Surging population growth can certainly give the appearance of a more powerful economy. But without an increase in productivity, the living standard of Canadians will decline.
Canada is running a bold experiment:
Pretending per capita GDP doesn’t matter.
Right now, the federal government is pursuing an economic policy based upon generating raw GDP growth through population growth.
This is basically a foolproof way to ‘grow’ the economy, but only if your goal is for the country to have a bigger GDP number and nothing else.
Now, economic growth is obviously a good thing, but growth based only on population growth doesn’t indicate anything other than more people being within a certain territory.
It is quite possible for a country or region to have an economy that is growing in aggregate terms, while most people’s standard of living is in decline.
Consider the following example of two hypothetical countries:
Country A doubles their population in 10 years while their economy grows by 75% overall.
Country B increases their population by 10% in ten years while their economy grows by 25% overall.
The economy of country A has grown much more than the economy of country B.
But how do you think life has changed for the average person in each country?
In country A, their economy would have had to have doubled for economic growth to just keep pace with population growth. Thus, their 75% GDP growth over 10 years isn’t even enough to keep living standards stagnant. The average person would be much poorer at the end of the decade.
By contrast, country B has had less raw economic growth, but their 25% growth over 10 years far outpaced their 10% population growth in that time. This means that a significant portion of their raw growth was due to productivity increases.
Which country would you want to live in?
Of course, this is an exaggerated example, but it serves to make an important point: Reporting on raw GDP growth numbers doesn’t mean much if per capita GDP is ignored.
Policymakers should understand this, and it should guide their thinking. When politicians talk about making life more affordable and making life better for people within a country, what they’re really talking about – if they are competent and serious – is raising our per capita GDP.
There is no way around this.
And yet, this country is currently led by a government that seems determined to ignore reality. Furthermore, many in the media are easily swayed by talk of raw GDP growth and don’t take a closer look.
For example, the Toronto Star recently published an article with the following title:
“Population boom. Economic boom. As we turn 156, no wonder the world wants more Canada”
Liberal MPs have recently been crowing about Canada’s supposedly strong economy, with many Retweeting the following article:
“Unprecedented population growth, record-low unemployment, and the most diversified economy in its 156-year history: @JustinTrudeau has ensured Canada is booming like it never has before.”
Unprecedented population growth, record-low unemployment, and the most diversified economy in its 156-year history: @JustinTrudeau has ensured Canada is booming like it never has before. https://t.co/TfNXRQB70M
— Matthew Winkler (@Matthew_Winkler) June 22, 2023
Of course, we would expect Liberal MPs to latch on to any bit of positive economic spin they can get, since they can’t exactly campaign on “everything is more expensive on our watch and you feel like you’re falling behind”.
However, it’s odd that some business publications are falling for the idea that economic growth based on population increases represents a ‘boom’.
Personal recession
Going back to the two hypothetical countries we looked at earlier, take a moment to consider what people in each country would experience. In country A – where the population doubled while GDP grew by 75%, most people would feel significantly poorer. Prices would have consistently risen faster than wages. The same amount of money wouldn’t go nearly as far. There would almost certainly be more political polarization and division, as declining personal living standards tend to lead to rising levels of public anger and push more people to the extremes as the centre-right and centre-left lose credibility. There would be a profound sense of ongoing instability and dysfunction.
In country B meanwhile, most people would feel much better off. Their money would go farther, wages would be easily outpacing inflation, and there would be far more social peace and political consensus. After all, the establishment has immense credibility when people’s lives are getting better, because the establishment is by definition succeeding when that is the case. Extreme voices on the far-left and far-right would be ignored and discredited amid rising living standards.
Now, let’s take a look and see whether country A or country B seems more like Canada.
A good answer can be found here, in this column published on BetterDwelling.com:
“Canada’s expected to fall into recession later this year, but it may already be there by a traditional definition. Real gross domestic product (GDP) per capita data shows the country is in a per capita recession, one of the traditional definitions. These events are associated with an eroding standard of living, and it’s expected to get worse. Not just in the near term, but it’s turning into a long-term issue.”
As the article notes, Canadians are falling behind on a per capita basis:
“Canada’s smack dab in the middle of a GDP per capita recession. The most recent quarterly data shows a 0.9% contraction in Q4 2022, following a 0.2% drop in the previous quarter. In other words, the country is already in recession by this measure. That might explain a lot for some people.”
This is resulting in a lower quality of life for Canadians:
“Is it a recession? Canadians are likely seeing an erosion in quality of life, and while incomes are rising they aren’t rising enough to compete with inflation. At the same time, shelter costs are spiraling out of control, and the economy is preparing to double down on housing investment, despite already being too overly dependent.”
Another way to look at this is that Canadians are experiencing a ‘personal recession’. If most people in a country are becoming poorer in real terms, it matters little whether the aggregate economy is larger.
The political divide
This dichotomy between our aggregate growth and per capita growth explains why the Liberals and the Conservatives appear to be on completely different planets when discussing the economy.
The Liberals are talking as if the economy is great and Canada is on a roll. The Conservatives talk as if everything is getting worse and Canadians are falling behind. The Liberals have raw GDP growth statistics they can point to in order to back up their case. The Conservatives have per capita GDP statistics they can point to in order to back up their case.
So, who has the stronger argument?
Well, the Conservative argument that the economy isn’t doing well is much more in tune with what Canadians are experiencing on a day to day basis. It also puts the Liberals in an odd position, because the more the Liberals point to GDP growth numbers based on population increases and try to claim all is well, the more disconnected they seem to be from Canadians.
The Conservatives then would be wise to bring more attention to Canada’s weak per capita GDP. It’s the number that – when well-explained – does the most to connect economic statistics to the actual day to day experiences of Canadians, and making that connection will be key for the Conservatives to dislodge the Liberals from power.
Spencer Fernando
Photo – YouTube
