Northern Economist 2.0

Showing posts with label canada. Show all posts
Showing posts with label canada. Show all posts

Saturday, 2 November 2019

Rising Health Spending Is Not Just About Seniors

The Canadian Institute for Health Information (CIHI) has released its 23rd annual report on health spending in Canada - National Health Expenditure Trends, 1975 to 2019As a member of the CIHI National Health Expenditures advisory panel, it is always great to see the wealth of data on trends in health spending across Canada.   Total health spending in Canada in 2019 is expected to reach $264.4 billion which represents an increase of 3.9 percent over last year and accounts for 11.6 percent of Canada’s GDP – a figure also up slightly from last year.  After a period of zero average annual growth in real per capita total health spending from 2010 to 2014, the period since 2014 has averaged about 1.4 percent a year.  This, however is lower than the average annual growth rate from 1996 to 2010 which was at 3.3 percent.  Health spending growth has resumed but on what currently seems like a more sustainable trajectory given that real per capita GDP growth is closer to 2 percent.

Much of the concern about rising health spending has focused on the effects of population aging.  Health spending does rise with age as Figure 1 below shows rather dramatically.  Aside from those aged less than 1-year, per capita provincial/territorial government health spending is well  below $5,000 until the 60-64 age group when it starts to rise above that threshold reaching over $30,000 for those aged over 90 years.  Yet, despite this surge after age 60, what is also interesting is that when the drivers of rising health spending are broken down, in 2019, aging per se only contributes 0.8 percentage points out of the 3.8 percent growth in public sector health spending – about 21 percent – with general inflation, population growth and other factors (eg. Technology and utilization) accounting for the rest.  It does lead one to wonder whether this is because today’s seniors are generally quite healthy compared to the past or perhaps whether there are unmet needs.

Slide1
What is also interesting and seldom noted is that while provincial and territorial government per capita health spending is highest among seniors, over the last two decades, the rates of growth in per capita spending have not been for seniors.  Indeed, between 2000 and 2017, the highest average annual growth rates have been for children and youth aged 5 to 19, followed by children under age 1-year and adults aged 35-39 as shown in Figure 2.

Slide1
Indeed, per capita spending for adults between the ages of 35 and 64 has been growing at a faster rate than those aged 65 to 89.  While, it is true that much lower per capita amounts are being spent on those below age 65, spending for this demographic has been growing much faster.  Again, this leads one to wonder given scarce resources whether there is an implicit transfer of resources underway away from seniors when it comes to new growth or whether younger people today have more health problems or utilize health care more than similarly aged groups in the past.  Given the epidemic of obesity and mental health issues among the young, perhaps this is having an impact on health spending needs and expenditures.

If a significant cohort shift in health care needs and utilization is underway is an interesting question. I suppose fully knowing if this is a recent development or has been underway for the last 50 years requires per capita age spending data going back quite a ways - I am only aware of the CIHI data going back to the mid 1990s or so.  This is an important issue.  While an aging population may only be contributing 21 percent of the increase in health spending now, if younger cohorts today have deteriorating health status or more health issues than in the past, they may be poised to be a more important driver of health spending both now and in the future.
 

Wednesday, 9 October 2019

International Relations & Trade Discussion Missing in Current Federal Election Campaign

Monday's Federal Leader's debate made nary a mention of international trade, our current dispute with China or even what is going on with the USMCA ratification in the United States.  With exports accounting for about 30% of our GDP, it is astounding that such an important issue is being ignored.  It is therefore worth re-posting the piece I had published early this week on the Fraser Institute Blog.


Canada needs more major trading partners beyond China and the U.S.

First Appeared in Fraser Blog , October 7th, 2019



On the campaign trail, there’s little talk about Canadian trade policy and the repercussions of our current poor political relationship with China. The need to continue diversifying our trade is the elephant in the room this federal election.



In what seems to be explicit retaliation over the Meng Wanzhou Affair, China has detained Canadian citizens—putting a chill on business travel there—and essentially halted our exports of meat and canola. Any memories of Norman Bethune appear to have faded as China reveals its view of us as a small, inconsequential and puny power that should do as told. As a result, an important trade strategy—to diversify our trade away from dependence on what has also become a more capricious United States—lies in tatters.



The U.S. takes nearly 75 per cent of our exports, and despite recent bumps, has been by international trade standards a dream trade partner. It’s a large, rich, populous market literally on our doorstep where we share a close political and social culture, common language and history. It’s a market economy like ours with a strong rule of law. Subsequently, Canadians have not had to work very hard when it comes to exports given that the access to such a profitable market has historically been easy. A one stop export market for 75 per cent of your exports has become the gold standard of Canadian trade policy.



But Canadian business has been seduced by the prospects of China’s growing economy and the vision of a rich market of 1.4 billion people as a sort of future U.S.-like trade relationship. China has rapidly industrialized and is developing a large, dense and wealthy market. At first, it even seemed to be moving towards a more liberal market order in its economy.



Yet despite early promise, it would appear China is only playing lip service to liberal economic values and seems set on explicitly using trade relationships as part of its diplomatic and political arsenal, given that it views government policy and trade relationships as one dominion. Its recent behaviour raises an important question: Do we really want to ever be in a situation where 75 per cent of our exports are dependent on China’s market? Do we really want to give the Chinese government a quasi-monopoly over both our trade and political affairs?



