Canada’s Voluntary Ignorance

Tar Pit #3One of the problems with social science is that unlike the natural sciences, it cannot predict the future. Of course economists (a social science) have been trying for centuries to predict the future with fancy math, but they usually fail. So when social science actually predicts something useful, you would hope that policy creators and economists would pay attention. But they didn’t. I’m talking about all of the predictors from StatsCan over the years that said that the Canadian oil market was tanking.

There’s an interesting theory in Canadian Political Economy called the “staples trap.” It’s basically the idea that Canada has thrown all of its economic eggs into one world basket, and is now completely dependent on market forces (such as OPEC supply gluts) to either succeed or fail. The problem now is that Canada has an identity crisis: is Canada a commodities exporter, a manufacturer of intermediate goods, or just a Loonie falling out of the sky? No one really knows for sure. Market analysts are even having a hard time figuring out Canadian futures.

To be sure, the Canadian oil sands is very energy intensive to extract the crude oil. In fact, it’s the most energy intensive method. As soon as oil hit $65 a barrel, it meant that the oil sands were officially losing money. $65 a barrel happened a long time ago, so Canadian oil has been operating at a deficit for a very long time. Part of it was the idea that Canadian oil companies could ride out the Saudi’s supply glut. But they underestimated the ability of the Saudi’s, who can still make a profit at $20 a barrel to weather their own storm.

But the point is this: social science relies heavily on statistical analysis, and all statistics happen in the past. Forecasting models are about as accurate as a Vegas Bookie making odds on the next Maple Leafs game. Past performance is not an indicator of future performance, except when it is. There were several agencies, economists, and hedge fund managers that were screaming from the tops of beaver lodges for a long time that oil was tanking. It’s not that the Canadian Government, the Alberta Government, or the Canadian oil companies weren’t listening – looking at past press reports on oil, they certainly were. Canada just engaged in voluntary ignorance for which its dollar is now paying the American price with not much to fall back on.

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