About a month ago, I made a video called

The UK is a warning to the rest of the

world. It was about the entirely

avoidable economic stagnation that

overtook what was once the world's

preeminent industrial power. The comment

section of that video was unusually

lively, but some comments really stood

out. A lot of my viewers were saying

some version of just change the name of

the country and you've basically

described Canada. They said this, it

should be noted very politely. So today,

let's talk about Canada. Now, back in

2012, a comparison like that would have

seemed absurd. At that point, the global

consensus on Canada was that it was the

ultimate best of all worlds economy. It

had the natural resources of a Gulf

state, the social safety net of a

northern European country, and a housing

market that only seemed to move in one

direction. Canada is a country that on

paper should be one of the wealthiest

nations on earth. It has the second

largest land mass in the world. It holds

the third largest proven oil reserves.

It's fifth in natural gas. It has an

abundance of uranium potach, rare earth

minerals and fresh water. It has a

highly educated population, a stable

democracy, rule of law and G7

membership. By every measure of

endowment, Canada should be a

superpower. In fact, there was a brief

window in 2012 where the median Canadian

household actually pulled ahead of its

American counterpart, becoming by

several measures the most affluent

middle class in the world. Looking back

from 2026, it's clear that this

outperformance was driven by a unique

set of circumstances. It was the height

of a global commodity boom where crude

oil prices had nearly quadrupled over a

decade and the Canadian dollar was

trading at or above parody with the US

dollar. While high energy prices were a

headwind for the US, they were a massive

tailwind for Canada. But if you look at

the data today, that era of

outperformance has vanished. The decline

isn't marked by a sudden collapse or a

dramatic crisis. It's a slow but always

polite stagnation. Between 2012 and

today, Canada has fallen from number six

on the World Happiness Index to number

25, its lowest ranking since the survey

began. To see a national mood sour this

quickly, you usually have to look at

countries whose central banks have been

replaced by printing presses or whose

borders are being redrawn. In Canada,

the institutions are still there and the

borders haven't moved. It's just that

the arithmetic of a middle class life

has slowly stopped balancing. National

income per head has fallen from roughly

80% of the American level in the decade

before the pandemic to around 70% today.

If Canadian provinces were American

states, Alberta, the oil rich outlier,

would rank around 20th wealthiest.

somewhere between Colorado and

Tennessee. Ontario, Canada's most

populous and economically central

province, would rank 48, below Montana,

below Alabama, and below every southern

state except Mississippi. New Brunswick

would rank dead last, below Mississippi.

The provinces that contain most of

Canada's population sit near the bottom

of the combined list. A country that was

briefly richer per capita than the

United States is now having a serious

debate about whether it can arrest a

generational decline. The British

disease that I described last month was

an object lesson in compounding errors.

But Canada's version of this stagnation

is unique. It's a story of how a country

with every possible advantage managed to

fall into what Bank of Canada senior

deputy governor Caroline Rogers called

in a 2024 speech a productivity

emergency. The reason I think the rest

of the world should pay attention to

Canada is not that Canada is failing

spectacularly. It is failing gradually,

systematically, and in ways that are

entirely legible. Compounding errors

that reinforce each other, each one

individually defensible collectively

ruin us. The same patterns are visible

in countries across the developed world.

Canada just got there first. So, let's

go through them. But before we do, let

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Consider a thought experiment. Imagine a

professional sports league where the

same three or four teams win every year.

They have the largest stadiums, the

biggest TV deals, and the most expensive

players. The other teams are technically

allowed to compete, but the rules of the

game have been structured over the

decades to make it very difficult for

anyone new to enter. What tends to

happen over time is not just that the

incumbents win, it's that the whole

quality of play declines. Without

genuine competitive pressure, there's no

incentive to innovate, to take risks, or

to improve. Canada's domestic economy

has in several of its most important

sectors been running this kind of league

for 30 years. Take telecommunications.

