Magazine | July 4, 2011, Issue

Worthwhile Canadian Initiatives

All we need is a left-wing government and a debt crisis . . . hey!

Canada is a weird cold semi-socialist backwater pockmarked with Francophonic hostility and saddled with a ridiculous monarchy, a national wheat monopoly, and the pinko health-care system that Barack Obama really, really wants deep down inside. It’s basically a sprawling, low-ambition Sweden with a miniature France growing like an udder out of its soft underbelly. So why are les têtes carrées doing so well in comparison with, e.g., us U.S.A.–type Americans?

Canada’s economy is growing roughly twice as fast as ours, and we’re in a bug-eyed unemployment panic down here, one so severe that Obama’s economic team has fled the White House in a fashion that brings to mind unkind nautical-rodential similes. During the recent recession, Canada’s unemployment rate peaked at 8.7 percent — lower than ours today, during our “Recovery Summer” sequel — and while U.S. unemployment is going up, joblessness up north has been southbound and down for a year, clocking in at 7.4 percent in the May report. Washington is asphyxiating itself on debt Jimi Hendrix–style, with big investors (really big ones like Bill Gross and Hu Jintao) dumping U.S. Treasury securities and minimizing their long-term exposure to the dollar. But in real-GDP terms, Canada has cut its national debt in half in the past 15 years, and its government ran surpluses for the decade before the 2008 crisis (which was less of a crisis for Canada). Ottawa has run up a little debt since then but will be back in the black with a balanced budget in 2014 and a debt-to-GDP ratio of less than 20 percent by the end of the first Biden administration. It already has the lowest debt burden in the G7. And how’s this for national shame? The Almighty Dollar is now worth less than the humble Canadian loonie: General Washington outgunned by a duck.

A conundrum, no? A mystery to be interpreted. And it may be even worse than it looks: Be skeptical of those GDP numbers. GDP has basically three pieces: private consumption, investment, and government spending. Guess which one of those has been getting jacked up in the United States since 2009? When calculating GDP, government spending is valued at cost, meaning that if the government goes and borrows $1 trillion, buys $1 trillion worth of water balloons, and has a massive national water-balloon fight on the Mall, that’s another trillion bucks added to the GDP, even though it’s made us poorer as a nation, not richer. And Washington has been having a hell of a water-balloon fight since 2008. Ottawa, on the other hand, has been cutting spending. When the ’Nucks had their come-to-Jesus moment about their national debt back in 1995 (more on that in a second), they cut government spending in real terms by almost 15 percent over three years. So, mentally back that out of those GDP numbers.

Such deficit-hawking is a big part of what Canada has been doing right. Not that it’s always obvious: Americans look at Canada, with its swollen nanny state and its Obamacare-with-gravy-on-top health-care system, and we say to ourselves: “Good God, look at the taxes these poor suckers pay.” And it’s true: Canada’s total tax burden, at 32.2 percent of GDP, is a whole lot more than ours, at 26.9 percent. Except recall as mentioned three sentences ago that they’ve been running surpluses for a long time. There are kids getting their driver’s licenses this year who in all their born days have seen only a couple of non-surplus budgets adopted in Ottawa.

#page#Our guys, our crazy right-wing free-enterprise limited-government bootstraps Republican guys, don’t give us surpluses — they give us deficits. If you run a deficit, the question isn’t how much you tax, but how much you spend — because, as I am confident the ghost of John Calvin has finally hammered into the ghost of Jack Kemp, all debts eventually must be paid. Hu Jintao is going to get paid. And there’s where the U.S.-Canada thing gets a little counterintuitive: We’re basically the same on the spending front. Both Forbes’s Global Misery Index and the Heritage Foundation’s Economic Freedom Index put the United States and Canada within a couple of points of each other when it comes to spending. Canada has a very big national government and relatively small provincial and municipal governments. (Relatively, I wrote. Visit Philadelphia.) The United States has a morbidly obese Leviathan spilling its federal muffin-top over the borders of the District of Columbia into three other states, and ravenous state and local governments, too. It about equals out, in terms of spending.

This is where your annoying Euro-lefty friend says: And at least the Canadians get something for it. And, as much as it hurts to write this, Moonbeam has a point. Canada has honest government (more honest than ours, Heritage finds) and transparent institutions that work. As welfare states go, Canada’s is pretty well run. (It does not follow that similar institutions would work well in the United States.)

