Sunday, April 7, 2024

Bank of Canada missteps helped fuel today's inflation

 According to Statistics Canada’s latest consumer price index report, in February the annual inflation rate fell to 2.8 per cent, raising the prospect of interest rate cuts by the Bank of Canada sometime this year. “Inflation is caused by too many dollars chasing too few goods” used to be the traditional diagnosis of the cause of inflation, prompting central banks to fight it by slowing the growth of the money supply. This approach is based on what is known as the “monetarist” theory of inflation, which suggests that supply shocks such as those associated with the COVID pandemic do not cause inflation but only a temporary increase in the price level, which is reversed once the cause of the shock ends—unless the money supply has increased.

In recent decades, central banks have fought inflation using interest rates instead of monetary growth. This switch followed the postwar success of Keynesian theory, which blames inflation on excess aggregate demand, which higher interest rates are supposed to curtail.

Targeting interest rates can work if central banks simultaneously pay attention to money growth, but too often they’ve failed to do so. Equally, targeting the money supply can create inflation-fighting interest rates. However, interest rate targeting in practice has a serious shortcoming. Aggregate spending is influenced by real interest rates while central banks can set only nominal rates and real rates are beyond their control because they cannot change inflation by any direct policy.

This important problem arises because, for example, a nominal interest rate of 6 per cent turns into a real rate of minus 2 per cent if the expected inflation is 8 per cent. At that rate, investors can borrow $1 million at 6 per cent, use the money to buy real estate, sell it a year later after it has appreciated at the expected 8 per cent, repay the $1 million and take home a capital gain of $20,000. In other words, the high expected inflation rate incentivizes consumers and businesses to borrow more, which results in faster money growth and risks even higher inflation.

The expected rate of inflation exists only in peoples’ minds and is determined by many factors. The Bank of Canada collects as much information as it can, drawing on the results of public surveys, the information contained in the prices of so-called Real Return Yields, and sophisticated economic models produced by the Bank’s economists. But these efforts do not result in reliable information, as evidenced by the uncertain and speculative nature of economic forecasts found in its economic updates.

The problems associated with not knowing the real rate of interest have persuaded some economists, called “monetarists,” to urge central banks to target the money supply including famed economist Milton Friedman whose monumental study of the history of U.S. money supply and inflation inspired many including David Laidler, emeritus professor at the University of Western Ontario, and Britain’s John Greenwood who maintains a large database he used to create the accompanying graph.

Chart

This graph shows Canada’s annual rate of inflation (measured on the left axis) and the annual rate of growth of the money supply (M3) (measured on the right axis) for the years 2014 to 2024 using data published by the Bank of Canada and Statistics Canada, which require little manipulation. The annual percentage change in the money supply is averaged over 12-months, as is done widely to smooth data that fluctuate much over short periods; and the resultant time series is shifted forward 18 months, to achieve the best fit between changes in money growth and changes in inflation in the monetarist tradition, which has found the lag to have been variable historically between 12 and 18 months. (Thus, the peak smoothed money supply growth rate of more than 13 per cent occurred in February/March 2021, but is shown as occurring in August/September 2022, some 18 months later and close to the peak of inflation in June 2022.)

The correlation between the quantity of money and inflation shown is not perfect but strong enough to justify the conclusion that Canada would have avoided the inflation starting in early 2021 had the Bank not increased the money supply so dramatically during the first year of the pandemic.

In 1994, John Crow, then-governor of the Bank of Canada, presented to a parliamentary finance committee a report on the economic outlook. One of the authors of this op-ed (Grubel) was at this meeting. In response to his question, Crow said that the Bank’s econometric forecasting model did not include data on the money supply but that he always looked over his shoulders to ensure it does not get out of line. If his successors had followed his practice, perhaps Canada’s present inflation would have been avoided.

But then it would not be possible to test the usefulness of the model, which draws on money supply growth data over the last 18 months to predict that inflation should fall to 2 per cent near year-end 2024 or early 2025.

If the prediction is realized, however, Canadians should not expect the lower inflation rate to result in lower costs of living. That would happen only if the Bank made the money growth rate negative, something history suggests is unlikely because it usually resulted in recessions. How much better it would have been if the inflation genie had never been allowed out of the lamp.


Herbert Grubel and John Greenwood


Published by the Fraser Institute Blog :

 https://www.fraserinstitute.org/blogs/bank-of-canada-missteps-helped-fuel-todays-inflation

Wednesday, February 7, 2024

A GREAT CAFP TRIP TO TAIWAN, HONG KONG AND MACAU

 My wife Helene and I just returned from a two-week trip to these three areas. We were members of a group of 7 former members of the Canadian parliament (all Conservatives, except for one NDPer) and 6 of their spouses and friends. 

The trip was managed by the Canadian Association of Former Parliamentarians (CAFP), which you should know, did not subsidize it. The CAFP secretary Carolina Moore accompanied us and made sure we made all our appointments and that all the bills were paid.

The itinerary and logistics of the trip were handled by Chungsen Leung (CS), with the assistance of Dorothy Dobbie. CS was Parliamentary Secretary in the Stephen Harper government, serving Jason Kenny, the Minister of Immigration, Citizenship and Multiculturalism. Dorothy Dobbie was Parliamentary Secretary with for different ministers in the Brain Mulroney government. Both CS and Dorothy lost their seats in the 2015 election.

CS was born and raised by a family that came to Taiwan with Chiang Kai-shek who fled the mainland of China after his defeat by Mao in 1949. CS earned degrees in political science and commerce at Carleton University and engineering at the University of Southern California, pursued a successful career in business that often took him to the three countries we visited. He became a Canadian citizen in 1976 and in 2011 he was elected to parliament.

CS drew on his personal and professional background to arrange this trip that he believed would increase our understanding of the culture, politics, and economics of the region and lead us to share this information with friends, family and importantly, influential Canadian politicians we know. His effort created a most informative and interesting itinerary involving a good mix between visits to interesting tourist spots, cultural landmarks, economic establishments, and meetings with political office holders and government officials.

