NORTHERN ECONOMIST 2.0: March 2020

Wednesday, 25 March 2020

COVID-19: China Is Actually Not Hard Hit At All

The international statistics of the COVID-19 outbreak generally show the total number of cases by country and the source of the outbreak - China - has to date the largest total number of cases at 81,218 (as of 12 Noon today from the Worldmeters web site ). Catching up is Italy with 69,176 cases and in third place is the United States at 59,966 followed by Spain at 47,610. However, these numbers do not adjust for the vastly different population sizes of these countries which provides a more accurate assessment of the relative impact relative to population size. China after all has over 1 billion people whereas Luxembourg is under 1 million.

Figure 1 plots the top 30 countries in terms of total case numbers by total cases per 1 million population. The most affected country in terms of cases per 1 million of population is actually Luxembourg at 2,129 cases per 1 million(M) people. Next, comes Switzerland at 1,217 cases per 1M followed by Italy at 1,144 per 1M, then Spain at 1,018 and then Austria at 620. The United States comes in 17th place in this ranking at 77 per 1M and Canada 22nd at 77 total cases per 1M. Where is China? It currently is in 25th place at 56 cases per 1M people.

Figure 2 plots the top 30 countries in terms of total case numbers by total deaths per 1M population. The most deaths per 1M population have occurred in Italy at 113 followed by Spain at 73 and then Iran at 25. The United States currently stands at 2 deaths per 1M people while Canada comes in at 0.7 deaths per 1M. As for China? It ranks 15th virtually tied with the United States at 2 per 1M people.

The failure of the Chinese government to properly take initial steps to contain the spread of the virus enabled it to become a very successful export particularly to those countries with very open economies in terms of trade and travel. That the Chinese government appears to have finally contained the virus within its border is reassuring but the corona virus cat so to speak is now out of the bag. Europe has borne the brunt of the spread. As for deaths, Italy and Spain have truly been outliers with very high death rates and why that is the case is indeed an important question as the rest of the world deals with this situation.

That's all for now.

Monday, 23 March 2020

Covid-19 In Canada: Regional Impact

By now, we are quite used to seeing the daily numbers by province splashed across computer and television screens as the number of Covid-19 cases grows. As of 6pm on March 22nd, there were a total of 1430 confirmed cases in Canada. If we plot those ranked by province as in Figure 1 below, we see that the total number of cases is largest in Ontario at 425, followed by British Columbia at 424. However, what is interesting is that this does not convey the full impact of severity across provinces because this is not adjusted for population. Ontario, for example has approximately two and a half times the population of British Columbia which means on a per capita basis, British Columbia has more cases.

Figure 2 provides these same numbers in terms of cases per 100,000 population. It becomes quite apparent when the provinces are ranked in terms of cases per 100,00 population, that western Canada - particularly British Columbia and Alberta are the hardest hit in terms of cases at 8.3 and 5.9 cases per 100,000 of population. They are then followed by Ontario and Nova Scotia at 2.9 cases per 100,000 each. Saskatchewan clocks in next at 2.8, Quebec at 2.6, the Northwest Territories at 2.2, PEI at 1.9 and New Brunswick at 1.2. The remaining provinces and territories currently have less than 1 per 100,000 of population.

That is all for now.

Saturday, 21 March 2020

It Is Time to Declare a National Emergency

In his address to the nation earlier today, Prime Minister Justin Trudeau stated that he was not ready to declare a national emergency in regards to Covid-19 but that the federal government was studying the data and all options were still on the table. The number of cases in Canada today has reached over 1300 and there are now 20 deaths. If we are going to get this crisis under control, we need to completely shut the country down for two weeks - that is, there must be a lock-down in which everyone except essential workers in health, public security, and food and medical supply is restricted to their home and can only emerge either to shop for groceries, fill prescriptions at pharmacies, or obtain emergency medical care. Moreover, this needs to be enforced by public authorities with the power to stop individuals and ask why they are out and about or why they are in a group and not maintaining social distance.

This must be done sooner rather than later. This may seem to be an overreaction but in this type of situation it is better to overreact rather than under react if we want to have any hope of getting this under control and avoid what is happening in Spain or Italy. We have had more lead time than those countries did and yet the federal government appears timid in its response. The decision lag continues. It is individual businesses and respective provincial governments that are taking action by declaring emergencies and implementing changes in how things are done.

