Many people love to say they are “socially liberal but fiscally conservative.” 

“Socially liberal” suggests an affirmation of individual choice in matters of sex, marriage, and life in general. “Fiscally conservative” suggests a preference for limited government and market freedom.

Both statements come from the same philosophy. The first is social liberalism and the second economic liberalism. In other words, “I am socially liberal but fiscally conservative,” is simply liberalism through and through.

What then do we mean by “liberalism”?

Liberalism

Liberal just means freedom. Most people like freedom, at least for themselves. Libertarians make a whole political philosophy out of freedom: for example, Don’t Hurt People and Don’t Take Their Stuff: A Libertarian Manifesto.

Liberalism, on the other hand, means something more. It leverages a set of ideas and institutions that aim to reconcile minority rights with the majoritarian impulses of modern democracy. It utilizes political and judicial processes to, in theory, find accommodation and settlement in a pluralistic society.

Francis Fukuyama is perhaps the most well-known expert on liberalism. At the end of the Cold War, he wrote The End of History and the Last Man.

Fukuyama predicted a future of liberalism without contest or equal. No more socialism, conservatism, or anything else. Nothing but liberalism forever and ever.

Given the lack of competition, Fukuyama did not need to define liberalism against its enemies. Everyone knew what he meant.

Anti-liberalism

Fukuyama’s endless future lasted two decades. The liberal consensus is dead, and liberalism faces attack from all sides.

Patrick Deneen, a political science professor, wrote an unexpected best-seller in 2019 called, Why Liberalism Failed. Even President Barak Obama offered a blurb for the back cover.

In 2020, Ross Douthat, of the New York Times, wrote the best-seller A Decadent Society.

Paul Embrey, a British trade unionist, offered a proletariat attack on liberalism: Despised: Why the Modern Left Loathes the Working Class.

There are loads of books and articles with broadly the same theme. These thinkers and writers may differ on where they think liberalism went wrong and whether it ought to be reformed or replaced but their general point is the same: liberalism is an incomplete answer to individual and collective questions about the meaning and purpose of life.

Fukuyama to the rescue

This spring, Fukuyama published Liberalism and Its Discontents. (You can listen to the episode of Hub Dialogues with Fukuyama about the book).

Fukuyama relies on the philosopher John Gray for a definition of liberalism. Gray said liberalism has four main features: It is individualist, egalitarian, universalist (true for all), and melioristic (progresses towards an easier life).

Gray writes well and attacks everyone. One of his best books is Enlightenment’s Wake, on the origins and failures of liberalism and conservatism.

Gray explains how liberalism is a child of the Enlightenment. The Enlightenment emphasized reason, progress, and universality. Liberalism leveraged Enlightenment ideas and promoted the four ideas mentioned above (individualism, egalitarianism, universalism, and meliorism).

John Gray argues that the Enlightenment had multiple children. Karl Marx used Enlightenment thought but emphasized collectivism, the inevitability of historical progress, and universality.

Liberalism and Marxism are sibling rivals (a paradox to explore another time).

(Lack of) Consensus

In practice, liberalism is a thin philosophy. It leaves most things to individuals and works well when society shares a general consensus about what constitutes virtue and the good life.

A social consensus that undergirds liberalism typically includes broad agreement on the use and limits of things such as honesty, civility, public debate, evidence, and so on. Liberal societies last until people lose awareness of, “You just shouldn’t do that.”

Both woke activists and reactionary populists have abandoned social consensus. The big questions are up for debate again.

Why tell the truth?

Why listen to divergent opinion?

Why not punch someone in the face, if you think they are evil?

What’s wrong with doxxing someone to help our side?

Why shouldn’t we aim to “own the Libs” or cancel the Right?

Thin philosophies do not answer these questions. They offer little content, as a point of principle. Liberalism, to put it differently, answers “how” questions about the process of living together but doesn’t seek to answer “why” questions about meaning or purpose for individuals or the society as a whole.

Internal conflicts

Hegel said every civilization contains the seeds of its own destruction. Marx believed the idea made the collapse of capitalism inevitable.

As per Hegel, liberalism seems to contain the seeds of its own destruction. For example, freedom and equality cannot exist together without one trying to consume the other.

Or consider universality. Liberalism makes people think they can simply remove an illiberal regime and replace it with a liberal one in any culture or society around the world.

