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Posts Tagged ‘Canada’

Back in February, I said Australia probably was the country most likely to survive and prosper as much of the world suffered fiscal collapse and social chaos.

In hindsight, I probably should have mentioned Canada as an option, in part because of pro-growth reforms in the past two decades that have significantly reduced the burden of government spending.

And I’ve already acknowledged that Canada has passed the United States in the Economic Freedom of the World rankings.

So I guess I shouldn’t be too surprised to learn that the most economically free state in North America isn’t a state. It’s a Canadian province. Here’s a map from a new report showing how sub-national jurisdictions rate for economic freedom.

Economic Freedom NA Map

And here’s the ranking for economic freedom in states and provinces. As you can see, Alberta and Saskatchewan are in the top two spots, followed by the American states of Delaware, Texas, and Nevada.

Interestingly, Canadian provinces also held the bottom two slots, with Prince Edward Island being last and Nova Scotia second to last. The worst American states are New Mexico, West Virginia, and Mississippi.

Economic Freedom North America

But the previous table looks at the combined impact of national and sub-national government policies.

If you look at the policies that sub-national governments actually control, the rankings change a bit. Alberta still comes in first place, but Saskatchewan plummets.

Meanwhile, the best American state is South Dakota, followed by Tennessee, Delaware, and Texas.

Economic Freedom States + Provinces

Canadian provinces dominate the bottom of the rankings, with Quebec coming in last place (too many language police?).

The worst American state is New York, which isn’t a big surprise. And since Vermont was the top state in the Moocher Index, it’s also hardly a shock that it’s the next worst state.

One pattern you may have noticed is that American states without income taxes tend to be near the top of the list.

So does this mean that I’ve changed my mind and I’ll escape to Alberta when a future President Elizabeth Warren destroys America? Mehh….it’s still too cold for my tastes. Freedom is important, but I want someplace where I can play softball more than two months per year.

P.S. As this joke indicates, American leftists used to think about escaping to Canada. Times sure have changed.

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I’ve generally said nice things about Canada on this blog.

Our neighbors to the north have been role models on how to fulfill my Golden Rule, imposing genuine fiscal restraint during the 1990s. The Canadians even privatized their air traffic control system, which is a lot more than can be said for the United States.

But this doesn’t mean Canadian politicians and bureaucrats are immune from senseless decisions and hypocritical venality. I’ve shared stories about the Quebec language police and also nominated a Canadian politician for a hypocrite-of-the-year award.

Now we have a new story from Canada. It reminds me of what happened recently in Washington, where a man was fined $1,000 for saving a child from a pack of pit bulls.

In Canada, a kid was scolded for saving another child from a knife-wielding bully. I’m not joking. Here are some of the details from Canada’s National Post.

ODonnellMacLean1.jpg

Kid got scolded for acting bravely while government officials failed to maintain order

Briar MacLean was sitting in class during a study period Tuesday, the teacher was on the other side of the room and, as Grade 7 bullies are wont to do, one kid started harassing another. …“He put him in a headlock, and I saw that.” He added he didn’t see the knife, but “I heard the flick, and I heard them say there was a knife.” …The rest was just instinct. Briar stepped up to defend his classmate, pushing the knife-wielding bully away. The teacher took notice, the principal was summoned and Briar went about his day. It wasn’t until fourth period everything went haywire. “I got called to the office and I wasn’t able to leave until the end of the day,” he said. That’s when Leah O’Donnell, Briar’s mother, received a call from the vice-principal.

Was the vice-principal calling to praise Briar, and perhaps also to tell his mother that he would be given some sort of commendation?

Don’t be silly. We’re talking about officials from a government school.

Ms. O’Donnell was politely informed the school did not “condone heroics,” she said. Instead, Briar should have found a teacher to handle the situation. “I asked: ‘In the time it would have taken him to go get a teacher, could that kid’s throat have been slit?’ She said yes, but that’s beside the point. That we ‘don’t condone heroics in this school.’ ” Instead of getting a pat on the back for his bravery, Briar was made to feel as if he had done something terribly wrong.

No good deed goes unpunished.

I don’t know if this story – and the others – are enough to qualify Canada to participate in the US-vs-UK government stupidity contest, but surely this merits an honorable mention trophy.

I’m baffled, by the way, about the teacher’s actions. Was he or she so clueless that a kid could be put in a headlock – without the incident being noticed – during class?!?

Though at least the kid with a knife was suspended (the same penalty dished out to little kids with breakfast pastries, pencils, fingers, and empty hands in the United States, so that doesn’t reflect well on America).

P.S. Canadians do have a sense of humor, as indicated by this parody about leftists sneaking across the border.

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A recurring feature on this blog is the US vs UK government stupidity contest, which features examples of idiotic behavior by politicians and bureaucrats on both sides of the Atlantic.

Recent winners of this dubious honor include a rather amazing example of British road painting and a horrid incident of anti-gun political correctness by American school bureaucrats.

Our neighbors to the north must be envious that they’re not part of this contest. Based on what just happened in Quebec, Canada probably deserves to be in the conversation.

Mon Dieu!

First some background, courtesy of a story from the Guardian. It seems that the provincial government actually has language police.

They are known as the language police, a unit within the regional Quebec government that seeks to protect French from the rising tide of English. It deploys inspectors to rein in recidivist anglophones, take on big corporate transgressors such as Guess, the Gap and Costco and conduct spot checks to follow up thousands of public complaints.

But sometimes, these tax-funded Keystone Cops go too far.

Le Crime

Now, however, zealots in the Office québécois de la langue française (Quebec Board of the French Language) may have gone a step too far in picking a fight with an Italian restaurant… After a five-month investigation into an anonymous complaint, Massimo Lecas received a letter from the board telling him that his establishment, Buonanotte, had broken the law by including the words “pasta” on the menu and “bottiglia“, the Italian word for bottle, instead of the French word bouteille. Outraged, Lecas posted the letter for 2,500 of his Facebook friends to see. In doing so, he unleashed a political tempest over one of the most sensitive topics up for debate in the province. The outcry has forced the Quebec government to rein in its language inspectors, ensure exceptions to the rules are made for ethnic food and restaurant menus and order a review of how it handles public complaints.

