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Driving Ms. ChrystiaDriving Ms. Chrystia

Driving Ms. Chrystia

Matthew Lau argues Finance Minister Chrystia Freeland’s weakness is not her lack of qualifications but her insistence she can steer the economy while wearing sunglasses at night.

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Topics: Business, Economics, Finance, Government, Bureaucracy
Driving Ms. Chrystia August 31, 2020  |  By Matthew Lau
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In my wallet is a valid Ontario Class G driver’s license. The license means that the government finds me qualified to operate a motor vehicle, and indeed, I have done so many times. If I proposed, however, to drive the 30 kilometres from my home to Toronto Pearson International Airport during rush hour with my eyes closed, I should expect any passengers in my car to protest that I am certainly not qualified to undertake any such task.

This same line of thinking may be applied to the ongoing debate as to whether Chrystia Freeland is qualified to hold the finance minister’s post to which she was appointed on August 18. Some people have pointed out that Freeland has held senior cabinet positions and has no worse credentials than some finance ministers in the past who similarly lacked experience and background in finance and economics. They are correct. However, what Chrystia Freeland has proposed to do as finance minister – to reorganize the Canadian economy so as to make it more green, equitable, and inclusive – is an undertaking for which she is certainly not qualified.

The problem with the federal government reallocating and redistributing capital from certain industries, businesses, and individuals to other industries, businesses and individuals is the same problem that I would have driving with my eyes closed. It is that government spending is done blindly. The spending is not guided by supply and demand, market prices, and profits and losses.

In a market economy, supply and demand determine the prices of economic resources and outputs. These prices guide consumption and investment decisions. Businesses that produce outputs worth more than the resources they consume earn profits; those that do the opposite incur losses and eventually go out of business. In this way the profit and loss system guides capital towards its most productive uses.

Government spending programs operate in absence of these market signals, and so the government lacks knowledge as to where and how money is best spent. Even if we assume that politicians and bureaucrats are perfectly well intentioned, it is quite impossible for any sort of command-and-control plan to reorganize and redistribute capital across the economy in a way that will make Canadians better off. However well-intentioned the government officials may be, they are spending money blindly.

It would, in fact, be a strong indication that Chrystia Freeland is well-suited to be finance minister if she admitted that she is not qualified to reallocate and bring under government control huge amounts of the national wealth in order to direct it towards uses that she feels most appropriate.

“The statesman who should attempt to direct private people in what manner they ought to employ their capitals,” as 18th-century philosopher Adam Smith famously wrote in The Wealth of Nations, “would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

Chrystia Freeland’s green, inclusive economic recovery plan is indeed a danger to Canadian taxpayers. As to what its likely outcomes will be, the Ontario Green Energy and Green Economy Act of 2009 may provide some indication. The Ontario legislation, it may be recalled, was supposed to create green jobs and improve energy efficiency. Instead, significant numbers of workers were diverted away from productive activity and into government-subsidized activity, tens of thousands of manufacturing jobs were destroyed by inflated energy prices, and the province’s Auditor General reported in 2015 that the total bill to Ontarians would be $170 billion in extra energy costs over a 26-year period.

As Adam Smith observed in the 18th century, and as experience has continually shown, the economic effects of ratcheting up blind spending are deleterious. It is a task that no finance minister is qualified to undertake, and like blind driving, it should be vigorously protested.

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