Economic Comparisons - Canada versus U.S.

What is seen and not seen. I had a discussion with a somewhat regular reader of this site, and a couple of statements he made piqued my attention. The first was that Canada has outperformed the U.S on many economic measures since 1997, and that the U.S had a higher level of government debt realtive to Canada.

With these two sinppets in mind, I decided to illustrate what I inherenty know, that the Canadian economy and Canadians at an individual level, are lagging their American counterparts and that gap is widening.

This chart (from the Canadian government) shows the relative productivity differences between Canada and the U.S. The paper in question examines the increasing gap in productivity and standard of living between Canadians and Americans.

The key exerpt from this report came at the conclusion of this 2002 report:

Canadian living standards will undoubtedly increase in the next decade, but their average growth rate will probably be less than that of labour productivity due to demographic factors. In all probability, the growth rates in American living standards will continue to outpace Canadian growth rates; this suggests that the widening gap in living standards between Canada and the United States may be expected to continue for some time to come."

This report focues most exclusively on labour productivity and relative standard of living. There are other economic numbers that are related to productivity and standard of living that merit further consideration.

T

here are also several related charts which helps explains the widening gap for the period. First is combined debt-to-GDP ratios. I use combined because Federal debt only is skewed due to the relative sizes of the Federal and state/provincial governments for the two countries. Provincial governments tax and spend more on a realative basis in comparison to U.S. states, while the Canadian Federal Government spends relativelys less than the U.S. Federal Government, thus the reason for using combined numbers. These numbers show the increase in debt for the G-7 countries, but focus on the relative debt conditions of Canada and the U.S. in both 1974 and 1994.

It should be noted that the Canadian and American debt positions were probably at their worst in 1994, and both countries have improved their fiscal conditions. However, it is safe to say that the total government debt to GDP ratio for Canada is still significantly higher than in the U.S.

The final little snippet of information would be exchange rates. The Canadaan dollar from 1976 to 2002 was on a downtrend for the entire period. The high for this period was $1CDN = $1.3890 U.S on June, 24, 1976 and the low for the period was $1 CDN = $0.6179 on January 21, 2002. Since 2002, the Canadian dollar has recovered to nearly ninety cents, primarily due to strong commodity prices and the weakening U.S. dollar (thank you very much congress for lacking fiscal discipline). However, this strengthening of the Canadian dollar has adversely impacted Canada's non-resource based export industries.

For the periods in question, I think the three statistics are interrelated: high government debt, weakening currencies and declining productivity all play a role in the increasing gap in standard of living between your typical Canadian and American. The fiscal and economic indicators can be attributed to government policy. It is not mere coincedence that Canada's fiscal condition (in terms of a strong national balance sheet and currency) was strongest right before Trudeau and his provincial counterparts ramped up the welfare state, and government interference in the economy?

The gap in standards of living can be attributed to higher taxes, more government regulation, and more rigid labour markets in Canada. The weakening of the dollar from 1976 through 2002 has masked a lot of this. A country can have strong economic performance when its currency is weakening because the growth is measured in devalued currency. A better meansurement is to adjust for currency differences with the currencies of it largest trading partners.

All things being equal, there should be no reason fundamentally for this gap, but government policy has led to Canadian's standard of living declining.

SCTV's Dusty Towne Holiday Special

Augusto Pinochet, RIP 1915-2006

This much reviled man was a patriot. He stopped a communist takeover of his beloved Chile, brought in free-market reforms, and left a democracy when he left. Much like Franco, he was reviled for the human rights abuses that occurred on his watch. While this is true, and I have sympathy for those who suffered under his rule, it should be noted that the Communist alternative to Pinochet would have been much worse.

People have a selective memory of authoritarian rulers: these same people of condemned Pinochet and Franco keep silent about the abuses in Cuba, Communist China, Vietnam, Nicaragua, and North Korea. This selective moral indignation has not been lost by a large segment of the Chilean population.

General Pinochet was a patriot who loved his country and left it in much better shape than when he took over. He was a controversial figure who did what he felt was necessary to keep Chile free. History will look back at General Pinochet and see him as a great, though controversial figure in the history of his nation.

