About a month ago I made a video called The UK is a Warning to
the Rest of the World. It was about the entirely
avoidable economic stagnation that overtook what was once the
world's pre eminent industrial power.
The comments section of that video was unusually lively, but
some comments really stood out. A lot of my viewers were saying
some version of just change the name of the country, and you've
basically described Canada. They said this, it should be
noted, very politely. So today, let's talk about
Canada. Now, back in 2012, a comparison
like that would have seemed absurd.
At that point, the global consensus on Canada was that it
was the ultimate best of all world's economy.
It had the natural resources of a Gulf state, the social safety
net of the Northern European country, and a housing market
that only seemed to move in One Direction.
Canada is a country that, on paper, should be one of the
wealthiest nations on earth. It has the second largest
landmass in the world. It holds the third largest
proven oil reserves. It's 5th in natural gas.
It has an abundance of uranium, potash, rare earth minerals, and
fresh water. It has a highly educated
population, a stable democracy, rule of law, and G7 membership.
By every measure of endowment, Canada should be a superpower.
In fact, there was a brief window in 2012 where the median
Canadian household actually pulled ahead of its American
counterpart, becoming by several measures the most affluent
middle class in the world. Looking back from 2026, it's
clear that this outperformance was driven by a unique set of
circumstances. It was the height of a global
commodity boom where crude oil prices had nearly quadrupled
over a decade, and the Canadian dollar was trading at or above
parity with the US dollar. While high energy prices were a
headwind for the US, they were a massive tailwind for Canada.
But if you look at the data today, that era of out
performance has vanished. The decline isn't marked by a
sudden collapse or a dramatic crisis.
It's a slow but always polite stagnation.
Between 2012 and today, Canada has fallen from #6 on the World
Happiness Index to #25 it's lowest ranking since the survey
began. To see a national mood sour this
quickly, you usually have to look at countries whose central
banks have been replaced by printing presses or whose
borders are being redrawn. In Canada, the institutions are
still there and the borders haven't moved.
It's just that the arithmetic of a middle class life has slowly
stopped balancing. National income per head has
fallen from roughly 80% of the American level in the decade
before the pandemic to around 70% today.
If Canadian provinces were American states, Alberta, the
oil rich outlier, would rank around 20th wealthiest,
somewhere between Colorado and Tennessee.
Ontario, Canada's most populous and economically central
province, would rank 48 below Montana, below Alabama and below
every southern state except Mississippi.
New Brunswick would rank dead last below Mississippi.
The provinces that contain most of Canada's population sit near
the bottom of the combined list. A country that was briefly
richer per capita than the United States is now having a
serious debate about whether it can arrest a generational
decline. The British disease that I
described last month was an object lesson in compounding
errors. But Canada's version of this
stagnation is unique. It's a story of how a country
with every possible advantage managed to fall into what Bank
of Canada senior deputy governor Caroline Rogers called in the
2024 speech a productivity emergency.
The reason I think the rest of the world should pay attention
to Canada is not that Canada is failing spectacularly.
It is failing gradually, systematically, and in ways that
are entirely legible. Compounding errors that
reinforce each other, each one individually defensible,
collectively ruin us. The same patterns are visible in
countries across the developed world.
Canada just got there. First, consider a thought
experiment. Imagine a professional sports
league where the same three or four teams win every year.
They've the largest stadiums, the biggest TV deals and the
most expensive players. The other teams are technically
allowed to compete, but the rules of the game have been
structured over the decades to make it very difficult for
anyone new to enter. What tends to happen over time
is not just that the incumbents win, it's that the whole quality
of play declines. Without genuine competitive
pressure, there's no incentive to innovate, to take risks or to
improve. Canada's domestic economy has,
in several of its most important sectors, been running this kind
of league for 30 years. Take telecommunications.
Canada has three dominant carriers, Bell, Rogers and
Telus, who collectively hold roughly 89% of wireless
subscribers. Canada has, as a result, some of
the highest mobile phone bills in the developed world.
A comparable unlimited data plan costs roughly twice as much in
Canada as in the UK or France. The Canadian Radio, Television
and Telecommunications Commission or the CRTC, which is
what you'd call it if you'd like to get home before midnight, has
for years been theoretically open to new entrants.
