Canucks in hock: 50 years of Canadian debt levels

Graph of Canadian government debt and consumer debt historical
Canadian personal and government debt, per family of four, adjusted for inflation, 1969-2019

Canada has a debt problem.  Total consumer and government debt is now $3.7 trillion, with 60 percent being consumer debt: mortgages, home-equity loans, credit lines, car loans, credit card balances, etc.  Provincial government debt is about $0.7 trillion and federal government debt is $0.8 trillion.  Corporate and financial-system debts would add trillions more, but we’ll leave those amounts aside.

Those are big numbers—too big to make sense of.  It is easier to understand debt if we look at it on a per-household basis.  The graph above shows debt levels for a hypothetical family of four over the past 50 years: 1969 to 2019.  All figures are adjusted for inflation.  For an average Canadian household, debt levels today are about six times higher than in 1970.  Granted, we’re richer than we were in the 1970s, but six times richer?  More important, are we richer as a nation?  In 1970 the eastern oceans were full of cod and western regions were brimming with oil.

There are many ways to evaluate debt—to put it into perspective.  Often it’s expressed as a percentage of GDP or of household income.  The idea being that if the economy is bigger or incomes are larger, it’s okay to owe more.  I want to argue that this is the wrong approach.  I want to suggest a different and more concerning interpretation of ever-rising Canadian debt levels.

Debt rises when our financial outflows exceed inflows.  If we need to pay out more than we are bringing in, we can borrow, and debt goes up.  But implicit in this idea is another one: the day will come when inflows exceed outflows and we’ll have surplus money we can use to pay off the debt.

So let’s look at the graph in that light.  Here’s what the graph shows: collectively, we Canadians couldn’t quite pay all our personal and government bills in the 1970s, so we borrowed money and debt increased.  The same in the 1980s: we didn’t have enough so we borrowed and debt increased.  This continued through the 1990s, 2000s, and 2010s.  In each decade of the past half-century we couldn’t quite afford our lifestyles and infrastructure projects and social programs and day-to-day bills so we borrowed more money than we repaid, so debt rose—continuously, consistently.

So here’s the question that puts this debt into perspective: if we didn’t have enough money in any of the recent decades why are we confident that the situation will change in the future?  Why, after five decades of increasing debt, are we confident that in the 2020s or 2030s or 2040s we can reverse the pattern of two generations and amass money so fast that we’ll not only be able to pay all our personal and government bills but we’ll also have large surpluses we can use to retire the debt we accumulated over 50 years?  …a debt that now stands at about $400,000 per family of four.

Let’s explore that argument again, over a shorter time frame.  Over just the past 15 years—2004 to 2019—the average Canadian household has increased its debt by about 45 percent—by about $110,000.  But the recent decade-and-a-half were good years in much of Canada—unemployment was relatively low, the economy was usually strong, rising stock markets helped stoke investments and retirement accounts.  In many parts of Canada most of the 2004-2019 period was a “boom” time.  The economy was booming, yet we borrowed.  Are we confident that our future will be even more … boomy?  Because it’s in that future that we’re not only going to have to find ways to pay all the day-to-day bills in our households and legislatures, but also find large surpluses to retire debt.  Are we confident that in the 2020s or 2030s our nation and our collective households will be so much richer than we were in the 2004-2019 period that that we’ll be able to retire all that debt?

My aim is certainly not to scold.  Rising debt should not be seen as a personal problem, but rather as a collective error.  Rather, my aim is to warn—to disabuse governments and my fellow citizens of a dangerous and possibly prosperity-curdling idea: that current debt levels are somehow safe and sustainable and that we should be calm as we or our governments pile on trillions more (as the trendlines in the graph suggest we will).  Most of us have debts.  But debt is a public policy issue, not a personal failing.  Moreover, even those who do not have debt should not be smug.  If, as a nation, our collective borrowing rises too far there will be a reckoning, and all will suffer as a result.

Every household must make its own decisions regarding mortgages and education spending and financing cars.  But there is also a larger, collective, public-policy decision needed.  Government leadership is needed to begin moving debt levels lower.

Greta vs. growth

Graph of the size of the global economy (Gross World Product) historic
The size of the global economy (Gross World Product) over the long term, 1 CE – 2020 CE

“People are suffering.  People are dying.  Entire ecosystems are collapsing.  We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth.  How dare you!”  So spake Greta Thunberg at the United Nations on September 23rd, 2019.

