Filibuster Cartoons
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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.
August 9th, 2011 at 4:22 am
Yo Uncle Sam should be listening to little beaver friend! Maple Syrup is like, over $10 a bottle. Half price is an absolute steal!
August 9th, 2011 at 8:40 am
"In all, government spending was cut down by about 14%."
It looks like Canada's deficit was only around 26% of spending in 1994-95. So if spending was cut 14%, the GST must have covered the other 12 points. The USA's deficit is about 40% of spending. Even if we implement exact copies of both sides of the Canadian plan, we've still got deficits of half a trillion a year (or about 14%).
On the other hand, even before the debt ceiling discussion Obama's financial team was projecting that deficits would be halved by 2015. The debt ceiling negotiations came with $900 billion in specific spending cuts over 10 years, but only $35 billion of that before 2015. That leaves an average of $123 billion cut from each year's deficit from 2015 on. That leaves deficits at about $500 billion, which is about 14% of current budgets, which is the same proportion that the Canadian austerity budgets saved.
We have $1.4 trillion in unspecified cuts coming from the recently concluded debt ceiling debate, and another debt ceiling debate coming in 2013. Between the two, maybe we can arrange another half trillion dollars of cuts per year to the 2015-2021 era and eliminate the deficit entirely for six years.
August 9th, 2011 at 8:49 am
Real maple syrup, that is.
August 9th, 2011 at 9:33 am
While downloading sounds attractive to solve the American problem, its hard to see how it would make a substantial dent in the deficit as the three largest line items are difficult if not impossible to download. Defense cannot be downloaded at all. Social Security is nearly as impossible to download. Medicare could potentially be downloaded, but its unlikely considering it would require the essential abandonment of the existing program and starting anew.
August 9th, 2011 at 10:09 am
Complicating things in the US are the ridiculous two-year terms served by the members of the House of Representatives. Because they are perpetually campaigning to keep their seats, these politicians are incapable of tackling complex problems with difficult and unpopular solutions. Were they to serve four years, as is the norm for so many other offices, they would have the cojones to take the high road (by raising taxes, say) early in their terms and then have several years for these measures to show some positive results before they have to start running for office again. Instead, they are always running scared, pushing the tough solutions into some non-existent future and posturing in order to win votes. But electoral reform (along with badly-needed campaign finance reform) will never happen and these jittery dunderheads will lead the USA, and the rest of us, into the abyss.
August 9th, 2011 at 12:06 pm
The business analysts today say that the Fed is using a page from Bank of Canada.
August 9th, 2011 at 2:43 pm
If it's so hard to download all that, then maybe we should upgrade to broadband!
August 9th, 2011 at 2:48 pm
According the NP article you linked to , the GST provided $15 bil in revenue, but the defecit was still around $35-40 billion in 1993. It helped, but it was a band aid on an artery wound. And I wouldn't say it was "beloved" by the Chretien gov't, it was a millstone for most of their first term.
August 9th, 2011 at 3:16 pm
Part of the problem is that it seems like more and more of federal spending has become a so-called "sacred cow." I mean you take Social Security, Medicare, and Medicaid, which are three enormously popular and expensive programs, and you are already talking about more than 40% of federal spending. Most Americans do not want to see those touched at all. Throw in Defense with that (also not a hugely popular thing to cut) and you are up to more than half. And that does not even cover things like agricultural subsidies, veterans' benefits, Pell grants, etc.
Letting the Bush tax cuts expire would probably be the best idea in the short term, plus the continuing winding down of the wars in Afghanistan and Iraq, but the big issues still need to be tackled. Either taxes need to be significantly raised, government spending significantly slashed, or both. The problem is any option is likely to be hugely unpopular.
August 9th, 2011 at 4:36 pm
Holy cow, 50% off maple syrup?!
August 9th, 2011 at 5:05 pm
Doing nothing is also hugely unpopular and, worse, unsustainable.
August 9th, 2011 at 6:43 pm
Indeed. I guess it comes down to the fact when you are talking about a country as large and diverse as the United States, any solution is unlikely to gain widespread approval. You can please some of the people some of the time, but it is impossible to please everyone at once.
