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Vincent Geloso: Don’t like recessions? Then it’s time to embrace deregulation

Commentary

Fears of recession have grown in the wake of two important bank failures in the United States. This has put central bankers and elected officials on alert and renewed calls for government action to avoid a possible downturn. 

Though many will urge the government to “do something,” we should remember two important patterns. First, recessions are less common and milder than they used to be. And second, we have economic freedom to thank for much of this change.  

Consider, first, the frequency and severity of recessions. Across Western countries, recessions are now further apart and shallower than they were in the past. Indeed, the length of time between recessions has increased by more than a year (on average) since the late 19th century. Over time, recessions have also grown less severe. 

Based on the most recent revisions to Canada’s GDP numbers, between 1870 and 1900, inflation-adjusted GDP fell nearly once every four years and the average contraction was close to three percent of GDP. From 1900 to 1945, those proportions remained roughly similar. However, since 1945 inflation-adjusted GDP fell only once every 15 years and the average contraction was two percent. 

Before you conclude that this is because we have all become Keynesians now, consider the second important fact—this reduction in the size and frequency of recessions is due in large part to economic freedom. Citizens have economic freedom when they’re allowed to exchange with whomever they want on whatever terms they wish. For citizens to enjoy economic freedom, the government must protect and respect property rights, permit free trade, be limited in size and scope, and maintain the value of its currency. 

Economic freedom has permitted innovations in transportation, information, and financial technologies that have reduced the number and severity of recessions. Higher economic freedom makes it easier to develop and adopt these technologies. And makes it easier to adjust when shocks occur. 

In research with Jamie Bologna Pavlik and Rosolino Candela, I studied whether economically freer societies suffered less during pandemics, which are generally associated with economic contractions. Looking at data from the late-1850s onward, we found that contractions were smaller in economically freer economies because when governments let markets work, firms, consumers, and households can adjust their choices and decisions more easily. 

Other economists including Justin Callais and Christian Bjørnskov have generalized these findings to other economic threats such as natural disasters and financial crises. The lesson is clear. If Canadian governments (at all levels) were to deregulate, it would not only boost long-run growth, it would also limit the severity of the next recession, whenever it does come. 

One place to start would be policies that limit competition. These policies include limitations on foreign investment in banking, telecommunications, air transport, mining, broadcasting, and energy. They also include outright government monopolies on services such as urban transit and mail. Thanks to these policies, 30 percent of the Canadian economy is, to some degree, shielded from competition.

These barriers to competition limit the incentives of firms to innovate, cut costs, and expand their activities. The result is slower economic growth. These barriers also make it difficult for people to move between sectors of the economy, which makes it harder to adjust during recessions—something that increases the pain of a recession when one does occur. 

It’s impossible to know whether a recession is imminent. But you don’t need to be an oracle to realize that letting markets work might actually make things better, not worse. 

J.L. Granatstein: When mythmaking meets reality: Canada is no longer a peacekeeping nation

Commentary

In 2016, Prime Minister Justin Trudeau promised at a peacekeeping conference in Paris that Canada would create a contingent of 600 peacekeepers ready for prompt deployment. By the next year that commitment had been pared down to 200 troops, and this April, while maintaining the pledge, Ottawa said its troops would not be ready until 2026. The initial offer had come while Trudeau was campaigning—unsuccessfully—for a seat on the United Nations Security Council. Apparently, much like many campaign pledges, this one would be delayed and diminished, if not completely scrapped.

Still, peacekeeping continues to hold a special place in the mythology that Canada is a moral superpower—Lester Pearson’s Nobel Peace Prize for his role during the Suez Crisis of 1956, Canada’s record of serving on every peacekeeping operation for decades, and the 1988 Nobel Prize for peacekeepers that Canadians believed was really meant for their servicemen and women. The Canadian public loves peacekeeping, seeing it as a tribute to the nation’s unbiased fairmindedness and something that continues to differentiate us from the warlike and aggressive Americans.

But that mythology distorted some facts. Peacekeeping was never neutral in many instances. For instance, Ottawa deployed troops to Congo in 1960 to help keep the Communists out; at American urging it put troops in Cyprus for three decades to keep Greece and Turkey from fighting a war that would have devastated NATO’s southern flank; and American aircraft and equipment were necessary to get Canadian peacekeepers to the Iran-Iraq border in 1988.

Nonetheless, at its peak in the 1990s Canada had thousands of soldiers on peacekeeping and peace enforcement duties, the latter of which were more akin to combat than to keeping peace. Even the Canadian Armed Forces’ long commitment to the war against the Taliban in Afghanistan was viewed by many Canadians, despite all the evidence and the casualties, as peacekeeping.

Today, with the CAF facing shortfalls in personnel and with its equipment becoming increasingly obsolescent, many Canadians still believe that their country is a major player in UN peace operations. This is flatly incorrect. At the beginning of 2023, Canada had only 58 personnel on UN peacekeeping duties. In contrast, there are 700 soldiers in Latvia as part of a NATO effort to deter Russia from attacking the Baltic states. That Latvian effort, projected to increase in numbers, has severely strained the Army, which is short of infantry, gunners, and armoured crews.

The Trudeau government appears to have little interest in defence, despite its efforts in the Baltics. Moscow’s war against Ukraine saw Canada (rightly) ship much of its stockpiled ammunition and equipment to Kyiv and plans to acquire replacements will take years to materialize. Nor does China’s increasing aggressiveness seem to have registered on the government, though Ottawa did say it would increase deployments of the Navy’s frigates in the Indo-Pacific from two to three a year!

The 2023 budget, like those of previous years, gave almost no indication of more funding to rebuild the military, and the large procurement projects—F35 fighters for the RCAF and new combat vessels for the RCN—have been in the works for years, with inflation increasing costs to such an extent that few expect the original numbers of aircraft and ships to be acquired.

What this means for peacekeeping is clear. The Canadian Armed Forces is for all practical purposes unable to find even 200 trained personnel for a rapid deployment peace operation. And since deployments are usually limited to six months or at most a year, 200 more soldiers at home need to be training to go overseas. Once those deployed return to Canada, they need time to regroup and recover. In effect, 200 soldiers require 400 to 600 men and women in Canada to be involved in training, preparation, and recuperation. That is now beyond the Army’s capabilities.

If Trudeau’s original pledge of 600 troops for rapid response remained in effect, that would likely make the Latvian commitment impossible. Only more recruits for the CAF can fix this situation, and the government’s indifference to the military, the succession of sex abuse scandals, and the obsolescence of the force’s equipment have reduced recruitment to a trickle.

Thus Canadian peacekeeping is dead. That matters because peacekeeping did have useful effects in helping warring states to cease fighting. It mattered for the Canadian psyche, and it was relatively inexpensive for the government. But more seriously, the Canadian Armed Forces are near death. The public doesn’t seem to care, and the Trudeau government, much like most of its predecessors over the last thirty years, believes that only social programs and health care matter.

It’s not as if the world is at peace, and if a major war with China, Russia, North Korea, or Iran occurs, Canada will surely pay the price for its neglect of the military with the lives of its citizens.