Tuesday, June 9, 2020

COST OF PREVENTING A DEATH FROM COVID-19 IN CANADA




What has been the cost of the economic lockdown and other mitigating policies imposed by Canadian governments to reduce the spread of the Covid-19 virus? What has been the dollar value of benefits created by these policies? Have the costs been more or less than the benefits?

A recent study has answered these questions for the United States. It found that the benefits much exceeded the costs. The problem with this study is that calculated benefits by using the Value of Statistical Life, which is estimated to be $10 million. This amount is much greater than other value of life figures used widely: $125 thousand, the quality adjusted life and $2.7 million, life-time earnings of the average Canadian (in 2017). The use of these lower values would show the US costs to be higher than the benefits of the country’s mitigation policies.

To avoid the need to choose a specific value of life figure in a cost/benefit study for Canada, this study instead estimates the cost of saving a life resulting from that country’s mitigation policies. It does so by dividing the cost of these policies by the number of lives saved. The resulting figure allows readers to decide whether the cost of preventing deaths was reasonable and whether the government should consider alternative mitigation strategies to fight the possible second wave of the pandemic or new outbreaks caused by mutations of the current virus.

Economic Costs

Economic costs are the result of government policies requiring Canadians to self-isolate, keep social distance from others and the lockdown of productive activities such as construction, the provision of hospitality, travel, and education. According to the International Monetary Fund this reduction will lower Canadian GDP in 2020 by 6.5 percent below that of 2019. Since GDP in 2019 GDP was $1.7 trillion, the value of reduced output in 2020 is estimated to be $113 billion (6.5% of $1.7).

It is important to note that government payments to individuals and business to prevent financial suffering and bankruptcies do not lead to lost output because these payments add to the public debt, which in the future will require interest payments that are made by taking money from some Canadians (the taxpayers) and transfer it to other Canadians (who hold the debt obligations).

Economic Benefits – Number of deaths prevented

Government Covid-19 fighting policies reduce the number of deaths that would have occurred in the absence of these policies. This information is found in computer models produced by infectious disease specialists, which predict the number of deaths likely to occur with and without mitigating government policies, the difference representing the number of deaths prevented.

Such a number was produced in the study by the Imperial College of London (ICL) and is used here. Only data for North America rather than Canada are available, which show 8 deaths per thousand without and 4 per thousand with mitigating policies (p.7). These data imply that with Canada’s population in 2020 at 37.7 million, there would be 301,600 deaths in the in the absence of and 150,800 with mitigation.

Cost per Life Saved

Model 1
Using the IMF estimates of $113 billion in cost and the ICL estimate of 150,800 lives saved, the cost per life saved is $749 thousand.

Model 2
The estimate of the cost used above draws on the IMF predicted loss of output in the year 2020. It is likely that the reduction in output will last beyond the end of that year. Assuming that the final cost it will be $226 billion, twice the 2020 amount, and that the number of lives saved remains the same, the cost per life saved is $1.5 million.

Model 3
At the end of May 2020, according to Health Canada, the number of deaths attributed to Covid infections was 6,583, a much smaller number than that predicted by the ICL model. To estimate the number of deaths prevented, this study assumes that the mitigation policies have reduced the numbers by 50 percent, the rate found in the ICL model. Under these assumptions, the number of deaths without mitigation would have been 13,166 and the reduced and the actual deaths 6,583 each. Given the economic cost of $113 billion as predicted by the IMF, the cost per death prevented is $17.2 million (113 divided by 6,583).

Model 4
It is safe to predict that the costs and number of deaths prevented will grow beyond the numbers used in the preceding estimates. If the final cost of the policies will be $226 billion, double the amount predicted by the IMF in 2020 and the number of deaths prevented is 9,875, which is 50 percent higher than the 6,583 recorded at the end of May, the cost per death prevented is $22.9. million.

Model 5
The pandemic-fighting policies have increased unemployment, which is known to raise the number of suicides. A recent study estimated this number to be 2,100, which reduces the number of deaths prevented to 7,775 from the 9,875 assumed in Model 4. With costs at $226 billion, the cost per death prevented is $29 million.

Policy Implications

In my judgement, the results of the first two models are the least realistic since they are driven by the ICL estimate of deaths prevented, which is much in excess of those found in Canada. Most realistic seem to be the result of Model 5, which assumes costs that are justified by economists’ growing concerns about the length of time required before  the economy is fully recovered and uses an assumption about the ultimate number of deaths that is consistent with the recently observed decline in numbers. The evidence on the relationship between unemployment and suicides is strong and the numbers found in the cited study seem reasonable.

According to Model 5, the estimated cost per life saved is $29 million, which is near three times the Value of Statistical Life figure of $10 million used in the US study cited above, which concludes that US pandemic fighting policies have resulted in benefits exceeding costs. Whether one considers that the same conclusion is warranted for Canada’s policies depends on one’s assessment of the value of life. But regardless of one’s views on this matter, the high costs raise questions whether other mitigating strategies exist, which are less costly, could have been used and should be considered for use in fights against future pandemics.

