Going against type, some Canadians are being very negative. A chorus of doomsayers is pointing out that by some measures, Canadian per-capita GDP is in decline.
While there is genuine room for concern, the bad news is much overstated. Canada has not altered its fundamental and longstanding position: It is somewhat poorer than the US, but it is progressing at a more or less typical pace.
First, a note on the numbers: Canadian GDP per capita has not regressed to where it was in 2014. That metric deflates incomes by producer prices, whereas for actual living standards economists generally agree that a consumer-prices deflator of some kind is more appropriate. Using that metric, Canadian per-capita GDP mostly has been rising since 2014, the pandemic aside, and currently stands modestly above pre-pandemic levels, albeit with a very recent downturn. Yes, Canadian performance could be better, but there’s no reason to be pressing the panic button.
It is also noteworthy that the Canadian economy, historically, does better when measured by median income trends, which have been steadily positive for almost two decades, including since 2014.
That represents a few realities. Canada has more egalitarian policies than does the US. It looks for professional qualifications in many of the immigrants it admits. And many potential top Canadian earners leave for the larger market of the US, thus truncating the top of the Canadian income distribution over time. You may or may not like all of these realities, but they are unlikely to change anytime soon. The result is that Canadian incomes tend to bunch toward the middle.
In the simplest possible terms: Canada is not only a great place to live, it is also getting better.
It is a fair to wonder why the Canadian economy, in relative terms, seems to be slipping behind the US. As a general observation, this is true of most developed economies, and perhaps it says more about American virtues than Canadian defects.
More specifically, though, the nature of the tech economy may suggest this widening gap is inevitable, at least for a while. Canadian contributors to the technology scene are numerous, most of all in artificial intelligence. But with some exceptions, these developments have had the most impact in the US. Canada can certainly be proud of the contributions of the brilliant Canadian-Israeli computer scientist Ilya Sutskever, a co-founder of OpenAI, but of course that means he was not working in Canada.
Think of it as the economic equivalent of the US’s exorbitant privilege in monetary policy: The more other economies become technology-centered, the more likely they will help the major tech clusters in the US, which will continue to attract global talent. So it is possible that the US will increase its relative lead over Canada, and many other economies, no matter what Canada does. Perhaps some Canadians will feel bad about that growing gap, but to the extent their country benefits from those same tech innovations, it is good for most Canadians.
None of this is to say that the Canadian economy doesn’t have major problems. One of them is home prices, which are sky-high and show no signs of abating. That cuts into living standards, and is arguably the No. 1 reason Canadian real incomes have not risen more quickly. My preferred solution would be Canadian YIMBY — that is, greater freedom to build in locales such as Toronto and Vancouver.
Even if Canadians do not opt for YIMBY, however, the situation is likely to improve in the long run. Think of the US experience with Austin, where tech was built up in part as a response to problems in the Bay Area. Because Canada has fewer people, fewer regional centers and more economic fragmentation, it has been slow to create a lower-tier Toronto substitute. But eventually it will, and that will alleviate cost-of-living problems. Canada, after all, has plenty of land.
Another relevant problem, economic and otherwise, is that the Canadian health-care system seems to be deteriorating and is in need of repair. Still, this problem is distinct from any notion of a Canadian economic disaster.
And Canada’s advantages remain very strong. It has a geopolitically secure location, plentiful natural resources, productive agriculture, functional systems of government, a good educational system and lots of talent. The predominance of the English language is another advantage, as is Toronto’s status as a world-class city.
When it comes to the future of Canada, “more of the same” has been both a pretty good bet and a pretty good outcome. That’s likely to remain true for decades to come.
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