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Notes -
Canada’s decline
Things are not going well in Canada. The hashtag #Canadaisbroken has been going around for a while, but the scale of the decline remains underdiscussed, especially in our media. Canada’s real GDP per capita is 2.5% lower now than it was in 2019. In the U.S. its 6.0% higher. For decades, Canada has had per capita GDP (adjusted for purchasing power) that was about 80% of the U.S. level, now its 72% and falling. Canada is rapidly becoming a European country in terms of living standards. This understates the problem because in Europe its easier to live on less: cars are not necessary in many places and, crucially, rent is much lower. Canada is in the midst of an unbelievable housing crisis. At current prices and interest rates, the ownership costs of a typical home would consume 60% of the median household's income, the highest ever recorded. I went to the U.S. southwest recently and my overriding impression is how much better off America is than Canada now.
The Liberal government’s response to this has been deficit spending. Their lack of fiscal responsibility was dramatic during Covid, but hidden under the guise of emergency they spent $200+ billion on new entitlements and spending programs which has resulted in Canada running a permanent structural budget deficit. When combined with our provinces (which unlike U.S. states are allowed to borrow) and measured as a % of GDP, the country is running Bush Jr.-tier fiscal deficits without wars. And what are these new programs? Almost all of them are means-tested benefits for behaviours progressives like. A new daycare program aimed at moms working 9-5 jobs (i.e. white collar) that does nothing for SAHMs, a dental care program which is only for families making under 90k (creating a huge marriage penalty and implicit tax rate), a carbon tax rebate which is income redistribution in disguise, replacing the modest but universal child benefit with a generous means tested one, etc. If you put it together, Canada has largely rebuilt our 1970s welfare state but will claw it back from you more than dollar for dollar as you earn more. We variously incentivize poverty and moms to work, stay unmarried and put their kids in daycare. Our taxes are high.
The other big push from our government is immigration. They occasionally frame it as a way to stop inflation, but usually they don’t defend it at all and assume the pro-immigration consensus is unshakable. The levels were shocking last year, but they keep rising. Over just the past 3 months, Canada admitted 430,000 new people. Canada now has an absolute annual level of legal immigration (including temporary migration) of about 1.2 million -- higher than the United States. We get about 500,000 traditional immigrants, but the big change from recent years is about 700,000 net “non-permanent residents” who form a new helot class. Canada now has 2.5 million temporary residents who come to study or work low-paid jobs and it has rapidly transformed the entire country. These people represent 6% of the population, but because they are highly concentrated by age, they are about 20% of adults aged 20-40. I spend time in a small town that is hundreds of kilometers from any major city and nearly every store now employs temporary foreign workers from India. Every worker at McDonalds. Every worker at Tim Hortons. They live 6+ to an apartment and have tightened the rental market pricing locals out. With population growth running at its highest ever pace, homebuilding is unchanged at about 250,000 units creating an incremental housing need of a quarter million units per year. Rent inflation is over 7% compared with approximately 0% month over month in the US.
What the past few years has made plain to me is how deep leftism runs in Canada and how dedicated it is to ignoring the effect of incentives on behaviour: We can just subsidize bad behaviour and punish good behaviour endlessly without actually changing behaviour. In many ways Canada is running on the fumes of vestigial British earnestness, politeness and self discipline which has made this work in the past, but I think we’re rapidly burning up our cultural capital and once its gone, I think we’ll tip into a much worse equilibrium. I have leftist friends whose perspective is: “sure things aren’t great, but would the conservatives do better?” which makes me sad. For most people, even smart people like my friends, seeing the bad consequences of things they support doesn’t move the needle at all in terms of their worldviews. And I didn’t get into spiraling crime and government celebration of the deracination of our traditional culture.