THE FLIGHTS AND OUR GUIDE

The trip’s flights were on EVA Airlines of Taiwan (its privately owned national airline), which used seemingly brand new Dreamliners and the world’s longest plane the 777, very efficient staff and fine meals to serve us. For the first time in ages, we got to use real steel knives and forks to eat our meals. I guess we were just lucky. No one tried to use the knives to hijack the plane.

The overnight nonstop flight to Taipei took eleven hours from Vancouver and 15 hours from Toronto. Somewhat disoriented after landing, we were met by our mother hen, Ting, who provided us the best tour service any of us had ever experienced. She spoke English well, was superbly organized, helpful and informed about the places we visited. Museums tend to bore me after a short time, but Ting made near three hours at the National Palace Museum of Taiwan fly when she took us to a limited number of culturally important items and explained their historic and artistic significance. This museum is an unrivaled collection of the best Chinese artifacts in existence. Chiang Kai-shek had brought them to Taiwan when he fled the mainland in 1949.

Early during the trip, we learned the value of having Ting as a guide. She made us leave the hotel for the museum at 8 am to avoid the large crowds arriving there later in the morning. When we left the museum in the middle of the day, about 20 large buses were in the parking lot, all on tours organized by gigantic cruise ships in the harbor. The exhibits in the museum by that time were uncomfortably crowded.  

HOTELS AND TRANSPORTATION

During our trip, a large comfortable bus (built by MAN, a German company) took us everywhere in Taiwan. We stayed in first-class hotels there and Hong Kong, except for one in a national park in the mountains of Taiwan, which is run by an indigenous tribe and was slightly less luxurious. It is known for serving a dish of meat of farm-raised wild boar, Taiwan spotted deer, wild pheasant, and rabbit. We all much enjoyed the barbecued boar.

All hotels we stayed in served great breakfast buffets with dishes for both Chinese and Western guests. I did not become a fan of Chinese breakfasts, but Helene did.

The Grand Hotel in Taipei was home for nine days. It is one of the grandest hotels we have ever seen, no less stayed in. Its design is based on a Chinese palace with decorations in red, gold, and purple, which were used traditionally in palaces of Chinese emperors and many temples.

The hotel was built in the 1950s, has 12 floors, a 10-lane swimming pool and four tennis courts, overlooking Taipei from a small incline. It can hold 600 guests in very large and modern rooms with gigantic porches. It has a very large dining room. The decoration is classic Chinese, with as we were told, over 210,000 images and sculptures of dragons of all sizes.

We visited a tunnel that was built to allow Chiang Kai-shek, who lived there for many years, to escape in case of a Chinese invasion. Photos along a wall show the many celebrities who have stayed there in the past, Eisenhower, Lee Quan Yew, Elisabeth Taylor, Richard Burton, just to mention a few. On a weekend we witnessed the wedding of 50 couples who were employees of Taiwan’s largest telephone company, an event sponsored by the company and taking place periodically. The company has a supply of Western wedding dresses that are used for the purpose.

Ting took us to lunch regularly in large restaurants with sometimes more than 300 seats used by Taiwan’s flourishing tourist trade. We sat at turning tables large enough for all 13 of us. The many dishes from a pre-set menu were good, even for my Western taste.

I think that the set menus unfortunately usually provided more food than we needed.  CS explained the reason for this. The Chinese feel that if there is any food left over, not enough was served and they are ashamed for not having given guests their money’s worth. I have learned that in fact left-over food is usually packaged and sent to the less fortunate but is destroyed for sanitary reasons if it has been picked over.

Evening meals, most of the time, were arranged in more sophisticated venues and served more reasonable amounts of food, along with wines and the usual, good Taiwanese beer, which is brewed using German recipes that first reached Asia in the early 19th century.

The best evening meal was served in the China Club in Hong Kong, where we had our farewell banquet. It is an old, British style colonial club that did not allow Chinese patrons until after WWII and is now owned by the Bank of China. CS somehow managed to get us invited. The food and drink were excellent, the club’s d├ęcor transported us to the 1930s with interesting historic pictures on the wall, (many showing Mao), the waiters wearing colonial style uniforms and a small band playing Western music. The food and drinks were a nice fusion of Chinese and Western cuisine.

THE COUNTRY AND ECONOMY

Taiwan in an island the size of the Netherlands with a population of 23 million, 95 percent of which are ethnic Han Chinese, 2.5 percent are native and 2.5 Pacific Islanders, the same stock of people as the indigenous New Zealand Maoris and the Malays.

The climate is tropical-to-temperate with average temperature of 18 degree Celsius in January and 29 Celsius in July, when day temperatures can be in the upper 30s with high humidity. Portuguese sailors from Europe visited the island in 1400s and are believed to have named it Illa Formosa, the beautiful island. The land outside the cities and cultivated areas are covered with a thick growth of tropical vegetation. 

Taiwan is on the Pacific ring of fire and has many earthquakes, which explains why all larger buildings and the many elevated freeways have concrete columns that are one to two meters thick, and very deep foundations reaching bedrock. The collision of the earth’s plates is responsible for a high mountain range that covers the eastern third of the island, with the highest peak reaching 3,000 meters, occasionally sporting snow enough for skiing.

The country’s economy during the last 50 years or so thrived under democratically elected governments and free markets with protected property rights and wise public investment in infrastructure, education, science, and technology. It has 137 universities and colleges with 172 thousand students in Masters, and 29 thousand in PhD programs. According to the Ministry of Education, the country’s total number of doctoral degree holders in 2015 was estimated to be over 130,000. This number has grown steadily over the past decade.

Several important indicators of free markets and the success of its government policies encouraging the development of science-based industries are that the country ranks 6th on Economic Freedom and 7th on Competitiveness in the world; its per capita income is equal to that of Poland and Sweden, per capita income adjusted for PPP is equal to that of Austria and the Netherlands at US$59,398.  In the second quarter of 2023, Taiwan Semiconductor Manufacturing Company (TSMC) recorded a market share of 56.4 percent in the global semiconductor foundry market. Taiwan ranks 14th in global trade, 4th largest trading partner for Canada after the United States, China, Japan, and South Korea.