The emergency economic action taken by the federal government is important but will not be effective if people are afraid. The best way to protect the economy is to protect the health of Canadians and give then the confidence that comes with knowing the health effects of COVID-19 are being contained. Perhaps, the federal government may feel that health is a provincial responsibility but under our constitution, the federal government has the overarching responsibility for peace, order and good government, the spending power and even the power of quarantine. Is the government waiting to repatriate everyone from abroad trying to get back? But how can they all come back if other countries are shutting their borders and airlines are stopping flights?

Who really knows what is driving the current federal response. One imagines if the elder Trudeau was currently Prime Minister, one would have seen the imposition of the War Measures Act to deal with this crisis. As draconian as that sounds, what other options are there to get people to stay home, comply with social distancing and stop the spread of the virus?

Monday, 16 March 2020

Special Announcement from the Diocese of Thunder Bay Re COVID-19

Diocese of Thunder Bay

SPECIAL NOTICE TO ALL PARISHES

RE: CORONA VIRUS – COVID 19

Diocese of Thunder Bay

SPECIAL NOTICE TO ALL PARISHES

RE: CORONA VIRUS – COVID 19

In consultation with health officials here in Thunder Bay and in an attempt to curb the spread of this virus in northwestern Ontario and to safeguard the health of everyone, especially of the elderly and most vulnerable, I am regretfully making the decision to CANCEL ALL SUNDAY MASSES IN ALL PARISHES OF THE DIOCESE (Saturday night and Sunday) for the next TWO WEEKENDS: March 21-22, and March 28-29.

We will assess the situation for coming together for Masses again on Palm Sunday, April 4-5, 2020 and for Holy Week.

Weekday Masses can continue in the parishes since crowds are usually much smaller for these Masses. People using their discretion attending should practice “social-distancing”, that is keeping one meter away from each other at the Mass.

No shaking of hands and Communion is to be received only in the hand.

Funerals are to be celebrated when necessary and again “social-distancing” should be encouraged for those attending.

Parishes should provide tissues and hand sanitizers where possible, in appropriate places in the church or foyers. Washrooms should be kept clean and sanitized if possible. People should be encouraged to wash their hands regularly.

People who are feeling even slightly ill, with colds are asked to NOT come to church until they are better, for the safety of all.

Please encourage your people to view Mass on Television on Vision TV or on the internet and to pray at home, the rosary or study scriptures on the Sundays there is no Mass.

Priests may celebrate a ‘private Mass’ on Sunday but without a congregation, for their own spiritual life. All Catholics are dispensed from the requirement to attend Mass, on weekends when the Masses are cancelled.

Parishes should put a sign on their doors on the weekends indicating the situation.

Future information will be coming for the Mass of Chrism and Holy Week Celebrations, please stay tuned.

Sincerely in Christ,

+ Fred J. Colli

Most Rev. Fred J. Colli

Bishop of Thunder Bay

Saturday, 14 March 2020

Canada's Response to COVID-19

In response to the COVID-19 situation, Canada is about to undergo a pretty major economic shock comprised of both an aggregate supply shock - given the disruption to supply and production chains - and an aggregate demand shock - as consumer and business spending dries up. This is unprecedented and the ultimate effects on price and output will depend on the proportionate size of the leftward shifts. And of course, when things in the global world economic order get tough, you can always count on "team players" like Russia or Saudi Arabia to make things worse as they have with their oil production squabble. This will provide the final push to conditions that were already driving a potential Canadian slowdown given the length of the business cycle, and the impact of trade restrictions and disruption with both the US and China. Ironically, those elements in Canada who were trying to shut down the Canadian economy with transportation and production blockades only a few short weeks ago, will get their wish in ways they could not possibly imagine.

This shock is mainly to expectations and confidence on the part of consumers, investors and business. Anything that requires non-essential consumer spending - restaurant meals, tourism, travel, and leisure activities - will be hit the hardest. Essentials in sectors such as food and supplies will do better. Many personal services will also be hit hard in the immediate term. Online services and shopping especially with delivery service will get a boost. At the same time, this is an "animal spirits" driven crisis and once it appears the COVID-19 situation is under control, there will be a fairly rapid resumption of activity and pretty quick bounce-back from any recession in Canada. The longer-term is more interesting. Just as 9-11 changed global trade, travel and interactions in many ways, this too may result in changes in travel mobility especially. The openness of borders that marked the second age of globalization from the 1990s to the present may fade.

