Canada's Music Industry

According to a recent report by the Martin Prosperity Institute:

On a per capita basis, Canada’s music industry dramatically outperforms the US when it comes to the presence of music business establishments (this category includes record labels, distributors, recording studios, and music publishers). Canada has 5.9 recording industry establishments per 100,000 residents, about five times the US figure of 1.2.

However, this appears to really be only on a per capita basis:

Recording industry establishments in the US are slightly larger – they have an average of 5.9 employees each, compared to only 5.7 in Canada. But the difference is dramatically more pronounced when it comes to revenue. US establishments earn average receipts of $4.1 million per establishment, compared to only US$540,000 in Canada.

So Canada has considerably greater per capita musical activity than the United States in terms of record labels, recording studios, and licensing houses. But the data tell us that the United States has much higher-earning businesses that are more heavily clustered in fewer places – especially Nashville, Los Angeles, and to a lesser extent, New York.

While this research is preliminary, we can speculate about what drives these differences. Economic geographers, from Jane Jacobs to Allen Scott to the Martin Prosperity Institute’s own recent analysis, have long noted that growth in creative industries like music tends to be driven by clustering and economies of scope and scale. The concentration of the American music business in a few key cities likely encourages these forces. In Canada, the fact that the music business is more evenly distributed is certainly a positive thing for musicians looking for opportunities in smaller cities. But failure to cluster in a few key centres may be discouraging the Canadian music industry from growing larger and more internationally competitive.

Daniel Ellsberg on Democracy Now

Today, Democracy Now aired an interview with Daniel Ellsberg to discuss the new movie The Most Dangerous Man in America regarding Dr. Ellseberg's work during the Nixon administration and his leaking of Pentagon papers regarding the Vietnam war.

Dr. Ellsberg is know to graduate microeconomics students for his popularizing of what is known as the Ellsberg paradox:

Suppose you have an urn containing 30 red balls and 60 other balls that are either black or yellow. You don't know how many black or yellow balls there are, but that the total number of black balls plus the total number of yellow equals 60. The balls are well mixed so that each individual ball is as likely to be drawn as any other. You are now given a choice between two gambles:

Gamble A	Gamble B
You receive $100 if you draw a red ball	You receive $100 if you draw a black ball

Also you are given the choice between these two gambles (about a different draw from the same urn):

Gamble C	Gamble D
You receive $100 if you draw a red or yellow ball	You receive $100 if you draw a black or yellow ball

Since the prizes are exactly the same, it follows that you will prefer Gamble A to Gamble B if, and only if, you believe that drawing a red ball is more likely than drawing a black ball (according to expected utility theory). Also, there would be no clear preference between the choices if you thought that a red ball was as likely as a black ball. Similarly it follows that you will prefer Gamble C to Gamble D if, and only if, you believe that drawing a red or yellow ball is more likely than drawing a black or yellow ball. If drawing a red ball is more likely than drawing a black ball, then drawing a red or yellow ball is also more likely than drawing a black or yellow ball. So, supposing you prefer Gamble A to Gamble B, it follows that you will also prefer Gamble C to Gamble D. And, supposing instead that you prefer Gamble D to Gamble C, it follows that you will also prefer Gamble B to Gamble A.

When surveyed, however, most people strictly prefer Gamble A to Gamble B and Gamble D to Gamble C. Therefore, some assumptions of the expected utility theory are violated.

Alberta Oilsands on Democracy Now

Tom Goldtooth was on Democracy Now today discussing the Alberta oilsands and the new congressional climate change bill in the U.S.

Canadain Versus U.S. Banking Systems

Canadian banks have weathered the current economic crisis much better than their U.S. counterparts. Nick Rowe has suggests the following:

But it doesn’t seem to be as simple as “Canadian banks are more tightly-regulated”.

1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn’t matter if a local housing market goes bust).

2. We don’t have Glass-Steagal. The investment banks joined the retail banks some years ago.

3. We don’t have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.

4. (Except in Alberta), mortgages are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

I wouldn’t describe those differences as “Canada is more regulated”.

But we do have higher capital requirements. And mortgages over 80% must be insured (mostly by the government-owned CMHC).

For more information, see the direct blog post here and the discussion here.

