Fantasizing about Austerity
Those on the left continue to fantasize about what austerity is. There are only two reasonable ways of defining austerity: (1) a reduction in government spending as a percentage of the economy; and/or (2) a reduction in per capita government spending in real dollar terms. As I've described in American Thinker before, Canada did undergo austerity between 1993 and 2006. This period of Canadian austerity resulted in a massive reduction in government debt and per capita government expenditures, an equally large reduction in the unemployment rate, and a much faster rise in per capita GDP than had occurred in higher spending times. Strangely enough, this all occurred under a liberal government having a moderately fiscally conservative finance minister. Since 2006, Canada has been governed by the so-called Conservative Party -- a government that, despite its name, is neither fiscally nor socially conservative.
In the Huffington Post on August 15, Nick Fillmore made some ridiculous assertions, such as the following:
"The exceedingly aggressive austerity cuts carried out by Prime Minister Stephen Harper and Finance Minister Jim Flaherty over the past seven years have come home to roost."
As with far too many claims by the big government spending proponents, the facts don't match up with their desires.
Since 2006, Canada's total government expenditures as a percentage of GDP have increased from 38.8% to 40.8%. Since coming to office in 2009, Obama has increased the USA's expenditures to a far lesser degree (from 39.2% of GDP in 2008 to 39.5% in 2013) than has Canada (from 39.0% of GDP in 2008 to 40.8% in 2013). If Obama is outperforming you in terms of minimizing government spending increases, you are not a fiscally conservative government.
More to the point, Canada's per capita general government total expenditures in constant 2005 international dollars on a purchasing power parity (PPP) basis increased by more than 6% from $13,879 in 2006 to $14,723 in 2013. This range represents the highest levels in Canadian history. Clearly not austerity, especially since Obama has only increased per capita general government total expenditures by 2.7% since taking power, whereas Canada's Conservative Party has increased spending by 5.0% during this period.
The lack of fiscal austerity in Canada is reflected by its poor economic performance. Since 2006, Canada's per capita GDP-PPP in constant 2005 dollars has only increased by 0.6%. The corresponding OECD average was a 1.3% increase (both for the general membership, and among high-income OECD members). Even the EU outperformed Canada, with a 1.0% increase.
In the time Obama has been in office, the USA's constant dollar per capita GDP-PPP has not changed (0.0% difference between 2008 and 2012). Canada's performance during Obama's administration? The exact same, a 0.0% change. Once again, as bad as Obama's economic performance is, Canada's has been just as bad. In 2006, Canada's unemployment rate was 6.3%. In 2013, it is up to 7.3%. Since 2009, the USA's unemployment rate has dropped by 1.6% to 7.7%. Canada's rate dropped only 1.0% to 7.3%.
Real per capita personal disposable income increased by only 1.7% in Canada between 2009 and 2011 (the latest year for which data is available). The comparative increase in the USA under Obama was 2.0%.
This isn't an advocation for liberal policies, rather a repudiation of them. As I've shown before, Obama's economic performance relative to Reagan and all other presidents since Kennedy has been dismal. Similarly, the Canadian Conservative Party has been anything but "conservative" on most issues -- government spending being most notable. In fact, the current government in Canada has been far less fiscally conservative than its liberal predecessor, and more analogous to the Obama regime. And, as expected, Canada's economy over the past few years is about as bad as -- if not worse than -- the USA under Obama.
Like liberals, the Canadian Conservative Party is increasing social expenditures. When the Conservative Party took over in 2006, social expenditures as a percentage of GDP were at 16.9%. In 2012, they hit 19.3%. Compare that to a country such as Australia, which managed to not increase social expenditures over this timeframe (and hold them at lower levels than Canada), or countries such as Germany, Hungary, Iceland, Israel, Sweden, and Switzerland, which actually reduced social expenditures by significant margins.
How much the OECD nations have increased social expenditures over the past several decades is shocking. In 1980, the OECD average for this spending category was 15.7% of GDP. By 2012, it was 22.1%. The USA increased from 13.2% to 19.5% (with -- of course -- a small decline during Reagan's terms that was offset by large increases from Bush 41, Bush 43, and Obama). Canada increased from 13.7% to 19.3%, with the only period of decline being during the Canadian austerity period from 1993 to 2006, where social expenditures fell from a peak of 21.0% in 1992 to 16.9% in 2006, after reaching a low of 16.5% in 2000. Every other Canadian government -- including Mulroney's oxymoronically named Progressive Conservative Party that held office from 1984 to 1993 -- dramatically increased social expenditures.
The cause of Canada's recent poor economic performance isn't due to austerity -- as Fillmore erroneously claims -- it is due to the lack of austerity. We ran the austerity experiment in Canada from 1993 to 2006, and its economic success was unequivocal. Although per capita government expenditures in real dollar terms are declining slowly in both Canada and the USA from their recessionary peaks of 2010 and 2009, respectively, the spending levels are still far above pre-recessionary levels and they need to be reduced more dramatically. It is the only way to kick-start our anemic economies.