1 00:00:00,240 --> 00:00:04,240 About a month ago I made a video called The UK is a Warning to 2 00:00:04,240 --> 00:00:06,920 the Rest of the World. It was about the entirely 3 00:00:06,920 --> 00:00:10,880 avoidable economic stagnation that overtook what was once the 4 00:00:10,880 --> 00:00:13,440 world's pre eminent industrial power. 5 00:00:13,800 --> 00:00:17,880 The comments section of that video was unusually lively, but 6 00:00:17,880 --> 00:00:21,960 some comments really stood out. A lot of my viewers were saying 7 00:00:21,960 --> 00:00:25,520 some version of just change the name of the country, and you've 8 00:00:25,520 --> 00:00:28,920 basically described Canada. They said this, it should be 9 00:00:28,920 --> 00:00:33,280 noted, very politely. So today, let's talk about 10 00:00:33,280 --> 00:00:36,960 Canada. Now, back in 2012, a comparison 11 00:00:37,160 --> 00:00:39,320 like that would have seemed absurd. 12 00:00:39,520 --> 00:00:42,960 At that point, the global consensus on Canada was that it 13 00:00:42,960 --> 00:00:45,880 was the ultimate best of all world's economy. 14 00:00:46,120 --> 00:00:49,880 It had the natural resources of a Gulf state, the social safety 15 00:00:49,880 --> 00:00:53,640 net of the Northern European country, and a housing market 16 00:00:53,640 --> 00:00:56,360 that only seemed to move in One Direction. 17 00:00:56,760 --> 00:01:00,360 Canada is a country that, on paper, should be one of the 18 00:01:00,360 --> 00:01:03,640 wealthiest nations on earth. It has the second largest 19 00:01:03,640 --> 00:01:06,800 landmass in the world. It holds the third largest 20 00:01:06,800 --> 00:01:10,440 proven oil reserves. It's 5th in natural gas. 21 00:01:10,680 --> 00:01:15,040 It has an abundance of uranium, potash, rare earth minerals, and 22 00:01:15,040 --> 00:01:17,680 fresh water. It has a highly educated 23 00:01:17,680 --> 00:01:23,160 population, a stable democracy, rule of law, and G7 membership. 24 00:01:23,400 --> 00:01:27,560 By every measure of endowment, Canada should be a superpower. 25 00:01:28,040 --> 00:01:32,320 In fact, there was a brief window in 2012 where the median 26 00:01:32,320 --> 00:01:35,920 Canadian household actually pulled ahead of its American 27 00:01:35,920 --> 00:01:40,120 counterpart, becoming by several measures the most affluent 28 00:01:40,120 --> 00:01:44,600 middle class in the world. Looking back from 2026, it's 29 00:01:44,600 --> 00:01:48,120 clear that this outperformance was driven by a unique set of 30 00:01:48,120 --> 00:01:51,080 circumstances. It was the height of a global 31 00:01:51,080 --> 00:01:54,880 commodity boom where crude oil prices had nearly quadrupled 32 00:01:54,880 --> 00:01:59,040 over a decade, and the Canadian dollar was trading at or above 33 00:01:59,040 --> 00:02:03,040 parity with the US dollar. While high energy prices were a 34 00:02:03,040 --> 00:02:07,440 headwind for the US, they were a massive tailwind for Canada. 35 00:02:07,840 --> 00:02:11,960 But if you look at the data today, that era of out 36 00:02:12,160 --> 00:02:15,320 performance has vanished. The decline isn't marked by a 37 00:02:15,320 --> 00:02:17,760 sudden collapse or a dramatic crisis. 38 00:02:17,960 --> 00:02:21,480 It's a slow but always polite stagnation. 39 00:02:21,800 --> 00:02:26,800 Between 2012 and today, Canada has fallen from #6 on the World 40 00:02:26,800 --> 00:02:31,480 Happiness Index to #25 it's lowest ranking since the survey 41 00:02:31,480 --> 00:02:34,720 began. To see a national mood sour this 42 00:02:34,720 --> 00:02:38,040 quickly, you usually have to look at countries whose central 43 00:02:38,040 --> 00:02:41,080 banks have been replaced by printing presses or whose 44 00:02:41,080 --> 00:02:45,440 borders are being redrawn. In Canada, the institutions are 45 00:02:45,440 --> 00:02:47,800 still there and the borders haven't moved. 46 00:02:48,000 --> 00:02:52,040 It's just that the arithmetic of a middle class life has slowly 47 00:02:52,040 --> 00:02:56,240 stopped balancing. National income per head has 48 00:02:56,240 --> 00:03:00,120 fallen from roughly 80% of the American level in the decade 49 00:03:00,120 --> 00:03:04,000 before the pandemic to around 70% today. 50 00:03:04,280 --> 00:03:08,320 If Canadian provinces were American states, Alberta, the 51 00:03:08,320 --> 00:03:12,360 oil rich outlier, would rank around 20th wealthiest, 52 00:03:12,520 --> 00:03:15,320 somewhere between Colorado and Tennessee. 53 00:03:15,680 --> 00:03:19,480 Ontario, Canada's most populous and economically central 54 00:03:19,480 --> 00:03:25,360 province, would rank 48 below Montana, below Alabama and below 55 00:03:25,360 --> 00:03:27,920 every southern state except Mississippi. 56 00:03:28,280 --> 00:03:32,320 New Brunswick would rank dead last below Mississippi. 57 00:03:32,720 --> 00:03:37,440 The provinces that contain most of Canada's population sit near 58 00:03:37,440 --> 00:03:41,200 the bottom of the combined list. A country that was briefly 59 00:03:41,200 --> 00:03:44,720 richer per capita than the United States is now having a 60 00:03:44,720 --> 00:03:48,440 serious debate about whether it can arrest a generational 61 00:03:48,440 --> 00:03:51,080 decline. The British disease that I 62 00:03:51,080 --> 00:03:54,840 described last month was an object lesson in compounding 63 00:03:54,840 --> 00:03:57,160 errors. But Canada's version of this 64 00:03:57,160 --> 00:04:01,040 stagnation is unique. It's a story of how a country 65 00:04:01,040 --> 00:04:05,480 with every possible advantage managed to fall into what Bank 66 00:04:05,480 --> 00:04:09,880 of Canada senior deputy governor Caroline Rogers called in the 67 00:04:09,880 --> 00:04:13,520 2024 speech a productivity emergency. 