What's causing inflation? Bottlenecks or too much money?

 

Whether the recent increases in Canada’s consumer price index are temporary changes due to supply and labour shortages in some sectors or a more permanent problem driven by the excess creation of money is being hotly debated by economists at the moment.

The first explanation is favoured by economists at the Bank of Canada and some academics. They argue that September’s 4.4 per cent increase in the CPI was caused mostly by supply-chain bottlenecks that will soon end, allowing a prompt return to the targeted two per cent rate of inflation. They buttress their arguments by drawing on data showing that just three items — energy, food and housing — explain most of the increase in the index.

The second explanation is favoured by economists who have studied the history of inflations using the monetarist model popularized by 1976 Nobel Prize-winner Milton Friedman, who in a classic study of the monetary history of the United States found that “inflation is always and everywhere a monetary phenomenon.” These economists argue that the Bank of Canada has increased the money supply by an amount that in the light of experience is likely to lead to substantial inflation.

Which of the two views is right could not be more important for policy. If the price rises are temporary, there is no need for higher interest rates and tight fiscal policy. But if the monetarists are correct, the inflation will continue and even increase, requiring tighter monetary and fiscal policies — the more so the longer the excessively large money supply is allowed to persist. The corrective policies will involve recession and unemployment and require reductions in government spending — all of unforeseeable depth and duration.

So which is it? A recent paper by John Greenwood, former chief economist at Invesco, one of the world’s largest investment management companies, suggests the monetarist argument has some explanatory power. The nearby graph is from his paper, with Canadian data added.

It shows the percentage increase in each country’s consumer prices between December 2019, before COVID, and August of this year, paired with the percentage increase in its national M2 between December 2019 and July 2021. M2 is the most widely used indicator of the supply of money and a key determinant of national monetary conditions. The monetarist theory predicts that, all else equal, the greater the increase in the money supply, the greater future price increases will be.

The dots in the graph show that for the sample of the five countries there is a strong, positive relationship between the growth in M2 and inflation. The U.S. has both the highest inflation and the highest M2 creation. Canada has the second-highest values of both, followed by the United Kingdom and at much lower levels, Switzerland, and Japan.

The positive relationship between money supply growth and inflation supports the view that inflation in Canada can be expected to continue and will likely accelerate if future fiscal deficits continue to be financed by additions to M2.

Does the graph provide any insight into the monetary conditions vs. temporary bottlenecks debate? If supply chain disruptions are the problem, then Switzerland and Japan should be affected in the same way as the other countries. But that’s clearly not the case. Inflation is essentially non-existent in Switzerland and Japan.

A danger in Canada’s current situation is that although supply chain bottlenecks and labour shortages may be temporary, some businesses have dealt with them by raising output prices to cover higher input costs. At the same time, many businesses have had to raise wages to attract workers in scarce supply. If people build these price and wage increases into their inflation expectations, inflation may persist even after the shortages of supplies and labour have been cleared.

The cost of supplies may or may not return to pre-crisis levels, but at least some of the higher output prices may remain. And workers will strongly resist any attempt by employers to reduce wages back to pre-pandemic levels. Unions are likely to demand wage parity for their members and set a new standard for workers in the non-unionized sector of the labour market. The wage-price spiral that dominated the 1970s may return.

Its clear relation to the money supply suggests inflation will become an increasingly serious problem for the economy and that the Bank of Canada and federal government will soon have to make some difficult decisions. Eventually there will have to be a reckoning as to whether the excessive government spending that fuelled the inflation was caused by an ideologically driven expansion of the role of government in society or by the problems brought on by the COVID pandemic.

If policy allows, the market will fill all those job vacancies

 Canadian employers recently reported that they are increasingly unable to find  workers who fill their needs. This condition is reflected in the official statistics, which show that between the first and second quarter of this year, the average number of job vacancies rose from 553,480 to 731,905. As of July, the number had grown to a record 815,800. Employers most affected by problems hiring workers are restaurants, retailers, trucking companies (as in the U.K.), and health-care providers.

Some employers have responded to the shortage by abandoning expansion plans or going out of business. Others report having raised wages. These and other responses to the high rate of job vacancies have serious implications for inflation, the rate of recovery from the recession and monetary, fiscal, social, and immigration policy, so it is important to understand why job vacancies are so high.  

One possible reason is that Canada suffers from an overall shortage of labor because more workers have retired than have entered the work force, while immigrants have added to it in smaller than usual numbers.

The facts do not support this view. In August, 1.521 million Canadians were unemployed, which was about 400,000 above the 1.176 million in August 2019, when the economy was at full employment and no labour shortages existed. Canada is not suffering from a shortage of workers available for employment.

Another possible reason is a mismatch of workers’ qualifications and wage expectations with employers’ requirements and ability to pay. This problem exists at all times and is caused by changes in technology, consumer tastes and overall growth in the labor force and output. It is routinely dealt with by workers acquiring new skills, moving to different locations, and modifying their pay demands, while at the same time employers train workers, adjust pay and working conditions and install labor-saving capital.

It is unlikely that the degree of mismatch has recently increased by enough to explain the current record number of job vacancies. No substantial changes in the mix of output or production technology have taken place. Employers are making the usual efforts to find workers. For example, salaries increased 2.6 per cent in 2021 and employers report planned increases in 2022 that are greater than in the preceding five years. 

A third explanation for high job vacancies is that workers fear COVID infections in the workplace and have therefore changed their occupational preferences. This seems to be a key problem for restaurants, healthcare and related service industries where close contact with potentially infected customers is high, workers consider pay to be too low, and work times are inconvenient, variable, and stressful.

But workers can afford to remain unemployed only if they have income to pay for their living expenses while they try to find the jobs they want. Since the start of the pandemic such income has reached them through substantial increases in the generosity of Employment Insurance (EI) benefits and the Canadian Recovery Benefits (CERB) program.

Ottawa recently reduced the level of these transfers and changed the conditions for receiving them so as to bring them more in line with pre-pandemic practice. Workers now must: have been employed an increased number of hours to receive EI benefits; wait one week before receiving approved benefits; submit a medical certificate to receive EI sickness benefits; face a minimum of weekly EI benefits of  $300, down from the pandemic level of $500; see their benefits again determined by regional unemployment rates (which lowers benefits for workers in regions with low rates); and face reductions in EI benefits if they receive CERB payments.

