The Super of the Super Powers

Over at Bloomberg View, Noah Smith cites the possibility that Canada has the ability to be the next great superpower., given its natural resources, political institutions and immigration system, if only Canada had a larger population. He does however, paint a rosy picture of the political economy of Canada that was spot on 8 years ago, but doesn’t really apply to today’s changes.

There is no question that Canadian institutions show the best of the British system. However, some of the corruption in Canada since the conservative government has taken over has lead to institution-rattling scandals. First is the Canadian Senate debacle, which has lead to calls for the complete abolishment of a branch of government by the minority power, because of its level of corruption. Next is the fact that members of the Prime Minister’s staff have been convicted of election fraud (a.k.a. the Robocalling scandal). Next is the strong smell of unrefrigerated fish wafting out of the Prime Minster’s office every time a flock of cabinet ministers resign.

The National Observer ran this article addressing the question whether or not the current Prime Minister of Canada is the worst ever, because of his direct attacks on the institution democracy itself.

That being said, (and, to his credit, as Noah Smith pointed out to me) it still shows strength in the institutions comparatively with the United States, who has yet to prosecute a single election fraud, and a congress that spends more by lunchtime than what the Canadian Senate is being grilled over.

The typical American view on Canadian immigration however, is rosy by any time standard. People do not automatically get immigration because they marry a Canadian, and they can’t just hang out in the backwoods if they don’t. Yes there is a foreign skilled worker program that assures permanent residency for highly educated people based on a point system, but people with Ph.D.s from western universities who are fluent in both English and French (the official Canadian languages) typically do not have enough points to qualify. There is also a special provision in NAFTA for university professors (with Ph.D.s) from the United States who want to teach in Canada, but even they do not seem to have enough “points.” The point system is a recent policy, and surely the kinks are still being worked out. However, there seems to be (according to press reports) a lot of unemployed Ph.D. immigrants in Toronto, and as a result, points for a Ph.D. alone have been reduced, regardless of which University it came from.

There is a system in place where if you spend 2 years at a Canadian University working on a Ph.D., you can apply to sponsor yourself for immigration, but this is a largely untested area of the law, as international Ph.D. students typically get no funding (unless they’re married to a Canadian).

Certainly the institutions are there to make Canada a super power. It’s important to accentuate the positive in the changing political landscape. Of course Universal health care is positive. A child tax credit that is paid monthly, instead of on April 15th, because Canada realized that children need to eat year-round, and not just once per year. The result has been a much lower child poverty rate, without the need of special programs like SNAP (in the U.S.). Children also have 13 grades, with the last year of high school being the equivalent of the Freshman year of college taking General Education courses. The result is a much more educated populous compared to the U.S. which translates into greater socioeconomic mobility.

These positive policies translate into Canada having 82% of the GDP per capita of the United States while only having 10% of the population and 10% of the GDP of the United States.

fredgraph

This is where the strength of the intuitions argument comes from. And it is quite impressive without even looking at Gini coefficients or asking inequality questions.

As I’ve pointed out here, and here, there are pitfalls. The Bank of Canada has lowered interest rates close to zero at a time when the rest of the world is thinking of raising interest rates. The Bank of Canada is setting itself up for a liquidity trap, when the rest of the world is wondering how the United States is going to get out of theirs. The reason for the interest rate drop is largely to offset its net export losses from oil in the face of an absent fiscal policy. Sound familiar? The only thing missing from this monetary policy picture is Quantitative Easing. That may be coming to a Canadian Bank near you!

Canada is also in the middle of a debt bubble, which I point out here. However, Canada has a lower sovereign debt-to-GDP ratio than the U.S., so theoretically they can add more debt in response to a bubble bursting.

debt

Canada is also tied to its own currency, so the only real question in addressing a bubble is: will there be a time when the rest of the world does not want to buy Canadian Sovereign Debt? With the level of natural resources, and most of its net exports going to the United States and Europe, the answer is likely that Canadian sovereign debt will not go bad anytime soon.

In the final analysis, Noah Smith is right. Canada COULD be a superpower, but not because of needed population expansion. Canada COULD be a superpower simply because the institutions and policies are already in place to make it one, regardless of its population. The only question is will they survive the onslaught of dismantling that’s been going on in Canada for the past 8 years.

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This entry was posted in Economics, Macroeconomics, Political Economy, Politics, Public Policy. Bookmark the permalink.

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