68 00:04:13,840 --> 00:04:16,920 The reason I think the rest of the world should pay attention 69 00:04:16,920 --> 00:04:20,959 to Canada is not that Canada is failing spectacularly. 70 00:04:21,079 --> 00:04:25,040 It is failing gradually, systematically, and in ways that 71 00:04:25,040 --> 00:04:28,160 are entirely legible. Compounding errors that 72 00:04:28,160 --> 00:04:32,320 reinforce each other, each one individually defensible, 73 00:04:32,480 --> 00:04:36,200 collectively ruin us. The same patterns are visible in 74 00:04:36,200 --> 00:04:38,560 countries across the developed world. 75 00:04:38,840 --> 00:04:42,640 Canada just got there. First, consider a thought 76 00:04:42,640 --> 00:04:45,640 experiment. Imagine a professional sports 77 00:04:45,640 --> 00:04:49,360 league where the same three or four teams win every year. 78 00:04:49,640 --> 00:04:52,960 They've the largest stadiums, the biggest TV deals and the 79 00:04:52,960 --> 00:04:56,720 most expensive players. The other teams are technically 80 00:04:56,720 --> 00:04:59,840 allowed to compete, but the rules of the game have been 81 00:04:59,840 --> 00:05:03,360 structured over the decades to make it very difficult for 82 00:05:03,360 --> 00:05:07,000 anyone new to enter. What tends to happen over time 83 00:05:07,200 --> 00:05:11,120 is not just that the incumbents win, it's that the whole quality 84 00:05:11,120 --> 00:05:14,520 of play declines. Without genuine competitive 85 00:05:14,520 --> 00:05:18,720 pressure, there's no incentive to innovate, to take risks or to 86 00:05:18,720 --> 00:05:22,280 improve. Canada's domestic economy has, 87 00:05:22,400 --> 00:05:26,200 in several of its most important sectors, been running this kind 88 00:05:26,200 --> 00:05:30,560 of league for 30 years. Take telecommunications. 89 00:05:30,840 --> 00:05:34,960 Canada has three dominant carriers, Bell, Rogers and 90 00:05:34,960 --> 00:05:39,280 Telus, who collectively hold roughly 89% of wireless 91 00:05:39,280 --> 00:05:43,040 subscribers. Canada has, as a result, some of 92 00:05:43,040 --> 00:05:46,120 the highest mobile phone bills in the developed world. 93 00:05:46,440 --> 00:05:50,680 A comparable unlimited data plan costs roughly twice as much in 94 00:05:50,680 --> 00:05:55,280 Canada as in the UK or France. The Canadian Radio, Television 95 00:05:55,280 --> 00:05:59,520 and Telecommunications Commission or the CRTC, which is 96 00:05:59,520 --> 00:06:03,000 what you'd call it if you'd like to get home before midnight, has 97 00:06:03,080 --> 00:06:06,520 for years been theoretically open to new entrants. 98 00:06:06,720 --> 00:06:11,000 But the practical and regulatory barriers have ensured that 99 00:06:11,000 --> 00:06:14,320 meaningful competition never quite materialized. 100 00:06:14,560 --> 00:06:18,360 The industry has spent lavishly on lobbying and regulatory 101 00:06:18,360 --> 00:06:21,800 intervention. It spends rather less on network 102 00:06:21,800 --> 00:06:25,840 investment per customer than its counterparts in more competitive 103 00:06:25,840 --> 00:06:30,280 markets. Banking tells a similar story 5 104 00:06:30,280 --> 00:06:36,040 Canadian banks, the Royal Bank, TD, Scotia Bank, BMO and CIBC 105 00:06:36,200 --> 00:06:39,960 hold approximately 90% of deposits in the country. 106 00:06:40,200 --> 00:06:44,240 The Canadian banking system is, by design, highly stable. 107 00:06:44,400 --> 00:06:48,840 It didn't have a financial crisis in 2008, unlike most of 108 00:06:48,840 --> 00:06:52,480 the developed world. This is a genuine achievement, 109 00:06:52,640 --> 00:06:55,680 and Canadian and bankers will remind you of it at every 110 00:06:55,680 --> 00:07:00,280 available opportunity. But stability and dynamism are 111 00:07:00,280 --> 00:07:03,880 not the same thing. A concentrated banking sector 112 00:07:03,880 --> 00:07:06,120 allocates capital conservatively. 113 00:07:06,320 --> 00:07:09,680 It lends to proven assets, existing real estate, 114 00:07:09,880 --> 00:07:13,640 established corporations rather than to new ventures. 115 00:07:14,280 --> 00:07:17,760 The startup ecosystem that Canada has quietly built, 116 00:07:17,960 --> 00:07:22,200 particularly in AI, has often found that the most growth 117 00:07:22,200 --> 00:07:26,960 oriented capital came from American funds, not from Bay St. 118 00:07:27,600 --> 00:07:31,320 The pattern repeats in airlines, in groceries and in 119 00:07:31,320 --> 00:07:34,120 broadcasting. A small number of large 120 00:07:34,120 --> 00:07:37,320 incumbents, protected by ownership restrictions, 121 00:07:37,520 --> 00:07:42,320 regulatory capture or both, extract returns from a captive 122 00:07:42,320 --> 00:07:45,960 domestic market. The economist's term for this is 123 00:07:45,960 --> 00:07:49,200 rent seeking. The polite Canadian term is a 124 00:07:49,200 --> 00:07:53,520 stable industry. The consequence is that Canada's 125 00:07:53,520 --> 00:07:57,720 labor productivity, the output generated per hour worked, has 126 00:07:57,720 --> 00:08:01,160 declined relative to American productivity over time. 127 00:08:01,400 --> 00:08:05,200 In 1997, the productivity gap was narrower. 