Writing in the National Post, Andrew Coyne weighs into the debate over whether Canada's household wealth has overtaken America's because of "socialism".
His answer points to a different factor: the increase in value of the Canadian dollar.
What happened, then? Three things. First, the U.S. housing market collapsed, while ours continued to rise. Practically all of the roughly $75,000 decline in U.S. household assets in the Environics study was a result of the nearly one-third drop in the value of their real estate holdings. Practically all of the roughly $64,000 increase in Canadian household assets was derived from the 25% rise in their real estate portfolio.
Second, commodity prices, on which Canada’s economy is notably dependent, rose sharply. Oil prices, for example, climbed from roughly $65 a barrel in 2006 to more than $100 in 2011. That improvement in our terms of trade made an obvious and direct contribution to increasing Canadian household wealth.
And, third, flowing in part from that, the Canadian dollar also soared: from about 88 cents (U.S.) in 2006 to about $1.02 in 2011. Indeed, its value is considerably over-stated, by the measure economists use: that is, relative to its “purchasing power parity” level (the level at which a basket of goods and services would cost the same in each country, after converting). The University of British Columbia’s Sauder School of Business, for example, calculates the dollar is about 20% over-valued, relative to its U.S. counterpart.
Add up a one-third drop in U.S. real estate, a 50% rise in oil prices and a 15% increase in the value of the Canadian dollar and it’s hardly surprising to find the financial position of Canadian households has improved, measured against the Americans. It would be astonishing if it hadn’t. But how exactly does this make the case for the comprehensive superiority of “the Canadian system,” let alone “hard-headed socialism”?