NORTHERN ECONOMIST 2.0

Monday, 7 June 2021

Thunder Bay City Council Swimming In Cash - Again.

Well, after a break of a few weeks, Thunder Bay City Council will be back in session this evening and the agenda is long. Of course, much of the attention will be focused on Councillor Peng You’s move to put a question on the next municipal ballot regarding the size of council that specifically would ask: “"Are you in favour of a smaller city council, one made up of 8 councillors elected at-large and one mayor elected at-large?" This is an old issue in Thunder Bay and usually resurfaces the year before an election and is a cheap and convenient way for a councillor to get attention as being fiscally responsible while not having much happen afterwards. As we all know, the current arrangement consists of 12 councillors (seven ward and five at large) as well as the Mayor elected at large.

Reducing the size of council as an economy measure is largely symbolic as a $200 million plus tax supported budget is not going to be significantly affected by having four fewer councillors. The quality of council is a more significant factor in driving the budget than the quantity of councils and council would be better off having fewer councillors and paying them more to attract better candidates able to actually analyze issues and make better decisions. So, the question Councillor You wishes to place on the ballot is typical in that it is a simplistic question designed to address a much more complex issue. A smaller city council makes sense as a symbolic political gesture and would be more useful if some of the meagre savings were reallocated to attract better candidates.

However, there is also another issue here and that is the effectiveness of democratic representation. Moving to a completely At-Large system potentially reduces accountability for neighborhood issues. Councillors must be assigned to a Ward. Otherwise, you have a council composed of a mayor and eight mini mayors each of whom will be more concerned with the big picture at the expense of the more mundane grass roots concerns of constituents. It is a question of balance and a completely at-large-system runs the risk of affording councillors the opportunity to shirk even more when it comes to neighborhood issues they would rather avoid. It is bad enough now having a mayor and five prima donnas with the ward councillors having to pick up the slack. Good luck getting attention once they are all at large.

However, that is only one of many issues this evening. The other, tucked away near the end of the 248-page Committee of the Whole document, is the non-consolidated financial statement and reserve fund update. It turns out that even with the ravages of the pandemic and the wringing of hands about budget problems and the need for resources, the City of Thunder Bay has turned out to have a net positive variance in 2020 of $4.1 million or in other words a surplus. Moreover, in terms of total assets: “Cash and investments of $131.6 million have increased by $11.7 million from the prior year, primarily resulting from an increase in reserve funds of $21.8 million.” It would appear that all that federal and provincial money was not all spent on the pandemic and substantial savings were generated. Given that Thunder Bay was projecting a $3 million surplus for 2021 at the same time that 2020 seemed to only be on track for a $1 million surplus, it would appear that things have improved even more.

Now of course, municipal governments of course are not allowed to run deficits on operating expenditures by the provincial government, so deficits are covered out of reserve funds while surpluses augment reserve funds. Having reserves is important and fiscally responsible. At the same time, many municipalities – Thunder Bay included – are now in the practice of running habitual surpluses funded by tax increases that are often higher than they need to be. The 2020 and 2021 tax hikes are in the end larger than they needed to be. The City of Thunder Bay consistently overshoots with the increase used to fund a savings program at ratepayer expense. For 2020, there was additional help from Ottawa and Queen’s Park and Thunder Bay is now swimming in cash.

Friday, 4 June 2021

NOSM Moves On. Good bye NOSM and Hello NOMU.

The creation of Ontario's newest universities - NOSM and Hearst - is a done deal. The successful passing of the legislation creating the Northern Ontario School of Medicine (NOSM) as a stand-alone university is not a surprise given that there is a majority government. In addition, NOSM itself was not opposed and is in agreement with the move. Indeed, one always wonders where the idea came from and one cannot help thinking that it was at the quiet instigation of NOSM itself given the disruption caused by the financial crisis at Laurentian and any issues with NOSM funds there. All NOSM would have to do is bring up their concerns about access to their funds - assuming there were any - and let the government's imagination do the rest. One expects there will be new capital projects in the offing to provide ribbon cutting opportunities as well as a new name for rebranding purposes - The Northern Ontario Medical University (NOMU). All governments like the sense of achievement that comes with new things even if they are a reconstitution of other people's hard work.