Canada’s success is part virtue, part vice. The virtue is the old-fashioned Anglo-Protestant stuff — thrift, honesty, sobriety, savings, husbandry, etc. The vice is the old-fashioned European stuff: freeloading off of the United States. The United States spends 4.7 percent of GDP on its military, whereas Canada spends about 1.5. Granted, the United States is an outlier, but so is Canada: Relative to the size of their economies, France, the United Kingdom, Italy — hell, Norway spends more on defense than does Canada, which barely outspends Japan, a country that could be overrun by a crack detachment of Girl Scouts. There’s a reason that Canada and Japan make comparable economic commitments (1.5 percent of GDP and 1 percent, respectively) to national defense: Both are U.S. protectorates. Canada gets to have its expensive welfare state and ready access, whenever needed, to the No. 1 warfighting machine in the history of Homo sap., the latter part pretty much gratis. That comes in handy: Some of those old-fashioned Anglo-Protestant virtues — stability, for instance — need a helping hand from national institutions. Or the national institutions next door.

Likewise, Canada’s health-care system receives enormous implicit subsidies from the United States. When Canada’s elites are unhappy with Dr. Ottawa, they can cross the border. And while they’re headed south, American innovations made possible by profits generated in what remains of our private health-care market are headed north across the border. Pharmaceuticals, medical devices, techniques and technology: Those innovations make their way around the globe, but it’s nice for Canadians that the military-industrial superpower next door is a medical-research superpower, too.

No sense in our being bitter about all that: It’s not like Justin Bieber talked us into fighting wars in Iraq, Afghanistan, Pakistan, Libya, and Yemen at the same time, or letting Lyndon Johnson and Teddy Kennedy structure our health-care system. Mistakes were made. And, in the main, Canada has thrived in the past 15 years or so mostly because it has been disciplined and thrifty. It had to: It had no choice.

#page#The United States has a fiscal crisis on the way, and you had better hit both knees and pray to the deity of your choice in the manner prescribed that we have a Canadian-style crisis. Canada’s crisis was the luckiest thing that had happened to Canadians since the Battle of Hampden. (Win some, lose some.) It came to a head in the middle 1990s, but it really got started in the 1970s, when Canada’s government, like the U.S. government and the British government and many European governments, went totally Froot Loops on the fiscal front (kind of like we are right about now). It started packing on the debt (kind of like we are right about now). Then came the recession of 1981, when a combination of economic contraction and accelerated spending sent Canada’s public debt climbing all the way up to 40 percent of GDP. Doc Keynes always prescribes deficit spending for a recession, but the side effects of rampant sheikh-style outlays on top of economic collapse are pretty ugly (kind of like . . . but you keep getting the point). Things quieted down a bit for a few years after that as Canada rode the coattails of the Reagan recovery and had a long, important national conversation about whether “arrêt” or “stop” would get top billing on stop-signs in Quebec. And they just kept spending. Then came another recession, a particularly bad one for Canada, lasting from 1989 until 1992. Debt hit 60 percent of GDP.

By the time Newt Gingrich (remember Newt Gingrich?) and his crew were plowing through the Contract with America and plotting a bold new course toward a more enterprising America and NAFTA was really coming into effect, Canada stepped onto the scales, no doubt feeling like a fat former cheerleader two weeks away from her ten-year high-school reunion, and took a hard swallow: Debt was 71 percent of GDP. The only G7 country in worse shape was Italy. Italy. So the Grits, led at the time by Jean Chrétien with Paul Martin holding the finance portfolio, started cutting, with the salubrious results mentioned above.

Notice that it was the center-left that balanced the budget, not the Conservatives. It wasn’t because they wanted to — as the debt piled up, interest rates went thermonuclear. Nobody loved them for balancing the budget. Yeah, the Liberals raised taxes, but they cut $6 in spending for every $1 in new taxes, numbers that would make Paul Ryan proud. When the sorta Conservative government sorta took power in 2006, Stephen Harper was the heir to a decade of remarkable fiscal prudence, and Canada reaped the harvest that Chrétien and Martin had sowed.

If all it takes is a left-wing government and a fiscal crisis, maybe there’s hope for us still.

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