On Pianos and Automobiles

Jeffrey Tucker at the Mises Institute has written an interesting article on the U.S. piano industry and its parallels to the current problems facing the U.S.automotive industry. As he points out,

Today the highest-price good that people buy besides their houses is their car, and this reality leads people to believe that we can't possibly let the American car industry die.... What about the time before the car? Look at the years between 1870 and 1930. As surprising as this may sound today, the biggest-ticket item on every household budget besides the house itself was its piano. Everyone had to have one. Those who didn't have one aspired to have one. It was a prize, an essential part of life, and they sold by the millions and millions.

As it turns out, the piano industry followed a pattern similar to that of the automotive industry: At one time U.S. pianos were the best and the economic conditions in the U.S. permitted piano manufacturers to be successful exporters. After 1930, piano sales began a decline lasting until after WW II. In 1960, foreign producers (notably Japanese producers) began competing and by 1980 only Steinway remained as a domestic piano manufacturer.

Was there a bailout of the U.S. piano industry? No. Rather, the market for U.S. made pianos largely collapsed due to economic pressures. Should the U.S. and Canadian governments bailout U.S. car makers (the Canadian government has offered loans to those producing in southern Ontario, contingent on U.S. support)?

In the end you have to ask, is it really worth trillions in subsidies, vast tariffs, impositions all around, just to keep what you declare to be an essential industry alive? Well, eventually, as we have learned in the case of pianos, this is not essential. Things come and things go. Such is the world. Such is the course of events. Such is the forward motion of history in a world of relentless progress generated by the free market. Thank goodness that FDR didn't bother saving the US piano industry! As a result, Americans can get a huge range of instruments from all countries in the world at any price they are willing to pay.

Today government is even more arrogant and absurd, and it actually believes that by passing legislation it can save the US car industry. It can subsidize and pay for uneconomic activities, and pay ever more every year. The government can also pay millions of people to make mud pies because mud pies are deemed to be an essential industry. You can do this, but at what cost and what would possibly be the point? Eventually, even the government will have to accord itself to the reality that economics reminds us of on a daily basis.

Canada and the Housing Crisis in the U.S.

There is increasing concern among Canadian economists regarding the effect of the U.S. financial crisis and ensuing bailout on the Canadian economy. Over the past weekend, I attended a meeting of the Canadian Institute for Advanced Research which was attended by both David Dodge and Mark Carney (the latter attended only for a short period, having the crisis to deal with).

One of the biggest concern is in regards to the effect of the crisis on Canadian exports to the U.S. Of particular concern is the exports of Canadian lumber which is a prime input in the U.S.'s struggling housing market. As reported by Bloomberg:

"The current situation poses particular problems" because it affects "areas that matter most for Canada," such as demand for cars and lumber, Carney, 43, said in a speech today at the Canadian Club of Montreal. Policy makers had already identified tighter credit conditions "as the main risk to a modest U.S. recovery next year" and recent events make that possibility "more probable," he also said.

As a result, many economists expect the financial crisis in the U.S. to result in a strong slow-down in Canadian economic growth:

LEVIS, Que. — Canada's economy faces a long period of stagnation as several risks, including softening housing construction and a tougher credit market, will force a quiet and slow recovery, says a Desjardins Group economist.

The firm's projections for Canadian economic growth were trimmed from one per cent to 0.6 per cent this year, and from 1.8 per cent to 1.3 per cent next year.

"With economic projections this low... we are clearly going to see a long period of quasi-stagnation, especially given that there are several major downward risks looming," chief economist Francois Dupuis said in a note Tuesday.

"The recovery will be slow and progressive, with no fireworks."

Dupuis pointed to "fragile" consumption in the United States and a U.S. housing market that shows no signs of recovery as two factors that have impacted Canada's exports.

He coupled that with weakening housing construction in Canada, tough credit conditions and a deteriorating labour market as factors that are taking a toll of the local economy.

"Along with government spending, personal consumption is the only factor that is allowing Canada's economy to keep its head above water," he said.

"With confidence at a low ebb, the hope of avoiding a recession is holding on by a thread."

The report noted that oil prices which skyrocketed throughout the year were fairly devastating to the world's economy.

Desjardins predicts that the global economy should advance by about 3.7 per cent this year, down one percentage point from 2007.