Job security

By the way, this is not an isolated incident.

Lecas’s decision to go public with the letter from the language inspector has prompted other restaurateurs to come forward. One told how he was ordered to cover his microwave’s on/off switch and the redial button on a telephone with tape because they were in English. The chef’s grocery list, which was written on a kitchen chalkboard, was also found to have broken the law: steak frites may be a staple of Parisian bistros but, according to Quebec law, biftek is the only acceptable term. …Quebec’s recent budget included one notable increase: the yearly allotment for the language police.

So Canada definitely can make a claim that it belongs in the government stupidity contest. Though, to be fair, I should acknowledge that other governments also merit consideration.

  1. In Germany, the government misplaced the sensitive blueprints of its new $2.3 billion spy headquarters.
  2. In Italy, the government of supposed technocratic experts managed to appoint the wrong person to a job that shouldn’t exist.
  3. In the European Union, watching free soccer broadcasts is now a human right.
  4. In Greece, bureaucrats actually demand stool samples from entrepreneurs applying to set up online companies.

The moral of the story is that government – in all nations – is a festering black hole of waste. And if you ever feel that these incompetent and foolish people deserve more of our money, then I suggest you move to France, where the nation’s President generously has promised that nobody will have to surrender more than 80 percent of their income to the government.

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In this appearance on Canadian TV, I  debunk anti-sequester hysteria, pointing out that “automatic budget cuts” merely restrain government so that it grows $2.4 trillion over the next 10 years rather than $2.5 trillion.

I also point out that we shouldn’t worry about government employees getting a slight haircut since federal bureaucrats are overcompensated. Moreover, I warn that some agencies may deliberately try to inconvenience people in an attempt to extort more tax revenue.

But I think the most important point in the interview was the discussion of what happened in Canada in the 1990s.

This example is important because the Obama White House is making the Keynesian argument that a smaller burden of government spending somehow will translate into less growth and fewer jobs.

Nobody should believe them, of course, since they used this same discredited theory to justify the so-called stimulus and all their predictions were wildly wrong.

But the failed 2009 stimulus showed the bad things that happen when government spending rises. Maybe the big spenders want us to think the relationship doesn’t hold when government gets put on a diet?

Well, here’s some data from the International Monetary Fund showing that the Canadian economy enjoyed very strong growth when policymakers imposed a near-freeze on government outlays between 1992 and 1997.

Canada - Less Spending = More Growth

For more information on this remarkable period of fiscal restraint, as well as evidence of what happened in other nations that curtailed government spending, here’s a video with lots of additional information.

By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts.

The result? Growth has recovered and these nations are doing much better than the European countries that decided that big tax hikes and/or Keynesian spending binges were the right approach.

Paul Krugman, not surprisingly, got this wrong.

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Back in 2010, I wrote about the Free State Project, which is based on the idea that libertarians should all move to New Hampshire and turn the state into a free market experiment.

I was impressed when I spoke at one of their conferences and gave them a plug, but more recently I’m running into people who are so discouraged about America’s fiscal outlook that they’re thinking of moving to some other nation.

Wealthy people seem to prefer Switzerland and the Cayman Islands, while middle-class people mostly talk about Australia and Latin America (mainly Costa Rica or Panama).

But maybe Canada is the place to go. It’s now the 5th-freest economy in the world, while the United States has dropped to 18th place.

I’m a big fan of Canada’s fiscal reforms. On several occasions, I’ve explained how Canadian lawmakers boosted economic and fiscal performance by restraining the growth of government spending.

Indeed, Canada is my main example when I explain why the United States should follow my Golden Rule of fiscal policy.

By allowing the private sector to grow faster than the government, Canada has also been able to implement big tax cuts. Heck, they even privatized their air traffic control system.

Canada’s reforms got some positive attention in today’s Wall Street Journal from Mary Anastasia O’Grady.

Former Canadian Prime Minister Paul Martin has a stern warning for the U.S. political class: Get real about the gap between federal revenues and spending, or get ready for disaster. Mr. Martin knows of what he speaks. In 1993, when he was Canada’s finance minister, his country faced a daunting fiscal crisis. …When the Liberal Party government of Prime Minister Jean Chrétien took power in October 1993, Mr. Martin was charged with pulling his nation out of the fiscal death spiral. He did it with deep cuts in federal spending over two years that amounted to 10% of the budget, excluding interest costs. Nothing was spared. Even federal transfers to the provinces to fund Canada’s sacred national health-care system got hit. The federal government also cut and block-granted money for welfare programs to the provinces, giving them almost full control over how the money would be spent. In the 1997 election, the Liberals increased their majority in parliament. The Chrétien government followed with tax cuts starting in 1998 and one of the largest tax cuts—both corporate and personal—in the history of the country in 2000. The Liberals won again in 2000.

In the U.S., by contrast, we’ve degenerated to the point where the central bank is now financing a disturbingly large share of the deficit.

 Market discipline doesn’t exist in Washington, which has the “privilege” of an accommodating central bank issuing the world’s reserve currency. The big spenders don’t need to pay attention to pesky numbers. …the Fed bought 77% of all new federal debt last year. It is doing so at rock-bottom interest rates. By holding the short-term fed-funds rate low while it buys up long-term securities, Mr. Bernanke is helping our political class ignore the real cost of rising federal indebtedness.

This doesn’t mean we’re at near-term risk of becoming another Argentina or Zimbabwe, but I definitely don’t like the trend. No wonder the Canadian dollar is now stronger than the dollar.

But that’s a separate issue. This post is mostly about fiscal policy and Canada’s outlook.

In the short run, Canada’s a good bet. Reforms have been implemented, and they happened under a left-of-center government and have been continued more recently by a right-of-center government.

We’ve had bipartisanship in the United States as well, but the wrong kind. For the past 12 years, we’ve endured big spenders from both parties. No wonder Canada now ranks higher.

In the long run, though, I’m not sure Canada’s the right choice. I joke about the cold weather, but I’m more concerned about the fact that the burden of government spending remains too high, consuming about 42 percent of economic output. And even though Canada has implemented some pension reforms, it has a government-run healthcare system that will become a greater burden on taxpayers as the population ages.

