The Canadian Model

To circle back to the most pressing topic of the day: S&P may be nitwits but their downgrade of our debt was utterly correct. We have not made any real inroads on our staggering debt load, the hysterics over the debt ceiling not withstanding. Until we address entitlements, we’re not serious. The S&P downgrade is not some esoteric financialspeak that has no relevance to us. It’s the canary in the coal mine: the warning that we’re heading toward very serious problems.

But the WaPo makes a good point this morning. If we want to get out of this, we should be more like Canada. Seriously:

A quick Canadian history lesson: in the early 1990s, things were looking pretty grim. The country had regularly run fiscal deficits since the 1960s. In 1993, stood out among the G-7 as having the most foreign indebtedness. As one analyst noted, “From the beginning of 1990 to the end of 1993, Canada experienced a long slide in economy activity and employment.” The country lost its AAA rating in 1993. Feel familiar?

Facing an unprecedented fiscal crisis, Canada got down to work. The country passed a landmark budget in 1995. The plan tilted heavily towards cutting expenditures but also included some new revenue (the ratio was about $7 in cuts for every $1 of revenue). Canada cut the civil service by about 25 percent and overhauled its pension program. The plan worked. Canada is now on much more financially-sound footing; S&P restored its AAA rating in 2002. The turnaround is now referred to, in some economic literature, as “The Maple Leaf Miracle.”

The heavy ratio of spending cuts to tax increases was because Canada had high taxes to begin with. But they are not alone in restoring their debt rating this way. Australia, Denmark, Finland and Sweden also restored their ratings. They got there in different ways but they all had something in common: they didn’t stick their thumbs up their asses and wait for the problem to solve itself. Restoring the debt rating wasn’t the goal, per se. But it was a useful harbinger of their overall finances. When S&P upgraded them, it was a sign that things were finally under control.

We’re not serious yet. Despite Obama’s supposed overtures on the subject, his party remains diametrically opposed to entitlement reforms (Pelosi has made it clear she will oppose any “grand bargain”). Last night’s GOP debate saw all the candidates oppose a theoretical 10-to-1 cuts to tax hikes deal. The so-called “Super-Committee” is being rigged for failure.

I don’t know what it will take for us to follow Canada into serious reform. Maybe another downgrade or stock market crash. But we can’t put with this shit any longer. We can’t afford to.

Comments are closed.

  1. AlexInCT

    Yeah, let’s trust these losers now in power to actually take tax revenue and apply it, with cuts to the bloated massive system that gives both them and their ideology power, to reducing the staggering debt we have racked up trying to make government the big provider of everything, because the Candains did it. I am sure these guys will do it too…..

    Massive cuts of the big beast first, and when those are done and lcoked in, then we can add tax revenue to pay off debt. People employed at the grace of government largesse with tax payer money might not like this, but this is the only way we should go if we want these polciticians to do the work that needs to be done. Pretending they will suddenly act responsible now, when they have so far proven they have no interest in doing so, and in fact have made it quite obvious they feel they should actually be spending a lot more and growing even bigger, even as we stare at the abyss, is not just insane, it smacks of desperation, and frankly, stupidity.

    Here is a revelation for you Hal: I wouldn’t even trust the republicans to responsibly enact tax hikes and apply it to paying off debt, despite the Tea Party pressure to do so, when they claim some fictitous cuts where passed, cuts that won’t happen until a decade from now, if ever, and I certainly am not insane enough to let it happen while democrats have the final say.

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  2. Rann

    The issue with raising taxes is that no one who’s not simply wanting to punish the rich for being rich is going to buy that we need increased taxes unless the spending cuts come first, and are extreme.

    Our government wastes an inordinate amount of the tax money they already take in. Until they cut a large amount of that waste, the question is going to be “Why do you need more of my money? If you stopped spending it on stuff that doesn’t matter, wouldn’t the amount of money you’re taking from me already go further?”

    I cannot condone new taxes, no matter the supposed justification for them, until the government can prove it’s got its wasteful spending under control. Because right now it doesn’t need that extra revenue, it “needs” the extra revenue. Those in favor of raising taxes make it out as if our government has to have them like a man on his third day stranded in the Sahara needs water, when from all appearances it has to have them like a fifteen-year-old “needs” that new issue of Playboy with the actress he adores in it.

    When a significant amount of fat has been trimmed… and I mean actually significant, not just “We’ll very very slightly decrease the increase of our spending”… and we’re still coming up short, then and only then will I agree that tax increases are justified and necessary. Until then, they’re “justified” and “necessary”.

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  3. Rann

    Actually, you know what? Here’s a thought. Just top of my head. Something that would really motivate the people in charge of federal spending to get it under control.

    Anyone ever watch Kitchen Nightmares, or Restaurant: Impossible? (Basically the same show anyway, if you’ve watched either one you get the gist.) You constantly see these failing restaurants that are spending more than they’re taking in. One of the things the owner almost always says is “I haven’t paid myself in (a year or more)”, because that money is being spent to keep the place open, pay the bills, pay the employees, and so on.

    So how’s this for a “balanced budget amendment” idea… if Congress can’t balance the budget, then Congress (and the President) forfeit their paychecks until the budget is balanced. If this doesn’t worry them, we need to start asking why. If their answer to balancing the budget is always “raise taxes”, we’ll start seeing far less double-digit term serving congresspeople.

    In any other business, the person ultimately responsible for managing the money is, or should be, the first to stop drawing pay when things go into the red. Congress handles our budget, when our budget goes into the red, cut off their pay.

    We’ll either get a better and more equitable balanced budget, or we’ll send things hurtling towards revolution much faster. As Gomez said, “Either way, what bliss.”

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  4. Mississippi Yankee

    Sarkozy was in meetings with Merkel yesterday as S&P indicated France may be the next domino to receive a AA+ rating.

    How many countries can Germany bailout before the EU finally succumbs?

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