Northern Economist 2.0

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

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.

Monday, 1 January 2018

Looking Ahead to 2018

Well, it is the New Year and as always it is a time of reflection and looking ahead to see what the New Year might bring for Canada, Ontario, northern Ontario and naturally The Most Serene Kingdom of Thunder Bay where there is always optimism. Of course, 2017 has been a pretty tumultuous year but 2018 is also looking turbulent given the changes poised to take effect as well as events around the globe. However, on the bright side, the global economy is expected to do reasonably well according to Goldman Sachs or then perhaps not if you listen to Morgan Stanley. At least, Canada will not be Venezuela which FocusEconomics expects to be 2018’s most miserable economy though Canada is expected to be in the top ten for nominal GDP.  



Nevertheless, this year will certainly be a test of the aspiring nature of current economic policy in Ottawa and Queen’s Park.  At the top of the list, the United States will dramatically lower business and personal tax rates effective January 1st.  The last time this happened in the 1980s, Canada countered with the federal tax reforms that lowered rates and broadened the rates.  This time, no such response appears to be coming despite the fact the federal business tax rate in the United States is expected to fall from 35 to 21 percent.  A saving grace is that new US corporate tax rates will match rather than fall below Canadian ones.

If the US economy booms in the wake of its tax cuts, Canada might be expected to benefit from increased trade.  Yet, federal economic leadership is adrift on the trade front given the United States is playing hardball on NAFTA and talks with China and the Asia Pacific are stalled.  The aspirational tone of current trade talks is not bearing fruit given Chinese and American reactions. Indeed, the possibility is high that Trump will pull the plug on NAFTA early in the New Year.

On the plus side, we can take solace in the fact that while the United States is playing hardball on trade, Donald Trump considers Justin Trudeau a “friend”.  One can only imagine our trade talks with the Americans if Donald Trump was dealing with enemies. Perhaps we can look forward to a visit to Canada by President Trump in 2018.

At the federal level, we can also take cheer in the most recent Federal Department of Finance’s long-term projections (a few days before Christmas when no one is paying attention) that the federal budget is now expected to be balanced by 2045 compared to the 2050s as forecast in last year’s long-term forecast.  Given the international situation with North Korea, the United States, Russia, China, and the Mid-East, the world should last so long.  Where is Lester Pearson when you need him?

Added to all this are expected increases in interest rates for 2018 and the tightening of mortgage rules with a new stress test. The stress test will effectively function like an increase in the interest rate for home buyers without the added stress of implementing an actual increase for the Bank of Canada. These changes are anticipated to have a depressive effect on Canadian housing markets especially outside of Toronto and Vancouver.  As for Toronto and Vancouver, being in an economic world of their own, they should only slowdown a bit.

Things are marginally better when moving into Ontario. Ontario’s economy has done relatively well in 2017 though NAFTA talks are inevitably keeping Premier Wynne awake at nights. While Ontario is expected to balance its operating budget, debt will continue to grow based on the forecast capital spending ranging from public transit to high speed rail. Yet, it is also not a done deal that Ontario’s era of deficits is over given what appears to be a ramping up of spending with implications for the future.  Moreover, the increase in the minimum wage and other regulatory changes that are being phased in with respect to employment standards, scheduling, and overtime mark the debut of a massive experiment.  How much change can employers absorb before throwing up their hands and scaling down their operations?

Ontario is also on track to a June election and many of the progressive initiatives of the current Wynne government are designed outflank the NDP given the Conservatives under Patrick Brown have sailed into the centre of the political spectrum with their policies.   The Wynne government’s policies are aspirations for a more socially just Ontario with less weight placed on trade-off between equity and efficiency.  Along with the guaranteed annual income experiment, there is also a new youth pharma care program.  

In the end, all three political parties in Ontario appear to be placing themselves along a centre-left alignment meaning that Ontarians can expect government spending and debt to maintain their current trajectories no matter who wins.   

Of course, more government spending will be seen as good news for northern Ontario given the economic dependence on government. While the resource sector saw some marginal improvements in 2017, the development of the Ring of Fire still appears to be quite distant though 2018 being an election year one can expect to see a number of positive inspiring announcements with respect to its future.  As well, it will be interesting to see if there is any mention of the “success” of the Northern Ontario Growth Plan in the next provincial election campaign.  Any mention of the 25 year plan to boost the economy of northern Ontario that started in 2011 will likely mention the wonderful things yet to come - after all, we have yet to reach the halfway mark.

As for Thunder Bay, its economic engine is government activity as the core sector with subsequent commercial and retail activity an economic multiple of this core.  It is a recipe for stability that works given that the city’s economy has been static in terms of employment for several decades.  Rising public sector salaries and incomes provides a base for municipal taxation and further local public-sector employment and the process will continue until the flow of public money is constricted – which does not appear to be any time soon.

Why tamper with perceived success? This means the current batch of local politicians – provincial and municipal – will all be re-elected come June and October and everyone will go back to sleep.  The northern Ontario economy and Thunder Bay in particular have become a sort of economic Brigadoon – an isolated sleepy region coming magically to robust economic life every 100 years. 

Yet, despite the evidence of slow economic and employment growth from Statistics Canada and the Conference Board, its boosters have often maintained that Thunder Bay is one of the fastest growing cities in Canada and with some of the lowest unemployment rates in the country.  That the low unemployment rates in Thunder Bay's case also mean the labour force has been shrinking faster than employment is apparently not seen as a cause for concern. 

