Carney questions the diagnosis

by Aaron Wherry

Mark Carney takes on the Dutch Disease debate.

Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse. The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.” They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide. Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.

While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong. Canada’s economy is much more diverse and much better integrated than the Dutch Disease caricature. Numerous factors influence our currency and, most fundamentally, higher commodity prices are unambiguously good for Canada. That is not to trivialise the difficult structural adjustments that higher commodity prices can bring. Nor is it to suggest a purely laissez-faire response. Policy can help to minimise adjustment costs and maximise the benefits that arise from commodity booms, but like any treatment, it is more likely to be successful if the original diagnosis is correct.




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Carney questions the diagnosis

  1. Mark Carney is still at the ‘Whoopee, it’s Xmas!’ stage.

    • As an “economist” (as you claim to be), this is the best rebuttal you can come up with? Yeesh!

      • Sorry…ain’t playin’ Rick

        See: Norway.

  2. Rich guy defending the oil sands and dismissing the fact Canada suffers, in part, from dutch disease? Yes, rich guy defending the oil sands and dismissing evidence otherwise.

    Tell me, why is this newsworthy?

    • That’s the best rebuttal you can come up with, that he’s rich therefore he doesn’t have a clue what he’s talking about? Has it occurred to you that the reason he’s rich is because he knows a heck of a lot more about banking, finance and economics than probably 99.9% Canadians? It’s newsworthy when the leader of the opposition says “Canada has dutch disease”, but it’s NOT newsworthy when one of the best economic minds in Canada offers a counter-point? Seems to me you’re not interested in the news, you’re interested in hearing what you want to hear.

      Try again.

      • Ok. How about the leader of the opposition is actually right, and is part of a minority of political peoples willing to speak up because – sadly! – it challenges the profits of Big Oil.

        How about many many people have been trying to discredit the economic reality, mostly those with connections and reasons to support the oil companies. Andrew Coyne, board member on Imperial Oil. The Conservative party, cutting taxes for the same companies, while leaving the billions of dollars of subsidization for them on the books.

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