128 00:08:05,440 --> 00:08:09,880 Since then, the two economies have diverged by a cumulative 26 129 00:08:09,880 --> 00:08:13,080 percentage points. Canada has not become less 130 00:08:13,080 --> 00:08:17,000 productive in absolute terms. It's simply failed to keep pace 131 00:08:17,120 --> 00:08:19,760 with an economy where competitive pressure is 132 00:08:19,760 --> 00:08:23,440 significantly higher and where venture capital has directed 133 00:08:23,440 --> 00:08:26,680 hundreds of billions of dollars into the highest productivity 134 00:08:26,680 --> 00:08:31,440 sectors of the global economy. Canada spends less than half the 135 00:08:31,440 --> 00:08:36,440 OECD average on research and development as a share of GDP, a 136 00:08:36,440 --> 00:08:40,200 figure that has been below the average for two decades running. 137 00:08:40,679 --> 00:08:43,440 There's also the question of internal trade. 138 00:08:43,720 --> 00:08:46,560 Canada has a free trade agreement with the United 139 00:08:46,560 --> 00:08:51,520 States, Mexico, the European Union, and most of Asia Pacific. 140 00:08:51,760 --> 00:08:54,800 It does not have a fully functioning free trade agreement 141 00:08:54,800 --> 00:08:59,080 with itself, a structural curiosity that has persisted in 142 00:08:59,080 --> 00:09:01,480 various forms since Confederation. 143 00:09:02,040 --> 00:09:08,480 In January 2005, the average Canadian home sold for 237,000 144 00:09:08,480 --> 00:09:12,760 Canadian dollars. By early 2026, the average had 145 00:09:12,760 --> 00:09:20,400 reached $661,000, a nominal increase of around 179%, or 146 00:09:20,520 --> 00:09:25,240 nearly tripling in price. Even adjusted for inflation, the 147 00:09:25,240 --> 00:09:28,800 gain is still huge in the country's largest cities. 148 00:09:29,000 --> 00:09:32,720 It's been transformational. Now, there's a common comparison 149 00:09:32,720 --> 00:09:36,680 made in conversations about Canadian housing that homes have 150 00:09:36,680 --> 00:09:38,960 outperformed the stock market over time. 151 00:09:39,240 --> 00:09:43,080 It's worth pausing on this On a straight price appreciation 152 00:09:43,080 --> 00:09:47,920 basis, the TSX Composite Index actually outperformed Canadian 153 00:09:47,920 --> 00:09:51,640 housing over the same period, and substantially so once 154 00:09:51,640 --> 00:09:55,840 dividends are reinvested. The point is not therefore that 155 00:09:55,840 --> 00:09:59,080 housing beat stocks. The point is that housing 156 00:09:59,080 --> 00:10:03,080 performed like an equity investment in a non productive 157 00:10:03,080 --> 00:10:05,960 asset. A company, when it rises in 158 00:10:05,960 --> 00:10:10,200 value, has generally done so by producing something, a product, 159 00:10:10,200 --> 00:10:14,000 a service, a patent, a drug, a piece of software. 160 00:10:14,280 --> 00:10:18,240 The stock price reflects real economic activity, real 161 00:10:18,240 --> 00:10:21,600 production. A house, when it rises in value, 162 00:10:21,720 --> 00:10:25,800 has generally done so because land in a desirable location has 163 00:10:25,800 --> 00:10:29,320 become scarcer, because planning restrictions have constrained 164 00:10:29,320 --> 00:10:33,640 supply, or because a decade of historically low interest rates 165 00:10:33,800 --> 00:10:37,320 create created a wall of capital seeking somewhere to go. 166 00:10:37,840 --> 00:10:40,200 The house didn't invent anything. 167 00:10:40,200 --> 00:10:42,520 It didn't employ a research team. 168 00:10:42,720 --> 00:10:46,760 It just sat there. This distinction matters because 169 00:10:46,760 --> 00:10:49,600 of leverage. If you bought a Toronto home in 170 00:10:49,600 --> 00:10:57,240 2005 for $300,000 with a 20% deposit, so $60,000 down and 171 00:10:57,240 --> 00:11:03,240 that home is now worth around $900,000, your original $60,000 172 00:11:03,320 --> 00:11:07,720 has generated a capital gain of $600,000. 173 00:11:08,440 --> 00:11:12,360 That is a 12:50 return on the actual cash invested. 174 00:11:12,560 --> 00:11:17,680 It's also in Canada entirely tax free if it was your primary 175 00:11:17,680 --> 00:11:20,720 residence. If you had instead taken that 176 00:11:20,720 --> 00:11:25,600 same $60,000 and put it into ATSX index fund, it would be 177 00:11:25,600 --> 00:11:31,280 worth roughly $195,000 today. A solid result, but it gets 178 00:11:31,280 --> 00:11:34,600 diluted because of capital gains tax on the profit. 179 00:11:35,160 --> 00:11:38,480 The incentive structure this creates is problematic. 180 00:11:38,720 --> 00:11:42,560 The rational economic choice for a Canadian household with 181 00:11:42,560 --> 00:11:46,800 savings has been for 20 years to put as much money as possible 182 00:11:46,800 --> 00:11:51,320 into real estate as early as possible at as high a leverage 183 00:11:51,320 --> 00:11:55,760 ratio as your bank will allow. This is not irrational behavior. 