Alan Aubut is a retired geologist, based in Nipigon.Economically, how did Canada get to where it is, where investors either sit on what money they have left or have fled to friendlier countries, leaving behind a stagnant economy and an ever more expensive welfare state? The answer lies in the long arc of Canada’s political economy from Confederation to the present. It is a story that began with nation builders who understood the link between sovereignty, growth, and disciplined ambition, then shifted toward a governing class that mistook ideology for insight and lost sight of the limits of its own knowledge.Canada’s early economic strength rested on a simple principle. Government existed to create the physical and legal foundations that private risk-takers could build upon. The National Policy of the late nineteenth century, whatever its flaws, reflected that belief. Tariffs funded the state because there was no income tax. Ottawa’s central mission was straightforward: open the land, build the railways, secure trade routes, and make settlement possible. The Canadian Pacific Railway and the later transcontinental lines formed the backbone of national development because government provided the guarantees, the land grants, and the political will, while private companies took on the capital and operational risks. This was not central planning. It was the state acting where markets could not yet reach and then stepping aside..EDITORIAL: Rustad is done as BC Conservative leader — He needs to accept it.By the 1930s, the limits of tariffs and external borrowing were obvious. The Depression made capital scarce, private borrowing expensive, and foreign lenders reluctant. Canada needed a domestic institution that could provide liquidity during crises and long-term capital for national projects. The Bank of Canada, created in 1935 and nationalized in 1938, became that instrument. From the late 1930s to the early 1970s, the Bank frequently purchased government debt using money it created. Any interest paid on those bonds flowed back to Ottawa as Bank profits, which meant the borrowing was effectively interest-free. This was sovereign credit in the plain meaning of the term. It did not eliminate market discipline. It allowed the state to finance long-lived public works at minimal cost while private markets continued to operate in every other sphere.This era produced the most sustained expansion in Canadian history. War mobilization was financed without crippling the country. Post-war reconstruction created roads, ports, power systems, a modern military, and a continental industrial base. Projects included the TransCanada Pipeline, the St. Lawrence Seaway, and the opening of the vast resource of iron ore in the Labrador Trough as just several examples. All key elements of a modern self-sufficient industry-based economy were in place, with surpluses exported. Unemployment remained low. .Inflation was modest except for brief bouts linked to global commodity cycles. Debt, contrary to modern myth, fell as a share of GDP through the 1940s, 1950s, and 1960s. It was not coincidence that these were the decades in which Canada became a fully developed nation. In the 1960s, Canada was well on its way to becoming a fully self-sufficient powerhouse.The turning point came in the 1970s. There was no single law in 1973 or 1974 that barred the use of the Bank of Canada for public financing. The shift was ideological and procedural, not statutory. Central banks worldwide embraced a new orthodoxy: fight inflation through tight money, treat markets as the sole legitimate source of public finance, and distance monetary policy from elected influence. Canada followed suit..CARPAY: Criminalizing belief? Liberal-Bloc deal turns holy scriptures into criminal hate speech.The Bank reduced its share of federal debt holdings. Ottawa turned increasingly to private bond markets. Deficit financing continued, but now interest flowed to financial institutions rather than cycling back through the central bank.The timing proved disastrous. Two global oil shocks, first in 1973 and again in 1979, pushed fuel prices to historic highs. Inflation surged through cost pressures, not through excess money creation. Energy permeates every sector of a modern economy. When oil quadruples in price, transport, food, manufacturing, and construction all absorb the shock. Wage demands follow. Businesses raise prices to stay afloat. .Inflation expectations hardened. Central banks, unwilling to distinguish between cost-push and demand-driven inflation, raised interest rates sharply. Mortgage rates in Canada rose above 20%. Borrowing became punitive. Companies shed workers. Investment stalled..WIECHNIK: Steel worries and carbon taxes could sink Alberta's pipeline dream.Through the 1980s, Canada continued to run deficits while interest rates remained high. That combination guaranteed a rising debt burden. Federal debt climbed steadily and peaked in the early 1990s at levels that threatened fiscal stability. The damage was not the result of the absence of competent finance ministers. Many were serious operators by the standards of the time. The damage came from a regime change in Ottawa