This doesn’t mean I’m optimistic about the long-run outlook in the United States. Yes, we can fix our fiscal problems if we cap the growth of spending and implement entitlement reform to address the long-run problem, but I’m not holding my breath expecting those policies.

So I’m back to my original plan of finding somebody to give me millions of dollars so I can escape to the Cayman Islands.

P.S. If you’re thinking of sending me a big check, give me some advance notice. To avoid nasty headaches with the IRS, I should go to the Cayman Islands first and then have somebody give me millions of dollars.

P.P.S. On a more serious note, here’s my video highlighting nations – including Canada – that successfully restrained government spending.

P.P.P.S. The Canadian government also deserves praise for resisting global schemes to raise taxes on the banking sector.

P.P.P.P.S. But there are bad people in Canada, such as the politician who escaped to the U.S. for surgery while leaving ordinary Canadians stuck in long waiting lines.

P.P.P.P.P.S. To close on a light note, here’s a satirical article about American leftists trying to escape to Canada after the 2010 elections.

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Every couple of weeks, I share the best politically oriented one-liners from the late-night comics.

While I enjoy the laughs as much as anybody, there’s a serious point to be made. Politicians deserve mockery.

They are not our “leaders.” They are compulsive narcissists who are trying to compensate for losing student council elections in the 6th grade.

And when they achieve their dreams of wielding power over the rest of us, they routinely engage in corrupt behavior just so they can try to buy our votes in the next election. Using other people’s money, of course.

And because they put themselves about the country 99 percent of the time, they’ve burdened us with reckless and unsustainable entitlement programs that have us on a trajectory for Greek-style fiscal chaos.

So enjoy, but also have scorn.

Jay Leno

  • Federal Reserve Chairman Ben Bernanke told a congressional committee the economic recovery is weakening. But the good news is most Americans will not be affected because they had no idea there was a recovery.
  • Jobless claims rose again by 35,000 last week. Not good. But it does show that if you’re unsuccessful in this country, you didn’t do it on your own. You had help. Thank you, President Obama.
  • Well, President Obama and first lady Michelle went to see the U.S. Olympic basketball team play Brazil the other day. And during the game, they were put on the kiss cam. At first, they didn’t kiss and the crowd booed them. Then the camera went back to them. And they finally did kiss. Isn’t that amazing? A politician in Washington caught on camera kissing a woman he’s actually married to?
  • Romney’s surrogate, John Sununu, he’s in hot water for saying, “I wish President Obama would learn how to be an American.” Well, that’s kind of insulting, isn’t it? President Obama spends money he doesn’t have. He loves to skip work and play golf. He sneaks away from his wife to eat fatty foods. What is more American than that?
  • Ralph Lauren says the uniforms they make for the 2014 Winter Olympics will be made right here in the USA — using our own old-fashioned illegal immigrants.
  • Well, Harry Reid and other members of Congress, they’re just furious over this Olympic uniform deal. He says we should burn the uniforms, and it’s an embarrassment and a disgrace. Not as embarrassing as Congress constantly borrowing money from the Chinese, but still embarrassing.
  • The big news in Washington now is the disappearance of Congressman Jesse Jackson, Jr. Nobody can find him. He’s completely disappeared. People think he’s either in rehab or he might have been given his own show on CNN.
  • I was sweating like Mitt Romney trying to differentiate between Romneycare and Obamacare.
  • There’s talk that if Jennifer Lopez leaves “American Idol” they’re going to bring back Paula Abdul. Insiders say Paula was chosen over Chief Justice John Roberts, who producers felt was too unpredictable.
  • The White House is now urging Americans not to “read too much” into last week’s jobs report. In fact, they said it would be best if you didn’t read it at all.
  • Mitt Romney told the crowd at an NAACP conference that if he were elected president he would fight for all millionaires, black or white.
  • At a Democratic fundraiser in Seattle earlier this week, Vice President Biden said that Romney’s economic policies were “George Bush on steroids” — as opposed to Obama’s policies, which are “Jimmy Carter on Ambien.”
  • In Mexico, the loser of their presidential election is accusing the winner of election fraud. He says the winner bought millions of votes. To which Mitt Romney said, “You can do that?”

David Letterman

  • After years of criticism for his poor record on boosting employment, President Barack Obama is pleased to announce today he created a job. Congratulations to Amelio Markham from Smithsburg, Maryland, on his new job, making charts illustrating President Obama’s downward spiraling approval ratings.
  • Steven Tyler and another of the “American Idol” judges, Jennifer Lopez — fired, gone, they’re not coming back. Well, that’s two more jobs lost under Obama.
  • Wall Street says they prefer Mitt Romney for president. And by God, who could question Wall Street’s judgment?
  • The American League was defeated 8-0. The American League also lost the 2011 All-Star Game as well as the 2010 All-Star Game. Under President Obama, America’s own league is on a losing streak.

Conan

  • According to a new report, the average Canadian is now richer than the average American. This is bad news for Americans and worse news for those Mexicans who now have to tunnel all the way to Canada.

Jimmy Kimmel

  • A new study claims that for the first time ever, Canadians are wealthier than Americans. We are their Mexico now, it turns out.
  •  Over the past five years the value of the Canadian household has risen above the American household. I think most of that came from Justin Bieber and he belongs to us now.
  • Maybe the reason Mitt Romney doesn’t want to release his tax returns is because Mitt Romney is Batman.
  • John Boehner, who is speaker of the House of Representatives, is super tan, he cries, and he drinks. He should be speaker of the “Jersey Shore” house.
  • Mitt Romney gave a speech at the annual NAACP conference in Houston. Why, I don’t know. Maybe he confused NAACP with NASCAR.
  • The event got off to a bad start when Romney pulled up in front of the convention center and he instinctively locked the doors to his limo.

I realize it’s inappropriate to interrupt this string of one-liners with a serious point, but read this if you’re curious why Canadians are now doing so well. To compensate, here’s a joke about American leftists migrating to Canada after the Tea Party election of 2010.

