A version of this article (under a different title) was published in the Globe and Mail on April 10, 2026

Last month marked the 250th anniversary of Adam Smith’s The Wealth of Nations, the foundational text of classical economics. This April brings another milestone: the 20th anniversary of the death of John Kenneth Galbraith, the celebrated Canadian-American economist who spent his career challenging that orthodoxy.

Despite mounting empirical evidence vindicating his critiques, Mr. Galbraith remains something of an outcast in mainstream economic circles. Governments continue to largely design economic policy around classical theory, elevating ideology over evidence. This manifests in how our economies are currently shaped. Canadians would be better served by a more empirically grounded approach.

Economic policy rests on a set of assumptions: that individuals are rational, emotionless actors who maximize their well-being through consumption; that firms compete in open markets and cannot manipulate prices; and that markets are self-regulating and deliver the highest possible social welfare. These beliefs have shaped a policy consensus that leaves taxes and redistribution to a minimum, environmental regulations low and major socioeconomic decisions to the market.

The consequences are visible across Canadian life. These beliefs have constrained the expansion of the Canada Pension Plan, kept our tax-and-transfer system among the least redistributive in the Organisation for Economic Co-operation, made households heavily indebted, left markets and wealth more concentrated, denied most workers paid sick days, produced repeated back-to-work legislation, exposed communities to poor air quality rather than impose more stringent environmental rules on companies, and allowed housing to be treated as a financial asset rather than a place to live.

They also have limited government responses to economic shocks, as in the aftermath of the 2009 recession, and led the Bank of Canada to treat most disruptions as demand-driven, overfocusing on inflation at the expense of employment.

None of this is to say that traditional economic theory is simply wrong. It is not. Competition and comparative advantages are proven concepts. But a fixed menu of neoliberal prescriptions – low taxes, deregulation, minimal government – is not the solution to every economic problem.

Economies are complex, living systems shaped by institutions, social norms, history and the messy behaviour of social animals. People do not make decisions based on comprehensive information and precise calculation. They rely on educated guesses and instincts that generally work well enough – but rarely produce the optimal outcomes that neoclassical economics assume. People care about status, act on emotion and take their cues from peers.

Consumers buy goods that do not justify their price to signal status, such asdesigner handbags and luxury vehicles, defying the law of demand. They use the price of a bottle of wine as a proxy for quality. They tend to enroll more in a pension plan when it is the default option. Before 2008, investors poured money into mortgage-backed securities destined to fail, assuming house prices would rise indefinitely – while policymakers, confident that markets are self-correcting, allowed systemic risks to accumulate. During the dot-com bubble, people poured money into companies with no earnings because others were doing the same.

Nor do firms behave as the textbooks suggest. Barriers to entry – economies of scale, network effects and aggressive lobbying – are pervasive. Companies cultivate monopolistic power through advertising and emotional branding, protecting their markets and slowing the creative destruction that classical theory relies upon. Coca-Cola spends billions annually reinforcing the emotional association between its brand and joy, youth, and belonging, allowing consumers to be charged a premium for a product they could substitute for pennies. Nike Inc. outsources manufacturing entirely and competes purely on brand – the large gap between its production costs and retail prices is a toll extracted by decades of emotional association.

All of this points to the same conclusion: Markets’ capacity to self-regulate and allocate resources efficiently is limited. There is no predetermined stable equilibrium as central banks’ and treasuries’ economic models assume. Economists cannot satisfactorily explain why recessions occur or what drives long-run growth.

Economists have yet to produce a coherent set of policy recommendations grounded in a more realistic model of human behaviour. But Mr. Galbraith’s recommendations are well known. He advocated for greater investment in public goods alongside more progressive taxation, stronger unions, government intervention to curb unchecked corporate power and tougher competition law. Above all, he argued for shifting society away from an exclusive focus on GDP growth toward a genuine concern for quality of life.

His contemporaries dismissed these views as something less than real economic theory. But his broader warnings – about the shortcomings of standard theory, the dangers of inequality, the limits of market efficiency, and the importance of public goods and human well-being – have only grown more relevant with time.