and at the Bank of Canada. Sovereign credit was abandoned. Markets were treated as the sole funding channel. The state kept its hand on the throttle through spending and regulation while refusing to use the monetary tools that had once kept borrowing sustainable. The economy became more difficult to manage, yet governments became more confident in their ability to steer it.The 1990s saw a partial correction. Paul Martin imposed fiscal discipline, balanced the budget, and shrank the federal debt ratio. Yet the country remained inside the post-1970s framework. The Bank of Canada operated as an inflation-targeting institution. The state no longer used its central bank to finance nation-building projects directly. Growth stabilized, but the structural shift remained unaddressed..After 2006, Ottawa continued to treat monetary sovereignty as taboo. The final sale of Canada’s gold reserves under the Harper government confirmed this mindset. In a fiat system, gold was not required for operational monetary policy, but the symbolic consequence could not be ignored. A country that once held substantial reserves now held none. It reflected a governing class that viewed sovereignty through a narrow financial lens and saw no reason to maintain the tools that had once underpinned national strategy. This symbolic erosion became substantive in the decade that followed.The real rupture came after 2015. The long erosion of merit became unmistakable. A prime minister with no grounding in economics, trade, or finance handed the most consequential portfolio to a journalist with no training in monetary policy, capital markets, or national accounting. Senior bureaucratic ranks became dominated by political loyalty, ideological alignment, and fashionable academic thinking. Expertise was replaced by messaging. Prudence was replaced by activism. Policy portfolios once run by professionals became instruments of political identity..WATCH: OneBC documentary — 'Making a Killing'.The result followed with grim predictability. Canada entered the 2020s with an energy strategy grounded not in engineering or economics but in climate narratives and regulatory zeal. Carbon taxes and pipeline constraints raised the cost of fuel not through scarcity but through deliberate policy choices. A modern economy cannot escape the mathematics of input costs. When energy policy forces fuel prices upward, every other price follows. Inflation rose even before global shocks arrived. Deficit spending surged during the pandemic. The Bank of Canada resumed large-scale purchases of government bonds but not as part of a national development strategy. Instead, it was a crisis reflex that underwrote consumption rather than investment. When inflation accelerated, the Bank again raised interest rates, repeating the dynamic of the early 1980s but without the industrial strength Canada once possessed..Investors responded rationally. Capital left for jurisdictions with stable regulatory frameworks and predictable policy paths. Domestic firms hesitated to expand. Foreign companies scaled back operations or withdrew entirely. Productivity declined because investment collapsed. Meanwhile, the welfare state grew costlier because demographic pressures mounted while the tax base stagnated. The consequence was not ideological. It was arithmetic. A country that undermines its productive sectors while expanding its dependent sectors will run deficits, accumulate debt, and lose competitiveness.This brings us back to the question that opened this essay. Canada’s economic deterioration was not mysterious. It was the long-term consequence of abandoning sovereign credit, embracing a regulatory culture that treated markets as subordinate to ideology, and filling the machinery of government with people who lacked the knowledge and humility required to manage complex systems. When merit declines, confidence often rises. This is the Dunning–Kruger effect in national form. Leaders who know least believe they know most. Leaders who know most understand the limits of their knowledge and tread carefully..STIRLING: Net zero or net lies? Inside the climate industry’s war on free speech.Canada once understood those limits. It built railways and ports when private capital could not. It used the Bank of Canada to finance growth efficiently. It kept regulation within the bounds of practicality. It relied on people with real experience to run portfolios that required expertise. In later decades, it did the opposite. It regulated at every turn, spent without discipline, taxed energy out of ideological conviction, and placed heavy responsibilities in the hands of those who did not understand their own tools.The outcome is the economy Canadians now face. Investment has fled. Productivity has fallen. The cost of living is rising. Debt is growing. The welfare state has expanded faster than national income. None of this was inevitable. It is the product of choices, institutions, and leaders. Canada can recover what it lost, but not until it recovers the one thing that sustained its greatest successes: a governing class chosen for competence rather than conformity.Alan Aubut is a retired geologist, based in Nipigon.