Canada has three dominant carriers,

Bell, Rogers, and Telus, who

collectively hold roughly 89% of

wireless subscribers. Canada has, as a

result, some of the highest mobile phone

bills in the developed world. A

comparable unlimited data plan costs

roughly twice as much in Canada as in

the UK or France. The Canadian Radio

Television and Telecommunications

Commission or the CRTC, which is what

you'd call it if you'd like to get home

before midnight, has for years been

theoretically open to new entrance. But

the practical and regulatory barriers

have ensured that meaningful competition

never quite materialized. The industry

has spent lavishly on lobbying and

regulatory intervention. It spends

rather less on network investment per

customer than its counterparts in more

competitive markets. Banking tells a

similar story. Five Canadian banks, the

Royal Bank, TD, Scotia Bank, and

CIBC hold approximately 90% of deposits

in the country. The Canadian banking

system is by design highly stable. It

didn't have a financial crisis in 2008

unlike most of the developed world. This

is a genuine achievement and Canadian

bankers will remind you of it at every

available opportunity. But stability and

dynamism are not the same thing. A

concentrated banking sector allocates

capital conservatively. It lends to

proven assets, existing real estate,

established corporations rather than to

new ventures. The startup ecosystem that

Canada has quietly built, particularly

in AI, has often found that the most

growthoriented capital came from

American funds, not from Bay Street. The

pattern repeats in airlines, in

groceries, and in broadcasting. A small

number of large incumbents protected by

ownership restrictions, regulatory

capture or both extract returns from a

captive domestic market. The economist's

term for this is rent seeking. The

polite Canadian term is a stable

industry. The consequence is that

Canada's labor productivity, the output

generated per hour worked, has declined

relative to American productivity over

time. In 1997, the productivity gap was

narrower. Since then, the two economies

have diverged by a cumulative 26

percentage points. Canada has not become

less productive in absolute terms. It's

simply failed to keep pace with an

economy where competitive pressure is

significantly higher and where venture

capital has directed hundreds of

billions of dollars into the highest

productivity sectors of the global

economy. Canada spends less than half

the OECD average on research and

development as a share of GDP, a figure

that has been below the average for two

decades running. There's also the

question of internal trade. Canada has a

free trade agreement with the United

States, Mexico, the European Union, and

most of Asia-Pacific. It does not have a

fully functioning free trade agreement

with itself. a structural curiosity that

has persisted in various forms since

Confederation.

In January 2005, the average Canadian

home sold for $237,000

Canadian. By early 2026, the average had

reached $661,000,

a nominal increase of around $179%

or nearly tripling in price. Even

adjusted for inflation, the gain is

still huge. In the country's largest

cities, it's been transformational. Now,

there's a common comparison made in

conversations about Canadian housing

that homes have outperformed the stock

market over time. It's worth pausing on

this. On a straight price appreciation

basis, the TSX composite index actually

outperformed Canadian housing over the

same period and substantially so once

dividends are reinvested. The point is

not therefore that housing beats stocks.

The point is that housing performed like

an equity investment in a non-productive

asset. A company when it rises in value

has generally done so by producing

something, a product, a service, a

patent, a drug, a piece of software. The

stock price reflects real economic

activity, real production. A house, when

it rises in value, has generally done so

because land in a desirable location has

become scarcer, because planning

restrictions have constrained supply, or

because a decade of historically low

interest rates created a wall of capital

seeking somewhere to go. The house

didn't invent anything. It didn't employ

a research team. It just sat there. This

distinction matters because of leverage.

If you bought a Toronto home in 2005 for

$300,000 with a 20% deposit, so $60,000

down, and that home is now worth around

$900,000,

your original $60,000 has generated a

capital gain of $600,000.

That is a 10:1 return on the actual cash

invested. It's also in Canada entirely

tax-free if it was your primary

residence. If you had instead taken that

same $60,000 and put it into a TSX index

fund, it would be worth roughly $195,000

today. A solid result, but it gets

diluted because of capital gains tax on

the profit. The incentive structure this

creates is problematic. The rational

economic choice for a Canadian household

with savings has been for 20 years to

put as much money as possible into real

estate as early as possible at as high a

leverage ratio as your bank will allow.

This is not irrational behavior. It's an

entirely logical response to the

incentives that the system created. It

is after all how everyone you know made

most of their money. The consequences of

this are considerable. Housing prices in

Canada's major cities now sit at

somewhere between 12 and 17 times median

household income. The median after tax

income for a Canadian individual in 2023

was $74,000

a year. At the national average price of

$661,000,

the price to income ratio is

approximately 9. In Toronto and

Vancouver, it's substantially higher. In

2020 and 2021, CIBC estimated that

roughly onethird of firsttime buyers

received a parental gift to fund their

down payment. The average amount was

$82,000 Canadian, which as it happens is

slightly more than the median Canadian

individual's annual after tax income. In

Vancouver, the average parental gift was

$180,000 Canadian. In Toronto, it

exceeded $130,000.