But the practical and regulatory barriers have ensured that
meaningful competition never quite materialized.
The industry has spent lavishly on lobbying and regulatory
intervention. It spends rather less on network
investment per customer than its counterparts in more competitive
markets. Banking tells a similar story 5
Canadian banks, the Royal Bank, TD, Scotia Bank, BMO and CIBC
hold approximately 90% of deposits in the country.
The Canadian banking system is, by design, highly stable.
It didn't have a financial crisis in 2008, unlike most of
the developed world. This is a genuine achievement,
and Canadian and bankers will remind you of it at every
available opportunity. But stability and dynamism are
not the same thing. A concentrated banking sector
allocates capital conservatively.
It lends to proven assets, existing real estate,
established corporations rather than to new ventures.
The startup ecosystem that Canada has quietly built,
particularly in AI, has often found that the most growth
oriented capital came from American funds, not from Bay St.
The pattern repeats in airlines, in groceries and in
broadcasting. A small number of large
incumbents, protected by ownership restrictions,
regulatory capture or both, extract returns from a captive
domestic market. The economist's term for this is
rent seeking. The polite Canadian term is a
stable industry. The consequence is that Canada's
labor productivity, the output generated per hour worked, has
declined relative to American productivity over time.
In 1997, the productivity gap was narrower.
Since then, the two economies have diverged by a cumulative 26
percentage points. Canada has not become less
productive in absolute terms. It's simply failed to keep pace
with an economy where competitive pressure is
significantly higher and where venture capital has directed
hundreds of billions of dollars into the highest productivity
sectors of the global economy. Canada spends less than half the
OECD average on research and development as a share of GDP, a
figure that has been below the average for two decades running.
There's also the question of internal trade.
Canada has a free trade agreement with the United
States, Mexico, the European Union, and most of Asia Pacific.
It does not have a fully functioning free trade agreement
with itself, a structural curiosity that has persisted in
various forms since Confederation.
In January 2005, the average Canadian home sold for 237,000
Canadian dollars. By early 2026, the average had
reached $661,000, a nominal increase of around 179%, or
nearly tripling in price. Even adjusted for inflation, the
gain is still huge in the country's largest cities.
It's been transformational. Now, there's a common comparison
made in conversations about Canadian housing that homes have
outperformed the stock market over time.
It's worth pausing on this On a straight price appreciation
basis, the TSX Composite Index actually outperformed Canadian
housing over the same period, and substantially so once
dividends are reinvested. The point is not therefore that
housing beat stocks. The point is that housing
performed like an equity investment in a non productive
asset. A company, when it rises in
value, has generally done so by producing something, a product,
a service, a patent, a drug, a piece of software.
The stock price reflects real economic activity, real
production. A house, when it rises in value,
has generally done so because land in a desirable location has
become scarcer, because planning restrictions have constrained
supply, or because a decade of historically low interest rates
create created a wall of capital seeking somewhere to go.
The house didn't invent anything.
It didn't employ a research team.
It just sat there. This distinction matters because
of leverage. If you bought a Toronto home in
2005 for $300,000 with a 20% deposit, so $60,000 down and
that home is now worth around $900,000, your original $60,000
has generated a capital gain of $600,000.
That is a 12:50 return on the actual cash invested.
It's also in Canada entirely tax free if it was your primary
residence. If you had instead taken that
same $60,000 and put it into ATSX index fund, it would be
worth roughly $195,000 today. A solid result, but it gets
diluted because of capital gains tax on the profit.
The incentive structure this creates is problematic.
The rational economic choice for a Canadian household with
savings has been for 20 years to put as much money as possible
into real estate as early as possible at as high a leverage
ratio as your bank will allow. This is not irrational behavior.
It's an entirely logical response to the incentives that
the system created. It is, after all, how everyone
you know made most of their money.
The consequences of this are considerable.
Housing prices in Canada's major cities now sit at somewhere
between 12 and 17 times median household income.
The median after tax income for a Canadian individual in 2023
was $74,000 a year. At the national average price of
$661,000, the price to income ratio is approximately 9.
In Toronto and Vancouver, it's substantially higher.
In 2020 and 2021, CIBC estimated that roughly 1/3 of first time
buyers received a parental gift to fund their down payment.
