Category: Commentary

Sometimes misconceptions really matter. A failure to understand, and an intransigence on misguided beliefs lead to disaster both public and private. It’s the spirit of a vandal.

Trump misunderstands accounting identities. He views a trade surplus as a win and a trade deficit as a loss. By his logic, the British Raj must have been the pinnacle of human achievement. Trump’s failure to understand the relationships in trade will impoverish Americans and the world over. For a country founded on a tax revolt, it’s strange to see the inheritors rejoicing in new taxes, declaring them a saviour.

A trade deficit simply means that you buy more from someone than you sell to them. As an example, nearly everyone has a trade deficit with the grocery store. You buy food, but you sell nothing to the grocer. On the other hand, you have a large trade surplus with your employer. You sell your labour and buy nothing in return. This is what a trade surplus and deficit means between nations. Canadians sell more stuff to Americans than Canadians buy from Americans. It’s tempting to talk as though Canada sells and the US buys, but it’s really millions of people and businesses making market decisions. Individual freedom is at the heart of trade. Perhaps Trump should take a careful read of the last stanza of his nation’s anthem and make sure to answer the question in the affirmative.

International trade is a large field of economics but we don’t need advanced training to understand the basics. Here are the essentials:

Imagine that a country generates output in a year. That’s everything made – cars, agriculture products, accounting services, everything. That output has to go somewhere. We can consume it (), the government can consume it (), we can invest it (), or we can export it (). That’s it; that covers where the output has to go. So:

(1)  

If exports are positive we have a trade surplus, if negative we have a trade deficit. The difference between what we produce and everything we consume is our savings ():

(2)  

Rearranging, we get,

(3)  

A trade deficit or surplus is determined by the difference between savings and investment. THIS IS AN IDENTITY. This is not a theory, this is the Piaget test of pouring water into different containers. The identity makes intuitive sense: If our savings equals our investment there is nothing left to (net) export.

In the case of the United States, is large; Americans run a large fiscal deficit. American consumers like to consume. They have a low savings rate; is high. The US has high production, , but investment, , is also high. As a result is negative for the US, yielding a trade deficit. To make positive the American consumer will have to consume less, the government will have to spend less, or the US must invest less. Unless some combination of those things happen, no matter what Trump does with tariffs, the trade deficit will remain. One way for Trump to get rid of the trade deficit would be to so damage American consumers that they have little opportunity to consume – drive C way down. Not fun in a democracy.

There is no sense trying to argue identities with a vandal. The optimal response is unilateral free trade. Allow Canadians to buy and sell from anyone, anywhere. Unfortunately, our political class is just as bad at arithmetic as Trump. Maybe we need to re-read our national anthem, too…

Canada is a great country. It is peaceful, wealthy, pluralistic, and democratic. Yet for all the positives, something rots in the foundations, quietly eating away at our national identity.

Not long after Justin Trudeau became prime minister, he made a remarkable assertion in the New York Times, “There is no identity, no mainstream Canada” making “us the first post-national state”. In the face of President Trump’s tariff threats, Trudeau bookended his time in office by adding, on American television no less, that Canadian identity revolves around not being American. It’s all an odd way to define a country, but a foreigner might be forgiven for not understanding the difference between the two countries. Both peoples know the intricacies of the infield fly rule and the consequences of five for fighting. Culturally we seem indistinguishable. Most Americans – and Canadians – would probably never guess that the most American of actors, Tom Cruise, fell in love with acting as a student at a Canadian public elementary school. When pushed for more substance, Canadians will place their identity on public health care, social programs, the Charter of Rights and Freedoms, our military contributions to both world wars, with a final nod to the principle of peace, order, and good government. But these are placeholders for identity. As much as it pains me to admit, Trudeau has his finger on something important.

Geography defines Canada and yet our founding institutions shoehorn the country into a spatial straitjacket. Ultimately, the architects of Confederation sought to solve the political problems of Canada West (Ontario) and Canada East (Quebec) by, in essence, creating a treaty between two founding nations. Confederation sees the rest of Canada as appendages, used occasionally to balance central priorities. Unlike the United States, Canada does not balance regional interests against popular representation. Canada has no body like the American Senate or the Electoral College. The founders favoured a strong federal government that forced the regions to accept the will of Ontario and Quebec. To them, regional power led to the US Civil War and British North America would not import the seeds of such disorder. But regionalism and division lurk in the shadows of Canada with an expectation that the prime minister will provide the glue. The result: an increasingly powerful Prime Minister’s Office that horse-trades with the provinces while side-stepping Cabinet. We long ago abandoned the precepts of responsible government in the name of an expedient form of executive-federalism. The prime minister is no longer the first among equals, Cabinet provides little more than window dressing. No prime minister in Westminster style governments the world over has more power than the Canadian one. Canadians instinctively understand the regional tensions. In 2016 both candidates for president of the United States came from New York City and no one thought to mention it. If the two main candidates for prime minister happened to both come from Edmonton ridings, it would create a national crisis.

