Carson Jerema: Mark Carney, the misguided economist, goes to the polls

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With a PhD in economics from Oxford University, 13 years working as a Goldman Sachs investment banker, and stints as governor of the Banks of Canada and England, if any politician should understand economics, it would be Prime Minister Mark Carney. I say “should,” because nothing that has come out of his mouth in recent weeks would suggest he has any understanding whatsoever about markets, at least not much beyond your average Montreal student rioter.

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Carney is expected to call an election Sunday, and the Liberal’s chances seem to hinge on his apparent competence as an economic manager amid the Trump tumult. He presents himself as a man with much more experience than his predecessor Justin Trudeau, but his credentials merely mask the fact that the Liberals simply traded in one naive progressive with an illiberal streak for another.

In his speech after winning the Liberal leadership, Carney attacked Conservative Leader Pierre Poilievre as “a lifelong politician who worships at the altar of the free market,” and who, we are informed, has never had to make “a payroll himself,” a line Liberals are no doubt very satisfied with.

And what does Canada need instead of the free market? According to Carney, we need the knowledge held exclusively by, well, Carney. “I know how the world works, and I know how it can be made to work better for all of us,” he said. “And that knowledge is especially useful now in the service of Canadians when we must build a new economy and create new trading relationships.”

What else does Carney’s self-described impressive knowledge of the economy and the world tell him? “We know that markets don’t have values: people do. And we know as Liberals, that it’s our job to make markets, to make the economy work.”

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So to summarize, the markets are, according to the prime minister, inherently cold and unfeeling, and they must be governed by Liberals in order for them to work properly, apparently. All the better if headed by one with superior knowledge of the world, such as Carney.

The prime minister has, for years, repeatedly confused the moral meaning of values with market prices, as if the fact that people don’t, say, put a price on their children, is proof that markets don’t value them, and therefore are fatally flawed. But such thinking betrays a lack of understanding of how the world works, the opposite of what Carney claims.

In his lengthy review of Carney’s 2021 book, Value(s), former Post columnist Peter Foster notes that “market valuations are essentially different from moral values, a distinction Carney continually muddles.” Misrepresenting basic economic principles, Carney writes: “Market value is taken to represent intrinsic value, and if a good or activity is not in the market, it is not valued.”

To bolster his argument that markets cannot be allowed to operate without big brains like his, Carney, the former central banker, uses two different meanings of “value,” moral and economic, interchangeably to make his point.

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Foster rebukes this straw man like swatting away a fly, writing, “But who holds such an idiotic view? Nobody ‘prices’ their family, children, friends, community spirit or the beauties of nature, although there is certainly lots of calculation going on in the background.”

What markets need to function properly is not the knowledge of a self-acclaimed philosopher king, but for the price system to operate unencumbered from government planners.

Prices, when freely set, reflect the millions of decisions made by people, about what to buy, where to work, and where to live, the decisions of businesses about what to produce and where to invest. The market depends not on the knowledge of those in government, but on the specialized knowledge of countless individuals acting in their own self-interest.

In his classic essay, “The Use of Knowledge in Society,” economist Friedrich Hayek explains how the price system communicates the specifics of time and place from one part of the world to another, such as, say, a local copper shortage, or an oil refinery temporarily shut down for maintenance, or a cargo ship that is half-empty.

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Knowledge of each may be relevant to the decisions of the “man on the spot,” but he can’t possibly be aware of each and every shortage, discovery, late shipment and so on, across the world or, indeed, across a particular country, or even a large city.

“It does not matter for him,” Hayek writes, “why at the particular moment more screws of one size than of another are wanted.” All that is “significant,” Hayek further explains, is “how much more or less difficult to procure they have become compared to other things with which he is also concerned.”

It is the price system that communicates this disparate information quickly and efficiently. When prices go up, it indicates a shortage, sending signals for resources to be reallocated. So, during a crisis, if grocery stores raise the price of canned foods, it is to the detriment of society if a government puts a cap on prices, because it fails to communicate the existing scarcity to the market, thus leading to shortages.

Hayek describes this system as a “marvel,” one which, “if it were the result of deliberate human design” it would have been “acclaimed as one of the greatest triumphs of the human mind.”

It ought to be abundantly clear to anyone with Carney’s academic and professional background that no central government, or committee, or one man, is capable of having access to all the relevant information necessary for markets to function properly. Claiming otherwise, as the prime minister seems to do, isn’t just hubris, it is, to quote another famous piece of Hayek writing, the road to serfdom.

National Post

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