The average amount was 82,000 Canadian dollars, which, as it
happens, is slightly more than the median Canadian individual's
annual after tax income. In Vancouver, the average
parental gift was 180,000 Canadian dollars.
In Toronto, it exceeded $130,000.
The Bank of Mom and Dad has, in certain Canadian cities, become
the largest mortgage lender in the country.
It doesn't, however, publish accounts.
Amusingly, in researching this I found a Canadian real estate
industry publication where the author argued that what Canadas
housing market needed was further tax relief for property
owners on the grounds that this would stimulate more housing
transactions. I don't like to beat up on
someone, but consider the environment in which it's being
made. The average home in Vancouver
costs more than 17 times the average income.
The suggested solution is to make property ownership even
more tax advantage than it already is.
This is a bit like a doctor seeing a patient with high blood
pressure and suggesting that they eat more salt.
Technically it will do something, it's just not obvious
that the something is helpful. The political economy of this
situation is almost perfectly paralyzed.
Approximately 66% of Canadian households own their own homes,
meaning the 2/3 of the electorate have a direct
financial stake in keeping house prices high.
A government that credibly committed to building sufficient
new housing to return prices to something resembling
affordability would be asking a majority of its voters to accept
substantial reduction in the value of their single largest
asset. In Britain, we identified this
as the central political obstacle to housing reform.
In Canada, the problem is essentially identical.
The 2026 World Happiness Report contains a data point that I
find genuinely striking. Canada overall ranks 25th, which
is a significant fall from 6th a decade ago, but still a
respectable position for a country that is, by any
objective standard, wealthy, peaceful, and well governed.
But when you break this down by age, the picture changes
substantially. Canadians over 60 rank in the
global top top 10 for happiness. Canadians under 25 ranked 71st,
71st below countries with a fraction of Canada's per capita
income. That ranking reflects not just
where Canada stands, but how fast it has fallen.
The World Happiness Report tracks the decline in youth
happiness since 2011 across 136 countries.
Of those, only three recorded a steeper dropped in Canada,
Malawi, Lebanon and Afghanistan. One of the three has a poverty
rate above 70%. One has been in active armed
conflict. One is governed by the Taliban.
Canada is the 4th. There's a clean explanation for
this divergent and it is the housing market.
Older Canadians who bought homes in the 1980s, nineteen 90s or
early 2000s have, through the entirely normal process of
sitting in their houses, accumulated wealth that would
have been the envy of a successful entrepreneur.
The median senior family in Canada holds net assets of
approximately 1.1 million Canadian dollars.
The median family, where the main earner is under 35, holds
approximately $159,000. This is not because young
Canadians are less capable, less hardworking or less disciplined.
It's because the asset that generated extraordinary returns
for the previous generation is now priced at a level that makes
it structurally inaccessible without either a very high
income, a parental transfer or both.
Youth unemployment reached 14.7% in late 2025.
Approximately 914,000 young Canadians, just under a million,
were classified as need not in employment, education or
training. This is the mechanism of
generational wealth transfer that the housing market has
created. It's not a conspiracy, Nobody
designed it this way. It's simply the predictable
outcome of a set of policies, planning restrictions, tax
treatment of primary residence, mortgage incentives, and low
interest rates that happened to be extremely good for people who
owned assets 25 years ago and are considerably less good for
people trying to acquire assets today.
It also, incidentally, explains why the country's most talented
young people increasingly looks out.
Which brings me briefly to Elon Musk.
Elon Musk was born in South Africa.
At 17, he moved to Canada, where he held citizenship through his
mother and stayed for approximately 2 years before
relocating to the United States. He's now variously the world's
richest person, the owner of Twitter, which he acquired for
44 billion and renamed X, and a figure of considerable political
controversy in the country that eventually kept him.
I bring him up not as evidence of Canada's loss, but because of
the underlying pattern. Talented individual arrives in
Canada, acquires residency, departs for the United States
for better economic opportunities.
There's nothing really unusual about this story.
It is, in fact, the dominant finding of the July 2025
Statistics Canada study on skilled emigration.
The study found that roughly 22,000 to 35,000 Canadians move
to the United States each year. More striking, about 60% of
those applying for US work authorization from Canada are
not Canadian born at all. They're skilled immigrants who
came to Canada 1st and subsequently moved on.
