After the Meltdown

On March 24th I had the opportunity to attend an interesting session entitled "After the Meltdown: The limits and possibilities of economics" that was organized by the Centre for Global Challenges of the Glendon School of Public & International Affairs.

After introductions by Alex Himelfarb and words of welcome by Mamdouh Shoukri (President of York University), the microphone was turned over to Chaviva Hosek, President of the Canadian Institute for Advanced Research to introduce the illustrious panelists.

The panelists were George Akerlof, Nobel Laureate & Professor of Economics at the University of California at Berkeley; Tim Besley, Professor of Economics & Political Science at the London School of Economics; and Pierre Fortin, Professor of Economics at the University of Québec at Montreal.

George Akerlof spoke about "animal spirits" and how they impact the economy (this is from his recent book entitled "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". The term "animal spirits" is derived from Keynes and relates to the confidence and gut feelings in determining business decisions.

"Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." (161-162) - J.M.Keynes, General Theory.

By this he meant that data alone (profit/loss, eps, etc) are not enough to explain business decisions and that psychology has a role to play in it. Prof. Akerlof talked about the five animal spirits, with a special emphasis on "snake oil" to explain the meltdown.

In his talk, Prof Fortin outlined the three economic tasks that governments will have to respond to in the next decade: namely, drawing lessons from the recession, responding to the demographic forces  that will impact western countries and accelerating economic growth.

On demographics, he quoted David Foot who said "Demographics explain about two-thirds of everything".  This is especially true if you look at the demographics facing western industrialized countries like Canada.  I have previously written and spoken about this (In fact I gave a speech which contained some of this information and my analysis a couple of days before this session). The combination of demographics and ever increasing health care costs will impose a squeeze on public finances over the medium term according to Prof Fortin.  There are only two possible solutions: 1) radical change to our health care sector , and 2) accelerate economic growth.

It was an interesting discussion and I will post my remarks on the demographic challenges to either this blog (if I can figure out how) or to the IPAC website.