Liberal leadership thoughts

Saturday's Liberal convention has cemented what I have always thought about leadership contests: in a convention format, you do not want to be the frontrunner unless you can win it on the first ballot. Stephane Dion's up the middle victory was similar to Joe Clark's in 1976, or Dalton McGuinty's in 1997(?). Look at Joe Clark (1983), Murray Elston, Gerald Kennedy, Svend Robinson - all of them were presumptive front-runners going into their respective conventions, only to lose several ballots latter. It seems with a delegate convention, there develops an "any but the frontrunner" momentum as each ballot passes, and the candidates start making deals to get the dropped candidates' support. I also think that front runners don't have the same pressure to make deals during the convention, believing that they can attract delegates in subsequent ballots without all the compromises that the other candidates need to make.

Either way, Stephane Dion played the convention perfectly - he knew where the delegates were, what deals needed to be made, and stuck to his plan. Dion and his team have shown that they are savvy political operators by pulling this victory off.

Stephane Dion seems like a decent, intellectually consistent leader, and is a good change from the Chrétien/Martin years. However, it seems at this time that he is the right leader at the wrong time, during one of those periods where the Liberal party lies in fallow after too many years in power, and with the Conservative party in a period of ascendancy.

First step in the inevitable breakup in Canada

I was in Myrtle Beach, SC and Jacksonville, FL last week, so I just recently found out about Harper's gambit with a House of Commons resolution declaring Quebec a "nation" within Canada. I find this to be sophomoric and sad, as this is another blow to the unity of Canada as it is currently construed.

This ultimately can be seen as an assault on the equality of all Canadians under the law. Some court, or Quebec politician will use this resolution to obtain special benefits at the expense of all other Canadians. But the larger question is, if Quebec is a nation, why stay in Canada? They is no compelling reason for them to ultimately stay. If you are a nation, then independence is logical conclusion. Second, if I'm an Albertan, why am I not a nation? I think they have more of a case to be made that they are just as "distinct" as Quebec, and entitled to the same perks as Quebec.

Bad politics, bad precedence.

The greatness of Milton Friedman

Watch this interview. Beautifully succinct.

Tip of the hat to my friends at The Other Club

Taxes and Illegal Immigration

One of the easiest solutions for enforcement of immigration law which would discourage illegal immigration:

1. All employers shall check the social security numbers of all individuals who will be issued 1099s and W-2s against a national database. If they are not on a national database, then the taxpayer shall not be able to claim the deduction. This is no different than the tax code stating that taxpayers cannot deduct bribes or the cost of illicit drugs on their return.
2. Start doing random audits of employers to determine whether their records are up to date on their efforts to do this. First time offenders get a small fine, second time offenders get a bit fine, and finally the third time is criminal. In addition to this, all such persons not deemed to be U.S. persons will be deemed employees: so the employer will also be on the hook for all back payroll taxes (both employer and employee portions) for the period this person was paid by the taxpayer.
   

These two elements, is properly enforced, would do a lot to stem illegal immigration by making it much less appealing to employers to hire them. Many illegals would "self-deport" when many of their job prospects dry up.

The bright side of Grhanholm's Victory

A former colleague of mine had this thing to say about Granholm winning re-election and the democrats getting control of the state senate in Michigan: "My commute to work will be a lot easier now with everybody leaving the state to find work elsewhere".

Election Post Mortem: Democrats

Now the Democrats have siezed control of the House of Representatives for the first time in 12 years, and outright control of the Senate to boot. They were more so beneficiaries of a tired and corpulent Republican majority, as well as fatigue with the perceived lack of progress in Iraq. The Democrats were able to win majorities by not offering any real alternatives, but by aggressively putting out the message that Republicans were wasteful, corrupt, and inept.

Credit needs to be given to Rahm Emanuel, who is largely responsible for the Democratic resurgence. Emanuel recruited candidates that would appeal to red-state voters: pro-gun, nominally pro-life, and adverse to tax and spend politics.

This victory is a great opportunity for the Democrats to become the pro-growth, hawkish party they once were. This election can be seen as repudiation of the Kossites, as their messiah, Ned Lamont was thoroughly thrashed by Joe Lieberman. A democratic majority that would run on a pro-growth, economically populist, and militarily robust party could garner a natural constituency. That, coupled with gubernatorial wins in several states which would provide the opportunity to re-draw more Democratically favorable congressional districts after the 2010 census, could start the beginning of the ascendancy of the party for a long time.

