Vaccine Take-up and Free Riding Behaviour

 

Based on evidence from other countries, which are often  ahead of the curve when it comes to COVID, a fourth wave fueled by the Delta variant in Canada is inevitable.  It has also become increasingly evident that, the simplest way to ensure the fourth wave does not exceed the third wave is to doubly vaccinate the entire population and as an added precaution retain the wearing of masks in indoor public places.  Yet, indifference, lack of compliance and outright resistance to these measures has been an increasingly troublesome feature of the pandemic. 

 

Our medical experts now maintain that for herd immunity to stamp out the pandemic, double vaccination rates need to approach 90 percent.  To date, we are still well short of that in Canada.  While much is made of the statistic that 75 percent of the population is fully vaccinated that figure only refers to the population aged 12 and older.  When it comes to the total population, we are only at 66 percent – not really much more than where we were several months ago. 

 

Even if you factor in that 14 percent of Canada’s population is under age 14 and the vaccine has not been approved yet for 12 and under, that still means that about 20 to 25 percent of Canada’s population above age 12 has still not been fully vaccinated and shows little interest in doing so.  When broken down by age, the highest vaccination rates are in those aged 60 and over and range from 87 percent (60-69) to 92 percent (80+).  They then fall dramatically by age group from 78 percent in the age 50-59 category to 67 percent by age 30-39 to 60 percent by age 18 to 29. 

 

Getting your shot is essentially a public good.  While the shot protects you it also protects others by breaking up the cycle of transmission.  This is what is known in economics as an externality.  Now in public finance theory, a pure public good is a good characterized by a consumption externality.  That is, everyone must consume the same amount of the good because once it is provided for one individual it is provided for all.  However, a problem results in terms of how this good is to then be paid for.  If there is no way to exclude individuals from consumption, then individuals can be tempted to enjoy the benefit of the public good without contributing to the cost.  This is known as free riding behaviour.

 

Free riding is the outcome of the self-interest which economists assume drives individual behaviour coupled with the characteristics of public goods.  Once a public good is produced, it is difficult to prevent others from consuming it and their consumption does not diminish the satisfaction of other consumers.  If the financing of this public good were to rely on voluntary contributions, the presence of free riding behaviour would result in no one contributing to it in the anticipation that someone else would.  The result would be zero provision of the public good.  Because of free riding behaviour, there is essentially a market failure in the provision of the public good by voluntary or private means.  The solution is for government to provide the public good.  Since government has a monopoly on coercive force, it can levy taxes to finance the public good.

 

So how does this apply to vaccinations and anti-vaxxers? Well, it is tempting to argue that anti-vaxxers are either extreme libertarians or do not understand science or that they are mainly short-sighted younger people who think they are immortal, but the problem is probably more insidious than that.  What we are seeing aside from a small minority who are more ideologically driven is more traditional free riding behaviour.  These individuals essentially cannot be bothered to take the time to go out and get their shot because they figure that if everyone else gets their shot then they will be protected anyway.  They do not really care about the externality they provide by getting the shot and view the benefits to themselves as small given the risk of severe complications from the disease relative to the inconvenience of getting a shot. 

 

Put another way, free riding is more selfish behaviour while not free riding is more cooperative behaviour.  Free riders are the same type of people who throw their coffee cups out of windows while driving or let their dogs bark incessantly outside in the middle of the night or do not contribute to charity.  They do not do anything unless there is an incentive or direct benefit to themselves to do so which is why in the end the government mandated solution of vaccine passports is the only way forward if you want to get this particular externality dealt with.  Once access to activities is curtailed in the absence of being double vaccinated, the benefits of getting a vaccine will rise providing the necessary incentive.

 

Are young people more likely to free ride?  No.  Free riding cuts across all age groups but given the lethality of the disease as you get older, older free riders are quicker to see the light and eventually get their shots.  In the case of vaccines, the benefits of free riding are simply greater for younger demographics which means they will persist in their behaviour longer in the absence of incentives to do otherwise.  Moreover, the percentage of free riders can grow over time if it becomes apparent that others are not following the rules.

 

Indeed, some of the economics literature I’ve seen suggests that the percentage of chronic free riders in any human population can range from 20 to 30 percent.  Most of the time, society manages to function well just the same because the vast majority engage in more cooperative behaviour.  At the same time, 20 to 30 percent free riders pretty much matches the current statistics of vaccination non-take up rates in Canada.  It also suggests that the proportion of free riders in a population is not set in stone and can vary based on local conditions.  After all, the United States which traditionally has had a more individualistic society than Canada has even lower vaccine take up rates. 

 

 

Another Pandemic Effect: Falling Crime Rates

 

As analysis of the pandemic and its effects continues, here is another result: falling crime rates.  The police reported crime statistics for 2020 were released today and they show that in 2020 crime in Canada fell substantially after being on an upward trend since 2014.  As the accompanying Figure 1 shows, as measured by the crime severity index, crime rates fell from 2000 to 2014 and then began to increase to 2019.  

 

 

 

However, 2020 as a result of people being more at home saw a fall in crime.  For example, there were significantly lower rates of breaking and entering, robbery, shoplifting and theft which is not surprising given that people were largely at home safeguarding their property and retail access was severely limited by assorted pandemic restrictions.

 

Police-reported crime in Canada, as measured by the Crime Severity Index (CSI), decreased 8% in the first year of the pandemic—falling from 79.8 in 2019 to 73.4 in 2020. The CSI was 11% lower than a decade earlier in 2010.  One exception was an increase in police reported hate crimes which saw a 37 percent increase in 2020.  Homicide rates also increased as well as police-reported opioid offenses.