184 00:11:55,920 --> 00:11:59,600 It's an entirely logical response to the incentives that 185 00:11:59,600 --> 00:12:03,320 the system created. It is, after all, how everyone 186 00:12:03,320 --> 00:12:05,080 you know made most of their money. 187 00:12:05,680 --> 00:12:08,560 The consequences of this are considerable. 188 00:12:08,760 --> 00:12:12,840 Housing prices in Canada's major cities now sit at somewhere 189 00:12:12,840 --> 00:12:16,640 between 12 and 17 times median household income. 190 00:12:16,960 --> 00:12:21,800 The median after tax income for a Canadian individual in 2023 191 00:12:21,960 --> 00:12:26,920 was $74,000 a year. At the national average price of 192 00:12:26,920 --> 00:12:32,840 $661,000, the price to income ratio is approximately 9. 193 00:12:33,040 --> 00:12:36,520 In Toronto and Vancouver, it's substantially higher. 194 00:12:37,000 --> 00:12:43,560 In 2020 and 2021, CIBC estimated that roughly 1/3 of first time 195 00:12:43,560 --> 00:12:47,400 buyers received a parental gift to fund their down payment. 196 00:12:47,680 --> 00:12:52,200 The average amount was 82,000 Canadian dollars, which, as it 197 00:12:52,200 --> 00:12:56,000 happens, is slightly more than the median Canadian individual's 198 00:12:56,080 --> 00:13:00,200 annual after tax income. In Vancouver, the average 199 00:13:00,200 --> 00:13:04,080 parental gift was 180,000 Canadian dollars. 200 00:13:04,280 --> 00:13:08,080 In Toronto, it exceeded $130,000. 201 00:13:08,400 --> 00:13:12,360 The Bank of Mom and Dad has, in certain Canadian cities, become 202 00:13:12,360 --> 00:13:14,880 the largest mortgage lender in the country. 203 00:13:15,200 --> 00:13:18,000 It doesn't, however, publish accounts. 204 00:13:18,680 --> 00:13:23,240 Amusingly, in researching this I found a Canadian real estate 205 00:13:23,240 --> 00:13:27,560 industry publication where the author argued that what Canadas 206 00:13:27,560 --> 00:13:31,560 housing market needed was further tax relief for property 207 00:13:31,560 --> 00:13:35,320 owners on the grounds that this would stimulate more housing 208 00:13:35,320 --> 00:13:38,440 transactions. I don't like to beat up on 209 00:13:38,440 --> 00:13:41,920 someone, but consider the environment in which it's being 210 00:13:41,920 --> 00:13:44,280 made. The average home in Vancouver 211 00:13:44,280 --> 00:13:47,840 costs more than 17 times the average income. 212 00:13:48,200 --> 00:13:51,920 The suggested solution is to make property ownership even 213 00:13:51,920 --> 00:13:54,640 more tax advantage than it already is. 214 00:13:54,840 --> 00:13:58,160 This is a bit like a doctor seeing a patient with high blood 215 00:13:58,160 --> 00:14:01,160 pressure and suggesting that they eat more salt. 216 00:14:01,440 --> 00:14:05,120 Technically it will do something, it's just not obvious 217 00:14:05,280 --> 00:14:09,400 that the something is helpful. The political economy of this 218 00:14:09,400 --> 00:14:12,640 situation is almost perfectly paralyzed. 219 00:14:12,880 --> 00:14:18,160 Approximately 66% of Canadian households own their own homes, 220 00:14:18,360 --> 00:14:21,640 meaning the 2/3 of the electorate have a direct 221 00:14:21,640 --> 00:14:24,760 financial stake in keeping house prices high. 222 00:14:25,200 --> 00:14:28,440 A government that credibly committed to building sufficient 223 00:14:28,440 --> 00:14:31,880 new housing to return prices to something resembling 224 00:14:31,880 --> 00:14:36,520 affordability would be asking a majority of its voters to accept 225 00:14:36,800 --> 00:14:40,120 substantial reduction in the value of their single largest 226 00:14:40,120 --> 00:14:42,840 asset. In Britain, we identified this 227 00:14:43,040 --> 00:14:46,440 as the central political obstacle to housing reform. 228 00:14:46,680 --> 00:14:49,960 In Canada, the problem is essentially identical. 229 00:14:50,360 --> 00:14:55,160 The 2026 World Happiness Report contains a data point that I 230 00:14:55,160 --> 00:15:00,680 find genuinely striking. Canada overall ranks 25th, which 231 00:15:00,680 --> 00:15:04,600 is a significant fall from 6th a decade ago, but still a 232 00:15:04,600 --> 00:15:08,000 respectable position for a country that is, by any 233 00:15:08,000 --> 00:15:11,720 objective standard, wealthy, peaceful, and well governed. 234 00:15:12,040 --> 00:15:15,640 But when you break this down by age, the picture changes 235 00:15:15,640 --> 00:15:19,680 substantially. Canadians over 60 rank in the 236 00:15:19,680 --> 00:15:25,920 global top top 10 for happiness. Canadians under 25 ranked 71st, 237 00:15:26,400 --> 00:15:31,520 71st below countries with a fraction of Canada's per capita 238 00:15:31,520 --> 00:15:34,680 income. That ranking reflects not just 239 00:15:34,680 --> 00:15:38,160 where Canada stands, but how fast it has fallen. 240 00:15:38,440 --> 00:15:41,600 The World Happiness Report tracks the decline in youth 241 00:15:41,600 --> 00:15:46,160 happiness since 2011 across 136 countries. 242 00:15:46,480 --> 00:15:50,280 Of those, only three recorded a steeper dropped in Canada, 243 00:15:50,680 --> 00:15:55,920 Malawi, Lebanon and Afghanistan. One of the three has a poverty 244 00:15:55,920 --> 00:15:59,960 rate above 70%. One has been in active armed 245 00:15:59,960 --> 00:16:02,960 conflict. One is governed by the Taliban. 