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A trip down memory lane:

The Netherlands exports grew because these goods increased in value rather than because the Netherlands sold more goods and services abroad...
The Netherlands had chronically run a deficit in trade in services—which is to say that they were realizing the economic benefits that flow from imports much more than those from exports.

Fast forward:

Alberta is standing by its forecast return to budget surpluses in three years, although that is based on the assumption that oil sands production will grow faster than industry expects and wages will climb at an extraordinary pace. According to government estimates, a person making $100,000 today will be making $125,000 by the end of 2013. Slower wage growth could reduce revenue from personal income tax, the single-largest source of cash for the province.

http://www.theglobeandmail.com/news/politics/in-a-season-of-restraint-alberta-opts-to-spend/article1461959/

Keep building, building, building, or else...

Isn't that a funny way of looking at it? I mean, if the whole country were a store, then yes...being able to increase our prices for the same volume of sales would be a good thing. But we'd also like to simultaneously increase our volume of sales, no? So increased prices are indeed good news, but stagnant sales are bad news.

Yes, I was thinking "how is that a bad thing" when Michael Hlinka was bemoaning the report on Toronto CBC's Metro Morning today. Then Andy Barrie joined in with a manufacturing fetish comment, but by then I'd pulled into my parking space and so I didn't hear the end.

I believe the discussion on Metro Morning between Barrie and Hlinka had to do with the current trade deficit, and its possible implications. You can hear the end here:

http://www.cbc.ca/video/popup_audio.html?http://www.cbc.ca/mrl3/8752/toronto/ondemand/audio/feb11mh_TOR.wma

"Exports are costs"

What I have a question about is the apparent shift in viewpoint. On the one hand we have the idea that any trade is normally a win-win, and on the other hand we have the idea that exports are costs. Are these two viewpoints not contradictory?

JVfM: There's nothing wrong with AB that sane oil & gas royalties, a progressive income tax, and a modest PST won't fix. Sadly, all are political infeasible. Anyway, I wouldn't completely give-up hope that natural gas will rebound. It's not at all clear, to me anyway, that shale gas is the panacea it's being billed as. It's very tight, requires expensive and technically challenging drilling and fracking, and the wells deplete quickly. If nothing else, given the horrible demographics of the O&G industry, there simply aren't going to be enough skilled workers around to drill all those holes.

"Exports are costs... But there's something about international trade that seems to confuse people."

I think it's because most people don't get past the Econ 101 identity of Y = C + I + G + (X - M), in which, ceteris paribus, exports are good and imports are bad.

Like most 'bad' economics, the root of it is the abuse of a ceteris paribus assumption.

@ Patrick - Or how about just raising taxes? For everyone. Equally. Is that unthinkable?

Min: Yes, trade is win-win, because both sides agree that the benefits that they receive are greater than the costs that they pay. But if we can receive more benefits for the same cost, then we're even better off.

Min:

Trade is good, because imports paid for by exports generally are better than domestic production in the absence of trade (if the domestic production was better, we'd use that rather than imports).

In any other context - say, a wage increase that gives us more purchasing power for the same number of hours worked - this point is easy enough to understand. But there's something about international trade that seems to confuse people.

Great analogy, but to extend it, if exports are hours then Canada is a country which is "underemployed" (as are most (all?) countries. It would also be a Good Thing if Canada worked more "hours", i.e. had a greater volume of exports, in addition to getting paid more for each "hour's labour".

Right now, sure. But the Conference Board report is talking about what was going on before the recession hit.

Patrick,

If gas prices rebound, partly due to the non-panacea of shale gas, will the new development occur in AB, or rather NE BC, or even the Mackenzie Valley? And then again, increasing gas prices makes LNG more attractive as well. AB conventional gas production is getting fairly mature. Mind you, the oil sands folks enjoy cheap gas.

What I'm more concerned about, however, is putting all the Canadian eggs in the oil sands basket. Speaking of Andie Barrie and Metro Morning, have a listen to this clip recorded Jan 2006, and compare the drastic difference in terms of public awareness --to what's now happening in the US in terms of environmental activists--two Fortune 500 companies announcing yesterday a boycott of oil sands products - expect the lobby to gain in momentum and extend to financiers of oil sands development (RBC head already targeted), O&G companies themselves (remember the picketing to get Talisman out of Sudan?), and state legislatures in the states where the refineries are located to introduce measures similar to what California has done. This introduces even more project risk.

Oil sands clip from 2006:
http://www.youtube.com/watch?v=K0DUJBAK8gI

I'm not sure Econ 101 adequately captures these factors.