It really would be the road to serfdom.



Despite the large dollar value of our trade relationship with China, it currently still only represents five per cent of our exports. Trade is about free exchange and mutually beneficial gains. If China wants our trade goods, we should certainly sell them as part of a free and open bargaining process. However, if it wants to use its economic relationships as a tool to get its way when dealing with countries on other issues, then we must protect ourselves. We are a small open economy dependent on trade and we must diversify our trade. Our recent efforts in negotiating agreements with the EU and the Trans-Pacific are only a start. We need many countries to compete for our business, but to do so we also need to show interest and compete for theirs. Part of this also involves reducing our own protectionism (agricultural supply management would be a good place to start).



If the Asia-Pacific is the future of trade, then look for opportunities in other wealthy Asian countries. Japan, India, Thailand, Vietnam, Taiwan, Singapore, Malaysia, Indonesia and the Philippines are all important economies that can serve as markets for Canadian products.

Moreover, instead of waiting for government-led initiatives, Canadian businesses should start the process themselves. Rather than placing all your eggs in a one-shot market-access strategy in the hopes that China can one day replicate our success in the U.S., shift your markets to other partners. Make sure there are a lot of them so no one country can ever hold our economy hostage. This should become the new gold standard for Canadian trade policy.

Saturday, 14 September 2019

Demanding Better from Canada's Federal Politicians


Well, it is nearly one week into the Federal Election campaign and the start was less than auspicious for the Liberals given that a campaign bus damaged the official plane on day one.  I was surprised that no pundit noted that it seemed like the left wing of the plane carrying Canada’s self-styled champions of progressive thought was damaged.  But then, media observers were probably too entranced by the plethora of slogans and ads which had already started to crescendo a few days before the call.   Yet, the slogans were for the most part predictable and really rather bland.  The general blandness of indeed the entire election, is coming during a time when Canada’s position in the world is under severe stress and change. How a country with an export to GDP ratio of 30 percent can continue to prosper in a world of tariffs and trade wars is a pressing question.  One was expecting more.

The campaign slogans are remarkably interchangeable.  The federal Liberals are asking us to “Choose Forward” which I am sure means other parties are a backwards choice rather than an exhortation to engage in time travel or perhaps go to an advance poll.  The federal Conservatives are telling us that “It’s time for you to get ahead” which again is a call to vote Conservative as a way of doing materially better rather than proceed to the front of a checkout line or perhaps take early action in setting your clocks back for the fall. 

Keeping to the theme of moving forward and ahead, both the Liberals and Conservatives are facing the Green Party with their “Not Left. Not right. Forward Together” which suggests rival parties are directionally challenged when it comes to deciding where to go.  And of course, there are the New Democrats who want us to know that they are “In it for You” which is a comment on the other parties being focused on themselves rather than a call to attract more candidates of which they are still woefully short.  And who can forget the People’s Party of Canada who are simply “Strong and Free” but based on their polling numbers are not strong and probably do not wish to apply the concept of free to immigration.

These are of course only slogans designed to highlight differences and send subliminal messages.  The Liberals are suggesting that choosing anybody other than them is a step backwards especially when it comes to their much-vaunted promotion of growing the middle class.  I suppose this  is a more charitable interpretation of their message than a more strident “We always know what is best for you” or “We are going to help the middle class whether you like how we do it or not.” 

Meanwhile the Conservatives, seem to be telling us if you want to be middle class, the best way to get ahead is to support them which is probably a more prudent line than “We want to help you help yourself get more”.  As for the New Democrats, well they are middle class boosters too but want to explicitly let you know they are in it for you if you vote for them with the policy prescription being there is no problem that cannot be fixed with more government spending - even if not necessary or counterproductive.  Here, the more accurate reality might be a reverse Walmart ad like “Spend more, Get Less”.

In the end, these official slogans are all interchangeable and designed to sell a message that if stated more bluntly would probably not be seen as a good idea by the in-house advisors.  It would be a fun party game to see how many permutations and combinations can emerge by combining and rearranging these words.  How about, “Not left, Not right, but forward and backwards” or “Forward for a Strong and Free You” or “Time to choose forward to get ahead together while strong and free and realizing what’s in it for you.”   We are truly in a pickle this fall but unless we demand better from our politicians, we will not get anything better.  It can start with better slogans but a better policy debate would be even more useful. 

 

Wednesday, 7 August 2019

Crime and the Economy: Are Low Interest Rates a Factor?


The most recent set of crime statistics for Canada revealed that police-reported crime in Canada, as measured by both the crime rate and the Crime Severity Index (CSI), increased for the fourth consecutive year in 2018, rising 2%.  The accompanying figure below further reinforces the fact that after years of decline – a decline that stretches back to the 1990s – crime rates are rising.  Of course, all of this begs the question as to why crime rates are rising again after years of decline.



Explaining the drop in crime rates has been a source of some debate.  The fall in crime rates since the 1990s in Canada as well as the United States has been attributed to a number of factors including new policing strategies, changes in the market for illegal drugs, an aging population, a stronger economy, tougher gun control laws and increases in police numbers. As for the impact of the economy on crime, well that is also a source of debate. 