NOSM was always a unique entity in that it was essentially independent within the Laurentian-Lakehead operating framework. The two universities helped provide its start with space and an administrative operating framework. It was never truly a faculty within a university like all the other medical schools and that decision laid the groundwork for the day when NOSM would seek its full independence. Just imagine the provincial government trying to sever the University of Toronto medical faculty from the university - not likely. But who knows, perhaps the provincial government will now feel inspired and free all the provincial medical schools from the tyranny of their own universities. Perhaps economics departments will be next. As an aside, I always thought that Lakehead's economics department as a stand alone entity - The Lakehead School of Economics (LSE) would be wonderful for marketing purposes.

The structure of the medical school was a political compromise twenty years ago so that both universities could have a medical school sparing the government of the day the political difficulty of picking one over the other. The current government has no such political qualms because they already know the extent of their support within both Sudbury and Thunder Bay given their voting patterns over the last few decades. There was no political cost to them.

In terms of the future, NOSM will not be leaving its main operations in Thunder Bay or Sudbury given they are the northern Ontario communities with the largest concentrations of population and physicians. However, that is not the same as not leaving the Lakehead and Laurentian campuses and setting up shop elsewhere in the cities. That is a distinct prospect in the longer term leaving both universities with the additional capital infrastructure and its associated costs. As for the additional costs to the provincial government, it has already demonstrated by its actions that it is not worried about those costs. NOSM's future as a stand alone entity is an undiscovered country and will be watched with interest by medical associations and medical faculties throughout North America. Such is the way of the world.

Tuesday, 1 June 2021

COVID-19: An International Overview

COVID-19 case counts, mortality rates vary widely across developed world

Livio Di Matteo

Appeared in the Epoch Times, May 26, 2021

Perhaps the most noteworthy feature of the pandemic is that there was no uniform pattern of impact across advanced countries. The pandemic unfolded differently in each developed country, and governments that spent more did not as a rule more successfully contain the virus or better maintain their economies.

From the first reports of a pneumonia of unknown origin in Wuhan, China, in December 2019, the COVID-19 pandemic grew and spread around the world, with massive impacts on health, mortality rates, economies, and government budgets. Currently, the global tally is nearly 165 million cases and 3.5 million deaths. With the spread of new variants and differential rates of vaccination around the world, the effects of the pandemic will continue to reverberate worldwide.

However, we can already learn from this pandemic to help shape responses to future outbreaks.

Many people, including policymakers, view the pandemic as unprecedented or surprising, but only because the technological and economic progress of the 21st century—and resulting high living standards—has caused many to lose historical perspective. Plague and pestilence have been part of the human experience since the start of recorded history. Pandemics have happened before and will happen again. Nevertheless, many countries were caught unprepared for COVID-19.

Moreover, the pandemic did not strike everyone simultaneously, and even with additional time, some advanced countries seemed unable to heed warning signs and act quickly to implement proactive measures. Despite our instantaneous 21st-century communication and information dissemination, many countries seemingly had to experience their own pandemic before taking the matter seriously—even countries that experienced past viral outbreaks such as SARS.

As such, the pandemic’s effects were surprisingly severe in developed countries. For example, the International Monetary Fund’s advanced economies, which comprise only 18 percent of all countries, in 2020 accounted for 40 percent of the 30 countries with the highest COVID-19 deaths per million (although the older populations of advanced countries were a key factor in initial death tolls).

In the absence of vaccines or effective treatments, the world’s first year of the pandemic response unfolded more like a medieval plague or the Spanish flu. Control efforts consisted largely of face-masking, quarantines, lockdowns, and physical distancing. In the end, unlike the Black Death, it was not the deaths from COVID-19 per se that devastated economies, but rather the restrictions and stringent measures imposed by government to reduce spread. Lockdowns, quarantines, and travel restrictions disrupted global supply chains and had severe economic impacts on the international travel industry, labour-intensive services, food and accommodation, tourism, and the arts and entertainment sectors. Indeed, a one unit increase in the Oxford Stringency Index, which tracks government policy responses to the pandemic based on data from more than 180 countries, was associated with an approximate percentage point drop in real GDP growth of 0.1 percent.

Moreover, as noted in a new study published by the Fraser Institute, prolonged levels of stringent government restrictions did not significantly reduce COVID-19 case counts or deaths per million. On the plus side, high rates of testing helped control mortality rates, with each additional 100,000 tests per million associated with 21 fewer COVID-19 deaths per million. And again, countries with larger elderly populations experienced higher COVID-19 mortality rates.