The Bank of Mom and Dad has in certain

Canadian cities become the largest

mortgage lender in the country. It

doesn't, however, publish accounts.

Amusingly, in researching this, I found

a Canadian real estate industry

publication where the author argued that

what Canada's housing market needed was

further tax relief for property owners

on the grounds that this would stimulate

more housing transactions. I don't like

to beat up on someone, but consider the

environment in which it's being made.

The average home in Vancouver costs more

than 17 times the average income. The

suggested solution is to make property

ownership even more tax advantage than

it already is. This is a bit like a

doctor seeing a patient with high blood

pressure and suggesting that they eat

more salt. Technically, it will do

something. It's just not obvious that

the something is helpful. The political

economy of this situation is almost

perfectly paralyzed. Approximately 66%

of Canadian households own their own

homes, meaning that 2/3 of the

electorate have a direct financial stake

in keeping house prices high. A

government that credibly committed to

building sufficient new housing to

return prices to something resembling

affordability would be asking a majority

of its voters to accept a substantial

reduction in the value of their single

largest asset. In Britain, we identified

this as the central political obstacle

to housing reform. In Canada, the

problem is essentially identical. The

2026 World Happiness Report contains a

data point that I find genuinely

striking. Canada overall ranks 25th,

which is a significant fall from sixth a

decade ago, but still a respectable

position for a country that is by any

objective standard wealthy, peaceful,

and well-governed. But when you break

this down by age, the picture changes

substantially. Canadians over 60 rank in

the global top 10 for happiness.

Canadians under 25 rank 71st.

71st below countries with a fraction of

Canada's per capita income. That ranking

reflects not just where Canada stands,

but how fast it has fallen. The World

Happiness Report tracks the decline in

youth happiness since 2011 across 136

countries. Of those, only three recorded

a steeper dropped than Canada, Malawi,

Lebanon, and Afghanistan.

One of the three has a poverty rate

above 70%. One has been in active armed

conflict. One is governed by the

Taliban. Canada is the fourth. There's a

clean explanation for this divergence

and it is the housing market. Older

Canadians who bought homes in the 1980s,

1990s or early 2000s have through the

entirely normal process of sitting in

their houses accumulated wealth that

would have been the envy of a successful

entrepreneur. The median senior family

in Canada holds net assets of

approximately 1.1 million Canadian

dollars. The median family, where the

main earner is under 35, holds

approximately $159,000.

This is not because young Canadians are

less capable, less hardworking, or less

disciplined. It's because the asset that

generated extraordinary returns for the

previous generation is now priced at a

level that makes it structurally

inaccessible without either a very high

income, a parental transfer, or both.

Youth unemployment reached 14.7%

in late 2025. Approximately 914,000

young Canadians, just under a million

were classified as need, not in

employment, education, or training. This

is the mechanism of generational wealth

transfer that the housing market has

created. It's not a conspiracy. Nobody

designed it this way. It's simply the

predictable outcome of a set of

policies, planning restrictions, tax

treatment of primary residents, mortgage

incentives, and low interest rates that

happen to be extremely good for people

who owned assets 25 years ago and are

considerably less good for people trying

to acquire assets today. It also

incidentally explains why the country's

most talented young people increasingly

looks out. Which brings me briefly to

Elon Musk. Elon Musk was born in South

Africa. At 17, he moved to Canada where

he held citizenship through his mother

and stayed for approximately 2 years

before relocating to the United States.

He's now variously the world's richest

person, the owner of Twitter, which he

acquired for 44 billion and renamed X

and a figure of considerable political

controversy in the country that

eventually kept him. I bring him up not

as evidence of Canada's loss, but

because of the underlying pattern.