Jimmy Fallon

  • A new CBS poll found that 47 percent of voters are supporting Mitt Romney, while 46 percent support Obama. Well, it makes sense, because if Romney wins, it’s definitely going to be thanks to the one percent.
  • During last night’s USA-Brazil basketball game, President Obama gave Michelle a kiss when they were shown on the kiss cam. That’s cute. It explains why everyone was like, “Quick, put him on the fix the economy cam!”
  • Yesterday in Cincinnati, Jerry Springer announced that he is endorsing Obama. Don’t get too excited. Obama still has to win over Judge Judy and Maury.

Craig Ferguson

  • Batman is a billionaire who doesn’t trust the system to get the job done. He has a butler and an awesome car that gets like two miles to the gallon. He is the most Republican superhero of all time! Batman is a Republican.

You can read more of these amusing jokes, put together by the good folks at Newsmax.com, by looking here, here, here, here, here, herehereherehereherehereherehereherehereherehere, and here.

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I’m not quite ready to trade places with Canada, but it may just be a matter of time. Like Germany and Sweden, they seem to be slowly but surely trying to move in the right direction.

I’ve already commented on good Canadian fiscal policy (including a much-needed lesson for Paul Krugman), and I’ve also praised our northern neighbors for privatizing their air traffic control system and opposing global bank taxes.

But I’ve just been skating along the surface. My Cato colleague Chris Edwards (a Canadian transplant) has just written up a report with some of the key details.

Two decades ago Canada suffered a deep recession and teetered on the brink of a debt crisis caused by rising government spending. The Wall Street Journalsaid that growing debt was making Canada an “honorary member of the third world” with the “northern peso” as its currency. But Canada reversed course and cut spending, balanced its budget, and enacted various pro-market reforms. The economy boomed, unemployment plunged, and the formerly weak Canadian dollar soared to reach parity with the U.S. dollar. …[In] the early 1990s combined federal, provincial, and local spending peaked at more than half of gross domestic product (GDP). In the 1993 elections, Prime Minister Jean Chretien’s Liberals gained power promising fiscal restraint, but this was the party of Trudeau, and so major reforms seemed unlikely. In the first Liberal budget in 1994, Finance Minister Paul Martin provided some modest spending restraint. But in his second budget in 1995, he began serious cutting. In just two years, total noninterest spending fell by 10 percent, which would be like the U.S. Congress chopping $340 billion from this year’s noninterest federal spending of $3.4 trillion. When U.S. policymakers talk about “cutting” spending, they usually mean reducing spending growth rates, but the Canadians actually spent less when they reformed their budget in the 1990s. The Canadian government cut defense, unemployment insurance, transportation, business subsidies, aid to provincial governments, and many other items. After the first two years of cuts, the government held spending growth to about 2 percent for the next three years. With this restraint, federal spending as a share of GDP plunged from 22 percent in 1995 to 17 percent by 2000. The spending share kept falling during the 2000s to reach 15 percent by 2006, which was the lowest level since the 1940s. …The spending reforms of the 1990s allowed the Canadian federal government to balance its budget every year between 1998 and 2008. The government’s debt plunged from 68 percent of GDP in 1995 to just 34 percent today.

Total government spending, including sub-national units such as states and provinces, is still slightly higher in Canada than in the United States. But I suspect that will change within the next five years.

Not surprisingly, good spending policy leads to good tax policy, as Chris explains.

a slimmed-down Canadian government under the Liberals enjoyed large budget surpluses and pursued an array of tax cuts. The Conservatives continued cutting after they assumed power in 2006. During the 2000s the top capital gains tax rate was cut to 14.5 percent, special “capital taxes” on businesses were mainly abolished, income taxes were trimmed, and income tax brackets were fully indexed for inflation. Another reform was the creation of Tax-Free Savings Accounts, which are like Roth IRAs in the United States, except more flexible. The most dramatic cuts were to corporate taxes. The federal corporate tax rate was cut from 29 percent in 2000 to 15 percent in 2012. Most provinces also trimmed their corporate taxes, so that the overall average rate in Canada is just 27 percent today. By contrast, the average U.S. federal-state rate is 40 percent. …Canada’s federal corporate tax rate has been cut from 38 percent in the early 1980s to just 15 percent today. Despite the much lower rate, tax revenues have not declined. Indeed, corporate tax revenues averaged 2.1 percent of GDP during the 1980s and a slightly higher 2.3 percent during the 2000s.

The Laffer Curve effect of higher tax revenue shouldn’t be surprising, though American policymakers still operate in a fantasy world where taxes are assumed to have no impact on the economy and no impact on taxable income.

But that’s a secondary point. The main lesson of this research by Chris is that it is both possible and desirable to shrink the burden of government spending.

And it’s not just Canada that has done the right thing. This video outlines past reforms in Ireland, Slovakia, and New Zealand as well.

P.S. Other than the cold weather, another reason why I don’t quite yet want to trade places with Canada is the government-run healthcare system. Right now, high-ranking politicians from the frozen wastelands can escape to America when they fall ill. If we copy Canada (and we’re already pretty far down that path), then where will we be able to go to get high-quality and cutting-edge care?

P.P.S. The Canadians aren’t know for having a sense of humor, but the person who wrote this parody about emigrating American leftists definitely has a good sense of humor.

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Demonstrating that he’s probably not a fan of Mitchell’s Golden Rule, Paul Krugman recently asserted that fiscal austerity has failed in the United Kingdom.

Citing Keynesian theory and weak economics numbers, he warned about “the austerity doctrine that has dominated elite policy discussion” and says that the British government made a mistake when it decided to “slash spending.”

In support of the New York Times columnist, another blogger commented on the “sharp retrenchment in public spending” in the U.K. And a Bloomberg editorial also supported Krugman’s position, stating that recent events “undermine the conservative idea that slashing government spending will somehow bring about a confidence-driven economic boom.”

There’s only one small, itsy-bitsy, teeny-weeny problem with all of these statements. They’re based on a falsehood. Government spending in the United Kingdom has not been slashed. It hasn’t been retrenched. It hasn’t even been cut.

I first made this point back in 2010. And I also noted that year that the supposedly conservative Chancellor of the Exchequer advocated a big increase in the value-added tax was good since it would generate “13 billion pounds we don’t have to find from extra spending cuts.”

I then repeated myself last year, pointing out once again that government spending was expanding rather than shrinking.

