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When I think Canada, I think big government. I'm embarrassed that I didn't know that in the mid-'90s, Canada shrank its government. It had to. Its debt level was as bad as ours is today, almost 70 percent of the economy. Canada's finance minister said: "We are in debt up to our eyeballs. That can't be sustained."
Economist David Henderson, a Canadian who left Canada for the United States, remembers when The Wall Street Journal called the Canadian dollar "the peso of the north." It was worth just 72 American cents. "Moody's put the Canadian federal debt on a credit watch," Henderson said.
The problem, he added, was that Canada had a government safety net that was more like a hammock.
"When I was growing up in Canada, people who went on unemployment insurance were said to go in the 'pogie.' You could work as little as eight weeks, taking the rest of the year off."
So in 1995 Canadian leaders cut unemployment benefits and other programs. It happened quietly because it was a liberal government, and liberals didn't want to criticize their own. The result was that Canada's debt stopped increasing. As the government ran budget surpluses, the debt went down.
"The economy boomed," Henderson said. "Think about what government does. Government wastes most of what it spends, and so just cutting government and having that money in the hands of people means it's going to be used more valuably."
Canada fired government workers, but unemployment didn't increase. In fact, it fell from 12 percent to 6 percent. Canadian unemployment is still well below ours. And the Canadian dollar rose from just 72 American cents to $1.02 today.
Canada also raised some taxes. But the spending cuts were much bigger, six to one: agriculture was cut 22 percent; fisheries, 27 percent; natural resources, almost 50 percent.
"We should learn from Canada's experience that you can cut government substantially," Henderson said. "It is so wasteful. There's so much to cut, without causing much real pain—not causing pain, but helping your economy grow, helping people become better off."
Henderson added, "We need to move more quickly than the Canadians did. Unfortunately, we're moving more slowly than the Canadians did."
If we're moving at all.
While Canada thrives, we pour more money down the hole.
John Stossel is host of Stossel on the Fox Business Network. He's the author of Give Me a Break and of Myth, Lies, and Downright Stupidity. To find out more about John Stossel, visit his site at johnstossel.com.
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