Manufacturing provincialism

The CAD has been climbing fast, so it's to be expected that its altitude would start to affect some people's decision-making skills. But you'd think that the premiers of Canada's two largest provinces would keep their heads, wouldn't you? Well, no. Calling on Stephen Harper to "do something" about the appreciating CAD is an extraordinarily cheap way of getting uncritical media attention. Ontario's Dalton McGuinty (example) and Quebec's Jean Charest (example) are likely not alone in their indulgence in this dodge, but I'll limit my attention to them in what follows.

The common theme in these interventions is the unstated premise is that the (very real) problems of the manufacturing sector over the past five years are representative of the  provincial economies. This simply is not the case. Here are graphs of the unemployment and employment rates for Canada, Ontario and Quebec since the CAD started its upward journey at the start of 2002:

Dalton McGuinty's complaint about tough times in the Ontario labour market are hard to understand: jobs are being created as fast as the working-age population. And although it would be churlish to whine about the rest of the country catching up to Ontario, it's hard to see what other complaint he could make.

Jean Charest's campaign is paradoxically both more bizarre and easier to understand. Although Quebec's unemployment rate is at a record low and its employment rate is at a record high, Charest is running a minority government, and desperately wants to be seen Doing Something. Anything. Whatever it takes to make the front pages.

It is in times like these that we should all be thankful for the fact that monetary policy is a federal jurisdiction, and that the Bank of Canada has a reasonably thick layer of insulation between itself and its political masters.

Comments

[happyjuggler0]

I'm amused that at the same time that your politicians in Canada and those in France are complaining about the strength of their currencies, that pundits in the US are complaining about the weakness of the US dollar.

Personally I think strength and weakness works out to a wash. The real issues in my mind are how far away from the PPP rate currencies are, and the speed of their fall or rise. A gradual change (in anything) is much easier for an economy to handle than a sudden change. At the same time, the farther exchange rates get from PPP, the more you get some ugly displacements on an increasingly large scale, noting that in time the rubber band of exchange rates seems to eventually oscillate closer to PPP and thus those large dislocations can't really be good for an economy.

[Simon van Norden]

Hi Steve;

Just found your blog - why didn't you tell me about this earlier?

Re: provincialism and exchange rates. Would you be more sympathetic to Charest's and McGinty's stated concerns if we restricted the debate to the effects of the CAD appreciation (a) only against the USD, and (b) since March? The CAD traded below below 0.85 in early March and traded briefly above 1.08 around the time of their remarks. When I listen to their remarks, I think I hear the same blatant self-interest that you do, but I also think that I hear a focus on the most *recent* appreciation and comments on its speed. To give the devil his due, I think it is reasonable to suspect that the full impact of the last six to nine months of the appreciation is not captured by the evidence that you're showing.

Cheers,

Simon