Costs of Alternative Mitigation Policies

A less costly method for fighting the Covid-19 pandemic uses policies that rely on three premises.

First, deaths caused by the Covid-19 virus are concentrated among the elderly. At the end of May, 6,538 Canadians with the infection had died. Of these, 4,694 or 72 percent were over the age 80; 1,640 or 25 percent were between the ages of 60 to 79. Therefore, 97 percent of Canadians who died from the virus were older than 60.

Second, the symptoms experienced by the vast majority of infected individuals below the age of 60 are mild, do not require hospitalization or lead to death. Some of the young require hospitalization or die in numbers remarkably similar to those afflicted every year by the seasonal influenza. These problems of the young should not be taken lightly but have not in the past been considered serious enough to warrant costly mitigating policies other than vaccination.

Third, individuals who have recovered from the infection are immune and will not become ill again for some significant length of time.

Assuming that these premises are correct or need only modest modification, the following policies promise to be much less costly than those used presently.

·     *  No distancing and lockdowns are mandated.
·      * A massive effort is made to shield the elderly from infection until a vaccine is developed.
·      * The small number of infected young who have severe, life-threatening symptoms receive all the     healthcare they require.

Such a policy regime would avoid the large costs caused by the currently used mitigation policies because the cost of protecting the elderly is certain to be far below the $113 billion of the current policies. The cost of treating the young needing hospitalization would also be relatively small.

The costs would also be lowered by the fact that the proportion of the young who have recovered from infections will relatively quickly be large enough to create herd immunity and allow a gradual reduction in the severity and cost of protecting the elderly and of treating young requiring hospitalization.

Sweden offers evidence on the working of this model in a real-world setting. The fact is that Sweden’s loss of output was much less than that of Canada’s. In the first quarter of 2020 Sweden’s economy grew 0.1 percent while that of Canada fell 2.1 percent. Other factors may have contributed to this difference, such as the decline in Canada’s energy industry, but are unlikely to be significant enough to negate the validity of this comparison.

However, the comparison of death rates much favors Canada. At the end of May the deaths per 100,000 were 41.9 in Sweden and 18.9 in Canada. This difference between these death rates is puzzling because it is almost certain that the age-pattern of deaths is the same in the two countries. If that is correct, over 90 percent of all deaths in Sweden are among the elderly and residents of care homes. It follows that Sweden’s higher death rate is caused by its failure to protect this age cohort as well as Canada has.

Why this happened raises important questions for future research. Are there differences in the two countries in the proportion of the elderly in the population, in the design and staffing of care homes, in the amount of resources devoted to insulating the elderly and health-care providers, and others?
In spite of the present lack of reliable answers to these questions, the analysis presented here suggests that policy makers in Canada should seriously consider the Swedish model when they have to deal with the expected second wave of infections in Canada and possible future problems created by aggressive mutations of the existing virus.

Would it be better to focus on the reduction of deaths rather than infections?


Tuesday, April 28, 2020

FOUR TAKEAWAYS FROM A RECENT TRIP TO VIETNAM AND CAMBODIA



The Canadian Association of Former Parliamentarians in February of this year organized a 3-week study tour of Vietnam and Cambodia. It attracted 20 members of the Association, including my wife and me.

The group included former MPs from all political parties. We had some lively discussions about Canadian politics, but the atmosphere was always respectful and cordial. We enjoyed the normal travel experiences that were enriched by information from competent and friendly professional guides who also took excellent care of the trip’s logistics.

What made this trip different from normal tourist experiences were meetings with local politicians skillfully arranged by Leo Duguay, an Ottawa lobbyist, former MP and Prime Minister Joe Clark’s Chief of Staff. Thus, we spent a couple of hours with Canada’s Ambassador to Vietnam in Hanoi, which brought us up to date on the country’s relations with Canada and local economic and political conditions. We sponsored a dinner meeting with ten members of the Canadian Chamber of Commerce in Saigon, which provided much first-hand information about the opportunities and challenges of doing business in the country.

We also met with three members of Vietnam’s parliament in Hanoi who served as chairs of important legislative committees. These politicians gave us mainly boiler-plate information about the country’s economic and social conditions but responded with some spontaneous and interesting answers to our questions at the end of the session. This meeting ended with a privileged guided tour of the parliament building designed in grand communist style.

We were lucky with the timing of the trip, which started when the Covid-19 crisis affected primarily China and ended when the return flights were still on schedule. The crisis in China brought us some unexpected benefits through the virtual absence of Chinese tourists in airports, hotels, restaurants and tourist attractions. According to our guide, their absence meant that we were able to visit some attractions without lengthy queuing required just a short time earlier.

The visit to Vietnam and Cambodia increased my understanding and appreciation of the cultures and economies of these two countries in many ways, but the following narrative focuses on just four topics that involve important takeaways of interest to me as a free market economist and a person interested in the Vietnam War.