 

 

 

More interesting is a ranking of the change in CSI by Canadian CMA as shown in Figure 2.  The largest declines in crime severity were in Regina, Calgary, Ottawa, Barrie and Toronto and ranged from -20 percent to – 15 percent.  However, some cities nevertheless saw increases in crime severity even during the pandemic with the largest increases in Kingston (4%), Greater Sudbury (7%) and Peterborough (14%).  

 

 The two northern Ontario CMAs had quite different profiles this time with Thunder Bay mirroring the national trend coming in with a decline of 8 percent whereas Sudbury saw an increase. Nonetheless, crime severity is still higher in Thunder Bay relative to Sudbury though the gap closed considerably in 2020.   Sudbury saw increases in identity fraud, homicide and breaking and entering.  Thunder Bay saw decreases in breaking and entering, shoplifting and theft though homicides were up.

 

However, the crime severity index is different from police reported crime rates.  One is a weighted index with 2006 set at 100 while the other is the number of actual police reported crimes per 100,000 population. Here both Sudbury and Thunder Bay saw a decline in the number of police reported crimes per 100,000 population with Thunder Bay reporting a 16 percent drop and Greater Sudbury a 6 percent drop.  The crime rate (as opposed to crime severity index) in 2020 was down in all the Canadian CMAs except one - Peterborough - which saw a 5 percent increase. 

Of course, you are probably keenly interested in which CMA was number one for homicides in 2020 as measured by the homicide rate.   Thunder Bay had 8 homicides in 2020 for a rate per 100,000 of 6.35 - putting it once again in the top spot for CMA homicide rates in Canada.

Income Growth in Canada: The Regional Results May or May Not Surprise You

Statistics Canada has just released its data on the income of families and individuals in sub-provincial areas for 2019.  There are two aspects to any comparison of census metropolitan areas in Canada - the level of income and the growth in that income.  The first figure below plots median after tax income of census families and persons not in census families by CMA for 2019 and the results show that higher incomes are a feature of western cities and also smaller centres.  Calgary and Edmonton are in first place followed by the Ontario part of Ottawa-Gatineau but Saskatoon, Guelph, and Regina are also up there with median incomes above $60,000.  Thunder Bay and Sudbury fare quite well also and are at the top of of the list at $57,510 and $54,780 respectively.  Canada's major metropolitan centres - Vancouver, Toronto and Montreal - do not fare as well coming in the bottom third of this list.  The five lowest median incomes are mainly in Quebec with the addition of St. Catharines-Niagara in Ontario.  In many respects this is not that big of a surprise.  Smaller cities especially in resource based regions tend to have higher incomes. The big cities have a lot of very high income people but also a lot of low incomes bringing down the average.

 

What is more interesting is where the growth has been over the last five years.  The next figure presents the percentage growth in median after-tax income of census families and persons not in census families by CMA between 2014 and 2019.  Vancouver and Montreal saw the largest growth at 6.8 and 6.4 percent respectively.  Indeed, cities in Quebec and BC dominate the top rungs in terms of median income growth with an Ontario city - Toronto - coming in 9th place.  Sudbury comes in the middle of the pack at 1.4 percent and Thunder Bay is in the bottom third with its median income growing barely one percent over the course of five years.  Cities in the west - hard hit by the resource sector downturn - see negative income growth along with St. John's in Newfoundland and Labrador which is at the bottom at -4.9 percent.  However, the high tech Kitchener-Cambridge-Waterloo area also saw negative income growth during this five year period. 

 

 

British Columbia and Quebec have seen the best growth over the last five years with cities in western Canada experiencing the worst growth and everyone else somewhere in between.  The broader GTA from Oshawa to Niagara Falls and is not doing as well as Quebec or British Columbia and of course these numbers are all from before the pandemic.

Canada's COVID 19 Performance: Oped

 

Canada’s COVID performance on key measures among worst in developed world

Livio Di Matteo 

Appeared in the Globe and Mail, May 26, 2021

There have been more than 167 million COVID-19 cases worldwide and 3.5 million deaths. Canada ranks 22nd in the world with more than 1.3 million cases and more than 25,000 deaths. Given the spread of new variants and varying vaccination rates around the world, the effects of the pandemic will be with us for some time to come.

But how does Canada compare to other advanced countries? For 2020, COVID cases per million ranged from a high of 87,000 (Czech Republic) to a low of 7 (Taiwan). Canada (approximately 19,000) ranked 24th out of 35 advanced countries. Deaths per million ranged from a high of almost 1,800 (Belgium) to 0.3 (Taiwan), with Canada in 22nd place (approximately 500 deaths per million).

However, on a crucial measure—the “case fatality rate” (total deaths from COVID-19 as a percentage of total COVID-19 cases), Canada in 2020 had the 7th highest rate (meaning 7th worst) in the developed world, due primarily to COVID’s impact on Canadians in long-term care. In 2020, 11 per cent of Canada’s COVID-19 cases, and more than 70 per cent of COVID-19 deaths, were in long-term care facilities. According to the Canadian Institute for Health Information, while Canada’s overall COVID-19 mortality rate was relatively low compared with rates in other OECD countries, we had the highest proportion of deaths in long-term care. If we’ve learned anything from COVID, it’s that we must do a much better job with long-term care here at home.

Unfortunately, lessons provided are not always lessons learned. Crucially, Canada failed to learn from the SARS outbreak.