On the one hand, the intuitive feeling is that a weak economy should cause people to turn to crime.  Yet, many studies of the relationship between the economy and crime have found statistically small relationships between unemployment and property crime and often no relationship between violent crime and unemployment.  It has also been argued that economic downturns may actually reduce criminal opportunities as when unemployment is high more people are at home "protecting" their property and when out and about they carry less cash and possessions.

If the latter is the case, one could make the argument that the strengthening economy of the last couple of years has been a key factor in fueling the recent surge in crime.  Unemployment rates in Canada are at historic lows and to add fuel to the fire – so are interest rates.  Low interest rates mean that even if more employment today is part-time or uncertain, people are still able to consume more and go out more simply by borrowing more.  Indeed, Statistics Canada also noted recently that the seasonally adjusted household credit market debt to disposable income ratio increased to 178.5 percent in the 4th quarter of 2018. 

More debt to fuel spending on homes and basic consumption frees up resources to spend on more illicit things like illegal drugs and much of the recent crime increase is drug related. 
With unemployment low and cheap money sloshing around both fueling spending and consumption, the opportunities for crime may have mounted. It is certainly a point worth considering.

Sunday, 7 July 2019

Historical Canadian Government Data Sources

I recently received the following message from Ryan MacDonald at Statistics Canada:

I recently came upon a number [of] scans done by our library to place the historical publications into pdfs.  They can sometimes be a little difficult to search for, so I thought I would pass along a few links that may be of use to you or your colleagues in your research.”

So, I think a good way to further disseminate these historical economic data sources more broadly is to post the links here on Northern Economist. Please feel free to share.

Canada Year Book
<<http://publications.gc.ca/site/eng/9.838186/publication.html>>

Tables of the trade and navigation of the Province of Canada for the year ... (1850-1908)
<<http://www.publications.gc.ca/site/eng/9.843286/publication.html>>

Report of the Department of Customs containing the tables of imports, exports and navigation of the Dominion of Canada for the fiscal year ended Mar. 31 ... (1909-1916, 1918)
<<http://www.publications.gc.ca/site/eng/9.843294/publication.html>>

Annual report of the trade of Canada (imports for consumption and exports) (1917, 1919)
<<http://publications.gc.ca/site/eng/9.852124/publication.html>>

Trade of Canada = Commerce du Canada (1920-1939)
<<http://publications.gc.ca/site/eng/9.851960/publication.html>>

Trade of Canada = Commerce du Canada (1939-1970)
<<http://publications.gc.ca/site/eng/9.809303/publication.html>>

Imports, merchandise trade / Statistics Canada, External Trade Division = Importations, commerce de marchandises / Statistique Canada, Division du commerce extérieur (1970-2002)
<<http://publications.gc.ca/site/eng/9.809322/publication.html>>

In addition, if you are interested in a lot of official Government of Canada as well as provincial government publications, quite a few appear to have migrated onto a platform known as Internet Archive.  For example, you can find Canadian Federal Government public accounts going back into the nineteenth century. That has come in handy for me given that my university library a couple of years back "deselected" all the paper copies of the federal public accounts. Given the growing trend away from paper, sources like the Internet Archive and the Statistics Canada links provided above will become increasingly dominant.
 

Wednesday, 19 June 2019

Housing Prices Up in May...Even in Thunder Bay


The May Teranet-National Bank Composite House Price Index has been released and it shows the home price index in Canada up in May for the first time in nine months though it was the smallest May increase in 21 years.  Given that there is usually a bump up in real estate markets in the spring, given the small increase by historic standards, it means that real estate markets are still slow.  Indeed, once the index is seasonally adjusted it would appear that the index is actually down 0.4 percent in May rather than up 0.5 percent. 

Some of the largest markets in the country – like Vancouver – are still in decline but Ottawa and Hamilton have been seeing larger increases.  According to the Teranet Index: “Unadjusted indexes were up on the month for nine of the 11 metropolitan markets of the composite index, the exceptions being Vancouver (−0.2%) and Edmonton (−0.3%). Calgary was up 0.3%, Winnipeg 0.5%, Toronto 0.7% and Victoria 0.7%, but indexes for these four markets were down when seasonally adjusted. Index changes for Montreal (+0.5%), Quebec City (+0.8%), Halifax (+0.9%), Ottawa-Gatineau (+1.9%) and Hamilton (+2.2%) would have remained positive after seasonal adjustment.”

Of interest to those of us here in the North are the results for Thunder Bay and Sudbury which are part of a set of figures not included in the main composite index.  Quoting Teranet: “Down from nine months ago were the two in B.C. – Abbotsford-Mission (−5.2%) and Kelowna (−3.6%). Up were the five in Ontario – Thunder Bay (1.6%), Sudbury (2.9%), London (4.0%), Kingston (4.2%) and Windsor (6.8%).”  These last five cities are all places that have economically had a pretty tough time over the last few years and rising house prices are some evidence of recovery.

So, it would appear that the continuation of lower interest rates in Canada, plus what has been strong employment growth is on the whole managing to prop up real estate markets especially in some smaller Ontario centers a bit more removed from the GTA.  Windsor certainly comes to mind.  Prices in these markets are still more affordable at least by current Canadian standards though given the overall sluggishness one really cannot expect a resurgence of the boom of the last few years.  Aside from Hamilton, other centers closer to the GTA are not doing as well – for example Barrie, Peterborough, Guelph and Oshawa. 