The first takeaway involves my memory of the tragedy of that war, which I had expected to be revived during this visit. To my surprise, our guides and other Vietnamese never mentioned it to us on their own initiative. Only once were we given information about a battle, but only after we asked for it. This happened when we wondered about the history of a large, barren space in the middle of the ancient Citadel of Hue. Our guide explained that the historic buildings that had previously occupied this space were destroyed when Vietcong troops infiltrated the area during the Tet Offensive and American forces launched a counterattack. Before this event, the Americans deliberately had kept their troops out the Citadel to protect its cultural heritage. The guide left the clear impression that he blamed the Vietcong more than the Americans for the tragic destruction of the historic buildings.

I was also surprised by the displays at the “Hanoi Hilton”, the prison where US downed pilots were kept. It is now a museum and contains very few displays and narratives about the horrors of the War. Instead, it holds many exhibits showing how well the American prisoners were treated and how many anti-war demonstrations had taken place around the world. The only disturbing images in the prison are of the French government’s treatment of Vietnam prisoners during the colonial period.

The second takeaway comes from numerous stories by our guides about the personal and economic problems caused by Ho Chi Minh’s government after the Americans had left in 1975. This government had imposed on the South economic and social policies its leaders had studied during visits to Moscow during the War.

The guides’ accounts of these policies revealed deep resentments over the hardships they caused their people, resentments allegedly shared by many in the country. Under these offending policies, many landowners, members of the middle class and others considered by the communist politicians to be the enemies of the working class, had their properties seized, were jailed of even executed. Many of these victims fled the country and became the boat people of history. Many of them lost their lives at the hands of pirates from the Philippines and Indonesia. Only few were accepted as refugees by Canada and other Western countries.

Very damaging also was the economic planning regime, which forced all production by individuals and companies to be delivered to the government, which transferred it to consumers such that everyone had a fair and equal income. One of our guides told us with some mirth that under this system his father was no longer able to pursue his traditional practice of trading fish for watermelon under pain of being imprisoned. It took Vietnam many years to end the communist planning regime and liberalize the economy.

The third takeaway involves the performance of the Vietnam economy after the liberalization. It was clearly evident during our visit but the following draws on some statistics found on the Internet to describe it.

The country’s population is 97 million, which makes it the 15th largest country in the world (Germany, Europe’s largest country has a population of 84 million). The communist-style planning after 1975 caused stagnation and by 1986 had made Vietnam one of the world’s poorest countries.
Conditions improved dramatically after the government in 1986 moved away from this model, imitating the successful 1978 reforms by Deng Xiaoping in China. This improvement was evident in numerous ways. The main airports were new and modern. Ubiquitous retail and artisan shops were fully stocked and busy. Restaurants of different quality were filled with customers. Traffic on all roads was very heavy. Construction of buildings and roads was everywhere. People were well dressed. I saw no homeless people or beggars.
   
Official statistics back these impressions of economic growth and prosperity. Between 2002 and 2018, per capita GDP increased 2.5 times, though it still has long way to go to make Vietnam a rich country. In 2018 its GDP had reached US$2,500 while in comparison, Canada’s was $46,000. The growth of GDP of 7 percent in 2018 is encouraging as is the statistic that the rate of poverty shrank dramatically from 70 percent in 1986 to 6 percent in 2019.

Theses results were created by free market policies. Producers no longer had to deliver their output to government agents but were free to sell it to the highest bidder. Lower tariffs resulted in the opening of trade with the rest of the world. Direct foreign investment was encouraged through low levels of regulation and taxes, low cost of labor, low inflation, secure property rights and a stable political environment. In December 2019 alone, direct investment worth $20 billion was made mainly by firms from Japan, South Korea and China.

Of particular interest to me is that the government allows the side-by-side circulation of US dollar notes in private markets. In the ubiquitous restaurants, retail stores selling clothing, shoes and other consumer products, payment is routinely expected to be made in dollars. Only change of less than one dollar is settled in Vietnamese Dong, the local currency. Credit card charges are in Dong but are converted to other currencies at rates that keep retail prices at a bargain level for Canadians. Many private employers pay their workers in dollars, government employees are paid in Dong, which can readily be converted into dollars.

The free market policies brought an interesting symbol of success. In 1986, Vietnam was unable to feed itself and had to import rice. Now it is once again the largest net exporter of rice in the world, taking advantage of outstanding growing conditions in the Mekong Delta, which we toured comfortably for a day on a boat. A bicycle trip of one the islands in the delta allowed us to see these fertile fields and the comfortable homes they support.

Another indicator of Vietnam’s economic success is the heavy traffic on its urban roads. In Saigon it is dominated by 7 million scooters and motorcycles owned by the city’s 11 million inhabitants. These two-wheeled vehicles compete with relatively small numbers of cars, trucks and buses. However, in spite of the crowding, the traffic moves smoothly. During many trips in our tour bus, we saw no traffic jams or accidents.