To be fair, spending hasn’t been growing as fast in the past couple of years as it did last decade. According to European Union data, government spending in the United Kingdom grew by an average of 7.6 percent each year between 2000-2008, so the recent annual increases of 2 percent-4 percent may seem frugal by comparison.

But at the risk of stating the obvious, slower spending increases are not budget cuts. Unless, of course, proponents of big government decide to use the dishonest political definition that spending is cut when the budget doesn’t increase as fast as previously planned. But if that’s the case, then they are turning Keynesian economics into a political gimmick.

Not only haven’t there been any spending cuts in recent years, but it also appears that there won’t be any in future years. The Centre for Policy Studies just put out a report comparing “austerity” in the United Kingdom today with the fiscal discipline that took place in Canada during the 1990s.

As seen in the table, and as I noted in a previous post, Canada actually reduced spending.

In the United Kingdom, by contrast, spending has been climbing. And that’s projected to happen even in future years.

To be sure, spending in the U.K. won’t grow very fast (assuming the government sticks to its plans, which may be an unrealistic assumption).

But spending that grows slowly is not austerity or retrenchment.

Which is unfortunate, because that’s precisely what is needed in the United Kingdom. And the Canadian experience shows how genuine fiscal restraint generates big benefits.

Let’s also look at some more information from the CPS report.

The Canada of 1994 in many ways resembled the Greece of today. …Spending was to fall 8.8% over two years. Large cuts in transportation, industry, regional development, and scientific support were made. The size of the federal government was to decline from 16.2% of GDP in 1994 to 13.1% in 1996. Public-sector employment was to fall by 14%. The new discipline paid off quickly. Federal government spending as a share of the economy fell more rapidly than planned. Provincial government spending also decreased significantly from 25% of GDP to 20%. …Ottawa offered a historic deal to the provincial governments: unprecedented freedom to make their own welfare policies. This was localism in action – and it unleashed a wave of fruitful experimentation and innovation in the provinces, while spending was cut at the national level. The results were stunning. Large numbers of Canadians, previously trapped in poorly designed benefit programmes, returned to the workforce. By 2000, the number of welfare beneficiaries in Canada had declined by more than a million people, from 10.7% in 1994 of the population to 5.1% in 2009. …Cuts  ranged  from  5%  to 65% of departmental budgets and included cuts to health budgets. In the end, programme spending (everything except interest payments on the debt) fell by 9.7% in nominal terms (or C$11.9 billion) between 1994-95 and 1996-97.

So what were the results of this fiscal discipline? Let’s go back to the report.

Fast-forward again to 2007, and Canada seemed to be back on track. The country’s economy grew at an average rate of 3.3% between 1997 and 2007, the highest average growth among the G-7 countries, including the US. Canada’s job-creation record was nothing short of stellar. From 1997 to 2007, Canada’s average employment growth was 2.1%, doubling that of the US and exceeding employment growth in all other G-7 countries. Perhaps most importantly for future economic prosperity, during the same period Canada outperformed the G-7 average almost every year on business investment. …Canada weathered the recent recession  better than its G-7 partners. … None of Canada’s major financial institutions had to be bailed out

And this also was a period of tax cuts.

…coupled with stronger economic performance than expected, meant Ottawa could then cut taxes, including personal and corporate income taxes, capital gains taxes, and the corporate capital tax. In this period:

  • Corporate Income Tax (federal) was reduced from 28% to 21% with further cuts planned;
  • Capital Gains Tax were reduced to 14.5%;
  • Personal Income Tax rates were finally indexed to inflation;
  • Federal capital taxes were abolished.

It certainly seems that genuine fiscal restraint worked in Canada.

To be fair, though, Krugman isn’t arguing against small government in his column. He’s arguing for short-run Keynesian stimulus policy. And it’s possible to be in favor of more spending in the short run and smaller government in the long run.

Moreover, I’m not arguing that genuine spending cuts are immediately expansionary, as some research has indicated. I’m sure that happens in some cases, but it’s not a hard and fast rule.

And I imagine that there are cases where the economy does hit a short-run speed bump when the public sector is pruned. Simply stated, there will be transitional costs when the burden of public spending is reduced. Only in economics textbooks is it possible to seamlessly and immediately reallocate resources.

My argument is that the short-term impact of spending restraint – whether positive or negative – is trivial compared to the long-run benefits of better fiscal policy. A small public sector means labor and capital get used more productively, and it presumably also allows a less punitive tax system.

This video has more information about Canada’s fiscal policy success, along with data about similar episodes of genuine austerity (properly defined) in Ireland, Slovakia, and New Zealand.

Even the United States has enjoyed periods of semi-impressive fiscal discipline, most notably during the Reagan and Clinton years. Unfortunately, the modest progress achieved during those periods has been wiped out by the profligacy of the Bush-Obama years.

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Welcome Instapundit readers! Canada’s fiscal restraint (relative to the U.S., at least) is not the only positive development. Canada also has privatized its air traffic control system and fought against European schemes for bank taxes. No wonder Canada now ranks above America in both the Economic Freedom of the World Index and the Index of Economic Freedom.

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Since I’ve written before about Canada’s remarkable period of fiscal restraint during the 1990s, I am very pleased to see that the establishment press is finally giving some attention to what our northern neighbors did to reduce the burden of government spending.

Here are some key passages from a Reuters story.

“Everyone wants to know how we did it,” said political economist Brian Lee Crowley, head of the Ottawa-based think tank Macdonald-Laurier Institute, who has examined the lessons of the 1990s. 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. It would eventually oversee the biggest reduction in Canadian government spending since demobilization after World War Two. …The turnaround began with Chretien’s arrival as prime minister in November 1993, when his Liberal Party – in some ways Canada’s equivalent of the Democrats in the U.S. – swept to victory with a strong majority. The new government took one look at the dreadful state of the books and decided to act. “I said to myself, I will do it. I might be prime minister for only one term, but I will do it,” said Chretien. …The Liberals thought their first, rushed budget – delivered in February 1994, three months after taking office, was tough. It reformed unemployment insurance entitlements, and cut defense and foreign aid… The upstart Reform Party, then the main national opposition party, had campaigned on “zero-in-three” – balance the budget in three years. “We were always trying to go faster,” said Reform’s leader at the time, Preston Manning. …The Liberals were stung by the criticism and, at first reluctantly but then with gusto, they got out the chain saws. …Cutting government spending programs went against the Liberal grain. Contrary to the Reform Party, the Liberals saw a more important role for government. Paul Martin now has a lasting reputation as the finance minister who slayed Canada’s deficit, but the conversion from spender to cutter was painful. His father, also called Paul, had helped create Medicare, Canada’s publicly funded health care system, and suddenly here was Paul Junior contemplating massive cuts.