246 00:16:03,280 --> 00:16:07,760 Canada is the 4th. There's a clean explanation for 247 00:16:07,760 --> 00:16:11,000 this divergent and it is the housing market. 248 00:16:11,320 --> 00:16:15,440 Older Canadians who bought homes in the 1980s, nineteen 90s or 249 00:16:15,440 --> 00:16:20,040 early 2000s have, through the entirely normal process of 250 00:16:20,040 --> 00:16:23,280 sitting in their houses, accumulated wealth that would 251 00:16:23,280 --> 00:16:26,240 have been the envy of a successful entrepreneur. 252 00:16:26,680 --> 00:16:30,960 The median senior family in Canada holds net assets of 253 00:16:30,960 --> 00:16:34,480 approximately 1.1 million Canadian dollars. 254 00:16:34,840 --> 00:16:39,240 The median family, where the main earner is under 35, holds 255 00:16:39,240 --> 00:16:44,280 approximately $159,000. This is not because young 256 00:16:44,280 --> 00:16:48,560 Canadians are less capable, less hardworking or less disciplined. 257 00:16:48,760 --> 00:16:52,680 It's because the asset that generated extraordinary returns 258 00:16:52,800 --> 00:16:56,560 for the previous generation is now priced at a level that makes 259 00:16:56,560 --> 00:17:00,200 it structurally inaccessible without either a very high 260 00:17:00,200 --> 00:17:03,160 income, a parental transfer or both. 261 00:17:03,600 --> 00:17:08,520 Youth unemployment reached 14.7% in late 2025. 262 00:17:08,800 --> 00:17:14,400 Approximately 914,000 young Canadians, just under a million, 263 00:17:14,520 --> 00:17:18,920 were classified as need not in employment, education or 264 00:17:18,920 --> 00:17:22,280 training. This is the mechanism of 265 00:17:22,280 --> 00:17:25,640 generational wealth transfer that the housing market has 266 00:17:25,640 --> 00:17:28,920 created. It's not a conspiracy, Nobody 267 00:17:28,920 --> 00:17:32,040 designed it this way. It's simply the predictable 268 00:17:32,040 --> 00:17:35,800 outcome of a set of policies, planning restrictions, tax 269 00:17:35,800 --> 00:17:39,520 treatment of primary residence, mortgage incentives, and low 270 00:17:39,520 --> 00:17:43,480 interest rates that happened to be extremely good for people who 271 00:17:43,520 --> 00:17:48,600 owned assets 25 years ago and are considerably less good for 272 00:17:48,600 --> 00:17:51,160 people trying to acquire assets today. 273 00:17:51,960 --> 00:17:56,240 It also, incidentally, explains why the country's most talented 274 00:17:56,240 --> 00:17:59,040 young people increasingly looks out. 275 00:17:59,360 --> 00:18:02,200 Which brings me briefly to Elon Musk. 276 00:18:02,560 --> 00:18:04,960 Elon Musk was born in South Africa. 277 00:18:05,240 --> 00:18:09,280 At 17, he moved to Canada, where he held citizenship through his 278 00:18:09,280 --> 00:18:12,600 mother and stayed for approximately 2 years before 279 00:18:12,600 --> 00:18:16,880 relocating to the United States. He's now variously the world's 280 00:18:16,880 --> 00:18:20,200 richest person, the owner of Twitter, which he acquired for 281 00:18:20,200 --> 00:18:25,440 44 billion and renamed X, and a figure of considerable political 282 00:18:25,440 --> 00:18:28,720 controversy in the country that eventually kept him. 283 00:18:29,200 --> 00:18:33,760 I bring him up not as evidence of Canada's loss, but because of 284 00:18:33,760 --> 00:18:37,320 the underlying pattern. Talented individual arrives in 285 00:18:37,320 --> 00:18:41,440 Canada, acquires residency, departs for the United States 286 00:18:41,480 --> 00:18:43,720 for better economic opportunities. 287 00:18:44,120 --> 00:18:47,280 There's nothing really unusual about this story. 288 00:18:47,440 --> 00:18:51,640 It is, in fact, the dominant finding of the July 2025 289 00:18:51,640 --> 00:18:55,400 Statistics Canada study on skilled emigration. 290 00:18:55,800 --> 00:19:01,600 The study found that roughly 22,000 to 35,000 Canadians move 291 00:19:01,600 --> 00:19:06,400 to the United States each year. More striking, about 60% of 292 00:19:06,400 --> 00:19:10,360 those applying for US work authorization from Canada are 293 00:19:10,360 --> 00:19:14,040 not Canadian born at all. They're skilled immigrants who 294 00:19:14,120 --> 00:19:17,720 came to Canada 1st and subsequently moved on. 295 00:19:18,040 --> 00:19:24,120 The median US salary offer for these individuals was $137,000, 296 00:19:24,520 --> 00:19:28,320 primarily in computer, mathematical and engineering 297 00:19:28,320 --> 00:19:31,640 fields. Canada attracted them, educated 298 00:19:31,640 --> 00:19:35,240 them in some cases, and then lost them to a market that paid 299 00:19:35,240 --> 00:19:38,800 more and taxed less. The Conference Board has called 300 00:19:38,800 --> 00:19:42,720 this the leaky bucket problem. Canada has one of the world's 301 00:19:42,720 --> 00:19:44,960 most generous immigration systems. 302 00:19:45,160 --> 00:19:49,120 It brings in large numbers of highly educated people, but one 303 00:19:49,120 --> 00:19:53,200 in five skilled immigrants leaves within 25 years with the 304 00:19:53,200 --> 00:19:56,840 highest attrition in the the first five years, precisely when 305 00:19:56,840 --> 00:20:00,600 they're the most economically mobile and most likely to be 306 00:20:00,600 --> 00:20:04,280 comparing their Canadian prospects to their alternatives. 