Canadians vote their wallets

From the “be careful what you wish for” files come the 2011 federal elections in Canada, triggered in March  when the Liberals, the socialist-leaning NDP, and the separatist Bloc Quebecois found the Conservative government of Stephen Harper to be in contempt of Parliament.

The Harper government aims to continue the two-decade-long trend in Canada – unknown to most Americans – to reduce government spending and taxes. As economist Brian Wesbury has noted, “In Canada, total government spending fell from 53.3% of GDP in 1992 to 39.2% in 2007. Since then, stimulus spending boosted it to 43.8%, but the trend is down, not up. At the same time, tax rates have continued to fall. Corporate tax rates were cut from 21% in 2006 to 19.5% in 2008, 19% in 2009 and then 18% this year. The GST (a national sales tax) was cut from 6% to 5% in 2008.”

During the same time, US government spending as a percentage of GDP ranged between 37% and 32.5% before exploding to nearly 42% in 2009 and 40% in 2010. The key is not as much the absolute values as the trend, showing investors and employers what the future is likely to be. Canada is offering a pro-growth vision while the US, under both George W. Bush and Barack Obama, is offering a big government vision to be paid for by higher taxes now or later.

One politically important economic data point – perhaps the most important – is unemployment.  Canadian unemployment in March was 7.7%, down from 9.5% a year ago, and well below the 8.8% unemployment rate last reported by the US Department of Labor. (US Data for April will be released on Friday morning.) Prior to 2007, Canadian unemployment had been consistently higher than US unemployment, though narrowing the gap: In January, 1995, the Canadian unemployment rate was 4 percent higher than the US’s rate. By January, 2001, it had narrowed to below 3%, and then to 0.7% by 2007. By the second quarter of 2008, the Canadian unemployment rate was below the US’s rate.

Given that people vote their wallets and that Canadians are far more aware of what’s going on in the US than we are aware of our neighbor to the north, the push for elections by the minority parties seems ill-considered. In hindsight, it obviously was.

In Monday’s election, the Harper conservatives picked up 24 seats to reach 167 seats, giving them an outright majority in the Canadian parliament. The long-ruling Liberal party won only 34 seats, the fewest seats in its history, including losing the seat held by the party leader who then resigned that leadership post. The socialist-leaning New Democrat Party (NDP) picked up an enormous 66 seats to reach 102, making them by far the largest opposition party.

The dynamics are an interesting parallel to the US where those promoting limited government and low taxes are gaining and maintain support whereas the non-conservative sector of politics drifts further to the left. In the US, “blue dog” Democrats were wiped out in the last election, leaving a Democratic Party even more left wing than it had been before, even if with much less power. At the same time, the NDP’s gain was the Liberals’ loss in Canada, as well as a big loss for the separatist Bloc Quebecois, moving the political opposition further to the left which is perhaps a benefit for the now-majority conservative government. That said, the NDP politicians aren’t stupid and will probably move to the center in a bid to appear as a legitimate and credible opposition party. (It’s not entirely surprising to see support for the essentially socialist NDP from the essentially French province of Quebec.)

The next couple of years in Canada will offer an instructive example to Americans who have been behind Canada in the historical progression of socialism leading to its own destruction.  Canada did 20 years ago what Obama is trying to do now. They learned their lesson and have successfully turned toward limiting the scope and cost of government. Many other countries have learned the same lesson. It’s only American liberals who haven’t.

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