Tuesday, November 09, 2004

The US Vs. Canada: Economy Style

Wu-Tang: Shaolin shadowboxing, and the Wu-Tang sword style. If what you say is true, the Shaolin and the Wu-Tang could be dangerous

Response: Do you think your Wu-Tang sword can defeat me?

Wu-Tang: En garde, I'll let you try my Wu-Tang style

Kate over @ Tiny Fauna Corpses wants to tear that smug smile off your face! Why you gotta act like you all great, Canada? Your economy ain't all that! ;-)

I like Kate's blog, and it's fly that someone wants to talk economics, so let's do it. I'm going to rep Canada on this one just to be the devil's advocate and we'll see what's up.

Here's the start:

Fact checking The "Bad" American Economy
In the lead up to, and wake of, the US Presidential election, Canadians have had no shortage of opinions about the state of affairs of our southern neighbors. Judging by the comments to phone-in shows from local talk radio to the CBC's nationally broadcast Cross Country Checkup yesterday, many are rather smug.

No protest there. Half the time the CCC listeners wouldn't know self righteous condescension (sp?) if it bit them in the ass.

The assumption that our economy is stronger is based on some valid arguments - running consecutive surpluses at the federal level is one of them, the "strengthening" Canadian dollar is another. However, Canadians seem blissfully unaware of what the falling US dollar means for our trade based economy. Many seem to believe that the most important consequence is less costly vacations in the US.

Oh, but the facts...:
1) Their trade deficit is massive. They are spending $500 B. (B is for B-B-B-Billion!) more on imports than on exports. 5% of their GDP out the window. For Real.
In the three years from 1985, the dollar fell by 50% against the other main
currencies. Inflation and bond yields rose and, in October 1987, the stockmarket
crashed. America's current-account deficit is now almost twice as big as it was
then, so the total fall in the dollar—and the fall-out in other financial
markets—could well be larger.

2) The only thing keeping their dollar affloat are asian economies who buy the US dollar in tonnes (not bills) if it dips. Why? Because they remember the panic of the Asian crisis. They remember the mad panic for g-notes when the market sank and everyone bit and scratched and clawed for US money.
By the end of last year, Asian central banks held $1.89 trillion of foreign
reserves, the vast bulk of them in dollars. (-the Economist)
3) Their stock market hasn't inched up in 4 years. Now technically, this isn't a *real* indicator. In reality, it is because it indicates the confidence in American products and the future. The P/E ratios of the US stock market are waay-ay-ay out of wack averaging about 16-1. There still hasn't been a proper correction of this average and everyone knows it. If the world economy really thought the US market was going to kick ass, they would put up some cash to show some love. But they aren't. That is serious, especially for new issues (PS: new issues are at an all time low). That's not good for the economy.

In reality, the huge competitive advantage a 65 cent dollar gave exporters is beginning to change. Canadians are going to have to become more productive and efficient to make up the difference. We're already about 25% less productive than the average American - with a 25% lower standard of living to show for it. Unless you're one of those vacationing civil servants, you're probably going to feel the effects.

1) Yes, we are going to have to be productive. And they will. Canadian manufacturers/businesses are going to have a real choice when their options to buy goods from the US flies open. You might think that is nothing, but when your choices are Corel or Microsoft..or (fill in the blank) it really means something. We can radically change our productivity upwards with the hottest technology. That's fact.

PS: Kate, do you have a link for that productivity number?

The most common misconception is that the USA is suffering from high unemployment and a crushing national debt. It's not really our fault - this been the steady mantra of ill-informed news media too lazy or unmotivated to do a little fact checking. In fact, unemployment rates in the US today are around the same level as during the Clinton years. It helps to place US data up against our own.

Were the CCC peeps saying they had high unemployment figures? That's definitely not true.

Unemployment rate (Oct'04):
Fed Debt as % of GDP (2003): US - 5.5%
US - 36.1% Canada - 7.1%
Canada - 42%

Okay, their debt is actually closer to 6-7 Trillion, depending who's counting. So that's closer to 55-60% of their total output. Your figures actually do us justice since I thought we were in the neighbourhood of 50%.

And you cannot put unemployment numbers of the US and Canada side by side. We count the figures differently and it does nobody a lick of good putting these apples and oranges together. Employment figures are more interesting..and telling. Last time I checked we were @ 63% or so....
(Figures from gov't sources, Stats Can, etc.)
Most industrialized countries have debts hovering around the 100% of GDP mark. Historically, the US federal debt was at an alltime high during WWII when it reached 125% of GDP.

Okay, the thing about industrialized countries being at 100% is flat out wrong. I think only Italy has a rate that high, and the OECD average is about 50%.

Is the current deficit and military spending high? Yes and no. There is cause
for concern in any deficit spending, but then again - the US is at war and we're
not. And as military spending goes, the US is currently a far cry from their
peak (1945), when they spent 38.5% of GNP on the military. Today, the US spends
3.6% of GDP on the military, lower than the average of 5.7% spent during the
post-war years of 1940- 2000. *
Yes and No? Whua? What would make it yes and ..uh..yes? Okay, WW2 aside, let's get real for a second. The non discretionary spending of the US Gov is going up 30%/ year under Bush. This is serious. Even if the democrats had the Senate or Congress they could stop the hot pork action orgy of this government. Bush hasn't vetoed one spending bill! *I notice you didn't tackle his other spending*

Forget military spending, Bush and Co. cut taxes in the middle of a recession for taxpayers in higher income brackets chiefly. Now we can go back and forth about how great these cuts are, but they aren't necessarily stimulus. I'll tell you why.

Cuts aimed at lower income earners almost certainly will be spent. Why? Because lower income earners have to spend the money. They were either going to buy diapers or food with the last cheque they received, and with the extra 20 bucks they receive, they will buy both. Upper income earners, as great as they are (yes, I'm aware of the 'greater productivity/longer hours' argument, but even that maxes out when we get above 200000/yr), don't necessarily spend everthing they get. Maybe they'll take the extra money to pay for a special space trip provided by the Russian government and maybe they won't.

It was fiscally irresponsible for Bush to do what he did. He was even talking about putting a man on mars this term--and he calls Kerry a free spending liberal! Okay, I could go on and on, but his spending has been off the hook. As a fiscal conservative, his actions look reckless to me. I'm getting overklempt.

Seriously though: This started out as a defence of our economy, so I'll rep it hard. Here we go:
1. We're cranking out jobs.
2. The High Loonie Helps our productivity.
3. Even the CIA is impressed.

Anyways...we could be here all night. Kudos to Kate for a good opening right. This is an open invitation: Canada Vs. US! Let's roll out the stats and rumble.

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