Cars on the road in Taiwan are about half each from Japan and Korea, with a few German luxury cars. The traffic is heavy during the day and very congested during rush hours, despite an abundance of freeways, some subways and many public buses. The traffic is disciplined. Blowing horns are rarely heard.

We noted one interesting technical innovation guiding traffic. A tunnel through the mountains about 10 kilometers long was opened recently. Every 250 meters, a sign indicates the minimum speed of 70 km per hour. Ting told us that cars travelling at a slower speed are reminded of their violation over a loudspeaker at the next sign. The purpose of the system is to maintain the tunnel’s optimum flow-through. Maximum speed limits are not posted!

Taiwan’s downtown streets are lined with small stores serving many goods and services. One of them has a large sign in front saying GOD. I was unable to discover what it was selling but we have a photo of it taken from a distance. The 7-Eleven chain of stores in very large numbers meets most of the public’s demand for groceries and simple meals. McDonalds and Pizza Huts also operate some restaurants. We saw signs advertising Amazon and Costco.

One of my interests as an economist is in the way countries organize their universal public health care systems. Canada has one of the costliest systems operating with the longest wait times for diagnostics and treatment. In Taiwan and Hong Kong our guides told us that their populations were satisfied with the services they received from their systems. For me, the most important difference is that these countries charge patients modest visiting fees while Canada does not. This information is available in relevant publications but I found it interesting to have people with actual experience using the health care systems report how it works and how it affects them. My belief in the benefits of user fees received another boost.

VISITING TOURIST SPOTS

During the first two days after our arrival in Taiwan, we were deliberately treated to sightseeing trips that put little burden on our brains and energy and allowed them to recover from jetlag caused by the long hours of flight from Vancouver and the 8-hour time difference.

The mountains in the north-east of the country are spectacular with slopes so steep that in the Alps they would cause serious avalanches. In Taiwan they cause raging floods during the monsoon season and occasional typhoons. We visited some places where the sides of the mountains were near vertical, some hundreds of meters tall and close together, creating most spectacular canyons through which rivers rage with tremendous force during the rainy season. During the current dry season, we saw many large white boulders at the bottom of the rivers. They are marble, which used widely in construction and artwork. We saw many varieties of beautiful birds and butterflies that exist only in Taiwan.  

The tallest building by far in Taipei is the “101”, an office tower, you guessed it, 101 stories tall and for a while the largest building in Asia. We rode to the top in a fast elevator and had a good view of the city, but the facilities were much the same as in tall towers in other cities of the world. The only difference was that, because of Taiwan’s frequent earthquakes, near the top of the building a huge ball made of iron was hanging there to keep the building steady when the earth shakes. At the end of our trip, we visited Macao, whose landmark tower boasts the world’s highest bungy-jumping facility, which we watched with interest as the jumpers flew past our window at free-falling speed, with the mouth open, probably emitting a long scream we could not hear. No one in our group took the opportunity to acquire bragging rights for having done the world record bungy jump. We all lived.

Another tourist spot visited was a small coal-mining town that lost its industry and was about to be abandoned, when someone came up with a very profitable idea. Produce, and for $20 sell paper bags about four feet tall and two feet across, use a small frame to keep them open, put some flammable material at the bottom of a frame to keep them open, light the flame, see the bag bulge with hot air, rise and get carried away by the wind.

The four sides of the balloon carry requests written by the buyers: Happiness, Riches, Babies etc. that their launch is expected to fulfill. Helene and I can report that all our wishes were met. And we are glad to know that residents of that town are paid for finding and returning the scarred remains of the balloons from where they had landed, preventing pollution of the environment. Many tourists launching balloons are saving the town from oblivion.

A trip to the coast north-east of Taipei brought us to spectacular geological formation shaped by the ocean but also to a spot with a disturbing history – a recently abandoned copper mine with some of its buildings still standing. The river flowing from the mine site into the ocean is so polluted with mine tailings that it discolors the water over a large area. The discoloring attracts many tourists for which a tall viewing stand has been built at the water’s edge. Apparently, no plans exist to clean up the mine-site.

Equally memorable is one part of the mine’s history. During the Second World War, the Japanese government used prisoners of war to produce copper needed for the war effort. 1,600 prisoners became mine workers, only 200 left the mine alive. The rest died from hard labor, illnesses, and starvation.

TAIWAN INDUSTRY

One day we visited Hsinchu, the region about an hour drive southwest of Taipei in which the semiconductor industry is located. CS arranged for us to get there by a high-speed train, which left us impressed by the sophistication of Taiwan’s transportation infrastructure, much as he had planned.

Our bus had driven to the local train station and took us to the area in which the semiconductor plants are located, the most prominent of which is TSMC. The landscape is flat and served by a large network of roads used by few cars. It is dominated by large, cube-shaped buildings set wide apart, virtually without windows and built of the concrete seen everywhere in the country. Grand driveways lead to imposing entrances.

The configuration of these buildings is dictated by the need to produce semiconductors in rooms where the interior air is 20 times cleaner than ambient air. The production of each of these electronic marvels in this super clean air takes about 10 to 15 days and involves embedding millions of tiny transistors in as many as 100 layers of silicon. They are in great demand by industry around the world, including weapons manufacturers.

The production process requires much electricity and water, but most important, highly skilled workers. The high income of these workers explains why fancy passenger cars from Germany are seen much more often than they are in the rest of the country.

Our group visited a large, gleaming, modern office building housing the Hsinchu Science Park. The director of the institution told us about the key role played by research and development in the maintenance of the local industry’s global leadership. This work is coordinated by the institution he heads and is financed by the independent chip producers and by the government.

Brought up was also the important role played in the success of the industry by the availability of highly trained scientists, many of which have PhDs in science and engineering. Despite large university training programs and opportunities for study abroad, the industry is booming so much that seemingly there always is a shortage of workers.

