Last Chance for the U.S. Economy!

by John Brian Shannon

This blog examines Canada‘s debt and deficit-cutting success of the 1990’s and early 2000’s which improved Canada’s credit rating, lowered borrowing costs for the government and when combined with a new 7% nation-wide Goods and Services tax (1990) allowed many job-creation projects to be funded which lessened the blow of the government’s (then) austerity program.

Read “How Canada Cut Its Deficits and Debt” — by former Prime Minister of Canada Paul Martin (prior to that he was Finance Minister) who famously took Canada from second-worst among the G-7 countries to the most stable economic performer in only a few short years. The above link takes you to a downloadable PDF document. It is a must-read for students of macroeconomics.

Paul Martin, 21st Prime Minister of Canada
Paul Martin, 21st Prime Minister of Canada (Photo credit: Wikipedia)

The Fiscal Turnaround

“When the Liberal Party took office, Canada’s deficit and debt were by far the worst among the G-7 but for one, and our level of foreign debt was the highest of the industrial world. Indeed, the Wall Street Journal had publicly dubbed Canada all but bankrupt. Four years later, our debt-to-GDP ratio was dropping like a stone. Our financial record was second to none and Canada’s deficit was no more.” — Paul Martin quote in The Magazine of International Economic Policy — The International Economy.

Many American friends of mine, are asking how the U.S. can solve its massive U.S. deficit and debt problems — problems which seem almost as insurmountable as going to the Moon was viewed in the early 1960’s.

The fact is, these problems have been solved in Canada and they can be solved in the United States. What has been lacking up until now, has been the will to act. Once elected, leaders who are empowered by their electorate to slay the twin dragons of debt and deficit could do so relatively quickly.

Some final advice from the Right Honourable Paul Martin former Prime Minister of Canada, the man most directly responsible for solving Canada’s historic debt and toxic deficit problem.

“The final lesson I would draw is that if deficit reduction is to be a priority, then it has to be a “national” priority.

When Canada’s debt ratio hit 70 percent, it was assumed by most economists that we had crossed the tipping point. The United States is there now, and the IMF projects that within eight years it will hit 115 percent. [!]

These are serious numbers, and yet the so-called deficit debate in the United States is not about the deficit at all. It’s about winners and losers.

One thing to remember from the Canadian experience it is that for deficit cleansing to succeed, there can be no winners while most people are losing. If deficit reduction is to gain public support, it requires a united effort—in other words, it must be a truly national exercise.” — Paul Martin quote in The Magazine of International Economic Policy — The International Economy.

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2 thoughts on “Last Chance for the U.S. Economy!

  1. Philip Williams November 6, 2012 / 13:10

    I assume Mr. Martin gives some credit to Canada being an exporter of oil and natural gas, and the price of oil quadrupling during the period of time in question.

  2. John Brian Shannon November 9, 2012 / 17:29

    Hi Philip,

    Thank you for your comment. Although the amount of exploration, extraction, refining, domestic sales and exports of petroleum and gas did see some gains during this period, it is primarily investors and corporations which see the high profits from price increases.

    The government’s take has stayed relatively the same for the past 30 years at $7.00 – 11.00 per barrel which is measured at the wellhead.

    The variance of the price depends upon the quality of the oil, ie: sour crude/medium crude/heavy crude.

    To summarize, while the broader oil industry dramatically increased profits, the government’s take was about the same, or only a little better, in terms of revenue.

    What also must be factored in to this equation, whenever there is an expansion by industry, national infrastructure costs for the government increase. This could mean anything up to and far surpassing the huge upgrade to the Fort MacMurray highway, airport, West Coast port facilities and other national infrastructure upgrades.

    This press release (one of many such infrastructure spending programs, over the years) by the Canadian Government details only 12 billion dollars of upgrades — around and on account of Fort McMurray oil industry needs:

    This article deals with the road transportation problems and solutions regarding oil industry expansion in the area:

    And, this one deals with a $198 million dollar airport expansion:

    This eye-opener covers the decades-long growth in the region and the decades-long federal government subsidies to local governments to cover the costs of all that capacity-building at the Alberta oil sands:

    Thank you for taking the time to comment! JBS

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