Talented individual arrives in Canada,

acquires residency, departs for the

United States for better economic

opportunities. There's nothing really

unusual about this story. It is in fact

the dominant finding of a July 2025

Statistics Canada study on skilled

immigration. The study found that

roughly 22,000 to 35,000 Canadians move

to the United States each year. More

striking, about 60% of those applying

for US work authorization from Canada

are not Canadian-born at all. their

skilled immigrants who came to Canada

first and subsequently moved on. The

median US salary offer for these

individuals was $137,000

primarily in computer, mathematical and

engineering fields. Canada attracted

them, educated them in some cases and

then lost them to a market that paid

more and taxed less. The conference

board has called this the leaky bucket

problem. Canada has one of the world's

most generous immigration systems. It

brings in large numbers of highly

educated people, but one in five skilled

immigrants leaves within 25 years with

the highest attrition in the first 5

years, precisely when they're the most

economically mobile and most likely to

be comparing their Canadian prospects to

their alternatives. Canada is not on

this evidence suffering from a brain

drain in the classic sense. It's

functioning as a very efficient talent

incubator for the United States economy,

which is a service, I suppose, just not

one that Canada intended to provide.

Since 1997, Canadian labor productivity

has fallen progressively behind that of

the United States. The cumulative gap is

now approximately 26 percentage points.

To put that in terms that I think are

more intuitive, for every dollar of

output generated by an American worker

in an hour, a Canadian worker generates

roughly 74 cents. This is not a story

about working less. Hours worked per

Canadian are broadly comparable to those

in the United States. It's a story about

where those hours have been directed.

The economy has channeled its

investment, human, financial, and

physical into sectors that produce lower

output per unit of effort. Real estate,

public administration, retail, and the

financial sector that lends against

bricks rather than ideas. Canada's

business investment in research and

development as a share of GDP has been

below the OECD average for 20

consecutive years. The gap between

Canadian and American R&D spending per

capita is large and widening. A country

that doesn't invest in the production of

new knowledge or new processes

eventually finds that its workers are

doing the same things in the same ways

as a generation ago, which is roughly

what has happened. There is a further

structural point worth making about the

composition of the workforce. Between

2015 and 2025, public sector employment

in Canada grew by approximately 30%. I'm

not arguing that public servants don't

provide valuable services. Many of them

do. It's just worth noting that a

growing share of the highest security

employment in Canada is in sectors that

do not by definition produce exportable

goods or generate productivity growth in

the conventional sense. The Bank of

Canada's most recent forecast for real

economic growth is 1.25%

annually. For an economy with Canada's

endowments, that is unimpressive.

Approximately 75% of Canada's exports go

to the United States. For reference,

total merchandise exports to the US

represent roughly onethird of Canadian

GDP. No other developed economy is so

comprehensively tethered to a single

trading partner. This concentration was

for a very long time a reasonable

arrangement. The United States was a

stable rules-based market. The two

countries shared a border, a language, a

legal tradition, and a broadly aligned

foreign policy. NAFTA and later the

USMCA provided a framework of

predictability.

Canadian businesses rationally chose not

to spend money developing Asian or

European market access when the American

market was so large, so close, and so

accessible. The problem with

concentrating your economic exposure to

a single counterparty is that you're

entirely dependent on that

counterparty's goodwill and continuity

of policy. Recent events have

illustrated this risk with some

emphasis. Nowhere is Canada's strategic

exposure more visible than in energy.

Canada holds the world's third largest

proven oil reserves. The vast majority

in the Alberta oil sands. The United

States is the overwhelmingly dominant

customer. Because Canada has

historically lacked sufficient tidewater

export infrastructure to access Asian or

European markets, it has sold oil at a

consistent discount to the global

benchmark price. WCS is a heavy sour

crude, more expensive to refine than the

lighter American benchmark, and some

discount is structurally warranted. But

the historical gap of $15 to $20 per

barrel was consistently larger than the

quality differential alone would

justify. The excess reflects a

transportation premium that acrewed not

to Canada but to the American Midwest

refiners who for decades were the only

buyers with ready access. The Trans

Mountain pipeline expansion entered

commercial service in May 2024. It added

approximately 590,000 barrels per day of

capacity, bringing total Trans Mountain

capacity to around 890,000 barrels per

day. The WCS WTI discount has narrowed

since then from roughly $19.82

to around $1252

per barrel. This is progress. The

pipeline cost approximately 34 billion

Canadian dollars to build against an

original 2012 estimate of 5.4 billion

Canadian dollars. That is a cost overrun

of roughly 530%.