It is interesting to note here an abbreviated account of the role played by Morris Chang in the creation of TSMC and the semiconductor industry in Taiwan. He was born in China in 1931 and emigrated to the United States in 1949 where he studied at Harvard, MIT and Stanford. He earned a PhD degree in electrical engineering at the last university. He was employed by Texas Instruments, where he became the head of the engineering division. In 1987, after having served as the leader of a government sponsored research institute in Taiwan for a few years, he founded TSMC, drawing on his research experience and work with Texas Instruments. The outstanding, global success of the Taiwan semiconductor industry owes much to Morris’ leadership.

The importance Taiwanese society attaches to high levels of education became clear to us as we had the privilege to have a meeting with the mayors of Hsinchu and Taiwan. The former is a woman with a PhD in electrical engineering from the University of Cincinnati. The latter is a man with a law degree from the University of Pennsylvania and a PhD in Business from Drexel University. Both spoke informally in perfect English, but interestingly, during the formal address, they spoke mandarin translated into English for us, which according to CS is practice commonly used in all Asian countries.

While it was interesting to see the meeting chambers for city politicians and observe the ceremonial process around their talks, as well as their skillful handling of questions, the substance of their talks was not particularly informative and more suitable for possible investors and future residents of these cities than for me and most in our group.

We visited two successful businesses that were started about 40 years ago by courageous local entrepreneurs. One produces Scotch whisky sold under the Kavalan label. The production facilities are modern and large. We saw enormous stainless-steel vats and rooms filled with hundreds of barrels containing aging whisky. Sales of the whisky are in Taiwan and mainly other Asian countries. This commercial success is explained officially by the factory’s access to a reliable supply of good water flowing from the large mountain range nearby. Helene and I bought samples of whisky from barrels of different age and wood at rather high prices, but since we are not connoisseurs of the brew, we could not decide that the company’s success is based on superior quality. Still, we were impressed that a semi-tropical Asian country could become as successful as it did in an essentially Scottish industry.  

The second factory we visited also was founded about 30 or 40 years ago. It produces carvings made of jade and marble, stones which are found readily in the nearby mountains. These stones are used in jewelry and in artistically stunning figures of animals, buddhas, other humans, vases, and furniture. The color of the carvings ranges from the deep green of jade to multi-colored, mostly white marble.  

These carvings are displayed in large showrooms and many of them are of a quality suitable for museums. Their prices are not displayed but we discovered quickly that we could not afford any of them, no less pay the cost of shipping them back to Canada. The parking lot for the show room is very large, the staff is numerous, well-informed, and courteous. The commercial success of the firm is great and obvious. I wished I knew who the buyers are and where they live. Nouveau riche from China, who came to Taiwan in large numbers before the development of recent political tensions?

MEETINGS WITH POLITICIANS AND CIVIL SERVANTS

I already described our meetings with the two politicians who serve as mayors of Hsinchu and Taipei. After we left the meeting in Hsinchu, we learned that its mayor was under investigation for corruption, allegedly for having her husband on the payroll for work he was not doing. Her demeanor did not reflect her troubles, which are alleged to reduce her chances to becoming a major player in national politics.

Mayors of Taipei have several times in the past become the Presidents of Taiwan. The appearance and manners of the present mayor who addressed us suggested to me that he may well end up in this highest political office.

We had a meeting with several employees of the Taiwan Ministry of Foreign Affairs and former, now retired ambassadors to Canada. They told us about the country’s achievements and challenges. I was much impressed by their accounts, but the most fascinating topic discussed involved the threat of invasion by the PRC.

The important conclusion I took away from these discussions is that highly educated and sophisticated people cannot agree on the seriousness of the threat. On one extreme is the view held by some that no invasion will ever take place because the costs to the PRC would be too high and the returns not worth it.

On the other extreme is the view that an invasion could take place if China suffers major domestic problems, which cause its leaders to use foreign conflict to rally the population, as political autocrats have done many times in the past. This conclusion was given weight by the observation that China currently suffers serious problems in the housing industry, slow economic growth, and youth unemployment at around 30 to 40 percent.

All commentators suggested that, at any rate, the government of Taiwan would be wise not to provoke China unnecessarily with domestic and foreign policies that challenge the status quo.

In the end, I did not learn anything that was new to me concerning the basic issue, but the widely differing views expressed by people who should be well informed about it led me to appreciate, more than before, that we live in a complicated world of great uncertainty and many risks, and to be sceptical about the wisdom of anyone who thinks he or she knows when and how it all will end.

TRIP TO HONG KONG AND MACAO

Hong Kong is two hours from Taipei by plane. We flew there on November 4th and were once again met by a competent professional guide and a bus. The HK airport is as impressively large and modern as I remember it from previous visits.

We were taken to the Harbor Grand Hotel in Kowloon, a recently renovated, modern high-rise building at the edge of HK harbor with a great view of the city and ship traffic. It is a couple of kilometres from downtown Kowloon and was chosen by CS because the rooms cost only $300 rather than the $500 there.

The city was much the same as it was during my last visit, when Jimmy Lai took me for a ride on his yacht for a lunch, swim, and discussions with a group of prominent local politicians. I was saddened knowing that Jimmy was now languishing in a Chinese jail, accused of subverting some laws China had passed to control its politics and development, and that his publishing empire had been destroyed.

We visited some local tourist spots and had an emotional ceremony at the Canadian War Cemetery a few days before Canada’s Memorial Day. The highlight of the Hong Kong visit involved a trip to a small, remote fishing village known as Po Doi O in Cantonese, located in the New Territories, at the end of a windy road to a small scenic bay.

We reached this place driving through an area in which are located some single-family homes on a single lot, resembling conditions found in North American cities. We walked a short distance from the end of the road to a wild set of small buildings seemingly in need of repair, surrounded by fishing gear and boats. In the center of the village are two restaurants. They are totally untouched by the modernity of Hong Kong and operate large aquariums filled with live, locally caught fish, lobsters and mollusks thriving in a heavy flow of water from the bay.

