David R. Henderson  

Canada's Road to Balanced Budgets

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Arnold has commented on Tyler Cowen's post on the steps the Canadian government took in the 1990s to reduce budget deficits and turn them into surpluses. The government did it mainly with reductions in the growth of government spending and secondarily with tax increases. I have three comments on the Canadian situation and on the related issue of the Tea Party.

1. I disagree with Arnold that the Canadian case has much to do with what he calls "with less social distance between elites and mass." I grew up in Canada and my rough recollection is that the social distance between most of the rest of country and Ottawa (with Ottawa as a proxy for the elite) is about the same as the social distance between the rest of the U.S. and D.C. (with D.C. as a proxy for the elite.) Granted that I was 21 when I left Canada and there's a lot I didn't know but when I go back--and I do so every summer--I don't see a big difference in that respect between Canada and the U.S.

2. One irony not noted by Tyler is that one of the main people responsible for turning around Canada's dismal fiscal situation, Finance Minister Paul Martin, is the son of one of the main people responsible for causing it, Paul Martin, Minister of National Health and Welfare from 1946 to 1957 under Prime Minister Louis St. Laurent. Martin pere is sometimes referred to as the "father of Medicare" because he nationalized hospital insurance in the 1950s. (Martin fils, by the way, was a lousy PM but a very good FM.)

3. One of the commenters on Arnold's post said that on Econlog, he had not read anything positive about the Tea Party by anyone but Arnold. I would refer him to my post on the Tea Party event of April 15, 2009. I posted on April 17, 2009. This year, like last year, I was the only one who showed up with an antiwar sign. The difference was that this year I learned from commenter RL on last year's post. Rather than saying, "End the War," it said, "End the Wars."


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CATEGORIES: Fiscal Policy



COMMENTS (13 to date)
Matt C writes:

I'm pleased to be corrected. If I read you right, you attended again this year. Care to comment on how this year compared to last year?

RL writes:

David,

You're too kind. I'm confident that now that your sign has been corrected, it is only a matter of time until the now clarified position is instantiated. :-)

RL

David R. Henderson writes:

@RL
Good one. :-) But we've go to try.

@Matt C.
Mainly differences on the margin. Fewer kids, defined as people under age 13. Same turnout in total. The crowd was relaxed. One guy came along and used the "f" word a lot (no, not "fascism;" the other "f" word) and asked if any of us had any lines that we hadn't heard from Sean Hannity. I worked my way toward him to show him my sign but he got involved talking to others. What impressed me most was the good humor of the 10 or so people who tried to engage him. They tried to explain what they stood for, but that made him madder. They laughed gently and I'm not even sure it was sarcastic. Managed to get only one person wondering about my views on war and had a nice talk with her.
Oh, one other thing. A young girl with a ring in her nose who had a "Don't support them; deport them" sign about immigrants.

David Baskin writes:

In the 1993 Federal Election, the then Progressive Conservative Party lost 151 of its 153 seats, the most resounding defeat in Canadian history. The Liberals had a huge mandate, and critically, in the Parliamentary system, could pass the needed legislation simply by having a majority of seats. No need to reconcile House and Senate, no need to worry about super majorities; just announce the budget and have an up or down vote.

Paul Martin was the best Finance Minister in the post second world war period but equally as important, the Government sold the public on the notion that deficits and growing national debt were bad. This was a huge about-face from the earlier Trudeau government which did more than Paul's dad to run the federal government off the road.

Canadians like their health care and believe that they are entitled to their entitlements, but they overwhelming do not believe in the tooth fairy. They know things have to be paid for. This is the most important difference on the two sides of the 49th parallel.

David R. Henderson writes:

@Matt C.
One other thing. Way fewer American flags. Way more "Don't Tread on Me" flags.

Steve writes:

If it were me, instead of "End the Wars" it would be "End the Unauthorized Military Interventions."

To me, it's not a war if Congress doesn't declare it. If it's not worth Congress' attention, it's definitely not worth sending our young men and women to die (not to mention the inhabitants of the foreign countries that we invade whose lives are ruined or ended).

Mike Moffatt writes:

"In the 1993 Federal Election, the then Progressive Conservative Party lost 151 of its 153 seats, the most resounding defeat in Canadian history. The Liberals had a huge mandate, and critically, in the Parliamentary system, could pass the needed legislation simply by having a majority of seats."

