Tuesday, August 21, 2012

Conservatives Suggest we Should Emulate Canada

At least some conservatives have been suggesting that we should look north of the border for a model of fiscal down-sizing.  This is fascinating given that Canada’s spending has always been greater than ours as a share of GDP and they offer a much more expansive social safety net–most notably, “socialized medicine” available to all Canadians with no out-of-pocket payment responsibilities by patients.
For example, the American Enterprise Institute is sponsoring an event on September 18 titled “Fiscal sanity and political success: Canada proves you can have it all.” Here is their summary:
In the 1990s, Canada suffered from the same economic malaise that plagues the U.S. today: slow economic growth, heavy government spending and a rising national debt. Canada’s remarkable turnaround relied relatively little on raising taxes; instead, federal program spending was cut by nearly 10 percent over a two-year period to restore its budget to balance. Its federal government also devolved greater responsibility to provincial governments, leading to a decade of strong growth in employment, gross domestic product and investments. Despite the political challenges of reform, the governments responsible were consistently re-elected both federally and provincially.
To say that the causes of Canada’s debt problems in the 1990s and ours now have similar origins is at best disingenuous.  In the mid-1990s, the world economy was booming, whereas the recent run-up in debt has come during a massive economic recession.  Canada’s deficits reflected simple political failure to face fiscal constraints whereas our current deficits are largely the consequence of what most economists would view as a necessary response to the recession.  Indeed, we were reducing deficits in the 1990s –through a mixture of spending cuts, higher taxes, and the economic boom–at the same time that Canada was adopting their vaunted fiscal adjustments.
And Canada’s spending at all levels of government in the early 1990s was around 50 percent of GDP.  Ours was around 36 percent before the Great Recession.  (I’m citing OECD numbers, which are somewhat higher than the official US statistics, so as to allow comparison between the two countries. Kathy Ruffing of Center on Budget and Policy Priorities cogently explicates the differences here.)
You may be surprised to know that Canada’s spending, which some conservatives are now citing as a model of government efficiency, is still higher than spending in the US (measured as a share of GDP) and likely to remain so for the foreseeable future. This raises the question of whether conservatives would be happier with the size of our public sector if we’d only started with a much higher base level of spending.
The idea that devolving spending to lower levels of government (provinces in Canada, state and local governments in the US) represents fiscal constraint also strikes me as very odd, although it is clearly part of the US conservatives’ plan to fix our budget problems. Paul Ryan’s budget would shift a large and growing share of government spending onto the states over time–by block-granting Medicaid, for example. There are arguments for and against devolution (the main argument for is that lower levels of government may be more responsive to constituents; the main argument against is that states can’t support an adequate social safety net because high-income taxpayers will flee to lower-tax/lower-service jurisdictions), but the mere act of shifting spending from federal to lower levels of government does not make government smaller.
One way that Canada does appear to be the model of efficiency is in the provision of healthcare.  Canada spends about 11 percent of GDP on healthcare whereas US spending is about 18 percent for far less than universal coverage. (Source: Worldbank)  Although I’m not aware of conservative endorsement for the Canadian version of socialized medicine as a cure for our fiscal woes, GOP presidential candidate Mitt Romney did seem to endorse the Israeli model during his recent visit there.
When our health care costs are completely out of control. Do you realize what health care spending is as a percentage of the GDP in Israel? 8 percent. You spend 8 percent of GDP on health care. And you’re a pretty healthy nation. We spend 18 percent of our GDP on health care. 10 percentage points more. That gap, that 10 percent cost, let me compare that with the size of our military. Our military budget is 4 percent. Our gap with Israel is 10 points of GDP. We have to find ways, not just to provide health care to more people, but to find ways to finally manage our health care costs.
Maybe the divide between conservatives and liberals is smaller than we imagine.
(I know this isn’t true, but sometimes there are these tantalizing hints of reasonableness before the orthodoxy vigilantes intervene.)
Follow me on twitter.

1 comment:

  1. This is very good news to know "Canada spending more than 11% in their GDP"...

    Medicare Missouri