Canada, giver of financial lessons?

"Been there, done that:" this is how some Canadians - including Prime Minister Stephen Harper speaking from Brazil - reacted to Standard & Poor's downgrading of the United States credit rating from AAA to AA+. Canada's rating was similarly lowered in the early 1990s, which opens the door to the superficial comparison: we were in trouble, we got our house in order, and now that the U.S. and Europe are in similar trouble (witness the rating drop), we are a model.

The quote above is from The Globe and Mail's Barry McKenna at http://www.theglobeandmail.com/report-on-business/commentary/barrie-mckenna/to-follow-canadas-example-us-tax-reform-essential/article2122284/. While McKenna offers a reasoned analysis of why the U.S. government needs to raise taxes in order to attack its deficit, he is also playing to the absurd notion that Canada's experience in the 1990s can teach the world something, at this juncture, about exit strategies and sound public finances.

In the early 1990s, the federal government's accumulated debt and annual budget deficits were high, and its credit rating was indeed downgraded. But the red ink was a result of two decades of slow economic growth outpaced by accumulating commitments of the welfare state. Many other developed countries were in a similar situation, and neo-liberal policy solutions were on the rise. The Canadian government returned to surplus budgets in less than a decade by privatizing (e.g. Air Canada, Petro-Canada, etc.), deregulating, downloading costs to provinces and municipalities, generally shrinking government commitments and payrolls, and profiting from the new Goods and Services Tax (G.S.T.). Canadian public finances were helped hugely by a fast-growing global economy. It was not a coincidence that the U.S. government during the Clinton presidency also came out of deep deficits and posted surplus after surplus.

And what have we now? There is no global economic engine that can pull a mid-size economy such as Canada's along, and most governments' policy preferrences (more neo-liberalism) will depress growth by trying too soon to put a cap on debt. In this depressed global economy, the U.S. and the European Union are struggling as much with their governance as they are with their debt: in very different ways, they are unable to establish the policies needed to stabilize debt while spurring growth. In the U.S. the Republican Party seems hell-bent on destroying the country's economy and, controlling the House of Representatives, it is in a position to carry out its threats. Meanwhile, the E.U. is suffering from a Euro zone that is either integrated too much or not enough, and member governments cannot agree on how to move forward. Canadian lessons, anyone? I think not.