Thunberg, a sixteen-year-old without a university education, has had the insight, clarity, and courage to say what ten-billion-dollars worth of Ph.D. economists haven’t: that continued economic growth is, at best, unsustainable and probably much worse: a malignant illusion driving us to destroy our biosphere, civilization, and future.  The project of making the current global economy four or eight times larger is a suicide pact.

The graph above places our 21st century economy in its long-term context.  It shows the size of the global economy (Gross World Product) from 1 CE to 2020.  The units are trillions of US/international dollars adjusted for inflation (constant 2011 dollars).  The main source is the World Bank, with historical data from Angus Maddison.  (Pre-20th century values are, by necessity, estimates by Maddison.)

The years 1900, 2000, and 2020 are highlighted.  Sometime in 2020 the size of the global economy will surpass 127 trillion dollars.  When it does, it will be twice as large as it was in 2000.  The economy will have doubled in size in just 20 years.  This shouldn’t be a surprise.  Sustained growth rates of 3.5 percent leads to a doubling every 20 years.  (Recall the Rule of 70.)

Going forward, if we maintain current rates of growth—three to four percent annually—the economy will be twice as large again by 2040 or soon after—making it four times larger than in 2000.  Earth’s atmosphere, oceans, land, and biosphere will be hosting four 2000-sized economies.

And by 2060 or 2070, another doubling will bring the global economy to eight times its 2000 level.  And there’ll still be more than enough time left in this century to double it again—at least a 16-fold increase in size in a single century, if we stay the course.  If we accomplish this, we will be reprising the 18-fold increase seen during the 20th century.

Of course, we won’t do this—we won’t make the global economy 8 or 16 times larger.  Within a generation or two nearly everyone on the planet will be living in a post-growth economy: either because we’ve had the wisdom to end runaway exponential growth and put the biosphere first, or because we have not.

The end of growth, inescapable in the medium term, will bring numerous problems, such as how will we deal with the equity claims of the poor if we can no longer rely on the convenient fictions of “a rising tide raises all boats” and “anyone (everyone?) can grow up to be rich.”  While the end of growth must come for nearly all within a few decades, it must come first for those of us who are richest, so that growth can continue in places where people are poorer.  Those of us who enjoy jet vacations need to step off the growth escalator first so that growth can continue for others and deliver to them running water and refrigerators.  The end of growth casts into sharp relief a series of moral problems.

But the end of growth will also solve many problems.  We will be forced to take less of our economy’s productivity and bounty in the form of consumer products and more in the form of free time and low-emission leisure—more time with family, more time with friends drinking coffee or wine, more time with culture and nature; more discussion, poetry, romance, literature, and contemplation.  Most of the people in the fast-expanding (-metasticizing?) global middle class are living high-stress, low-quality, time-impoverished lives.  Stepping off the growth escalator can be part of a larger civilizational, cultural, and spiritual shift in which we rediscover meaning and purpose beyond getting and spending.

Thunberg is neither sage nor prophet.  And one need be neither to see what is absolutely, inescapably obvious: growth must and will soon end.  But we have a choice: We can deny the fact of growth’s imminent end and continue in the fairy tale and massively deplete and damage the planet in a last frenzied attempt to squeeze out one or two more doublings, or we can be as mature as a sixteen-year-old, admit the obvious, get on with the needed changes, and reap the benefits of slower, saner, more sustainable, more enjoyable lives.

Sources for graph:
– 
World Bank, Databank website: “GDP, PPP (constant 2011 international $)”
– 
Angus Maddison, The World Economy, Volume 1: A Millennial Perspective (Paris: OECD, 2001); Angus Maddison, Contours of the World Economy, 1–2030 AD: Essays in Macro-Economic History (Oxford: Oxford University Press, 2007)

 

 

 

$100 billion and rising: Canadian farm debt

Graph of Canadian farm debt, 1971-2017
Canadian farm debt, 1971-2017

Canadian farm debt has risen past the $100 billion mark.  According to recently released Statistics Canada data, farm debt in 2017 was $102.3 billion—nearly double the level in 2000.  (All figures and comparisons adjusted for inflation.)

Some analysts and government officials characterize the period since 2007 as “better times” for farmers.  But during that period (2007-2017, inclusive) total farm debt increased by $37 billion—rising by more than $3 billion per year.

Here’s how Canadian agriculture has functioned during the first 18 years of the twenty-first century (2000 to 2017, inclusive):

1. Overall, farmers earned, on average, $47 billion per year in gross revenues from the markets (these are gross receipts from selling crops, livestock, vegetables, honey, maple syrup, and other products).

