Laissez-Faire, eh?

by on May 1, 2009 at 7:10 am in Data Source | Permalink

U.S. government spending as a percentage of GDP is now equal to Canada's and rising, leading one Canadian op-ed writer to crow about Canada's low tax, free market economy.  Damn that hurts.

Hat tip to Eric Crampton at Offsetting Behaviour who blames me for the reversal.

1 Michael Foody May 1, 2009 at 7:40 am

But unlike canada we can wipe out humanity whenever we want. And say we just want to kill a million people here and there we can do that too. Take that Canucks.

2 josh May 1, 2009 at 8:12 am

Why would you remove that? Patronage is patronage, no?

3 Shaun May 1, 2009 at 8:33 am

Deficit spending in Canada has come to be viewed in a very negative fashion, and the governments that have gone into deficit during the current recession are not seeing much support for their Keynesian spending programs. It is worth mentioning for American readers that Canada is far more decentralized than the U.S, and as such taxes for citizens and businesses alike have far greater variance from province to province than from state to state. Generally speaking, taxes are highest in the eastern Atlantic provinces and move steadily downward as you move westward.

Having lived in both countries (plus Quebec), my general observation is that poor to lower middle class Canadians enjoy a higher standard of living than do their American counterparts. At some point along the middle class income range, the situation reverses itself. Canada’s various income tax brackets kick in far earlier than similar US ones, which account for a lot of the difference. Higher user fees and sales/service taxes do as well (note: the poor to lower middle class can qualify for rebates for these particular taxes). For businesses, income taxes are generally lower (and falling) in Canada, although there are some other taxes they have to pay here that are much lower or non-existent in the U.S.

4 Enda May 1, 2009 at 9:02 am

Josh: there are arguments for removing military spending from GDP statistics, primarily because blowing stuff up doesn’t really add that much to economic welfare.

G over GDP is a measure often used to see how interventionist/left-wing/socially-concerned a government is. It’s a weak measure, to be sure, but you can improve it by removing how much stuff the government blows up.

(Pre-empting your most-likely response: I agree that a certain amount of military expenditure is vital for economic well-being/protection of the state. However nobody could argue that the US military’s budget is anywhere near the low level needed to just protect the liberty of the state. Thus if you want to use G/GDP as a measure of government intervention — as Alex’s post may be implicitly suggesting — it’s best to separate its guns from its butter.)

5 Garth Wood May 1, 2009 at 9:15 am

Er, William Watson is actually an associate professor of Economics and chairman of the Dept. of Economics at McGill University, with a Ph.D. from Yale, not just an “op-ed” writer.

Unless, of course, the writers of this blog are just “bloggers,” in which case I retract my correction.

6 Obs May 1, 2009 at 9:35 am

Where exactly on this op-ed does it mention he is an associate professor of Economics and chairman of the Dept. of Economics at McGill University with a Ph.D. from Yale and filled with delicious candy that makes you smarter if you promise to remember his name?

I mean, if it said I HAVE A DOCTORATE in big letters at the top, I could understand you getting your poutine in a bunch around it, but without that, the way the article is presented means he has to rely on his fame–worse yet, his *Canadian* fame–for us to realize that.

7 ivan May 1, 2009 at 10:23 am

Notice how greatly government expanded during Reagan and Bush Sr. That was supposed to be the “neoliberal” era. Alex should not be blamed, blame Ronnie.

8 Taeyoung May 1, 2009 at 10:46 am

That inflection point Canada has around the early 90s fills me with hope for the United States.

9 Robbie May 1, 2009 at 11:40 am

This doesn’t really measure the size of the government though. A new law that has a small effect on the governments budget can has drastic consequences for people, both economically and socially.

I think people need to give up in their quest to turn something as complicated as the “size” of the government into a single number.

I think that it is worth noting that most (all?) Scandinavian countries have higher proportions of government spending than France. Yet this misses the fact that the French government has much more control over the labour market than say Denmark where the labour market is said to be relatively free.

10 8 May 1, 2009 at 12:16 pm

Looks like both countries could use at least a 50% reduction.

11 David C May 1, 2009 at 2:13 pm

Agreed about the military thing. If we had anything close to reasonable military expenditures, ours would be a relatively much smaller government than Canada’s, or almost any other developed country for that matter.

