Oh Canada

Canada is thriving in the current global recession. As Fareed Zakaria explains:

Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours. Ah, but you've heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It's 68.4 percent.

The mortgage-interest deduction is a totally misguided incentive -- it makes people buy larger, more expensive houses (why would you not if Uncle Sam picks up a third of the cost?) and is the cause of labor immobility. The labor markets work much better if people can pull up and move, yet home ownership makes it more difficult (you lose about 6% of the value of your home every time you sell).

But the lack of a mortgage interest deduction is not the only thing that Canada got right. They kept on regulating their banks; they of course have universal health care and an enlightened immigration policy:

In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company's announcement noted that it would staff the center with "highly skilled people affected by immigration issues in the U.S." So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada—where most of them will work, innovate and pay taxes for the rest of their lives.

Back in the early 2000s, when I was trying to apply for a green card, I had to prove to the INS that I had an international research profile. One of the people I contacted was a high-level honcho at Environment Canada. He wrote a letter attesting to my ability, but also had a friendly piece of advice. "Forget all this," he told me, "and move to Ottawa. Immigration is much easier into Canada, and we are in need a lot of algorithm-type work -- you'll see your ideas in operation a lot faster if you join us." When, three years later, we found that the INS had lost our application, I was sorely tempted to take him up on his offer. But Ottawa was going to be way too cold. Had it been Vancouver (and the University of British Columbia), we may very well have up and moved.

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