Jack Mintz is wrong about Canada’s economy

Last week, University of Calgary economist Jack Mintz published an op-ed in the Financial Post. In it, he wrote that Canada had the “worst five-year period for per capita economic growth since the Great Depression.”

There were a few claims in there that I thought should be cleared up.

A brief economics lesson first though. Mintz mostly refers to real GDP per capita in his claims. Real GDP is the GDP in a particular period but expressed in dollar value of a baseline period. Mintz’ base period is 2012, which he expresses as “2012 chained dollars” or “in $2012”. He makes this metric even more relative by comparing it to population levels.

Now onto some of his claims.

At the end of 2015, real per capita GDP was $51,158 (in $2012). As of October 2020, it is $50,510 in those same 2012 dollars. We are poorer today than we were at the end of 2015 by $650 per person.

It’s dishonest to compare 2015 to 2020. Lots of businesses were still shut down. Over a million people were still out of work or had reduced hours directly because of the pandemic, and Canada sat at nearly 9% unemployment at the end of the year, just after losing over 60,000 more jobs. In fact, December was the first time we saw job losses in Canada after 7 straight months of gains.

So, let’s ignore 2020 for now, since it’s pretty much a statistical outlier, skewing our reference data. Let’s use 2019 as the comparator instead.

Using Statistics Canada annual GDP data (2012 dollars) and annual population estimates, I determined that real GDP per capita in 2015 was $54,228.08 and that it was $55,922.18 in 2019. I don’t know about you, but that looks like an increase of about $1,700, not a decrease of $650.

In fact, not only was real GDP per capita higher in 2019 than it was in 2019, it increased nearly every year since 2015.

Like I said, it was dishonest to use the economy of a pandemic year to evaluate economic growth.

Since 2015, the only decent year for real per capita GDP growth was 2017, at 1.94%. In each of 2016, 2018 and 2019, growth was around zero (and in fact below it in 2016, at -0.14%).

Kind of.

According to my calculations, 2016 did indeed see real GDP per capita growth of -0.14%, but the others are off: 2017 was 1.81%, 2018 was at nearly 1%, and 2019 was at about 0.5%.

Oh, did Mintz forget to mention that 2015 had a real GDP per capita growth rate of -0.09%?

Now, to be fair, the growth rate had been getting smaller, but to suggest it was worse than it was in 2015 is disingenuous. And while it doesn’t seem like it’d grown much between 2018 and 2019, it was 3% higher than it was in 2014. It was actually at its highest level ever.

And since economists use real GDP per capita to measure standard of living, that means Canada never had as high of a standard of living than it did in 2019, just before the pandemic-well, and the oil price crash-hit last year.

U.S. per capita growth 2016–19, leading up to the pandemic, was stellar at 1.7% per year, a full point higher than Canada’s 0.7%.

He’s right. Well, pretty close. The average between 2016 and 2019 was 1.84% growth in real GDP per capita for the US.

Yep. The US did indeed see better growth in real GDP per capita than Canada. The data doesn’t lie.

I do find it interesting that the US growth rate dropped in 2016, just as Canada’s did the same year. Also interesting is that growth in both 2018 and 2019 was increasingly smaller than 2017, just as it was for Canada.

Apparently, it’s not really the growth patterns after all that are the problem in Canada, but the actual percentages.

Mintz goes on to hypothesize why he thinks real GDP growth per person is less than 1% in Canada.

He first states that he doesn’t think it was underemployed labour (since our employment rate had been improving) or poor training (we compare well with out countries regarding education).

But then come the culprits: stagnant levels of business fixed capital and research and development spending.

Business and public fixed capital formation has been basically flat since 2015. Residential and public investment have both grown but non-residential business investment has fallen 14 per cent since 2016.

and

Business expenditure on research and development was more or less steady 2014–18 at 2.2 per cent of revenues but that masks a 10 per cent decline for companies with more than $10 million in R&D expenditure. Business investment in intangible assets (digitization and innovative property) is virtually flat after 2012.

And the causes for these woes? Well, to anyone who’s familiar with Mintz, these shouldn’t come as a shock to you. He blames regulation for this lack of business innovation.

Here’s what I don’t get. Look at GDP for Alberta between 1997 and 2019.

At what point in the last 22 years does Mintz think Alberta’s GDP was affected by regulation levels? For nearly 17 years straight, GDP growth was fairly consistent. Is that because regulations were low and never changed? What about in the last two years of the NDP’s term, as the economy was recovering from the 2015–16 recession? Was that because of fewer regulations?

I have another possible cause of this low GDP growth: income levels.

The above chart shows the annual median after-tax income in Canada between 2008 and 2018.

The way media works is that you take all your data, sort it from greatest to least, count how many datapoints there are, and find the one in the middle. That’s your median.

Say you had 4300, 1567, 3788, 9432, and 2566 as your dataset. You’d sort it to look like 1567, 2566, 3788, 4300, 9432. Count them up: 5. Then find the middle one, or the third one in this case: 3788. That’s your median.

In our case, it means half of the reported incomes in the dataset are less than the median and the other half are higher than the median.

Between 2008 and 2018, Canada’s median after-tax income went from $29,300 to $32,400 (all in 2018 dollars). In 10 years, Canada’s median after-tax income increased by $3,100. That’s an extra $260 a month.

In 2008, Canada’s household debt-to-disposable income ratio was 155.49%. That means someone with a disposable income of-oh, I don’t know, say-$29,300 would need to make 1.5549 times more than that to cover their debt. That’s a little more than $45,000.

That $32,4000 in 2018 isn’t even enough to pay off the debt Canadians were carrying in 2008. And that’s assuming just disposable income, but of course, median after-tax income covers all expenses, not just extras.

If you want to talk about stagnancy related to the economy, maybe focus on worker wages, and the fact that 80% of Canadians made under $50,o00 in 2018.

Workers are consumers. The more money they have, the more they spend. Every time they spend money, a business makes a sale, which increases their revenue. The more sales a company has, the higher its revenue. The more revenue they have, the more money available for capital investments and research and development.

If the economy is stagnating, maybe check to see how much workers are being paid.

Originally published at kimsiever.ca on 2 February 2021.