bilateral free trade agreeements (Chile, Israel, Peru). Let's hope it continues. The Doha Round has demonstrated the futility of multi-lateral agreements.

Election 2008: What a boring election campaign. I can't believe a few hundred million dollars of arts funding is the most exciting issue. Have the Conservatives said anything about their platform?

Financial Crisis: Where do these people get off predicting a downturn on the magnitude of the Great Depression? Even if they are eventually proven correct (which I doubt very much) we are far from the point where the term 'depression' applies. The alarmists on the Left especially are having a field day with this. Eric Hobsbawm, for one, is calling this a dramatic shift away from the capitalist paradigm. Surely one of the 20th century's most celebrated historians should know that his craft is best practiced in retrospect.

Queen's/Carleton: I was ashamed of my personal connection to Queen's for a few days after the introduction of the Stasi as official campus police (I wonder if the squads will be as relentless in stamping out careless blasphemies - somehow I think not). That is until everyone's attention was drawn to Carleton and their racist/sexist student union. I suspect the majority of student unions have similar tendencies but at least most of them have the decency to keep it under wraps. I just hope that the recent ridiculousness will deflate the sails of the political correction movement a little. And maybe the public outrage will even spillover against those funny human rights commissions. One can always hope.

Round 2

First, review my first round predictions:

Montreal over Boston in 5 games (Actual: Mtl in 7)
Pittsburgh over Ottawa in 5 games (Actual: Pit in 4)
Washington over Philadelphia in 6 games (Actual: Phi in 7)
New York Rangers over New Jersey in 6 games (Actual: NYR in 5)

Detroit over Nashville in 4 games (Actual: Det in 6)
San Jose over Calgary in 6 games (Actual: SJ in 7)
Minnesota over Colorado in 5 games (Actual: Col in 6)
Dallas over Anaheim in 7 games (Actual: Dal in 6)

Not too bad. 3/4 in each conference, missing the 3-6 game in both. Props to me on calling Dallas over Anaheim.

On to Round 2:

Montreal over Philadelphia in 7 games
Pittsburgh over New York Rangers in 6 games

Detroit over Colorado in 6 games
Dallas over San Jose in 6 games

NHL Awards and Post-season Picks

Yesterday, I compared the final standings to my pre-season predictions. I also predict the winners of the individual awards. I will not reveal those picks until after the hardware has been given out. However, now that the season is over, allow me to award the trophies to who I feel deserves them.

Hart Memorial Trophy

WINNER: Alexander Ovechkin, Washington (65-47-112)
This is a no-brainer in my mind. Alexander the Great almost single-handedly pulled his team into the playoffs.

RUNNERS UP: Jarome Iginla, Calgary (50-48-98) and Joe Thornton, San Jose (29-67-96)
With Pavel Datsyuk, these two players led the West in scoring, a more impressive feat than leading the East. Both players were easily the most important contributor to their team’s success this season.

James Norris Trophy

WINNER: Niklas Lidstrom, Detroit (10-60-70, +40)
No other defenceman in hockey creates more goals for or prevents more goals against than Lidstrom. Also a no-brainer. This may not be his last Norris either.

RUNNERS UP: Brian Campbell, Buffalo (8-54-62, +8) and Zdeno Chara, Boston (17-34-51, +14)
Campbell is one of the game’s slickest puck carrying defencemen today. And Chara did just about everything on the blueline for the Bruins this season. An honourable mention goes to Sergei Zubov who was challenging Lidstrom until his season-ending injury.

Vezina Trophy

WINNER: Martin Brodeur, New Jersey (2.17, .919, 44 W, 4 SO)
It doesn’t matter that New Jersey keeps losing its best skaters to retirement and free agency; Brodeur continues to carry the team to the playoffs each year. He’ll add another Vezina to his trophy case this June to show for it.

RUNNERS UP: Evgeni Nabokov, San Jose (2.14, .910, 46W, 6 SO) and Henrik Lundqvist, New York Rangers (2.24, .912, 37 W, 10 SO)
Both of these goaltenders kept their teams in contention while those who were supposed to be goal scorers tried to remember how to put the puck in the net.