From a health economics perspective, Canada is a highly developed economy with an excellent health care system. Moreover, in the aftermath of SARS in the early 21st century, there was substantial investment in public health infrastructure so in general it is very well prepared. However, like other countries, the danger from COVID-19 is that despite the fact that most people have mild symptoms, that small proportion that has more severe illness is large enough to overwhelm the health-care system - particularly the supply of acute care beds and respirators. Here Canada is less prepared than most. Despite being one of the largest health care spenders in the OECD, it has one of the lowest per capita amounts of hospital beds and physicians in the OECD. A case in point, Italy has much higher bed and physician numbers per capita than Canada and it is still being overwhelmed. Canada's hospital system in particular has been at capacity for years and there really is no slack. A major question that must be answered once COVID-19 is under control is where did all the health spending money go? How can one be one of the biggest spenders on health in the developed world and yet be at the bottom for indicators such as hospital beds and physician numbers and often only mid-ranked on many health indicators? There should be a reckoning here.

In response to COVID-19, there has been a pretty unprecedented response on both the fiscal and monetary policy side from our federal government and the Bank of Canada. Ottawa is about to open the spending taps with stimulus and supports, which will undoubtedly include money for the provinces to spend on health. There will be large deficits and this is a time where deficits are called for though it should also lead to the question as to why deficits have been so large to date in the absence of a downturn or crisis. Interest rates have dropped dramatically and by mid-April will probably drop even more. In many respects, this is the right thing to do given the immediate crisis but there are limits to what all of this can accomplish.

In the end, this downturn is an "animal spirits" driven crisis that is being driven by expectations and uncertainty. All the king's spending and all the king's horses will not have an effect if people are afraid to venture out and spend. Put another way, you can lead a horse to water but you cannot make it drink if it is afraid to leave the barn. The biggest stimulus to the economy is confidence that governments and health authorities know what they are doing and are getting the situation under control - a drop in infection rates would be the clearest indicator of this.

Announcing measures like enhanced screening at airports and points of entry followed by news stories of people getting off planes on international flights in Vancouver or Toronto with nary a query is not a recipe for boosting confidence. Where are the screening staff at Canadian border entry points making sure everyone is asked questions about where they have been and taking temperatures? What is being done to boost the supply of beds and respirators? Getting the situation under control ultimately requires more than spending announcements and moral suasion. It also requires evidence of effective action. These are not regular times. Words are not enough.

Wednesday, 11 March 2020

The Future of Policing in Thunder Bay

It appears that high crime rates in Thunder Bay have provided a new impetus for both police infrastructure and operating expenditure growth. Along with this year’s large budgetary increase, there is now a consultant’s report on a new police station that according to one local media report has “raised eyebrows” at City Council. A French-language report for those with french language facility also provides a very nice overview of the matter.

The issue is two-fold. First, the report maintains that the current Balmoral Street police station is at the end of its useful life and needs to be replaced by a new and larger – double the size actually - central police station at a new location. The current facility is old and lacks key facilities like a shooting range, suitable public spaces, a forensics lab and training rooms. The price tag is for replacing a building that is approximately 30 years old is $52 million and that will be on top of all the other things City Council wants to do on the infrastructure side including a new turf facility.

Second, the report says more space is needed because the current force is likely to grow significantly over the next 20 years in terms of new staffing to meet modern policing styles and needs and the growth is expected to see employment rise from the current 309 to 400 – a 29 percent increase in staffing despite population projections that do not see Thunder Bay population growing much if at all in the immediate future.

This ask is a big deal. To start, the capital spending alone for a new station when the existing building is only about 30 years old begs the question as to why the current station cannot be renovated. True, the consultants say a new build is cheaper in the long run as renovating the existing station to meet needs will cost $64 million. However, we all know the history of cost estimates when it comes to public sector builds in Thunder Bay. Both of those numbers are estimates and that $52 million especially will grow considerably once construction begins. More importantly, if we are embarking on a major spending program for police services, why not take this as an opportunity to revisit the nature of policing entirely in terms of service location?