Crucially, the number of hospital beds played a key role. Internationally, each additional hospital bed (per 1,000 people) was associated with 31.5 fewer COVID-19 deaths per million. Even among advanced countries, there are substantial variations in bed numbers. In 2020, hospital beds per 1,000 ranged from highs of 13.1 in Japan, 12.2 in South Korea and 8.0 in Germany to lows of 2.5 in Canada and Denmark, 2.4 in Singapore and 2.2 in Sweden.

In the end, though all countries experienced the pandemic, its intensity and severity varied as did the economic impact, and there wasn’t always a direct linear relationship between the intensity of the disease and the economic and fiscal impact. Indeed, countries with governments that spent more did not necessarily experience a better outcome in either maintaining their economies or containing the virus.

Clearly, how each country chose to play the cards they were dealt was an important determinant of the health and economic impacts reported during the pandemic’s first year.

Wednesday, 26 May 2021

Canada's COVID 19 Performance: Oped

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.

Monday, 17 May 2021

Economic Development Action in Thunder Bay: City Council’s Keynesian Economic Action Plan

As Thunder Bay’s leaky pipe saga continues with lawn after lawn being dug up to replace service lines likely corroded by the addition of sodium hydroxide as a lead mitigation strategy, one might indeed be hard pressed to find a silver lining. However, one is surprised that the more pollyannish members of City Council have not seized on the obvious boost to Thunder Bay’s economy from the ample work being generated for plumbers, hardware purveyors, asphalting and landscaping companies – not to mention city employees – from the continual calls to replace interior plumbing and service lines. Indeed, one is astounded that there has not been an economic impact tally of the boost to the city’s GDP from all the construction work and at a bargain basement price with respect to city coffers.

For a modest investment in sodium hydroxide of only several hundred thousand dollars a year over approximately three years – probably not more than $1 million - there have been thousands of homes that have had to incur thousands of dollars in repairs. If one assumes only a modest 3,700 affected households (based on the current membership of the Thunder Bay Leaky Pipe Club Facebook page) and assumes an average of $5,000 in spending for each, why the direct spending impact is already just shy of $20 million dollars. The economic multiplier is an astounding value of 20 – something unheard of in municipal economic impact circles and the likely recipient of an Economic Development Commission Powerpoint presentation or two at the next NOMA meetings.

It would appear that Thunder Bay City Council and Administration have been inordinately clever embarking on a massive urban infrastructure renewal program and doing it for a pittance. Indeed, they have not even had to borrow as the stimulus spending in question has been provided directly by affected households or their insurance companies. The constant parade of diggers in many neighborhoods across town has given new meaning to the term shovel ready infrastructure projects and the demonstrable associated benefits of increased employment and income.

Indeed, this is the ultimate Keynesian aggregate demand stimulus activity. It does not matter if the spending is needed or not, as long as it occurs, it can stimulate aggregate demand and create employment and boost income especially if there is involuntary unemployment. Involuntary unemployment is when a person is willing and able to work at the prevailing wage as opposed to voluntary unemployment which is something members of City Council are more likely familiar with. The benefits of building projects was noted by Lord Keynes himself when he noted in his General Theory that “Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.”

Of course, it is unlikely that City Council deliberately embarked on this as a Keynesian economic stimulus program given that they probably do not know what Keynesian means. Indeed, upon stumbling across the term, they probably hear “Canesian” and think it is some type of descriptor of a program at the 55 Plus Centre on Red River for senior citizens who when afflicted with ambulatory difficulties make use of a pole-like device for vertical as opposed to fiscal stabilization purposes.

However, if they are interested in expanding their understanding and implementation of Keynesian policy, they might heed Lord Keynes when he wrote: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig up the notes again...there need be no more unemployment…the real income of the community and its capital wealth also, would probably become a good deal greater than it is.” One is surprised city workers are not dropping off bottles of cash for burial when water service lines are repaired so that affected homeowners can then dig them up again and generate yet another round of spending stimulus.

So, there you have it. Thunder Bay truly understands the power of private enterprise and individual initiative as well as Keynesian aggregate demand policy. That is perhaps why Thunder Bay City Council after discouraging a private solution now finally wants to harness private enterprise to build its multi-use turf facility. The economic activity it has generated via the Leaky Pipe Expenditure Stimulator has generated enough of a boost to GDP and the tax base to now support a private sector turf facility option.

NORTHERN ECONOMIST 2.0