Canada vs. USA Wealth Battle

Canada's GDP per person still isn't back to where it was before the crisis. In fact, it has been going down. This lack of output growth is very bad for our long-term standard of living, especially when we compare it to the US, which is our main economic and trade partner.

Indeed, compared to the US, the most recent drop is just the latest example of a long-term trend of poor performance that goes back decades. Figure 1 shows the difference in real GDP between Canada and the US for each person from 1981 to 2022, taking inflation into account. It also shows the ratio of real GDP in Canada to GDP in the US. The result is very interesting.

Over time, both the U.S and Canada's real GDP per capita has grown, but there is still a gap between the two. The real GDP per person in Canada has grown by 59% since 1981, while it has grown by 98% in the U.S

The gap between the two countries has grown because of this. In 1981, Canada's real GDP per person was almost 90% of the U.S.'s. By 2022, it had dropped to just over 70%

On top of that, Canada's real per capita GDP has always been lower than the U.S.'s, but since 1981, the trend has been the opposite of historical growth compared to the U.S. From the 1870s to the early 1980s, the difference between Canada's real per capita GDP and the U.S.'s grew from about 70% to almost 90%.

We've come full circle and are now back to where we were in the 1870s. That being said, it's important to remember that performance varies by region. The natural resource industries in Alberta, Saskatchewan, and Newfoundland and Labrador have helped those states do a little better. When looking at recent real per capita GDP growth in big cities, Quebec City, Vancouver, and Montreal have all seen bigger gains than Toronto, Calgary, and Edmonton. In any case, the national environment is getting worse compared to the US.

There are five main reasons for this: differences in population growth, investments in capital and research and development, problems with the structure of the economy, and finally the policy environment. Figure 2 gives some background on high population growth, which has recently become the most popular way to understand Canada's real per capita GDP performance. Canada's population is growing at the fastest rate since the 1950s. This is due to more immigrants, including many foreign students and temporary workers. Canada's population was expected to be 40.528 million in the third quarter of 2023. This was a record increase of one million people from 2022, which was already a record year for growth.

Janice Nelson made the graphic Large-scale or rapid economic growth are the two types

Extensive growth means that the economy as a whole grows, while intense growth means that the economy as a whole grows per person. GDP must grow faster than population, taking inflation into account, for intense growth to happen. Assuming everything else stays the same, if Canada's population grows faster than the U.S.'s, it will cause the difference in per capita income to grow. Because Canada's population has grown compared to the U.S.'s over time, as shown in Figure 2, that has been the case for a long time.

The number of people living in Canada grew by 117% between 1960 and 2022, while the number of people living in the US grew by 85%. Because of this, Canada's share of the U.S. population rose from 10% to 12%. In comparison to our southern neighbors, we are getting bigger, which should help our home market grow and create economies of scale.

Plus, immigrants tend to be younger, so the recent population growth also helps with the labor gaps that come with an aging population. It is true that more people can help the economy grow a lot. A lot of economic growth will not happen, though, unless the stock of capital also grows to boost output.

It's strange that Canada's recent performance in capital investment—investment in buildings, plants, machinery, and equipment—looks pretty good compared to the U.S

When looked at as a percentage of overall GDP. At the moment, our investment to GDP number is about 23%, while the U.S.'s is only 21%. But, like GDP, investment spending per capita is also an important number, and this is where Canada's lack of progress is clear.

Because the U.S. has a much higher GDP per person than Canada, it can put more of each person's money. Figure 3 shows that Canada has also fallen behind the U.S. in this area. In general, Canada has had less real spending per person than the U.S. And while U.S.business spending per person has mostly gone back to normal since the Great Recession of 2007–2008, ours hasn't changed much. In 2010, the real amount of money that each person in the U.S. spent on investments was 11,601, but in Canada, it was only 10,424—ten percent less. To catch up to the U.S.

in terms of per capita investment spending, Canada needs to spend an extra $1,117 on investments each year. If we did that, our share of total investment spending to GDP would go from 23% to 26%. Given how fast our population is growing, it goes without saying that we would need to spend a lot more on investments per person than the U.S. does. In fact, we would need to spend almost 30% of our GDP on capital creation. Canada hasn't seen anything like that since the wheat boom in the early 1900s, which was also the time when the country's population grew the fastest.