When Canadians point to the world wars as part of our identity, we forget that Canada of the second half of the 20^th century is not the Canada of the first half. Canadians during both wars – and English Canadians in particular – thought of themselves as British subjects. What made us different from Americans was our commitment to the Empire, our adoration of the monarchy, and our deep ties to the United Kingdom. Even our currency sported multiple members of the royal family, including future Queen Elizabeth II as a child. In Quebec, Catholicism and the French language provided identity, “Les canadiens”. As the victors of WWII reorganized the globe, the time of empire finally came to a close. No longer a colonial outpost in the New World supporting an empire on which the sun never set, Canada needed an identity. Quebec with its quiet revolution threw off the Catholic Church, forging a new national sense of purpose while English Canada struggled for meaning. If we weren’t British, then who were we?

The zeitgeist of the 1960s, expressed through Pierre Trudeau, offered Canada an answer: we are a socialist minded people, bilingual, a cultural mosaic – not a melting pot, a country that eschews military power with a focus on multilateralism and peacekeeping, and a nation that embraces state intervention in the form of nationalized monopolies for the benefit of all. Privileging individual liberty smacked of gauche Americanism from yesteryear; collective rights were the future. With a new flag capturing this new Canadian identity, we could take our place in a brave new world of exuberant and ascendant global socialism. Prime minister Trudeau performing a pirouette behind the Queen, gallivanting with Castro, while maintaining a Walter Duranty-like admiration for Mao Zedong, put an exclamation mark on this confident, if not arrogant, new Canada.

Trudeau pere’s vision failed to live up to expectations. The shine of socialism faded around the world as global markets unlocked human potential and ushered in prosperity never before imagined. And yet Canadians continue to jealously guard their Crown corporations, managed industries, and cloistered oligopolies even as they have failed to deliver low prices or good services. Official bilingualism did not resolve the Quebec question. Two referendums on secession later – one narrowly defeated – today, Quebec lives in a solitude completely distinct from the rest of Canada. It is easier for English speaking Canadians to work in the United States than in Quebec. A Swiss-like linguistic trajectory is clear: Quebec will remain French, in part through provincial decree, while French will gradually disappear from almost the entire rest of the country. Years of neglect have led our military to a shambolic state. Long gone are the days when Canada controlled a beach at Normandy; our contributions to NATO make little difference. We disproportionally rely on intelligence from our allies for own domestic security. Today, our military ranks below Singapore’s. We can no longer build great national projects like pipelines. It is doubtful that the transcontinental railway of 1885 could be achieved by modern Canada. We have little sense of purpose other than to say that we cherish a state monopoly on health care, no matter how much it creaks and groans under the weight of increasing demand.

And while Canadians often point to the Charter of Rights and Freedoms as a touchpoint of identity, they have failed to read it. A popular federal government can constitutionally remove freedom of speech, and apply laws differentially based on race and creed. There is no separation of church and state. Canada’s head of state is literally the Supreme Governor of the Church of England. Public funding of Catholic schools is constitutionally protected. And while some might argue that convention has overtaken the actual text of the document, technically a federal government can reverse any provincial bill it doesn’t like. Unlike the American constitution, ours contains actual delineated powers that used to be used, but if used today would trigger the end of Confederation. Little anchors interpretation of the constitution within Canada’s living tree form of jurisprudence. I am not sure fair-minded Canadians would point to our constitution as superior to the American one.

Since the end of WWII, Quebecers found their identity, but the rest of Canada remains in the wilderness. We are a regional hodgepodge spread over an unkind geography. It’s easier to find Canadians apologizing for past wrongs than seeing them celebrate national accomplishment. Our founding statesman has turned into He-Who-Must-Not-Be-Named. We know more about the United States, its culture, its politics, than we know about ourselves. I am confident that Canadians understand the aftermath of the George Floyd riots far better than the issues behind the ongoing arsons, shootings, and sabotage in Nova Scotia’s lobster fishery. Maybe we are more American than we care to admit; perhaps in spirit, English Canada has already joined the Union.

For all its warts, I am grateful to be Canadian. I have had more opportunity made available to me in Canada than I deserve. Our motto of peace, order, and good government provides a worthy north star. To paraphrase Hemingway, Canada is a fine place and worth fighting for, but today, the whole country stands at a crossroads. We must find better answers to the question of Canadian identity than the ones offered by either Trudeau pere or fils.

President Trump has challenged us to do so.

Next week Canada will learn its Trump tariff fate. As the Canadian elite and its chattering class hand-wring over Trump’s tariff threats, politicians have arrived at a consensus that we must respond with our own tariffs and trade restrictions. Canada has no control over what Americans do, but we don’t have to compound the problem by doubling down on a defunct mercantilist view of trade.

Tariffs are import taxes. In effect, tariffs prevent ships from arriving at our ports filled with goods that our citizens want to buy at prices they find favourable. Tariffs restrict the freedom of the people to transact at the best deal they can find. It’s poor policy, but if a foreign country wishes to impose import taxes on their citizens, that’s their business. However, it makes zero sense for us to respond to their tariffs by preventing their ships from arriving at our ports. How is the best response to a foreign country’s restriction on their people’s market freedom to restrict our own people?