A new and bigger centralized station is really a very 1970s concept and characteristic of the post-amalgamation approach to public services in Thunder Bay – a shiny new building in a “central spot” when the population is in two clusters at opposite ends. If the public likes this, just ask them how much they really like having all the medical services in one spot that always requires a major drive to get to and is not conveniently accessible by public transit? The public might also like to ask if when it comes to health services, why Thunder Bay does not have something like an urgent care centre that could take pressure off the one emergency at TBRHSC - but I digress.

One wonders if putting all the policing assets in one locational basket is really that wise in the 21^st century. While we are a relatively small community, we are also remote and our population is quite spread out. Is having only one location for police, one central hospital, etc…really the way to go forward in a world increasingly marked by shocks and catastrophes that can cripple infrastructure? Even the shiny new “centralized” EMS HQ and station in Thunder Bay was ultimately supplemented with satellite facilities. Like I said, we are remote and it would take a long time for any type of help to get here in the event a major catastrophe happens.

If the decision is to go with new and larger police facilities, why not renovate the Balmoral complex and then put in another satellite facility – at some distance from the current location which is effectively already a north side location - that can serve as a training facility/forensics lab/community policing and supplementary policing facility. Officers travelling back and forth between the locations is simply another community patrol which would enhance service. Is there an exceptionally compelling reason why a forensics lab, training rooms and a shooting range all need to be together with the frontline policing services?

As for the new staffing, this is a potential slippery slope. The new policing methods noted in the report that will lead to increased staffing tend to rely not on front line officers but supplementary staff to handle many of the non-direct-crime fighting duties that officers need to do. This is supposed to free up front-line officers by not having them do routine administrative tasks and paperwork as well as “save money” by having these tasks done by cheaper civilian staff. However, in the end this is Thunder Bay and these workers will be municipal workers. How much economy in operations will really occur if the current number of front line officers grow only slightly but an additional 50-60 municipal employees are added over the next 20 years to the police service? This one needs a lot of thought given the impact on the operating budget.

So, this report is food for thought. Councillors are correct in asking tough questions.

Sunday, 8 March 2020

Amalgamation 50 Years Onwards: A Short Retrospective

Thunder Bay in 2020 is celebrating its 50^th anniversary this year as one city. Amalgamation united the twin cities of Port Arthur and Fort William and the adjacent townships of Neebing and McIntyre. While there was much community support for a union particularly among the city elites who wanted to see the inter city area developed, in the end resistance was such that it was the provincial government that essentially merged the cities into one. While memories have faded as demographics evolve, it remains that a shotgun wedding is probably not the best way to build long-term enthusiasm for a major institutional change.

The current celebrations appear to be somewhat muted all things considered given the economic and social issues that Thunder Bay has faced over the last decade. There is also the current state of the municipal government finances which obviously limits the scope of any project to commemorate the anniversary. A 50th anniversary celebration should see the unveiling of a major public square celebrating unity with commemorative sculptures or columns but given our current age of divisiveness deciding what actually to commemorate will be a non-starter. Moreover, 50 years is not even that long a time in the course of human events, especially given that urban centres at the Lakehead were in existence for nearly a century prior to amalgamation.

Port Arthur was incorporated as a town in 1884 and achieved status as a city in 1906 while Fort William was incorporated as a town in 1892 and achieved city status in 1907. The two cities had down towns that were only four miles apart and yet they were notorious rivals when it came to attracting industry or a government project not to mention with respect to sporting events. While this rivalry and lack of cooperation may have been in some respects counterproductive, it nevertheless was a source of competitive pressure that probably assisted economic growth and urban achievement.

Amalgamation instituted a monopoly municipal government at the Lakehead and the lack of competition and as a result reduced policy experimentation after 1970 was likely another factor in the growth slowdown since. Amalgamation also attempted to bury the existing urban identities - the area was widely known nationally and globally as "The Lakehead" - with “ThunderBayification” in attempts to rename things and in the short run robbed the community of a sense of identity, history and ultimately the celebration of urban centennials in 2006-07 marking the 100^th anniversary of the Lakehead cities.

Denying the past was also a factor for the delay in the city coming together as one and was reinforced by the balance of power approach to the new council which provided equal representation for both sides. As a result, the duplication of city services that amalgamation was supposed to eliminate continued with north and south downtown urban renewal projects as well as north and south side waterfront parks. Over time, there has finally come a realization that both urban areas could have unique roles with the north side becoming an entertainment/tourism area and the south side the seat of government functions including the city hall. Amsterdam and The Hague on Lake Superior so to speak. Yet, this process has taken so long that in the end both former downtown Fort William and Port Arthur have become less than they could have been given the expansion of the inter city area as a magnet for so much office and retail development.

