Stalled. Michael Hlinka

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      Infrastructure spending was key in propelling the Canadian economy forward in the 1950s. In addition, there was a great deal of attention paid to education, which improved the country’s human capital.

      My mother graduated with a commercial certificate from an inner-city public high school, the equivalent of a Grade 10 education. She came from a family where neither of her parents were formally educated, and English was not spoken at home. By her own admission, she was an average student. From what I remember about my mother’s basic skills in the three Rs, her grammar and spelling were far better than mine … even with Microsoft’s assistance (if you doubt me on this one, please get in touch with my editor), and this after four years of university and a master’s degree in business administration.

      But as excellent as my mother’s communication skills were, they paled compared to her math. I grew up in an era when Canada used the imperial system of measurement. Everything was in ounces, pints, and quarts. My mother grew up in a household where every penny mattered, and this was never lost on her. While she and my father worked as a team to provide wonderfully for me and my sister, my mother was acutely budget-conscious. I have distinct memories of grocery shopping at the local Loblaws, and as we walked the aisles, she would work out to a decimal place — in her head — where the best value would be found, comparing one brand’s thirty-two-ounce size with another’s forty-eight. If that doesn’t speak to the quality of public education at the time, I don’t know what does.

      In 1955, there were 74,000 Canadians enrolled full-time in post-secondary institutions,4 which represented a very small fraction of the population. The vast majority of young Canadians (and this included my mother) joined the workforce after graduating from high school, equipped with the basic skills to add value immediately.

      This was a good thing. Some more simple arithmetic: If you were born in 1930, life expectancy was sixty-one. If you started working straight out of high school at the age of eighteen, 70 percent of the years you had on this planet were spent in productive activity. If you started working after four years of university at the age of twenty-two, that dropped to 64 percent. Aggregate that across a population that numbered into the millions, and it adds up.

      Remember Cobb-Douglas: Everything else being equal, more hours worked means higher economic growth.

      Something else was going on during that decade. Even while government was ploughing huge amounts of money into infrastructure, the ratio of government debt to gross domestic product was shrinking spectacularly. In 1945, the last year of the Second World War, debt as a percentage of GDP stood at 160 percent. By the beginning of the 1950s, it had come down to a manageable 90 percent; then, ten years later, it was only 40 percent.5

      How was that possible?

      It’s easily explained. A growing economy meant that tax revenues were increasing, and given that government limited its role, things took care of themselves.

      It’s almost impossible to overstate how important it is to minimize debt, whether it be for a household or nation. If you look at the budgets of most governments today, one of the biggest single line items is that for public debt charges. This year in Canada — at the federal level alone — interest payments will cost each Canadian close to $1,000.6 It was a different story in the 1950s. Even as government revenue was exceeding expenditures and debt was being reduced, even while the standard of living and quality of life of Canadians were improving, the personal savings rate was increasing. It ranged between 6 percent and 10 percent throughout the decade,7 and if there is one thing that history tells us — if we’re not blind to the obvious — it’s that there’s a positive correlation between savings and economic growth. In fact, higher savings rates drive higher growth.

      Time for the next question … and this one is a lob ball.

      QUESTION 14

      Which economy experienced the higher rate of economic growth from 2000 to 2010?

      ☐ The United States of America.

      ☐ The People’s Republic of China.

      According to the World Bank, the American economy grew by approximately 2 percent per year while China’s clipped along at 10 percent.8

      QUESTION 15

      Which country had the higher savings rate from 2000 to 2010?

      ☐ The United States of America.

      ☐ The People’s Republic of China.

      Question 15 might have been even easier than 14. China’s gross savings rate for the decade exceeded 50 percent while America’s was in the teens.9 It is unanimously agreed that China’s savings rate is the highest in the world.

      Wait a second. Isn’t it a mantra of conventional economic thinking that spending is “good” and saving is “bad”? When you spend money, aren’t you’re moving things around and making things happen? Don’t you hear this all the time? Aren’t we continually told that we’ll solve the country’s economic ills by getting more money into the hands of consumers?

      There’s only one problem with this argument — it’s simplistic nonsense. Because it confuses the wealth-creation process (working and making goods and services of real value) with the consumption function (using things that have already been made). It puts the consumption cart before the production horse.

      There are two logical reasons why higher savings rates contribute to higher economic growth. The first is grounded in the Cobb-Douglas framework. When someone makes money, there are only two things she can do with it: spend it today or save it now to eventually spend down the road. One way or the other, the money will be spent. But a benefit of saving is that it allows pools of capital to accumulate, which facilitates investment and the creation of that much more wealth in the future.

      A characteristic of the poorest countries in the world is that their savings rates are very low. This makes sense. If you’re living in abject poverty, it takes every single peso or pula to make it through the day. You can’t afford the luxury of putting money aside. But what that means, unfortunately, is that tomorrow will be just as bleak as today.

      There’s another reason why a high savings rate leads directly to higher growth and it’s firmly grounded in behavioural economics. Say I currently make $50,000 a year. If I would like to enjoy the lifestyle of someone who makes that much, I will have to spend every cent. At the same time, it’s a priority of mine to save 10 percent of my income. I understand that this is what I need to ensure a dignified and comfortable retirement. Seems that I’m stuck between a rock and a hard place. If I save that 10 percent, then I’ve got only $45,000 to live on.

      Except, I’ve got other options. I can increase my income. I can work harder and longer at my current occupation, putting in overtime. I can get a part-time job. Or I can upgrade my skills, increase my value as a marketable employee, and make that extra $5,555 annually.

      Then I can enjoy a $50,000 standard of living and accomplish my savings goals.

      And drive real economic growth.

      Let’s get back to the 1950s. One of the most significant events in that decade was the large increase in the number of immigrants that Canada accepted. Of course, Canada is a nation of immigrants, and immigration has always been critical to this country’s development. In 1947, Prime Minister Mackenzie King enunciated the principles that guided policy for at least the following decade:

      The policy of the government is to foster the growth СКАЧАТЬ