The silliness of the situation arises because most people and most politicians have a ridiculous mercantilist understanding of trade – that somehow trade is a zero-sum game. Trade between two voluntary parties makes them both better off, otherwise they would not have traded. Think of a friendly foreign country as a machine with strange inner workings. If Canada pours in just the right amount of wheat, oil, minerals, lumber, etc., the machine spits out cars, computers, and other things we like. More than that, we value the stuff we get from the machine more than the stuff we put into it. None of this trade is organized by government. Individual citizens create the trade networks from their own buying and selling and it makes us better off.

We don’t need free trade agreements. Edmonton and Calgary don’t have a free trade agreement; Canada doesn’t need one with the United States either. Free trade agreements are actually anti-free trade because their purpose is to delineate which domestic industries remain protected by tariffs. Canadian politicians arguing for retaliatory tariffs are not defending the interests of Canadian prosperity.

If we want to put Canada first, then allow Canadians to buy from and sell to Americans, without interference, whenever we want. Who knows, maybe President Trump will want the same deal for Americans.

Update

It appears that Trump’s real goal is to eliminate the trade deficit that the US has with Canada. It’s a bit of a strange idea. All the trade deficit means is that Americans buy more stuff from Canadians than Canadians buy from Americans. If you think about it, you have a huge trade deficit with every single business or store that you buy from. On the other hand, you have an enormous trade surplus with your employer. No one pulls their hair out because they have a trade deficit with the grocery store.

OK fine, Trump wants Canadians to buy more stuff from Americans than Americans buy from Canadians – hence his 25% tariffs. Tariffs are a form of taxation. But will Trump’s tariffs accomplish his goal? And in the end who bears the tax incidence of the tariffs? It’s not clear because the exchange rate shock absorbs the effect – changes in trade also change the demand for each country’s respective currency. Broadly there are three scenarios:

1) The effect of the tariffs and the realignment of trade perfectly balance such that the exchange rate does not change. In that case, Americans pay more for Canadian imports and so their demand will drop. Canadians continue to buy just as much from the US (if we don’t apply tariffs) because Canadians see the same price for American products as before the tariffs. The entire tax incidence of the tariffs falls on Americans and the trade deficit with Canada shrinks. Americans bear the cost of the tariffs, the US-Canada trade deficit is much smaller or eliminated, and apparently Trump is very happy. Weird, but whatever.

2) The tariffs cause the Canadian dollar to depreciate somewhere between 0% and 25%. In that case, Canadians buy less from Americans as American products become more expensive. However, Americans continue to pay more for Canadian imports, but not as much as in the first scenario because the stronger US dollar softens the blow for them. What happens to the US trade deficit is unclear – maybe it goes down a bit, maybe up a bit, but probably it doesn’t change much. Americans and Canadians share the tax incidence of the tariffs. Trump grumbles that his tariffs aren’t doing enough.

3) The Canadian dollar depreciates by the full amount of the tariff, 25%. In this case, Americans continue to buy just as much from Canadians as before the tariffs (again if we don’t add tariffs ourselves) because the exchange rate perfectly offsets the tariffs. Canadians see much higher prices for American products so we import less. In this case, the US trade deficit with Canada INCREASES, but the entire tax incidence of the tariffs falls on Canadians. Even though Canadians bear the cost of the tariffs, Trump finds the result unacceptable – what wild tales he’ll spin, who knows.

The anchor to the problem is the accounting identity: Net Exports = Savings – Investment. Since US savings and investment are not likely to change, the US trade deficit with Canada is also unlikely to change. Probably something like case 2 is in our future.

Again, the best thing for Canada to do is nothing. If we must do something, eliminate all tariffs with everyone in the world – including the US. It’s hard for Canadians to claim moral principle over Trump when we have all kinds of protective tariffs on dairy, and other agriculture products. If you think we are justified with our existing tariffs, then you have to accept that Trump is justified with his protectionist arguments; he’s just making them on a larger scale.

Unilateral free trade is the only sensible answer to American tariffs. We have an opportunity to increase our own prosperity, regardless of what Trump does or doesn’t do.

Economics is a beautiful discipline. Done right, it’s a science on par with physics. Unfortunately, too often, economists debase their discipline when they speak in the press. The public remains confused, and convinced that economists can get any result they want – a truly dismal science. Case in point is professor Trevor Tombe’s article in The Hub Why raising capital gains taxes makes sense—yes, really. Instead of helping the public understand the economic reasoning behind taxes on capital income, Tombe simply runs cover for the recent federal budget. Maybe everything in the budget is wonderful, including the new treatment of capital gains, but if economists want to explain the idea to the public, perhaps treating their discipline like a science instead of political punditry would be a good start.

What is efficiency?