Calder Memorial

WINNER: Patrick Kane, Chicago Blackhawks (21-51-72)
Despite a mid-season slump, Kane scored at almost a point-a-game pace. It wasn’t a perfect season, but it was the best rookie season.

RUNNER’S UP: Jonathon Toews, Chicago Blackhawks (24-30-54) and Tobias Enstrom, Atlanta (5-33-38)
Toews is the best player of this class of rookies. Injuries prevented him from claiming the Calder. A lone bright spot in Atlanta this year was the play of Enstrom, who became the de facto number one defenceman by playing four minutes a game more than any other blueliner.

Jack Adams

WINNER: Guy Carbonneau, Montreal (104 pts, 1^st in East)
Many commentators expected the Canadiens to finish out of the playoffs. By extracting honest efforts from his entire roster, Carbonneau took this team to the top of the East.

RUNNERS UP: Mike Babcock, Detroit (115 pts, 1^st in West) and Joel Quenneville, Colorado (95 pts, 6^th in West)
The Red Wings, hockey’s best run club, turned in another dominating season. Their long time rivals, the Avalanch, gave a surprisingly solid effort all season despite lengthy injuries to Sakic, Stastny, and Smyth.

I will ignore the Selke and Lady Byng trophy because the voting rationale for those awards often escapes me.

And now my picks for the first round:

Montreal over Boston in 5 games
Pittsburgh over Ottawa in 5 games
Washington over Philadelphia in 6 games
New York Rangers over New Jersey in 6 games

Detroit over Nashville in 4 games
San Jose over Calgary in 6 games
Minnesota over Colorado in 5 games
Dallas over Anaheim in 7 games

Pre-season Predictions in Review

Like I did recently with the upcoming MLB season, I drew up a list of predictions for the 2007-08 NHL season way back in September. Let’s see how I did. I’ll list the final standings as I predicted and report the actual position in brackets. Starting with the Eastern Conference:

1. Ottawa Senators (7)
2. New York Rangers (5)
3. Carolina Hurricanes (9)
4. Pittsburgh Penguins (2)
5. Buffalo Sabres (10)
6. New Jersey Devils (4)
7. Montreal Canadiens (1)
8. Florida Panthers (11)
9. Philadelphia Flyers (6)
10. Washington Capitals (3)
11. Toronto Maple Leafs (12)
12. Boston Bruins (8)
13. Atlanta Thrashers (14)
14. New York Islanders (13)
15. Tampa Bay Lightning (15)

Not terribly great here. Ottawa looked like they might achieve my first place prediction after their ridiculous run in October and November. But they were one of the worst teams in the league after that. Montreal, on the other hand, greatly surpassed my expectations. But many people had them out of the playoffs altogether. And to my surprise, Boston overachieved even more than in 2006-07. To my credit, however, the Carolina and Washington picks would have been almost bang on if Carolina had won its last game. Instead we have a big swing because of the rule that makes the three division winners the 1^st, 2^nd, and 3^rd seeds. And I correctly picked the bottom three teams, two of which were playoff teams a year ago. The other is still only three years away from being Stanley Cup champions. How many others picked the Lighting to finish in last place?

Now to the West:

1. Anaheim Mighty Ducks (4)
2. Detroit Red Wings (1)
3. Calgary Flames (7)
4. San Jose Sharks (2)
5. Vancouver Canucks (11)
6. Nashville Predators (8)
7. Minnesota Wild (3)
8. Colorado Avalanche (6)
9. Dallas Stars (5)
10. Edmonton Oilers (9)
11. Chicago Blackhawks (10)
12. Saint Louis Blues (14)
13. Columbus Blue Jackets (13)
14. Phoenix Coyotes (12)
15. Los Angeles Kings (15)

Again, I nailed the bottom of the standings. But that is not very impressive. So far I’ve only correctly picked one divisional leader: the Detroit Red Wings, the only no-brainer of the bunch. Only the plus side, I correctly picked 7 of the 8 playoff teams in the West. Perhaps my coup in the West was picking Edmonton to finish in 10^th. They actually finished 9^th. Most commentators had written the Oilers off from the start.

