Don't Worry About Canada Becoming a 'Petrostate'
But imagine that Canada’s oil production grows so much that it becomes as important to Canada as oil is to Saudi Arabia. Is that bad?
No. First, Canada is a vibrant democracy with competitive political parties and a fair amount of civil and economic freedom. Not so Saudi Arabia.
Second, although many people, including Smith, worry about “Dutch disease,” a situation where strong oil exports keep the value of the currency high so that manufacturing suffers, Dutch disease isn’t even figuratively a disease. It’s just simple comparative advantage. The exchange rate is a price. It signals whether it makes sense to produce and export more oil or to produce and export manufactured goods.
There are many things to worry about in the Canadian economy: the growing level of federal debt, government pensions that are high and rising, and a heavy degree of regulation. Something not to worry about: more oil production.
This is from David R. Henderson, “Don’t worry about Canada becoming a ‘petrostate'”, Fraser Forum, June 27, 2016. It’s my response to Noah Smith’s unfounded worry.