2. After paying expenses, on average, farmers were left with $1.6 billion per year in realized net farm income from the markets (excluding farm-support program payments).  If that amount was divided equally among Canada’s 193,492 farms, each would get about $8,300.

3. To help make ends meet, Canadian taxpayers transferred to farmers $3.1 billion per year via farm-support-program payments.

4. On top of this, farmers borrowed $2.7 billion per year in additional debt.

5. Farm family members worked at off-farm jobs to earn most of the household income needed to support their families (for data see here and here).

The numbers above give rise to several observations:

A. The amount of money that farmers pay each year in interest to banks and other lenders ($3 billion, on average) is approximately equal to the amount that Canadian citizens each year pay to farmers ($3.1 billion).  Thus, one could say that, in effect, taxpayers are paying farmers’ interest bills.  Governments are facilitating the transfer of tax dollars from Canadian families to farmers and on to banks and their shareholders.

B. Canadian farmers probably could not service their $100 billion dollar debt without government/taxpayer funding.

C. To take a different perspective: each year farmers take on additional debt ($2.7 billion, on average) approximately equal to the amount they are required to pay in interest to banks ($3 billion on average). One could say that for two decades banks have been loaning farmers the money needed to pay the interest on farmers’ tens-of-billions of dollars in farm debt.

Over and above the difficulty in paying the interest, is the difficulty in repaying the principle.  Farm debt now—$102 billion—is equal to approximately 64 years of farmers’ realized net farm income from the markets.  To repay the current debt, Canadian farm families would have to hand over to banks and other lenders every dime of net farm income from the markets from now until 2082.

The Canadian farm sector has many strengths.  By many measures, the sector is extremely successful and productive.  Over the past generation, farmers have managed to nearly double the value of their output and triple the value of agri-food exports.  Output per year, per farmer, and per acre are all up dramatically.  And Canadian farmers lead the world in adopting high-tech production systems.  The problem is not that our farms are backward, inefficient, or unproductive.  Rather, the problems detailed above are the result of voracious wealth extraction by the dominant agribusiness transnationals and banks. (To examine the extent of that wealth extraction, see my blog post here).

Although our farm sector has many strengths and is setting production records, the sector remains in a crisis that began in the mid-1980s.  And what began as a farm income crisis has metastasized into a farm debt crisis.  Further, the sector also faces a generational crisis (the number of farmers under the age of 35 has been cut by half since 2001) and a looming climate crisis.  Policy makers must work with farmers to rapidly restructure and transform Canadian agriculture.  A failure to do so will mean further costs to taxpayers, the destruction of the family farm, and irreparable damage to Canada’s food-production system.

Home grown: 67 years of US and Canadian house size data

Graph of the average size of new single-family homes, Canada and the US, 1950-2017
Average size of new single-family homes, Canada and the US, 1950-2017

I was an impressionable young boy back in 1971 when my parents were considering building a new home.  I remember discussions about house size.  1,200 square feet was normal back then.  1,600 square feet, the size of the house they eventually built, was considered extravagant—especially in rural Saskatchewan.  And only doctors and lawyers built houses as large as 2,000 square feet.

So much has changed.

New homes in Canada and the US are big and getting bigger.  The average size of a newly constructed single-family detached home is now 2,600 square feet in the US and probably 2,200 in Canada.  The average size of a new house in the US has doubled since 1960.  Though data is sparse for Canada, it appears that the average size of a new house has doubled since the 1970s.

We like our personal space.  A lot.  Indeed, space per person has been growing even faster than house size.  Because as our houses have been growing, our families have been shrinking, and this means that per-capita space has increased dramatically.  The graph below, from shrinkthatfootprint.com, shows that, along with Australia, Canadians and Americans enjoy the greatest per-capita floorspace in the world.  The average Canadian or American each has double the residential space of the average UK, Spanish, or Italian resident.

Those of us fortunate enough to have houses are living in the biggest houses in the world and the biggest in history.  And our houses continue to get bigger.  This is bad for the environment, and our finances.

Big houses require more energy and materials to construct.  Big houses hold more furniture and stuff—they are integral parts of high-consumption lifestyles.  Big houses contribute to lower population densities and, thus, more sprawl and driving.  And, all things being equal, big houses require more energy to heat and cool.  In Canada and the US we are compounding our errors: making our houses bigger, and making them energy-inefficient.  A 2,600 square foot home with leading edge ‘passiv haus’ construction and net-zero energy requirements is one thing, but a house that size that runs its furnace half the year and its air conditioner the other half is something else.  And multiply that kind of house times millions and we create a ‘built in’ greenhouse gas emissions problem.