Between 2002 and 2004, some 30 countries reported SARS cases, with only eight countries reporting more than 10 cases and only five (China, Hong Kong, Taiwan, Singapore and Canada) reporting more than 100 cases. Fast-forward to 2020, these five countries combined reported about 18,000 fewer COVID-19 cases (per million) compared to countries that did not experience SARS. Apparently, countries heavily hit by SARS learned something about how to prevent viral spread during a pandemic. Except Canada. While Hong Kong, Singapore, China and Taiwan in 2020 saw COVID-19 deaths (per million) range from 22 to 0.3, Canada reported nearly 500 deaths per million. In this key five-country group, Canada was an outlier.

Why? Post-SARS, governments in Canada studied and planned for future pandemics and increased spending on public health measures. Yet we were still unprepared for COVID-19. For example, in the years before the pandemic, the federal government seemingly (and quietly) deactivated its pandemic early warning system, failed to maintain stockpiles of personal protective equipment (e.g. masks), and once the pandemic began often moved slowly to deal with its impact. On the other hand, following its SARS epidemic, Taiwan established a National Command Centre in 2004, which helped coordinate and map out its current—and significantly more successful—pandemic response.

As for other lessons from around the world, high rates of testing remain an important factor, with each additional 100,000 tests (per million) associated with 21 fewer COVID-19 deaths per million. Last year Canada ranked 26th out of 35 advanced economies for COVID-19 tests per million.

Another important factor was the number of hospital beds per 1,000, with each additional bed associated with 31.5 fewer COVID-19 deaths per million. Among 35 advanced countries, Canada ranked 32nd for the number of hospital beds. What does that look like? Again, among advanced countries, hospital beds per 1,000 ranged from 13.1 (Japan) to 2.2 (Sweden), with Canada near the bottom at 2.5.

In summary, key deficiencies in Canada’s pre-pandemic preparation and response capability (even after the lessons of SARS), combined with low rates of testing, low numbers of hospital beds, and an inadequately prepared and protected long-term care sector, have produced relatively poor results, particularly on certain measures of mortality. As a result, Canada was forced to rely on lockdowns and other stringent measures, which—while effective during the first wave—were less effective as time wore on and Canadians grew tired and confused with the shifting rules. And it’s the restrictions imposed by government, not the pandemic’s death rates, which caused the economic disruption that will continue until a sufficient proportion of the population has been vaccinated and we reach some level of herd immunity.

In light of the suffering we’ve witnessed across the country, let’s hope we actually learn more this time around.

Despite spending hundreds of billions during COVID, we seem to have little to show for it...

 

As the pandemic moves into 2021, it’s important to reflect on how Canada is dealing with its impact. After a summer that included a semblance of normality, the fall and winter have brought a resurgence that’s taxing our ability to cope. As the second wave unfolds, various new lockdowns (with substantial rates of non-compliance) have been imposed, testing international air travellers on their return has begun nearly 10 months after the start of the pandemic, the vaccine rollout appears to be unfolding in slow motion, hospitalizations are rising and death tolls are creeping upwards.

The current sentiment seems to be that while Canada may have made a few mistakes along the way, we’ve been doing relatively well and deserve a pat on the back. Yet despite spending hundreds of billions of dollars at the federal and provincial levels with combined budget deficits approaching $500 billion for 2020-21 and the largest deficit-to-GDP ratio of any developed IMF country, we seem to have little to show for it.

The virus is surging in our major cities, we lag behind in administering vaccines to the point where many spent a long time in freezers. And the virus still runs rampant through many long-term care homes.

One wonders if in the end, the disjointed, confused and slow response to the pandemic was partly the result of the current interpretation of Canada’s federal system by its leaders.

Federalism is a system of government where units are able to be both independent and coordinate and should accommodate regional preferences with the economies of scale and political direction of a larger country. The Canadian federation has been held up as a model for the world given our standard of living, the freedom of our population and the stability and diversity of our political system.

While Canada’s diversity has meant regional tensions between the federal and provincial governments and perpetual crises and tug of wars over jurisdiction, it’s managed to remarkably stay aloft for more than 150 years. Indeed, one pundit remarked how Canada is a “bumblebee nation” able to fly despite being aeronautically impossible. However, one wonders if the flight of the Canadian bumblebee is more attributable to luck than ability.

Given our high standard of living, we’ve come to think of ourselves as high-flyers, but it increasingly seems that we are mediocre flyers caught up in gusts of wind provided by the historic proximity to a relatively benign and wealthy southern neighbour and our abundant natural resources. Canada’s leaders seem increasingly unable to solve problems. Our governments are increasingly bureaucratic and adept at planning but not at implementation. While quite accomplished at spending large sums of money—especially at the federal level—our governments seem extraordinarily incapable of getting things done themselves or harnessing private initiative. Indeed, when it comes to the private sector, our governments are experts in imposing rules and regulations rather than incentives. When some private companies stepped up to produce masks and hand sanitizer early in the pandemic, their reward was to be bypassed by foreign suppliers when the real money was spent.

During COVID, governments across the country have issued inconsistent and contradictory statements about masks, the rules for gatherings and so on. Consequently, many Canadians increasingly don’t know what they’re supposed to do to stay safe and some may think they’re following the “rules” even when they’re not. We’re told these are unprecedented times—but obviously not unprecedented enough for politicians of all stripes who tell us to stay home while they gallop around the world demonstrating an appalling lack of leadership.

Our federal government intones that health is a provincial responsibility, but there are federal and provincial health ministries and public health agencies and federal health transfers. Health as a provincial responsibility should provide experimentation and flexibility in dealing with the pandemic. But there seems to be little learning going on given that the relative success of the Atlantic provinces has yet to rub off on other provinces.