If liberalism is true for us, it should also be true for Iraq and Afghanistan. We just kill Hussein and bin Laden, set up elections, and then watch 1000 flowers bloom. (Note how liberalism innervates all Western political parties.)

A thin philosophy cannot build a society from scratch. It assumes too much, promises even more, and delivers it all too slowly, if at all.

How liberalism fails

Liberalism works when it rests on a robust network of vibrant social institutions: voluntary associations, educational networks, families of all sorts, faith groups, cultural associations, and more.

However, liberalism remains silent on institutions themselves. Liberalism can steer a thriving civilization in the same way a child can steer a car on a clear day with a dry road. But liberalism cannot arrest decline or reverse decay any better than a toddler can correct oversteer in slush.

What’s worse, liberalism animates the destruction of the very institutions it needs to survive. It calls for emancipation from anything which might infringe on individual freedom.

Think of all the expectations in being part of a profession. Or consider all the involuntary obligations associated with having parents or siblings.

Liberalism finds involuntary obligations guilty until proven irrelevant by a new welfare program or medical therapy.

What comes next?

We cannot turn back time. Current struggles could last decades as we search for answers.

Why care about individuals?

Does society make individuals or do individuals make society?

Is equality an absolute or relative good?

What do we mean by progress?

Does reason have limits?

Can we ever be truly rational or are we tragically tied to sentiment, habit, and prejudice?

Asking big questions is itself a conservative endeavour. Philosophical conservatism wrestles endlessly with them.

Of course, many self-described liberals grapple with these questions too. However, the endless digging for answers, which most people do not need, makes these “liberals” philosophically conservative. They feel unwelcome in the unquestioning masses of the modern liberal Left.

Embrace your label

The outcome of rehashing big questions is unknown. We might see another 70 years like the Soviet era. Or maybe a second industrial revolution, this time rooted in electrification. Or perhaps a reactionary revolt will inspire us all to plant gardens, raise chickens, and study Cicero (my wish).

We cannot dispatch liberalism and conservatism in one post. But hopefully, we have slain the sorry nonsense about being socially liberal and fiscally conservative. Just call yourself a liberal through and through.

I’ll be the first person to tell you that housing prices in Canada are too high. It’s one of the biggest challenges facing the country. If we fail to meaningfully accelerate housing construction very soon, we risk having a generation permanently priced out of the housing market.

Recently released Census data showed that roommates are the fastest growing type of household in Canada. Get used to it. If you’re hoping that the Bank of Canada will crush housing prices, I urge you to reconsider. Because if housing prices fall too far and too fast, we might have bigger problems on our hands.

Before I go any further, I don’t actually think we’re heading for a major decrease in housing prices in Toronto or Vancouver. It’s certainly possible that suburban areas that benefited from the COVID-era land rush will experience some real pain. But even if we rolled back five years of price appreciation, Canadian housing will remain expensive. And that’s not even accounting for the fact that rising interest rates increase the cost of borrowing. So even if prices go down, mortgage payments (and rents) can still go up.

It’s hard to see how housing prices could fall durably in the GTA or Lower Mainland in the near term. They’re not building new land in Toronto and Vancouver, and there’s no reason to believe that demand to live in the two cities will decrease. We can certainly wrestle down prices over time by allowing more density. But that won’t happen overnight.

It’s true that there are other cities in Canada with much to offer.^{1However, if you want to live in Canada in a relatively big city without winter, Vancouver is your one option. If you want to live in a major global (anglophone) city, your option is Toronto. If you’re fluently bilingual, you may be able to find a comparable job in Montreal for less money (but lower housing prices). Ontario and Quebec account for more than half of the population of the country. There are only so many cities to choose from if you want to live an urban lifestyle (fewer still if you’re not bilingual).} I spent nearly a decade working on the Prairies, so I’ve seen this first hand. But unless major parts of the GTA economy relocate to Saskatoon or Calgary (or if fully remote work remains widespread), a lot of people are going to have no choice but to live in the GTA.^{2Then there’s the small matter of family. Not everyone is willing to relocate to the other side of the continent. Calgary might only be a three-hour-and-forty-five-minute flight away from Toronto, but that’s a hard weekend trip. Especially if you’re visiting family who doesn’t happen to live right in Mississauga or along the Union Pearson Express route. Trust me, it’s hard.} 

Of course, it’s conceivable that we could see a big decline in housing prices while affordability worsens. I don’t think this scenario is likely. But I also think it’s the single most likely scenario involving a large, sudden decline in housing prices. It sounds counterintuitive until you think about the role that housing plays in the economy.

