Trump, Clinton, and what it all means for Ontario

This week, all eyes have been on the American political scene as Hillary Clinton and Donald Trump squared off Monday in the most anticipated presidential debate in history. So now is a good time to consider recent economic developments south of the border and what they mean for us here in Ontario.

Throughout the 1980s and 1990s, America was a global leader in economic freedom and prosperity due to comparatively modest tax rates, a relatively small government, and somewhat less onerous economic regulations than other countries. Partly as a result, American living standards were among the world’s highest.

But a recent analysis shows economic freedom waning in the U.S.A. Between 2000 and 2013, government spending as a share of all consumption increased, meaning more decisions are being made by governments, and fewer by private citizens and businesses. Further, policymakers have increased personal income taxes and added regulations.

As a result, America went from being the world’s third most economically free country in 2000 to the 16th freest in 2014.

This decline in economic freedom has made the economy weaker. Real economic growth has been below its historic average, and job growth has lagged behind levels from recent decades.

Reversing this decline should be among the top priorities of the next president. But neither major candidate has put forth a consistent vision for a more economically free America.

For example, Mr. Trump has consistently railed against free trade, suggesting the need for more barriers to restrict the flow of goods and services across North American borders. Secretary Clinton has called for further tax increases, and even more government spending, which is not what the American economy or its highly indebted government needs. American voters hoping to reverse the decline economic freedom face imperfect choices among the major candidates.

But these issues aren’t just of academic interest for Canadians. Developments in America affect us. The U.S. has long been a global leader in economic freedom, helping show how freedom drives prosperity. It’s therefore not surprising that, according to early evidence, many Canadian jurisdictions are following the U.S. lead by enacting policies that undermine economic freedom.

Consider the Canadian federal budget in March, which planned for a big increase in spending. Between 2014/15 and 2017/18, federal spending is set to increase by approximately 20 per cent—far faster than the expected rate of economic growth.

We see the same trend in Ontario. From 2003/04 to 2015/15, provincial program spending grew at an average annual rate of 4.7 per cent compared to a 3.2 per cent average annual rate of economic growth. During the same period, some taxes have gone up. These developments mean more economic decisions in the hands of governments and fewer in the hands of private citizens. 

Americans sometimes refer to their country as “the land of the free,” but it’s less true than it once was. Economic freedom in the U.S. has been on the retreat for many years There are now warning signs that Canada, and specifically Ontario, are also becoming less free.

Elections sometimes bring the hope of policy change and reversal of troubling trends. Unfortunately, neither major candidate for president has put forth a consistent agenda focused on making America one of the freest countries on Earth once again.

The worrying North American trend towards less economic freedom may be set to continue.