Efficiency is a technical concept in economics and Tombe serves to confuse the public by using the word casually. Tombe says “An efficient tax system is one that is neutral and doesn’t bias such decisions.” Sure, but efficiency means far more. In economics efficiency hinges on the Pareto criterion: economic activity that makes everyone better off without making anyone worse off. For example, if you have more wheat than barley and your neighbour has more barley than wheat, and if you can find mutual agreeable terms, a trade would make you both better off while hurting no one. In economics, Pareto efficiency provides the foundation for understanding markets and policy intervention. In an idealized free market the entire economy becomes Pareto efficient through mutually improving trades, leaving the government or central planner with little if anything to do. In reality, markets are not perfect and just because an idealized society is Pareto efficient, for subjective reasons, we might not like the distribution of wealth, even if arrived at through voluntary means. Regardless of the government’s wisdom, it must generate revenue to fund programs. An optimal tax policy ensures that revenue collection minimizes additional distortions to decision making that further break the Pareto criterion. That’s what Tombe means by an efficient tax system, but keep in mind governments that redistribute wealth almost always sacrifice efficiency for equity. Maybe for political harmony it’s a good idea to give up some efficiency for equity, but economics as a science can’t offer too much about what is “fair” – that’s why we have philosophy (and a democracy).

Why tax capital gains differently?

Tombe provides a confused answer to this question. He starts with the argument that a dollar is a dollar, suggesting all sources of income should be taxed the same. He then compares the special capital gains treatment an investor receives when selling a second home to the need for partial capital gains inclusion on corporate profits because of existing corporate taxes. The implication is that second-home investors are still “not paying their fair share” but the corporations and shareholders at the new inclusion rate are. Tombe provides a graphic showing Canada’s “improved fairness” from the federal budget’s increase in the capital gains inclusion rate. Hurrah! The new capital gain inclusion rate is both more efficient and more equitable – the Holy Grail of economic policy!! Yeah, none of this is economics.

Remember: optimal tax policy requires that the government raises its revenue in a way that distorts decision making the least by keeping the Pareto criterion intact as much as possible. It is not clear – and it does not follow from anything in Tombe’s article – that equalizing tax rates across labour and capital accomplishes this goal. Optimal taxation economics shows that it actually does matter how a dollar is generated. There is an enormous body of research on this topic which Tombe completely ignores.

Optimal taxation theory has a core result, the Chamley–Judd theorem. This theorem states that over a long time horizon, the optimal tax rate on capital income goes to zero. More than that, the theorem shows that taxes on capital over the long run harm workers – capital taxes end up Pareto inefficient. The intuition is simple: when the capital stock shrinks, less is left for reinvestment which means lower productivity, less innovation, and therefore less consumption and leisure possibilities for workers (of course there are a lot of important details I’m skipping). The result is mathematically technical with lots of “ifs” that approximate the real world but none of which hold exactly. Chamley-Judd provides an important background result for thinking about optimal tax policies – optimal tax polices robustly separate capital income from other sources. Applying economics as a science in this instance is about identifying, through careful empirical and theoretical research, how the “ifs” of Chamley-Judd and the related literature are violated in a real economy at an actual point in time. One example of a violation is tax arbitrage created by shifting labour income to capital through various compensation schemes. Careful work can help determine the optimal tax rate on capital income in a real world situation. Where we land is complicated. Tombe offers no such insight and teaches us nothing about these difficult questions as they pertain to Canada. Instead he provides book-keeping accounting about “fairness”.

Economists, be scientists!

I don’t know what the optimal tax rate on capital income in Canada should be. Based on Tombe’s article, I don’t think he does either. Maybe capital gains inclusion rates should be increased because of the specifics around the failures of the assumptions behind Chamley-Judd, and those increases will lead us closer to an optimal tax policy. Or maybe taxes on capital income should be higher even though they will lead to inefficiencies and lower economic growth because the trade-off is politically savvy. Or maybe they should just be lower. I don’t know. Whatever the level, an evidence-based approach looks nothing like Tombe’s article.

For all economists out there: Please treat your discipline like a science. When given the opportunity teach the public, start from scientific principles like physicists do. Economics does not have to be the dismal science!

On X, Professor Stephen Gordon issued a challenge to rebut An Open Letter from Economists on Canadian Carbon Pricing. Professor Gordon, challenge accepted.

First, I want to make clear that we are talking about the real world – and that includes everything that goes into the climate change agenda, from carbon taxes to public choice. The carbon tax debate is about something much larger than an idealized commodity tax used to mitigate an externality as argued from a second year undergraduate econ textbook. The public and the political parties are well aware of the real debate taking place: Climate change mitigation is an invitation to an incredible centralization of government power of which a carbon tax is not a replacement for inefficient alternative policies, but the first of many potentially slippery steps toward dirigisme. How much centralization of power, with all the risks and threats to liberty and economic growth that that power entails, is worth it for mitigating the externality created by greenhouse gas emissions? In that sense An Open Letter from Economists on Canadian Carbon Pricing is naively partisan and the letter will be used by the political class for its partisan implications. They’ve already started.