This is a remarkable story. My only real quibble is that the fiscal restraint actually started the year before the Liberal Party took power, as the chart (click to enlarge) illustrates.

But the key thing to understand is that Canada enjoyed a five-year period when government spending increased by an average of only 1 percent each year.

There are more good passages in the story. Can anybody imagine Obama doing this?

At one 1994 cabinet meeting, Martin announced a spending freeze. A minister put forward a project that needed funding but Chretien cut him off, reminding him of Martin’s freeze. A second minister raised his hand to ask for funding, and a testy Chretien told the cabinet that the next minister to ask for new money would see his whole budget cut by 20 percent. …The ratio of spending cuts to tax hikes was seven-to-one. Asked why, Chretien said simply: “There was more need on one side than the other.” …Cuts ranged from five percent to 65 percent of departmental budgets.

By the way, while there were a few tax hikes implemented, they were trivial. Tax revenue as a share of GDP rose from 44.2 percent of GDP to 44.5 percent a GDP, an increase that probably was going to happen anyhow as Canada’s economy recovered.

So what were the results of Canada’s spending freeze?

The following passage has some numbers, but the second chart (click to enlarge) shows that the burden of government spending in Canada (right axis) fell from 53 percent of GDP to 44 percent of GDP in just five years. And red ink (left axis) completely disappeared.

The deficit disappeared by 1997 and the debt-to-GDP ratio began a rapid decline – it is now at about 34 percent. …After wrestling the deficit to the ground, Canada enjoyed what Crowley calls the payoff decade, outperforming the rest of the G7 on growth, job creation and inward investment. From 1997 to 2007, it averaged 3.3 percent economic growth. while U.S. growth averaged 2.9 percent.

The most important thing to understand is that Canada’s economy improved because the burden of government spending was reduced. And because the underlying disease was being treated, this meant two of the symptoms of excessive government – deficits and debt – also became less of a problem.

Last but not least, there are rewards for good policy. Just as Reagan enjoyed a landslide in 1984 after sticking to his guns, Canada’s Liberal Party also reaped the benefits of doing the right thing.

The final lesson is that you can impose painful spending cuts and still win elections. Chretien went on to win two more back-to-back to form majority governments, a rare feat. ,,,Drummond, who later moved to the private sector and is now an advisor helping the Ontario provincial government slash its deficit, noted that governments on the right and left in Saskatchewan, Alberta and Ontario won more voter support after their own budget cuts in the 1990s.

Here’s a video I narrated that looks at the Canadian experience, as well as similar good reforms in New Zealand, Ireland, and Slovakia.

Last but not least, let’s put all of this in context. As demonstrated here, the U.S. would enjoy a balanced budget in just eight years if politicians could be convinced to limit spending so that it increased by 1 percent each year.

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The Congressional Budget Office has just released the update to its Economic and Budget Outlook.

There are several things from this new report that probably deserve commentary, including a new estimate that unemployment will “remain above 8 percent until 2014.”

This certainly doesn’t reflect well on the Obama White House, which claimed that flushing $800 billion down the Washington rathole would prevent the joblessness rate from ever climbing above 8 percent.

Not that I have any faith in CBO estimates. After all, those bureaucrats still embrace Keynesian economics.

But this post is not about the backwards economics at CBO. Instead, I want to look at the new budget forecast and see what degree of fiscal discipline is necessary to get rid of red ink.

The first thing I did was to look at CBO’s revenue forecast, which can be found in table 1-2. But CBO assumes the 2001 and 2003 tax cuts will expire at the end of 2012, as well as other automatic tax hikes for 2013. So I went to table 1-8 and got the projections for those tax provisions and backed them out of the baseline forecast.

That gave me a no-tax-hike forecast for the next 10 years, which shows that revenues will grow, on average, slightly faster than 6.6 percent annually. Or, for those who like actual numbers, revenues will climb from a bit over $2.3 trillion this year to almost $4.4 trillion in 2021.

Something else we know from CBO’s budget forecast is that spending this year (fiscal year 2011) is projected to be a bit below $3.6 trillion.

So if we know that tax revenues will be $4.4 trillion in 2021 (and that’s without any tax hike), and we know that spending is about $3.6 trillion today, then even those of us who hate math can probably figure out that we can balance the budget by 2021 so long as government spending does not increase by more than $800 billion during the next 10 years.

Yes, you read that correctly. We can increase spending and still balance the budget. This chart shows how quickly the budget can be balanced with varying degrees of fiscal discipline.

The numbers show that a spending freeze balances the budget by 2017. Red ink disappears by 2019 if spending is allowed to grow 1 percent each years. And the deficit disappears by 2021 if spending is limited to 2 percent annual growth.

Not that these numbers are a surprise. I got similar results after last year’s update, and also earlier this year when the Economic and Budget Outlook was published.

Some of you may be thinking this can’t possibly be right. After all, you hear politicians constantly assert that we need tax hikes because that’s the only way to balance the budget without “draconian” and “savage” budget cuts.

But as I’ve explained before, this demagoguery is based on the dishonest Washington practice of assuming that spending should increase every year, and then claiming that a budget cut takes place anytime spending does not rise as fast as previously planned.

In reality, balancing the budget is very simple. Modest spending restraint is all that’s needed. That doesn’t mean it’s easy, particularly in a corrupt town dominated by interest groups, lobbyists, bureaucrats, and politicians.

But if we takes tax hikes off the table and somehow cap the growth of spending, it can be done. This video explains.

And we know other countries have succeeded with fiscal restraint. As is explained in this video.

Or we can acquiesce to the Washington establishment and raise taxes and impose fake spending cuts. But that hasn’t worked so well for Greece and other European welfare states, so I wouldn’t suggest that approach.

