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Fraser Institute

U.S. election should focus or what works and what doesn’t work

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From the Fraser Institute

By Matthew D. Mitchell

As Republicans and Democrats make their final pitch to voters, they’ve converged on some common themes. Kamala Harris wants to regulate the price of food. Donald Trump wants to regulate the price of credit. Harris wants the tax code to favour the 2.5 per cent of workers who earn tips. So does Trump. Harris wants the government to steer more labour and capital into manufacturing. And so does Trump.

With each of these proposals, the candidates think the United States would be better off if the government made more economic decisions and—by implication—if individual citizens made fewer economic decisions. Both should pay closer attention to Zimbabwe. Yes, Zimbabwe.

Why does a country with abundant natural resources, rich culture and unparalleled beauty have one-sixth the average income of neighbouring Botswana? While we’re at it, why do twice as many children die in infancy in Azerbaijan as across the border in Georgia? Why do Hungarians work 20 per cent longer than their Austrian neighbours but earn 45 per cent less? Why is extreme poverty 200 times more common in Laos than across the Mekong River in Thailand?

Or how about this one: Why were more than one-quarter of Estonians formerly exposed to dangerous levels of air pollution when the country was socialist while today nearly every Estonian breathes clean air in what is ranked the cleanest country in the world.

These are anecdotes. However, the plural of anecdote is data, and through careful and systematic study of the data, we can learn what works and what doesn’t. Unfortunately, the populist economic policies in vogue among Democrats and Republicans do not work.

What does work is economic freedom.

Economic freedoms are a subset of human freedoms. When people have more economic freedom, they are allowed to make more of their own economic choices—choices about work, about buying and selling goods and services, about acquiring and using property, and about forming contracts with others.

For nearly 30 years, the Fraser Institute has been measuring economic freedom across countries. On one hand, governments can stop people from making their own economic choices through taxes, regulations, barriers to trade and manipulation of the value of money (see the proposals of Harris and Trump above). On the other hand, governments can enable individual economic choice by protecting people and their property.

The index published in Fraser’s annual Economic Freedom of the World report incorporates 45 indicators to measure how governments either prevent or enable individual economic choice. The result reveals the degree of economic freedom in 165 countries and territories worldwide, with data going back to 1970.

According to the latest report, comparatively wealthy Botswanans rank 84 places ahead of Zimbabweans in terms of the economic freedom their government permits them. Georgians rank 107 places ahead of Azerbaijanis, Thais rank 60 places ahead of Laotians, and Austrians are 32 places ahead of Hungarians.

The benefits of economic freedom go far beyond anecdotes and rankings. As Estonia—once one of the least economically free places in the world and now among the freest—dramatically shows, freer countries tend not only to be more prosperous but greener and healthier.

In fact, economists and other social scientists have conducted nearly 1,000 studies using the index to assess the effect of economic freedom on different aspects of human wellbeing. Their statistical comparisons include hundreds and sometimes thousands of data points and carefully control for other factors like geography, natural resources and disease environment.

Their results overwhelmingly support the idea that when people are permitted more economic freedom, they prosper. Those who live in freer places enjoy higher and faster-growing incomes, better health, longer life, cleaner environments, more tolerance, less violence, lower infant mortality and less poverty.

Economic freedom isn’t the only thing that matters for prosperity. Research suggests that culture and geography matter as well. While policymakers can’t always change people’s attitudes or move mountains, they can permit their citizens more economic freedom. If more did so, more people would enjoy the living standards of Botswana or Estonia and fewer people would be stuck in poverty.

As for the U.S., it remains relatively free and prosperous. Whatever its problems, decades of research cast doubt on the notion that America would be better off with policies that chip away at the ability of Americans to make their own economic choices.

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Business

Ottawa’s avalanche of spending hasn’t helped First Nations

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From the Fraser Institute

By Tom Flanagan

When Justin Trudeau came to power in 2015, he memorably said that the welfare of Indigenous Canadians was his highest priority. He certainly has delivered on his promise, at least in terms of shovelling out money.

During his 10 years in office, budgeted Indigenous spending has approximately tripled, from about $11 billion to almost $33 billion. Prime Minister Trudeau’s instruction to the Department of Justice to negotiate rather than litigate class actions has resulted in paying tens of billions of dollars to Indigenous claimants over alleged wrongs in education and other social services. And his government has settled specific claims—alleged violations of treaty terms or of the Indian Act—at four times the previous rate, resulting in the award of at least an additional $10 billion to First Nations government.

But has this avalanche of money really helped First Nations people living on reserves, who are the poorest segment of Canadian society?

One indicator suggests the answer is yes. The gap between reserves and other communities—as measured by the Community Well-Being Index (CWB), a composite of income, employment, housing and education—fell from 19 to 16 points from 2016 to 2021. But closer analysis shows that the reduction in the gap, although real, cannot be due to the additional spending described above.