These results are almost a miracle as the traffic is, what someone called “organized chaos.” One of its causes motivated the writing on a t-shirt I saw: “Traffic rules in Saigon: Traffic light green: go; light yellow: still go; light red: continue to go. I believe that the smooth flow of traffic and the low incidence of accidents is due to the great maneuverability of two-wheeled vehicles. Observing scooters carrying a woman and two children miss hitting other vehicles by inches is heart-stopping, but we all seemed to get used to seeing such spectacle and no longer were amazed. Besides, wearing helmets was legally required and universally obeyed. A bit of trivia: according to one of our guides, the reason why women on scooters almost always wear long-sleeved shirts and gloves is to protect their skin from the sun.

However, the traffic in the Vietnamese cities raised in my own mind the question of how it will function in the future as the population and incomes continue to grow rapidly. I would not be surprised if, in a decade, there would be congestion just like that in other large urban areas of the world, especially since the greater prosperity will lead to the increasing replacement of two-wheeled vehicles by cars.

My fourth takeaway concerns Vietnam’s economic future. The growth in national income foreseen by the members of the Canada-Vietnam Chamber of Commerce in Saigon is likely to be realized. But I predict that it will be accompanied by problems that face all rapidly growing, low- and middle-income countries. One of these problems is traffic congestion. Another is that foreign investment continues to increase the demand for labor and drives up wages. As this happens, the attractiveness of foreign investment and volume will decrease and cause a reduction in the expansion of the economy along with a slowdown in the increase in wages, tax revenues and public spending on infrastructure and social benefits.

In their presentation to us, parliamentarians in Hanoi suggested that the government is aware of these problems and importantly, is ready to deal with them through more deregulation and free market policies. By coincidence, the day before our meeting with these officials, a newspaper reported that a parliamentary committee had announced plans for further deregulation.

However, as the government continues on this path, it faces a fundamental conflict, which I raised in a question posed to the parliamentarians in Hanoi: “How will your government deal with the conflict between the consequences of ever growing liberalization and the maintenance of income equality required by your communist ideology?”
 
My question brought a burst of laughter among the parliamentarian, which our group were delighted to join. The chair asked one of his colleagues to provide an answer to my question, which brought the standard line that the communist party remains committed to policies that create prosperity and income equality. At the reception after the meeting, the chairman of the group shook my hand and said, “good question.”

I wish the people of Vietnam that its politicians will be able to deal successfully with the inevitable conflict between free markets and income equality. It will require them to give up much of their power, status and income. Only time will tell whether they will do so.

In conclusion, a bit of information useful to climate change skeptics everywhere. During the period 900 to 1,100 AD, the people of Cambodia had built many temples. Ten of the largest and best-preserved are fine tourist attractions. They are so large and elaborate that their construction and maintenance took very many workers who were directed by a large elite of priests and politicians. Many peasants were needed to feed these workers and elites.

What caused this society to lose its ability to maintain these temples and turn them into today’s still spectacular ruins? A guide explained that it used to be believed that prolonged and destructive warfare with neighboring countries was to blame, but that recent research by respected archaeologists has discovered strong evidence that the main cause was climate change – a prolonged drought reducing agricultural output dramatically. If this explanation is correct, cosmic forces must have been responsible since green-house gases emissions by humans at the time were trivial. Might such forces also be the main driving force behind the current global warming?

The author is Emeritus Professor Economics, Simon Fraser University and a Senior Fellow at the Fraser Institute.
He was a member of the Reform Party caucus in the Canadian Parliament in 1993-97. His political experience and professional career are described in “A Professor in Parliament”, published in 2000. Copies of the book can be obtained from the author at the cost of postage by writing to herbert.grubel@shaw.ca.

Thursday, April 23, 2020

SOME ANXIETY-REDUCING PERSPECTIVES ON COVID-19



The evidence is overwhelming that government policies reduce the spread of the COVID-19 virus. Like most Canadians, I follow the recommended policies, leave home only to buy necessities and keep the proper distance from others on my one-hour daily walk to stay fit.

Most Canadians and I followed these government policies after having read and become scared by the daily media reports of the number of infections and deaths caused by the virus. However, these reports also caused me to worry and become anxious about the risk of infection and death of my loved ones and myself (I am in my eighties). 

To deal with this anxiety I ration my exposure to the news, replace the CBC and Trudeau specials with music and entertainment on TV and only skim newspapers and magazine articles. But I also reduce my anxiety by considering some statistics that put my personal risks in perspective, using data from April 15. Here is what I found.

On that day, out of 35.5 million Canadians 27 thousand equal to 0.076 percent were infected and 898 or 0.0025 percent died. It helped my anxiety to know that my chances of getting infected are really very, very small. They are very likely to remain thus even if the number of infections and deaths continues to grow at their recent levels for some time.
   
However, it is known that the number of infections is much higher than the official data indicate. Around 18 percent or 80 percent of the population are asymptotic carriers of the virus. Does this fact imply that I should worry after all? The answer is no. While the asymptotic carriers pass on the virus and increase the number of infected, this effect is reflected in the above numbers.

