Canadian dollar surges to highest level since 1977

CTV News
The Canadian dollar crept closer to U.S. parity on Friday than it has been in 30 years, at one point reaching a high of 91.94 cents US.

The story sounds like a case of what has been called the Dutch disease (high international demand for natural resources such as petroleum results in large exports from producing countries, which drives up the value of exporting countries currencies, which makes the manufactured and service exports from producing countries more expensive and less competitive. The Dutch Disease originally referred to fears in the Netherlands that gas exports could potentially de-industrialize the economy. In fact, the Dutch economy recovered quickly but that doesn’t mean that high levels of natural resource exports do not present problems from an economy. A decent description of the problems is here:

Today’s news carried a story that our Minister of Finance said that productivity improvements is the best defense against high exchange rates. So, I wonder if the MOF is suggesting that we cut our wages or improve our corporate organization and governance or increase capital investment to achieve these productivity increases. I wonder if there are any examples of countries that have scrooged or invested their ways out of the Dutch Disease, if such a disease can be found.

If the disease is real, I wonder why the MOF didn’t identify the Norway solution as the best defense. If the disease is real and we need a defense, I wonder if the MOF might recognize that manufacturing and services are as easily non-renewable as are natural resources. Lost markets and exported capital stocks can be as depleted as any old oil field. Perhaps the MOF could stop talking about removing non-renewal resources from the equalization formula. I suppose that would be too much to expect though.
So far, there has been no evidence of Dutch Disease in Canada.

Can't say it won't happen, but it hasn't so far.

The loonie is going higher.
Well, I’m not sure what would constitute evidence, since Dutch disease is as much about fear as it is about economic stats. Economic behaviour also is strongly conditioned by self-fulfilling prophesy, and prophesy fulfilled requires a time-frame. To some extent, the very large value of petroleum products exported and the rising exchange rate plus the MOF’s comment suggesting that protection from rising exchange rates is needed constitutes some sort of evidence.

If I were looking for more robust evidence, I might look for indications that persons were acting on beliefs. For example, what are trends in capital investment and job creation in industrial sectors that are fairly independent of the energy sector relative to those strongly related to the energy sector, and what are comparative migration rates for manufacturing compared to energy regions? If persons are voting with their bucks and their feet to get out of manufacturing areas, and if they do it for long enough, then manufacturing will certainly become ‘hollowed out.’ Hollowed out’ is already an expression that’s not too hard to find in the media.

Rather than evidence, I was more reacting to the frequent vacuous uses of ‘productivity’ as the fix all heal all for every problem economic by conservative economist political types. We deserve better fro0m our leaders. I think we are still the only OECD country that doesn’t have a formal national economic strategic plan.

‘Productivity’ is one of those highly abstract macro-economic measures that have few solid unqualified interpretations in the objective world. Its basic form is output divided by labour. The terms says nothing about causes or solutions; it is almost a tautology. ‘Productivity’ however, is a favorite among our elitist politicians because using it suggests that the working person is the problem—they aren’t productive enough. We’ve all heard the usual rants. In fact, a major determinant of productivity is the quality of equipment workers are able to use, and that is a problem with capital investment and not with workers themselves.

Anyway, our MOF saying that increasing productivity is the best defense is a little like going to the doctor with complaints of sore knees and being told that you have arthritis. Arthritis means joint inflammation. The diagnosis says nothing about a specific pathology, causes or treatments: We’re prescribed anti-inflammatory (duh, well what did we expect, a cure). Treatment, ah yes, we already know what medicine we’ll get when the MOF says we have productivity insufficiency (duh, what’d we expect a cure or perhaps for our elites to share the pain). Our elites seem to be busy exporting capital, and they expect to be loved, or at least feared and respected by us. Duh, what’d we expect when we voted anyway, a plan? Where's the plan anyway? But I rant, so I'll stop.