Canada’s significant economic challenges are a result of misguided government policy, and can’t be solely blamed on recent crises.
Partisanship has a way of twisting the mind.
This is true across the political spectrum, and is especially noticeable among supporters of a party when it is in power.
Governing often involves making compromises, and when those compromises devolve into outright hypocrisy, people will often twist themselves into knots in order to defend what their party is doing, regardless of the facts.
We are seeing that a lot in Canada right now, as some supporters of the governing Liberal Party attempt to claim that the economy is doing well.
You can see it on social media, where people seek to criticize those who point out Canada’s severe economic issues.
This generally shows up in two forms.
First, some argue that the Canadian economy is doing just fine.
Second, some argue that any economic problems are solely the result of global events, and that the federal government bears no responsibility.
In this column, I will explain my view on why both of those defenses of the government are wrong.
Worsening productivity
At the end of the day, every economy is defined by how productive it is. How efficiently can you generate value relative to other nations? The human story of rising progress and a rising standard of living is based entirely upon productivity.
For example, for much of human history nearly all of our effort was devoted to procuring food, while countries like Canada now produce more food than ever before with a very small percentage of our population directly involved in the process.
A country with declining productivity is a country that is growing poorer in real per-person terms.
And as you can see below in a Tweet from the Chief Economist for the Canadian Chamber of Commerce, Canada’s productivity is heading in the wrong direction:
https://twitter.com/stephen_tapp/status/1510266149778468872
GDP per capita is the true measure of an economy, as it shows the per person productivity within a nation.
All too often defenders of the government claim that ‘our economy is growing,’ yet leave out the fact that an economy can get bigger overall even as each person in the country falls further behind.
Since Canada’s population is growing, the aggregate size of the economy will grow over time, yet that doesn’t mean Canadians are getting richer.
India has a far larger economy than Norway, yet Norway has a much smaller population than India, and is far wealthier on a per capita basis.
For each individual Canadian and Canadian family, per capita GDP is the only number that should really matter, since it’s what affects the kind of life each of us can live and the opportunities available to us within our country.
Of course, those in power don’t want to talk about that number, since it would reveal the true weakness of our economy at the present time.
And, since we have high immigration levels as a percentage of our overall population, the economy will of course look bigger over time, since there are more people here. But if each individual Canadian is – on average – becoming poorer, then ‘growth’ is merely a statistical trick that masks decline.
Falling prospects
When we look at the future prospects of the nation, things become even more concerning.
As you can see in the projection below, Canada is on track for the worst per capita GDP growth in the OECD from 2020-2030:
“If you ever wanted a statistics based incitement of Canada’s economic policies this is it. Dead last in the OECD for per capita GDP growth 2020-2030. Add the fact we have 2nd highest per capita debt to GDP ratio, ahead of Greece, & you have recipe for national immiseration.”
If you ever wanted a statistics based incitement of Canada’s economic policies this is it. Dead last in the OECD for per capita GDP growth 2020-2030. Add the fact we have 2nd highest per capita debt to GDP ratio, ahead of Greece, & you have recipe for national immiseration. pic.twitter.com/rfyygh7cg5
— Rudyard Griffiths (@rudyardg) April 2, 2022
The full photo is included below:
If those projections become reality, then Canada would fall far behind many comparable nations.
There would also be a compounding effect in regards to the ‘brain drain,’ as more entrepreneurial and creative people would seek their futures outside of Canada.
Canadians would watch as our country stagnates, and we would fall behind technologically, further compounding our productivity problem.
Debt
As Rudyard Griffiths noted in his Tweet, Canada’s high debt-to-GDP ration is also a serious problem.
When it leads to growth, debt can be useful. A company that borrows money and uses that money to invest in increased production and increased efficiency can expand and easily pay back the debt – or at least easily handle interest payments.
The same is true for countries.
However, when a country becomes so indebted at a personal/business & provincial/federal level, and when that indebtedness is accompanied by weak productivity growth, there is a serious problem.
The trouble with debt doesn’t always show up directly in a debt crisis, but that doesn’t mean it isn’t having an impact.
In a country like Canada a government can ‘monetize’ the debt when a central bank prints a lot of money. When debt must be repaid in Canadian Dollars, the vast printing of Canadian Dollars can mitigate the impact of those debt payments.
Of course, that is not without consequence. Since you can’t evade reality forever, the easier debt payments are accompanied by inflation, which makes life more and more expensive, and thus drives a further need for debt as people/governments try and keep up.
Finally, inflation reaches the point where central banks have no choice but to increase interest rates, thus driving up debt payments.
Rising productivity provides the escape from that debt trap. But as we’ve seen, Canada’s productivity isn’t growing enough to outpace our accumulation of debt.
How to raise productivity?
You’ll notice that Canada’s productivity problem predates the covid pandemic, and we know that inflation was rising even before Russia attacked Ukraine.
Thus, while covid and war have both significantly impacted Canada’s economy, they are not the direct cause of the malaise we see today.
It would be most accurate to say that the policies of the Liberal government left Canada weakened economically, and we were thus harder hit by the impact of multiple crises than we would have otherwise been if the government had followed a more responsible course.
Ironically, reversing Canada’s productivity problem would be relatively easy.
Scrapping the carbon tax, cutting personal taxes, reducing the capital gains tax and removing legislation that hampers the energy sector would all provide a rapid boost to economic growth.
Additionally, a freeze on federal government spending – aside from building up our military – would strengthen confidence in Canada’s long-term economic stability, and would reduce the need for Bank of Canada money printing, which would help to bring inflation down.
Those are policies and ideas that are proven to work, particularly in a ‘stagflationary’ environment as we see today.
However, this would require the Liberal/NDP government to set aside their overtly ideological approach, and embrace a more pragmatic course of action, something they have thus far been unwilling to do.
Spencer Fernando
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