Fannie and Freddie vs. Canada

December 7, 2007

Clive Crook has an article in the Financial Times about the American institutions Fannie Mae and Freddie Mac.

Until recently it was possible to regard the US system of housing finance as one of the best – if not the best – in the world. Just as it was intended to, it has supported very high levels of home ownership, notably among the less prosperous. But the semi-public entities chiefly responsible for that success, and the financial technologies they devised and promoted, are deeply implicated in the housing market crash that now threatens the US and world economies. Will that turmoil lead to a scaling back of their role?

I find it curious that we have this natural social experiment, Canada vs. the United States, that is rarely used as a basis for comparing policy choices. As far as I can tell, Canadian culture and American culture are about as identical as any two countries in the world (though I’m guessing many/most Canadians will object to that characterization) yet the two countries have drastically different institutions. Except for goofy comparisons by Michael Moore, there is little discussion about the outcomes of the diverging policy choices in the two countries. Canada vs. the U.S. makes for a wonderful apples-to-apples comparison and it even has a handy built in 10x scaling factor for population.

I suspect that free market advocates would argue that Fannie and Freddie do nothing but subsidize bigger homes. The same argument holds for tax deductible mortgage interest (U.S. only). I think home ownership rates in the U.S. and Canada are approximately equal and this is NOT what you should expect given the very attractive incentives available in the U.S..

And the same holds true for public education. Whenever I hear an economist talk about school vouchers to fix the broken public school system in the U.S., I wonder if they think the public school system in Canada is also broken. I think public education works pretty well in Canada so why the difference?

The “Death Tax” (estate tax) only exists in the U.S. although the one big lump sum for capital gains can seem like a death tax in Canada.

Hand guns? Welfare? Minimum wage? Fuel taxes? Ethanol Fuel? Immigration? Why so few thoughtful comparisons?


One Response to “Fannie and Freddie vs. Canada”

  1. […] have wondered in the past what is different between the Canadian and U.S. systems. Recently a report claimed that Canada may be heading for an American-like meltdown. Although […]

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