The response to past changes in EI benefits suggests that these reductions will lower the number of unemployed workers and unfilled jobs. It remains to be seen how quickly this happens, especially since the cash payment of $500 available to all Canadians through the CERB program earlier this year will continue to enable some workers to search longer for better jobs. But experience shows that reducing the income available to those who are unemployed invariably increases the number of people in work. The pandemic hasn’t changed that basic economic rule.

The article has been published in the Financial Post on October 5

https://financialpost.com/opinion/herbert-grubel-if-policy-lets-it-the-market-will-fill-all-those-job-vacancies

Immigration should be an election issue

 

The Trudeau government is on record that it will increase the number of immigrants from 300,000 in 2018 to 411,000 in 2022. This increase will have serious implications for the three hottest-button issues of the 2021 election: the high cost of housing, the inadequate capacity of medical and other public facilities, and climate change. Yet in their campaign documents, none of the three major parties discusses the effects of immigration on these issues or promises to change existing immigration levels or policies. Canadians deserve better.

The effects of immigrants on the cost of housing are obvious. After arriving in Canada, people must live somewhere. They thus add to the demand for housing and, other things being equal, the excess of demand over supply. In recent years that excess demand has significantly raised the already high inflation-adjusted prices of single-family homes, condominiums, and apartments.

These high prices have motivated the major parties to promise policies to increase supply through the financial encouragement of construction or outright government ownership of rental facilities. Though such policies have been promised in the past the record shows that they have proved inadequate. Because the need for new construction is currently much larger than the ability of governments to finance it, current promises are likely to face the same fate.

Another set of policies promised by the three leading parties involves reductions in the demand for housing. The cheapest and most risk-free proposal sees the imposition of restrictions on the purchases of dwellings by foreigners. Many Canadians applaud this idea and foreigners have no political clout to oppose it. But even if the policy did stop foreign purchases, the effect on prices would be minimal because demand from foreigners makes up only a small proportion of the total. Moreover, to realize speculative or investment profits foreigners have to sell dwellings so that in effect they raise prices when they buy and lower them when they sell. And, of course, Liberal proposals to provide subsidies to new home-buyers will increase demand, possibly by more than restrictions on foreign ownership will reduce it.

The reality is that almost all demand for housing is caused by population growth, of which in recent years immigration has accounted for about 80 per cent. It is hardly rocket science that reducing the number of future immigrants would reduce demand and help bring it in line with supply.

Immigrants also add to the excess demand for medical services, whose existing supply cannot prevent both long waiting lists and sometimes acute shortages of both hospital beds and family physicians. Newcomers also cause excess demand for roads, public transit and recreation facilities, which results in traffic congestion, as well as overcrowding on buses and in public parks.

Those currently running for office promise to alleviate these problems with increased spending on health care and infrastructure. But such promises are likely to produce the same results as similar ones made in past elections. Some new facilities will be created but at best they will enable supply to keep up only with the natural increase in population, the rise in income, and the overall aging of the population — but not with the demand created by the much larger number of immigrants.

Immigrants also have an important influence on Canada’s efforts to prevent global warming through reductions of CO2 emissions. In 2016 our per capita output of such emissions was 15.09 metric tons. The 323,190 immigrants that year thus added 4.88 million metric tons to the country’s emissions and correspondingly raised the cost of measures needed to reach the emission targets Ottawa has announced. But two-thirds of these emissions would not have taken place if recent immigrants had remained in their (on average) low-emission home countries.

The negative effects immigrants have on the affordability of housing, the availability of public services, and the cost of climate change policies could be reduced by lowering immigration to 100,000 a year, a number I believe would allow ample numbers of skilled workers and refugees alike to meet both our labour market needs and our international humanitarian responsibilities. The proposed number can readily be raised or lowered if evidence suggests that demand or cyclical economic conditions warrant it or supplies of housing and public facilities have caught up with demand.

Published in the Financial Post on September 10, 2021

https://nationalpost.com/opinion/herbert-grubel-immigration-should-be-an-election-issue

Why I will vote for the Liberals

 

All my life I have supported conservative causes and parties financially, in my writings, and lectures. I even spent four years in the federal parliament as the member of the right-wing Reform Party. Yet, in this election I will vote for the Liberals and hope that Justin Trudeau will head the next government.

No, I am not out of my mind and lost faith in conservative principles. Instead, I believe that it is in the longer run interest of the conservative movement in Canada if the Liberals and Trudeau will be in office during the next four years when they will face the need for highly unpopular policies needed to deal with the inevitable consequences of their past, irresponsible economic and social policies. They will lose voter support for many years, which would befall the Conservatives if they were in power when these policies must be adopted.   

The past irresponsible Liberal economic policies will lead to inflation and higher interest rates needed to deal with it. Inflation has already begun and led to significant increases in the prices of gasoline, food, lumber, automobiles, and housing. Expecting inflation, investors have bought inflation-proof assets such as bitcoins, gold, works of art and collectibles, driving up their prices to unprecedented heights. All the necessary conditions for the continuation of this inflation are in place.

Inflation inevitably leads to higher interest rates. If the Bank of Canada does not raise rates soon, it will have to raise them later when the experience of the 1970-80s is repeated. On that occasion, price increases were considered to be due to temporary, reversible events and therefore not requiring higher interest rates. As it turned out, the increase in the price of energy caused by OPEC output restrictions led to price increases in other commodities, which ultimately spread to the rest of the economy, led to higher wages, and made the Bank of Canada use record levels of interest rates to stop the price increases.

If the Bank of Canada accepts the view that current price increases are not temporary and reversible, it will raise interest rates soon to reduce excess demand, which is the ultimate cause of all inflations. Continued federal deficits and spending by consumers of the excess holdings of money created by poorly targeted transfers during the pandemic will not help but make the Bank’s job more difficult.   