While the discord of the U.S. experience has not marked Canadian intergovernmental relations, one cannot help but wonder how much “politics” has marked public exchanges. Take the premiers asking for more health transfers or the federal response to the provincial clamour for the federal government to provide vaccines, which was followed by the expression of federal “disappointment” over the lack of quick distribution by the provinces.

Finally, the federal government has used its spending power not to provide early testing and comprehensive quarantine facilities at international airports or ramp up domestic vaccine manufacturing and distribution, but to dispense poorly-targeted transfers. And again, Ottawa has chosen not to do more to tackle the pandemic directly by hiding behind a strict interpretation of provincial jurisdiction over health. This federal government seems to act is if health is a provincial responsibility when necessary, but not necessarily a provincial responsibility. Sadly, all Canadians will pay the price for the failure of our governments.

 

This was first published in the Fraser Institute Blog, January 8th, 2021.

Ranking Canada's COVID-19 Performance: It is Not as Pretty as We Like to Think

 

The IMF has released the October 2020 edition of its fiscal monitor and economic indicator numbers for world economies and its World Economic Outlook report titled “A Long and Difficult Ascent”  paints a pretty gruesome picture of the carnage wrought by the COVID-19 pandemic.  While the global economic growth outlook has improved somewhat from its June 2020 report, it is still projected at -4.4 percent and is surrounded by a fair amount of risk. 

 

However, in the end, performance is relative and what is more interesting is how different advanced economies are expected to fare in 2020.   Moreover, what is also of interest is their performance economically and fiscally relative to their pandemic performance – which certainly should be of interest to Canadians.   Polling results have often indicated that Canadians have largely approved of the way that their governments have responded to COVID-19 and an international ranking places Canada near the top of countries whose public thinks their country has handled COVID-19 well.  How justified is this perception by Canadians?

 

In understanding how well Canada has done dealing with COVID-19, one has to start with how Canada ranks in terms of the severity of the disease which in itself can indicate how good a job Canada has done in limiting its spread.  Figures 1 and 2 plot the ranked total number of COVID-19 cases per 1 million population and the deaths from COVID-19 per 1 million people as of October 17th (as taken from Worldometer) for 35 advanced economies as defined by the IMF.  Cases per 1 million ranged from highs of 32,914 and 25,083 for Israel and the United States to lows of 490 and 376 for Korea and New Zealand respectively.  COVID deaths per million people ranged from highs of 893 and 722 for Belgium and Spain (with the USA third at 675) to lows of 5 for both New Zealand and Singapore.  

 

 

 

 

 

Canada ranks 21^st in total cases per million – putting it in the bottom half of incidence severity – but 10^th highest in deaths per million population putting it in the top third.  So, while Canada was not hit as hard by infections compared to many countries, it was among those seeing higher death rates – largely because of its poor handling of the long-term care sector where over 80 percent of the deaths occurred.  While Canada is not the United States or Spain or Belgium in terms of the incidence and mortality of COVID-19, it is not Australia or New Zealand or Korea either. One might argue being an island helps but it did not help Cyprus or Malta that much.

 

How about the economic impact?  Figures 3 to 6 are based on the IMF October 2020 World Economic Outlook Report.  Figure 3 ranks the 35 advanced economies in terms of their projected 2020 real GDP growth rates and here Canada ranks 24 out of 35.  While everyone is going to see their economy shrink, some are going to be hit worse than others. Canada is basically at the top of the bottom third with an anticipated drop in real GDP for 2020 of -7.1 percent.  Overall, it is sandwiched between highs of -1.8 and -1.9 percent for Lithuania and Korea and lows of -10.6 and -12.8 for Italy and Spain. Figure 4 ranks these same countries according to their estimated 2020 unemployment rate and here Canada is an honorary Mediterranean country where at 9.7 percent it is coming 4^th out of 35 countries – behind Greece, Spain and Italy.  And if one looks at the percentage point increase compared to 2019, Canada’s is a 4 percent point increase.  Based on Figure 5, we are the second worse increase of the 35 advanced countries, behind the Americans who are expected to see a 5.2 percent point rise in their unemployment rate. 

 

 

 

 

 

 

 

Of course, one might think that Canada’s somewhat mediocre performance relative to other advanced countries when it comes to the spread of COVID-19 and its mortality rate may simply be due to the fact that Canada has been a cheapskate in terms of its public spending compared to other countries.  And, by extension, perhaps our economic performance has been so much worse than other advanced economies because our federal and provincial governments have been captured by deficit scolds who have foisted restraint upon Canadians.  Well, put those notions to rest.  When the government deficit to GDP ratios for these advanced economies are ranked in Figure 6, it appears that Canada is finally number one in something – the size of its 2020 government deficit relative to GDP.  It is expected in 2020 to have the largest government deficit to GDP ratio of these 35 advanced economies registering at 19.7 percent. 

 

 

 

Once again, Canada has been spending a lot and seemingly getting relatively much less for its money.  True, we have not done as badly as some countries when it comes to the effects of COVID-19 on our population (unless you are a resident of a long-term care home) but our economy appears to have been fairly hard hit even with the many billions of support and assistance that have been funneled into it.  Why Canadians have to date been so charitable towards their federal and provincial governments when it comes to performance during the COVID-19 pandemic is a bit of a puzzle to me. Perhaps we just like to be nice.