Yes, the economists are right about the efficiency of a commodity tax with rebate, which is the essential content of their letter. Carbon burning activities are normal goods and higher prices will reduce demand. Wealth compensation will restore, and in many cases improve, the original utility level of most consumers at a lower level of carbon consumption, even if they can afford their previous consumption level. Distorting effects follow the standard triangle of the second order of smallness deadweight loss arguments (provided the absence of other pre-existing margins of distortion). As policies go, using prices to do the work of resource reallocation is far more efficient than top-down government decree. The basic idea is that the market price of carbon burning does not reflect the full cost to society and the commodity tax restores cost/benefit margins across consumption. Basic econ; got it. And it has nothing to do with the carbon tax debate in Canada.

Let’s deal with the size of the externality. The open letter is a little sneaky here and I think academics who are trying to educate the public on an important issue could do better. They state:

“A conservative estimate is that the impacts of climate change will cost our economy at least $35 billion by 2030, and much more in future decades.”

Fine, but starting from when? What the letter leaves out is that the $35 billion by 2030 is the estimated cumulative total cost from 2015. The $35 billion is not an annual figure; the letter should have made this point more clear. Canada’s GDP is about $2,000 billion per year. From 2015 to 2030, the total cumulative GDP is about $30,000 billion making the effect size of climate change about 0.1% of GDP per year. Economics always stresses the opportunity costs of alternatives. Why are we spending so much time and energy, let alone real money, on a problem with an effect size of 0.1% per year of GDP? How is that a “a real threat to Canadians’ economic well-being”? Even if the effect grows to 0.2% per year, it means that the economy would be about 15% smaller than it otherwise would have been in the year 2100. The real problem is that are in fact many pre-existing margins of distortion much more severe than climate change – inefficient taxes on capital and labour, rent control, marketing boards, red-tape in small business formation, over-regulation, protectionist tariffs, misaligned entitlements, and rent-seeking channels in nearly every walk of life from health care to hair styling. All of these issues shave off growth at least ten times greater than climate change and perhaps much more, and they are potentially much easier to deal with. Getting the basics wrong means we will squander perhaps as much as 1,000% of economic growth potential over this century – the difference between 5% and 2% GDP growth per year. Just imagine if the airplane was invented today. In our hyper-regulated world, how long would it have taken before a government would have allowed a business to carry passengers? Thankfully, the real world saw its first regularly scheduled airline service just 10 years after the Wright brothers at Kitty Hawk. If the signatories wish to be taken as non-partisan as they claim, perhaps instead of presenting the idealized arguments from an undergraduate lecture about the efficiency of a commodity tax with rebate that is super important to only one side of the political spectrum, they could pen a full-throated open letter that emphasizes those areas where Canada could make the greatest improvements to the growth rate of the economy. In the end, it’s economic growth that shatters poverty, pays for social programs, and eventually leads to a world with cleaner energy and a cleaner environment. A sclerotic and an anemic economy is the real threat to Canadians’ well-being; climate change mitigation chases couch change.

The Canadian public understands the carbon tax debate far better than the experts might imagine. The public is being asked to pay for a small, if not minuscule, externality in the present that will not move the needle on the issue globally. More importantly, the Canadian public sees climate change mitigation as an overwhelming call to centralize power. Politicians and activists supportive of the carbon tax also generally advocate for heavy government industry intrusion, with the carbon tax but one of a plethora of dirigiste policies. For similar reasons Milton Friedman opposed creating a negative income tax as just another welfare program on top of a behemoth system. The public will not believe any party that promises to implement a carbon tax in lieu of all other climate change mitigation programs and nor should it. The public also sees many, if not most, of those same advocates and politicians using climate change as an opportunity to address a long wish list of progressive causes. Whatever the merits of those causes, they have nothing to do with the simple argument of restoring marginal costs and benefits associated with an externality, and the public knows it. It’s true that climate change is a big collective action problem but mitigation creates a giant public choice problem with all its attendant real world capture issues. No government that depends on the climate change mitigation vote can withstand those power-centralizing pressures. Perhaps this is the reason so much political capital is spent on the climate change agenda. Opposition to the carbon tax is a political signal that says:

Given the smallness of climate change effect sizes on the economy, the trade-off from living with the externality is worth it, rather than accepting a slippery slope that centralizes power, magnifies regulatory capture, and portends a threat to liberal democracy itself.

Maybe the opposition is wrong and we have nothing to fear from the centralization of power, despite Eisenhower’s warning, but this is the real value-based debate Canadians are having through their elected representatives. The signatories might be right on the academics of curve pushing, but they are very wrong in understanding the nature of the political question being put to the Canadian public. And that’s why democracy with all its sham, political theatrics, and broken promises is far better at judging the real evidence than economists give credit. Let’s not forget Kennedy’s lament after the Bay of Pigs disaster:

“How could I have been so foolish to have trusted the experts?”