These creatures were the main ingredient in an unforgettably tasty menu of seafood in one of the two restaurants, served in a simple room open to the flow of air from the bay. The restaurant’s reputation is warranted, and its commercial success was obvious to me when I saw a large rack of wine bottles imported from Europe, obviously for many guests like us rich enough to buy them. A few bottles of these wines complemented the outstanding dinner dishes. The simple environment was a nice change from that in the more sophisticated and efficient restaurants we had visited in Taipei and Hong Kong.  Special thanks to CS for taking us to this place.

Richard Wong, Professor of Economics at the University Hong Kong, who earned a PhD in economics from the University of Chicago, a few years after I had left there, and whom I had met on several occasions at international gatherings of economists. He gave us an informative talk about conditions in Hong Kong while we all ate breakfast at the Harbor Hotel. The highlight of this talk for me was his explanation of the existence of a labor shortage in the country, which is responsible for the shortage and high cost of local hotels.

He blamed the labor shortage on severe restrictions on immigration from the mainland, which in turn have been imposed to limit the shortage of public and high prices of private housing. Efforts are under way to remedy the housing problems using a unique strategy.

All land in HK is owned by the crown. Private builders are invited to develop building projects that involve the construction of two 30-story (or more) towers for public housing (mostly 150 square feet per apartment), and the construction of one such tower for private apartments, which the developer can sell in sizes and at prices determined by free market competition. The government does not charge the developers for the land but expects them to use the profits from the sale of the private housing units to pay for the cost of constructing the public housing. Richard stressed that while this model works in HK, it cannot work in other jurisdictions where suitable building land is owned privately.

A major cause of the labor shortage in HK is rooted in its history. According to Richard, some years ago, when it became possible, many unmarried HK male residents travelled to China and married young women, most of which lived in rural areas. The newly married couples lived in public housing. Recently, the husbands in these marriages have died of old age and left the wife the owner of the apartment, which they are unable to sell for a profit under existing regulations. These women pay very low rents, enjoy a public pension and income from assets left by their deceased husbands. They do not have to work. Richard considers them to be rentiers. The labor shortage is also increased by the fact that many young people are working as real estate agents, where they are earning high incomes, living also like rentiers.

One morning while in HK we travelled to Macao, a former Portuguese colony, now a part of China but with limited autonomy and borders controlled by the PRC. A few years ago, I had visited Macao, travelling there from HK on a high-speed ferry. This time the trip was on a bus using the world’s largest bridge, which is 52 km long with a few tunnels constructed to allow the passage of vessels going to and from Chinese harbors.

The hour-long drive was boring but the infrastructure serving bus passengers at both ends of the drive is very large and modern. Macao government agents deal with visitors and returning citizens in a hall in which 50 customs agents can do their work, facing possible line-ups of thousands of travellers.

Alas, this facility was virtually empty. Covid had stopped all visits. Our guide told us that we were the first group of more than ten visitors his company has serviced since the end of the epidemic. However, the many casinos with names indicating Las Vegas ownership appear to do well. They now charge visitors $100 even if they just wish to see the gaudy facilities. We skipped that opportunity, which during my visit a few years ago cost nothing.

The tourist part of town is small and very touristy around the ruins of an ancient church and Portuguese fortification. An ancient temple turned out to provide most interesting experience. Parked outside in a no-parking zone was a white Bentley with a driver at the wheel. The car was probably owned by an actor involved in filming in the plaza in front of the temple.

The Taoist temple offered an interesting contrast. It contains many opportunities to buy and burn incense, some several inches in diameter and tall as a human. A small oven, shaped like a pagoda, provided a young couple the opportunity to burn in it fake paper money and replicas of a car and house. We were told that his custom is to provide a recently deceased person with things for the afterlife that he or she had most treasured while alive!

From the top floor of Macao’s tallest tower, the guide pointed to concrete pill boxes lining at regular intervals the Chinese shore of the river dividing the two countries. These facilities were staffed by soldiers with rifles, who shot anyone trying to cross the river into Macao. Border guards on the Macao side of the river are authorized only to send back anyone making to their side. This practice shows again the irony that the socialist/communist workers’ paradise with perfect equality of income faces the need to prevent their citizens from leaving for capitalist countries where workers are allegedly exploited by employers and incomes are criminally unequal.  

A visit with Rachael Bedlington, Consul General of Canada in Hong Kong and a senior member of the consulate’s staff provided us with interesting information about conditions in the territory under the new laws imposed by China but was unwilling to give us her personal views on the likelihood and timing of China ending the special status of HK and annexing Taiwan using military force.

THREE NOTABLE CHINESE CUSTOMS

I came back from our trip impressed by three interesting, uniquely local customs.

First, we visited the Lin Manson Mansion and Garden in Taipei. It was built in the middle of the 19th century. Ting explained that many of its architectural features were shaped by the desire of its owners to obey rules of Feng Shui, which translates into Wind and Water, both important elements of life and designed to create balance between ying and yang, good and evil, and to appease malevolent spirits.

This desire is alive today and, as one example, leads to the absence of the 4th floor in our hotel, the towers we visited and other buildings. The number 4 stands for “death”. On the other hand, the number 8 stands for “good fortune, wealth and prosperity”. I already noted the burning of paper money and effigies to please deceased relatives.

I find it surprising that the modern HK and Taiwanese society relies on such examples of what I would call irrational practices when, on the other hand, it fully embraces modern science and rational analysis of real-world phenomena. I wonder how widespread, economically costly, and important in practice is the use of Feng Shui in Taiwan, HK, and China and among the Chinese diaspora in Canada, where dwellings with street numbers containing the number 4 can be found to sell for less than comparable dwellings in the immediate neighbourhood and sometimes the number is replaced with the permission of local authorities by such hybrid number 3-5.