 

Friday, 17 May 2019

Canada's World Role: Time to Grow Up


Canada is experiencing a particularly rough patch in terms of its international relations given the recent acrimonious trade negotiations with the United States over NAFTA, the deterioration in diplomatic and economic relations with China in the wake of the Meng Wanzhou affair and the recent spats with Saudi Arabia and now even the Phillipines.  Despite our efforts to reach out diplomatically to our allies and gain their support for our predicaments, no one is going to come to our aid.  While some of this can be traced to the deterioration of a rules-based world economic and political order and the rise of more populist regimes, the recent setbacks suffered by Canada have another direct contributor – the United States and especially President Trump. 

The United States has signaled to the world that its America First policies extend to its closest North American neighbours – Canada and Mexico – and that there are limits to any “special” relationship with Canada.  The lifting today of the tariffs on steel and aluminum does not change this.  The NAFTA negotiations not only saw tariffs imposed on Canada but a set of particularly personal attacks on the Prime Minister and the negotiating team.  Essentially, the Prime minister was “slapped around” in public by President Trump and the message this conveyed did not go unnoticed in the rest of the world.  The message was that Canada no longer enjoyed any special protection from its close affiliation with the Americans – it was just another American foreign relation.

This may all seem far-fetched to the members of Canada’s governing Laurentian elites whose views are still anchored in the Golden Age of Canadian diplomacy of Lester Pearson but then most of them probably did not attend a rough and tumble northern Ontario elementary school in the 1970s.  Unlike the zero tolerance environments of today’s elementary schools, violence in the playground was quite prevalent several decades ago.   If the biggest kid took a dislike to you during recess and slapped you around, it was a signal to his minions that they could slap you around too.  Taking a stand on principle and shouting out the importance of fairness and values would simply get you another pummeling.  The trick to survival in that environment was to lay low and not attract too much attention while still getting things done.

So, Canada is in a situation not of its own making but one in which it is going to have to work hard to forge the economic relationships we need to support our standard of living.  After all, about one third of our GDP is rooted in exports which means that we cannot just take our balls and go home to play. However, we do have to be more hard-nosed about reciprocity in our economic relationships with countries that are able to use Canadian rule of law to their advantage when it comes to investing in Canada but do not extend the same privileges to our citizens and companies.  Our overall diplomatic efforts to build alliances must continue but in the long run they need to be coupled with something else – we need to get bigger if we want to ensure we are not so readily pushed around on the world playground. 

Canada needs to continue to grow its population to expand its economic mass and needs to do so through migration incentives that place population in centers other than Toronto, Montreal and Vancouver to promote broader development.  Canada also needs to spend more on its own defense if it wants to be taken more seriously.  There are challenges coming to our Arctic sovereignty and unless we are planning to give the region away to Russia, the United States and China, we need to be able to effectively command access and transit through the region.  We cannot depend on the United States or other allies to promote our interests – we need to do it more astutely and assertively ourselves. 
 

Monday, 14 January 2019

Dealing With China: Maybe We Need a New Approach?

In its dispute with Canada over the Meng Wanzhou affair, China has definitely upped the ante.  Along with the detention of Michael Kovrig and Michael Spavor, the announcement that Canadian Robert Schellenberg has now been given a death sentence for drug smuggling sends a message that China is definitely a bully and will continue to target Canadians until it gets what it wants - Canada's release of Meng Wanzhou to China.  China has obviously a lack of expertise with respect to Canada in its foreign service and diplomatic corps given its misreading of Canadian law as well as Canadian practices, conventions and sensibilities.  No doubt, it thinks its latest actions will spark an offer to trade Meng Wanzhou for the three Canadians in some sort of bizarre international hostage swap straight out of the plot of a low budget drug cartel movie.

As a small country, Canada does not have the clout to force China to do anything.  Obviously, the message that China is sending to the rest of the world - that it will resort to the "kidnapping" of other country's citizens while guests in their country as a bargaining tool - will do little to advance its soft power in the rest of the world.  China's government may think it is now a major power on the world stage and that it should be treated with more respect but respect must be earned and with power also comes the responsibility to set an example if you are truly trying to gain influence.  China has sadly shown itself as a mean-spirited bully and has resorted to a grand theatrical strategy because it feels it can scare small countries like Canada to do their bidding.

What is Canada to do?  I am not an expert in international affairs but I think our relatively quiet and reasonable behavior to date is simply being viewed by China as a sign of weakness.  The Canadian response to China's bullying needs to be a response that in no uncertain terms communicates that their behaviour to date is unacceptable.  Canada needs to be as creative as possible in sending its message to China.  I would urge the Canadian government to consider any or all of the following set of actions and naturally to word them as firmly but as politely as possible.