I don’t think climate change is a big deal. I don’t think it makes the top ten list of global problems, and I don’t think that we should do much to stop it. In fact, I think that we need to burn more fossil fuels than we do right now as it is the surest way to lift an energy-starved planet out of poverty. I know people say they disagree with me. Some even say we face a climate catastrophe that threatens us all with extinction. But when I look at how these climate change hand-wringers live, they act as though they are in complete agreement with me. Even more oddly, when you look at how I live, you’d swear I was the one who was the climate change hero trying to save the world. I guarantee that my carbon footprint is minuscule compared to just about everyone else in Canada. I don’t care how people live, and I certainly don’t care how others think I should live, but if you believe that the world faces a coming climate change induced extinction and you don’t even try to live like me, then you are worse than a hypocrite. Your convictions run only as deep as the point of your vanishing convenience.

The CBC recently ran a First Person piece by Heather Kitching. Heather says that the world faces a climate calamity, but finds it too difficult to cut carbon from her life given that she lives in Thunder Bay. Her main complaint is that EV car sharing isn’t available and that heating her home without natural gas is just too expensive. I am sure Heather thinks she cares about the world. She clearly wants to tell us about how much she cares and she wants us all to know how hard she’s working to do the right thing. A public confession of sorts, I suppose. But she hasn’t thought carefully about what she claims to believe. Consider this thought experiment:

Imagine it is WWII all over again. And imagine that you can save one Jew from the Holocaust. You have no ability to stop the Nazis or their evil machine, but you have the opportunity to save one human being. Now imagine that to save that person you have to move into a major Canadian city, rent a nice apartment (or buy a nice condo), give up car ownership, ride your bike all year long no matter the weather – hardly ever even taking public transit – and eat a mostly plant-based diet. If you live this way for the rest of your life, you will save one Jew from the Holocaust. Would you do it? If you claim that climate change is destroying the planet and there is nothing individuals can do about it, you’re wrong. You can live like me. At the very least you’ll be able to say, I couldn’t stop it, but I didn’t go along with it. And, you can say that in expectation my meagre contribution to the reduction of carbon in the atmosphere saved one statistical life somewhere on Earth over the next century. Maybe the great flood of 2087 in Bangladesh will be just a fraction of a millimetre lower because you spent a lifetime living a low carbon lifestyle. What’s more, is that as terrible and evil as the Nazis were, people like Heather claim climate change will be even worse – to their mind we face human extinction if we don’t do enough! Now, I don’t believe climate change is a threat at all so I don’t think that my lifestyle benefits anyone but me. But if you believe climate change is about to usher in an apocalypse and you go along with carbon burning because it’s convenient, that makes you a collaborator.

What people like Heather from the CBC say is that they’ll help stop what they believe is the near certain death of humanity up to the point that it becomes too personally inconvenient. That’s her real confession. She could ride a bike all year long, even in the winter. I do so in Ottawa – and my bike isn’t even electric. She could section off living space in her home during the winter and heat her reduced living quarters with electric radiators. She doesn’t have to live in Thunder Bay if not contributing to climate change is that important to her. Now I don’t find Heather evil but I do find her dangerous. I believe she’s an honest soul who wants to be a good citizen. What makes people like her dangerous is that she doesn’t think. She falls prey to social desirability bias which leads to a world run by demagogues. Cost benefit analysis goes out the window in service of lofty ideals, opening the gates of hell for the demagogues to impose serious consequences including poverty and endless human suffering on the rest of us. (Peace, Land, and Bread anyone?) Heather shouldn’t feel bad about her carbon footprint. She should enjoy time with her girlfriend in her gas-powered car. Life is short enough as it is.

As for why I live in a box in the sky, with no car (I’ve never owned one), biking all year long, it’s not for climate change. It’s for time. By living this way I get time back for what’s important to me. I’m at work in 12 minutes, and on the tennis court with my wife in 15 minutes. And tennis is life to us. Everything I need is within a 25 minute bike ride and often within a 5 minute walk. And biking turns your legs into Sexy Flanders! My life isn’t for everyone. If you live on an acreage with a big pickup truck and ATVs, fill your boots – have fun! I’d love to have a beer with you. No one should have to live like me and certainly not for climate change.

As COP27 gets underway in Egypt, I am reminded of the remarks made by world leaders and politicians about what is allegedly at stake:

“We are sleepwalking to climate catastrophe. In our globally connected world, no country and no corporation, can insulate itself from these levels of chaos.”  – Antonio Guterres, UN Secretary General

“There’s one issue that will define the contours of this century more dramatically than any other, and that is the urgent threat of a changing climate.” – Barack Obama, former US President

“My “Oh Shit” moment came early in my days as Environment Minister. We need to be absolutely clear-eyed about the accelerating climate crisis while using fear, anger & hope to activate us to do everything needed to ensure a safe climate.” – Catherine McKenna, former Environment Minister of Canada

These kinds of statements by world leaders, high level bureaucrats, activists, and former politicians abound in the media. The central message is that we must move heaven and earth within the current decade and beyond to avoid an absolute climate catastrophe. While these people might believe their rhetoric, the implications and logical conclusions of their statements are terrifying – they implicitly suggest a willingness, if not a desire, to torch liberal democracy while offering our youth nothing but a culture of nihilistic despair.

