Do you remember when NDP leader Tom Mulcair was talking about the Dutch Disease back in 2012? There were Canadian economists at the time who crunched the numbers and concluded that 40-60% of job losses were due to the high oil dollar. I had argued that Canada was suffering from the Dutch Disease even before Mulcair jumped on the bandwagon. But Conservatives claimed it wasn’t happening. Either they didn’t understand the economics or they lied.
Bank of America Merrill Lynch economist Emanuella Enenajor, for example, recently concluded that “The currency’s appreciation of almost 60 per cent over the last 15 years has really hurt the manufacturing sector.” Even so, in the brief firestorm over Mulcair’s challenge, the Governor of the Bank of Canada and much of the business press agreed with Harper.
And the denials continue: in the House of Commons last week, Pierre Poilievre sneered (a CBC choice of verbs) that, “The leader of the NDP calls [the natural resources] sector a disease!” On October 1, 2014, the Edmonton Journal ran a business editorial “What happened to Dutch Disease ? And why is the limping loonie now BAD news?” claiming the Dutch Disease was nonsense because Canadian manufacturing and trade had not instantly rebounded when the dollar fell to 85 cents US.
The evidence is out. Statistics Canada reports that exports surged 6.3% in June as a result of the low dollar. In other words, without Harper’s overpriced petrodollar the rest of the economy does better. This is completely consistent with elementary trade economics and with the Dutch Disease theory, but somehow when he was taking his MA in economics at the University of Calgary, Mr. Harper must have missed that class.
So why has manufacturing not rebounded? David Rosenberg, chief economist and strategist for Gluskin and Schiff today answers that question in the Globe and Mail today: “A big part of the reason is that we are paying the price for the years when the Canadian Dollar was north of par — at its peak.”
“it will take years to recapture this lost manufacturing capacity,” according to Rosenberg.
Years of recovery is Harper’s legacy. and the terrible irony is that the recovery in the trade account which proves he was wrong about Canada’s Dutch Disease may help him get elected again. He will try to take credit for a recovery from a deep decline that he helped cause.