Background on oil sands boycott on BNN - go to 6:30

http://watch.bnn.ca/the-business-news/february-2010/the-business-news-february-10-2010/#clip265703

As discussed today on CTV's Power and Politics.

http://watch.ctv.ca/news/power-play/feb-11/#clip266141

Both clips don't downplay the significance.

A manufacturing company is like a living organism that develops and grows slowly from an embryo to a fully-fledged, mature adult. When it dies, a body of unique skills and talent disappears forever. This is unlike resources: if you dont mine an ore deposit this year because metal prices are low, you can just wait to mine it when prices recover. On the other hand, if Acme widget company goes bankrupt because of an unfavorable shift in the terms of trade, it's unlikely anyone will ever restart the same company (or it may take 20 years for a new company to reach the same size and sophistication) if ever the terms of trade return to something more favourable to manufacturing.

What I'm saying is that over the long run resource industries can survive the whiplashing of rising and falling terms of trade much more easily than manufacturing firms, because the resources will always be there (especially they aren't exploited during a commodity slump) whereas manufacturing depends on specialized skills and talent than can be lost forever.

Stephen Gordon: "Min: Yes, trade is win-win, because both sides agree that the benefits that they receive are greater than the costs that they pay. But if we can receive more benefits for the same cost, then we're even better off."

Yes, of course. That's not what I was talking about.

In the win-win viewpoint we have a non-zero-sum game, but the "exports are costs" view seems to be zero-sum, right? (Under the non-zero-sum viewpoint are not both exports and imports gains?) The two viewpoints are incompatible, n'est-ce pas?

I think I see what you're getting at. Trade generates gains on both sides, but those gains are not necessarily shared equally. What happened was that our share of the total gains increased.

"What we have here is a failure to communicate."

I do appreciate your responses, Stephen. :) Thank you.

Alex Plante: I don't see it that way. Manufacturing firms can also jump out of nowhere, generated by new technologies and new opportunities. In fact, that's my impression of how most manufacturing jobs were generated in the first place.

Keeping workers at the same old jobs using the same old technology in the - possibly vain - hope that those jobs and that technology will somehow return to being cutting edge seems like a risky strategy. I certainly don't see why we should give up on the concrete, immediate gains offered by high commodity.

Good post. Producing exports is costly. I expected to see you debate, perhaps educate lay people but the Conference Board?

OFF-TOPIC: Just visiting from Macleans wrote something about "the non-panacea of shale gas".

That is interesting. The future of the natural gas market will have enormous implications for the western provinces, their governments and now Québec. Do you disagree with the projections of large glut of natural gas in North America as far as the eye can see? Why? Do you reckon the decline rates will swamp new production?

Westslope,

I don't reallyt have a position on whether shale gas is/isn't a panacea - was just responding to Patrick's view that he thought it might be.

If US shale gas potential is a bust (in Alberta as well), then from my perspective, you revert back to where you were before the shale gas technology breakthrough. And a few years ago (prior to the recession) there were all kinds of plans for LNG import facilties in Quebec/NB, Gulf of Mexico; Mackenzie gas etc. Sure there is potential in AB for coal bed methane, deeper foothills gas but the cost structure (labour) is still high, especially if oil sands development returns to pre recession levels. The AB gov't only has so much wiggle room with lowering royalties. Conventional gas production has peaked and is on the decline.

Thank you Just visiting from macleans.

From what I have seen so far, it appears the costs of production for some major US shale gas reserves are much lower than some conventional shallow gas reserves and tough-access non-conventional reserves (shale, deep tight gas, coal-bed methane).

The decline rates may be high but initial production typically covers sunk capital costs. I'm betting on a major glut of natural gas in North America as far as the eye can see. Canadians in some provinces will wonder what hit them. I'm also expecting a new crop of populist activists to appear in a few years from now calling for major public subsidies to natural gas infrastructure. I also expect that provinces like Quebec and British Columbia will maintain electricity prices charged consumers well below average North American prices.

That is the fascinating thing about an opportunity cost approach to measuring social welfare. For the typical lay person, what is not seen cannot hurt and has no relevance. Economists have yet to become as crafty with spinning virtual numbers as some of their natural science-trained counterparts who seem to never let a lack of knowledge of all things numbers get in the way of telling a good story. :-)

Taking advantage of high commodity prices is great. Yes, people are suspicious when the economic picture is painted using aggregate numbers based strictly on these because they view these gains as benefitting narrow sectors/groups or geographical areas and thereby creating imbalances that bring on other problems. People don't view a rising currency as a rising tide that lifts all boats, which it does, as you often point out. The negative feelings come from people being afraid of the tide running out on them. FEAR.

l.j.

Investing in educating people not directly related to resource extraction can also be looked at as "costs".

In the narrow short term.

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