It is clear that climate change is not a massive world problem. The best economic estimates on climate change loss place the global GDP drag at about 0.15% per annum for the next 80 years if the world warms to the upper end of the IPCC forecast range. That is, if the world warms 5C by 2100, the world GDP will be about 10% to maybe 20% smaller than it otherwise would have been without climate change. As a comparison point, it means that climate change delays our well-being by about 10 to 20 years by the end of the century. It’s a bit like re-living the 20^th century with a growth drag that puts the year 2000 at the level of the mid 1980s. Not great, but not quite the end of the world either. I explore the climate change story further in a previous post.

But let us suppose that you are unconvinced by the economic arguments and that you believe people like Catherine McKenna. Perhaps like her, you have had an “oh shit” moment too. In that case, you believe that climate change will make the world nearly unlivable if we don’t make significant changes to our economies right now. The problem now pivots: liberal democracies are slow and incremental with a focus on splintering political power, respecting individual autonomy, and building legitimacy through consensus. Parliaments, congresses, and executive branches face built-in constraints from divisions of power and the rule of law. Through centuries of experience and experimentation, our liberal democracies have given rise to the most successful and prosperous societies the world has ever known. But what if our democracies are too slow to satisfy climate change activists? Even worse, what if our democracies elect, at least from time to time, governments with a tepid view toward climate change mitigation? Seriously, between now an 2050 – the year we must, for some reason, hit net-zero emissions – what is the chance that Western countries will elect and re-elect governments that put climate change well down their priority lists? It’s certainly not zero. And if it is likely, what is the chance that liberal democracy over the coming decades can deliver on saving us from the climate catastrophe that activists tell us awaits?

Therein lies the rub. If activists can’t convince liberal democracies to move quickly on climate change by gluing themselves to famous works of art, setting fires at tennis matches, or making apocalyptic pronouncements at climate change conferences, the next logical move is an attack on liberal democracy itself. The unintended consequence of Catherine McKenna’s rhetoric, and people like her, is a deep disdain for democracy. If the electorate chooses wrong too often, changing the message from fear, anger, and hope to only fear and anger, what should we activate? In that eventuality, only benign authoritarianism can deliver us from the coming climate catastrophe. It’s not Donald Trump or “ultra-MAGA Republicans” I worry about, it’s the climate change catastrophe people who truly frighten me. The penny will eventually drop for them if they come to believe that our democracies can never bring the rapid change they think is necessary to save us from destruction. After all, what good is liberal democracy in a used up world?

In addition to sowing the seeds of authoritarianism, the climate change movement offers nothing but nihilistic despair to our youth. Again, let us suppose you believe the climate change message and that you know it is probable, if not likely, that we won’t do enough to combat climate change. The rational response to that belief is to hedge your life choices. What is the point in making long term investments in yourself with payoffs in a far off future that has a significant chance of never materializing? Why sacrifice the present and why bring another life into a world that has a large chance of being destroyed by inaction? Even if you think that our democracies will eventually choose well, you still must assign some non-zero probability that they won’t, and that non-zero probability should rationally inform your life choices today. It’s a bleak pessimistic worldview, and it’s wrong.

The climate change message terrifies me, not because of the climate change stories that will be told at COP27 over the next two weeks, but because it sets the stage for authoritarianism with all the confidence of religious zeal while simultaneously offering a philosophy of nihilistic despair to our youth. The desire to centralize power is as old as humanity itself; our liberal democracies help us resist that temptation. Let us hope that our democracy will endure the climate change activist tide.

The famous economist Thomas Sowell once wrote, “No race has a monopoly on high achievement and no race is incapable of producing high achieving individuals.” If we look across the arc of history, from the Chinese dynasties to the Indigenous peoples of North America, this truth is so plainly evident that it’s difficult to understand how eugenics programs ever gained traction. And yet today I read a CBC story, Ojibwe horses are endangered, that undermines the legacy of Indigenous ingenuity by building a narrative of mysticism while rejecting both science and history.

The overwhelming consensus in the scientific community is that there were no horses in the Americas when Europeans made first contact. The vast majority of reputable sources on the evolution, domestication, and the history of the horse state that while horses existed in North America tens of thousand of years ago, they went extinct well before European contact and were only reintroduced after the arrival of Columbus. Genetic research shows that all horses in the Americas descend from Eurasian stock. Yet the CBC reports that the Ojibwe horse “lived around the Great Lakes long before European contact”.

