Are we infected?

by Aaron Wherry

Thomas Mulcair worries that we’re suffering from Dutch Disease.

NDP leader Thomas Mulcair said Saturday that, because of the way it raises the value of the Canadian dollar, other parts of the country are paying a price for the prosperity enjoyed by natural resource sectors such as the oil sands in Alberta. “It’s by definition the ‘Dutch disease,’ ” Mulcair said Saturday on the CBC Radio show, The House.

The “Dutch disease” is a reference to what happened to the Netherlands economy in the 1960s after vast deposits of natural gas were discovered in the nearby North Sea. The resulting rise in its currency was thought to have caused the collapse of the Dutch manufacturing sector, and Mulcair said the same thing is happening in Canada. “The Canadian dollar’s being held artificially high, which is fine if you’re going to Walt Disney World, (but) not so good if you want to sell your manufactured product because the American clients, most of the time, can no longer afford to buy it.”

Dalton McGuinty has expressed similar concerns. The OECD has also raised the issue. Jack Mintz says Dutch Disease isn’t happening here. Stephen Gordon questions the concept. The Current considered the diagnosis in March. More research here and here.




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Are we infected?

  1. The Dutch are significantly wealthier now then they were 50 years, before ‘Dutch disease’, so why should we be worried about it?

    Instead of complaining about value of high $$$ – it’s not only good for people going on holidays but why should we expect a socialist to be aware of economics – maybe we could get more of those lovely $$$ for ourselves. Ontario has potentially lots of $$$ just sitting in the ground in the same region where manufacturing has been most affected but our bureaucrats and Premier are focused on expensive and useless windmills.

    Government is terrific when it can spend other people’s money but it acts as break when it comes time to allow private sector to produce wealth.

    TorStar March 2010:

    “A junior oil and gas company from Alberta has been quietly scooping up land rights in southwestern Ontario, part of an audacious plan to bring Alberta-style exploration to the birthplace of Canada’s petroleum industry. Consider it a rebirth. Calgary-based Mooncor Oil & Gas Corp. wants to develop a resource in Ontario that has been largely overlooked by its rivals: shale gas.”

  2. Strangly no Dutch has every heard about the Dutch desease. So I guess it is not a Dutch thing but a Canadian thing.

  3. Aaron,

    There’s no balance in your article. If you cite economists who deny
    “Dutch Disease” (or are luke-warm to the idea at best)…you ought to
    cite economists who can explain its existence as well.

    For example, prominent economist Dr. Carl Weinberg was telling the
    Financial Times that Canada needed to treat its “Dutch Disease” way back
    in 2008:

    http://www.ft.com/intl/cms/s/0/a0c27f8a-e03d-11dc-b0d7-0000779fd2ac.html

    More recently, the well known CAW economist Jim Stanford dedicated an
    entire paper to explaining the Canadian “Dutch Disease” phenomenon:

    http://www.policyalternatives.ca/publications/reports/cure-dutch-disease

    Canada has graduated economists other than Mintz & the abrasive
    Gordon. Though you’d never know it looking at the citations of Canadian
    journalists.

    • Without reviewing/critiquing the merits of Mr. Stanford’s analysis, I would suggest to you that an economist who works for the CAW may have a vested interest on the issue of Dutch Disease and its effects on the manufacturing sector, and may not represent the highest standard of impartial analysis.

      • Good. If we are to judge the usefulness of economic analysis by whoever
        pays the economist, then I have every confidence that an economist paid
        by a bank or an industry or in service to a particular economic theory is
        expounding with my best interests at heart.
        To quote a fairly weird guy – ” ya gotta serve somebody”.

    • Gordon has an absolutely foolish premise for claiming the Dutch Disease is not so bad: he says it raises the real value of wages. This also raises the real cost of wages making businesses less competitive. And having the value of your wages increased isn’t very useful if you’re on the unemployment line: as 300,000 people are due to the loss of that many full-time jobs (according to Gordon; other numbers say it’s as high as 500,000 lost full-time jobs since Tar-sands Harper came to power.)

      No doubt the overvalued dollar is a boon to people who are wealthy: it increases the value of their wealth. But that obviously shouldn’t be an economic priority. According to the OECD, the fair-value level of our dollar is 81 cents US. This means value-added exports (that create an economic engine) have a de facto 25% tariff slapped on them.

  4. He’s partly right, but there are other factors….China and branch-plants are two of them.

    Everyone in Canada drives a foreign car.

  5. Here’s a bit from Harper’s “Economic Action Plan” he (ridiculously) claims makes Canada the “envy of the world.” As one can see, the entire plan is something out of the 19th century:

    “Canada’s Economic Action Plan hints at just this: ‘While the potential for our resources is great, we cannot take it for granted. We are not the only country in the world with rich mineral and energy resources. Others have made it clear that they are willing to act to do what is required to supply markets around the world. We must compete every day with those countries not just for markets but also for vital investment dollars.’”

    His big vision for Canada is becoming like Russia and Brazil — resourced-based *developing* economies. It would be smarter to follow the German example, which has a 6% GDP trade surplus founded on value-added exports. Instead our value-added sector has collapsed and $20B trade surpluses have become $50B trade deficits (-2.8% GDP.)

    When the Liberals were in power we had balanced economic policy that allowed all provinces to prosper. Harper knows better, of course…

    http://www.theglobeandmail.com/news/opinions/opinion/how-to-sustainably-turn-canadas-resources-into-wealth/article2423425/

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