"Both Parties seem to be infected with, among other maladies, an acute case of Not Invented Here-itis…."
David Hay, Chief Investment Officer of Evergreen Capital Management
I have endeavored to bring a new twist to each topic as I write this almost weekly blog. However, this week I feel compelled to bring you the writings of other bloggers more famous than I (which is almost everyone).
Among my readings is a weekly newsletter published by John Mauldin. He is a conservative economist with a compelling writing style, making complex concepts digestible for the lay reader. Last week’s letter from Mr. Mauldin incorporated a letter from his colleague, the Chief Investment Officer of Evergreen Capital Management, David Hay. My blog today will provide you with a link to Mauldin’s letter. So, technically we have a blog within a blog within a blog. To read it, click HERE.
Here are a few teasers. Did you know that our northern neighbor, Canada, was in worse fiscal shape than we are in the mid-1990’s? Did you know that they have now produced 11 years of balanced budgets? Neither did I. What was I doing in 1995 when the Wall Street Journal declared that Canada had become “an honorary member of the Third World in the unmanageability of its debt problem”? Who knows? I only know I wasn’t watching when they began a remarkable turnaround. How bad was it?
The Canadian dollar was known as either the “Loonie” after the bird on its dollar coin or the “Northern Peso”.
The government accounted for 53% of the country’s GDP.
Government debt was 120% of GDP or about twice the level of the US today.
The Canadian turnaround is perhaps the most remarkable economic achievement of any industrial economy since WWII. The new Canadian budget reduced spending by 8.8% over two years while reducing federal employment by 14%. Corporate tax rates were reduced by roughly 30%. Personal income and capital gains taxes were cut and a Value Added Tax (VAT) was implemented to cover the revenue lost by other tax reductions.
What were the results? Drum roll please…. The federal budget was balanced within three years and federal debt dropped to 45% of GDP.
Admittedly, there a few salient points missing from Hay’s summary. Canada fixed its problems during a booming decade for the global economy. And, they were aided by the passage of NAFTA which resulted in US car companies moving much of their production to Canada. They did so because the Canadian taxpayer picked up the tab for healthcare. They are still the country from whom we import the most goods and services (not China). Exporting economies have much less to worry about than importers like the US.
Still, when you look at what they have accomplished compared to our own domestic quagmire, you have to ask, WHO WILL LEAD?