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America faces a fiscal crisis. The burden of federal spending has doubled during the Bush-Obama years, a $2 trillion increase in just 10 years. But that’s just the tip of the proverbial iceberg. Because of demographic changes and poorly designed entitlement programs, the federal budget is going to consume larger and larger shares of America’s economic output in coming decades.

For all intents and purposes, the United States appears doomed to become a bankrupt welfare state like Greece.

But we can save ourselves. A previous video showed how both Ronald Reagan and Bill Clinton achieved positive fiscal changes by limiting the growth of federal spending, with particular emphasis on reductions in the burden of domestic spending. This new video from the Center for Freedom and Prosperity provides examples from other nations to show that good fiscal policy is possible if politicians simply limit the growth of government.

These success stories from Canada, Ireland, Slovakia, and New Zealand share one common characteristic. By freezing or sharply constraining the growth of government outlays, nations were able to rapidly shrinking the economic burden of government, as measured by comparing the size of the budget to overall economic output.

Ireland and New Zealand actually froze spending for multi-year periods, while Canada and Slovakia limited annual spending increases to about 1 percent. By comparison, government spending during the Bush-Obama years has increased by an average of more than 7-1/2 percent. And the burden of domestic spending has exploded during the Bush-Obama years, especially compared to the fiscal discipline of the Reagan years. No wonder the United States is in fiscal trouble.

Heck, even Bill Clinton looks pretty good compared to the miserable fiscal policy of the past 10 years.

The moral of the story is that limiting the growth of spending works. There’s no need for miracles. If politicians act responsibly and restrain spending, that allows the private sector to grow faster than the burden of government. That’s the definition of good fiscal policy. The new video above shows that other nations have been very successful with that approach. And here’s the video showing how Reagan and Clinton limited spending in America.

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This arrived in my inbox today. A quick search on the Internet reveals it is not a real article from a Canadian paper. But it is somewhat amusing, so enjoy.

“Build a Damn Fence!”
From The Manitoba Herald , Canada ;
by Clive Runnels, December 1st 2010

The flood of American liberals sneaking across the border into Canada has intensified in the past week, sparking calls for increased patrols to stop the illegal immigration. The recent actions of the Tea Party are prompting an exodus among left-leaning citizens who fear they’ll soon be required to hunt, pray, and to agree with Bill O’Reilly and Glenn Beck.

Canadian border farmers say it’s not uncommon to see dozens of sociology professors, animal-rights activists and Unitarians crossing their fields at night. “I went out to milk the cows the other day, and there was a Hollywood producer huddled in the barn,” said Manitoba farmer Red Greenfield , whose acreage borders North Dakota . The producer was cold, exhausted and hungry. He asked me if I could spare a latte and some free-range chicken. When I said I didn’t have any, he left before I even got a chance to show him my screenplay, eh?”

In an effort to stop the illegal aliens, Greenfield erected higher fences, but the liberals scaled them. He then installed loudspeakers that blared Rush Limbaugh across the fields. “Not real effective,” he said. “The liberals still got through and Rush annoyed the cows so much that they wouldn’t give any milk.”

Officials are particularly concerned about smugglers who meet liberals near the Canadian border, pack them into Volvo station wagons and drive them across the border where they are simply left to fend for themselves.” A lot of these people are not prepared for our rugged conditions,” an Ontario border patrolman said. “I found one carload without a single bottle of imported drinking water. They did have a nice little Napa Valley Cabernet, though.”

When liberals are caught, they’re sent back across the border, often wailing loudly that they fear retribution from conservatives. Rumors have been circulating about plans being made to build re-education camps where liberals will be forced to drink domestic beer and watch NASCAR races.

In recent days, liberals have turned to ingenious ways of crossing the border. Some have been disguised as senior citizens taking a bus trip to buy cheap Canadian prescription drugs. After catching a half-dozen young vegans in powdered wig disguises, Canadian immigration authorities began stopping buses and quizzing the supposed senior citizens about Perry Como and Rosemary Clooney to prove that they were alive in the ’50s. “If they can’t identify the accordion player on The Lawrence Welk Show, we become very suspicious about their age.” an official said.

Canadian citizens have complained that the illegal immigrants are creating an organic-broccoli shortage and are renting all the Michael Moore movies “I really feel sorry for American liberals, but the Canadian economy just can’t support them.” an Ottawa resident said. “How many art-history majors does one country need?”

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Like most federal agencies, the Federal Aviation Administration is a costly bureaucracy. Its $16.4 billion budget is enormous, but that is just the direct cost borne by taxpayers. The indirect costs, such as inefficiencies imposed on the air transportation system, also are significant. This has nothing to do with the TSA, by the way. The FAA is responsible for the air traffic control system, things like airport towers and radar systems that tell planes where to fly and when to land.

The Canadians have a much better approach. They privatized their air traffic control system back in the 1990s. So instead of having to rely on a clunky and incompetent government bureaucracy, our neighbors to the north have a private company that is generating very impressive results.

Not that this should be a surprise. Other nations have made remarkable gains through privatization, including Social Security personal accounts in Chile and 30 other nations, education choice in places such as Sweden and the Netherlands, and privatized postal service in Germany.

Reforming government monopolies should be a priority in the United States. Robust economic growth requires more than just low tax rates. It means getting rid of policies that cause resources to be misallocated. Privatization is an unsettling concept for some people, in part because they’ve always assumed certain things should be run by the government. This is why international examples are so important. Canada’s 14 years of experience with a private air traffic control system clearly shows that there are very successful alternatives to inefficient and costly bureaucracies.

Here are some excerpts from a story in Canada’s Financial Post about Canada’s remarkable reform.

