Study
| EST. READ TIME 2 MIN.Ontario racks up debt while ‘Rust Belt’ states largely balance their books
Since the recession, Ontario has recorded large and consistent budget deficits that have increased the province’s already enormous debt load. According to a prominent narrative at Queen’s Park, policymakers are not to blame for this fiscal trend because the province has been struck by economic forces beyond its control including a higher dollar and global restructuring in manufacturing.
This study subjects this narrative to empirical scrutiny by comparing the economic and financial performance of Ontario with other industrial jurisdictions such as Quebec and the US “Rust Belt” states from 1999 to 2013. The Rust Belt states include Indiana, Michigan, Ohio, Pennsylvania, and Illinois. The selection of this peer group controls for the regional reliance on manufacturing; a number of the Rust Belt states had higher concentrations of manufacturing than did Ontario.
The main finding is that Ontario had a markedly worse financial performance than the Rust Belt states even though they enjoyed much stronger economies. Despite Ontario’s comparative economic strength, it accumulated far more government debt than the Rust Belt states. Even more disturbingly, by 2012/13 the US Rust Belt states had all restored healthy budget surpluses, while Ontario continued to run large deficits. Despite enjoying higher population and aggregate economic growth, Ontario is in a much deeper debt hole.
Queen’s Park claims that the poor economic performance is due to the appreciation of the Canadian dollar vis-à-vis the US dollar since the early 2000s. However, the exchange rate is currently very near its historical average. Simply put, bad policies in Ontario have led to poor financial performance compared to other industrial jurisdictions, which, like Ontario, have weathered a global restructuring in manufacturing. The implication is that better policies can improve the province’s finances and overall economic performance. Further, the responses both of both Indiana and Michigan to the global recession and the restructuring in manufacturing offer lessons for Ontario.
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Robert P. Murphy
Senior Fellow, Fraser Institute
Robert P. Murphy is a Senior Fellow at the Fraser Institute and Chief Economist at Infineo and author of the widely acclaimed book,Choice: Cooperation, Enterprise, and Human Action. He is also a Senior Fellow with the Mises Institute. He received his Ph.D. in economics from New York University. Previous positions include Research Assistant Professor with the Free Market Institute at Texas Tech University, Visiting Assistant Professor of Economics at Hillsdale College, Senior Economist at the Institute for Energy Research, Visiting Scholar at New York University, Research Analyst at Laffer Associates, and Senior Fellow in Business and Economic Studies at the Pacific Research Institute. Prof. Murphy runs the blog, Free Advice and hosts the podcast, The Bob Murphy Show. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to the Great Depression and the New Deal, The Study Guide to Man, Economy, and State with Power and Market, The Human Action Study Guide, The Study Guide to The Theory of Money & Credit by Ludwig von Mises, and Lessons for the Young Economist. He has also written hundreds of economics articles for the layperson, has given numerous radio and television interviews on such outlets as Fox Business and CNBC, and is active on Twitter (@BobMurphyEcon).… Read more -
Jason Clemens
Executive Vice President, Fraser Institute -
Joel Emes
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Niels Veldhuis
President, Fraser Institute