The Empire Ascends: Pax Canadensis and the Threat to China

 

The public pronouncements of Chinese diplomats on Canada-China relations have become quite interesting of late.  In marking the 50^th anniversary of the establishment of formal relations between China and Canada (which incidentally was instrumental in getting China recognized by other countries and ultimately helped get China where it is today) Canada’s Prime Minister Trudeau remarked on the current strains on relations between the two countries – namely the Meng Wanzhou and Kovrig/Spavor affairs.  

 

This came on the heels of Bob Rae’s remarks at the United Nations in response to China’s claims that Canada was “bullying” Beijing by refusing to release Meng Wanzhou. Rae’s response was not the usual polite and timid mutterings of diplomatic nothings that the Chinese government has come to expect from Canada and its politicians and diplomats.  Rae essentially said: “When you say that a country of 35 million people that we are somehow bullying a nation of over one billion, one of the great superpowers of the world and they have chosen to treat these two Canadian citizens in this way, this is something that we shall never forget.”

 

Well, good for Bob Rae.  Since the Meng Wanzhou affair began, China’s ambassadors in Ottawa have used ominous threatening language and the Chinese government has used trade as a punishment by reducing its canola imports and halting pork and beef imports for a while.  However, apparently, we are the bullying nation.  One wonders what the point of such language is on the part of China’s government representatives in Ottawa and New York?  Is it an attempt at mockery or humour?  Does President Xi Xiping really believe that Canada is bullying China?

 

Or is there something more here?  I recall an old  story my father used to tell me about a man who went to his doctor because he had a phobia about chickens.  The man believed the chicken might eat him.  The doctor explained the absurdity of this in calm measured terms and convinced the man that he was indeed not a mere grain of corn that the chicken might eat but many times larger and indeed a threat to the chicken.  The man appeared to accept this, calmed down and prepared to leave but as he was leaving turned and said: “I am still worried. You are right, I am many times larger and not a grain of corn, but does the chicken know this?”

 

China’s behaviour on the world stage seems driven by extreme insecurity.  While it is now the second largest economy in the world and has become a major world player, it still smarts from past injustices and when backed against a wall reverts to old diplomatic language and behaviour.  It still sees itself as a developing economy with a past marked by western colonialism despite the progress it has made and does not understand why it is not always getting its way.  Canada not doing exactly what it says is somehow being seen as a loss of face and not a problem to be solved given Canada’s position between China and the United States.  That is the most charitable explanation of its behaviour. 

 

Aside from the uncharitable explanation that China really is a mean self-centered bully is the off the wall possibility that the Chinese government truly believes it is in a parallel universe where Canada is a huge imperial power.   Canada has foisted a Pax Canadensis on the world backed by the force of its arms.  In this mirror universe straight out of a Star Trek episode, the evil Canadian empire that arose on the ashes of the British and American regimes now encircles the globe with colonial possessions right up against China’s borders and is trying to keep China from asserting its rightful place in the world.  Its flag of crossed swords is the ultimate symbol of bullying diplomacy and its arrival on your shores heralds the onslaught of red coated Mounties directing your traffic and polite bilingual bureaucrats overseeing the construction of hockey arenas and Tim Horton’s franchises. A Pax Canadensis indeed.  The world should be so blessed.

 

Whether China is psychologically insecure or simply misguided does not matter.  Neither bode well for a peaceful and stable world future.

 

 

Canadian Universities and COVID-19: Apocalypse ... Not?

 

 The academic year at Canada’s universities is well underway albeit in a mainly online/remote format.  It has been an extraordinary transition on the part of faculty and staff accomplished on fairly short notice. Developing or converting materials from a classroom lecture format to a more structured online delivery system has been very time intensive.  An online course requires substantially more time on the part of instructors for organization and development and it is also more work for the students taking the course.  Unlike a classroom environment where the instructor can tailor the pace of weekly delivery to accommodate progress and needs, the weekly online modules once set with their materials, schedules, quizzes and assignments, can move forward quite relentlessly. 

 

 Interestingly enough, universities have been pressuring their faculty for years to do more online because of the supposed flexibility it affords students and the anticipated “efficiencies” but this year’s rapid transition has revealed the mixed blessing that online university teaching is.  It turns out that doing online teaching well is a bit more complicated than simply piling everyone into Zoom lectures.  It helps to have infrastructure that does not collapse when too many users sign on.  It also helps to have supports for faculty and staff doing the teaching like proper computer equipment, but six months in everyone is pretty much still on their own at home improvising as they go along.  And it turns out Zoom lectures and Zoom office hours are about as well attended as regular classes - I will leave that to the reader to interpret as they wish.

 

Of course, much of the interest this year has focused on the apparent financial effects on universities from COVID-19.  In the spring, there was much widespread speculation that enrolment was going to collapse as domestic students stayed home and international students were unable to come back into the country and some institutions began pre-emptive action.  It turns out that this did not exactly come to pass.  Across the country, enrolments appear to be stable or even higher than anticipated at many universities and even international students have been able to register for courses online.  Even at Lakehead, overall enrolments are stable as the accompanying figure showing recent numbers to date suggests.  Indeed, the bigger long-term problem is not overall enrolment collapse but universities competing with themselves for students by expanding online enrolment and poaching students from each other.

 

 

 

With the enrolment apocalypse over for the time being, the media doom frenzy is focusing on other financial effects like “half-full” residences and “shuttered” food services and the “decline in public funding”.   However, with fewer students on campus, there are also fewer costs particularly in staffing like food services and cleaning much of which has been contracted out.  Moreover, with everyone working from home, heating, air conditioning and hydro costs are reduced.  And, as for the decline in public funding, that has been underway for some time.  Governments have wanted universities to reduce their dependence on public funding and as a result universities  have raised tuition fees, recruited more international students and branched out into research and ancillary fees for additional revenue.   