Another source of worry for many is that their elderly relatives and friends are more likely to die if they catch the virus. In New York City as of April 14th, of the total 6,839 deaths caused by the virus, 25 percent were of patients between the ages of 65-74 and 48 percent were of those over 75 years old. Nearly one half of all Corona deaths in Canada are linked to long-term care facilities.

These statistics about the age of Canadians who died from the virus implies that the chances of individuals below the age of 65 dying from the infection is one half of the 0.0025 percent presented above.

However, there is another interesting aspect about the high death rates of the elderly. Almost all have one or more life-ending diseases, which in Canada every month in 2018 killed 7,072 aged 80 to 89 and 5,034 over the age of 90. These numbers are obviously much larger than the 898 Canadians of all ages who have died at the time of writing during the entire epidemic from COVID-19. This statistic should reduce the worry of some with elderly relatives of friends, though our sympathies should remain with those who lost loved ones earlier than they had expected.

A final source of worry and anxiety is that the epidemic could last a long time and cause many more infections and deaths. Unfortunately, it is not possible to predict how long the epidemic will last in Canada. However, it is possible to get a realistic assessment of these events by considering the experience of some countries at different stages of the spread of the virus.

Singapore has used very effective containment policies and ended the epidemic quickly. Its infections were equal to 0.058 percent and deaths equal to 0.0002 per cent (a total of 10) of the population of 5.6 million.  South Korea’s effective containment policies also ended the epidemic quickly. Its infected were 0.021 per cent and deaths 0.00044 per cent of the population of 51.2 million. Even if these countries will suffer a second wave of infections and deaths, they will have the experience to limit it effectively and keep the numbers small.

Italy for some time had the distinction of having the largest number of infections and deaths in the world. At the time of writing its infection rate is 0.27 per cent and death rate is 0.035 per cent in a population of 60 million.

The difference in the numbers for the three countries is explained by the timing and effectiveness of their governments’ policies used to limit the spread of the virus by encouraging or mandating social distancing and self-isolation, all backed by varying degrees of testing of individuals.

Canada’s containment policies resemble those of Singapore and South Korea more than those of Italy. There is therefore hope that the spread of virus will be stopped before too long and the ultimate infection and death rates will remain very low. However, even if the effectiveness of Canada’s policies is more like those of Italy and the ultimate rate of infection and deaths are double the present level, only 0.15 per cent would be infected and 0.005 per cent would die.

By all means, let us all keep social distance and self-isolate as long as is necessary, but stop worrying about the risk we face individually. It is very similar to that from catching the flu and much smaller than getting involved in a vehicle accident, which in 2018 injured 419 and killed 5 Canadians EVERY DAY.




Saturday, April 18, 2020

DEFINING CANADA’S MIDDLE CLASS


In November 2019, Canada’s Prime Minister Justin Trudeau appointed MP Mona Fortier to the post of Minister of Middle-class Prosperity. No such ministry has ever existed before.

During her first press conference, the Minister was asked for her definition of the middle class. Her response is summarized in the headline of a report by CTV News:

“Middle class prosperity minister says Canada can't measure who is in the middle class.”
This answer implies the existence of a serious problem for her and the government since it is impossible to adopt policies to serve people whose identity is not known.

It is a puzzle why this problem exists since there are several standard definitions of the middle class used by statisticians and governments around the world. The first considers families to be members of the middle class if they earn incomes falling within a specific range of dollar incomes such as $30 thousand and $50 thousand. Government census and other data readily allow calculation of the number of families in the group and their average incomes.

This approach provides useful information about conditions at a moment in time, but it cannot be used for the design of policies over time. The reason for this problem is discussed by Thomas Sowell, who shows that increases in incomes due to inflation or real gains in income normally experienced by all citizens of Western democracies will necessarily decrease the number and average incomes of families in the range of previously specified absolute incomes. An income of $30 thousand may have been a decent, middle-class income in 1970, but is not in 2020.

A second definition allows the creation of useful information through time by making the range of middle-class income a function of its distribution. For example, it considers families to have middle-class incomes if they are in the middle three quintiles of the distribution or, in other words, have incomes that are neither in the lowest or highest twenty percent and therefore are neither “poor” nor “rich”.  Under this definition the number and average incomes of families in the middle class keep up with economy-wide increases in prices and real income and provide information needed to deal with any perceived problems affecting the middle class.

A third definition provides the same benefits as the second but is more in tune with the current concern of politicians and governments with poverty and the incomes of the highest income earners. It has been used by the Organization for Economic Co-operation and Development (OECD), “which defines a member of the middle class as anyone who earns between 75 per cent and 200 per cent of median household income after tax. Based on the most recent data available from Statistics Canada, in this country that means anywhere from about $45,000 to $120,000.” 

It might reasonably be expected that the government of Canada’s statistical office has access to the basic statistics needed to calculate the incomes and numbers of the middle class based on the last two definitions just discussed.