Whether soon or later, interest rates will almost certainly increase during the mandate of the next government. The higher rates will increase mortgage defaults, higher unemployment, personal and business bankruptcies, and government deficits. Canada’s economy will be in a classic recession bringing great hardships to many.

But this is not the only serious problem caused by higher interest rates. The cost of servicing the record federal debt of $1.3 trillion will increase and add to the already programmed large deficits. The country’s credit rating will be lowered by international credit rating agencies and further increase the government’s borrowing costs.

The bottom line is that, within the term of the next government, the Liberals will have no choice but to adopt politically very costly cuts in program spending and increases in all taxes. They will try to blame the Conservatives, the pandemic and climate change for the need to adopt the highly unpopular policies. These efforts will not be credible.

The large debt is due mostly to Liberal-inspired woke policies designed to increase the welfare state and pandemic-fighting policies that cost much more than they would have if timing and targeting had been better. The cost of climate change policies will hit consumers hard who will see no clear benefits, especially as China and other big polluting countries fail to reduce their levels of pollution.

If the Liberals win the next election, they will face another serious political problem, which is the result of their strong moral support of interest groups whose members have in common certain personal characteristics that are united under the LGBTQ+ banner and include natives and racial minorities. The Liberal have until now supported these minorities mostly by encouraging them in their view that are suffering from personal and systemic discrimination, which is the cause of their low incomes and social status.

Many ordinary Canadians preoccupied with work and other personal concerns have been unaware of this Liberal support of minorities. Others have accepted them because they have not been affected materially or find them consistent with their sense of moral responsibilities for the underdogs in society. However, in the coming years, these interest groups will demand that the Liberals adopt the “Reset” policies they promised to eliminate discrimination and create greater equality of income and social standings.

The equalization of incomes will require higher transfer payments to these groups and increased taxes on high-income Canadians. The elimination of discrimination will require the mandated use of quotas in employment and educational institutions.  Meeting the demands of natives will require large spending increases. Immigrant communities will be satisfied only if they can welcome increasing numbers of their relatives and friends who upon arrival will increase shortages in the housing market, and public health and recreation facilities.

These policies will materially affect the vast majority of Canadians who are not members of the LGBTQ+ community, natives, and immigrants. They will also feel unjustly accused of personal and systemic discrimination and oppose resets in Canada’s culture and economic system that have served them extremely well in the past and evolved successfully through time.

It will be good to see the Liberals lose much voter support if they will the next election as they deal with the cost of inflation, higher interest, a recession, and the consequences of having created the high expectations of minorities. The Conservatives will benefit from the Liberals conundrum and will have strong voter support for a long time in the future. That is why I will vote Liberal and urge others to do the same.

THOUGHTS OF A NON-WOKE, RETIRED CANADIAN ECONOMICS PROFESSOR

 

It is dangerous these days to voice politically incorrect views, but at age 87, nature is already almost finished cancelling me and after over 20 years in mandated retirement, I need not fear losing my job at the university.

So, protected from the consequences of being accused of being a racist and ignorant of the vast improvements the woke revolution is bringing to Canada, here we go.

The under-representation of groups signals Racism

Last week, my daily newspaper subscription came with the unsolicited summer issue of the very glossy S/ magazine (sic), published by Contempo Media in Toronto. It sells for $6.95 at newsstands, so I should be grateful for getting it free.

I flipped the pages of the magazine, enjoying with some envy, the pictures of beautiful women and luxury goods, when I was struck by something unusual. Women with non-European features seemed to dominate the pages in which they modelled clothing and jewelry.

So, I did a bit of counting and found that the magazine has 84 pages. On each of 34 pages appear the full features of a female model. Of these 34 page, 15 showed African, 10 Asian, and 9 European facial features and skin color. Four of the pages in the latter group show the lovely Julia Roberts who was the star of the film Beautiful Woman. 

The army of fairness warriors argues that systemic racism exists whenever in any occupation or cultural venue the proportion of people with different ethnic backgrounds is unequal to that existing in the total population. The 2016 census found that visible minorities constituted 22.3 percent of Canada’s population but on the most coveted fashion pages of a widely circulating and read fashion magazine, visible minorities make up 74 percent.

I wonder whether this astounding over-representation of visible minorities in the magazine industry will be used as yet more evidence that systemic racism is rampant in Canada; whether politicians and the media will shame the industry into apologizing for it; whether the media will produce emotional reports of suffering by the many aspiring women of European ancestry whose careers are limited, and whether the Woke Society of Magazine Publishers (?) will require editors and staff of magazines to attend courses on how to recognize racism and eliminate it in their organizations.  

One way to eliminate racism in advertising is used in the full-page ad for Breitling watches which gives nearly equal space to three women with European, Asian, and African features. It does not reflect these groups in proportion to their prevalence in all of Canada, but the legendary, creative minds in the advertising industry surely can come up with ways to achieve this goal using the Breitling as a starter.

Mass Graves and Unreported Deaths

Canada’s history of dealing with natives is a tragedy and should be acknowledged. But reporting of this history should be based on facts to prevent unnecessary trauma and outrage that often arises when misleading and incomplete information fails to show what really happened.

The recent discovery of buried native children on the grounds of the Kamloops residential school led to the use of the wrong and incendiary use of the words “mass graves.”

Mass graves in history were the result of soldiers murdering people in large numbers and dumping them in a trench, which the victims often had been forced to dig themselves. Not even the most diligent searchers of evidence of atrocities produced by residential schools could discover the existence of such mass murder and graves in the residential schools.

The media after some time stopped referring to mass graves and instead now talks about “unmarked graves”, a change prompted in part by the actions of natives themselves. But the damage has been done to the reputation of the church and government of Canada, even in the rest of the world. The outrage felt by many after they learned about the existence of mass graves has set back our collective efforts to come to terms with an historic tragedy.

These efforts would be helped also if the deaths of children in residential schools were reported not as absolute numbers but seen in the context of deaths in all of Canada. We should estimate how many children in total attended the schools and what percent of them died while there and were buried in unmarked graves during all the years the schools operated. This percentage should be compared with that of children who died during the same period in all of Canada.

