Canada's cold proof
By JOHN R. LOTT
Last Updated: 3:39 AM, July 8, 2011
Posted: 10:37 PM, July 7, 2011
President Obama insists that our sluggish recovery would've been even worse without his $830 billion "stimulus." Last Friday, the White House released a report purportedly showing that passage of the "stimulus" created up to 3.6 million jobs (even though the economy actually lost 1.8 million jobs since then).
But if Obama's program -- including a 28 percent hike in spending since 2008 and more than $4 trillion in deficits -- worked so well, why has our unemployment rate risen more since those policies were adopted than have the rates of the European Union, South America, Japan, Australia or New Zealand?
Just look north: The recession hit Canada hard. Because its economy and ours are connected, our unemployment rates moved similarly from July 2008 until the "stimulus" passed; both countries' rates were 6.1 percent in August 2008 and rose in lockstep through February 2009, to around 8 percent.
But right after Obama's "stimulus," things changed. Canada greatly outperformed America in creating jobs -- supposedly the whole point of the "stimulus." US unemployment shot up to 10.1 percent and stayed high, remaining above 9.5 percent for almost all of the next 18 months. But Canadian unemployment peaked at 8.7 percent in September 2009 and kept falling. While our latest unemployment rate rose again to 9.1 percent, Canada's has fallen to 7.4 percent.
Before the "stimulus," economic forecasters surveyed by The Wall Street Journal predicted that US unemployment would fall to 8.6 percent by December 2009. Instead, the US rate hit 10 percent. In Canada, it was 8.4 percent.
Why did the US and Canadian rates diverge?
Canada adopted a much smaller and quite different "stimulus" program that emphasized cutting tax rates and regulations and that produced dramatically smaller deficits. On a per-capita basis, Canada's stimulus was about a third that of America's, costing $979 per person compared to our $2,730. The conservative Canadian government chose not to introduce any big programs.
Obama, meanwhile, adopted big-ticket Keynesian programs, believing that government spending for its own sake creates wealth. But Democratic emphasis on "green" energy, government-approved investments and technology and higher salaries for public-school teachers merely moved money away from where Americans and companies would have otherwise spent it.
Obama's stimulus also raised the effective marginal tax rates that some individuals face, discouraging work; Canada, by contrast, cut some marginal rates. Obama kept the corporate tax rate stuck at 35 percent, while Canadians cut their corresponding rate from 21 percent in 2007 to 16.5 percent this year -- with a further cut to 15 percent planned for next year. By last year, Canada had the lowest overall tax rate on business investment of any major industrialized country.
Yes, as often happens during recessions, Canada's revenues fell and its deficit grew. But US net debt as share of GDP will almost double from 2008 to 2012 -- rising from 48 to 81 percent. Canada's net debt will rise by slightly more than 13 points, from 22.4 to 35.8 percent.
Of course, there are other differences in the Canadian and US economies, such as different monetary policies and all the US regulations that forced mortgage companies to make loans that they expected to lose money on. But it is hard to see how those would cause the sudden change in the fortunes of our two economies right after the "stimulus" passed.
Sadly, the effect of Obama's "stimulus" could easily have been foreseen by looking at how labor markets worked. By moving huge amounts of money from one industry to another, the stimulus and all the regulatory changes churned the labor market, and since it takes time for people to move from one job to another, it actually created more unemployment.
Blaming President Bush, as Obama has, just doesn't explain why our economy got worse relative to other countries -- after the current president's policies were adopted.
Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/canada_cold_proof_jQnxmxq2SuhxFdTQuELiQJ#ixzz1RYSd8FNG
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