In the 1980’s, the world was infatuated with Japan. Its economy was on fire and was projected to overtake the USA as the world’s number one economy by the year 2000. That came to a grinding halt in the 1990’s as the Japanese stock market collapsed and economic growth there ground to a halt. What followed was called the “lost decade”. Japan has never recovered from the promise of the 1980s. Canada is now facing its own lost decade. Can we recover?
Let’s do a quick review of the lack of progress since 2015.
Wealthiest Middle Class In The World (Used To Be)
In 2014, the New York Times published an article that opened “The Canadian middle class may now be the world’s richest”. The outlook for Canada was rosy, with its abundance of natural resources, its strong and ethical immigration system, rising economic standards, solid government financing, and falling crime rates. Canada in 2014, was the envy of the world, just like Japan was in the 1980s.
Since that time, we have seen per capita GDP grind to a complete halt. According to the World Bank, Canadian real GDP per capita rose by just 2.9% in the last 8 years (or 0.37% per year) from US$43,635 to US$44,910, while in the USA, real GDP per capita went from $52,266 to $59,836, or 12.65% (or 1.58% per year). That means that in 2014, GDP per capita was 22% higher in the USA and by 2022 was 35% higher, or that the US per capita economy grew at a staggering 4.3 times faster than Canada. During that time, real wages have remained completely flat in Canada, even starting to fall this past two years as inflation takes off and wages remain static. According to the OECD, the prospects for per capita growth the next few decades are among the worst in the developed world.
Decline of the Auto Sector
In 2014, Canada produced vehicles, falling by 49% to only 1.23 million vehicles in 2022. In the same time period, American car production fell too, but only by 14% from 11.66 million, to 10.01 million.
Increase in Government Debt
In 2015, Canada was the envy of the developed world with regards to its Federal Government Debt – which totalled only 35% of the GDP. Since that time, it has risen from $659 billion to – or 59% of GDP.
It is not the actual level of debt that is concerning, it is the impact it has had on inflation in Canada, particularly asset inflation/housing. Perhaps too much emphasis is placed on Consumer Price Inflation, and not enough on asset inflation. In the past 8 years, we have seen consumer prices rise by 25%, while the average price of a home in Canada has risen by a staggering 87.6% to $750,000. Even if we discount the increase in house prices by the CPI, this means an average “real” increase was 50%. As pointed out, wages and production have not increased in the last 8 years, which means it is increasingly difficult or impossible for young people to afford to buy homes, particularly single-family dwellings, which is where young families prefer to raise their families.
Increase in Civil Servants
Despite the lack of economic progress by Canada, the number of Federal Civil Servants rose by 100,213 from 257,034 to 357,247, or 38.9%. This year alone, it has increased by 21,290 people.
Crime Rates Sky Rocket
Crime rates had fallen steadily from the 1990s, and were at record lows in 2013 and 2014. Since then, according to Stats Canada, violent crime has increased by a staggering 40% across Canada.
Lack of Progress on the Environment
From an economic point of view, we have made no progress. We have seen a massive rise in the cost of government. We have seen a doubling of Federal Government debt and an 87.6% rise in house prices. This is a lost decade economically, but surely, we have made progress on the environment?
Progressives often suggest that there is a trade-off between economic growth and the environment. They constantly talk about putting a price on pollution, rather than improving technology, as the way to reduce pollution. Consider, the disputable view that carbon dioxide is pollution. Greenhouse Gas Emissions have risen by 5% in Canada in the last 8 years, but they have fallen by 7% in the same period in the USA where they don’t have a carbon tax. If you believe co2 levels need to be reduced (many don’t) we seem to be having the worst of both worlds, a very sluggish economy, with falling living standards, as well as rising levels of carbon dioxide.
There are two years of the present federal government left to run, until an election is called. There are absolutely no policies being discussed which will lift the country out of the economic stagnation that it currently finds itself in. The role of government is not to simply act as Robin Hood – and take money from the rich and give to the poor. They also have a role in facilitating the growth in the economy.
This decade we have failed miserably on this front. Let’s hope we can start to recover in the next decade.
Randy Boldt is a Senior Fellow at Frontier Centre for Public Policy.