Economic blues

Thanks to some new analysis in the New York Times suggesting the median income in Canada has caught up—and likely even overtaken—the U.S. since 2010, we’re now back to debating just how well off we are in Canada these days.

In a bit of a sobering contrast to the Times piece, here’s a look of how our economy is doing today, compared to how we were doing before the global economic crisis of 2008.

The following chart measures the growth of GDP per capita—or the share of economic growth generated by every person in Canada that year. It’s not a measure of the strength of the middle class, or even income disparity. But it is a good measure of what’s been happening to the wealth of the country overall.

The red line is the average per capita GDP growth trend between 1972 and 2006, the year before the U.S. housing bubble burst. The yellow line represents the actual annual per capita GDP growth. The gap between the two represents how much richer the Canadian economy would be right now if we had continued on the same long-term trend we were on at the start of the new millennium, which was roughly two per cent growth per year. All the figures are inflation-adjusted and plotted on a logarithmic scale, which allows you to more clearly see the magnitude of changes over time:

Clearly, the economy didn’t actually grow steadily by two per cent a year. In fact, it almost rarely followed the long-term trend. Much of the growth came in the 70s and early 80s and also in the early 2000s. However, the economic hardship of the 1990s was particularly prolonged. Our economy turned around in the middle of the 90s, but it took awhile to catch up, with per capita GDP growing slower than the long-term trend for nearly the entire decade.

Even more important to the “How Are We Doing These Days?” discussion is that we appear to be back in one of those prolonged slow-growth periods right now. So the real worry is that we may be headed on a path of lower growth in the long-run. Economic growth is compounding so that small changes in the growth rate can have long-term effects on how quickly we raise our standard of living. Just think where we’d be right now if our economy had kept growing the way it did in the late 80s, for instance.

This chart is inspired by research at “House of Debt” blog (which measured GDP growth, not per capita growth). Its authors, Princeton economist Atif Mian and University of Chicago economist Amir Sufi, worry that the slow growth in the U.S. since the Great Recession “has taken what looks like a permanent toll on the U.S. economy.”

Seems like this would be a good question to ask ourselves here in Canada, too.