It could be that the percentage for the residential schools is higher than for the rest of Canada, but it is not obviously so. During these decades under consideration, children died everywhere in Canada in large numbers from the Spanish Flu, smallpox, whooping cough, diphtheria, polio, and other diseases that have now been tamed by vaccines and better health care.

If it turns out that mortality among children in residential schools and the rest of Canada was the same, there is the other problem that the deaths of many in residential schools were not reported to their parents and they were buried in unmarked graves.

This practice is very unfortunate, but it also should be considered in historic perspective. The Spanish Flu and other pandemics caused extra-ordinary dislocations and financial problems for all Canadians. It would be interesting to know whether during these difficult times the normal interment customs were curtailed in the rest of Canada as well as residential schools.

My call for data needed to compare death rates and funeral practices in residential schools and the rest of Canada does not represent an effort to downplay the damage the residential school system has done to the cultural life and economic well-being of Canada’s indigenous population. Instead, it is motivated by the desire to help reconciliation by creating a better understanding of role played by developments beyond the residential schools rather than deliberate, callous, and uncaring policies of the system and of the schools’ teachers which so often are blamed for the problem.

 

 

 

CERTIFYING COVID IMMUNITY

 

Some governments are known to plan the introduction of systems for the issue of vaccination passports, which certify that holders are vaccinated against the Covid-19 virus. It is expected that governments and private organizations will use these passports to operate more safely and efficiently.

For example, it was reported that “On May 18, the Oregon Health Authority announced that “businesses, employers, and faith institutions” could admit fully vaccinated, unmasked persons—but only if they first ask for and inspect “each individual’s proof of vaccination prior to entry or admission.””

A recent Leger poll of 1,529 Canadians found that 61 percent wanted the government to create such a system even as it is strongly opposed by many who do not fully understand its true nature and economic benefits. 

No detailed descriptions are available of how a passport system will work. However, the basic features of such a system are obvious and underly the following account. Such a system would work like the loyalty programs used by supermarkets and other retailers. Membership in the loyalty programs is voluntary and free. It entitles holders to receive a discount on their purchases at the cash register.

In the same way, vaccination passports, which might be called Immune Certificate Cards (ICC) are obtained voluntarily, free of charge and entitle bearers to certain benefits. For example, when buying tickets for a hockey game or concert, ICC holders receive a discount on the posted price by swiping their card and entering a security code on one of the widely used electronic card readers.

Cash discounts are most conveniently applied by businesses such as restaurants, theatres, and sports arenas and places of worship that can reserve different sections for customers with and without ICCs. Businesses like retail stores, banks, government agencies and medical service providers can provide benefits to ICC holders by allowing them to line up and given service without meeting government required conditions such as wearing masks and keeping distances.

Such discounts are available already to international travelers landing in a growing number of countries. Ownership of ICC is required to board cruise ships.

Businesses do not have to offer discounts to ICC holders, but it makes eminent economic sense to do so. After all, it costs less to seat immune customers at the traditional than the government required density. Economic considerations and competition will determine the number of seats sold to the ICC holders and others, and the level of discounts.

Some Canadians will not obtain ICCs for religious or ideological reasons, or because they fear possible adverse health effects. Others cannot get vaccinated because of existing health conditions or disabilities. The proposed system does not discriminate against either group. Members of the former group make the deliberate choice to forgo the benefits. Members of the latter group of unfortunate individuals will have to join the ranks of people who are served by Canada’s social service providers.

The design and operation of the proposed ICC system will be technically challenging, costly, and time-consuming. However, Canada’s credit card companies should be able to deal readily with these issues. Their business uses skilled technicians operating a system which could easily be expanded to include the issuance of ICC if the federal government pays for the cost.

The companies operating such a system need access to information on the vaccination status of Canadians, which exists in provincial government databases. This information should be made available to the issuers of ICC, which are equipped to protect the confidentiality of this information much as they do with the credit rating of their customers.

The decision to create and operate an ICC system should be determined by its benefits and costs. The benefits arise mainly through the acceleration of the return to normal economic activities: sales by restaurants, theatres, sports arenas, airlines, cruise ships and other businesses that increase profits, employment, and tax payments. Many Canadians will receive psychological benefits from unrestricted attendance of educational institutions, recreational facilities, and traditional places of work, as well as the absence of restrictions on travel and visits to health and personal care providers.

It is difficult to make exact estimates of these benefits and costs. However, the problems facing Canadians are so serious and costly that even rough estimates are worth the effort. A first step might be to consult with credit card companies to determine the feasibility and likely cost of an ICC system. Let us get going.

 

 

ALLOWING CRUISE SHIPS IN CANADIAN PORTS

 

Looking out my apartment window across Vancouver harbor, I see the manifestation of another catastrophic policy of the federal. Canada Place, which during normal times would be hosting at least three cruise ships loading passenger for trips to Alaska is totally empty.

During normal times, some of these ships would take passengers on a cruise originating and ending in Vancouver but many would be on their way from Seattle to Alaska and back because the Jones Act required that ships carrying passengers between two US ports must either be staffed entirely by US citizens or stop at a foreign port between them.

This act has now been suspended to restore cruise ship travel to Alaska and to help recovery of that state’s badly suffering tourist-dependent industry. That state’s tourist industry lobbyists can be counted on working hard in Washington to get this suspension made permanent as, without stops in Canada, tourists are likely to spend more time in Alaska enjoying its many attractions.

Let us hope they succeed, and the suspension of Jones Act will be permanent. The act is an economically destructive left-over from the era of nationalist trade policies in the 1920s, which today benefits only a small number of politically influential members of unions in the US maritime sector and imposes high costs on the US economy.

If the Jones Act were removed permanently, cruise ships starting their journey in Seattle would almost certainly continue to stop in Vancouver and Victoria, which offer cruise ship passengers many excellent popular opportunities to sightsee, shop, and dine in Canada’s unique cultural setting. The modern Vancouver airport facilities would again be used by passengers coming from distant places. Cruise ship operators would buy well-priced fuel to run their ships and fresh BC food, and other goods needed to serve their passengers.