307 00:20:04,920 --> 00:20:09,080 Canada is not, on this evidence, suffering from a brain drain in 308 00:20:09,080 --> 00:20:11,920 the classic sense. It's functioning as a very 309 00:20:11,920 --> 00:20:16,440 efficient talent incubator for the United States economy, which 310 00:20:16,440 --> 00:20:20,320 is a service, I suppose, just not one that Canada intended to 311 00:20:20,320 --> 00:20:24,360 provide. Since 1997, Canadian labor 312 00:20:24,360 --> 00:20:27,680 productivity has fallen progressively behind that of the 313 00:20:27,680 --> 00:20:30,480 United States. The cumulative gap is now 314 00:20:30,480 --> 00:20:33,400 approximately 26 percentage points. 315 00:20:33,640 --> 00:20:36,800 To put that in terms that that I think are more intuitive, for 316 00:20:36,800 --> 00:20:40,520 every dollar of output generated by an American worker in an 317 00:20:40,520 --> 00:20:44,720 hour, a Canadian worker generates roughly $0.74. 318 00:20:44,920 --> 00:20:47,600 This is not a story about working less. 319 00:20:47,920 --> 00:20:51,720 Hours worked per Canadian are broadly comparable to those in 320 00:20:51,720 --> 00:20:55,040 the United States. It's a story about where those 321 00:20:55,040 --> 00:20:58,280 hours have been directed. The economy has channelled its 322 00:20:58,280 --> 00:21:02,720 investment, human, financial and physical, into sectors that 323 00:21:02,720 --> 00:21:07,240 produce lower output per unit of of effort real estate, public 324 00:21:07,240 --> 00:21:11,320 administration, retail and the financial sector that lends 325 00:21:11,320 --> 00:21:13,680 against bricks rather than ideas. 326 00:21:14,280 --> 00:21:18,240 Canada's business investment in research and development as a 327 00:21:18,240 --> 00:21:23,120 share of GDP has been below the OECD average for 20 consecutive 328 00:21:23,120 --> 00:21:25,600 years. The gap between Canadian and 329 00:21:25,600 --> 00:21:30,000 American R&D spending per capita is large and widening. 330 00:21:30,320 --> 00:21:34,280 A country that doesn't invest in the production of new knowledge 331 00:21:34,280 --> 00:21:38,280 or new processes eventually finds that its workers are doing 332 00:21:38,280 --> 00:21:42,560 the same things in the same ways as a generation ago, which is 333 00:21:42,560 --> 00:21:46,840 roughly what has happened. There is a further structural 334 00:21:46,840 --> 00:21:50,200 point worth making about the composition of the workforce. 335 00:21:50,480 --> 00:21:55,880 Between 2015 and 2025, public sector employment in Canada grew 336 00:21:55,880 --> 00:22:00,120 by approximately 30%. I'm not arguing that public 337 00:22:00,120 --> 00:22:02,680 servants don't provide valuable services. 338 00:22:02,800 --> 00:22:06,440 Many of them do. It's just noting that a growing 339 00:22:06,440 --> 00:22:10,160 share of the highest security employment in Canada is in 340 00:22:10,160 --> 00:22:14,240 sectors that do not, by definition, produce exportable 341 00:22:14,240 --> 00:22:17,920 goods or generate productivity growth in the conventional 342 00:22:17,920 --> 00:22:21,040 sense. The Bank of Canada's most recent 343 00:22:21,040 --> 00:22:26,080 forecast for real economic growth is 1.25% annually. 344 00:22:26,280 --> 00:22:29,600 For an economy with Canada's endowments, that is 345 00:22:29,640 --> 00:22:33,960 unimpressive. Approximately 75% of Canada's 346 00:22:33,960 --> 00:22:39,160 exports go to the United States. For reference, total merchandise 347 00:22:39,160 --> 00:22:44,200 exports to the US represent roughly 1/3 of Canadian GDP. 348 00:22:44,640 --> 00:22:48,920 No other developed economy is so comprehensively tethered to a 349 00:22:48,920 --> 00:22:53,160 single trading partner. This concentration was, for a 350 00:22:53,160 --> 00:22:57,160 very long time, a reasonable arrangement. the United States 351 00:22:57,160 --> 00:22:59,480 was a stable, rules based market. 352 00:22:59,720 --> 00:23:03,240 The two countries shared a border, a language, a legal 353 00:23:03,240 --> 00:23:06,600 tradition, and a broadly aligned foreign policy. 354 00:23:06,760 --> 00:23:11,200 NAFTA, and later the USMCA, provided a framework of 355 00:23:11,200 --> 00:23:15,040 predictability. Canadian businesses rationally 356 00:23:15,040 --> 00:23:18,800 chose not to spend money developing Asian or European 357 00:23:18,800 --> 00:23:23,120 market access when the American market was so large, so close, 358 00:23:23,120 --> 00:23:26,480 and so accessible. The problem with concentrating 359 00:23:26,480 --> 00:23:29,960 your economic exposure to a single counterparty is that 360 00:23:29,960 --> 00:23:34,040 you're entirely dependent on that counterparty's goodwill and 361 00:23:34,040 --> 00:23:38,120 continuity of policy. Recent events have illustrated 362 00:23:38,120 --> 00:23:42,440 this risk with some emphasis. Nowhere is Canada's strategic 363 00:23:42,440 --> 00:23:45,400 exposure more visible than in energy. 364 00:23:45,640 --> 00:23:50,040 Canada holds the world's third largest proven oil reserves, the 365 00:23:50,040 --> 00:23:53,080 vast majority in the Alberta oil sands. 