In my hypothetical playoff bracket, I have Pittsburgh and Ottawa in the East and San Jose and Minnesota in the West. Obviously that won’t happen now. In fact, there’s a good chance the Pens will sweep the Sens in the first round. But the other three teams have a chance to be there. I had some success in this area last year. At the outset of the 2006-07 playoffs, I had Buffalo beating Ottawa in the East final (it was the reverse), and Anaheim beating Calgary in the West (only Anaheim was there). Then I called Anaheim to win the Cup against the East champion (Buffalo, reality: Ottawa). Maybe I’ll be lucky again this year.

Rios and Hill Signings

The Toronto Blue Jays announced on Friday that they had signed Alex Rios and Aaron Hill, two valuable contributors, to long term contract extensions. Both players, while already solid major leaguers, have yet to hit their primes. The new contracts should ensure that when they do, they will be wearing a Blue Jays uniform.

Rios signed a six year extension that covers the 2009 to 2014 seasons and pays him $64 million. This works out to roughly $10.7 per year. Note that Rios still has two arbitration years left. There is then a $13.5 million dollar club option for the 2015 season.

Hill’s contract is a little more complicated. He earns $11.6 million over the next three seasons (2009-2011). This covers his arbitration eligibility years. Then, just as he would normally enter the free agent market for the first time, the Blue Jays can pick up a three year, $26 million option. If they decide against the three year option, they can instead elect to exercise a one year option worth $8 million or a two year option worth $16 million. Thus, the contract pays Hill almost $4 million per year over his arbitration eligibility period and potentially some $8 million once he hits free agency.

I like both of these signings. J.P. Ricciardi has locked up two important players for several years at a very reasonable price. In my last year of undergraduate study, I estimated a wage equation for MLB free agents for my senior econometrics paper. According to my results, and based on their performances to this point in their careers, Hill could expect to earn $8.4 million as a free agent and Rios could demand $13.1 million. Of course, my predicted salaries are not exact and the real market values may be higher or lower. But if we make two reasonable assumptions, (1) Both Rios and Hill will continue to improve, and (2) baseball salaries will continue to climb, it seems very likely that the contracts signed today will pay these players less than market value once they achieve free agency eligibility in a couple of years.

An American in touch with his Canadian side

Canadians are often quite critical of what we see as the substantial ignorance of the American population re: the Great White North. In fact, we usually take perverse pride in being so misunderstood and forgotten by the imperialist Yankees. But this is really just our own prejudice showing through. Some Americans are woefully uninformed about their northern neighbour. But a large proportion do appreciate the qualities that make Canada so unique and special. Here's one American journalist's take on what makes Canada such a great place, especially during NHL playoffs

MLB Predictions - Individual

I list my three mostly likely candidates in each category.

