The government must step back and let market forces play out. Otherwise, Canada faces a future of stagnation, division, and decline.
A successful economy needs people to ‘lose.’
Not permanently.
And not the same people.
But at every moment, there must be people who are ‘losing’ in economic terms if the economy as a whole is to grow.
The reason is simple: Economic competition is just that, a competition. If two businesses are bidding for a contract, one business will get it and another won’t.
If media companies are competing for customers in the free market, one will be more successful than the other. If the less successful companies – legacy media for example – refuse to adapt, they will decline and ultimately disappear (not after running to the government desperately demanding intervention of course).
Competition works in more subtle ways. One person may sell a home assuming prices have peaked. Another buys the home assuming prices will still go up. While not all home sellers and home buyers are thinking in those terms, many are. One person will be right, and another will be wrong.
Now, competition is not the same as hostility, nor is it a negative thing. Competition allows resources to be allocated more efficiently and it allows people/organizations to improve.
After all, when a hockey team practices before a game, teammates are – less aggressively – competing against each other in the hopes of improving their skills. Likewise, a country with a very competitive economy will have many short term winners and short term losers, but will become wealthier and better off overall.
When that process is allowed to play out, productivity and living standards rise. Government can – through targeted welfare programs – ensure that those who lose in economic competition are reasonably taken care of, to ensure that a loss represents a setback, rather than something permanent.
However, governments go too far when they interfere with the process of economic competition itself. The more they interfere, the more distorted things become, and the more productivity stagnates.
Canada’s housing market represents a massive failure by the government
Just look at the Canadian housing market. This is not a market process being left alone. This is a process that has been massively distorted by the federal government and the Bank of Canada.
Canada’s government is doing three things simultaneously:
1 – Embracing a high-tax, high-regulation, ‘net zero’ plan that drives up the cost of energy (thus driving up the cost of everything), incentivizes investment, and has the highest burden on the most productive provinces.
2 – Rapidly increasing the population far faster than the country can handle, driving up demand for housing at a pace that massively outstrips new housing construction.
3 – Ramping up spending year-after-year, thus throwing more and more money into an economy without any kind of corresponding increase in the supply of goods and services, inevitably driving up prices and ensuring more money moves towards fixed assets like housing.
The Bank of Canada enabled much of this with massive money printing.
As the federal government imposes ruinous economic policies, they have also embraced a shockingly naïve “nobody can lose” economic worldview. The new federal Housing Minister appears completely ignorant of supply and demand, and believes housing can magically be made more affordable without prices coming down:
“In a country with some of the world’s most expensive real estate, Prime Minister Justin Trudeau’s government wants housing to become more affordable.
But Canada’s new housing czar has a message of reassurance for the nation’s homeowners — it also doesn’t want to drive down prices.
“Our goal is not to decrease the value of their home,” Housing Minister Sean Fraser said in his first interview with Bloomberg News since he took the job on July 26. “Our goal is to build more units that are at a price that other people, who don’t currently have their needs met, can afford.”
Fraser’s comments underscore the ambitious — and contradictory — aims of a government that’s trying to quell a political backlash against the soaring cost of living, but doesn’t want to adopt policies that would damage the millions of Canadian households whose wealth is tied to their homes.”
This attitude isn’t limited to the government. Many people in this country embrace a large degree of magical thinking when it comes to the economy. As noted by Darshan Maharaja – one of the greatest minds in Canadian political/economic commentary – people so often propose wealth redistribution as the fix for Canada’s problems.
As you can see, the post Darshan was responding to featured a call for more government intervention, in effect ‘protecting’ people from the value of their house going down.
Here’s the problem:
If the government steps in to stop people from ‘losing’, everyone will ‘lose’.
We will all lose by having our country become less and less productive, by our standard of living going down, and by political divisions getting even worse.
Canadians can feel that we are falling behind economically, because we are. In real terms, our standard of living is in decline, and when people feel their standard of living declining many begin to lash out.
Not that complicated
So, what should be done about this? Turns out, it’s not really that complicated.
As noted above, Canada is in decline largely because of these three key things the government is doing:
1 – Embracing a high-tax, high-regulation, ‘net zero’ plan that drives up the cost of energy (thus driving up the cost of everything), disincentivizes investment, and has the highest burden on the most productive provinces.
2 – Rapidly increasing the population far faster than the country can handle, driving up demand for housing at a pace that massively outstrips new housing construction.
3 – Ramping up spending year-after-year, thus throwing more and more money into an economy without any kind of corresponding increase in the supply of goods and services, inevitably driving up prices and ensuring more money moves towards fixed assets like housing.
So, we should move in the other direction:
1 – Embrace a low-tax, low-regulation, pro-energy sector set of policies that reduces the cost of energy, incentivizes investment, and unleashes the economic power of our most productive regions.
2 – Bring immigration down to a more manageable level, enabling the housing market to catch up and easing the burden on overstretched social services.
3 – Bring spending under control to reduce inflation and let private sector spending & investment lead the way.
In addition, we should accept that this means some people will lose in a more free and open economy, but that the increased dynamism of the economy would mean those who lose would have many opportunities to succeed going forward. After all, many of the most successful people in free countries faced repeated setbacks, but the freedom and openness of capitalist economies meant their setbacks were really learning opportunities and a chance to come back stronger.
We need to embrace that kind of attitude in this country, rather than trying to use government intervention to direct the economy. As we can see all around us, the more the government tries to stop people from losing, the more everyone loses.
Spencer Fernando
Photo – YouTube