However, Trudeau’s government has failed to do so for unknown reasons. Whatever they may be, they have forced two of its ministers to come up with the following strange statements:

Bill Morneau, the Minister of Finance said in the House of Commons on January 30, 2017:
“The Government of Canada defines the middle class using a broader set of characteristics than merely income…Middle-class values are values that are common to most Canadians and from all backgrounds: they believe in working hard to get ahead and hope for a better future for their children…they aspire adequate housing and health care, educational opportunities for their children, a secure retirement, job security and modest spending on leisure pursuits.”

Mona Fortier, the Minister of Middle-class Prosperity in her first press conference said:
 “Well, I define the middle class where people feel that they can afford their way of life. They have quality of life. And they can ... send their kids to play hockey or even have different activities. 
It's having the cost of living where you can do what you want with your family. So, I think that it's really important that we look at, how do we make our lives more affordable now?” 

These characteristics of the middle class spelled out by the two ministers are common to all Canadians who, without exception, want a better future for their children, aspire to adequate housing and so on. So, why appoint a minister with a big staff, high salary, big office and limousine, and charge her with improving the prosperity of all Canadians, which is the same as the professed goal of all members of the current Liberal and that of all preceding governments of Canada?

Is it possible that the conventional, empirical measures show that the middle class in Canada has done well and that the Liberals’ slogans about the need to help suffering middle-class families used during the last two federal elections are inconsistent with the facts?

Herbert Grubel
Emeritus Professor of Economics, Simon Fraser University
Senior Fellow, The Fraser Institute

Thursday, January 23, 2020


HERB'S BELIEVE IT OR NOT (with my apologies to Ripley's)

Here are some facts that may astound you.

1.     THE REPUBLICAN PARTY LOST 40 SEATS IN THE HOUSE OF REPRESENTATIVES IN THE FIRST MIDTERM ELECTION OF DONALD TRUMP’S PRESIDENCY.

It may astound some to learn how Trump’s record compares with that of the three presidents in office before him:





2.     THE SUCCESS OF GETTING CANADIANS TO COMMUTE TO WORK IN BICYCLES
Between 1996 and 2016, the number of people using bicycles to commute to and from work in Canada’s largest metropolitan areas increased by 88 percent while the total number of commuters increased by only 35 percent. Canada is doing its share of reducing green house gas emissions and saving the planet from climate change.
However, it might astound some that the number of commuters using bicycles as a percent of all commuters in Canada’s large metropolitan areas was 1.2 in 1996 and 1.6 percent in 2016.
Which raises the question whether the costly and congestion-increasing policies encouraging the use of bicycles are worth it. The reduction in green house gas emissions created by these policies is likely to equals the production of these gases by one of the coal-using electricity creating plants in China in less than one day.

3.     THE RICH ARE GETTING RICHER AND THE POOR ARE GETTING POORER
THE POOR ARE TRAPPED IN POVERTY
The first of these popular slogans is based on this table from Statistics Canada, which contains the most recent data available:
It shows that the median income of the bottom quintile (the “poor”) increased 5 percent over the 13 years covered while the income of the highest quintile (the “rich”) increased by 20.7 percent and that the middle three quintiles (the “middle class”) increase by an average of 14.3 percent.
In assessing the “fairness” of the changes in the distribution of income it is important to know that different Canadians appear in each of the quintiles shown every year. For example, many of the poor in 1999 were students, apprentices or temporarily unable to work because of illness, unemployment or moving between jobs. In later years, these individuals had incomes that placed them into higher quintiles. Their place in the bottom quintile was taken by new crops of students and others with temporarily low incomes.
Income Dynamics
The following table provides important evidence on the mobility of Canadians into and out of poverty and other income quintiles. It is based on data provided by Revenue Canada, which has electronic records of income tax returns filed by Canadians over many years, but which have been analyzed only recently for the first time.
The key information in this table is that of Canadians who were poor in 1993, in 2012 only 11 percent were still poor. 23.6 percent had incomes in the top quintile and were rich. These data suggest that the poor are not getting poorer, they are getting richer.
Of course, the 1993 poor who had become rich in 2012, as a matter of logic, must have taken the place of people who in preceding years were rich and had moved to lower income quintiles. The data (not shown here) record this: Of those who were in top quintile in 1993, 15.6 percent, 18.5 percent and 34.6 percent had respectively moved to lower quintiles 5, 10 and 19 years later.
It may be astounding to some that these two different indicators of the fairness of the distribution of income exist side by side but that almost all political discussion of the subject is based on the data contained in the first table.
When you were young, studying or entering the labour force, how much did you care about the fact that some people had much higher incomes than you and how much were you concerned that you will raise your income in the future and that Canada’s institutions enable you to do so and reward your hard work?
Our compassion and government assistance for the poor should focus on the small proportion whose handicaps cause them to remain poor for long periods of time or even their entire lives. Governments already do much to assist these unfortunate Canadians and public discussion should focus on the adequacy of this assistance, not how much support should be going to students and other temporarily poor.


