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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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Alberta

Energy sector will fuel Alberta economy and Canada’s exports for many years to come

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From the Fraser Institute

By Jock Finlayson

By any measure, Alberta is an energy powerhouse—within Canada, but also on a global scale. In 2023, it produced 85 per cent of Canada’s oil and three-fifths of the country’s natural gas. Most of Canada’s oil reserves are in Alberta, along with a majority of natural gas reserves. Alberta is the beating heart of the Canadian energy economy. And energy, in turn, accounts for one-quarter of Canada’s international exports.

Consider some key facts about the province’s energy landscape, as noted in the Alberta Energy Regulator’s (AER) 2023 annual report. Oil and natural gas production continued to rise (on a volume basis) in 2023, on the heels of steady increases over the preceding half decade. However, the dollar value of Alberta’s oil and gas production fell in 2023, as the surging prices recorded in 2022 following Russia’s invasion of Ukraine retreated. Capital spending in the province’s energy sector reached $30 billion in 2023, making it the leading driver of private-sector investment. And completion of the Trans Mountain pipeline expansion project has opened new offshore export avenues for Canada’s oil industry and should boost Alberta’s energy production and exports going forward.

In a world striving to address climate change, Alberta’s hydrocarbon-heavy energy sector faces challenges. At some point, the world may start to consume less oil and, later, less natural gas (in absolute terms). But such “peak” consumption hasn’t arrived yet, nor does it appear imminent. While the demand for certain refined petroleum products is trending down in some advanced economies, particularly in Europe, we should take a broader global perspective when assessing energy demand and supply trends.

Looking at the worldwide picture, Goldman Sachs’ 2024 global energy forecast predicts that “oil usage will increase through 2034” thanks to strong demand in emerging markets and growing production of petrochemicals that depend on oil as the principal feedstock. Global demand for natural gas (including LNG) will also continue to increase, particularly since natural gas is the least carbon-intensive fossil fuel and more of it is being traded in the form of liquefied natural gas (LNG).

Against this backdrop, there are reasons to be optimistic about the prospects for Alberta’s energy sector, particularly if the federal government dials back some of the economically destructive energy and climate policies adopted by the last government. According to the AER’s “base case” forecast, overall energy output will expand over the next 10 years. Oilsands output is projected to grow modestly; natural gas production will also rise, in part due to greater demand for Alberta’s upstream gas from LNG operators in British Columbia.

The AER’s forecast also points to a positive trajectory for capital spending across the province’s energy sector. The agency sees annual investment rising from almost $30 billion to $40 billion by 2033. Most of this takes place in the oil and gas industry, but “emerging” energy resources and projects aimed at climate mitigation are expected to represent a bigger slice of energy-related capital spending going forward.

Like many other oil and gas producing jurisdictions, Alberta must navigate the bumpy journey to a lower-carbon future. But the world is set to remain dependent on fossil fuels for decades to come. This suggests the energy sector will continue to underpin not only the Alberta economy but also Canada’s export portfolio for the foreseeable future.

Jock Finlayson

Senior Fellow, Fraser Institute
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Automotive

Electric cars just another poor climate policy

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From the Fraser Institute

By Bjørn Lomborg

The electric car is widely seen as a symbol of a simple, clean solution to climate change. In reality, it’s inefficient, reliant on massive subsidies, and leaves behind a trail of pollution and death that is seldom acknowledged.

We are constantly reminded by climate activists and politicians that electric cars are cleaner, cheaper, and better. Canada and many other countries have promised to prohibit the sale of new gas and diesel cars within a decade. But if electric cars are really so good, why would we need to ban the alternatives?

And why has Canada needed to subsidize each electric car with a minimum $5,000 from the federal government and more from provincial governments to get them bought? Many people are not sold on the idea of an electric car because they worry about having to plan out where and when to recharge. They don’t want to wait for an uncomfortable amount of time while recharging; they don’t want to pay significantly more for the electric car and then see its used-car value decline much faster. For people not privileged to own their own house, recharging is a real challenge. Surveys show that only 15 per cent of Canadians and 11 per cent of Americans want to buy an electric car.

The main environmental selling point of an electric car is that it doesn’t pollute. It is true that its engine doesn’t produce any CO₂ while driving, but it still emits carbon in other ways. Manufacturing the car generates emissions—especially producing the battery which requires a large amount of energy, mostly achieved with coal in China. So even when an electric car is being recharged with clean power in BC, over its lifetime it will emit about one-third of an equivalent gasoline car. When recharged in Alberta, it will emit almost three-quarters.

In some parts of the world, like India, so much of the power comes from coal that electric cars end up emitting more CO₂ than gasoline cars. Across the world, on average, the International Energy Agency estimates that an electric car using the global average mix of power sources over its lifetime will emit nearly half as much CO₂ as a gasoline-driven car, saving about 22 tonnes of CO₂.

But using an electric car to cut emissions is incredibly ineffective. On America’s longest-established carbon trading system, you could buy 22 tonnes of carbon emission cuts for about $660 (US$460). Yet, Ottawa is subsidizing every electric car to the tune of $5,000 or nearly ten times as much, which increases even more if provincial subsidies are included. And since about half of those electrical vehicles would have been bought anyway, it is likely that Canada has spent nearly twenty-times too much cutting CO₂ with electric cars than it could have. To put it differently, Canada could have cut twenty-times more CO₂ for the same amount of money.

Moreover, all these estimates assume that electric cars are driven as far as gasoline cars. They are not. In the US, nine-in-ten households with an electric car actually have one, two or more non-electric cars, with most including an SUV, truck or minivan. Moreover, the electric car is usually driven less than half as much as the other vehicles, which means the CO₂ emission reduction is much smaller. Subsidized electric cars are typically a ‘second’ car for rich people to show off their environmental credentials.

Electric cars are also 320440 kilograms heavier than equivalent gasoline cars because of their enormous batteries. This means they will wear down roads faster, and cost societies more. They will also cause more air pollution by shredding more particulates from tire and road wear along with their brakes. Now, gasoline cars also pollute through combustion, but electric cars in total pollute more, both from tire and road wear and from forcing more power stations online, often the most polluting ones. The latest meta-study shows that overall electric cars are worse on particulate air pollution. Another study found that in two-thirds of US states, electric cars cause more of the most dangerous particulate air pollution than gasoline-powered cars.

These heavy electric cars are also more dangerous when involved in accidents, because heavy cars more often kill the other party. A study in Nature shows that in total, heavier electric cars will cause so many more deaths that the toll could outweigh the total climate benefits from reduced CO₂ emissions.

Many pundits suggest electric car sales will dominate gasoline cars within a few decades, but the reality is starkly different. A 2023-estimate from the Biden Administration shows that even in 2050, more than two-thirds of all cars globally will still be powered by gas or diesel.

Source: US Energy Information Administration, reference scenario, October 2023
Fossil fuel cars, vast majority is gasoline, also some diesel, all light duty vehicles, the remaining % is mostly LPG.

Electric vehicles will only take over when innovation has made them better and cheaper for real. For now, electric cars run not mostly on electricity but on bad policy and subsidies, costing hundreds of billions of dollars, blocking consumers from choosing the cars they want, and achieving virtually nothing for climate change.

Bjørn Lomborg

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