12 Rachel May 1, 2009 at 2:30 pm

I just wanted to point out that this chart, or at least the labeling of this chart is misleading. What it is calling US Government spending is the total annual expenditures at all levels of government (Federal, State, and Local). From Defense Department buying to local school board expenditures. Federal government expenditures hover around 19%.

13 Andrew May 1, 2009 at 8:09 pm

Indiana Jim wrote: “The issue of Military spending is also the issue of Canadian free-riding n’est-ce pas? Damn that hurts.”

Come on, the old canard that Canada free rides off of US defence expenditure does not really wash. Some countries do free-ride off the US defence budget (e.g., Western Germany in the Cold War, South Korea today), but Canada simply isn’t one of them. Canada has no neighbours, aside from the US, and hasn’t developed any enemies in the world (the same can’t be said from France or the UK or any of other former colonial powers). Just because my neighbour spends lots on x, doesn’t make me a free rider. In fact, US military spending may have a moderately negative impact on the welfare of the average Canadian taxpayer: living next to a superpower involves some negative externalities for Canadians. Amongst other things, in the event of the US getting itself into a nuclear war, the prevailing winds would bring radioactive dust into Canada.

14 indiana jim May 1, 2009 at 10:26 pm


You have a different view. Yet the fact remains that Canada need spend little to nothing on defense because the US spends much. You are correct that should the US be nuked, Canada might get some fall out. What would you like the US to do in that eventuality, apologize to Canada because we got nuked? Is there any reason that you can think of why the US should be nuked? Saving the world in WWII? Saving Kuwaitt? Liberaing Iraqis from Sadam and his son’s perversions? Reducing diseases in Africa? Helping out in Bosnia and stemming genocide? Winning the cold war? What? Was there any reason that innocents in the USA were killed on 9/11? Maybe you think the US deserved that? Sorry, we share too few assumptions to have a conversation. Bye.

15 raivo May 2, 2009 at 6:23 am

Global recession took to the streets for Labour Day.

In Germany, on course for its biggest slump since World War II, Berlin police made 49 arrests as young demonstrators hurled bottles and rocks and set fire to cars and rubbish bins in the early hours.

Around 200 far-right extremists later attacked with sticks and stones a rally organised by trade unions in the western city of Dortmund, as well as police, who dispersed the skinheads with truncheons and took 150 into custody.

Some 484,000 people gathered for peaceful May Day rallies across Germany, unions said, but police were bracing for more pitched battles after nightfall with—and between—far-left and far-right groups.

In Turkey, security forces fired tear gas and water cannon in clashes with hundreds of May Day demonstrators in Istanbul that left dozens of people hurt.

Demonstrators threw rocks and petrol bombs at police and smashed the windows of banks and boutiques in the centre of Turkey’s biggest city. In Ankara, about 100 demonstrators also clashed with police, the Anatolia news agency reported.

Istanbul governor Mehmet Guler said 21 policemen and 20 demonstrators were slightly hurt and 108 mainly young people were arrested in the clashes.

16 indiana jim May 4, 2009 at 4:48 pm

Andrew writes: “What I said was that the United States military policy is both very expensive and that it creates both positive and negative externalities for Canada. The question is whether the positive externalities outweigh the negative ones. I submit that this is an open question”

It is a FACT that the US and Canada have mutual defense treaties: It appears that the powers that be in Canada have an answer to your “open question”

Whether you agree with their answer or not is something YOU must decide. If you think of this as a wide open issue you may want to present YOUR views to the Canadian government and suggest that they are in error in standing with the US.

17 indiana jim May 4, 2009 at 7:17 pm

Dan H.

Valid points; I’ve been putting some of my 401k contributions in to a Canada mutual fund for these sorts of reasons.

18 SAMSUNG M50 laptop battery May 18, 2009 at 8:35 am

It’s really easy to keep government spending low: make the state the only employer in fields that don’t affect GDP so much in the long run (health care and early education) but are very expensive. In those fields reduce salaries and services as much as possible, up to the point that reducing it more would cause a mass exodus towards the US.

19 David Roth August 12, 2009 at 1:23 am

For the extent of government heavy-handedness in many areas of national economies, people might want to look at Heritage’s Index of Economic Freedom. They give scores from 0 to 100 for each country’s size of gov’t, labor market freedoms, trade regime, etc.

20 louis vuitton outlet September 26, 2010 at 10:24 pm

What if the US’ guns are butter? It’s extrodinarilly unlikely that we’ll ever use most of our weapons spending as actual weapons, so what if their purpose is to provide welfare for certain groups?

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