Still, amalgamation had its benefits. The city now has several good north-south road traffic routes as well as an integrated public transit system and more and better municipal services and facilities but they have not come any cheaper. Indeed, the city has expanded away from its former compacted core areas with an urban sprawl that is increasingly higher cost in terms of required services. Coming together as one city has also seen the long-term development of cultural and community infrastructure with the auditorium and the planned new waterfront art gallery the best examples of this.

And being one unified location has helped in the integration of health care facilities which culminated in the building of the new centrally located hospital and improved health services for the city and region. Residents with longer memories have even been treated to the amusing spectacle of the former south downtown Fort William Clinic moving to Port Arthur to be part of a cluster of medical facilities. Yet, even the new hospital and centralization of health care services was a mixed blessing given it was undersized from day one in terms of bed capacity and that in the age of SARS and corona-virus, a remote city with two separate acute care hospitals rather than only one could have some benefits.

However, in terms of economic growth, population has been at a standstill since the 1970s and the loss of the industrial base has essentially resulted in the city’s economy becoming a ward of the state with over 30 percent of its employment in government and quasi-public sector activities. The main challenge for the next 50 years is not how to improve or expand Thunder Bay’s public services at the provincial, federal and municipal levels, but to make Thunder Bay more competitive as a location for economic development of private sector wealth generating activities.

Tuesday, 3 March 2020

My Latest on the Fraser Institute Blog

— March 3, 2020

The recent economic blows to economies around the world resulting from COVID-19, the disease caused by the new coronavirus, raise the spectre of a supply-side shock vaguely reminiscent of the oil price shocks of the 1970s.
Back then, we saw a global supply-side shock due to a quadrupling of oil prices in 1973 that set off a persistent pattern of lower growth of real GDP and productivity accompanied by rising inflation, high interest rates and higher unemployment. It was also marked by large deficits and debt accumulation that in Canada was not dealt with until the 1990s.
For Canada, this era of economic stagnation was in marked contrast to the previous boom era. For example, from 1945 to 1973, real GDP growth and the unemployment rate both averaged 4.5 per cent annually, the inflation rate averaged 3.4 per cent, and the Bank of Canada rate, 3.6 per cent.
From 1973 to 1996, Canadian real GDP growth averaged 3.1 per cent, unemployment averaged 8.9 per cent, inflation, 6.1 per cent and the bank rate, 9.4 per cent. The resulting fiscal tumult saw an enormous gap develop between federal revenue and spending, which saw the deficit rise from $2.2 billion in 1973 to a peak of $39 billion in 1992 before declining to $8.7 billion in 1996 in the wake of the federal program review, the 1995 budget and economic recovery.
Of course, right now the world is not experiencing a cost-side supply shock like that of the energy crisis. However, COVID-19 seems to be sparking a major shutdown of employment and production in the harder-affected countries such as China and Italy.
While demand for many activities is down, if aggregate supply shifts left (faster than aggregate demand shifts left), there will be both an output drop and rising price levels.
The threat of disease spread and associated periods of quarantine has also generated a demand for certain goods with store shelves emptying while supply chains are being disrupted. A reduction in supply of goods and services accompanied by a surge in demand can also lead to an increase in prices—a cost shock—that ultimately could even spark a new round of inflation.
Indeed, the policy response in such a situation becomes problematic. Lowering interest rates or boosting government fiscal stimulus could be all for naught if people aren’t buying. As the saying goes, you can lead a horse to water but you can’t make it drink—especially if it does not want to go outside.
Of course, it’s still early days and a bout of good news about COVID-19 containment, or perhaps the development of a rapid treatment or vaccine, can rapidly turn this situation around. Still, we are in new territory when it comes to the world economy being in a fluid and complicated situation no one appears to have foreseen.
While taking health precautions is important, remaining calm is also necessary given the economic impact of people’s decisions on a global economic scale. A supply-shock recession combined with shrinking aggregate demand would be a new one for the economics textbooks.

NORTHERN ECONOMIST 2.0