Then there are the issues of cost and debt.  We continually hear that houses are unaffordable.  Not surprising if we’re making them twice as large.  What if, over the past decade, we would have made our new houses half as big, but made twice as many?  Might that have reduced prices?

And how are large houses connected to large debt-loads?  Canadian debt now stands at a record $1.8 trillion.  Much of that is mortgage debt.  Even at low interest rates of 3.5 percent, the interest on that debt is $7,000 per year for a hypothetical family of four.  And that’s just the average.  Many families are paying a multiple of that amount, just in interest.  Then on top of that there are principle payments.  It’s not hard to see why so many families struggle to save for retirement or pay off debt.

Our ever-larger houses are filling the air with emissions; emptying our pockets of saving; filling up with consumer-economy clutter; and creating car-mandatory unwalkable, unbikable, unlovely neighborhoods.

The solutions are several fold.  First, new houses must stop getting bigger.  And they must start getting smaller.  There is no reason that Canadian and US residential spaces must be twice as large, per person, as European homes.  Second, building standards must get a lot better, fast.  Greenhouse gas emissions must fall by 50 to 80 percent by mid-century.  It is critical that the houses we build in 2020 are designed with energy efficient walls, solar-heat harvesting glass, and engineered summer shading such that they require 50 to 80 percent less energy to heat and cool.  Third, we need to take advantage of smaller, more rational houses to build more compact, walkable, bikable, enjoyable neighborhoods.  Preventing sprawl starts at home.

Finally, we need to consider questions of equity, justice, and compassion.  What is our ethical position if we are, on the one hand, doubling the size of our houses and tripling our per-capita living space and, on the other hand, claiming that we “can’t afford” housing for the homeless.  Income inequality is not just a matter of abstract dollars.  This inequality is manifest when some of us have rooms in our homes we seldom visit while others sleep outside in the cold.

We often hear about the “triple bottom line”: making our societies ecologically, economically, and socially sustainable.  Building oversized homes moves us away from sustainability, on all three fronts.

Graph sources:
US Department of Commerce/US Census Bureau, “2016 Characteristics of New Housing”
US Department of Commerce/US Census Bureau, “Characteristics of New Housing: Construction Reports”
US Department of Commerce/US Census Bureau, “Construction Reports: Characteristics of New One-Family Homes: 1969”
US Department of Labour, Bureau of Labour Statistics, “New Housing and its Materials:1940-56”
Preet Bannerjee, “Our Love Affair with Home Ownership Might Be Doomed,” Globe and Mail, January 18, 2012 (updated February 20, 2018) 

The cattle crisis: 100 years of Canadian cattle prices

Graph of Canadian cattle prices, historic, 1918-2018
Canadian cattle prices at slaughter, Alberta and Ontario, 1918-2018

Earlier this month, Brazilian beef packer Marfrig Global Foods announced it is acquiring 51 percent ownership of US-based National Beef Packing for just under $1 billion (USD).  The merged entity will slaughter about 5.5 million cattle per year, making Marfrig/National the world’s fourth-largest beef packer.  (The top-three are JBS, 17.4 million per year; Tyson, 7.7 million; and Cargill, 7.6.)  To put these numbers into perspective, with the Marfrig/National merger, the largest four packing companies will together slaughter about 15 times more cattle worldwide than Canada produces in a given year.  In light of continuing consolidation in the beef sector it is worth taking a look at how cattle farmers and ranchers are fairing.

This week’s graph shows Canadian cattle prices from 1918 to 2018.  The heavy blue line shows Ontario slaughter steer prices, and is representative of Eastern Canadian cattle prices.  The narrower tan-coloured line shows Alberta slaughter steer prices, and is representative for Western Canada.  The prices are in dollars per pound and they are adjusted for inflation.

The two red lines at the centre of the graph delineate the price range from 1942 to 1989.  The red lines on the right-hand side of the graph delineate prices since 1989.  The difference between the two periods is stark.  In the 47 years before 1989, Canadian slaughter steer prices never fell below $1.50 per pound (adjusted for inflation).  In the 28 years since 1989, prices have rarely risen that high.  Price levels that used to mark the bottom of the market now mark the top.

What changed in 1989?  Several things:

1.       The arrival of US-based Cargill in Canada in that year marked the beginning of integration and consolidation of the North American continental market.  This was later followed by global integration as packers such as Brazil-based JBS set up plants in Canada and elsewhere.

