Canada's basket case moment:
But to win its budget wars, Canada first had to realize how dire its situation was and then dramatically shrink the size of government rather than just limit the pace of spending growth
AM: How did we do it? 7:1 spending cut/tax hike. And: "the next minister to ask for funding gets his budget cut by 20 percent." I guess that's the benefit of having a benign dictatorship. Still, the lesson is that the U.S. needs austerity, not growth-killing tax hikes.
Also, Canada was hurting in a time where the U.S. and Asian growth were on the rise. The dollar was weak, and we had a newish added tax called the GST. The situation is very different today, as they cannot grow themselves out of this problem. Likely, they will wait too long to react appropriately, and all hell will break lose. However, I do believe a value added tax may not be so harmful for growth. Besides, I'm not sure they have a choice. Gov't will need to shrink and taxes will go up, something many won't be able to stomach. Regardless, both WILL happen once the severity of the problem is realised.
ReplyDeleteVery true. But there was the Mexican peso crisis in 1994; the Asian financial crisis in 1997 etc.. anyway, point taken, strong growth in the U.S and we just signed NAFTA. A key difference between Canada and the U.S. seems to be the political systems, and most importantly, the weakness of Parliament compared to Congress. No matter which way the U.S ultimately decides to go, it seems like the political situation is too fractured and divided to gain a consensus.
ReplyDelete