American League

AL MVP
1. Miguel Cabrera
2. Alex Rodriguez
3. Vladimir Guerrero

AL Cy Young
1. Justin Verlander
2. Josh Beckett
3. Erik Bedard

AL Rookie-of-the-Year
1. Evan Longoria
2. Daric Barton
3. Jacoby Ellsbury

AL Batting Champion
1. Ichiro Suzuki
2. Vladimir Guerrero
3. Robinson Cano

AL Home Run Champion
1. Alex Rodriguez
2. Travis Hafner
3. David Ortiz

AL RBI Champion
1. Alex Rodriguez
2. Miguel Cabrera
3. David Ortiz

AL ERA Champion
1. Fausto Carmona
2. Roy Halladay
3. Justin Verlander

AL Wins Champion
1. Justin Verlander
2. Josh Beckett
3. C.C. Sabathia

AL Strikeouts Champion
1. Erik Bedard
2. Javier Vasquez
3. Felix Hernandez

National League

NL MVP
1. David Wright
2. Chase Utley
3. Prince Fielder

NL Cy Young
1. Johan Santana
2. Jake Peavy
3. Roy Oswalt

NL Rookie-of-the-Year
1. Joey Votto
2. Chase Headley
3. Kosuke Fukodome

NL Batting Champion
1. Chase Utley
2. Albert Pujols
3. Hanley Ramirez

NL Home Run Champion
1. Ryan Howard
2. Albert Pujols
3. Prince Fielder

NL RBI Champion
1. Matt Holliday
2. Ryan Howard
3. Prince Fielder

NL ERA Champion
1. Jake Peavy
2. Johan Santana
3. Dan Haren

NL Wins Champion
1. Johan Santana
2. Jake Peavy
3. Carlos Zambrano

NL Strikeouts Champion
1. Johan Santana
2. Jake Peavy
3. Aaron Harang

MLB Predictions - Team

Here are my predictions for the upcoming MLB season. Individuals performance predictions will follow. Perhaps the only surprising thing about my picks is that I have Arizona and Colorado finishing 3rd and 4th in the NL West. Both teams greatly overachieved last year. Arizona had a negative run differential and a wild and improbable run the Rockies propelled them to the World Series where they were greatly overmatched by the champion Red Sox. I expect both teams to take a step back this year.

American League

EAST
1. Boston Red Sox 95-67
2. New York Yankees 90-72
3. Toronto Blue Jays 89-73
4. Tampa Bay Rays 70-92
5. Baltimore Orioles 62-100

CENTRAL
1. Detroit Tigers 97-65
2. Cleveland Indians 92-70
3. Minnesota Twins 80-82
4. Chicago White Sox 78-84
5. Kansas City Royals 70-92

WEST
1. Anaheim Angels 93-68
2. Seattle Mariners 87-75
3. Oakland Athletics 75-82
4. Texas Rangers 72-89

National League

EAST
1. New York Mets 95-67
2. Philadelphia Phillies 88-74
3. Atlanta Braves 83-79
4. Washington Nationals 73-89
5. Florida Marlins 70-92

CENTRAL
1. Chicago Cubs 88-74
2. Milwaukee Brewers 85-77
3. Cincinnati Reds 80-82
4. St. Louis Cardinals 74-88
5. Houston Astros 72-90
6. Pittsburgh Pirates 66-96

WEST
1. Los Angeles Dodgers 87-75
2. San Diego Padres 84-78
3. Arizona Diamondbacks 82-80
4. Colorado Rockies 79-83
5. San Francisco Giants 74-91

Post-season

ALDS
Boston over Anaheim in 5
Detroit over Cleveland in 5

NLDS
Philadelphia over Chicago in 4
New York over Los Angeles in 4

ALCS
Detroit over Boston in 7

NLCS
New York over Philadelphia in 6

WORLD SERIES
Detroit over New York in 6

The Reserve Clause

A few weeks back, Milwaukee Brewers first baseman Prince Fielder expressed his unhappiness with his current contract. Fielder, who followed up an impressive rookie campaign in 2006 by leading the NL with 50 home runs in 2007, is one of the sport’s best young power hitters. But he renewed his deal for only $670,000 US, relatively little for a player of his calibre. Fielder is understandably frustrated with his contract situation. Should he be?

Here’s a primer for Fielder and others who are ill-informed about the structure of MLB’s labour market. All players with fewer than six years of experience are subject to what is called a “reserve clause”. The rights to these players are retained by the team to which he was drafted and originally signed. However, once a player completes three full years of major league experience, he is eligible for salary arbitration, giving the player some leverage in salary negotiations. Note that 17% of players become arbitration eligible after just two years of service; they are known as “Super Twos”. After six years of experience, a player is no longer constrained by the reserve clause and becomes a free agent. He can then make his services available to the highest bidder.

There is a small but significant economic literature on this topic. The findings of these studies are unsurprising. Briefly:

· The reserve clause creates significant monopsony power, especially for players who are ineligible for arbitration

· Once players achieve arbitration eligibility, their salaries continue to be suppressed below competitive market levels, but rapidly approach free agent salaries as experience increases. For example, see Ryan Howard’s latest contract.

· Free agents enjoy considerable market power and can command salaries in excess of their marginal revenue products (winner’s curse?)

So I say to Fielder, there is no reason to be unhappy with your contract. His current contract seems to be about right according to MLB’s collective bargaining agreement. In fact, he is probably earning about as much as anyone would in his circumstances. And with just one more year until arbitration, he can expect to be earning a lot of money very soon.

