Oh, Canada. We have much to learn from your economy. Or so goes a spate of recent reporting on how the Canadian economy weathered the Great Recession far better than its southern neighbor.
The nation avoided the subprime disaster. Unemployment has fallen below 8 percent. A stronger recovery is helping shrink the federal deficit. On the eve of the G 20 summit in Toronto, the Associated Press wrote, “Canada thinks it can teach the world a thing or two about dodging financial meltdowns.”
Well, yes and no. The chief lessons are ones that American policy makers won’t apply. For example, Canada’s banking system is more effectively regulated and lacks the risky too big to fail Financial Doomsday Machine that triggered the great recession. Corporations in general have less political control in Canada. It has less government debt — lacking the expense of big tax cuts for the rich or the $1 trillion (so far) “war on terror” — and is generally less leveraged. Canada has publicly funded health care, making it more competitive and enhancing its human capital advantage.
Canada’s economy is less “financialized” and more balanced. So it’s not surprising that it would better weather a recession cooked up in American financial houses. Canada is also resource-rich, and such nations have generally turned in better performance thanks to the developing world’s continuing appetite for such commodities. Yet although Canada is a critical trading partner for the United States (and Washington state), it’s also a much less populated nation (34 million vs. more than 300 million).
Interestingly, Moody’s Economy.com predicts that, “even a mild double-dip recession in the U.S. would not likely sink Canada’s recovery. Under the most likely scenario, a second downturn in the U.S. would follow the withdrawal of government stimulus, before the private sector can gear up to power expansion. While this would negatively affect Canadian exports, the broader impact would likely be limited.”
Today’s Econ Haiku:
Euro bank stress tests?
We Yanks are on a treadmill
Hope it stays level