Krugman and the Canada canard
For exiled Canucks – and even the non-exiled – it’s always pulse-quickening to encounter a reference to Canada in a non-Canadian newspaper, let alone a whole column by liberal economist and bien-pensant Paul Krugman singing our praises in The New York Times! (Hey, what do you want? We’re a dominated people clinging to the border of Manifest Destiny.) Unfortunately, Krugman’s column is ho-hum at best, and wrong, in an important way, about both Canada and the U.S.
The point of Krugman’s column is to ask: why did Canada’s banks weather the recent (chronicle of a) financial crisis (foretold) so much better than their American counterparts? The answer he offers is stricter regulation. This is fine as far as it goes, yet given the striking disparity between the Canadian and American experiences both the question and answer have been asked and answered before. Moreover, Krugman neglects to point out the successful opposition in Canada to bank mergers in the late 1990s. Not only would such mergers have created even bigger banks too big to fail, but they also might have paved the way for foreign buyouts of Canadian banks (imagine how Canadian banks might have emerged from the financial crisis if they’d been bought by, say, Citigroup). Indeed, the opposition was a rare instance of public outcry defeating a plan cherished by the country’s political and financial elite and, given the present American context, it was a missed opportunity for Krugman not to highlight it. (For more of such social-democratic Canuck analysis see these thoughts from Mel Watkins – full disclaimer: he may be related.)
But all this great lake carping aside, the real problem with Krugman’s analysis lies in this claim:
I’ve always considered Canada fascinating, precisely because it’s similar to the United States in many but not all ways. The point is that when Canadian and U.S. experience diverge, it’s a very good bet that policy differences, rather than differences in culture or economic structure, are responsible for that divergence.
Actually, if the scorched-earth experience of the Bush years had any salutary effects, one of them was to underscore the fact that Canada and the US are in many respects starkly different, differences that, when it comes to influencing daily life and government direction, easily outweigh the similarities. And these differences are about policy, certainly, but that policy, pace Krugman (god it feels good to get a pace out of my system), is generally the result of profound cultural differences. By which I mean, the chief cultural difference separating – the image of an abyss comes to mind – Canadians and Americans is the respective attitudes to government. Yes, after a few years of our own scorched-earth débâcle, the belief in Canada is reeling somewhat, but in the main, Canadians do see a necessary and beneficial role for government to play. We do not reflexively distrust regulation or imagine government to be so inherently inefficient and corrupt that everything possible should be left up to the private sector. It was precisely this belief – a deep-seated cultural presupposition – that helped defeat bank mergers, and created the culture of regulation praised by Krugman.
Indeed, in the American context, it was precisely the flip-side of this belief – that government is the problem, not the solution, to quote the unlamented Gipper, or that government should “get out of the way” to cite, with a heavy heart, the darkly risible ex-governor of Alaska – that Obama’s election seemed briefly to point a way past. At least, that’s how I read the reception of the “Yes We Can” bumper sticker. That is, yes we can solve our problems, and yes that’s going to involve some collective action. It’s deeply distressing, then, to see how this moment has been so utterly squandered by the Obama Best & Brightest; indeed, so much so, one wonders whether they ever had any intention of trying to capitalize on it… But that’s the subject of another column. Maybe I’ll suggest it to Paul.