Monday, August 29, 2011

Government in Canada

There is an interesting piece today at in which the author discusses the economic situation in Canada.  He points out that the economy is better there than in the U.S. and other wealthy nations.  He traces this to the fact that, in the last couple of decades, the Canadian government has actually reduced its debt by controlling spending.

I certainly think there is a lot to this.  As the U.S. government continues to pile up the national debt, we hear about how we are putting this burden on our grandchildren.  But the bottom line is that government spending and debt are burdening us right here and right now.  It is reducing savings and investment by individuals and businesses.  It is sucking capital out of the voluntary economy.  This is one of the reasons there is unemployment over 9%.

Property rights, in general, is typically what will determine how well an economy does in a given area.  More specifically, regulations, spending, and monetary policy are the major factors.  While taxation is important, I tend to lump this in with spending.  If spending is low and monetary policy is good, then taxation is most likely not a problem.

I generally agree with the author on his analysis of Canada.  He focuses primarily on spending.  I think monetary policy has also played a significant role as the Canadian central bank has been less inflationary than the Fed (which isn't hard right now).

Unfortunately, and as the author admits, Canada is certainly no paradise.  It is another welfare state with high taxes and burdensome regulations.  There is free speech there, but less so than in the U.S.  The environmental regulations tend to be awful compared to most places in the U.S.  And of course we know about the healthcare system there.

The healthcare system in Canada is mostly socialist.  The system in the U.S. is mostly fascist, although there is still a tiny remnant of free markets left.  The quality of care in the U.S. tends to be much better.  I think one advantage of the Canadian system is that, because of the lack of quality and high wait times, people avoid doctors more.  This can actually be beneficial as people turn to healthier alternatives for problems instead of just getting a prescription and popping pills.

If you have a small illness, you might be just as well to be in Canada and avoiding the doctors.  If you have an emergency and you need surgery right away, I would much rather be in the U.S.

One other possible advantage of the Canadian healthcare system is that it is easier to start a small business because you don't have to worry about getting health insurance.  In the U.S., health insurance is usually tied to your employer, so many people seek out regular jobs, particularly with bigger companies, just to have the health benefits.  It discourages entrepreneurship.

Of course, the best system is a free market healthcare system.  You could get high quality for low prices and you wouldn't worry about health insurance because it would be so cheap.  Both the U.S. and Canada are very far from this.  The U.S. was a lot closer to this 50 or more years ago.

While it is great for Canada that its government debt has gone down, it is important to remember that spending is still high.  The taxes there are high.  They have to pay income taxes, plus they have a national sales tax (on top of the other sales taxes).

One other thing to note about Canada is that the housing market is out of control in some areas.  I have paid some attention to the housing market in big cities like Toronto and the prices are outrageous.  They might be experiencing a housing boom like the U.S. did, except Canada is five or more years behind.  If that is the case, we can expect a bust soon.

As far as money,  I think the Canadian dollar is a better place to be than the U.S. dollar.  However, we must remember that the Canadian dollar is also a fiat currency, so gold is better than either one.

Regardless of the problems facing Canada, the author of that article has made a great point.  Government spending is not what grows an economy.  The Canadian government has been less reckless, fiscally speaking, and the sky is not falling there.  In fact, things are better there.  The Keynesians should try to explain that.

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