Sickness could be very troubling; it makes the body ache and the mind cloudy. Some sicknesses go away on with a few days of proper care and timely rest, others...well, don’t disappear as easily. Nonetheless, a good doctor will point to you the right direction on the road to recovery.
But let’s look at another kind of sickness, sickness of Canadian economy, the symptoms of which persist regionally today.
The diagnostic process to cure economic sickness is one similar to reading 20th century American literature; it requires knowledge and active reasoning. Unfortunately, I find the players in the Canadian political game today lacking both, the Orange and the Blue alike. Worse, the media coverage on these stories has been nothing but misleading and unclear.
The “question” in question is the “Dutch Disease”. NDP Leader Thomas Mulcair has criticized Alberta’s oil sand project for hurting the Canadian economy; he’s actually quite vocal about it.
But before we get too far, we need to talk about “what is Dutch Disease?”, its causes, symptoms, and solutions. This isn’t difficult, we only need to borrow a concept from your first-year microeconomics course: the law of supply and demand -when the demand goes up, holding all other factors constant, the price also goes up.
The rapid growth of developing nations in the last decade, such as China and India, increases the demand and the price of raw materials. This increase in price makes natural resources more valuable, thus provinces such as British Columbia and Alberta benefit from this resource boom, as their export brings in higher revenues.
“So what” you ask?
Well, let’s add in currency exchange into the equation. To trade with Canada, one must use Canadian currency, meaning they need to purchase Canadian dollar on the money market. As such, the increase in export also increases the demand for the Canadian dollar. Thanks to the law of supply and demand, we know that the increase in demand must also be accompanied by an increase in price, holding all else constant. The “price” here is the value of Canadian dollar against another currency. So in other words, when countries buy resources from Canada, Canadian dollar appreciates.
So what’s so bad about having a strong currency? Doesn’t that mean we can head to down to the States shop-till-we-drop?
Yes indeed.
But if you are selling certain things, having a strong currency may not so appealing.
The Ontario and Quebec manufacturing sector, for example, took a big hit from the resource boom. The reason for it is beyond the fact that the resource boom makes production more expensive; the appreciating currency makes Canadian goods more expensive on the global market, so foreign firms buy less of Canadian manufactured goods.
This is precisely what the “Dutch Disease” refers to: the decline in the manufacturing sector as a result of resource boom. Such phenomenon happened in the Netherlands in the 1970s, hence the name.
Now that we understand what economic impacts ACTUALLY take place, we are in position to take a position in this “Orange Vs. Blue” war. It turns out, Mulcair doesn't know what he's talking about, neither do Harper and his goons. I'll save that for next time;)
But let’s look at another kind of sickness, sickness of Canadian economy, the symptoms of which persist regionally today.
The diagnostic process to cure economic sickness is one similar to reading 20th century American literature; it requires knowledge and active reasoning. Unfortunately, I find the players in the Canadian political game today lacking both, the Orange and the Blue alike. Worse, the media coverage on these stories has been nothing but misleading and unclear.
The “question” in question is the “Dutch Disease”. NDP Leader Thomas Mulcair has criticized Alberta’s oil sand project for hurting the Canadian economy; he’s actually quite vocal about it.
But before we get too far, we need to talk about “what is Dutch Disease?”, its causes, symptoms, and solutions. This isn’t difficult, we only need to borrow a concept from your first-year microeconomics course: the law of supply and demand -when the demand goes up, holding all other factors constant, the price also goes up.
The rapid growth of developing nations in the last decade, such as China and India, increases the demand and the price of raw materials. This increase in price makes natural resources more valuable, thus provinces such as British Columbia and Alberta benefit from this resource boom, as their export brings in higher revenues.
“So what” you ask?
Well, let’s add in currency exchange into the equation. To trade with Canada, one must use Canadian currency, meaning they need to purchase Canadian dollar on the money market. As such, the increase in export also increases the demand for the Canadian dollar. Thanks to the law of supply and demand, we know that the increase in demand must also be accompanied by an increase in price, holding all else constant. The “price” here is the value of Canadian dollar against another currency. So in other words, when countries buy resources from Canada, Canadian dollar appreciates.
So what’s so bad about having a strong currency? Doesn’t that mean we can head to down to the States shop-till-we-drop?
Yes indeed.
But if you are selling certain things, having a strong currency may not so appealing.
The Ontario and Quebec manufacturing sector, for example, took a big hit from the resource boom. The reason for it is beyond the fact that the resource boom makes production more expensive; the appreciating currency makes Canadian goods more expensive on the global market, so foreign firms buy less of Canadian manufactured goods.
This is precisely what the “Dutch Disease” refers to: the decline in the manufacturing sector as a result of resource boom. Such phenomenon happened in the Netherlands in the 1970s, hence the name.
Now that we understand what economic impacts ACTUALLY take place, we are in position to take a position in this “Orange Vs. Blue” war. It turns out, Mulcair doesn't know what he's talking about, neither do Harper and his goons. I'll save that for next time;)
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