OPINION:
It’s hard to find good economic news anywhere in the West. The Greeks are rioting, the Irish economy is in a tailspin. As the most recent dip in confidence index numbers show, American business leaders don’t like where we’re headed, either. Yet there is one country where the unemployment rate actually fell last month: Canada. Its 7.4 percent unemployment rate reflects huge private-sector job gains consolidated over the past year. That’s surprising from a nation with a big-government reputation.
As a recent Mercatus Center study showed, Canada set about fixing its fiscal house many years ago. The first order of business was trimming government spending, which was accomplished without triggering unemployment or requiring massive cuts in entitlements. These repairs allowed the country to weather this most recent global downturn with minimal stress. It’s not too late for America to learn from our neighbor to the north.
Back in 1994, Canada’s public debt to gross-domestic-product ratio was approximately 67 percent, just a little higher that the current figure for the United States, which was 62 percent at the end of 2010. Things are so out of control that the U.S. figure is projected to hit the danger level of 90 percent within the decade. Canada’s debt to gross domestic product (GDP) ratio fell to a low of 29 percent in 2009 before increasing slightly to 33 percent in 2010 - still about half of the current American level.
Former Prime Minister Jean Chretien started making spending cuts a priority and his Conservative Party successor, Stephen Harper, has continued the policy. At the federal level, Canada’s outlays dropped from almost 18 percent of GDP in 1993 to about 13 percent in 2009. At the same time, unemployment in Canada fell from double digits to a low of 6 percent in 2007. It’s simply not true that government spending is needed for job creation. The Mercatus study noted the United States experienced something similar following World War II, when both government spending and unemployment fell - yet the White House stubbornly clings to the Keynesian myth that this is an impossibility.
Canada’s policies have been far from perfect. Its leaders hiked some taxes, but they eventually came to their senses and started reforming the tax system by slashing corporate rates. At 15 percent, the Canadian federal corporate tax rate is almost 25 points lower than America’s, which is the worst among developed nations. Most provincial tax rates have also been trimmed significantly up there.
Today, despite the global downturn, Canada has an economy that is creating jobs, with a government that is not crowding out private investment as it borrows to finance its own spending, and a social security system that is fully solvent. The lesson is clear. Spending cuts work. Tax cuts work. They can make the economy grow, they can create jobs. Increasing the size of government is not the answer. Borrowing, spending and raising taxes will not help get the economy on a growth path.
Washington tried the government stimulus route, and it failed spectacularly, leaving us with an extra trillion in debt and fewer jobs. It’s time to try something that has actually worked. It’s time for America to be more like Canada.
Nita Ghei is a contributing Opinion writer for The Washington Times.
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