The problem facing the province’s cruise ship industry is that the federal government has prohibited cruise ships from entering Canadian harbors until early in 2022, which guarantees the loss of billions of dollars of income by BC businesses and workers that serve cruise ship passengers on land and sell supplies to the ships’ operators. Large federal and provincial tax revenues and charges for the use of docking facilities are lost forever.

The government policy preventing cruise ships from landing on West Coast ports was adopted over the concern that passengers landing in Canada would carry and spread the virus among our population. This concern is no longer valid because cruise ship operators will allow on board only staff and passengers that have been vaccinated. This policy was adopted because the market for cruises had dried up completely in the wake of the widely publicized suffering and deaths of passengers on cruise ships at the start of the pandemic.

One problem with this system is that fake documents could be used to gain access to cruises by passengers who are not vaccinated. This problem can be solved by requiring passengers to possess internationally recognized and government issued vaccine passport. Such vaccine passports are used in some European countries and Israel and may be issued in Canada in response to public demand from many citizens eager to use cruise ships and enjoy uncomplicated air and land travel to and from foreign countries, especially the United States. Private sector systems for the issue of fake-proof documents are likely to become available soon and could be used instead of state-sponsored passports.

The cruise ships can also use quick tests detecting infections before and after passengers go on land excursions. This policy will make the risk of passengers infecting people on land extremely low and compare favorably with the likelihood of infection facing all Canadian residents.

The recent developments in the cruise ship industry and the start of excursions from Seattle to Alaska make it extremely urgent that the government repeal the existing legislation forbidding cruise ships from entering ports on Canada’s coasts. If enacted quickly enough, some cruise ships might return during the 2021 season. Quick removal is needed also to allow cruise planners the long time required to arrange for cruises in 2022 and beyond.  

I hope our government will act quickly and look forward to once again watching majestic cruise ships pass under the Lions Gate bridge and docking at Canada place. And returning the smiles on the faces of passenger visiting our mountains, parks, and restaurants.

Update: Jonathan Helton from the Grassroot Institute of Hawaii informs me that the legislation passed by Congress involves suspension of the provisions of the Passenger Vessel Services Act from 1886, not the Jones Act from 1920. He assures me that most media outlets do not distinguish between these two laws.

Herbert Grubel

Emeritus Professor of Economics

Simon Fraser University

A VACCINATION TALE OF TWO COUNTRIES: CANADA AND ISRAEL

 The longer Canadians must wait to get vaccinated against the Covid-19 virus, the more they are at risk of getting infected, hospitalized, needing intensive care, suffering lasting ailments or die and the greater are the economic and emotional costs from lockdowns and other restrictions on normal life.    

Canadians are facing long delays in getting vaccinated. On May 10, 2021, only 2.7 percent of the population was fully immunized and 34.1 percent had received one shot.

A popular comparison of countries’ efforts to vaccinate their populations uses the percent of the population that can be immunized with the number of vaccination doses acquired. Canada’s 10.1 million vaccines were sufficient for 21.5 percent of the population and place it in 30^th place in the world ranking, a position that has persisted for many weeks since all countries on the list continue to receive more vaccines.

On this list ahead of Canada are the United States and the United Kingdom with vaccines sufficient to immunize 40.9 and 39.9 percent of their populations, respectively. Remarkable is Israel’s 59 percent.

What explains the different record of these countries? In the case of the U.S. and U.K. it can be found primarily in their ability to get domestic producers of vaccines to ramp up production quickly and to administer them promptly to their populations.

This explanation does not work for Canada and Israel, which do not have major domestic producers of vaccines. Nor does the difference in their capacity needed to buy and administer vaccines offer a good explanation. Canada with a 2017 per capita income of $46,510 should have done better than Israel with a per capita income of $38,868.

The most likely explanation is found in Israel’s superior strategy to negotiate the purchase and delivery time of vaccines produced in other countries. This strategy resulted in the import of its first vaccines in December 2020 and thereafter in numbers large enough to create the country’s outstanding record. Canada, on the other hand, received its first batch of vaccines three months later in March 2021, initially in relatively small but later growing numbers.

The responsibility for the purchase of vaccines in both countries is that of their prime ministers who appoint the teams for the design of an acquisition strategy and approve its execution.  So, if we want to know why the rate of vaccination is so much better in Israel than Canada, we must look at the qualifications for the job provided by their respective educational background and work experiences.

Canada’s Prime Minister Justin Trudeau earned BA degrees in English from McGill University and in Education from the University of British Columbia. He started but did not complete studies in Engineering and Environment Geography.

His work experience consists of teaching French and mathematics in high school and snowboarding at Whistler. He spent some time working for media and charities before his election to parliament in 2008. In 2013 he became leader of the Liberal Party and led it to victory in the 2015 election.

Israel’s Prime Minister Benjamin Netanyahu, earned a B.Sc. degree in Architecture and an M.Sc. in Business Management from the Massachusetts Institute of Technology. He also studied political science at MIT and Harvard University.

His work experience includes time spent on active duty in the military and employment in the private sector and government. Israel’s uncommon electoral system caused him to serve as prime minister several different times after his first election to that post in 1996.

It is obvious that the educational and work background of Netanyahu is much better suited than that of Trudeau for heading efforts to quickly obtain a large supply of vaccines from suppliers in the private sector. However, detailed information about the different contracts negotiated by the two leaders is not available and may never be known, given the confidential nature of such contracts.

Canada provided some limited information about the contracts it has signed and why vaccines arrived as late and in small numbers. This information was used mainly to blame suppliers and unforeseen developments for the problem.

On the other hand, some interesting details of the contract negotiated by Netanyahu are available and reveal good business acumen. It offered to pay premium prices for the delivery of the first vaccines approved by health authorities and coming off the production lines. It also offered material assistance in testing the safety and effectiveness of vaccines in the development stage.

It is highly likely that the benefits of Israel’s policies in terms of health and economic outcomes are large and more than pay for the higher prices paid and for the cost testing assistance.

It will be interesting to see what educational and work experience is of the Prime Minister Canadians will choose in the next election.

