Like the United States, Canada adopted a stimulus plan. But while the U.S. plan amounted to 5 percent of GDP over three years, Canada’s plan gave a jolt of 2.5 percent, in only a little more than one year. So Canada got more bang for less buck. If both country’s projections prove accurate, Canadians in 2015 will shoulder only about one-third as much debt per person as Americans.
More and more, the $800 billion stimulus plan is looking like a great mistake — too much long-term debt for too little immediate benefit, all of it too closely tied to the Democratic party’s political imperatives in the 2010 election cycle.
The result: an unemployment rate in the United States fully one point higher than in Canada. To paraphrase a television commercial familiar to Canadians of a certain age, “Only in Canada? What a pity.”
“More and more it is looking like a big mistake”?
That was evident to anyone with a pragmatic grasp of basic economics on day one! It was/is this simple: put money in people’s pockets and they will spend it which will build demand in the economy and increase GDP (ie, create wealth). Back-end the money to your political cronies and to States to shore up their bloated budgets and no new wealth is created.
Government does not create wealth: it siphons off money from the productive sector of the economy and redistributes it.
Hoping and Changing won’t make it otherwise.
This is how I learned that I cannot believe what President Obama says. After the election and going towards his inauguration, he gave interviews in which he said the stimulus bill would be more like what Frum describes, a quick injection of immediate cash into the economy. The massive bill he actually signed bears no resemblance to his promises. If the long-term spending in the bill is not reversed we will live with a drag on our economy for a decade or more, and worse if the cap and trade energy cost increases are passed.
The CBO projects a 2009 deficit of $1.85 trillion, more than triple the 2008 deficit. I find it staggering that there are current proposals for additional spending on health care. It seems as if there is a massive push to get as much rammed through as possible before the 2010 elections, regardless of the consequences (many legislators have not even read the 1000 page bill.)
Oh well, as they say, never let a crisis go to waste.
🙄
Mr. Frum, son of the famous and greatly-loved Canadian journalist Barbara Frum (1937-1992), omits three important points of difference between the Canadian system and that in the States:
a) Residential [b]mortgage interest is not tax-deductible[/b]. Because mortgage interest is an after-tax expense, people want as little of it as possible and structure their mortgages accordingly. There is also no tax benefit to doing a cash-out refi, so people really didn’t attempt to use their houses as a bottomless ATM.
b) Nearly all Canadian [b]mortgages are structured as a five-year renewable[/b], regardless of the amortisation period. One important consequence is that there’s really no such beast as a 30-year fixed that’s bundled and discounted out to the secondary market, where (in the States) it got tranched and sold in small pieces all over kingdom come. Mortgages are generally written by banks and held by the originator to maturity.
c) [b]Canadian banking is the very best in the world[/b].* It is dominated by five federally-chartered banks in business for an average of 170 years and operating branches nationwide. It is a rather conservative form of banking and was furthermore immune from the American populist insistence on keeping banks small and local. Consequently except for two very small credit unions there hasn’t been a bank failure in Canada since 1923; yes, that’s 2-3. There were no bank runs or failures in the 1930s Depression.
Each of these points has for many decades addressed financial issues the USA remains unwilling to face politically, and we’re all paying for it now, [i]again[/i].
*according to a 2008 World Economic Forum survey of 12,000 top corporate finance executives, who gave it a score of 6.8 out of 7 possible.
David Frum reminds me of those Republicans that Malcolm Wallop gave the back of the hand to when he said that if the Democrats put forth a proposal to burn down the Capitol, the Republicans would counter with one to phase in the conflagration over three years.