1. Issue an immediate travel advisory to all Canadians considering travel to China that they may be at risk of arbitrary arrest and detention.  As well, an advisory to all Canadians conducting business in China that their safety should be a concern and that the Government of Canada cannot guarantee their safety while operating in China.
2. The Chinese Ambassador to Canada should be immediately summoned to Rideau Hall and given a dressing down by the Governor General that the behaviour by the Chinese government of Canadian Citizens in China is not only disrespectful but appalling in the community of nations and diminishes China's standing in the world.  The displeasure of the Canadian people must be stressed in no uncertain terms.
3. Canada's ambassador to China should be temporarily recalled to Ottawa for immediate "consultations and instructions"
4. Given Canada's concerns about the deteriorating relations between Canada and China and our ever present concern for safety of all our visitors, an immediate RCMP presence is to be instituted around the Chinese embassy in Ottawa and all other Chinese consulates in other Canadian cities.  As well, given that the issue that has sparked all of this is the arrest of Meng Wanzhou on an extradition request by the United States, we should also post enhanced security around the United States Embassy as well as the residences of Meng Wanzhou in Vancouver.
5. A Royal Commission should be struck to evaluate the future of Canada-China trade and economic relations in light of the recent deterioration in relations with public hearings to commence immediately.  Serious consideration to be given to the question that the prospect of further increasing trade with China is not in Canada's best interests.
6. With respect to Huawei and the adoption of its 5G Network in China, the Canadian government should finally announce that it plans to ban Huawei from Canadian 5G networks in accord with our American, Australian and New Zealand allies.

 Ottawa may view these actions as not "constructive" because they might further inflame China.  I would venture that China is already inflamed and thinks we are going to be intimidated into doing their bidding.  I'm not sure being calm, reasonable and quiet is getting us anywhere.  Why not try something different.






Thursday, 13 December 2018

Canada and the New International Age


Well, it has been a breath-taking week in international affairs and the best indicator yet that so to speak, “Toto, we’re not in Kansas anymore.” By acting on a US legal request to arrest for extradition Huawei CFO Meng Wanzhou, Canada has earned an over the top response from China that to date has also been accompanied by the arrest of two Canadians in China on “national security” concerns.  The response of the Chinese government and media includes words like “revenge” and “heavy price” with respect to what Canada will face if Meng Wanzhou is not ultimately released.  This all comes at a time when China’s economy is increasingly seen as a source of opportunity for Canada with a desire to boost trade via sectoral agreements.

And to top it all off, President Trump has basically made Canada look like the ultimate puppet state by arguing that he could intervene in the dispute and let Meng Wanzhou off the hook if it was useful in securing trade concessions from China.  The Rule Breaker in Chief has made it apparent that he is just fine without a rules-based international order.  There really is very little that seems to distinguish the tenor of the President’s behaviour from that of other authoritarian leaders around the world.  God bless America for a constitution that has a division of powers and checks and balances for otherwise all of this could be much worse – as hard as that might be to believe.

It goes without saying that it is becoming an increasingly difficult time for a small open economy on the world stage.  Over the last year, the NAFTA negotiations with the United States and Mexico involved public insults directed at Canada’s leadership while Saudi Arabia had a major tantrum over our views on human rights issues.  Even if Canada had done a better job of politically tiptoeing around these assorted landmines, it remains that we would still get bullied because we are viewed as small and not of sufficient consequence.  Even China’s recent diatribes against us are really directed at the United States given that they can send it a message by targeting what they obviously perceive to be its “vassal” state.  So much for their respect for us.

While China undoubtedly has some valid points in this diplomatic dispute as expressed by its Ambassador to Canada in a recent Globe opinion piece, it remains that its behaviour is reflective of an insecure adolescent on the world stage.  When a country of 1.3 billion people that claims to be an up and coming world superpower unleashes such an stream of invective and vitriol on a small country of 37 million people, one does not see an injured party but a bully.  Only a bully terrorizes the small fry while treading lightly with the bigger kids.

So where is this going next?  Well, it is unfortunate Canada cannot seriously consider getting a membership with the European Union because quite frankly, it has become a pretty friendless world.  We can’t even rely much on our Anglosphere friends because Australia and New Zealand are small like us while the United States is on a world disorder frenzy and the British are busy immolating themselves over Brexit.  So, we are on our own.

We need to do what we do best.  Remain polite and play the hand that we have been dealt as best we can and ride out the storm.  Weather analogies are good - we can't control the weather, we only deal with it and Canadians are used to dealing with bad weather.  We need to reach out to the Chinese at a senior level and reassure them that we are doing everything we can to resolve this issue in a fair, responsible and rules based manner.  We need to reach out to the Americans and ask for reassurance that this is not just a trade manoeuvre and request that this matter be dealt with expeditiously.  If anything, we might want to try and bring the two sides together to seek a diplomatic solution though given the rhetoric to date we would risk getting side swiped by both sides. 

In the end, this will get resolved and life will go on.  Indeed, President Trump’s own words provide the best excuse for us releasing Meng Wanzhou immediately – obviously, he thinks the arrest is a trade bargaining chip and not a matter of national security.  If we were more opportunistic, that is exactly what we would do and stick it to the Americans given that they have no qualms about throwing us under the bus.  However, we are polite and follow rules.

However, once the dust has settled, we really need to re-evaluate and review our international relationships – especially those involving the United States and China.  In the case of the United States, given our economic integration and the fact that they take 75 percent of our exports, there is going to be little we can do except hope for the day when a new and more reasonable administration takes the White House.  We share a continent with the Americans and not with China and that is that.  They can be bullies too when occasion warrants but our ties with them have been long standing.  In a sense, we are not caught in the middle between China and the United States, we are with the US given our shared history and geography.