CANADA SHOULD HAVE VACCINATION PASSPORTS

 

Vaccination Passports certify that holders are immune from the Covid-19 virus through vaccination, or the presence of anti-bodies caused by earlier infection. These passports are widely expected to ease and speed the transition from the current pandemic to normal personal and economic lives but have encountered some public and political opposition.

There is no doubt that presently the number of Canadians eligible to receive the passport is large. On April 14, 2021, 9.1 million Canadians had been immunized and 988 thousand had recovered from the illness. Their numbers are growing rapidly with new vaccinations and recoveries.

The problem with current discussions about the merit of the passports is that there is no single, detailed model of how a passport system would operate. As a result, much controversy and opposition is based on features that may or may not be adopted but which could be avoided by considering this simple model.

Passport holders have access to the myriad public and commercial facilities that make up modern life without having to obey Covid control protocols imposed by health-authorities. Importantly, they can travel abroad freely to countries that accept the passports as evidence of their immunity. The personal, economic, and social benefits brought by this feature are obvious.

The most fundamental criticism of the system arises from the concern that businesses will decide to serve only passport holders and thus cause other Canadians to suffer systemic discrimination akin to that suffered by other minorities whose conditions presently are such a great political issue.

Most Canadians who suffer would be waiting to be vaccinated. A small number could not be vaccinated for medical or religious reasons. An unknown number would refuse to be vaccinated because they distrust the healthcare system or government policies generally.

How realistic is the concern that businesses will serve only passport holders?

For one, it is illegal for Canadian businesses to refuse service to customers.

More important is that the profit motive will lead businesses to deal with all comers. Non-passport holders will bring sales and businesses will want to retain their good that will bring them back when the pandemic is over. Customers with and without passports can be served in two different sections of restaurants, theatres and recreation facilities with health protocols applied in only one of them.

Not all businesses can operate with two sections serving the two different groups of customers. For example, cruise ship lines that already have announced that they will serve only passengers with proof of immunity, cannot effectively operate separate sections.

However, if existing laws and the profit motive do not work as expected, Fairness Warriors can demand the adoption of regulation preventing it, which is likely to fall on sympathetic ears in Canadian governments.

Opposition to Vaccination Passports also comes from Freedom Warriors, who believe that they violate basic human rights to privacy and unnecessarily strengthen the power of the state. Acting on this view, the governors of  Florida and Texas already have signed legislation prohibiting the public and private issue of any such passports.

This policy is unlikely to gain significant support from Canadians who have much greater faith in government than most Americans. Moreover, the passports are just like other government-issued identification documents such as drivers’ licenses and travel passports as well as the documents showing vaccination against yellow fever and other communicable diseases that were used widely in the past. They involve an invasion of privacy but are used because they bring public benefits greater than costs.

Some opposition to the introduction of the passport system arises from fears that it leads to unauthorized access to medical information and the development of a black market in counterfeit passports, which apparently already operates on the dark web.

These problems can be avoided by attaching modules to existing government systems that electronically store private tax, social security, and health care information and protect it with pervasive safety protocols. These modules would store information about the vaccination status of individuals, including their pictures, which can be accessed by passport holders using either mobile phones or paper documents showing a QR code readable by ubiquitous electronic scanners.

The government of Israel already successfully operates a Vaccination Passport system, the U.K. is eying the introduction of one by June 28 and several countries have expressed their intention to recognize it. The government of Canada needs to do the same promptly and avoid the fiasco that marked its vaccination efforts.

Herbert Grubel

Emeritus Professor of Economics, Simon Fraser University

 

The Canadian Model for dealing with Asylum Seekers and Refugees

 

This paper describes the system used by the government of Canada to determine the number of refugees allowed to settle in the country annually, how they are integrated into the labor market and how threats to national security are dealt with. The paper is one of several commissioned by the Swiss think tank Avenir Suisse for a project designed to permit the comparison of the policies adopted by different countries to deal with these issues in the hope that best practices can be identified and serve as models for optimum national policies. 

The analysis below draws heavily on the distinction between asylum seekers and refugees: “An asylum seeker is someone who is seeking international protection but whose claim for refugee status has not yet been determined. In contrast, a refugee is someone who has been recognized under the 1951 Convention relating to the status of refugees to be a refugee.”

The status of asylum seekers in Canada is adjudicated by Immigration, Refugees and Citizenship Canada (Refugee Board for short), a quasi-judicial organization that is financed and controlled by the federal government. This system brings Canada two different but related problems: controlling the arrival of asylum seekers and adjudicating their claims. 

The following analysis considers the ways in which the government of Canada approaches these two problems, describing for each first the theoretical model and then its real-world performance.

Determining the Number of Asylum Seekers 

In theory, Canada has in place a system, which allows it to precisely determine the number of asylum seekers arriving in the country by sea, land, and air. This system is very important because  in 1985 the Supreme Court of Canada made what is known as the “Singh Decision”, which mandated that all persons who have reached Canadian soil and informed a border guard that they are seeking asylum, are entitled to refugee board hearings, could not simply be denied their request and forced to return to another country. After they entered Canada, these asylum seekers are legally entitled to receive many costly services at the expense of Canadian taxpayers.

The government of Canada has adopted the following measures to prevent the arrival of potential asylum seekers:  

No measures are needed to prevent their arrival by sea, which is a serious problem for the European Community, since Canada’s coasts cannot be reached by the kind of vessels asylum seekers have access to and are used in the Mediterranean. 

Arrival by land from the United States is prevented by the existence of the Safe Third Country Agreement, which requires guards in both countries to turn back asylum seekers arriving at their borders. This policy is justified on the grounds that it is more efficient to have asylum seekers apply in the country in which they first arrived and that it avoids “welfare shopping”. This policy avoids the problem existing in European Community, where the Schengen Agreement makes it possible for asylum seekers to cross national borders without hindrance to the country believed to have the most generous social and economic assistance programs.  

Arrival by airlines and passenger vessels is prevented by requiring that all airplane and ship passengers have official Canadian documents, which show that: 

1.       They are tourists, temporary workers or students who have persuaded Canadian visa officials abroad that they have strong family and economic ties, which will make them return to their home countries after their business in Canada has been completed. 

