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Dutch Disease, Prices and Wages in Saskatchewan

Jim Stanford recently pointed out that many of the conservative economists who had defended the overvalued loonie have quickly shifted to applauding its depreciation.

The Government of Saskatchewan may be making a similar conversion on the road to Damascus. When federal NDP leader Tom Mulcair expressed concern about Dutch disease, premier Brad Wall denied that the high exchange rate was hurting Canadian-based exporters.

But on Friday, the Regina Leader-Post reported online:

[Provincial] deputy labour minister Mike Carr said that a lower exchange rate, through its ability to stimulate sales of Canadian-produced goods, including, significantly, agricultural and mineral products of the kind produced by Saskatchewan, historically has tended to help the province and its workers . . .

So, the Wall government’s position is that the high loonie was not curtailing Canadian output and employment, but a lower loonie will help expand Canadian output and employment? It doesn’t believe in Dutch disease, but it wants the cure.

While Carr is not an official Sask. Party spokesman, he is a Wall appointee rather than a career civil servant. Unfortunately, his correct observation did not make yesterday’s print edition (page B1).

What did make the print edition was an exchange between yours truly and the provincial government about wages and prices in Saskatchewan.

On Friday, Statistics Canada reported that, from December 2012 to December 2013, consumer prices jumped by 2.3% in the province – almost double the national increase of 1.2%. The Leader-Post instead reported Saskatchewan’s annual average increase of 1.5% from 2012 to 2013.

I contrasted inflation with the meagre increase of 0.6% in Saskatchewan’s average hourly wage in December 2013 compared to December 2012. Unnamed government sources responded by citing the increase of 2.5% in Saskatchewan’s average hourly wage for all of 2013 compared to all of 2012.

There is nothing wrong with annual averages, although their effect in this case was to downplay dismal December data by combining it with better data from earlier in the year. And after dismissing concerns about an overvalued Canadian dollar, the Saskatchewan government appears to hope that a lower loonie will help get the good times rolling again in 2014.

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Comments

Comment from Travis Fast
Time: January 26, 2014, 10:35 pm

Well far be it from me to put a wet blanket on the fire but …The two positions are not really that irreconcilable. Strong CAD with rising commodity prices = nothing to see here. Declining CAD with weakening commodity prices = all is well that ends well.

The real story is that resource provinces did not give two defunct pennies about manufacturing when the first scenario was in play and now that the second scenario is in play they can be un-problematically pan Canadian.

This is how the centre once reacted to the diverging fortunes of the periphery so now the periphery is the centre.

Comment from Paul Tulloch
Time: March 12, 2014, 6:38 pm

http://blogs.wsj.com/canadarealtime/2014/03/12/canadian-economist-takes-swipe-at-mark-carneys-policies/

Seems like the banks are agreeing with those here on the PEF who have stated dutch disease is a problem in Canada- they do not go quite that far word wise- but essentially the capital flowing in buying up assets pressuring the dollar- sure seems essentially dutch disease- especially when most of those assets were tar sand related.

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