How constraints can help Canada’s economy
Constraints might be the key to unlocking Canada’s next era of economic success, according to a new book by non-fiction writer David Epstein. Inside the Box: How Constraints Make Us Better argues that limitations—rather than total freedom—often drive innovation and efficiency in complex systems. The Logic’s economics columnist Kevin Carmichael suggests this framework could help the country handle its current challenges.
The Periodic Table’s Lesson on Innovation
Epstein’s book uses the creation of the periodic table as a primary example. The popular story claims Dmitri Mendeleev invented the table in a dream, but the reality was far more grounded. He was on a tight deadline to finish a chemistry textbook and needed a way to fit the remaining 55 known elements into a fixed space. The resulting structure solved a logistical problem, not a philosophical one. Range was published in 2019 and is aging rather well.
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Carmichael draws a parallel between Mendeleev’s situation and effective policymaking. The most successful fiscal interventions in recent Canadian history occurred when leaders restricted their own options. This approach reduces the opportunity for procrastination and forces decisive action, a dynamic Carmichael calls the “cognitive miser” effect. When people dislike thinking, they often choose the simplest path, which can be dangerous for complex economic planning. Epstein’s book introduced me to the term “cognitive miser,” a concept from psychology based on the observation that humans dislike thinking and will unconsciously resort to the simplest solution possible.
How Paul Martin Tamed the Deficit
This theory finds its clearest expression in the work of former finance minister Paul Martin. In the mid-1990s, Martin abandoned vague long-term targets in favor of rigid two-year commitments. He also instituted an across-the-board program review rather than making arbitrary cuts. These self-imposed limits forced officials to be creative within a specific framework. Martin’s approach helped tame the deficit and laid the groundwork for a period of significant wealth creation. Martin scrapped long-term targets in favour of two-year commitments, which made it harder to procrastinate.
However, the current political climate differs sharply from that era. Modern leaders have largely abandoned these constraints. Former prime minister Stephen Harper used budget surpluses to cut the Goods and Services Tax, while Justin Trudeau’s government engaged in broad, unfocused spending. The 2021 budget presented by Deputy Prime Minister Chrystia Freeland was 547 pages long, a document Carmichael describes as a “something-for-everyone tome” that lacked the sharp focus of Martin’s plan.
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Former prime minister Justin Trudeau could have used unusually low interest rates to invest heavily in the energy transition. Instead, he sprayed money in all directions, an approach to fiscal policy epitomized by Chrystia Freeland’s 739-page budget in 2021, a something-for-everyone tome that was 547 pages longer than the fiscal plan that Martin used to tame the deficit in 1995.
The Return of Economic Constraints
Canada’s recent history has been defined by this drift toward freedom without direction. While the economy has generally performed well, the lack of strict boundaries can lead to inefficiency. Carmichael notes that Nobel laureate economist Herbert Simon once observed that people are rarely most creative when they are most free. The current period of high interest rates and economic reorientation represents a return to constraints, which may force the country to prioritize what is truly essential. History has handed Canada’s leaders a set of constraints. They have to reorient the economy and rebuild the military amid higher interest rates. That pressure has already created a steady stream of policy decisions unlike anything we’ve seen since Martin’s time in government.
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Self-imposed limits in monetary policy
The writer notes that the most effective policy moves happened when leaders restricted their choices. A clear case is how the federal government handled inflation in the early 1990s. They ordered the Bank of Canada to keep the Consumer Price Index rising at about two percent per year. This rule limited how much politicians could influence interest rates. Officials based decisions on economics instead of politics. This structure maintained price stability for thirty years.
Even after the COVID-19 pandemic, Governor Tiff Macklem guided inflation back to the target without causing a recession. The federal government put a lid on inflation by ordering the Bank of Canada in the early 1990s to keep the consumer price index advancing at an annual rate of about two per cent—and then limited the ability of the political class to influence interest rates by insisting that governors would be left alone to base their decisions on economics, not politics.