2.       They are citizens of countries with which Canada has an agreement allowing tourists and business agents visa-free entry. These countries have stable, democratic, and liberal systems of government so that its citizens have no causes to seek asylum. 

3.       They are individuals who are slated to become landed immigrants under the government’s official immigration plan. They arrive with proper documentation certifying their status and have no incentive to apply for asylum. 

4.       They are individuals who have been selected in refugee camps abroad by Canadian and UN agents and are part of the government’s official immigration plan. After arriving, they are subjected to health and security checks, but they have no need to seek asylum.

Shippers are incentivized not to bring to Canada passengers that fail to meet these requirements since they must at their expense remove these passengers from the Canadian ports.  

The Performance of the Model

In fact, the system has not worked well. 29,365 asylum seekers arrived in 2019. At the end of 2021, 100,000 asylum seekers were awaiting adjudication of their claims.

What caused the failure of the policies designed to prevent their arrival?

Some of the asylum seekers are tourists, students, and temporary workers who had obtained visas by deceiving visa agents about their true intentions or who decided to move to Canada after they had experienced living conditions and learned about economic opportunities in the country.  

Many are visitors from stable, democratic, and liberal countries who arrived without visas and are seeking a better life in Canada by seeking to be declared refugees rather than go through the normal but lengthy and uncertain immigrant selection process that they otherwise would have to use. 

Recently, so many citizens from visa-free Mexico and Hungary claimed asylum that they began to overwhelm the capacity of the Refugee Board to adjudicate their claims. Minister Stephen Harper’s government reacted to this problem by ending visa-free travel for citizens of these countries. This policy reduced claims sharply. However, they increased rapidly again after the newly elected government of Prime Minister Justin Trudeau restored the visa-free agreement with Mexico.

The arrival of asylum seekers crossing the long and mostly unguarded Canada-US border has long been minimized effectively through the efforts of Canadian law enforcement agents. However, this success has ended as 50,000 asylum seekers have entered Canada during the last two years at the rural Roxam Road in Quebec. This inflow of asylum seekers came about because a Canadian judge had ruled that the

United States was no longer a safe country that respected human rights and that therefore the Third Safe Country Agreement no longer applied to asylum seekers coming from that country. The judge’s ruling was based on reports that asylum seekers who earlier had been turned back at the Roxam Road crossing had been deprived of their human rights after their return to the United States.

Determining the Number of Refugees

The Government of Canada annually submits to parliament a plan in which it presents the target number of immigrants for the coming year. Refugees are included in this target number. Table 1 shows the plan for the year 2020^[1] with refugees targeted to be 49,700 or 13.8 percent of the total.

 

Since refugee policies are such a contentious political issue in Europe, it is worth noting that this is not the case in Canada. The annual immigration and refugee targets are produced by cabinet and civil servants and put into effect without parliamentary discussion. They attract little media and public attention, no less controversy. One reason for this situation is that Canadians are used to accepting many immigrants, which the government argues are needed to deal with labor shortages and a slowdown in the growth of national income.

Another reason is that Canadians widely agree with the idea that they live in a “land of immigrants”, as is evidenced by statistics derived from the 2016 census: 58.4 percent of the population were the offspring of parents who were both born in Canada, 17.7 percent had at least one parent born abroad, and 23.9 percent were born abroad. Often heard in discussions about immigration policies is the remark “If my parents had not been allowed to immigrate, I would not be here”, which is used to explain individuals’ support for the governments’ plans to bring large numbers of immigrants to Canada.  

Table 1

Immigration Level Targets for 2020

 

•	Economic Immigrants (individuals with skills or good prospects for economic success,
	plus their spouses and under-age children)		195,800
•	Members of the families of immigrants already settled in Canada		91,000
•	Refugees and Protected Persons		49,700
•	Humanitarian and Other		4,500
	Total		341,000

Chart 1 shows the number of immigrants in Canada between 1990 and 2019. These immigrants have added considerably to the growth of the country’s population. For example, according to a report by Statistics Canada in the year 2018-19: “Canada’s population rose by 531,497 to 37,589,262 ...

with immigration accounting for 82.2 percent of the growth. The growth of 1.4 percent in population … is the highest among all G7 countries, more than double the rate of 0.6 percent witnessed by both the U.S. and the U.K.” 

 

Source: Statistics Canada: Estimates of the components of international migration, quarterly

 

 

 

As was noted above, refugees are a percentage of all immigrants, 13.8 percent in 2020. Chart 2 shows this percentage for the 1993 to 2016. The average of these years is 13.4 percent with a low of 8.3 in 2012 and a high of 24.3 in 2016. Like the fluctuations in total immigration, these variations are due to cycles in economic activity and related conditions in the labor market. It is worth noting that the high number for 2015 is due to the arrival of 30,000 refugees from Syria, which represents the government’s contribution to the global effort to alleviate the suffering of refugees from the military conflict in Syria.^[2] 

Source: Extracted from Figure 1.4 in a Statistics Canada document on the 2016 Census.

How does Canada’s intake of refugees compare with that of Europe and the United States?

In 2020 Canada’s target of 50 thousand refugees comes to 0.13 percent of the population of 38 million. 

For the European Union with a population of 448 million, 0.13 percent comes to 514 thousand. In fact, the EU admitted 1.25 million in 2015-2016 and an average annual 613 thousand in 2017-2019. 

With the US population of 327 million, 0.13 percent equals 390 thousand. The actual number of refugees for 2016 was 84,989 (Yearbook of Immigration Statistics, Table 13). 

These statistics suggest that Canada is more than pulling its weight in relieving the misery of refugees in the world in comparison with the record of the United States but falls short with respect to that of the European Union.

Refugees and National Security^[3]

The number and scale of terrorist attacks by immigrants and refugees in Canada has always been small, especially compared with those in Europe. The only significant event involved the mid-Atlantic downing of an Air Canada flight to India in 1985, which resulted in the loss of 329 lives. It was motivated by political struggles in India and carried out by and aimed at Canadian citizens born in India. 

 

The low incidents of terror incidents caused by refugees is attributable in part to the work of security agents, though by the nature of the work, little is known of the extent to which they have prevented terrorist attacks by refugees. 