The median US salary offer for these individuals was $137,000,
primarily in computer, mathematical and engineering
fields. Canada attracted them, educated
them in some cases, and then lost them to a market that paid
more and taxed less. The Conference Board has called
this the leaky bucket problem. Canada has one of the world's
most generous immigration systems.
It brings in large numbers of highly educated people, but one
in five skilled immigrants leaves within 25 years with the
highest attrition in the the first five years, precisely when
they're the most economically mobile and most likely to be
comparing their Canadian prospects to their alternatives.
Canada is not, on this evidence, suffering from a brain drain in
the classic sense. It's functioning as a very
efficient talent incubator for the United States economy, which
is a service, I suppose, just not one that Canada intended to
provide. Since 1997, Canadian labor
productivity has fallen progressively behind that of the
United States. The cumulative gap is now
approximately 26 percentage points.
To put that in terms that that I think are more intuitive, for
every dollar of output generated by an American worker in an
hour, a Canadian worker generates roughly $0.74.
This is not a story about working less.
Hours worked per Canadian are broadly comparable to those in
the United States. It's a story about where those
hours have been directed. The economy has channelled its
investment, human, financial and physical, into sectors that
produce lower output per unit of of effort real estate, public
administration, retail and the financial sector that lends
against bricks rather than ideas.
Canada's business investment in research and development as a
share of GDP has been below the OECD average for 20 consecutive
years. The gap between Canadian and
American R&D spending per capita is large and widening.
A country that doesn't invest in the production of new knowledge
or new processes eventually finds that its workers are doing
the same things in the same ways as a generation ago, which is
roughly what has happened. There is a further structural
point worth making about the composition of the workforce.
Between 2015 and 2025, public sector employment in Canada grew
by approximately 30%. I'm not arguing that public
servants don't provide valuable services.
Many of them do. It's just noting that a growing
share of the highest security employment in Canada is in
sectors that do not, by definition, produce exportable
goods or generate productivity growth in the conventional
sense. The Bank of Canada's most recent
forecast for real economic growth is 1.25% annually.
For an economy with Canada's endowments, that is
unimpressive. Approximately 75% of Canada's
exports go to the United States. For reference, total merchandise
exports to the US represent roughly 1/3 of Canadian GDP.
No other developed economy is so comprehensively tethered to a
single trading partner. This concentration was, for a
very long time, a reasonable arrangement. the United States
was a stable, rules based market.
The two countries shared a border, a language, a legal
tradition, and a broadly aligned foreign policy.
NAFTA, and later the USMCA, provided a framework of
predictability. Canadian businesses rationally
chose not to spend money developing Asian or European
market access when the American market was so large, so close,
and so accessible. The problem with concentrating
your economic exposure to a single counterparty is that
you're entirely dependent on that counterparty's goodwill and
continuity of policy. Recent events have illustrated
this risk with some emphasis. Nowhere is Canada's strategic
exposure more visible than in energy.
Canada holds the world's third largest proven oil reserves, the
vast majority in the Alberta oil sands.
The United States is the overwhelmingly dominant
customer. Because Canada has historically
lacked sufficient tidewater export infrastructure to access
Asian or European markets, it has sold oil at a consistent
discount to the global benchmark price.
WCS is a heavy, sour crude, more expensive to refine than the
lighter American benchmark, and some discount is structurally
warranted. But the historical gap of 15 to
$20 per barrel was consistently larger than the quality
differential alone would justify.
The excess reflects a transportation premium that
accrued not to Canada, but to the American Midwest.
Refiners, who for decades were the only buyers would ready
access The Trans Mountain pipeline expansion entered
commercial service in May 2024. It added approximately 590,000
barrels per day of capacity, bringing total Trans Mountain
capacity to around 890,000 barrels per day.
The WCSWTI discount has narrowed since then from roughly $19.82
to around $12.52 per barrel. This is is progress.
The pipeline cost approximately 34 billion Canadian dollars to
build against an original 2012 estimate of 5.4 billion Canadian
dollars. That is a cost overrun of
roughly 530%. It remains one of the more
spectacular infrastructure project management failures in
recent Canadian history, but it is built and it is moving oil to
tidewater. The more interesting
counterfactual is Energy E Energy E was a proposed 4600
kilometer pipeline that would have carried 1.1 million barrels
per day from Alberta to St. John, NB.
