Don't Worry About Canada Becoming a 'Petrostate'
By David Henderson
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.