Most people own homes, and it is the biggest asset most people own—by far. In a country with expensive housing, even more so. How much money people have access to and are willing to spend is related to the value of their homes. When prices are going up, people feel better about taking a vacation or going out for dinner. The house is building your retirement wealth. No reason not to have that steak or fly to Hawaii. Until, of course, your home all of a sudden becomes a drag on your household wealth. And worse, in the short term, it gets harder to tap into your home equity. Then maybe you skip the steak and drive to your parents’ place for the weekend. That’s just prudent, after all. 

Here’s the problem. If enough people decide all at once that it’s time to hunker down and save money, a lot of businesses will suffer. That’s not necessarily a big problem. Economic fluctuations happen, and we adapt. Where it becomes a problem is when you’ve got a highly indebted country. If business closures and layoffs mean more people start to miss mortgage payments, you’ve got a slightly bigger problem. Now layer on higher interest rates, and you can see how this might escalate.

If all this sounds familiar, it should. The United States experienced a similar (but far more complex) issue in 2008. While the causes of the Global Financial Crisis were complex, economists Atif Mian and Amir Sufi in their book House of Debt laid out a useful framework for how falling home prices combined with high levels of personal debt can spill over into the broader economy. They describe their “levered losses framework” as follows.

1. The economy consists of borrowers and savers. In the context of housing markets, mortgage holders are the borrowers. Since lenders (banks) have a senior claim on the debt, they can foreclose if borrowers cannot pay. 
2. A shock to the economy can cause highly indebted borrowers to stop spending and increase savings. Since spending by borrowers is more sensitive to housing wealth than savers, the concentration of losses among borrowers can magnify the decline in economic activity.  

This sounds very simple, but it has profound implications. Borrowers, who tend to have lower net worth than savers, are more impacted by home price decreases (particularly since savers can foreclose, recuperating assets). High levels of debt combined with a sharp reduction in a household’s assets mean they will spend less money on goods and services as they attempt to build up savings or at the very least keep paying the mortgage.

This isn’t a problem if we’re talking about a single household. But when multiplied across the economy, it can lead to a decrease in aggregate economic activity (e.g. a recession). In the case of a sharp decrease in housing prices in a country that has high levels of personal debt, it can be much worse than a garden variety recession. 

It’s easy for people locked out of the housing market to look at homeowners who have seen the value of their homes double or triple and think maybe it wouldn’t be so bad if they took a haircut. Or maybe something more than a haircut. It’s not their fault that housing prices have gone up, but the schadenfreude would be understandable. But it would likely be fleeting since many of the people currently locked out of the housing market would themselves get wiped out by a deep recession. If housing prices get cut in half but you don’t have a paycheque anymore, it’s hard to say that housing is affordable.

Fortunately, this seems like an unlikely scenario. The GTA and Lower Mainland aren’t the U.S. Sunbelt, not to mention the fact that our financial institutions could likely withstand a deep recession, preventing a financial crisis that would compound the downturn. There’s no excess of speculative housing developments and no obvious risks to our financial system. So housing prices probably aren’t going to plummet any time soon.

In fact, at this rate we’d need to double housing construction to keep housing prices from rising further. It seems likely that some of the excesses of the COVID-era will get flushed out (few people are rushing to move out of the cities anymore), but it’s more likely that transactions will decrease as sellers decide to wait out temporary weakness rather than that housing prices will collapse.^{3What makes Canada’s housing challenges even stickier is that short-term price declines could help fuel higher prices in the future. There’s an old saying: the cure for high prices is high prices. High home prices make building homes more attractive to developers. If prices fall too far too fast, some projects will get shelved. This is already a concern in the GTA. Perversely, it’s possible that even a mild short-term pullback in housing prices could add to our housing supply deficiency. Yet another reason not to cheer for a crash.}

None of this is to say that we shouldn’t want housing prices to go down. We need to re-balance housing markets, not crush them. A sharp downturn in prices would just compound problems by leading developers to cancel projects, preventing pent-up supply from meeting demand. But we need to be careful what we wish for. A deep recession isn’t going to fix our problems.