June 18, 2014
As originally published in the New Hampshire Union Leader
The return of warm weather to our state seems the right time for me to wax poetic about Canada again. To the chagrin of many, I hold up “the true North proud and free” as an example to be emulated south of the border. Bear with me and see if you don’t agree that the United States should be more like Canada.
Let me begin by saying that I don’t suggest for a minute that everything Canadian is superior to everything American. Those of you familiar with the English language will understand that. But invariably on this topic some yahoo writes me a long diatribe about “socialized medicine” despite my disclaimer about not preferring their health model. In that yahoo’s defense, this column will run a good 750 words and it’s a lot to expect a reader to make it through all of them.
So let’s begin with the disclaimer: I’m not a fan of the Canadian healthcare decisions undertaken over the last 60 years. I suggest merely that we emulate their sense of fiscal responsibility. Also, I like curling. I want to further suggest that if the Canadians can accomplish restraint, we could too if only the will existed here (which it plainly does not).
Canada in the mid-1990s was a fiscal basket case on the same order as the current United States. Debt had risen to 70% of GDP which was considered intolerable (by contrast most denizens of our Congress are unworried about debt and quite content to let it skyrocket). The Liberal Party, a center-left party and long the dominant party in Canada, decided to do something about it.
They decided to stop spending money they didn’t have. In the two years from 95-97 they actually cut spending. This is weird, goofy, and unheard of in Washington but Canadian spending declined by 5% — they actually spent fewer dollars not an adjustment to some potential growth rate.
Coupled with the cuts, restrained growth over the next few years meant spending declined as a percentage of the economy — from 53% to 39% in about a decade. As a result, their burdensome debt shrunk from a scary 70% of the economy to a more manageable 32%.
American politicians believe that what the Canadians did is not actually possible. I think some of them don’t understand that Canada is a real country and not a made up kingdom like Ruritania.
Interestingly, our Congress has done something of a reverse Canada. After bottoming out at 31% of GDP in 2001 (when the budget was last balanced), The US public debt has skyrocketed to about 74% of the economy with total debt now over 100% (which I don’t need to tell you is insane).
Worse, current congressional plans are to try and make things as bad as possible. Rather than be alarmed by total debt over 100% of our economy (think the happy thought: hey, we’re like Greece), we’re going to double down.
If nothing changes, we will spend $48.2 trillion over 10 years and add another $7.6 trillion to our debt. But why can’t we be more like Canada?
Canada had to impose an actual spending cut to reach discipline. We just have to let up on the throttle. Current plans for the next decade would increase spending by 5.3% each year – from $3,523 billion to $5,920 billion. If we still increased spending each and every year but merely reduced the rate to 3.4% we would balance the budget in 10 years.
This sort of modest restraint is referred to in Washington as draconian spending cuts or an austerity program. Yet, does anyone really believe that asking government to merely slow its pace a bit is draconian?
Opponents object that “austerity” is bad for the economy and will inhibit growth. While that may be true of massive cuts of 20 and 30%, in Canada even a 5% reduction was coupled with 3.2% GDP growth. In the US, we’re not talking about cuts or even a freeze but rather significant growth of 3.4% each year. It’s hard to believe that 5% spending growth is great but 3% growth is cataclysmic.
What’s more likely is that politicians who don’t have to balance a budget today don’t want to make decisions. It is much easier to turn on the auto pilot rather than having to say no once in a while. I don’t think Canadian politicians of the 1990s were any more noble than the lot we’re stuck with but they chose to act like adults. I wish we could be more Canadian.