Wheat from the Chaff

Measuring our Debt

One of the most important but confusing economic benchmarks is the level of debt carried by a nation. Is it in constant or inflated dollars? How do we account for population growth and inflation? Adding to the complexity is the different levels of government in a country like Canada. Probably the best way of measuring debt is as a percentage of gross national product. In an indirect way, it accommodates natural growth (like population and inflation), the health of our economy, and the capacity to carry debt at any given time.

The following are two interesting graphs that help explain Canada's debt, as reported by The Globe and Mail on Aug. 3, 2010:

One interesting thing to note from the second graph is that Canada's total debt load looks as bad as the United States. In a certain sense it's true; debt is debt, after all, and all citizens must eventually pay up. But constitutionally speaking, Canada's federal government is not responsible for provincial debt, while most of the 50 states in the United States cannot run long-term deficits. So, the American federal government owns most of America's debt, while Canada's federal government is, as of 2006, only responsible for 63% of Canada's overall government debt. Our federal government, in other words, doesn't have the same debt burden as the American national government, or even the British government (given its unitary structure). Of course, the current federal government in Canada is also benefiting from Paul Martin's reign as Finance Minister during which he passed "the buck (but not the bucks) on to lower levels of government".