4.     AUTOMATION AND ROBOTS WILL CREATE LARGE UNEMPLOYMENT.

CANADA’S AGING POPULTION WILL CREATE LABOUR SHORTAGES
Searching Google with the key words “automation robots and job losses” brought 17.9 million references. The subject obviously has been researched widely and intensively.
Here is the references to a recently, well-researched and -written study of the subject covering conditions in British Columbia, Canada, which is typical of the plethora of published studies in the field.
Searching Google with the key words “Canada aging population and labour shortages” brought 8.79 million references, another well-researched field. Here is a reference to a study of the subject published by Statistics Canada.
Searching Google with the key words “Canada aging population and immigration” brought 9.6 million references.
Here is the one at the top of the list of references: https://www.cfib-fcei.ca/en/immigrants-are-solution-canadas-labour-shortage
Searching Google with the key words “Canada labour shortages and unemployment caused by automation” brought no relevant references. Those showing up repeat the results from searching “aging population and immigration.
You may be astounded by these results. There appear to be no studies linking the increased supply of labour due to automation with the increased shortage of labour due to population aging. Is this because these trends are likely to eliminate or greatly reduce the need for government intervention? Or is it because the offsetting trends will eliminate or greatly reduce the need for immigrants to fill job vacancies?

5.     GLOBAL WARMING IS MELTING ICE, WHICH RAISES SEA LEVELS AND RESULT IN ENORMOUS ECONOMIC AND HUMAN COSTS
A Google search of “global warming and sea level rise” brings up 11.5 million references. The scary conclusion of research is that if all the existing glaciers in the world were turned into water, the world sea level would rise by 7 meters.
However, this information can benefit from some facts that may be wondrous to some.
Thus, the effect of global warming is documented extremely well by satellite pictures of the North Pole region, which are also used to support demands for controls on green-house gas emissions. These data permit precise calculations of the volume of sea ice that has turned into water every year. The graph below shows that during the years 2010 – 2017 the amount of polar sea-ice has been about a third of its level in the 1980s.
How much has the melting of this ice raised the level of water in the world’s oceans?
The answer may well astound you. The increase is exactly zero.
The correctness of this conclusion can be checked by a simple experiment: Fill a glass of water to the rim and drop into it an ice cube. Water will spill over until the glass is again full to the rim. Now watch what happens as the ice cube melts. You will see no more water spilling over the rim of the glass.
The same physical laws producing this result prevent the melting of the sea ice on the North Pole from raising the quantity of water in the world’s oceans.
At any rate, Greenland and the Antarctic make up 99 percent of the total ice on earth. Satellite images have been used to calculate that the cumulative amount of ice from these locations turned into water came to 6,500 gigatons between 1992 and 2014.
But as in the case of the switch to the use of bicycle used by commuters, these figures need to be seen in relation to the total: The volume of the Antarctic ice alone is 30 million cubic KILOMETERS. Someone had fun calculating that this is equivalent to 9 raised to the power of 1016 ice cubes! I could not find on the internet how many gigatons these ice cubes weigh, but the number is likely to be so large that the 6,500 tons lost in recent years is a very small fraction of the total.
IN CONCLUSION
The wondrous facts presented here do not imply that the world is free of trends in politics, income distribution and global climate that could develop into serious economic, social and environment problems for Canada and the world or that nothing should be done to fight them. But these facts should be useful for keeping recent developments in perspective and for raising questions about the effectiveness and certainty of current or planned policies designed deal with these problems and often promoted by individuals and institutions with political and ideological agendas.
The population of the world is better off than it has ever been. It is not in the interest of that population that the institutions and policies that produced this condition will be reformed in the name of preventing problems, the nature and magnitude of which are exaggerated and uncertain.
I will share with you future instalments of my Believe-it-or-not stories, especially if you encourage me to do so.



SHOULD CANADA COPY AUSTRALIA'S IMMIGRATION POLICIES?



Robert Gregory is a distinguished Australian economist, who at a recent academic conference had this to say about immigration policy issues in his country:

“Over the last decade, …net overseas migration added between 1 and 1.2 million people every 5 years to the Australian population (around 5% of the population stock) …As a result, the infrastructure in Sydney and Melbourne, our two major cities where immigrants largely settle, has become increasingly inadequate…The Australian current housing boom…is being generated by… low interest rates and the [fact] that Australia has more people than expected… Government and all segments of the population at large have become increasingly dissatisfied with [these problems]…Australian immigration authorities therefore have begun to reduce the granting of permanent immigration visas.”

This account of conditions in Australia pretty well describes those in Canada. Immigrants have:

·       added to Canada’s population four percent over the last five years and are scheduled to add even more in coming years.
·       settled mainly in Canada’s largest cities, Toronto, Vancouver and Montreal. More than 300 newly arrived immigrant families are settling in the Vancouver Metropolitan are EVERY WEEK.
·       caused Vancouver housing costs to be the second highest of all North American cities.
·       caused serious traffic congestion. Schools, recreation and other public facilities are overcrowded. Hospitals in Ontario routinely place patients in linen closets and hallways.
   