366 00:23:53,360 --> 00:23:56,880 The United States is the overwhelmingly dominant 367 00:23:56,880 --> 00:24:00,040 customer. Because Canada has historically 368 00:24:00,040 --> 00:24:04,440 lacked sufficient tidewater export infrastructure to access 369 00:24:04,440 --> 00:24:08,440 Asian or European markets, it has sold oil at a consistent 370 00:24:08,440 --> 00:24:10,960 discount to the global benchmark price. 371 00:24:11,040 --> 00:24:16,240 WCS is a heavy, sour crude, more expensive to refine than the 372 00:24:16,240 --> 00:24:20,400 lighter American benchmark, and some discount is structurally 373 00:24:20,400 --> 00:24:23,880 warranted. But the historical gap of 15 to 374 00:24:23,880 --> 00:24:28,040 $20 per barrel was consistently larger than the quality 375 00:24:28,120 --> 00:24:29,960 differential alone would justify. 376 00:24:30,440 --> 00:24:34,120 The excess reflects a transportation premium that 377 00:24:34,120 --> 00:24:37,440 accrued not to Canada, but to the American Midwest. 378 00:24:37,440 --> 00:24:41,720 Refiners, who for decades were the only buyers would ready 379 00:24:41,720 --> 00:24:46,120 access The Trans Mountain pipeline expansion entered 380 00:24:46,120 --> 00:24:52,440 commercial service in May 2024. It added approximately 590,000 381 00:24:52,440 --> 00:24:56,440 barrels per day of capacity, bringing total Trans Mountain 382 00:24:56,440 --> 00:25:00,600 capacity to around 890,000 barrels per day. 383 00:25:00,960 --> 00:25:08,840 The WCSWTI discount has narrowed since then from roughly $19.82 384 00:25:09,040 --> 00:25:14,160 to around $12.52 per barrel. This is is progress. 385 00:25:14,440 --> 00:25:19,280 The pipeline cost approximately 34 billion Canadian dollars to 386 00:25:19,280 --> 00:25:25,040 build against an original 2012 estimate of 5.4 billion Canadian 387 00:25:25,040 --> 00:25:27,920 dollars. That is a cost overrun of 388 00:25:27,920 --> 00:25:32,120 roughly 530%. It remains one of the more 389 00:25:32,120 --> 00:25:36,000 spectacular infrastructure project management failures in 390 00:25:36,000 --> 00:25:41,480 recent Canadian history, but it is built and it is moving oil to 391 00:25:41,480 --> 00:25:43,920 tidewater. The more interesting 392 00:25:43,920 --> 00:25:49,840 counterfactual is Energy E Energy E was a proposed 4600 393 00:25:49,840 --> 00:25:54,080 kilometer pipeline that would have carried 1.1 million barrels 394 00:25:54,080 --> 00:25:57,640 per day from Alberta to St. John, NB. 395 00:25:58,040 --> 00:26:02,560 The canaport terminal at Saint John had already received 300 396 00:26:02,560 --> 00:26:06,320 million Canadian dollars in upgrades and can accommodate 397 00:26:06,320 --> 00:26:10,240 super tankers, much larger vessels than those serviced by 398 00:26:10,240 --> 00:26:14,040 the Vancouver terminus. Energy E would have opened 399 00:26:14,040 --> 00:26:18,040 Atlantic and European markets in addition to Asian ones. 400 00:26:18,280 --> 00:26:23,000 It was cancelled in October 2017 following years of regulatory 401 00:26:23,000 --> 00:26:27,120 review, shifting political winds and organized opposition. 402 00:26:27,520 --> 00:26:31,600 Several Canadians I spoke to in researching this video describe 403 00:26:31,600 --> 00:26:35,560 the cancellation as the single most consequential strategic 404 00:26:35,560 --> 00:26:38,400 error in recent Canadian economic history. 405 00:26:38,640 --> 00:26:42,640 Canada also has internal trade barriers that function, 406 00:26:42,640 --> 00:26:47,240 according to the IMF, like a 6.9% tariff on domestic 407 00:26:47,240 --> 00:26:49,680 commerce. A wine producer in British 408 00:26:49,680 --> 00:26:54,000 Columbia cannot easily sell to a restaurant in Ontario. 409 00:26:54,320 --> 00:26:58,280 A construction worker licensed in Alberta may need to RE 410 00:26:58,280 --> 00:27:02,440 qualify to work in Quebec. A medical device cleared in one 411 00:27:02,440 --> 00:27:05,600 province requires RE approval in another. 412 00:27:05,880 --> 00:27:10,320 Eliminating these barriers, which has the support of 95% of 413 00:27:10,320 --> 00:27:14,880 Canadians according to poll by Angus Reed, could, according to 414 00:27:14,880 --> 00:27:19,520 various estimates, add between 90 billion and 200 billion per 415 00:27:19,520 --> 00:27:23,120 year to GDP. This has been known for decades, 416 00:27:23,280 --> 00:27:27,080 but the barriers remain. On the topic of trade balance, 417 00:27:27,280 --> 00:27:30,960 Canada runs a goods trade surplus with the United States, 418 00:27:31,160 --> 00:27:35,480 but it runs an overall current account deficit when you include 419 00:27:35,480 --> 00:27:40,280 services and investment income. This distinction matters because 420 00:27:40,280 --> 00:27:42,720 Canada is sometimes characterized in trade 421 00:27:42,720 --> 00:27:46,560 discussions as a surplus economy in the Chinese mold. 422 00:27:46,880 --> 00:27:51,320 This is not accurate. Canada runs structural deficits 423 00:27:51,320 --> 00:27:55,280 in services, in tourism, in intellectual property, in 424 00:27:55,280 --> 00:27:59,120 financial services that offset it's good surplus. 425 00:27:59,480 --> 00:28:03,080 Canada is, in aggregate, a net importer. 426 00:28:03,240 --> 00:28:07,640 It is not a mercantilist economy systematically accumulating 427 00:28:07,640 --> 00:28:11,040 foreign reserves at the expense of its trading partners. 