I suppose it depends on what indicators you wish to measure growth with and your interpretation of the evidence. I guess who am I to argue with Thunder Bay’s ruling political class when it comes to the interpretation of economic arguments and indicators. In the end, their attitude towards and understanding of economists is best summarized by the line once made by one city politician:"You want to listen to economists? They record history. They don't make history."

Given the last real boom period in northern Ontario was the resource commodity and baby booms of the 1950s and 1960s, we can expect the regional economy to again awaken circa  2050 – roughly the same time the federal budget is expected to balance again.  By then, perhaps the federal government will carry the public sector spending ball for northern Ontario and give the provincial government and municipalities a rest.

Happy New Year and may God save us all.

Monday, 4 December 2017

So What Happened to Free Trade with China?

Well, the news this morning was that the anticipated start of free trade talks between Canada and China has now been put off and the two countries will continue to explore whether to launch negotiations.  Given the hoopla that seemed to surround Prime Minister Trudeau's departure for China, it does seem a remarkable turn of events and somewhat of a loss of face.  According to the Globe and Mail, Mr. Trudeau declined to say what had stalled the free trade talks but said that Canada was holding out for a better deal.  Indeed, Canada may also be more wary in the light of reports that competition from Chinese manufacturing has had a negative effect on Canadian manufacturing employment and part of the delay is Trudeau playing to a domestic audience.

Of course, there is probably more to the story.  On the one hand, this could be the Prime Minister once again demonstrating to the Americans on the eve of the NAFTA talks in Montreal that Canada is prepared to walk away from a trade deal if it does not get a good deal.  Indeed, the Globe story noted that Canada wants a broader deal with China whereas China seems interested in a more "pared-down" deal.  If this is the case, then China will no doubt not be amused by being used as a negotiating ploy thereby making future negotiations more prickly. 

Still  perhaps the stumbling point was more on China's side.  From China's perspective, if they expect NAFTA to fall through then they may see it as improving their bargaining position with respect to Canada in any trade talks.  Waiting out the NAFTA negotiations to see if they fall through is a prudent strategy from their perspective and swooping in afterwards when Canada "needs" the deal more can be to their advantage if indeed what they want is a pared-down deal.

In any event, Canada is a small open economy and quite dependent on international trade.  Playing these type of negotiating tactics - if that is what they are - may actually make our life more difficult on the international stage.  On the other hand, what is going on here may simply be beyond Canada's control and Trudeau is simply reacting as best he can to moves on the part of both China and the United States acting in their own perceived best interests.

Thursday, 23 November 2017

Homicide Rate Up Again in Thunder Bay

Statistics Canada released its 2016 homicide statistics yesterday and for Canada as a whole, the total number of homicides actually declined slightly with the national homicide rate falling by 1 percent to 1.68 per 100,000 of population.  Of course, when Canada's urban areas are examined, there is quite a bit of fluctuation around this national average.  For Canada's CMAs, the homicide rate in 2016 ranged from a high of 6.64 per 100,000 of population in Thunder Bay to a low of 0 in three cities: Trois Rivieres, Kingston and Greater Sudbury (See Figure 1)

If you look at the percentage increase in the homicide rate, the rankings change somewhat.  The largest percent increases in the homicide rate were in Ottawa, Gatineau and Thunder Bay.  Fifteen CMAs saw an increases in their homicide rate, two saw no change (Brantford actually had zero murders in 2015 and 2016) while the remaining 17 CMAs saw declines in their homicide rates. (See Figure 2).

Thunder Bay is up again after a decline in the homicide rate in 2015.  If you need a refresher on long-term trends in Thunder Bay's homicide rate, here it is down below.  Thunder Bay's homicide rate trended downwards from 1981 to about 2008 and then began to trend up.  For a local media take on this story, see here.


Wednesday, 22 November 2017

Bigger Deficits in 2016

Statistics Canada has released its 2016 Consolidated Government Finance Statistics and the combined deficit of all three levels combined – federal, provincial-territorial and local – was $18.1 billion in 2016 which was up from $12.9 in 2015.  According to Statistics Canada, the increase in the combined deficit was attributable to expenses rising faster than revenue.  Government spending in Canada in 2016 was up by 2.6% while revenues were up by 1.0 percent.  The accompany chart from Statistics Canada summarizes the picture nicely.

The federal government saw an especially pronounced deterioration.  The net operating balance deficit for the federal government was $10.0 billion in 2016, compared with a $2.1 billion surplus the previous year. Total federal expenses grew 4.2%, due to an increase in social benefits (old age and family allowances) and grants to provinces and territories expenses, while revenue actually was down 0.1%. A big component of that revenue drop incidentally was from income tax revenue – despite the increase in personal income rates on higher earners that kicked in.  For a longer term take on federal finances, you might want to check another post of mine here.

As for the provinces, net operating balances in deficit were reported in 9 of 13 jurisdictions with Alberta (-$9.9 billion), Manitoba and Ontario (each -$1.7 billion) having the largest deficits in 2016.  While still in deficit, Ontario's net operating balance improved the most, due to higher revenues from corporate income taxes and taxes on goods and services – but then Ontario’s economy in 2016 did see an improvement.  As for the largest surpluses – meet the new poster children for fiscal responsibility in Canada in 2016:  British Columbia (+$4.9 billion) and Quebec (+$4.4 billion).