I think part of what is happening is Anglo culture’s seemliness has become our greatest weakness. Its unseemly to ‘punch down’ and blame an avalanche of mostly-poor international students for the rental market, or permissive and ‘anti-racist’ criminal justice policy for a huge increase in crime so we equivocate and people say things like “its so brutal, how sad” while continuing to vote in the same way. There is no transmission from failure in office to electoral results, so we end up with people like Trudeau for three terms. One astute observation I’ve heard about Canadian ‘niceness’ is that its fake: people are very cagey about saying what they think in public about anything controversial. Our entire country is a university campus. Canadians live in a world of feel good pablum as our way of life is destroyed. People rage about it, but there is no honest sensemaking apparatus in Canada – because talking about things plainly is unseemly – so rage is dissipated randomly. Even today, even after its failures, the combined polling share of the LPC-led ruling coalition (i.e. LPC+NDP) is nearly 50%.
Let me simplify a lot of the change in relative incomes.
Big tech platform rents largely flow to the US in terms of jobs, dividends, capital gains, and taxation.
I don’t know how to quantify this but it’s the big difference going on. And Canada was too small of a market to scale big tech so the US was always going to take this market.
Some of the other stuff you say has an effect. It would be nice if someone smarter than me could do all the analytics to quantify the advantage of America being the big tech ecosystem. It’s obviously a big fucking deal for the last 5-10 years of economics.
That can't explain why the US has had such a good recovery from the pandemic while Canada hasn't. Big tech is the only industry that has had mass layoffs while the rest of the US economy has been booming since the pandemic. The increase in wages has mostly gone to low skilled workers.
We didn’t do nearly as much as other places did which makes it far easier to get back to normal functioning.
Why would that mean the GDP growth rate would be higher? I would expect the opposite: if you shut down more of your economy, you get more growth when you start things up again.
Because it still takes some time to get things back up and running. You don’t store materials on hand to ramp back up immediately, and therefore you need to order them, but that company may have shut down as well and has nothing to sell until their suppliers mine the raw materials to use. The problem of shutting down a just-in-time logistics system is that there’s no slack in the system to hold reserves of unsold goods. If I can’t sell it, I won’t make it, and if the guy supply the inputs can’t sell them he won’t have any on hand, and so on. Starting back up takes longer.
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Isn’t that just baumol costs disease? Highly paid professionals can afford a lot of service sector people therefore bidding up their price?
I would say there are other factors going on too but big tech rents flow into the US and has been a huge change since 2012.
Commodities also have been mostly down since 2018 which would have a disproportionate effect on Canada.
Canadá likely has higher IQ than the US which actually makes them at 72% of US income even more impressive. Though our top .5% are likely far smarter than their top .5% the overall average likely favors Canada.
That's not what Baumol cost disease is, but in any case, no, service sector workers' wages have gone up while professionals' salaries have not.
That could have something to do with it. The last time our economy really did well was during the 2000s commodity boom.
Big tech profits are still up even if employee wages are less. The money is flowing somewhere.
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I greatly doubt this. Tons of middle-American states have much, much higher per capita GDPs than Canada. Nebraska and North Dakota isn't wealthy because of big tech.
It doesn’t matter. There’s an interesting question about why even boring, blue chip, nothing-to-do-with-tech US corporations trade at much higher multiples than similar businesses in other Western countries and in large part it’s because the entire market does, which in turn is because big tech does. The volume of wealth created in San Francisco inevitably trickles down to the rest of the country. Many people in Nebraska still have their pensions / retirement savings in the stock market, and pay even in parts of the US that aren’t booming is affected by the fact that workers can move to the parts that are and make a certain amount, driving up salaries across the board. FAANG software engineer pay really did drive up US engineering pay even for roles unrelated to big tech, which is why American programmers make 3x what their equivalents do in Western Europe even though the US is only ~50% richer. Just as several of the railroad booms in the 19th century lifted all tides, so too did what happened in tech from 2010 onward lead to huge global dollar inflows into the US economy, higher pay, higher consumption and higher growth built on rapidly rising prices for almost every asset class.
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How big of a deal is this really? I'd be hard-pressed to figure out how much of America's economic advantage over other nations was due to big tech, but we can compare San Francisco to neighboring cities with less tech. That city does seem more prosperous than the typical Californian city, but not overly so.
It effects fiscal policy capacity too which helps all of America. I’m not saying all of Canadas decline is related to this but some of it.
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