Filibuster CartoonsTitle: Learning from Canada (click to view)
Date: August 8, 2011
A number of readers have been asking me how America's debt crisis, and ensuing credit rating downgrade, has been portrayed in Canada. The answer: very smugly.
You see, Canada also once had its credit rating bumped down from triple-A to double-A by those jerks at Standard & Poor, and we too once toiled under a seemingly insurmountable pile of debt born by decades of profligate federal spending. We even had our own Tea Party, known under the moniker of Reform, who had established a significant foothold in the legislature by channelling public frustration with the state of the national economy into uncompromising right-wing populism.
In short, there's a real been-there, done-that sentiment being expressed in a lot of
Canadian editorial pages at the moment, which is really quite rare, since, if nothing else, Canada is best known for lagging several years behind most significant American phenomena.
The smugness, in turn, comes from the simple fact that Canada considers itself to have, to a large extent,
solved the Gordian Knot of 2011 America, and is in the unique position of actually having some practical tips for Uncle Sam to follow, if only he'd be willing to listen.
As I discuss in my review of a recent book on this subject,
The Canadian Century, Canada of the early 1990s was very much an economic basket case
par excellence. The spending spree of the leftist Trudeau years, followed by the handouts-for-all mentality of his nominally "conservative" successor, Brian Mulroney, had resulted in perennial budget deficits and an accumulated national debt equal to 72% of GDP. It was this fact, coupled with the rising fear of Quebec separatism, that caused S&P to lower Canada to double-A status in 1992, a grim episode for a nation already suffering badly in a global economic recession.
It took the Liberal government of Prime Minister Jean Chretien, elected the following year, to get things back on track. In an effort largely led by finance minister Paul Martin, who catapulted to fame as possibly the most influential man in the country, the new administration introduced a series of "austerity budgets," beginning in 1995, that dramatically slashed government spending and services. Hundreds of government employees were laid off, Crown corporations were privatized, unemployment insurance was scaled back, and the Canadian Pension Plan (the Canuck equivalent of Social Security) was significantly reformed. In all, government spending was cut down by about 14%.
In four years time, Canada completely erased its $36 billion deficit and turned it into a $3 billion surplus, and by the early 2000's, the national debt had fallen below 40% of GDP. As a reward, S&P promoted us back to triple-A status in 2002, and Chretien and Martin basked in the self-righteous glow of having saved the national economy from the complete bankruptcy many wags had previously deemed unavoidable.
Of course, the real story of Canada's economic recovery is a bit more complicated, and as usual, the devil was in the details. One particular devil was the introduction of a new national sales tax, the Goods and Services Tax (GST), that the Mulroney government had brought about in its dying days. Hated by all, and opposed by the Liberal Party in the '93 election, the tax later became beloved by the Chretien administration for increasing revenues at a time of declining expenditures, and was a
huge factor in eliminating budget deficits in such a short period of time.
Likewise, conservative as he was in fiscal matters, Martin was no libertarian. Much of the federal spending he eliminated thus wasn't really eliminated at all, but rather outsourced to other levels of government. Welfare, most notably, was essentially chucked to the provinces to deal with, as was health care. Most reformed the first effectively, but not the second, and today many of Canada's provinces have ratcheted up enormous deficits and debt of their own in an attempt to maintain cradle-to-grave health care entitlements they cannot realistically afford to provide.
It's similarly worth remembering that America also went through a reformist phase during the mid-1990s, with the Chretien-Martin reforms occurring simultaneously alongside the deficit-cutting and welfare reforms of President Clinton and Newt Gingrich. So the analogy that the US is just some lazy late responder to the omnipresent problem of budget woes is not exactly fair. America has obviously experienced a number of unique circumstances over the last few years that have no real equivalent in Canada, including the Iraq war and the "too big to fail" bailouts of 2008. We are likewise a vastly smaller and less globally consequential country than the United States, which can make heavy-handed Canadian "lessons" of how to run a national economy about as logical as a hot dog cart owner with ideas on how to manage Microsoft.
Nor is it fair to imply that Canada, which, under Harper, has been disturbingly eager to ratchet up spending, has somehow completely forsaken its reckless past of fiscally unsustainable decisions. Deficits are back, and our debt has been climbing up steadily for the last couple of years, after a decade of stable decline. And Canada's universal health care remains a ticking time-bomb with every bit as much destructive potential as Medicare or Social Security.
The key, as it always is, is for both countries to simply solve their own problems using tactics that are most appropriate for their own unique contexts. Across-the-border glances of schadenfreude and
envy can provide a temporary, and even helpful, boost of motivation and focus, but in excess, such feelings can subvert rational analysis of serious problems with cheap slogans and oversimplified cliches.
And both countries have enough of that as it is.
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