 

Essentially, our universities are really no longer publicly funded but publicly assisted and the bigger question is why some of our universities have not simply taken a leap and gone completely private?  Part of the answer is probably that governments cannot leave things well enough alone.  Even if universities went private, governments would probably continue to regulate tuition for political reasons as they do now thereby ham-stringing university operations just as they do now.

 

The other interesting development is that our governments are continually telling us they have your back and how they are there to support you  and yet despite a nearly $400 billion dollar deficit at the federal level and multi-billion dollar deficits provincially - shoveling all types of money out to individuals and businesses – still no real support package for universities.  Given that universities have held their own on enrolment, one might expect a little help to deal with fixed costs and the decline in revenues from ancillary services.  Public funding for universities peaked in 2010-11 and has declined since, a little bit of help during the pandemic is not unreasonable.

 

Yet, it appears that universities are on their own.  Governments generally do not like things they cannot fully control and recruit for their political purposes and university academics generally fall into that category.  Governments have been given carte blanche in their approach here because the public supports them.  The general public essentially perceives academics as public school teachers with a longer summer vacation. It still amazes me how many people ask me every September if I have gone back to work.  I have given up explaining what I do – it is a lost cause.   

 

At the same time, the public perception is understandable.  University employment is a good job. Academics like their work and that probably does generate envy given that many people do not enjoy their jobs.  However, what academics do is still work and just because faculty like their job should not represent an opportunity to make them miserable.  Indeed, academics are not the only ones with good jobs at a university – they are actually outnumbered by staff and administrators who also have nice jobs and working conditions because students come to the university to take courses taught by academic faculty.  Which brings me to my next point…

 

Compounding all of this is the opportunity that COVID-19 has provided to university boards and administrations.  Despite the fact that enrolment is stable or rising at many institutions in the wake of COVID, the continued doom mongering is a useful tool for extracting concessions.  Indeed, during a pandemic, one might expect a pull back from mercenary behaviour, but it appears that across the country, those university faculty associations unfortunate enough to have their contracts expire during the pandemic are facing particularly brutal demands for concessions on the part of university administrations.  Apparently, despite the theatrical performances of our prime ministerial soliloquist in chief in Ottawa, we are not all in this together. 

 

One Very, Very Big Deficit

The fiscal snapshot yesterday confirmed the severity of the fiscal and economic impact of the pandemic on federal finances.  GDP is expected to shrink by 6.8 percent in 2020-21, government revenues are dropping 21 percent and spending is up 63 percent.  Believe it or not, the numbers say something about the elasticity of expenditures and revenues to a pandemic generated drop in GDP.  Based, on these percentages, it seems that a 1 percent drop in real GDP growth is associated with about a 3 percent drop in federal revenues while the same 1 percent drop in real GDP spurs a 9 percent increase in spending. Spending is definitely more elastic than revenue.

Revenues are dropping from 341 billion dollars in 2019-20 to a projected 268.8 billion in 2020-21 while spending is going from 375.3 billion dollars to 612.1 billion dollars.  As a result, the deficit is going from the original projected 34.4 billion dollars to 343.3 billion dollars bringing the federal debt to over one trillion dollars and the federal debt to GDP ratio to 49 percent.  In nominal dollars, this is indeed the biggest deficit in Canadian history but as a share of GDP it comes in at 15.9 percent putting it behind the 20 percent plus ratios incurred during World War II.  The accompanying figure gives a nice visual snapshot of the changes in the nominal values of some of the key variables.

The impact is serious but the economy and the federal finances should be able to absorb this as a one-time shock.  Moreover, much of this new debt is being financed at very low long-term interest rates and debt service charges will not change significantly.   However, if this happens twice then federal finances will head into a state where consequences will be more severe.  In the end, we are a small open economy and if everyone around the world starts to borrow at such rates, the increase in demand will eventually raise interest rates.  The "small borrowers" will feel the pain first.  

Canadians have been truly blessed by having their federal finances in relatively good shape heading into this crisis as it enabled their government to assist them.  However, the economy needs to restart and pick up steam and much of this new spending wound down over the next 6 months to a year if we are to avoid more serious restraint as well as large tax increases one to two years down the road. 

Pandemic's Economic Impact: Building Permits

Statistics Canada released the May building permit numbers today and they document the impact of COVID-19 on residential, business, industrial and institutional capital investment quite nicely.   The good news is that the total value of building permits issued by Canadian municipalities in May grew  20.2% to $7.4 billion.  This was a nice rebound following declines of 13.4% in March and 15.4% in April. Indeed, on a monthly basis, this was the largest percentage increase since March 2009, and according to the report it coincided with the relaxing of COVID-19 construction restrictions in Ontario, Quebec and Prince Edward Island. However, the May level is still 20.4% below the last peak observed in January 2020 and when the year-over-year statistics are looked at, we are down 10 percent.





The year-over-year percentage changes are important to look at in that they provide a better long-term comparison and they reveal that some Canadian CMAs are actually rebounding nicely.  Brantford and Barrie on a year-over-year basis saw increases of over 200 percent.  Peterborough and Thunder Bay were next with annualized increases of 51 and 44 percent respectively.  Indeed, 13 of Canada's 34 CMAs saw increases year-over-year including even Toronto at 11 percent and Windsor at 10 percent.  Both cities were exceptionally hard hit by COVid-19.  The worst hit cities in terms of annualized declines in building permit values were Kingston, Moncton, Gatineau (Part of Ottawa-Gatineau)  and Saskatoon.

