Comment 65533

By A Smith (anonymous) | Posted July 05, 2011 at 00:40:33

From 1985-1998, interest payments on Canada's debt (fed and prov) never dropped below 8% of GDP. In that time period, nominal GDP averaged 4.99%/year, while Toronto home prices increased by an average of 4.39%/year.

From 2000-2011, interest payments have gone from just over 7% of GDP to around 3.9%. In this time frame, Canada's nominal GDP has grown by an average of 4.42%/year, while the average house cost has increased by an average of 6.2%/year.

If we look at the time period between 1991-1994, when deficits were very high (averaged around 7.25% per year), nominal GDP averaged only 3.18%/year. That's bad, right? Maybe not.

When we consider that home prices FELL an average of 3.78%/year during this period, it meant that the average Canadian could purchase a home with less debt, which more than made up for the slower growth in nominal GDP (incomes). In other words, Canadians actually produced MORE in real goods and services during this period, even though the headline GDP numbers suggest they produced less.

It may just be that deficits, welfare and tax cuts, all which appear to be free lunches for Canadians, are actually just catalysts for higher productivity.

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