As for China, well that requires some more thought.  Given mercurial and aggressive behaviour on the part of China when they don’t get their way and their willingness to bully, we do need to be very careful that we do not become as dependent on their economy as we have become with the Americans.  I’m not sure the Chinese market is worth greater access to us given the potential costs to our businesses and our sovereignty when China decides they are unhappy with us and wish to punish us. Nobody likes being slapped around and if they do, you need to either break off the relationship or minimize contact via a more structured relationship.  It’s a big world and there are other customers for our wares.  We need to trade with countries that behave in a less vindictive manner when it comes to international issues.




Sunday, 9 September 2018

What's Wrong With This Picture?


Well, Northern Economist is in Northern Europe on the way to a conference in Stockholm later this week. It is a lovely Sunday afternoon here with families out strolling enjoying the mild September weather in a major European city – Copenhagen to be precise.  The number of people out today in Copenhagen has been augmented by the holding of a Every Step Counts walk for the environment and the paths along the canals are packed with walkers as well as tourists.

What is also interesting about the canals is scenes like the one below:


 


Numerous boats are out with groups of people sitting around a table enjoying snacks and the passing scenery as they boat along.  Notice anything interesting about this picture?  Well, it turns out that Copenhagen seems to be a lot like Vegas when it comes to open carry alcohol.  Not only can you walk the streets while enjoying a beer but you can drive a boat while partaking in wine and beer also.

It is very important to drink responsibly but I do not think that responsible drinking is incompatible with drinking in public.  You certainly could not get away with drinking and boating in Canada but one wonders how it is that Denmark - and indeed much of Europe - can handle this but we in Canada cannot despite our socially liberal pretensions.  The canals in Copenhagen are quite crowded and yet here we have groups of people enjoying picnic lunches and wine while boating along. I won’t even get into a discussion of why Denmark has tons of people on bikes and yet no one seems to be wearing a helmet.

Perhaps Danes and Europeans in general are more mature and able to take more personal responsibility when it comes to personal safety?  It is certainly something I will think about some more over the next few days. However, in the absence of truly innovative change we in Canada will just have to bear with things the way we are.


Monday, 9 July 2018

Advanced Industries: A Northern Ontario Economic Challenge


A recently released report jointly released by the Brookings Institute and the Martin Prosperity Institute lays out Canada’s path to future prosperity via advanced industries and the challenges Canada faces in this economic sector.  The report is titled Canada’s Advanced Industries: A Path to Prosperity and is authored by Mark Muro, Joseph Parilla, Gregory M. Spencer, Deiter F. Kogler and David Rigby. These industries are not just in manufacturing but span a number of diverse industries with the commonality being the application of advanced technology and innovation.  Brookings defines advanced industries as: “industries as diverse as auto and aerospace production, oil and gas extraction, and information technology—are the high-value innovation and technology application industries that inordinately drive regional and national prosperity. Such industries matter because they generate disproportionate shares of any nation’s output, exports, and research and development.”

The report argues that Canada’s advanced industries are not realizing their full potential and that these industries need to be targeted to build a dynamic advanced economy for future growth.  About 11 percent of Canada’s employment – about 1.9 million jobs – is currently employed in these higher wage advanced industries and they generate 17 percent of GDP, 61 percent of exports and 78 percent of research and development.  Services account for about half of the Canadian advanced industry worker base followed by manufacturing at about 36 percent.  What is more interesting is the variation in scale, intensity and diversity of this sector across provinces and Canadian CMAs. 

Ontario, Quebec, Alberta and British Columbia together account for 91 percent of advanced industry employment which is just a bit more than their total employment share which is about 87 percent.  Not surprisingly, the CMAs with the most advanced industry jobs are Toronto, Montreal, Calgary and Vancouver.  However, productivity growth in this sector has been lagging relative to the United states. What is particularly disconcerting from the point of view of northern Ontario economic development however is the fact that every Canadian CMA added advanced industry employment between 1996 and 2015 – the exceptions being St. Catharine’s-Niagara, Greater Sudbury and Thunder Bay.  Thunder Bay also ranks low when it comes to the regional value added generated by advanced industries (See figure taken from page 22 of report) whereas Sudbury does better because of the intensity of its mining sector. Moreover, Greater Sudbury and Thunder Bay are also at the bottom of the CMA rankings when the number of advanced industry specializations is compared in terms of local concentrations of activity.

 

Boosting advanced manufacturing in Canada according to this report requires a strategy of “four C’s” – capital, competition, connectivity and complexity.  Capital is of course the most fundamental – that is, investment in machinery and equipment but also knowledge capital such as information and technology systems.  The weakness in business investment has been a long-known factor in Canada.  As for competitiveness, Canadian industries have traditionally had less exposure to intense competition and this may be limiting the capacity of its advanced industries to innovate.  Fixing this requires greater market competition and indeed deregulation and easing foreign ownership restrictions.  Connectivity involves Canadian firms participating more in global value and production chains and networks.  Finally, complexity requires firms to master the technological complexity and specialization of the modern economy and this is often measured by patent activity which in Canadian CMAs is generally below American ones.  Policies for building connectivity and complexity in the end also involve the unleashing of greater competitive forces within the Canadian economy in order to achieve the market size or scale within which advanced industrial output can grow.