Without question the Ojibwe horse, also called the Lac La Croix Indigenous Pony, is a national treasure fully deserving of protection. The breed nearly disappeared in 1977 and the Herculean preservation efforts since have given the breed a chance. The most remarkable fact is that the Ojibwe horse is a breed of pony matured by Indigenous people in Canada. Indigenous people used them in the bush along trap lines in Northwestern Ontario. As a breed, they are perfect for such conditions. Genetic testing shows that the Ojibwe horse originates from European introduction. Professor Gus Cothran, an expert on the genetics of horses says in Equine Monthly, “They are derived from horses that Europeans brought to North America. They did not originate in North America as a distinct strain of horse.” Research shows that the Ojibwe horse is a cross between the Spanish mustang and Canadian horses originally from France, but it was Indigenous people who created the breed.

Instead of doing research on the Ojibwe horse, the CBC simply states myths as facts. My guess is the CBC is trying to be sensitive to some Indigenous groups who insist horses in North America predate European arrival. (There are other groups in North America that insist on pre-contact horses, including some Mormons who wish to reconcile passages in their religious texts. I suspect that the CBC would be less generous entertaining Mormon narratives). By promoting mythical or religious beliefs to fact, the CBC not only undermines Indigenous ingenuity, but science itself. How does the CBC retain any credibility when confronting the anti-science crowd on climate change or vaccines when the CBC shows a willingness to behave exactly the same way with Indigenous issues? I find the CBC’s story on the Ojibwe horse disheartening – almost racist – because it robs us of the real story worth celebrating: Ingenious Indigenous people created a new breed of pony from European stock to fulfill their needs. It’s fine to discuss Indigenous beliefs, to create a greater understanding about rich Indigenous story telling, but it’s a form of neo-Lysenkoism to dismiss genetics to serve a political purpose.

Jared Diamond in his book Guns, Germs, and Steel, answers the question why the Europeans didn’t encounter a mirror copy of Europe in the Americas. The racist and terribly incorrect answer that has shaped so much of the awful history of this continent is based on racial superiority. But Diamond points out that the confluence of poor geography, and the general lack of domesticable plants and animals, such as the horse, meant that the flow of people from Europe to the Americas was always destined to go in that direction. The genetic potential of both peoples were the same, it was their unfair respective environments that set the course of history. The story of the Objibwe horse shows that if Indigenous people did have horses pre-contact, they would have created a plethora of breeds for every single need. And if that had happened, Columbus and Champlain would have faced Indigenous armies more powerful than the Huns – and perhaps during Indigenous first contact in Europe.

Thomas Sowell is right: No race has a monopoly on high achievement and no race is incapable of producing high achieving individuals.

A university education is not what it seems. The usual story, the one that makes us feel all warm and fuzzy, tells us that a university education – regardless of discipline – builds critical thinking skills, engenders a worldly view, and creates an informed citizen. We are empty vessels into which the fount of knowledge pours forth, filling us with enlightenment. Students graduate with skills that command a higher wage as they contribute more to society. But there is an alternative story that equally explains the facts. A university education is a signalling mechanism that does not pour knowledge into empty vessels, but instead sorts like jeweler’s loupe. Think about it. Most people can’t remember much of what they studied at university. In this story, a university education is a giant IQ test, coupled to a test of perseverance and conscientiousness. Students graduate with a signal that says they’re generally smarter than average and can put up with a lot of tediousness for years, and that’s exactly what an employer needs. Students who graduate had all the requisite attributes the day they entered university and the purpose of the degree program is to show the world they in fact have them. Who cares if you can’t remember the details of your liberal arts degree? Your employer certainly won’t. But your employer will care that they’re getting what they paid for – someone who can get a university degree. In truth, the human improvement and the signalling story are simultaneously true and the relative weight of each varies across degree programs. Bryan Caplan, an economist at George Mason University, has an excellent book on the subject, The Case Against Education: Why The Education System is a Waste of Time and Money.

CTV News London has an interesting story, A tale of two institutions: Western and Fanshawe deviate on return-to-school COVID-19 policies, that nicely illustrations the nature of signalling. Western University has opted to make COVID-19 boosters mandatory for all staff and students as well as to demand in-door masking at least until Thanksgiving. On the other hand, Fanshawe College will not implement masking or a vaccine policy this fall citing the Middlesex-London Health Unit. These two post-secondary institutions are in the same city (London, Ontario) with students of the same age. So why the difference? How is “the science” different at Western than at Fanshawe? Of course there’s no difference in the science, but the institutions fill subtly different roles in society. As a university, Western has a much larger signalling component in its diplomas than Fanshawe’s, an institution that operates more as a technical trade school. Students at each institution seek different products with different sensitivities to signalling, often coming from differing socio-economic circumstances.

Increasingly, adherence to high risk averse COVID-19 polices match political affiliation. Wearing a mask while riding a bike with no helmet – and I see this behaviour nearly every day in downtown Ottawa! – is a signal of political beliefs. We shouldn’t be surprised to see those institutions which trade in a signalling market, composed mostly of people from the urban upper middle class, will on average demand stricter COVID-19 policies two and a half years after the start of the pandemic.

Disclaimer: I attended Western for my undergraduate and I had an amazing time. It’s a great school and I learned amazing things from phenomenal minds. But I’m a bit weird. To me, going to class is a form of recreation, even a form of entertainment; it’s an end in itself.