This is probably a good place to comment on the NHL’s CBA. This functions very much like MLB’s agreement, except that arbitration eligibles (often called restricted free agents) can be poached by other teams through the use of offer sheets, e.g. the Dustin Penner signing. A restricted free agent’s current organization can either match the offer or accept draft picks as compensation for losing a player. As a result, teams have less control over their young players than they did before. To correct for this, a club may want to sign its young players to long contracts earlier in their careers. The riskiness of such deals is offset by the risk of losing the player to an offer sheet. And in fact, this is exactly what we see happening in the NHL. Alexander Ovechkin, Rick Dipietro, Mike Richards, and many others have signed long term contracts that would have seemed absurd in previous years. But this is simply the natural consequence of the new market structure.

Combined with a reasonable salary cap, this is actually a fairly sensible way to ensure that players receive compensation in line with their true value while maintaining a high degree of competitiveness. That’s not to say there won’t be growing pains as teams and agents adjust to the new rules. And of course not everybody wins. The beneficiaries of this system are the game’s most talented players; they reach their peak earning years faster than before. And the salary cap ensures that the richest clubs will not be able to abuse their position by indiscriminately stripping the rosters of small market clubs. Thus, we should see increased parity across the league. The losers in this agreement are aging veterans. In the past a team could overspend on a past-his-prime free agent. But teams must now contend with a salary cap while paying more to their young players. They can no longer afford to over-compensate veterans. And in this fan’s eyes that’s not much of a problem.

What about Barry?

CP reports that Anthony Weiner, a US congressman from New York, has called on the FBI to drop its investigation of Roger Clemens for perjury. Weiner said:

“Roger Clemens has been shamed. I think the public record is replete with examples of how he did not likely tell the truth. What is the public benefit of continuing with an FBI investigation?”

And:

“The real incentive to clean up this mess is not a governmental one.”

I agree on all points. The case against Clemens is strong. If the allegations are true, his fervent proclamations of innocence will further embarrass and discredit him. The mighty fall hard, and the once giant-like Clemens seems bound for a crash. But does the use of performance-enhancing drugs in professional sports warrant an FBI investigation? My opinion is that it does not. Rather, the professional leagues should be responsible for setting and implementing their own drug policies.

But my concern here is that while Roger Clemens garners sympathy, Barry Bonds receives no compassion even as his own legal troubles continue unabated. If anyone has been needlessly and excessively harassed by the authorities in regards to doping, it is Bonds. So where are the Bonds supporters? His situation is essentially identical to Clemens, so if the case against the latter should be dropped, why not Barry’s? I call on Anthony Weiner and all other Clemens groupies to have a consistent sense of justice and treat all besieged athletes the same way.

News Briefs

The end of February seemed unusually busy for Canada. I suspect that the heightened activity was due to the extra day. Here are some thoughts on the stories that CBC News deemed to be essential reading.

1. The Cadman deal

I wonder how long Dona Cadman will last in politics. She has her eyes on the Conservative candidacy in her husband’s old riding, and yet doesn’t have the sense to handle this potentially damning information more carefully. Don’t misunderstand me: I’m not advocating a cover-up. These are serious allegations and the Canadian public deserves to know the truth. But for her own sake, could she not have revealed the story more delicately? Or less embarrassingly?

2. Breakaway Anglicans

This is a sad story for the Canadian Church. Ten congregations have now left the Anglican Church of Canada. A popular misconception is that their departure is due primarily to differences about homosexuality. No one denies that this has contributed to the divisions. Ultimately, it was the blessing of same-sex marriages that drove many these congregations to leave. But I think the real is issue is much wider, and has more to do with an increasingly loose interpretation of the Bible in general, rather than with one subject (namely, homosexuality) in particular.

3. Prince Harry sallies forth

Sally on, old chap, sally on.

