What the U.S. Can Learn from Canada

In the mid-1990s, Canada was using $1 out of every $3 to service debt. The Wall Street Journalreferred to its Loonie—the $1 coin—as the Northern Peso.

Linda Nazareth, an author and in-house economist for the Business News Network in Canada, said times have changed, in part because the Canadian public bought into the need to turn things around.

“I don’t know if that has politically been done in U.S. yet,” Nazareth said during The Council of State Governments’ Eastern Regional Conference earlier this month.

Whether the U.S. can learn from Canada’s experience is yet to be seen, but Nazareth acknowledged things are a little different with the U.S. economic situation now. The U.S. monetary policy is much looser than Canada’s was when it addressed the economic challenges of the 1990s.

“In the U.S., how much looser can monetary policy be if you have interest rates of zero? If interest rates can’t fall, the U.S. won’t get the same relief on debt payments as Canada,” Nazareth said.

Government also was a bigger part of Canada’s gross domestic product than in the U.S. In addition, the U.S. deficit problem is much bigger than Canada’s in the 1990s.

While Canada could cut a lot of discretionary spending, she said, the U.S. couldn’t cut enough of that to find a balance. It must address things like Social Security, Medicaid and Medicare. Plus, she pointed out, “wars are expensive.”

Nova Scotia Premier Darrell Dexter said the whole notion of discretionary spending is misleading. “It’s not as discretionary as you might think,” he said. “When you are looking at budget restraint, it has an effect on people.”

Vermont Gov. Peter Shumlin said his state has already felt the pain of budget cuts.

“We made the tough choices,” he said. “We do know we have cut our ability to deliver services to taxpayers.”

The panel discussion centered around ways the states and provinces could build partnerships and relationships to build a stronger regional economy.

Christopher Sands, a senior fellow at the Hudson Institute who specializes in U.S.-Canada relations, said those partnerships were part of the goal of the North American Free Trade Agreement, or NAFTA. Then, he said, the barrier to increased trade between the three North American companies was national taxes. The new barrier, he said, is regulatory mismatches.

Dexter said the states and provinces assert their independence through their differences and the regulation of markets. Dexter said his province has a committee on the partnership on regulation.

“It’s a process of combing through the books and regulations,” he said, “and not impinging on the notion of sovereignty. It takes a level of trust among the governments.

“We know that’s where our future lies,” said Dexter. “… Broader, deeper markets are better for every participant.”