For some of the smaller cities, the rebound is a bit of a small number's game. Thunder Bay, for example reported 9.5 million dollars in permits in May of 2019 and 13.7 million in May 2020.  I did notice a new mini-mall having land cleared in the River Terrace area so if that was issued in May, it would have helped the numbers.  A new mini-mall would obviously not have the same impact on numbers in the GTA. As for Peterborough, over the same period, the numbers go from 12.2 million dollars to 18.5 million.  Winnipeg, on the other hand went from 254 million dollars to 151.7 - in terms of scale, a much more impactful drop. As for Toronto, it goes from 1.6 to 1.8 billion dollars and Hamilton from 187 billion  to 255 billion dollars.

Interesting stuff.

Canada's Long Summer Break

As Canada begins to make significant inroads in driving down the daily new cases of COVID-19 and the number of recoveries rises further, the path forward is two-fold.  First, we  need to make sure that we continue to monitor the infection rate and take steps to ensure that there is not a re-ignition of the pandemic and a second wave.  Second, after three months of lockdown and reduced economic activity, we need to get the economy moving again – albeit carefully, with new rules and procedures for reopening to comply with the first step above.  Nevertheless, the challenge is daunting given a national unemployment rate that has soared to over 13 percent with 3 million unemployed and nearly as many underemployed with fewer hours of work.

We cannot afford a second wave given the economic damage that has already been done to the economy.  Many businesses may indeed never reopen and of those that remain, if they do not reopen this summer, there will be even more attrition going into the fall.  Part of the issue is the fall in demand but part of the issue is also the ability to find workers to start doing things again given the incentive effects that rapidly designed assistance packages appear to have created.  There is anecdotal evidence and public commentary that the CERB is paying many people to stay at home and that some people getting the CERB may not be entitled to it.   Naturally, the numbers alone raise eyebrows given that up to 6 million Canadians are either unemployed or working fewer hours but over 8 million are apparently receiving CERB benefits.  The stories range from PEI to Ontario and have prompted proposals of a crackdown. 

This makes today’s announcement about the two-month extension to the CERB particularly concerning.  While the government tried to place conditions on receiving the extension – such as "actively looking" for work though how that could even be monitored is a good question – these apparently did not pass so we are stuck with two more months of  a program that may cause some disincentive effects when it comes to re-starting the economy this summer.  Now it stands to reason that support like the CERB was needed to deal with the onset of the pandemic and making sure that people did stay home during the lockdown.  However, the numbers suggest that many more are collecting the CERB than the employment impact numbers suggest have been impacted.

For the upwards of two million Canadians collecting the CERB that appears in excess of the sum of those unemployed or with reduced employment, the last three months have seen the start of an early summer.  With today's extension of 8 weeks, Canada has now embarked on providing a relatively generous  long summer to several million people rivaling all that time off of school for the kids.  There may indeed be some very nice social benefits to all of this as people have more time to enjoy their families and do the things they have always wanted but ultimately the CERB is costing about $17 billon a month which means by early September it will have cost nearly $90 billion.  And, if more businesses shut down during the summer because they cannot restart due to labour shortages, then there will be even fewer businesses open to hire people come September and we end up with a self-reinforcing circle and a call to extend the CERB yet again.

Without a vaccine or effective treatment to COVID-19, there may indeed be many arguing its not safe to ask people to go back and that the CERB be extended.  At the same time, given the traffic I have seen in Thunder Bay this last week, I imagine the fear of COVID-19 may apply to returning to work, but little else.  If the CERB is to be re-extended, then perhaps a declining benefit designed to ease people off the support and back into the labour market makes sense. If the first three months are $2000 per month, perhaps the extension should come in at perhaps $1500 if only to set a precedent when the inevitable calls come in August to extend the benefit yet again.  Canada’s support to those hit by COVID-19 has been considerate and appropriate but it needs to have a long-term purpose.  It needs to help facilitate a transition back to economic re-engagement and not become a permanent fixture given the haste with which it was cobbled together.  If this is the start of a basic income program, it needs to be better designed. On the other hand, maybe this all just a lead up to calling a fall federal election.
 

Ontario’s “404 Error”: Is This As Good As COVID Is Going to Get?

Well, it is June 1 and after several months of dealing with the pandemic, Ontario’s daily number of new cases was 404.  Oddly enough, the internet “error” signal as your case number is probably divine commentary on the state of Ontario’s efforts to date on dealing with the corona virus.  It does appear that Ontario has stalled when it comes to reducing the daily number of new cases and after last week’s large gatherings at Trinity-Bellwoods Park and now the demonstrations in Toronto over the weekend, there will likely be another spike in cases about two weeks down the road.  Toronto has already been responsible for a disproportionate number of new cases in Ontario and this will likely get worse.  

 Of the 3,409 cases added to the Ontario total between May 16 and May 23, the Toronto Public Health Unit area added 1,955 of them – nearly 60 percent of the total.  The population of this area in 2016 was 2.7 million out of 13.5 million for Ontario as a whole – a 20 percent share.  So, it appears that COVID-19 in Toronto is occurring at about three times the provincial rate and it does not look like it is going to improve anytime soon.

