A few reasons why Canada’s economy is better than the U.S. economy

The United States has long prided itself as being a global superpower, and consequently, celebrating all the things that come with that title. Which is namely, being able to claim you’re the best at most things.
But it looks like Canada can now confidently say it is finally better than the U.S. at one thing (besides winning gold medal Olympic hockey games): economic management.
On Monday, the LA Times ran a piece on why Canada’s economy is defying the nearly ubiquitous trends of economic malaise afflicting the developed world. And it explains why the U.S. is still struggling to recover from the global recession while Canada has almost shrugged off its effects.
“We did a lot of things right going into the financial crisis,” Glen Hodgson, senior vice president at the Conference Board of Canada, told the Times.

It all started in the 1990s, when Canada could have easily been a contemporary member of Europe’s “PIIGS” — an acronym referring to Portugal, Italy, Ireland, Greece and Spain, countries with bloated debts and sputtering economies. Canada too had a bloated debt in the early ‘90s. It also faced credit rating cuts across the board, and saw borrowing costs spike as a result.
But Canada responded with deep spending cuts to fix what many economists saw as a ticking economic time bomb. The federal government introduced harsh austerity measures that every Canadian felt — social programs were gutted, civil service pay was cut — as Canada attempted to decrease its massive 70% debt-to-GDP ratio.
In the end, after slowed growth and thousands of lost jobs, it worked. By 2008, Canada went into the global recession with a debt-to-GDP ration of just under 20%.
That meant Canada was better prepared than the rest of the developed world to face the effects of the recession. This year, for example, the country’s fiscal deficit is forecasted be $33 billion, well below the 3%-of-GDP threshold that economists consider manageable. Compare that to the U.S.’s 9.2%.
But that’s not the only thing Canada has done better than the U.S. The Times for instance points out that Canada’s banks were heralded as beacons of stability after the collapse of Lehman Brothers and the start of the credit crisis in 2008. Banks here are relatively conservative compared to their American counterparts — exposure to sub-prime loans was low and home equity lines, which contributed to the credit crisis in the U.S., are recent offerings in Canada.
Another interesting facet of Canada’s economic success is attributed to the handling of immigration. The Times says that while Canada admits 60% of its immigrants as “economic immigrants” — that is skilled workers, entrepreneurs and investors — only one in seven such immigrants to the U.S. match that criteria.
And that might not change anytime soon. Because illegal immigration is such a dominating topic in the U.S., making changes to the country’s immigration system tend to take a back seat in policy discussion. That means Washington will likely continue to emphasize bringing in family members of current immigrants over targeting highly-skilled workers. Which is simply counter-intuitive, since such people are so crucial to today’s knowledge-based economy.
So will the U.S. wake up and adopt Canada’s best practices? Although all of the above issues have been discussed (and extensively debated) in Congress, it seems unlikely. The immigration issue doesn’t look like it will be tackled anytime soon, considering Arizona’s new immigrant law has pushed illegal immigration to the forefront now more than ever before. Meanwhile, austerity measures haven’t gained much traction in the U.S., and banking reform faces significant opposition in Congress.
Whatever the U.S. ends up doing, one thing is for certain: when it comes to economic management, Canada reigns supreme. And that doesn’t look like it will change anytime soon.
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