It’s A Gray Area: Canada has the right idea

This past weekend I joined about 2,000 other people at a convention called Freedom Fest in Las Vegas. In many ways it was intensely discouraging. In many other even more important ways, it was encouraging and exhilarating.

The discouraging part dealt with our present economy and the forecasts for the immediate future. Many seemingly knowledgeable people stated forcibly that we cannot have a sustainable economic recovery with such large government spending and deficits and no gain in job creation. At the moment, our government spending is at the rate of about 39% of the gross national product. In addition, this year we are running a deficit of about $1.35 trillion, with estimates that next year it will be three to four times that number.

Simply stated, this government spending will put our economy and probably the world into a depression.

As a result, I came home and sold all of my mutual funds. At the moment they are not a good investment. Our own government underscores that fact, because it is making it increasingly difficult to move our assets out of the country. For decades we looked with disapproval at the governments of Third World countries that had adopted regulations punishing people for moving their assets abroad, but now our government is doing the very same thing. Most discouraging!

Furthermore, we heard that our government is trying to convert our nation’s financial advisors and securities brokers into policemen. Under the so-called Patriot Act, which has been heartily embraced by the Obama administration, it is a crime for financial counselors to see something in our financial patterns that “even appears suspicious” without reporting it to the federal authorities. And, according to many of the counselors, this has little to do with terrorism or even drug money laundering, and instead it simply has to do with possible avoidance of taxes. This is the depth to which our government now has fallen.

So in the face of all of this reality, how could I emerge optimistic? Because it was reaffirmed, again and again, that freedom works! The free enterprise system, buttressed by private property rights, a fair and just judicial system for all, and a smaller, less intrusive, and less expensive government, can and will bring us out of these problems! These are what have made our country strong and great throughout our history, and they will do it again!

Canada is a magnificent example of this. Most of us think of Canada as being socialist, and it certainly still is in its health-care system. Furthermore Canada richly deserved that label in its entirety until the late 1990s. Between 1976 and 1995, the percentage of Canada’s deficits went up from 35% to a full 78% of its GNP, government spending reached up to 53% of the nation’s GNP, and welfare payments increased from 5% of the budget in 1980 to 10% in 1991. So all of this resulted in the Wall Street Journal running an article Jan. 12, 1995, that called Canada an honorary member of the Third World because of the weakness of (what the newspaper called) the Canadian Peso.

The article triggered enormous reforms in Canada. In view of the reality that one-third of every dollar paid in taxes was being spent simply on interest payments on the national deficit, concerned citizens and the media went over the heads of the politicians and sent their message directly to the people that the deficits must be strongly reduced. And the best way to accomplish this was to reduce government spending, and to stimulate the economy by reducing taxes. The people listened and responded.

As a result of pressure for these basic changes from the voters, within a few years all of the political parties in Canada were in favor of reducing the deficit — including the Liberal Party and the Socialist Party! The only debates were what spending and which taxes to reduce — and how much. Thus, since 1997 the federal workforce has been reduced by 14%, and all taxes have been reduced as well, including income, sales, capital gains and estate taxes. This combination of actions has reduced the spending of the Canadian government from 53% to about 39.7% in 2008. Our level is about 39%, but estimates are that by two years from now ours will be even higher, and theirs even lower.

Contrary to the warnings of the critics, even though government spending and taxes were materially reduced, government revenues remained the same. As a result, Canada now has one of the strongest economies in the world. The recession we have experienced in our country was appreciably milder and shorter in Canada, its job market has been strong, and its real estate has held its value. Canada’s fiscal deficit for this year is projected to be about $33 billion, which, at less than 3% of its GDP, is considered manageable. On the other hand, our estimated federal deficit is $1.35 trillion, or about 9.2% of our GDP. But nevertheless there was much optimism at Freedom Fest because we know we can learn from our mistakes and from Canada’s example, and we can turn things around by returning to our roots.

So basically we have two choices: We can either view these present circumstances with despair, or we can view them as a challenge. Most of the participants at the conference were not really worried about our future because throughout our history Americans have always risen to a challenge. In other words, all we need to do to regain our strength and our dreams is simply to repress our self-pitying and resentful sides, and return to being Americans. And I know that we will!

JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of “A Voter’s Handbook: Effective Solutions to America’s Problems” (The Forum Press, 2010), and can be contacted at JimPGray@sbcglobal.net https://www.JudgeJimGray.com.