Contrary to some recent claims, the Canadian economy is not falling apart, and now I have a Bloomberg column on that point. Excerpt:
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.
As for concerns:
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.
I am looking forward to my next Canada trip, when will that be? I don’t think I will make it to the Candidates’ tourney, but I am picking Caruana to win.
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