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If We're Rich Right Now, It's Because We've Been Damn Lucky

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There's an old joke about a therapist and a young woman. The therapist shows her one ink blot after another and asks her what she sees. Each time, she responds "sex." After several ink blots, the therapist comments that the woman seems to be obsessed by sex. "Me?" she responds indignantly. "You're the one showing all the dirty pictures."

Greek bailouts, faulty Spanish banks, and poor U.S. jobs numbers. The world is on fire, yet Canada has entered a period of relative bliss. And it's easy to compare Canadian successes to American problems.

Unemployment? Your cousin in Florida may be looking for work, but you're not, since the unemployment rate is lower in Canada by a full percentage point (7.2 per cent vs. 8.2 per cent). Housing prices? Your property in Edmonton is worth a pretty penny -- housing prices never crashed north of the 49th parallel -- but your Aunt regrets her Vegas condo purchase.

And, of course, this bombshell analysis released earlier in July: according to Environics Analytics Wealthscapes data, the average Canadian household is more than $40,000 richer than the average American household. The average household net worth in Canada was $363,202 in 2011; in the U.S., it was $319,970.

Many, particularly those with an eye on the United States, have asked: why the Canadian boomlet? Last year, writer Fred Barnes wrote at length on the topic for the cerebral quarterly National Affairs. Policy analyst Jason Clemens put the pen to paper for The Wall Street Journal. This week, novelist and columnist Steve Marche draws lessons from Canada's success for Bloomberg.com, in a cleverly titled piece, "Hardheaded Socialism Makes Canada Richer Than the U.S."

That last essay has gathered attention in recent days. It's been reprinted in this country, of course, but also as far away as the Korea Herald. It's sparked various responses, including a front-page piece by Financial Post editor Terence Corcoran in yesterday's National Post (and also a blog on HuffPost by U.S.- Canada expert, Christopher Sands).

And while Barnes, Clemens, and Marche have all been thoughtful, it's difficult not to think of the therapist and the young woman -- you can see in a complicated pattern pretty much what you want to see.

Let's start with Marche. To his fawning eyes, everything looks great in Canada, from the Charter of Rights to the currency. Marche is intelligent and clever with words, but even if Egyptians should copy our Charter (as he recommends) and Icelanders could piggy-back on our loonie (as he suggests they might), it's difficult to see how this really has led to Canadian success.

He gets more wonkish later in the piece, and largely credits Canadian success to hard decisions made in the 1990s. He describes these decisions as "hardheaded (even ruthless), fiscally conservative form of socialism."

Its originator was Paul Martin, who was finance minister for most of the '90s, and served a stint as prime minister from 2003 to 2006. Alone among finance ministers in the Group of Eight nations, he "resisted the siren call of deregulation," in his words, and insisted that the banks tighten their loan-loss and reserve requirements. He also made a courageous decision not to allow Canadian banks to merge, even though their chief executives claimed they would never be globally competitive unless they did. The stability of Canadian banks and the concomitant stability in the housing market provide the clearest explanation for why Canadians are richer than Americans today.

Let's set aside the very question as to where Canadians really are richer than Americans. (Terry Corcoran argues pretty persuasively over at the National Post that the analysis isn't worth the paper is written on.) Instead, let's focus on Marche's "hardheaded socialism" claim.

A few points.

First, Canada isn't that socialist -- and America isn't that free-market. Compare government spending as a percentage of GDP. The Canada-U.S. difference is modest. Government spending in Canada was 43.2 per cent in 2011; the United States it was 41.9 per cent. As Clive Crook quips over at the Atlantic: "I guess that makes the difference between hardheaded socialism and capitalism red in tooth and claw about 2 percentage points of GDP."

Second, both countries have made various interventions into the housing market. Canadian "socialism" means that it's harder to get a mortgage here -- true. But in the "free market" United States, government agencies like Fannie Mae and Freddie Mac made loans readily available (too readily available) while the U.S. tax code allows mortgage deductions. That's not to be simplistic and suggest that the housing crisis was sparked solely by public-sector measures. But there are a variety of factors at play in the United States, including government policies -- what Marche would surely dub "socialist."

Banking regulations also differ, and the picture is vastly more complicated than Marche suggests (that is, an industry tightly controlled by government, having been supposedly tamed by the visionary Martin).

Author Reiham Salam writes well on this, over at National Review.

It is worth noting, however, that Canada never had a Glass-Steagall-style wall of separation between commercial and investment banking, and its highly-concentrated financial services industry has thus long been dominated by so-called "universal banks." Canada was able to "resist the siren call of deregulation" in part because Bay Street was in some respects less tightly regulated than Wall Street.

Third, natural resources are mentioned in passing in the Marche piece -- literally just two sentences. And this is where Clemens and Barnes can be faulted, too. All three have focused on the influence of government policy on Canada's prosperity. It's a bit like writing a history of the Second World War and not seriously considering the European theatre.

Good policy is important in a country's success -- sure. But good luck can often be more important. And Canada is a nation that has won the lottery, except there is no prize boat or house, but rather an exceptional amount of natural resources, all of which are trading at historically high prices.

Yes, Martin made big decisions two decades ago; it's also true that the Harper government resisted the siren call of massive stimulus spending in this decade. But Canada is an economy built on natural resources, and natural resources are booming. If oil traded at $9 a barrel, not $90, Marche would still be writing about Shakespeare.

The day after Bloomberg.com ran Marche's analysis on Canada, the Bank of Canada issued its quarterly report. For the record, the governors predict a down-tick in economic growth. The short report doesn't mention hardheaded socialism, by the way, but rather a cooling in oil prices.

This leads to an important question: if Canada is lucky, where do we go from here? For as history shows, oil booms are followed by oil busts. Canadians know this lesson too well. We enjoyed prosperity in the 1970s only to see harder times in the 1980s and 1990s.

And here there are lessons to draw -- not for Americans, but for Canadians. We need to use our moment wisely. In the 1970s, we oversaw massive government projects that we couldn't afford. It literally took decades to put our fiscal house in order.

Times are good today, they may not be so good in a few years. It's easy, like the woman in the joke, to see what we want (our genius in all aspects of our governance), no matter how complex the pattern. But times will change, and quickly.

Canadians need to be less self-congratulatory; we need to be strategic and prudent. We must use this opportunity to address bad policies (our health care system's excessive focus on health, not health care, for instance) and prepare for the future.

Such an approach isn't hardheaded socialism or free-market enthusiasm; it's realism.