428 00:28:11,240 --> 00:28:15,360 It's a country that sells raw materials and manufacturers less 429 00:28:15,360 --> 00:28:18,280 than it buys. I've spent the better part of 430 00:28:18,280 --> 00:28:21,240 this video cataloguing what's gone wrong. 431 00:28:21,480 --> 00:28:24,680 In the interest of intellectual honesty, I should spend some 432 00:28:24,680 --> 00:28:29,760 time on what it's not. The FTS Tej Parikh in two pieces 433 00:28:29,760 --> 00:28:32,760 that I would recommend to anyone Thinking seriously about 434 00:28:32,760 --> 00:28:36,560 Canada's economic position, makes a point that I think is 435 00:28:36,560 --> 00:28:40,080 under appreciated. Canada's endowments are 436 00:28:40,080 --> 00:28:42,640 extraordinary. It has the resources to 437 00:28:42,640 --> 00:28:47,160 institutions, the human capital and the geographic position to 438 00:28:47,160 --> 00:28:51,400 be not merely a well functioning mid sized economy but as Pariq 439 00:28:51,400 --> 00:28:54,320 puts it, a genuine economic superpower. 440 00:28:54,640 --> 00:28:57,960 Canada's endowments, as I described at the outset, are 441 00:28:57,960 --> 00:29:01,840 extraordinary, the kind that most countries would consider a 442 00:29:01,840 --> 00:29:06,200 permanent structural advantage. What's less well understood is 443 00:29:06,200 --> 00:29:09,360 the institutional capital that sits alongside them. 444 00:29:09,680 --> 00:29:13,400 The Maple Aid, Canada's eight largest pension funds, 445 00:29:13,640 --> 00:29:17,760 collectively manage around 1.6 trillion Canadian dollars in 446 00:29:17,760 --> 00:29:20,440 assets. They are amongst the most 447 00:29:20,440 --> 00:29:23,480 sophisticated institutional investors in the world. 448 00:29:23,840 --> 00:29:27,000 If structured as a sovereign wealth fund, they would be the 449 00:29:27,000 --> 00:29:30,960 third largest in the world. Canada's university system 450 00:29:31,200 --> 00:29:35,160 produces, by international standards, excellent graduates. 451 00:29:35,400 --> 00:29:39,800 A 2025 survey suggested that approximately 17,000,000 452 00:29:39,800 --> 00:29:43,600 university educated people globally would choose to move to 453 00:29:43,600 --> 00:29:48,120 Canada if they could. Canada's AI research ecosystem, 454 00:29:48,320 --> 00:29:52,880 centred on Montreal, Toronto and the Vector Institute, is 455 00:29:52,880 --> 00:29:58,360 genuinely world class Geoffrey Hinton, Yoshua Bengio and 456 00:29:58,360 --> 00:30:01,760 Richard Sutton, three of the most consequential figures in 457 00:30:01,760 --> 00:30:05,680 the development of modern AI, all did their foundational work 458 00:30:05,680 --> 00:30:08,920 in Canada. The country has something real 459 00:30:08,920 --> 00:30:12,320 to build on. Canada also holds the G7's 460 00:30:12,320 --> 00:30:17,000 lowest net debt to GDP ratio and deficit as a share of the 461 00:30:17,000 --> 00:30:19,480 economy. It's fiscal position is, 462 00:30:19,480 --> 00:30:23,400 relative to peers, a genuine strength, which means that it 463 00:30:23,400 --> 00:30:26,880 has the capacity to invest if it chooses to. 464 00:30:27,320 --> 00:30:31,360 The question is whether external pressure might finally produce 465 00:30:31,360 --> 00:30:34,640 the internal reforms that domestic politics have 466 00:30:34,640 --> 00:30:38,560 persistently failed to deliver. There is some reason to think 467 00:30:38,560 --> 00:30:41,320 that it might. The trade tensions of recent 468 00:30:41,320 --> 00:30:45,400 years have created in Canada a political consensus around 469 00:30:45,400 --> 00:30:49,600 economic self-sufficiency that was absent for most of the last 470 00:30:49,600 --> 00:30:52,760 three decades. The internal trade barrier 471 00:30:52,760 --> 00:30:56,560 discussion, which has been a polite academic conversation for 472 00:30:56,560 --> 00:31:01,240 decades, suddenly became urgent. The pipeline question acquired 473 00:31:01,240 --> 00:31:05,480 new political salience. Pariks phrase the Canada has 474 00:31:05,480 --> 00:31:09,480 spent too long being a client state and branch plant economy 475 00:31:09,480 --> 00:31:12,760 of the United States, which would have been controversial to 476 00:31:12,760 --> 00:31:16,440 say even five years ago, is now being quoted in the House of 477 00:31:16,440 --> 00:31:20,080 Commons. The case for optimism, then, is 478 00:31:20,080 --> 00:31:22,920 not that Canada will automatically get better. 479 00:31:23,120 --> 00:31:27,120 It's that the conditions that might force it to try external 480 00:31:27,120 --> 00:31:31,240 shock, generational transfer of political power, a recognition 481 00:31:31,240 --> 00:31:35,800 that the status quo is no longer sustainable, are, for the first 482 00:31:35,800 --> 00:31:38,920 time in a generation, in place simultaneously. 483 00:31:39,440 --> 00:31:43,400 Crises, as it turns out, are occasionally useful. 484 00:31:43,800 --> 00:31:46,440 Thanks for tuning into this week's podcast, which is 485 00:31:46,440 --> 00:31:49,440 entirely funded by viewers like you on Patreon. 486 00:31:49,600 --> 00:31:52,680 If you'd like to support the channel, I've left a link in the 487 00:31:52,680 --> 00:31:55,120 show notes. Have a great week, and talk to 488 00:31:55,120 --> 00:31:56,440 you again soon. Bye.