It remains one of the more spectacular

infrastructure project management

failures in recent Canadian history, but

it is built and it is moving oil to tide

water. The more interesting

counterfactual is Energy East. Energy

East was a proposed 4,600 kilometer

pipeline that would have carried 1.1

million barrels per day from Alberta to

St. John, New Brunswick. The Canaport

terminal at St. John had already

received 300 million Canadian dollars in

upgrades and can accommodate super

tankers, much larger vessels than those

serviced by the Vancouver terminus.

Energy East would have opened Atlantic

and European markets in addition to

Asian ones. It was cancelled in October

2017 following years of regulatory

review, shifting political winds, and

organized opposition. Several Canadians

I spoke to in researching this video

described the cancellation as the single

most consequential strategic error in

recent Canadian economic history. Canada

also has internal trade barriers that

function, according to the IMF, like a

6.9% tariff on domestic commerce. A wine

producer in British Columbia cannot

easily sell to a restaurant in Ontario.

A construction worker licensed in

Alberta may need to re-qualify to work

in Quebec. A medical device cleared in

one province requires reapproval in

another. Eliminating these barriers,

which has the support of 95% of

Canadians, according to polling by Angus

Reed, could, according to various

estimates, add between 90 billion and

200 billion per year to GDP. This has

been known for decades, but the barriers

remain. On the topic of trade balance,

Canada runs a goods trade surplus with

the United States, but it runs an

overall current account deficit when you

include services and investment income.

This distinction matters because Canada

is sometimes characterized in trade

discussions as a surplus economy in the

Chinese mold. This is not accurate.

Canada runs structural deficits in

services, in tourism, in intellectual

property, in financial services that

offset its good surplus. Canada is in

aggregate a net importer. It is not a

mercantalist economy systematically

accumulating foreign reserves at the

expense of its trading partners. It's a

country that sells raw materials and

manufactures less than it buys. I've

spent the better part of this video

cataloging what's gone wrong. In the

interest of intellectual honesty, I

should spend some time on what is not.

The FT's TE Periq in two pieces that I

would recommend to anyone thinking

seriously about Canada's economic

position makes a point that I think is

underappreciated.

Canada's endowments are extraordinary.

It has the resources, the institutions,

the human capital, and the geographic

position to be not merely a

well-functioning midsized economy, but

as Periq puts it, a genuine economic

superpower. Canada's endowments, as I

described at the outset, are

extraordinary. The kind that most

countries would consider a permanent

structural advantage. What's less well

understood is the institutional capital

that sits alongside them. The Maple Aid,

Canada's eight largest pension funds,

collectively manage around 1.6 trillion

Canadian dollars in assets. They are

amongst the most sophisticated

institutional investors in the world. If

structured as a sovereign wealth fund,

they would be the third largest in the

world. Canada's university system

produces by international standards

excellent graduates. A 2025 survey

suggested that approximately 17 million

university educated people globally

would choose to move to Canada if they

could. Canada's AI research ecosystem

centered on Montreal, Toronto, and the

Vector Institute is genuinely

worldclass. Jeffrey Hinton, Yosua

Benjio, and Richard Sutton, three of the

most consequential figures in the

development of modern AI, all did their

foundational work in Canada. The country

has something real to build on. Canada

also holds the G7's lowest net debt to

GDP ratio and deficit as a share of the

economy. Its fiscal position is relative

to peers a genuine strength which means

that it has the capacity to invest if it

chooses to. The question is whether

external pressure might finally produce

the internal reforms that domestic

politics have persistently failed to

deliver. There is some reason to think

that it might. The trade tensions of

recent years have created in Canada a

political consensus around economic

self-sufficiency that was absent for

most of the last three decades. The

internal trade barrier discussion which

has been a polite academic conversation

for decades suddenly became urgent. The

pipeline question acquired new political

salience. Periq's phrase that Canada has

spent too long being a client state and

branch plant economy of the United

States which would have been

controversial to say even 5 years ago is

now being quoted in the House of

Commons. The case for optimism then is

not that Canada will automatically get

better. It's that the conditions that

might force it to try, external shock,

generational transfer of political

power, a recognition that the status quo

is no longer sustainable, are for the

first time in a generation in place

simultaneously.

Crises, as it turns out, are

occasionally useful. If you found this

interesting, you should watch my video

on the UK next. The structural parallels

are fascinating. Don't forget to check

out our sponsor, GenSpark AAI, using the

link in the video description and see

you in the next video. Bye.