But remember - the Liberals never campaigned on a platform of fiscal responsibility in 1993. Their campaign was focused on items like eliminating the GST.

The PCs had imploded and the NDP didn't fare much better (from 40+ seats to 9), so the Liberals only had two competitors - Reform in Western Canada and the Bloc in Quebec.

The Liberals were concerned that Reform would start to make inroads into Ontario (they won one seat there - Ed Harper's in Simcoe), so they started to target Reform by stealing some of their better ideas (note: I was in my late teens then, doing some volunteer work for the PCs). Reform pushed really hard for deficit reductio - in particular Preston Manning, Stephen Harper, Herb Grubel and Keith Martin. That, along with threats that Canada's bond rating would be reduced, gave Paul Martin all the incentive he needed. The Liberals budgets of 1995-1997 were practically written by Preston Manning. Martin also got a lot of help from a strengthening economy, Mulroney's GST, and a declining Canadian dollar.

'Nixon going to China' is a decent way of understanding the period in Canada.

Rob Matthews writes:

I disagree with David on the relative distance between the masses and the respective national capitals. My sense is that whereas many middle class Canadians have made at least one trip to Ottawa or perhaps expect to the Americans that I meet on a regular basis in North Dakota and Minnesota have little or no familiarity with Washington as a city. But then again, Canadians seem to be more familiar with the far flung reaches of their country than perhaps Americans do of theirs. Rob Matthews, Winnipeg.

Mike Moffatt writes:

RE: Rob's comments.

Remember that in Canada, we also have from the West the feeling that 'the election is already decided before we even get to vote' meme. My family is from Sask. and I hear that all the time. The Government of Canada even changed the time they release voting results, in an attempt to 'correct' the problem!

floccina writes:

Is the USA different in that the dollar is the most important currency in the world and so we can afford to run deficits bigger and longer?

Joshua Herring writes:

@Rob:

Second Mike Moffatt's point about western alienation.

I don't buy familiarity with the capitol city qua city as a proxy for familiarity with national politics. However, there is one sense in which national politics is more salient in Canada and that's the transparency of the transfer payments. The US has the same thing de facto, of course, in the form of government agency grants - which definitely go to the states out of proportion to their population and size of tax base - but it's easier to keep up with when it's only 10 provinces (plus 3 underpopulated territories) and One Province in Particular gets more than its fair share as a bribe for playing Federation. I think the trick here is that most people live in Ontario and Quebec. If you're from anywhere else, there's a fair amount of resentment of the setup.

Would just like to add, re the Cowen/Kling issue about whether the elite is trusted (Cowen) and trustworthy (Kling) that the Sponsorship Scandal affected precisely the government that brought the budgetary turnaround. It's probably not that Canadians are more trusting of their government, just more apathetic about changing it.

TangoMan writes:

. They know things have to be paid for. This is the most important difference on the two sides of the 49th parallel.

Actually, a stronger case can be made for the proposition that the most important difference has to do with sense of community and the willingness to sacrifice for the community at the expense of the individual. Sure, Canada has the Two Solitudes issue that is, by now, actually part of their national identity, but the values in most of Canada were more tightly shared than the values we see in the US. In the US we have far greater racial diversity, greater cultural diversity, and the English-Hispanic dynamic hasn't yet settled into the same accepted stasis as Canada's English-French dynamic.

Cultures with a higher sense of shared values find it easier to legitimize a social welfare state - compare Sweden to the US. If one side a coin can be described as sharing benefits the other side of the coin can be described as sharing sacrifice.

In short, look at Robert Putnam's work and you see that the negative consequences of diversity fall more on the US than they do on Canada, at least at the time of Martin's budget cutting.

saintsimon writes:

As a fellow Canadian glad to see someone correcting misconceptions in the MR post. Canadians may be more open to gov't interference than Americans but to spin this as 'trust' is wrong - it's more about cultural traits of moderation and reasonableness - the dynamics of Canadian politics and culture tend to reward and promote moderation - whereas in America the political process seems increasingly at the mercy of ideological extremes - Hillary was punished by uber-liberals for not being progressive enough, McCain likewise by deep reds for being too willing to lean a little left - both candidates would have appealed to Canadians for those very reasons. Again, much of this has to do with culture - and much has to do with realities of the Canadian system, namely idiosyncratic voter bases in Quebec and Ontario and the West and the fact that extreme left wingers get siphoned off by marginal parties in a multi-party system.

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