4. The federal budget

As a student of the dismal science, it would be terribly uncouth for me to avoid mentioning the budget. It was, however, a rather boring budget in the end. Which may not be such a bad thing considering the schizophrenic character of the previous Harper budgets. Things I did like:

(A) $300 million to the Atomic Energy of Canada Limited
- nuclear power such not be ignored in the search for alternative energy

(B) $250 million over five years for the automotive sector to research and develop greener and more fuel-efficient vehicles
- now is the time for auto companies to increase investment in all areas of their business

(C) $330 million over two years to improve access to safe drinking water in First Nations communities
- So many aboriginal policy spending initiatives are ridiculously vague but this one is clear, practical, and is something I have wanted to see for some years now

(D) More scholarship money for students
- There still needs to be a greater emphasis on graduate students
- Also, is the new Canada Student Grant Program merely the old Millennium Scholarship Foundation under a Conservative name?

5. Kenya`s peace

Thank God. I hope the cabinet scheme will be effective.

6. Robert Latimer

The earlier National Parole Board ruling was a disgrace. The members in question grossly overstepped the stipulated duties and authority of their position. I`m glad to see their decision was repealed.

7. Trade deadline, schmade deadline

It was a very exciting trade deadline: two blockbusters (the Richards and Hossa trades), one good exchange of quality assets (Cambell to SJ), and a curious dump (Huet to Washington). Brian Burke showed his talent by adding valuable players without having to make a deal at the deadline. I was intrigued by the lack of moves by Canadian-based teams. Nonis, in particular, performed poorly by failing to acquire scoring help. Also, the Toronto Maple Leafs really shook things up. Of course, it will be weird to see Wade Belak suiting up in a Panthers jersey, but the rebuilding had to begin. Those mid-round picks are crucial.

Recap: Ottawa vs. Philadelphia

I was able to make the trip to Ottawa last night to see the Senators play the Flyers. Both teams have been play poorly of late. The pace of the game lagged a bit in the second period but picked up again through the third period and into a very exciting overtime. Two SHGs made for some excitement. The final score was Ottawa 3 Philadelphia 2 (SO). In general, Ottawa did not do a good job of going to the net. Some thoughts on individual performances:

Ottawa

D Wade Redden – Steady but unspectacular play from the veteran blue-liner. He failed to hold the line a couple of times early in the game, but showed great patience and hockey sense to help set up Ottawa’s second goal.
LW Dany Heatley – Not a good game. Had some chances in OT but was mostly noticed for glaring giveaways.
RW Daniel Alfredsdson – The captain was not an offensive threat this game but was great killing penalties.
C Antoine Vermette – Had a nose for the net all night. Was a couple of bounces away from a multi-goal game.
G Ray Emery – Gave up some big rebounds that fortunately bounced away from danger. But to his credit the only Flyer goals came of off deflection.
D Andrej Meszaros – His mistakes are still what I notice most about his play.
LW Cory Stillman – Great game! He was the most dangerous Senator with the puck tonight. Brilliant set up to Volchenkov in OT. Also great backchecking.

Philadelphia

D Braydon Coburn – I thought Coburn was a force tonight. He made two defensive plays that were particularly memorable.
C Daniel Briere – Missing in action. Apparently he played 20+ minutes and recorded 4 shots, but the only thing I remember about his play was his miss in the shoot-out.
D Kimmo Timonen – Good game at both ends of the rink. Great hockey sense to join the rush on the penalty kill and was rewarded with a shortie. Was a physical match against the much bigger Heatley.
C Mike Richards – Seemed to be everywhere tonight but didn’t have much of an impact.
C Jeff Carter – See Richards. Did create a great scoring chance after stripping the puck off a Senator in the neutral zone.

Three Stars

1. Cory Stillman
2. Antoine Vermette
3. Braydon Coburn

2010 Olympics

TSN recently had a poll on their website asking people to pick who they thought should be on the Canadian Men's Olympic hockey team in 2010. Two years is a long time, especially when it comes to predicting the development of young talent (and Canada has a lot of that commodity) and the erosion of old talent. But just for fun, here is the team I’d like to see in Vancouver.

Nash	Crosby	Iginla
Lecavalier	Spezza	Heatley
Gagne	Thornton	Toews
Getzlaf	M.Richards	Perry
	Sakic
Pronger	Phaneuf		Luongo
Bouwmeester	Weber		Brodeur
Redden	Green		Giguere
Campbell

One noticeable absence on the blue line is Scott Niedermayer. I question whether he will still be playing in two years. If he is, then I would select him in a heartbeat. He is the world’s second best defenseman (after Niklas Lidstrom of course). The likely deletion is Wade Redden. Or Mike Green. But the latter is just coming into his own. True, his sudden emergence is a hockey columnist's dream and as such he has been getting a lot of press lately. But I think it is well deserved. This guy has the raw skills to control the flow of a game, much like Bouwmeester does. Let's hope they both reach their potential.