The canaport terminal at Saint John had already received 300
million Canadian dollars in upgrades and can accommodate
super tankers, much larger vessels than those serviced by
the Vancouver terminus. Energy E would have opened
Atlantic and European markets in addition to Asian ones.
It was cancelled in October 2017 following years of regulatory
review, shifting political winds and organized opposition.
Several Canadians I spoke to in researching this video describe
the cancellation as the single most consequential strategic
error in recent Canadian economic history.
Canada also has internal trade barriers that function,
according to the IMF, like a 6.9% tariff on domestic
commerce. A wine producer in British
Columbia cannot easily sell to a restaurant in Ontario.
A construction worker licensed in Alberta may need to RE
qualify to work in Quebec. A medical device cleared in one
province requires RE approval in another.
Eliminating these barriers, which has the support of 95% of
Canadians according to poll by Angus Reed, could, according to
various estimates, add between 90 billion and 200 billion per
year to GDP. This has been known for decades,
but the barriers remain. On the topic of trade balance,
Canada runs a goods trade surplus with the United States,
but it runs an overall current account deficit when you include
services and investment income. This distinction matters because
Canada is sometimes characterized in trade
discussions as a surplus economy in the Chinese mold.
This is not accurate. Canada runs structural deficits
in services, in tourism, in intellectual property, in
financial services that offset it's good surplus.
Canada is, in aggregate, a net importer.
It is not a mercantilist economy systematically accumulating
foreign reserves at the expense of its trading partners.
It's a country that sells raw materials and manufacturers less
than it buys. I've spent the better part of
this video cataloguing what's gone wrong.
In the interest of intellectual honesty, I should spend some
time on what it's not. The FTS Tej Parikh in two pieces
that I would recommend to anyone Thinking seriously about
Canada's economic position, makes a point that I think is
under appreciated. Canada's endowments are
extraordinary. It has the resources to
institutions, the human capital and the geographic position to
be not merely a well functioning mid sized economy but as Pariq
puts it, a genuine economic superpower.
Canada's endowments, as I described at the outset, are
extraordinary, the kind that most countries would consider a
permanent structural advantage. What's less well understood is
the institutional capital that sits alongside them.
The Maple Aid, Canada's eight largest pension funds,
collectively manage around 1.6 trillion Canadian dollars in
assets. They are amongst the most
sophisticated institutional investors in the world.
If structured as a sovereign wealth fund, they would be the
third largest in the world. Canada's university system
produces, by international standards, excellent graduates.
A 2025 survey suggested that approximately 17,000,000
university educated people globally would choose to move to
Canada if they could. Canada's AI research ecosystem,
centred on Montreal, Toronto and the Vector Institute, is
genuinely world class Geoffrey Hinton, Yoshua Bengio and
Richard Sutton, three of the most consequential figures in
the development of modern AI, all did their foundational work
in Canada. The country has something real
to build on. Canada also holds the G7's
lowest net debt to GDP ratio and deficit as a share of the
economy. It's fiscal position is,
relative to peers, a genuine strength, which means that it
has the capacity to invest if it chooses to.
The question is whether external pressure might finally produce
the internal reforms that domestic politics have
persistently failed to deliver. There is some reason to think
that it might. The trade tensions of recent
years have created in Canada a political consensus around
economic self-sufficiency that was absent for most of the last
three decades. The internal trade barrier
discussion, which has been a polite academic conversation for
decades, suddenly became urgent. The pipeline question acquired
new political salience. Pariks phrase the Canada has
spent too long being a client state and branch plant economy
of the United States, which would have been controversial to
say even five years ago, is now being quoted in the House of
Commons. The case for optimism, then, is
not that Canada will automatically get better.
It's that the conditions that might force it to try external
shock, generational transfer of political power, a recognition
that the status quo is no longer sustainable, are, for the first
time in a generation, in place simultaneously.
Crises, as it turns out, are occasionally useful.
Thanks for tuning into this week's podcast, which is
entirely funded by viewers like you on Patreon.
If you'd like to support the channel, I've left a link in the
show notes. Have a great week, and talk to
you again soon. Bye.