A second surprising cultural feature of the country is that every member of our group was presented with a gift at the end of every visit, for example attractive wooden boxes containing cans of expensive tea, electronic gadgets, ceramic cups and saucers, and neckties for men and scarves for women. The gifts are meant to be enjoyed and a lasting memory of our visit to Taiwan. Helene and I had to buy an additional suitcase to take home the loot. We are still trying to decide what to do with it.

Finally, Helene and I for the first time in our lives attended an event that closed with karaoke singing. It took place in a large building of the Overseas Chinese Association, which provides a cultural link with the Chinese diaspora in many countries of the world, which has a common culture, and educational, family and clan relationships. At the end of a fine dinner and drinks, the host sang a Chinese song with recorded background music playing, and the song’s words and a sexy dancer appearing on a 30-foot-wide screen.

We could not sing along but felt the room’s atmosphere getting lighter and happier. After many invitations to take a turn singing and with the encouragement of some wine affecting my judgment, I responded by offering to sing “I did in my way”, hoping that they did not have the song in their library. In the end, they did, and I belted out the words appearing on the screen and accompanied by a good jazz band. Everyone in the room joined the singing at volumes so high that I am certain no-one actually heard my singing. My reputation as a singer has survived.

We all left the venue on an emotional high. Helene and I will try to get our family at the upcoming Christmas gathering to join in a rendition of “I did it my way”, hoping to make this Christmas even more memorable than those in the past.

We enjoyed this CAFP study trip very much, just as we had previous trips to Malta and Vietnam. Our experience made us appreciate even more the privilege of living in our great country but also raised our understanding of the complexity and richness of the world we live in, and how really small part of it we are. Some of our current politicians in government might benefit from such a learning experience.

END OF TEXT


Tuesday, May 23, 2023

THE EFFECTS OF DIVERSITY EQUITY, AND INCLUSION POLICIES ON THE TRADITIONAL MISSION OF UNIVERSITIES

 

 


 

 


 

 

 

The mission of universities has always been the passing on and expansion of human knowledge, which has made universities contribute much to the historic growth in Canadian and world income.

This traditional mission is now threatened by policies designed and enforced by many employees that were recently hired by Canadian universities to work in offices called by different monikers “Equity and Inclusion” (EI) at the University of British Columbia, “People, Equity, and Inclusion” (PEI) at Simon Fraser University, “Equity, Diversity and Inclusion” (EDI) at the University of Calgary, and “Diversity, Equity and Inclusion” (DEI), which is the term used at most universities around the world, and is used in this study. A critical analysis of DEI calls the workers in these offices “Diversicrats”.

The Mission of DEI Offices

The mission of DEI offices described on the website of the University of British Columbia: “We are working to build a community in which human rights are respected, and equity and inclusion are embedded in all areas of academic, work and campus life.” The mission of EDI offices in other Canadian universities are very similar.

The key words in these mission statements are defined by the University of Toronto, which is also typical of those found in other universities:

“Equity is the promotion of fairness and justice for each individual that considers historical, social, systemic, and structural issues that impact experience and individual needs.

Diversity is a measure of representation within a community or population that includes identity, background, lived experience, culture, and many more.

Inclusion is the creation of an environment where everyone shares a sense of belonging, is treated with respect, and is able to fully participate.”

The Size of DEI Offices

Simon Fraser University (SFU) in 2022-23 had 32,000 undergraduate students, 5,736 graduate students, 1,039 faculty, and 2,604 non-academic staff. MacLean’s Magazine has for several years named SFU the best comprehensive university of Canada. The number of employees working in its DEI office of should be a reasonably good sample of all Canadian universities.

The DEI office at SFU numbered 26 employees in 2012 and grew 140 percent to 62 in 2022.  During this same decade, the number of students was unchanged, and all non-academic staff increased by 23 percent. The DEI employment constitutes a small percentage of all non-academic staff, but its extra-ordinary rate of growth suggests that the university considers its mission to be an important priority and that more rapid growth can be expected to take place in the future. It is also noteworthy that SFU’s DEI employment is high relative to that in the United States, where it would be in 10th place among 64 ranked universities.  

The salaries paid to DEI employees in Canada is not known, but US universities pay their DEI employees on average more than tenured professors. Since labor markets in Canada and the United States are highly integrated, it seems reasonable to assume that the salaries in Canadian DEI offices are higher than those of tenured professors.

The History and Woke University Policies

Canadian activists from the political left have long been urging the adoption of a woke policy agenda, which in the extreme envisions the creation of a society operated by experts and politicians according to socialist principles. In such a society, the incomes of individuals would no longer be determined in markets and by competition.

These activists believe that one important policy needed to equalize incomes is correcting the harm done to individuals who are the victims of personal and systemic discrimination in the workplace and other aspects of life. These activists are dissatisfied with the success of past economic and social policies that have dealt with many of the problems attributed to discrimination.

For them it is not enough that progressive income taxes and social benefit programs have made incomes more equal and increased their security; that laws have reduced systemic discrimination in many areas of human endeavor: voting rights were extended to women, natives, blacks, and immigrants; human rights protect members of the LGBT+ and asylum seekers.

Women now are the majority among university students - in Canada in 2021 the ratio of women to men was 1,219 over 952 (thousand). In medical schools women were 58 percent of students on average and an extreme 74 percent in Laval University. Thirty percent of members of the 44th Canadian Parliament and in 2019 19.2 percent of members of Canadian corporate boards were women. Race is no barriers to participation in sports: African Americans constitute the majority of players in North America’s top professional sports leagues: basketball (72.3%) and football (58%). baseball leagues There are now Canadian soccer and ice hockey leagues for men and women.

To speed up this process of reducing discrimination, woke activists have successfully advocated the use of university admission quotas for minorities. These quotas lead to the admission of students who otherwise do not qualify based on their high-school grades, scores on standardized admissions tests, athletic records, and public service. Quotas are believed to benefit minorities because university education paves the way to higher incomes and leadership positions in private and public institutions. According to Margaret Wente “At Canadian Universities, Race and Gender Quotas Have Become a Way of Life”.