Also, there are no Staals on this team. The competition for my last two forward spots was tight. I considered Eric Staal, Jonathon Toews, and Corey Perry. Though still a teenager, Toews has proven himself to be a solid two-way performer with loads of offensive potential – and he will only improve. Corey Perry is getting better every year and should be a consistent 40 goal scorer by 2010. Eric Staal has the tools to be a dominant player in the NHL (remember that he’s just 23 years old), but he seems to be regressing. I still think he will end up as a 40-50-90 first line centre. But in the end I’m partial to Winnipeggers and think Getzlaf-Richards-Perry would be an incredible 4^th line (2005 WJC team-mates; Crosby, Phaneuf, and Weber were also on that squad, the greatest junior team ever). Also, I’m not willing to give up Joe Sakic. If he’s still skating in two years, Burnaby Joe has a spot on my team. So Thunder Bay will have to wait until 2014 (if NHLers play, which is a big if) to see one of the favourite sons play for the national team. But I wouldn’t be surprised to see three Staals on that team (again, big if).

I doubt that my goalie selections are very different from what most people will choose. Marty Turco would also be a solid choice for third stringer, and I suppose Pascal Leclaire or Carey Price could be ready for such duties by then.

This exercise is very difficult because Canada has such a deep talent pool. I don’t envy the Executive Director of the team. He has a very difficult job. [And just for the record, I think that person should be Steve Yzermam. And team Canada’s coach should be Mike Babcock. The Detroit organization simply knows how to win.] Russia will be able to ice the best line (Ovechkin-Malkin-Kovalchuk, scary!) but no country can match Canada in depth. To demonstrate, I have picked a substitute team out of those not already selected:

Kariya	E. Staal	St.Louis
Morrow	Briere	Doan
B. Richards	J. Staal	Horton
Smyth	Bergeron	Carter
	Horcoff
Boyle	Seabrook		Leclaire
Phillips	Jovanovski		Ward
Regehr	Burns		Turco
Coburn

The second team includes the 2004 Hart, Art Ross, and Pearson winner (St. Louis), the 2004 Conn Smythe winner (Brad Richards), and three 2002 gold medalists in Kariya, Smyth, and Jovanovski. Plus some emerging superstars. Not too shabby for a bunch of cast-offs.

Opening Faceoff

The title of this first post was chosen simply because it suits the name of the blog. I love hockey and certainly intend that many posts here will comment on the sport. But do not expect that to be the only topic covered. My interests also extend to football and baseball.

In truth, the exact shape of this e-journal (that is, web log, or "blog" as the kids are saying these days) is yet to be determined. It is currently 3am and I really just need something to cure my insomnia. Creating a new blog seemed like a good idea. Not to say that I have given no previous consideration to this idea. I have always enjoyed sharing my thoughts with others and, frankly, they ought to enjoy it too. Moreover, I have a strong commitment to improving the world around me. And what better way is there for me to advance the cause of truth and knowledge in this hopelessly ignorant world of ours than to make the insights and revelations of my mind available to everyone with access to the inter-web?

The tentative name of this blog is "From the Off Wing". Like the name indicates, you the reader should not expect my posts to have some uniformly partisan flavour. Nor should you expect the posts to fall into a narrow set of permissible topics. Instead, I will aim to write on a wide range of subjects and from a (not quite so wide) range of perspectives, depending on my mood and what interests me at the time. These may include, but are not limited to, economics, sports, politics, cinema, literature, theology, and the art of decorative handcrafts.

It is now 3:11 and about time I gave sleep another chance. One final warning to potential readers: past experience suggests the possibility that my posting behaviour may be periodically erratic. I hope you are emotionally mature enough to deal with that. If not, thanks for stopping by. If so, many happy returns.

Regards,