Letters by a modern St. Ferdinand III about cults

While we patiently await the imminent demise of the US economy, forecasted for 6 years by eminent ‘experts’, the US model provides some useful lessons for the socialist states of Canada and the EU. Even as the Canadian dollar approaches par with the US, and the British and EU currencies continue to gain in strength we can already hear the media chorus chant that, ‘everything is fine, no need for reforms, our system is working…’ Yet the vast weaknesses in the socialist model act as brakes, not engines of economic growth. Just think how better things would be if widespread economic, tax and spending reforms were enacted in Canada and the EU.

US economic growth is indeed finally slowing – it has to. Markets don’t rise forever. Yet the economic growth of the US since 2001 in spite of war, Bush’s spending, Hurricanes and massive state entitlement extensions, has lifted all US economic levels and further enriched the middle class. Tax cuts, cheaper offshore manufacture, business process improvements, service productivity increases and corporate profit improvements, have helped increase the size of the US economy by 30% since 2001. Even with slower growth the Americans will still produce about 2 million private sector jobs in 2007.

The same is not true of the EU or Canada. Private sector job growth lags the US in socialist states by a factor of about 2. Much of the job growth in Canada in recent years has been part-time, or in the public sector. Typically about 50% of Canada’s job growth is in the private sector. In the US it is more like 80%.

Private sector job growth represents the greater degree of economic freedom in the States though government interference is far too high. US governments are not free-marketers but master mercantilists. Even so the US state controls about 35% of the economy, versus close to 50% in Europe, and 44% in Canada. This gap means the Americans just keep getting richer. American per capita GDP is closing in on U$44.000. In Canada it is a mere U$31.000.

The US right now is the richest state in world history if you aggregate per capita GDP; net assets per capita [after all debts]; and per capita income. It is also after Germany, the 2nd cleanest country in the world if you factor in GDP and geography.

Many weaknesses abound in the US model. Debt is high though 30% below the per capita levels of Canada and many EU states. The health care system is a government managed and inspired mess. Social Security payments will increase Federal taxes, spending, or debt, by 40% without reforms and depending on how politicians want to pay for the largesse of the nanny-state - and keep those votes coming their way.

Spending is out of control and will get only worse as the eco-cult takes political prominence on everything from ethanol to nuclear power. The military is too small; the southern border is unguarded and the illegal problem is being turned into political opportunism designed to hurt national self-interest. This says nothing of the travails of fighting a Long War with Islamic extremist elements or the divisive nature of current US politics and media dialogue.

Just imagine however what the Americans could do with real tax reform; reduced government and a renewed commitment to security and increasing military power. They would be twice as formidable.

The same lessons apply to socialist states like Canada. For the first time in 30 years the Canadian dollar will reach parity with the US dollar. There are existing and latent strengths in the Canadian economic landscape which attracts capital and the demand for the C$. A currency rate is after all, nothing more than a price point of demand and supply interaction. The more valuable the assets that the currency represents are, the higher will be the price.

Yet it is not hard to see why the C$ keeps rising. Oil prices are strong, commodities are in demand as world economic growth shows little signs of weakness or derangement. Domestic economic growth will be as strong or stronger than the US in 2007. Coupled with higher interest rates and the fact that with a free trade deal with the US, Canada is a convenient offshore platform, foreign capital investment is increasing. Labor is fluid, labor laws are flexible, capital is mobile, inflation is at 2% and unemployment has reached a 30 year low. From a high level view the Canadian economy looks robust.

But weaknesses abound. First and foremost the taxation levels in Canada [and Europe] are obscenely high. Taxes on investments, income, marginal income gains, capital and assets, obstruct economic development. Coercive taxation means that less capital and money is available for newer asset purchases, productivity enhancements or process improvements. It also slows down foreign investment which usually acts as a stimulus for competition or improvements in business processes. Productivity is therefore low to non-existent. US productivity rates have been 2-4 times higher in the past decade than those in Canada or Europe. Consequently the average American worker is becoming far richer than the average worker in Canada or the EU.

High taxes are a derivative of the 1960s socialist revolution. Before the 1960s Canada had lower tax rates and less government than the US. Since then the Canadian state has exploded. Not only is government fast expanding in Canada to comprise 44% of GDP once spending, deficits, and regulation fees are added together, but the regulation of foreign investment discourages liquid capital transfers, and foreign investment in several areas of the economy is heavily restricted. Whole areas of the economy: banking; telecos; forestry; fishing; transport; media; aviation, mining culture; health care; agricultural and more, are all protected in some measure by governments from foreign interests.

Remarkably as well there is no internal free trade intra-Canada. As part of the socialist compact, internal trade barriers are part of the redistribution of income between regions. Not only do governments send money from one area of the country to another to buy votes under the auspices of ‘fairness’ or ‘to maintain standards’, they use trade barriers to aid one region in developing say a manufacturing base [central Canada] while ensuring that high intra-trade barriers make it difficult for other region’s products to access that market. Such a policy is of course, economic and social madness.

The Canadian economy is doing well. But just imagine how much richer Canadians would be if some simple reforms were introduced:

-lower all taxes to help increase productivity
-stop punishing foreign investors
-liberate the 40-50% of the economy still tightly managed by government
-establish internal free trade
-stop subsidizing badly managed and corrupt regions with other people’s money
-reduce government regulation, size and public sector union power.

These are not radical reforms but common sensical ideas to help the average citizen. Politicians hate such ideas since their power is diminished. But that is precisely the reason why the average Canadian or European voter for that matter, should embrace such ideas. By reducing spend, tax and government coercion, the economy would truly bloom, and all income levels would benefit. Now that is something which even populists, who posture that they are deeply concerned about general societal welfare, should support.