However, developments in the United States raise questions about the future of quotas in Canada: The California system of universities was forced to end the use of admissions quotas after a majority of voters in a public referendum prohibited its use. Harvard faces litigation that has reached the US Supreme Court because of arguments made by Chinese American parents, who claim that the use of quotas prevents their children from getting admitted when otherwise their superior academic record would have qualified them.  

The threat to the future use of admissions quotas in the United States and Canada is serious because the California plebiscite and the Harvard lawsuit have revealed two fundamental issues associated with their use.

First, quotas challenge an important feature of market economies, the use of merit in rewarding individuals’ record of performance. Asra Naomi argues that quotas have resulted in a “war on merit”.

Replacing merit as the determinant of income and status with other criteria not only diminishes economic efficiency and incentives to work and invest, more importantly, it provides politicians and their technical adviser with the right to reward individuals who they believe deserve them. This practice is welcome by the recipients of benefits and resented by those who are forced to pay for them. Its growing use explains the increase in political and social divisions in Canada that is deplored by many. The war on merit caused by DEI policies only increases this division.  

The second fundamental problem with quotas emerged from the arguments about their use at Harvard, which ironically legitimatizes discrimination against one minority – Asian youth with high academic qualifications - when it is aimed at the elimination of discrimination against all minorities.

Bruce Pardy, executive director of Rights Probe and professor of law at Queen’s University wrote: “Preferential measures, distinguishing between people by their colour, lineage, gender and sexuality, are becoming the order of the day. It is time to say the other quiet part out loud: Canadians have not agreed to be treated unequally.” He laments that Canadian courts have decided that the principle of equality of opportunity can be replaced by policies that create equality of outcomes if they lead to the elimination of existing discrimination.

 

It remains to be seen how the US Supreme Court deals with the Harvard case. In a case involving similar issues, the Canadian Supreme Court has decided that violation of the human right of patients in need of medical care can be violated if doing so advances the public good provided by universal, free health care provided by the government. Is discrimination applied to high academic achievers justifiable under human rights laws if it benefits minorities scarred by the effects of past discrimination?

DEI Goals and Policies

The activists’ push for the use of DEI policies may be seen to be a reaction to the problems encountered by the users of quotas and because they can be used to provide benefits for minority students that admission quotas can not.

The mission statement of the University of Toronto’s DEI offices presented above shows that the use of quotas is not mentioned. Instead, they outline a number of goals to be pursued, all of which represent almost universally accepted Canadian cultural and ethical values that are favored particularly by intellectual elites working in Canadian universities.

However, the DEI offices do not list the policies needed to achieve these goals. This means that they cannot be challenged legally like quotas. Yet, of necessity, actual policies to reach these goals are enacted by DEI offices and it is these actual policies that affect the mission of universities. Examples of these policies are listed below and allow insights into their effect on traditional university policies and institutions. Some of them describe conditions in the United States, which are likely to exist in Canada but have thus far escaped media and public attention.

-         Substantial financial resources are used to staff, house and operate the DEI offices, which otherwise would have gone to universities’ teaching, research, and student services.

-         Professors are required to provide the DEI offices with information the preparation of which uses much time and energy, which are taken away from their traditional teaching and research responsibilities. For example, annual reports covering professors’ publications, teaching evaluations, attendance at conferences and public service, at SFU now require the inclusion of an essay describing how the professor has been “relating to students” and plans to do so in the future. The writing of this essay is difficult and time consuming, because the DEI office does not provide clear information on how to relate to students in practice and because the failure to provide the proper information can have serious consequences.

   The following reports what happened to a professor in the United States who failed to meet DEI standards:

Not playing along with the DEI protocols can end an academic career. For example, when Gordon Klein, a UCLA accounting lecturer, dismissed a request to grade black students more leniently in 2020, the school’s Equity, Diversity and Inclusion office intervened to have him put on leave and banned from campus. A counter-protest soon reversed that. However, when Klein also declined to write a DEI statement explaining how his work helped “underrepresented and underserved populations,” he was denied a standard merit raise, despite excellent teaching evaluations. (He is suing for defamation and other alleged harms.) “ 

No such events have been reported in Canada, which does not mean that they do not happen since they tend to take place without publicity to protect personal privacy.

-         One important goal of DEI offices is to ensure that minority students remain enrolled and meet graduation requirements. For this reason, DEI asks professors to protect these students from emotional harm that could be caused by some course contents and lead them to leave the university.  For example, professors would be encouraged not to discuss the economics of slave ownership in the past in the United States presented in a book authored by Nobel laureate Robert Fogel and Stanley Engerman, which suggests that maltreatment of slaves affecting their health and life expectancy leads to the owners’ loss of capital and therefore was less widespread than is widely believed.

   The background of minority students can easily cause them to be emotionally upset by the discussion of this and other subjects. As a result, to avoid conflict with DEI officials, some professors modify course contents significantly and neglect covering knowledge that they consider to be on the cutting edge of their speciality.

-      The website of Carnegie Mellon University presents information about its DEI policies, which avoids the words admission quotas. Instead, it states that the university:

actively cultivates a strong, diverse and inclusive community while offering resources to enhance an inclusive and transformative student experience in dimensions such as access, success, campus climate and intergroup dialogue…Additionally, the Center supports and connects historically underrepresented students…in a setting where students’ differences and talents are appreciated and reinforced.” (Bolding supplied).

The bolded words suggest that the university’s admission procedures favor minorities just like quotas but in words that will make it much more difficult for opponents of preferential treatment of minorities to launch a lawsuit like that facing Harvard University.

-          DEI criteria are used in the hiring decisions for faculty and researchers in addition to traditional indicators of their academic qualifications. An article from The Economist reports on the disturbing consequences of this practice:

“In 2018 Berkeley launched a “cluster search” for five faculty to teach biological sciences. From 894 applications, it created a longlist based on diversity statements alone, eliminating 680 candidates without examining their research or other credentials.”       