However, the work of these agents has been facilitated by the ways in which refugees are selected by government policies that minimize the arrival of terrorists. These ways are shown in Table 2. As can be seen, the 2020 target is for the admittance of 49.7 thousand refugees. Of these, 18 thousand will be “Protected Persons in Canada and Dependents Abroad”, who are asylum seekers in Canada that have passed the evaluation of their claim by the Refugee Board, including the assessment of the security risk they pose. The second category of “Resettled Refugees” consists of individuals selected by Canadian and UN agents in UN-operated refugee camps abroad based on their good economic prospects, health and threat to security.

It is noteworthy that 20 thousand out of a total of 49.7 thousand refugees are sponsored privately. Most of these sponsors are relatives already living in Canada or private charitable organizations with links to the refugees’ home countries. The rest of the resettled refugees are supported by the government. 

Table 2

Types of Refugees 2020

 

1.	Protected Persons in Canada & Dependents Abroad				18,000
2.	Resettled Refugees
	a.     Government Assisted				10,700
	b.    Blended Visa Office Referred				1,000
	c.     Privately Sponsored				20,000
			Total		49,700

 

Canada has some enclaves in which immigrants dominate the population, but it does not have Europe’s problems with enclaves in which refugees preserve their national culture and language but also are centers of unemployment, crime, religious intolerance, and the breeding ground of terrorists. This is not the place to explain this benign situation in Canada, but one important possible explanation is that most refugees and immigrants in Canada stem from China, India, and South Asian countries where militant Islamists are in a small minority. Other factors contributing to the absence of terrorist-breeding enclaves in Canada is that refugees and immigrants enjoy good employment opportunities, generous social assistance programs by governments and private charities and a general welcoming atmosphere by a public which believes that immigrants increase economic prosperity and enrich the diversity of Canadian culture. 

Labor market

Canada’s economy and labor market have always benefited from the production and export of natural resources found in abundance in the ground and harvested in fields, forests, and oceans. In addition, Canada’s manufacturing and service industries have grown and prospered through exports to and supply chains with the United States that were facilitated through free trade agreements. 

Under these conditions, immigrants normally are readily absorbed by the growing demand for labor from these industries. They also often reduce shortages of labor with special skills and find ready employment in occupations that Canadians were reluctant to fill, such as janitors, home and health care providers, truck, security guards, bus- and taxi-drivers.

The growth of the Canadian economy and demand for labor has fluctuated in the wake of business cycles that were highly correlated with and often caused by recessions and booms in the United States. Chart 3 shows the variations in immigration that existed for most of Canada’s history. Showing up clearly are recessions in the 1890s, post World War I, the 1930s and several financial and technology driven recessions in the period following the Second World War. 

Noteworthy is that no such major fluctuations are evident after 2000 shown in Chart 3 and Chart 1. Even the sharp and deep recession of 2008 brought no major reduction in the number of immigrants and refugees. These facts seem to reflect a basic change in government policy that was not justified or discussed by politicians responsible for it. 

Chart 3

 

Summary and Conclusions

Canada’s refugee policies are shaped by its unique geography, history, and institutions. The refugee policies are part of general immigration policies that are driven by politicians, have not encountered major public criticism and meet the country’s commitments to the relief of human suffering around the world. 

The findings of this study suggest that Canada’s natural and legal barriers to the unplanned entry of asylum seekers, its method of adjudicating their claims, selecting them from the occupants of UN refugee camps, evaluating the security risks of refugees and offering refugees ready employment and public assistance provide European countries with few insights on how to deal with the problems refugees pose for their countries.

However, in conclusion it needs to be noted that while Canada’s refugee and immigration policies have broad public support, they are coming under increasing criticism by policy experts and academics.^[4]

 

Opinion surveys show a growing public dissatisfaction with existing immigration policies.^[5] These developments appear to have no effect on the government’s immigration targets, policies, which it has raised to record levels of 400,000 annually for three years 2021 – 2023. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grubel and Patrick Grady in 2015 published Immigration and The Welfare State Revisited: Fiscal Transfers to Immigrants in Canada; Grubel in 2020 published Can Canada Handle A Rational, Polite And Fact-Based Debate About Immigration?

The titles of the Bissett articles reveal their contents. The Grubel-Grady study uses government statistics to calculate that the relatively low earnings of recent immigrants living in a welfare state impose a large annual fiscal burden on Canada’s taxpayers. Grubel’s 2017 article explains the causes of this burden and the 2020 article discusses the effects mass immigration has on soaring housing costs and growing congestion of economic and social infrastructure.

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[1] The Covid-19 epidemic has made the 2020 plan obsolete. Announcements about the effect of the epidemic on future targets are expected to be made soon.  

[2] Canada has a history of relieving such suffering. It accepted 37,000 Hungarians who had fled to Austria after the failure of the uprising of 1956-57; 12,000 Czechoslovaks in 1968 after revolution that year; 7,000 Ugandans in 1972 forced to leave Idi Amin’s terror; 7,000 Chileans in 1973 after the downfall of Salvador Allende’s government; over 100,000 Vietnamese refugees after the fall of Saigon in 1975; and 11,000 Lebanese during the civil wars in the late 1970s. This information was provided by James Bissett in an unpublished speech to the Library of Parliament. James Bissett is a former Canadian Ambassador and Executive Director of the Immigration Service 1985-1990.

[3] The government periodically provides a “Public Report on the Terrorism Threat to Canada.”

[4] James Bissett, a former Ambassador and Head of the Refugee Board in 2010 published an article The Rise of Treason and the Decline of Canadian-Based Terror Threats and in 2018 How Canada can actually fix the migration mess on its borders. The academic economist Herbert Grubel in 2017 published a study entitled Canadian Immigration Policies: Blueprint for Europe?;

[5] In a Leger poll in 2019 it was found that “Sixty-three per cent of respondents…said the government should prioritize limiting immigration levels because the country might be reaching a limit in its ability to integrate them.” However, most recent polls find that about one quarter of respondents believe that Canada accepts too many immigrants and about 50 percent believe that the number is about right. An example of such polls is found here.