Thus, a major obstacle for Canada when it comes to growing its advanced industrial sector is its highly regional nature which in the end results in barriers to internal trade, less competition and small market sizes that militate against the scale needed to grow output.  In the case of northern Ontario, even with the growth in local entrepreneurship which has been quite noticeable in its larger cities such as Thunder Bay and Sudbury, it remains that without growth in market size, new innovative ideas will be like so much seed fallen in rock if the companies cannot grow their output.  In the end, any regional economic policy must focus on increasing the scale of output by boosting market size either via exports or via immigration and local population growth.

Wednesday, 13 June 2018

Northern Economist on the Road in Portugal! (Northern Portugal to Be Precise)


Well, I am currently engaged in extended travels in the Iberian Peninsula and it is probably just as well given the turmoil that has enveloped Canada in the wake of the G-7 meetings and President Trump’s high pressure approach to getting his way on NAFTA.  Given the success of the North American bid for the 2026 FIFA games, I suppose we can all look forward to President Trump’s involvement in getting everyone to work together on that project too. 

It has been interesting that the US President does not appear to be as interested in America’s old stalwart friends like Canada and France or the UK and Germany and seems more inspired with the company of his new friends North Korea and Russia.  His comments after the Singapore Summit suggests that Canada would be more interesting if it had a lot of unspoiled beaches for future condo and hotel development – no doubt with the help of assorted Trump holding companies.  Perhaps our Prime Minister can get President Trump’s undivided attention by inviting the presidents of China and Russia to Canada for a special summit on arctic development given the substantial pool of beach real estate and new waterways emerging there with global warming.

Nevertheless, I digress.  I am visiting Porto and have been having a wonderful time learning about Portugal and enjoying the sights and sounds of a very sophisticated society with a long history of accomplishment.  Today, for example on our visit through the Duoro Valley we drove through Sabrosa, which is the birthplace of Ferdinand Magellan and features a large statue of the explorer.  Portugal is highly urbanized with well over half of the population of approximately 10 million people concentrated in the urban areas of Porto and Lisbon.  Porto itself is the gateway to the world famous and UNESCO designated Duoro Valley wine producing region.  Of course, like many countries in Mediterranean Europe, Portugal was hard hit by the 2008-09 financial crisis and opportunity for its youth has been a challenge.  Tourism is becoming a more important part of the economy and the experience I have had  is excellent.

Bom Dia to all!


 


 

Thursday, 31 May 2018

Canadian Economy Slows in First Quarter 2018

Well, the Statistics Canada GDP numbers are out for the first quarter of 2018 and real GDP in the first quarter of 2018 grew at 0.3 percent which down from 0.4 percent the previous quarter.  Indeed a quick glance at a chart with the quarterly growth rates going back to 2013 suggests the period of more robust growth that took place in 2016 and somewhat into 2017 is winding up perhaps explaining the reluctance of the bank of Canada to raise interest rates yesterday. More to the point, expressed at an annualized rate, real GDP was up 1.3% in the first quarter. In comparison, real GDP in the United States grew 2.2%.

Real Gross Domestic Product Growth (Source: Statistics Canada)




combined line chart&8211;Chart1, from first quarter 2013 to first quarter 2018


The slower growth was driven by by a deceleration in household spending, lower exports of non-energy products and a decline in housing investment (-1.9%).   The impact of changing household spending is indeed a factor in the slowdown and may be tied to the recent increase in interest rates as well as other factors such as the rise in gasoline prices and rents.  According to Statistics Canada: "investment in housing fell 1.9% in the first quarter, the largest decline since the first quarter of 2009, due to a drop in ownership transfer costs (-13.5%). Lower resale activity coincided with new mortgage stress measures introduced nationwide in January...Household final consumption expenditure decelerated for a third consecutive quarter, slowing to 0.3% in the first quarter."

The sustainability of an economy led by consumer spending and housing may finally be coming into question.  How do things look going down the road? Well, FocusEconomics June 2018 Consensus Forecast still has Canada's real GDP growing at 2.2 percent annually this year with a decline to 1.9 percent in 2019 and 1.8 percent in 2020.  Given an annualized growth rate of 1.3 percent in the first quarter of 2018, we have a lot of ground to make up to reach 2.2 percent.The United States meanwhile is projected at 2.8, 2.4 and 2 percent for the same years.  Normally, when the United States does well so do as a result of our exports to them we but that traditional link has been under increasing stress given a more protectionist US economy. Today's news that the United States may be going ahead with tariffs on Canadian aluminum and steel will not help matters much.

Thursday, 24 May 2018

Wealth Inequality in the North Atlantic Anglosphere

I have been working on historical wealth and wealth inequality for most of my career and have put together a lot of my thinking and long-term analysis together in one spot - a new book published by Palgrave MacMillan in their Pivot series.  The ebook edition was released several days ago and is available on the Palgrave site.  The hard cover version should be available at the end of June or early July. If you want a short overview of the book, I put together a post for the Palgrave Exploring Economic History Blog that provides a nice summary of the book and some of its main ideas. An excerpt from the blog:

"Before 1750, wealth inequality was higher in the United Kingdom than the United States, but American inequality grew rapidly to match the United Kingdom by mid-nineteenth century. The preindustrial period was marked by lower wealth inequality in both the United States and the United Kingdom. The subsequent era of industrialization is marked in all three Anglosphere countries by rising wealth inequality. Wealth inequality declined in the twentieth century with redistribution away from the top one and ten percent. The decline in wealth inequality halted in the 1970s but with a rebound in American wealth inequality.
For the United Kingdom, the top 1 percent wealth share rose from an average of 25 percent in the pre-1850 period to 64 percent for the 1850 to 1900 period. More remarkably, the average share of wealth held by the top ten percent of the wealth distribution in the second half of the nineteenth century was just over 90 percent in the United Kingdom, approximately 72 percent in the United States and about 56 percent in Canada. By the early 21st century, Canada and the United Kingdom have their top ten percent with approximately 50 percent of wealth and the United States over 70 percent. Meanwhile the top one percent own just under 20 percent in Canada and the United Kingdom while in the United States the share is closer to 35 percent.
The twentieth century mitigation of wealth inequality correlates with several factors: rates of economic growth closer to the rate of return on capital, increased unionization rates, rising public spending on health and education, larger public sectors, increased home ownership rates, the onset of substantial estate taxation, more progressive income tax systems and in the case of the United Kingdom a housing policy that resulted in the disposition and dispersion of much public housing into private hands. A reduction in the strength of unions as measured by unionization rates as well as the end of estate taxation and less progressive income tax systems is associated with more economic inequality since the 1970s especially combined with lower economic growth rates relative to the return to capital."

You can also get quite a few bits of the book on Google Books if you want a free preview.   The book surveys the evolution of wealth inequality as measured by the Gini Coefficient and the wealth shares of the top 1% and top 10% for Canada, the United States and the United Kingdom.  A quick sample of one of the figures below on the wealth share of the top 1 percent in the United States from 1774 to 2012.

Anyway, it has been great working with Palgrave MacMillan and its staff in putting this project together and seeing it through.  Am glad to see the book out.

Tuesday, 1 May 2018

Gasoline Prices Are Going Up Again


Gasoline prices are on the rise in North America as a result of rising demand combined with more restrictive supply.  An aspect of tightening supply comes as a result of more "cooperative behavior" between major suppliers Russia and Saudi Arabia which was recently highlighted in a report on NPR.  Vancouver made the news with the highest prices on the continent hitting $1.62 a liter on Monday.  Along with refinery issues in Washington State which supplies a portion of Vancouver's gasoline, part of the high price in Vancouver also is a function of taxes in that Vancouver has very high taxes on motor fuel and a new carbon tax came into effect this month.  

While prices in Canada generally have headed up over time, there is a substantial range between the highest and lowest prices.  The accompanying figure plots the monthly maximum and minimum price of unleaded gasoline at self service stations for 18 major centers as compiled by Statistics Canada over the period January 1990 to March 2018. The cities are:St. John's, Winnipeg, Regina,Saskatoon, Edmonton, Calgary, Vancouver, Victoria, Whitehorse, Yellowknife, Charlottetown, Halifax, Saint John, Quebec, Montreal, Ottawa-Gatineau, Toronto and Thunder Bay.  Needless to say, the trend for gasoline prices over time is upwards (Figure 1).


What is also of interest is what appears to be a growing gap between the trend lines over time.  For example, if you go back to January of 1990, the price per liter of unleaded gas ranged from a low of 47.9 cents in Calgary to a high of 58.9 cents in Yellowknife -  a gap of 11.1 cents.  In March of 2018, the price ranged from a high of 151.4 cents in Vancouver to a low of 106.9 cents in  - a gap of 44.5 cents.  Indeed, if one plots the gap between the highest and lowest prices, one finds that it has grown over time as shown below (Figure 2).  This of course suggests that over time there has been increased dispersion of gasoline prices across cities and regions in Canada.  

However, one needs to standardize for the mean and if one takes the standard deviation of these gasoline prices by month and divides by the average, one gets a measure of dispersion known as the coefficient of variation and it tells a slightly different story (Figure 3).  The period from 1990 to about 2009 was one of a declining coefficient of variation - that is prices across these cities were actually becoming less dispersed.  However, since 2008, the coefficient of variation has been rising suggesting greater dispersion.  The overall linear trend from 1990 to 2018 however shows a declining coefficient of variation.


So, the long-term trend for gasoline prices in Canada is that they are on the way up.  The range in prices between highest and lowest in cents per liter is also growing with the gap across major cities as much as 45 cents per liter.  However, in terms of dispersion as measured by a coefficient of variation, the overall long-term trend since 1990 is for a declining coefficient of variation - that is less dispersion.  However, there are two periods - declining dispersion from 1990 to 2008 and then a rebound towards more dispersion of prices since 2008 to the present.



As a final bonus. here is a plot of Thunder Bay's monthly unleaded gasoline prices since 1990 compared to the 18 city median over the same period (Figure 4). Thunder Bay's prices are pretty close to the  median but since 2008 have been more often than not above the median.  In March of 2017, the average price in Thunder Bay was 110.7 cents per liter compared to the 18 city median of 104.8 cents.  In March of 2018, the monthly price in Thunder Bay was 123.6 cents per liter compared to a median of 121.8 cents.  Anyway, above the median or not, it looks like prices are going up.  Thunder Bay has seen a year over year increase of nearly 12 percent.  The increase for the 18 cities in this analysis over the same period in the median price was 16 percent and for the average monthly price it was 13 percent. So to date, we have been lagging a bit when it comes to price increases.