A once troubled government asset, the country’s civil air traffic controller was privatized 14 years ago and is now a shining example of how to create a global technology leader out of a hulking government bureaucracy. Nav Canada’s efforts have flights moving more efficiently than ever through the skies above the country. Many of the changes implemented by Nav Canada in recent years have gone unnoticed by the flying public. Certain flights are now shorter than they once were; aircraft no longer circle airports awaiting a runway; descents start further out and planes reach cruising altitudes more quickly; and flights to Asia now spend less time by jaunting over the Arctic than endlessly cruising the Atlantic or Pacific Oceans. …Nav Canada estimates its efforts to modernize the aircraft navigation system in the country since it was privatized in 1996 have cut the fuel bill of airlines flying into Canada and above it by an estimated $1.4-billion collectively… Meantime, Nav Canada has won the respect of airlines for keeping its fees steady, and in some cases, like in 2006, even reducing them when it can. …John Crichton, Nav Canada chief executive, makes no bones about why he thinks his organization has been able to make these improvements and emerge as a global leader. I don’t think there’s any question that the privatization was the best thing that ever happened,” he said. “That really unleashed all the innovation.” …Calin Rovinescu, Air Canada’s chief executive, commended Nav Canada for its efforts to modernize the country’s navigation systems during a speech in Montreal earlier this year, while condemning the United States and the European Union, which still operates as a patchwork of nationalized systems, for their lack of leadership on the issue. Nav Canada also won the International Air Transport Association’s Eagle Award earlier this year for its efforts, in particular its constant consultation with the industry.

My Cato colleague Chris Edwards has more analysis, including a call to private the Federal Aviation Administration as well as some useful links.

Greetings to Instapundit readers. International Liberty is dedicated to the global fight for economic freedom. Peruse this site to your heart’s content. Feedback is always appreciated and come back often.

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The G-20 gab-fest is in Canada this weekend, but Canadian taxpayers are definitely not winners. In a display of waste that might even embarrass a French politician, the Canadian government somehow is going to squander $1 billion hosting the event. I can’t even conceive of why such an event should even cost $10 million. Maybe hookers are very expensive up north. One interesting policy issue at the meeting is that the United States is siding with Euro-socialist nations in pushing a bank tax. Fortunately for taxpayers and financial consumers, the former communists in charge of Russia are helping to block this money-grab. This adds to the irony of Russia recently proposing to eliminate capital gains taxation while Obama (and the U.K.’s Cameron) are increasing the tax rate on entrepreneurship and investment. The world is upside down. The EU Observer reports:

With international eyes focusing on the potential ‘stimulus versus austerity’ scrap between different member states, Canadian citizens meanwhile have reacted in uproar at news that the weekend’s bill is set to total over $1 billion. Although 90 percent of that cost comes under the ‘security’ heading, it is a artificial lake intended to impress journalists in the press area that has come in for the heaviest criticism. The controversy may not be helped by the forecast lack of tangible results set to emanate from the two sets of meetings… The need for a global bank levy provides one the more concrete topics for discussion, but there is no guarantee that participants around the table will come to an agreement. “In the G20, the idea of a bank levy is not supported by at least half of the members,” Russian ambassador to the EU Vladimir Chizhov told a group of journalists on Friday morning in Brussels. “Neither is it acceptable to Russia,” he continued, arguing that banks would merely pass on the extra costs to their clients.

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Tyler Cowen’s recent New York Times column explains how nations as diverse as Ireland, Sweden, and Canada have successfully solved fiscal problems by limiting the growth of government spending:

America’s long-run fiscal outlook is bleak, mostly because of an aging population and rising health care costs. To close the gap between expenditures and revenue, …we’ll need to focus especially on reducing spending, largely because that taxes on the wealthy can be raised only so high. …Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases. …Higher levels of government spending and taxation would also soak up resources that might otherwise foster innovation and new businesses. And sentiment would most likely turn ever stronger against those immigrants who consume public services and make the deficit higher in the short run. …The macroeconomic evidence also suggests the wisdom of emphasizing spending cuts. In a recent paper, Alberto Alesina and Silvia Ardagna, economics professors at Harvard, found that in developed countries, spending cuts were the key to successful fiscal adjustments — and were generally better for the economy than tax increases. …The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed. Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997.

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The Premier of Newfoundland and Labrador (akin to a state governor in the U.S.) defended his decision to get surgery in America with the statement that it was “my heart, my choice, and my health.” This is an admirably libertarian statement, and the “my choice, and my health” part could be the rallying cry for those of us who don’t want government-run healthcare. The only problem is that the Premier is a reprehensible hypocrite who wants to keep Canadian citizens trapped in a statist system even though he was able to escape the system using his personal wealth. To add insult to injury, he is going to try and get taxpayers to reimburse him for his US-based treatment:

An unapologetic Danny Williams says he was aware his trip to the United States for heart surgery earlier this month would spark outcry, but he concluded his personal health trumped any public fallout over the controversial decision. …”This was my heart, my choice and my health,” Williams said late Monday from his condominium in Sarasota, Fla. “I did not sign away my right to get the best possible health care for myself when I entered politics.” …Williams said he didn’t announce his departure south of the border because he didn’t want to create “a media gong show,” but added that criticism would’ve followed him had he chose to have surgery in Canada. “I would’ve been criticized if I had stayed in Canada and had been perceived as jumping a line or a wait list. … I accept that. That’s public life,” he said. …Williams said his decision to go to the U.S. did not reflect any lack of faith in his own province’s health care system. …Williams also said he paid for the treatment, but added he would seek any refunds he would be eligible for in Canada. “If I’m entitled to any reimbursement from any Canadian health care system or any provincial health care system, then obviously I will apply for that as anybody else would,” he said.

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I’m finishing up a swing through Canada, giving speeches for the Fraser Institute to audiences in Vancouver, Calgary, and Toronto. I’ve been talking about the size of government and the future of capitalism. As you might imagine, several people have asked about the battle in America over government-run healthcare and how the sysetm in the United States today compares to the Canadian system. I make two points. First, I tell tham that America’s health care system already is largely run by government. Obama’s proposal simply increases the level of control from perhaps 70 percent to 80 percent. Second, I tell them that the surviving remnants of a free market in the United States are worth preserving. Politicians have made the American system very cumbersome and expensive, but it is nonetheless the place where people want to be when their lives are on the line. So it’s quite appropriate that this bit of news was just unveiled:

Newfoundland and Labrador Premier Danny Williams is set to undergo heart surgery this week in the United States. CBC News confirmed Monday that Williams, 59, left the province earlier in the day and will have surgery later in the week. The premier’s office provided few details, beyond confirming that he would have heart surgery and saying that it was not necessarily a routine procedure.

Why is it that Canadian politicians come to the United States, but the medical traffic never heads in the other direction? Somebody should ask Obama to provide an answer.

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