The gain in First Nations CWB is due mainly to an increase in the income component of the CWB. But almost all of the federal spending on First Nations, class-action settlements and specific claims do not provide taxable income to First Nations people. Rather, the increase in income documented by the CWB comes from the greatly increased payments legislated by the Liberals in the form of the Canada Child Benefit (CCB). First Nations people have a higher birth rate than other Canadians, so they have more children and receive more (on average) from the Canada Child Benefit. Also, they have lower income on average than other Canadians, so the value of the CCB is higher than comparable non-Indigenous families. The result? A gain in income relative to other Canadians, and thus a narrowing of the CWB gap between First Nations and other communities.

There’s an important lesson here. Tens of billions in additional budgetary spending and legal settlements did not move the needle. What did lead to a measurable improvement was legislation creating financial benefits for all eligible Canadian families with children regardless of race. Racially inspired policies are terrible for many reasons, especially because they rarely achieve their goals in practise. If we want to improve life for First Nations people, we should increase opportunities for Canadians of all racial backgrounds and not enact racially targeted policies.

Moreover, racial policies are also fraught with unintended consequences. In this case, the flood of federal money has made First Nations more dependent rather than less dependent on government. In fact, from 2018 to 2022, “Own Source Revenue” (business earnings plus property taxes and fees) among First Nations bands increased—but not as much as transfers from government. The result? Greater dependency on government transfers.

This finding is not just a statistical oddity. Previous research has shown that First Nations who are relatively less dependent on government transfers tend to achieve higher living standards (again, as measured by the CWB index). Thus, the increase in dependency presided over by the Trudeau government does not augur well for the future.

One qualification: this finding is not as robust as I would like because the number of band governments filing reports on their finances has drastically declined. Of 630 First Nation governments, only 260 filed audited statements for fiscal 2022. All First Nations are theoretically obliged by the First Nations Financial Transparency Act, 2013, to publish such statements, but the Trudeau government announced there would be no penalties for non-compliance, leading to a precipitous decline in reporting.

This is a shame, because First Nations, as they often insist, are governments, not private organizations. And like other governments, they should make their affairs visible to the public. Also, most of their income comes from Canadian taxpayers. Both band members and other Canadians have a right to know how much money they receive, how it’s being spent and whether it’s achieving its intended goals.

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Education

‘Grade inflation’ gives students false sense of their academic abilities

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From the Fraser Institute

By Michael Zwaagstra

The average entrance grade at the University of British Columbia is now 87 per cent, up from 70 per cent only 20 years ago. While this is partly because the supply of available university spots has not kept pace with growing demand, it’s also likely that some B.C. high schools are inflating their students’ grades.

Suppose you’re scheduled for major heart surgery. Shortly before your surgery begins, you check into your surgeon’s background and are pleased to discover your surgeon had a 100 per cent average throughout medical school. But then you learn that every student at the same medical school received 100 per cent in their courses, too. Now you probably don’t feel quite as confident in your surgeon.

This is the ugly reality of “grade inflation” where the achievements of everyone, including the most outstanding students, are thrown into question. Fortunately, grade inflation is (currently) rare in medical schools. But in high schools, it’s a growing problem.

In fact, grade inflation is so prevalent in Ontario high schools that the University of Waterloo’s undergraduate engineering program uses an adjustment factor when evaluating student applications—for example, Waterloo might consider a 95 per cent average from one school the equivalent of an 85 per cent average from another school.

Grade inflation is a problem in other provinces as well. The average entrance grade at the University of British Columbia is now 87 per cent, up from 70 per cent only 20 years ago. While this is partly because the supply of available university spots has not kept pace with growing demand, it’s also likely that some B.C. high schools are inflating their students’ grades.

Sadly, grade inflation is so rampant these days that some school administrators don’t even try to hide it. For example, earlier this year all students at St. Maximilian Kolbe Catholic High School in Aurora, Ontario, received perfect marks on their midterm exams in two biology courses and one business course—not because these students had mastered these subjects but because the York Catholic District School Board had been unable to find a permanent teacher at this school.

The fact that a school board would use grade inflation to compensate for inadequate instruction in high school tells us everything we need to know about the abysmal academic standards in many schools across Canada.

And make no mistake, student academic performance is declining. According to results from the Programme for International Assessment (PISA), math scores across Canada declined from 532 points in 2003 to 497 points in 2022 (PISA equates 20 points to one grade level). In other words, Canadian students are nearly two years behind on their math skills then they were 20 years ago. While their high school marks are going up, their actual performance is going down.

And that’s the rub—far from correcting a problem, grade inflation makes the problem much worse. Students with inflated grades get a false sense of their academic abilities—then experience a rude shock when they discover they aren’t prepared for post-secondary education. (According to research by economists Ross Finnie and Felice Martinello, students with the highest high school averages usually experience the largest drop in grades in university). Consequently, many end up dropping out.

Grade inflation even hurts students who go on to be academically successful because they suffer the indignity of having their legitimate achievements thrown into doubt by the inflated grades of other students. If we want marks to have meaning, we must end the practise of grade inflation. We do our students no favours when we give them marks they don’t really deserve.

Just as our confidence in a surgeon would go down if we found out that every student from the same medical school had a 100 per cent average, so we should also question the value of diplomas from high schools where grade inflation is rampant.

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