The crux of the matter is illustrated in Figure 1 which shows the number of daily new COVID-19 cases from January 25^th to June 1^st with a 0.5 bandwidth LOWESS smooth.  The results do not require a degree in statistics or epidemiology to interpret.  We appear to have a reached a daily plateau in terms of the number of new cases.  In terms of the growth rate of total cases, we have not cracked the 1 percent daily growth rate barrier.  Indeed, the best we ever did was May 26^th and 27^th when we got down to 1.1 percent, but the growth rate has inched up since and today was 1.5 percent. By way of comparison, Italy is now down to a 0.1 percent growth rate in total cases. 

 

And speaking of Italy, here is another interesting comparison.  In Figure 2, Ontario and Italy daily cases are plotted since January 25^th and guess what – despite having about 4 times our population and one of the worst outbreaks of Covid-19 in the world, Italy is now at about the same number of daily new cases as Ontario.

 

So, we do have a problem and the problem is Ontario’s disjointed attempts at dealing with the pandemic.  Like much of the country, we moved slowly at the outset in dealing with the pandemic and this still seems to be the hallmark of the Ontario response. Case in point.  Pearson airport today announced new strict health measures for dealing with COVID-19-effective June 1^st including the compulsory wearing of face masks everywhere in the terminal.   Interestingly, these were not announced April 1^st or even May 1^st but June 1^st.  Seriously?  Airports are under federal jurisdiction, why so long in finally announcing and implementing these types of measures?  The federal government is probably too busy rushing funding to one group after another – today it was $2.2 billion for municipalities - as a sort of fiscal atonement for the sin of not being ready for the pandemic and then reacting too slowly when it began.

I think a glimmer of hope is from the news reported in Italy that Dr. Alberto Zangrillo, the head of the San Raffaele hospital in Milan apparently has claimed that ““the virus clinically no longer exists in Italy”, provoking a furore in Italy. “The swabs performed over the past 10 days have showed a viral load that is absolutely infinitesimal in quantitative terms compared to those carried out a month or two months ago.”  Essentially, the virus has begun to mutate and has become less lethal.  As for Dr. Zangrillo – he looks like a pretty solid researcher type to me given his Google Scholar page.  Of course, this has been challenged by health experts and I certainly would not rush out into the street to demonstrate in public celebration. Nevertheless, Italy has been ahead of the curve with respect to the severity of the illness and if this is true, then it is a glimmer of hope. We could use a lucky break from the lack of initial awareness and plodding approaches of both the Ontario and Federal governments.

Canada must tailor trade practises for post-COVID world

The effects of COVID-19 will transform the international world order and affect Canada’s role in it.
First, the meteoric rise of China, with its aspirations of world leadership and greater respect, will come to a crashing halt. Despite the importance of China’s market to the world economy, there will be an increase in transactions and transport costs as the hyper-globalized pre-COVID world takes a pause given concerns about virus transmission.
There will still be global trade and travel but there will be new rules and precautions operating as a form of non-tariff barrier with resulting losses for producers and ultimately consumers. For Canada, trade with China will continue given the importance of our resource inputs to their economy. But they will eventually need us more than we need them and this should shape our trade policy accordingly.
Of course, there’s also the long-term fallout from the Chinese government’s delay in alerting the world to the seriousness of COVID-19 while simultaneously scouring the planet for PPEs. The Chinese government’s desire to be treated like a superpower runs counter to the leadership and stewardship we’ve seen over the last few months. With great power comes great responsibility, and perhaps the best example of it during the 20th century was the American assistance for European recovery. While self-interested, the Marshall Plan nevertheless helped former foes and allies alike rebuild their economies after the Second World War. Notwithstanding its later efforts, the Chinese government’s behaviour during the early phases of the pandemic has eroded trust. For Canada, the new rule in its international dealings with China should be trust but verify.
Second, the abdication of global leadership and retreat by the United States is nearly complete, reinforced by its chaotic handling of its own public health situation. While the U.S. has been far from perfect, during the 20th century it was a leader for free markets, international trade and humanitarian efforts to help bring about a better world. The last four years have seen a populist-fuelled retreat from this vision of America in the world and we will all be poorer for it. The COVID debacle in the U.S., due to a lack of coordination and response, sends a distressing message to its trade partners and allies. For Canada, there can be no retreat from dealing with the U.S. given its importance to our economy. But we can no longer assume that all American interests are automatically our own.
Third, given what has transpired with both China and the U.S., the Europeans and the United Kingdom will ultimately assert new leadership, engagement and involvement in world affairs though they will not always sing with one voice. The retreat of the U.S., the Chinese government’s lack of transparency and not-so-subtle bullying—combined with the ever-present Russian behemoth on their doorstep—means they will need to do more for themselves in terms of security and trade, and will need to reach out and strengthen their trade relationships around the world. Here, Canada has taken the first steps with the Comprehensive Economic and Trade Agreement but it must actively pursue opportunity and build further relationships. Trade agreements are not enough, you must work to implement them.
The ultimate result from all this uncertainty will likely be an even more competitive and multilateral world order with Russia, Saudi Arabia, India and Brazil constituting additional elements of change and disruption. Yet this world will also be a source of opportunity for a resource rich and diverse outward looking country such as Canada.
We can benefit, but we must be nimble and adaptable in this changing world. Canada must actively engage with all players, but on its own terms, and must seek like-minded allies who are also small trade-dependent economies with stable, democratic and market-oriented institutions. Canada, Australia, New Zealand, Taiwan and the Scandinavian countries can serve as champions of small open economies in this emerging and more competitive world order. A league of small open economies may seem naïve, but one should not underestimate the powerful effects of mice that roar.

This first appeared on the Fraser Institute Blog, May 12 2020.