Why economic liberalism still matters
What has been will be again,
what has been done will be done again;
there is nothing new under the sun.
Ecclesiastes 1:9
Many people are wondering if economic liberalism is still relevant in this day and age. Hasn’t the world changed tremendously since the time of Adam Smith, and even since the time of F. A. Hayek and Milton Friedman? What could this school of thought from bygone years have to teach us here and now, almost a quarter of the way through the 21st century?
The short answer is that despite all the new technologies unimagined centuries or even decades ago—despite our richer, more complicated, more populous world—in a very real sense, there’s nothing new under the sun. What I mean by this is that despite all that’s changed, certain truths are universal and timeless.
Everywhere and always, energy can neither be created nor destroyed. That’s a law of physics. Everywhere and always, trade is positive sum—or more precisely, both parties to a voluntary exchange expect to be, and generally are, made better off. That’s a law of economics.
The world has changed in many ways, but some of our main problems today, as in days of yore, are due in large part to a lack of economic freedom.
Take the rapidly rising cost of living. Economic liberalism teaches us that increasing the money supply for a given quantity of goods will lead to generalized price inflation. Central banks around the world massively inflated currencies in recent years, Canada very much included. This was partly justified as a way to fund governments’ pandemic response measures. Whatever one thinks of the effectiveness of those various efforts, as predicted, inflation took off, reaching levels not seen since Hayek and Friedman were still with us.
Although it’s come back down to less alarming levels today, inflation remains stubbornly high. Economic liberalism teaches us that governments could help central banks stabilize price levels more quickly, and so bring interest rates back down sooner if they reined in their deficit-fuelled spending sprees.
So much for the general cost of living. What about the specific case of housing in Canada? Across the country, potential buyers are facing an affordability crisis. What, beyond our generally high inflation levels, could be behind the exceptional increases in housing prices we’ve seen in recent years?
Again, economic liberalism has a universal and timeless answer: if you artificially restrict the supply of a category of goods, their prices will rise—all the more so if demand happens to be increasing.
And indeed, municipalities across the country have been restricting supply in various ways. Montreal’s Plante administration, for instance, has obstructed projects totalling nearly 24,000 units since taking office in 2017. The situation is not exactly improving, either, despite the widespread attention it has been receiving for some time now. The province of Quebec as a whole actually had 35 percent fewer housing starts in the first 11 months of 2023 than during the same period the year before.
The solution, you guessed it, is greater economic freedom. Municipalities need to reduce and remove bureaucratic restrictions and let developers build more so that supply has the chance to catch up with soaring demand.
Even seemingly unrelated issues can have an important economic component. For instance, there’s a lot of talk these days about diversity, equity, and inclusion for underrepresented groups that have historically suffered discrimination. While some steps taken to address this issue can be downright ridiculous, that doesn’t mean there’s no discrimination out there, or that people are not still suffering the effects of past injustices.
So, what’s the economic angle? Well, there are fewer better ways to exclude marginalized groups than to keep them struggling to make ends meet and price them right out of the housing market.
Augmenting economic freedom, on the other hand, increases mobility for the poor, helping them to help themselves. This is just what occurred in Alberta in the 1990s, for instance, when significant reductions in government spending and the regulatory burden led to substantially greater income mobility among the poorest segment of the population.
For many of the issues our society is facing, from lagging productivity to our perennially underperforming health-care systems, at least a part of the problem is a lack of economic freedom, and at least part of the solution is more of it.
Our civic and political leaders, and public servants, could do a lot worse than revisit Smith, Hayek, Friedman, and other advocates of economic liberalism for the timeless truths they discovered and explained.
Daniel Dufort is President and CEO of the MEI. The views reflected in this opinion piece are his own.