Public opinion surveys show that most Canadians want their government to reduce the number of immigrants.

However, the response of Canada’s government to these conditions has been much different from Australia’s. Australia has reduced immigration; Canada has increased it, to unprecedented levels of over 300,000 annually.

Canadians, including the many recent immigrants, in the country’s large cities suffer much as a result of the government’s immigration policies. Their suffering could be reduced by cutting the total annual number of immigrants to 100,000 for a limited period of time.

During this period, construction could increase the supply of housing and infrastructure facilities to eliminate the current shortages; government agents could apply their limited resources to the selection of immigrants with the greatest prospects of economic success; and information could be gathered about the number of immigrants whose demand for housing and infrastructure facilities can be met by the construction industry and financed by governments.

When politicians increase immigrants to this optimum number, they can expect to be rewarded by voters at the ballot box.

Herbert Grubel
Emeritus Professor of Economics
Simon Fraser University













Tuesday, December 17, 2019

Germany’s Social Market Economy for China and Canada?



China’s use of a mix of central planning and competitive markets has increased the country’s national income dramatically for two decades. However, recently economic growth has slowed, and some serious planning mistakes have been made.
In the light of these developments, it is interesting that some high-ranking Chinese economic policy makers recently asked two German economists to let them know what policies had been used to create Germany’s rapid economic recovery after the devastation of the Second World War, its solid economic growth thereafter and its protection from the worst effects of the global recessions of 2001 and 2008, implying that China’s leadership may be in search of solutions to the problems its development model has produced.
These two economists sent to China a collection of essays, which explain the Social Market Economy Model (SMEM) that was used by Germany’s Chancellor Konrad Adenauer and his Minister of Economics Ludwig Erhard to shape the country’s early postwar economic policies in spite of much opposition from politicians who preferred socialism and economic planning. The model presently still informs most of Germany’s economic policies.
This model was developed by economists at the University of Freiburg in Germany. It argues that national income is maximized if individual and business incomes are determined in free markets for production and distribution while government regulations and spending are used to meet the requirements of the needy, provide public goods such as defence and construct economic infrastructure such as highways.
The effort of China’s leaders to improve its economic performance by learning about and adapting policies that have been successful elsewhere is not without precedence.  Deng Xiaoping in the 1980s considered the prosperity of market economies and replaced the centralized planning model with one that imitates their economic system.
The SMEM model should also be considered by Canada, which is experiencing a period of growing economic problems: low rates of growth, investment and productivity while unsustainable fiscal deficits are growing. These problems are in part caused by policies that violate the operating principles of the SMEM model in several important areas.
For example, farmers wanting to produce dairy products have to buy quotas and, in effect, join a cartel, which sets production levels and prices at which the farmers are allowed to operate. The farmers earn high and stable returns on their investments, but the industry operates with many inefficiencies and consumers pay much above world prices. The SMEM model suggests that these costs would be avoided if the production and sale of dairy products were left to competitive markets and farmers were paid subsidies out of general tax revenue at levels considered to be socially desirable.
Another example involves the market for medical services. Canada’s governments effectively own and operate institutions and employ health care workers to provide the public with all required medical services at zero cost at the point of use. This policy is designed to ensure that all Canadians have access to medical care regardless of their level of income. The SMEM model suggests that the medical services should be provided by the private sector and that subsidies should be paid to those who cannot afford to buy them.
Yet another example is the housing industry. Many municipalities impose regulations that allow the construction of multiple housing units only if builders spend funds on public art and build units to be sold or rented at below-market prices. These regulations raise the cost of all housing unnecessarily. The SMEM model suggests that builders should be allowed to produce housing without facing these regulations so that it can be constructed and sold at the lowest prices possible. General tax revenue should be used to pay for socially desirable art and subsidize those who cannot afford housing at market prices.
The drift away from SMEM in Canada has reached a peak with the 2019 passage of Bill C-69. It requires private investors in pipelines and other large infrastructure projects to obtain a “social license” by compensating all “stakeholders” whose interests are damaged by these investments. This bill will raise the cost of infrastructure investments and the services they provide for consumers. The SMEM model suggests that these costs should be avoided by allowing these investments to proceed without having to incur the costs imposed by Bill C-69 and that stakeholders’ interests should be taken care of by payments from general tax revenue.
Canadian politicians love imposing on private investors and producers the cost of non-market benefits of the sort just described. It allows them to buy the votes of the recipients of these benefits without having to impose vote-costing taxes on the public. But in the process, they are destroying the free market system that has brought Canada one of the highest standards of living in the world and history. They should consider the cost of the increasing abandonment of SMEM-model based policies, especially Bill C-69.
Herbert Grubel
Emeritus Professor of Economics
Simon Fraser University
Senior Fellow, The Fraser Institute