September 25, 2015 | by Adam Allouba Print

Photo credit: (c) Can Stock Photo

Any ideological movement that trades purity for electability risks a backlash, and Canada’s left-wing New Democratic Party (NDP) is no exception. The NDP’s repudiation of its socialist roots has given it its first-ever chance at forming a government after the Oct. 19 federal election. The party’s embrace of free trade and balanced budgets, however, has dismayed its true believers, some of whom recently published a declaration titled “The Leap Manifesto: A Call for a Canada Based on Caring for the Earth and One Another,” which is firmly grounded in the NDP’s past socialist ideology that the party has since disowned.

There is a great deal to say about the manifesto, but its critical flaw is the economic theory underlying its vision, captured in the following passage:

We could live in a country powered entirely by truly just renewable energy … in which the jobs and opportunities of this transition are designed to systematically eliminate racial and gender inequality. Caring for one another and caring for the planet could be the economy’s fastest growing sectors. Many more people could have higher wage jobs with fewer work hours.

The authors are under the mistaken impression that if “we” (whoever “we” are) dislike the characteristics of the Canadian economy, we can choose to alter it without adverse effects. By government fiat, “low carbon” sectors of the economy, such as “caregiving, teaching, social work, the arts and public-interest media,” can grow such that people earn more while working less.

An economy’s composition — how many cars are produced, how many shoes shined, how much ice cream consumed — is determined by countless individuals deciding how to live their lives. Each consumer decides how to spend his free time, what to have for dinner, where to go on vacation, how to furnish her home, and so forth. In response, producers decide which goods and services to offer for sale, how to produce them, which suppliers to use, how many employees to hire and how much to pay them, and so on. The process is infinitely iterative, as each individual decision prompts someone else to make a choice about how to behave.

Governments insert themselves in that decision-making process specifically because they disapprove of the choices that people make when left alone. For example, an entrepreneur might judge that others want oil and that she can get it to them at a profit. But if the government has imposed punitive taxes on petroleum extraction while offering massive subsidies to those who invest in solar energy, she is likely to opt for the latter instead. The resources used for the subsidy have to come from somewhere, so unless the wealth created by our hypothetical entrepreneur is greater than that commandeered to help her out, the net result of her activity is a decrease in total existing wealth. In other words, the entrepreneur’s actions will have made us poorer than we would have been had she elected to do nothing.

Wealth is created by producing things that people value more than the inputs required to create them. For example, an iPhone is more valuable than the raw materials required to produce it, or even the individual components assembled to create it. A successful spa dispenses treatments that are worth more to its clients than its monthly rent, the time of its employees, the massage beds, and other resources used to provide services.

The only way to determine what people want — in other words, to know what people value in order to create wealth — is by observing what they choose to spend their money on when their choices are unconstrained. If government disrupts that process by seeking to shape our decision-making, it prevents observers from divining which economic activities create wealth and which do not. The state has no special insight into individual preferences, so when it decides that sector X should be throttled and sector Y favoured, it will almost certainly destroy wealth in the process. Worse, government operates on coercion rather than voluntary exchange, so there is no feedback mechanism that pushes it to correct its course if its economic decisions are not in line with what people actually want.

To the extent that the Leap Manifesto calls for an end to limitations on an individual’s freedom to choose — by ending fossil fuel subsidies or loosening border controls — its prescriptions are good ones. Its basic thesis, though, holds that the entire structure of the Canadian economy is unsatisfactory and that the government should fix the problem. As the 20th century’s experiments with centrally planned economies showed, basing economic decisions on political considerations ensures poverty, authoritarianism, and misery. Whatever challenges Canada faces, it is imperative that we confront them without destroying the system that has made us prosperous and free.