2.       Packing companies became much larger but packing plants became much less numerous.  Gone were the days when two or three packing plants in a given city would compete to purchase cattle.

3.       Packer consolidation and giantism was faciliated by trade agreements and global economic integration.  It was in 1989 that Canada signed the Canada-US Free Trade Agreement (CUSTA).  A few years later Canada would sign the NAFTA, the World Trade Organization (WTO) Agreement on Agriculture, and other bilateral and multilateral “free trade” deals.

4.       Packing companies created captive supplies—feedlots full of packer-owned cattle that the company could draw from if open-market prices rose, curtailing demand for farmers’ cattle and disciplining prices.

Prices and profits are only partly determined by supply and demand.  A larger factor is market power.  It is this power that determines the allocation of profits within a supply chain.  In the late ’80s and continuing today, the power balance between packers and farmers shifted as packers merged to become giant, global corporations.  The balance shifted as packing plants became less numerous, reducing competition for farmers’ cattle.  The balance shifted still further as packers began to utilize captive supplies.  And it shifted further still as trade agreements thrust farmers in every nation into a single, hyper-competitive global market.  Because market power determines profit allocation, these shifts increased the profit share for packers and decreased the share for farmers.   The effects on cattle farmers have been devastating.  Since the latter-1980s, Canada has lost half of its cattle farmers and ranchers.

For more background and analysis, please see the 2008 report by the National Farmers Union: The Farm Crisis and the Cattle Sector: Toward a New Analysis and New Solutions.

Graph sources: numerous, including Statistics Canada CANSIM Tables 002-0043, 003-0068, 003-0084; and  Statistics Canada “Livestock and Animal Products”, Cat. No. 23-203

 

 

Full-world economics and the destructive power of capital: Codfish catch data 1850 to 2000

Graph of North Atlantic cod fishery, fish landing in tonnes, 1850 to 2000
Codfish catch, North Atlantic, tonnes per year

Increasingly, the ideas of economists guide the actions of our elected leaders and shape the societies and communities in which we live.  This means that incorrect or outdated economic theories can result in damaging policy errors.  So we should be concerned to learn that economics has failed to take into account a key transition: from a world relatively empty of humans and their capital equipment to one now relatively full.

A small minority of economists do understand that we have made an important shift.  In the 1990s, Herman Daly and others developed the idea that we have shifted to “full-world economies.”  (See pages 29-40 here.)  The North Atlantic cod fishery illustrates this transition.  This week’s graph shows tonnes of codfish landed per year, from 1850 to 2000.

Fifty years ago, when empty-world economics still held, the fishery was constrained by a lack of human capital: boats, motors, and nets.  At that time, adding more human capital could have caused the catch to increase.  Indeed, that is exactly what happened in the 1960s when new and bigger boats with advanced radar and sonar systems were deployed to the Grand Banks and elsewhere.  The catch tripled.  The spike in fish landings is clearly visible in the graph above.

But in the 1970s and ’80s, a shift occurred: human capital stocks—those fleets of powerful, sonar-equipped trawlers—expanded so much that the limiting factor became natural capital: the supply of fish.  The fishery began to collapse and no amount of added human capital could reverse the decline.  The system had transitioned from one constrained by human capital to one constrained by natural capital—from empty-world to full-world economics.  A similar transition is now evident almost everywhere.

An important change has occurred.  Unfortunately, economics has not internalized or adapted to this change.  Economists, governments, and business-people still act as if the shortage is in human-made capital.  Thus, we continue our drive to amass capital—we expand our factories, technologies, fuel flows, pools of finance capital, and the size of our corporations, in order to further expand the quantity and potency of human-made capital stocks.  Indeed, this is a defining feature of our economies: the endless drive to expand and accumulate supplies of capital.  That is why our system is called “capitalism.”  And a focus on human-made capital was rational when it was in short supply.  But now, in most parts of the world, human capital is too plentiful and powerful and and, thus, destructive.  It is nature and natural capital that is now scarce and limiting.  This requires an economic and civilizational shift: away from a focus on amassing human capital and toward a focus on protecting and maximizing natural capital: forests, soils, water, fish, biodiversity, wild animal populations, a stable climate, and intact ecosystems.  Failure to make that shift will push more and more of the systems upon which humans depend toward a collapse that mirrors that of the cod stock.

Graph source:  United Nations GRID-Arendal, “Collapse of Atlantic cod stocks off the East Coast of Newfoundland in 1992