The political choices that we make

I generally don't comment on politics because I believe that a good investor should be agnostic about political developments. Nevertheless, as we approach the election in the United States, it can be useful to reflect upon the political choices we all make. As an example, I recently came upon a Huffington Canada poll that illustrates the stark political difference between Americans and Canadians.

This rather (unscientific) poll that asked Canadians "What would you do to change Canada?" As expected, the answers were all over the map. What struck me was the tone of the answers was about how to divide the pie and not about how to increase the size of the pie. There was no discussion about fiscal policy (government deficits) or micro-economic policy, such as how to make the economy grow or to stimulate innovation, etc. There was none of the discussion about tax rates that has been a part of the discussion during this election season in the US.

For a different perspective, Barry Ritholz compared Europe to America in his post Where Are You in the Economic Strata? He concluded that the level of economic stress among Europeans are far lower than they are in the States:

During my last trip to Europe, I was aware of how modest the stress levels were, despite the EU crisis, the looming recession, collapse of the Euro, etc. Their extensive safety net meant that there was not a ”Stressed Out Middle Class” or even a “Working Poor.” If you have health care, retirement, education, unemployment and day care paid for by the state — and a 70+% tax rate — you don’t sweat minor issues like continental recessions.

On the other hand, the net economic result for the average European was about the same, though Americans are more stressed [emphasis added]:

In Helsinki, we got into a fascinating conversation within a small group of locals about that tax rate. The national and local income tax, real estate taxes, state sales tax, and then the VAT tax mean that a 70% tax rate (versus gross income) was pretty typical. That seemed astonishingly high to me. But someone pointed out that once you add in the costs of health care, student loans, retirement investments, etc. — all the things state pay for with that 70% rate — an American making less than $100k ended up with about the same 30% net as the Finns do.

The difference is we have more stress than they do.

Bill Mann, who writes a column about Canada for Marketwatch, essentially said the same thing about arriving at the same place when he wrote about the differences between the Canadian and American health care systems. Canadians made a conscious fiscal choice to ration health care because waiting for elective procedures puts less stress on the system and holds costs down [emphasis added]:

Canadians have shown admirable restraint — something normally in short supply here in the U.S. They’ve actually opted to hold down medicare costs by consciously waiting longer and limiting supply, mostly for elective procedures. Imagine that.

Canadians, in other words, have made a choice to be fiscally conservative, Carroll says in his well- documented article. They’re more realistic and less demanding than many American patients are. Carroll says that Canadians COULD, if they wanted to, cut down wait times — by spending more on health care. But they’ve actually made a conscious choice not to do this.

This is no smoke screen: I’ve heard callers on Canadian radio shows state exactly this many times. They’d rather show personal restraint by waiting a bit longer than running up deficits.

The results are about the same, though American health care costs are substantially higher than either Canada or any major industrial country:

The final myth about Canada rationing health care in its system and the U.S. not doing so governmentally, is trickier, Carroll admits. But he points out that although the U.S. pays quite a bit more of its GDP than Canada does on health care, far more Americans in need of care go unseen by doctors. And U.S. medical outcomes, he adds, are middling at best.

Having lived in both countries, I think that the difference in attitudes between Americans and the citizens of major western countries is aspirational. Americans still believe in the American Dream. Even if they are poor, they crave policies that favor the well-off, even if it's to their detriment given their current conditions, because they aspire to move up the ladder. Canadians and Europeans, on the other hand, are more resigned (or realistic, depending on how you look at it) about their current conditions and have fewer aspirations to make it to the top.

The net result for the average citizen is about the same. It's about the attitudes you adopt.




Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

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