However, should the Democrats not heed the lessons of the Republican defeat and their own defeat of just twelve years ago, they can very well be doomed to repeat it. Art Laffer, the famed economist, said at a lecture I attended that the electorate hasn't really changed over the years, but the political parties have. He said there is a natural majority of the electorate that is pro-growth with a strong foreign policy. From the 30s through the 60's, it was the Democrats that embodied this, while the Republicans were isolationists and anti-growth. Roles reversed in the 70s and 80s. The Clintons managed to co-opt a lot of this during the 90s, but lost it when Clinton left office when the Democrats became infused with Bush Derangement Syndrome. They were rebuffed in 2002 and 2004 because they were seen as anti-growth and weak on national defense.

Thus lies the problem, they must eschew their baser tendencies to tax, spend, and incite more partisan rancor with unnecessary investigations and gridlock. So that means that they will end up infuriating the leftists on their base. But if they're willing to buck them (and they have proven that they have not delivered a single winner yet for the party) and grasp building a greater and lasting majority, the opportunity is there.

My take on it is that the opportunity is there, but it will be squandered. The problem is that the Pelosis, the Conyers, the Rangels, the Waxmans, the Waters of the party are socialists and their baser tendencies will override the bigger picture. I don't think that they can necessarily do what it takes to build that majority, but I can see the Republicans blowing it too.

I guess we'll be able to tell by what they do over the next few months. Stuff like John Bolton comes to mind. If they let him come to a vote, they're looking big picture. If they stuff him in committee and use him for partisan grudge settling, then they're not ready for prime time.

Election post mortem: Republicans.

On a macro perspective, it seems that there are variety of reasons the Republicans "lost" the election. I saw they lost the election on a macro perspective rather than the Democrats "winning" on the basis that the Democrats had no platform of substance outside of not being Republicans. in no particular order, here are some key items (and these primarily apply to the house Republicans):

1. The Republicans became the party of government. Many exit polls were showing that 11% more voters identified the Republicans as the "party of big government" than the Democrats. There is much validity that the house Republicans became a rubber stamp of the President's "conservative welfare state": No Child Left Behind, Medicare prescription drug benefit are the most obvious. This is indicative of the house leadership, particularly Tom DeLay. Tom DeLay is no conservative, and ran his position as house leader in such a manner that would make Tip O'Neil proud - using earmarks and other pork to get legislation passed. From 1998-2006, outside of taxes and welfare reform, it becomes difficult to think of any substantially conservative (in terms of limited government) initiative passed by the House. They were more content to featherbed, bribe constituents with entitlements, rather than reduce the scope of government. This covers one of my basic tenants of nominally conservative parties, they lose their raison d'etre when they stop being conservative. Or to use another analogy, if I want a big government party, I'll vote for the real thing in the Democrats.
2. Corruption. While in historic terms, the Republicans have not been as bad as some other congresses, the fact that they have an "R" after their name means they are held to a different standard than Democrats. Just look at the difference in the coverage of Foley, DeLay, Ney, etc versus the equally bad acts of Jefferson, Reid, etc. and how the press gave the Dems a pass on their "culture of corruption" accusations. Republicans need to be extra vigilant on these matters, and immediately remove potential problems long before primary/election season. Becoming more proactive on the ethics front would have inoculated them on many of these charges.
3. Iraq. It was an issue, but not necessarily for the reasons everybody thinks. To some degree, this election reflected the mood on the events in Iraq, but it was not an anti-war vote as many on the left would think. If you look at the breakdown of people of don't think that things are not going well in Iraq, I would wager that 1 in 3 are just plain "anti-war" and the other 2/3rds want a more aggressive resolution to the problem. I think that on a big picture, there needs to be an effort to show a lot of the good things that are happening outside of Baghdad: the reconstruction efforts, the functioning local governments and growing businesses, etc to offset the media's obsession with the carnage in a localized area. The press has been negligent in its lack of balance on this coverage. Republicans should have spent a lot more time constantly educating the public on everything that was going on in Iraq the past 3 years to counteract the Dems/MSM.
4. A do-nothing congress. This congress would talk a lot about taking on big issues like immigration and entitlement reform and would do nothing. While on many fronts, doing nothing is better than doing something, the perspective of inaction without explanation infuriates many voters and increases the anti-incumbent sentiment.

So, what to do about it? What is obvious is probably what they won't do. Remember that they are the party of limited government and govern on that principle. Elect leaders who believe in limited government who can effectively communicate the need for limited government to the electorate constantly.