August 9th, 2011 at 7:33 pm
Is that…is that CANADIAN bacon on the plate?
August 9th, 2011 at 9:22 pm
Real cuts would be even nicer, as opposed to cutting the rate of growth.
August 9th, 2011 at 9:57 pm
It was, but the dilemma was born from the fact that it was a politically unpopular tax that was so functionally useful, from a government perspective.
August 10th, 2011 at 12:24 am
They're totally flapjacks eh? Don'tcha know what to put your maple syrup on?
August 10th, 2011 at 2:28 am
On the flip side, it also keeps them from being as corruptible. Most of the legislators implicated in bribery or influence peddling scandals were either Senators or "safe" Representatives in districts where they ran typically unopposed.
I'd rather have a Representative afraid of my vote than a Senator who knows they don't have to care for another 6 years (and even then, only if they're bad at fundraising). Sure, you can pass stringent laws mandating that all candidates can only use campaign money coming out of a special central government fund but even then, they'll find a shortcut.
(And no, the cost of the US people subsidizing price-capped elections isn't that high. All federal elections would probably be 50 bucks a year.)
August 10th, 2011 at 2:31 am
True, but there's still not enough public support for cutting entitlements or defense, which are the two big liabilities. I'm less supportive of further cuts to education subsidies or programs for the poor like Medicaid or Food Stamps (which now feeds over 40 million Americans and rising) because they've already been cut from typically low levels of funding.
August 10th, 2011 at 6:47 pm
Yes, yes they would.
August 10th, 2011 at 6:57 pm
Education and food stamps are not a large enough part of the federal budget to be relevant to fundamental reductions to the size of government, anyway. Combined, they're about $100-130 billion in total out of a $3,600 billion budget.
Social Security, Medicare, Medicaid, and Defense combined are about 60% of the US federal budget. There can't be real repairs to the budget without taking uncomfortably large chunks out of those programs.
August 10th, 2011 at 7:19 pm
I was skeptical of that $50 figure, so I did the math and it supports it.
Link below says $5.3 billion was spent on federal campaigns in 2008. Split that among the 150 million people employed in the USA and that's $35 each. They say that only about half of people who file tax returns actually end up paying anything to the government, but even so that's only $70 each. Plus we only have federal elections every two years, s that's back to $35/year at worst. http://www.timesonline.co.uk/tol/news/world/us_an...
I don't like government-funded elections, but I can't dispute your statements about them. I just don't like an authority imposing rules between taxpayers and the campaigns they support.
August 11th, 2011 at 7:15 pm
Little Beaver Friend doesn't understand that American's won't stand for such Canadian-style proposals. Americans will even consider anyone who likes such proposals to be Secret Canadians. They'll ask, "What's next? Is Canada going to annex the USA? Will the USA become the 11 province?"
August 11th, 2011 at 9:16 pm
The cutoff for Medicaid is so abysmally low (I think $15,000 annual income not counting children) that it's a low-tide entitlement, something that only rises in cost when there is a recession much like Food Stamps.
August 11th, 2011 at 9:20 pm
Thanks for doing the research. I'm skeptical about government-funded elections too if only because a majority party can always sneak in conditions to favor themselves but I still do believe it would allow more principled candidates who don't have fundraising savvy to run for office.
August 11th, 2011 at 10:20 pm
Medicaid is the smaller of the four and is pretty universally liked, but it's budget has been a significant part of the total federal budget for a lot longer than the recession. Hopefully, nothing more than some slim final touches on the budget reform would have to be at it's expense, but if the budget is going to be repaired nothing can be untouchable.
August 11th, 2011 at 10:21 pm
Hahahahaha!
August 19th, 2011 at 1:37 pm
There’s no need to cut any programs to fix the budget; our deficits come more from irresponsible tax cuts than from profligate spending, and our taxes are very low.
http://www.americanprogress.org/issues/2011/06/low_tax.html
And ironically the best way to cut government spending on health care would be to expand the role of government: allowing Medicare to do collective bargaining for drugs, cutting for-profit health insurers out of the system, moving to VA style “pay salaries for health” rather than “pay fees for service”.
August 20th, 2011 at 9:00 am
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