 

“Research sponsored by the US Department of Energy will require all grant applications to submit plans on “promoting inclusive and equitable research”” and that “Since 2021 the brain Initiative at the National Institutes of Health has required prospective grantees to file a plan for enhancing diverse perspectives. Teams with investigators from diverse backgrounds receive precedence.”

-         The effect the use of DEI criteria has on the choice and design of research proposals submitted to the National Institute of Health is reported in a study which “finds that many of the scientists whose grants were criticized now engage in self-censorship. About half of the sample said that they now remove potentially controversial words from their grant and a quarter reported eliminating entire topics from their research agendas.” 

It is not likely that the world will ever know how many potential Nobel laureates were prevented from working in the world’s most favorable research environments at Berkeley and the National Institutes of Health and instead worked at less well-endowed universities and research organizations. Nor will it be known how many research projects were modified to meet DEI criteria and thus no longer meet the researchers’ views on scientifically optimal design.

-         DEI inspired policies have changed practices and institutions of universities that have existed for very long times.

·        At SFU student surveys of professors’ teaching performance traditionally were designed by a committee of professors and administered by them or non-academic staff. Such surveys now are designed and administered by DEI staff. According to information from a SFU professor, the survey questions no longer focus on the professors’ teaching skills and the quality of required readings but on the professor’s adherence to DEI mandated policies.

·        Admission to medical schools traditionally went to students with superior academic qualifications. Now, “Medical Schools Look for Activists, Not Healers”.

·        The lesson, “Sex and Gender Primer” for the Human Structure course at the Indiana University School of Medicine School laments that “most textbooks present sex as binary” and endorses “person-first language” such as “people with cervixes” rather than “women,” and “anatomy-based language,” such as “the testes produce sperm” rather than “the male gonad produces sperm.”

·        Graduates from the Columbia School of Medicine in 2015 were required to take an oath, which includes this passage:

§  “We enter the profession of medicine with appreciation for the opportunity to build on the scientific and humanistic achievements of the past. We also recognize the acts and systems of oppression effected in the name of medicine. We take this oath of service to begin building a future grounded in truth, restoration, and equity to fulfill medicine’s capacity to liberate. I make this pledge to myself, my classmates and future colleagues, and the individuals and communities I will serve.

·        Victor David Hanson writes: “Our elite universities are now fully woke. Almost weekly, an embarrassing story further erodes their credibility and reputation.

 

o   Ridiculous lists of taboo words are issued on woke campuses, barring incendiary words such as “American” and “immigrant.”

o   Bragging of segregated dorms, graduations, and safe spaces recalls Jim Crow, not woke racial utopias.

o   Grades and standards are deemed counterrevolutionary, even as incompetent graduates increasingly fail to impress employers.

 

 

Policy Implications

The mission of DEI offices in Canadian universities is to eliminate the injustices faced by Canadians who are members of identifiable minorities suffering from the effects of social and economic discrimination. The elimination of such discrimination is a goal, which is widely supported by Canadians. However, these DEI goals can be reached only by the creation and implementation of policies, which will have many unintended, costly consequences.

The fact that DEI policies bring both benefits and costs implies the need for a benefit/cost analysis. Depending on the results of such calculations, the DEI policies should be terminated or continued.

Unfortunately, such calculations are virtually impossible since the values of the benefits and costs cannot be estimated objectively. This problem exists for most government policies, which is solved, albeit imperfectly through public discussions that reveal Canadians’ views on the benefits and costs of these policies. In the light of these discussions, political parties promise to adopt or reject the contentious policies. The outcome of elections brings to power the political party that has adopted a platform most favored by the majority. Such a process involving public discussions and political parties taking positions is needed to deal with the problems caused by DEI policies.

The outcome of public and political debates over DEI and other woke policies is very uncertain. Canadian university faculties, the legacy media, many politicians, lawyers, and civil servants favor them. The number of conservative politicians, academics, and the media opposing them is likely to be much smaller, though they might find many supporters among the silent majority.

 

Unfortunately, it is possible that the debates will never take place because in recent times, such debates have been opposed effectively by woke organizations of minorities, media, and politicians who discredited or “cancelled” individuals defending views they do not like. The freedoms and prosperity of all Canadians will suffer.

 

I any public and political debates about the merit of DEI policies in Canadian universities it would be useful to consider the arguments that have been made in the United States, which have persuaded legislators to act.

 

According to one publication:

”state lawmakers are proposing bills to limit diversity, equity, and inclusion programs at state-funded institutions. The bills could impact a wide range of initiatives, from defunding DEI offices and officers to removing diversity statements from hiring practices. More than 20 states in the U.S. have either proposed anti-DEI bills or could be in the process of drafting them.”

The headline in another publication reads:

“Diversity Statements Are Getting Cut From These Universities’ Hiring Practices”

A map in the first publication shows the states in which legislation in May 2023 has or is closed to being passed. These states have Republican governors and cover the center of the United States. No coastal states other than Florida have initiated such legislation. Most of them have Democratic governors. 

            Relevant to discussions about the merit of DEI policies is the fact that they have recently been used in the US military to influence promotion and that in reaction, on May 16, 2023 a  large number of retired generals and other high-ranking officers of the US armed forces sent to US Congressional Committees a signed letter in which they demanded an end to the use of DEI policies in the US military. The letter contains these sentences.

DEI is dividing…our military and society…Under the guise of DEI, some people are selected for career enhancing opportunities and advancement based on preferences given to identity groups based on race, gender, ethnic background, sexual orientation, etc. .. To achieve equal outcomes using identity group characteristics, standards must be lowered to accommodate the desired equity outcomes. Lower standards reduce performance where even slight differences in capability impact readiness and can determine war fighting mission success or failure.

Meritocracy is essential for winning. In professional sports…the best players are fielded to win, no matter their skin color. If meritocracy is used in sports where the consequence of losing a game is minor, why is it not essential in the military where the worst-case consequences of losing a major war are unimaginable… Meritocracy wins games and it wins wars!