An Open Letter to Alberta Canada

Dear Alberta: The CBC says that Albertans think that non-Albertans do not have sympathy for you. Well, I do. But my sympathy goes beyond the masses of people unemployed. My sympathy extends to you in being duped by economists and politicians into thinking that there is actually a demand for Canadian oil that a pipeline will fix. The reason prices are down is because of a global supply glut – not the lack of a pipeline.

I really feel bad for you. As a labour economist and sociologist, it’s been my life’s work to find a way to give everyone a fair shot in the labour market system that we have, albeit a crappy one. The fact is that no one wants Canadian oil. It cannot be sold even if it could be produced for less than $65 per barrel. The fact is that the United States and OPEC are trying to out-compete each other, and the result has been an oversupply with lowering demand, which is driving prices down.

In other words, it’s an oil pissing contest between the U.S.Russia, and OPEC, as this chart from the U.S. Energy Information Administration (Feb 2016) shows.

Top_Oil_Producing_Counties.png

This oil pissing contest shows no signs of ending soon, and Canadian oil just cannot survive the onslaught. You can ship all the oil east that you’d want, and it would still result in Alberta oil fields being closed down. While Canada has a long history of getting caught in staples traps – where it costs more to produce commodities than it can export it for, at the end of the day, no company can stand years of massive losses without going out of business, which would result in job losses anyway.

The only “oil” solution is to nationalize the oil sands, and provide government price supports. According to my calculations that would cost Canada about 30% of GDP if price supports continue two years or longer. I estimate it would cost at least 10% of GDP just to nationalize the oil industry in Canada.

To give an idea of what this means on markets as well: Canada’s credit gets downgraded, and the Bank of Canada would have to raise interest rates – which means the housing and credit bubbles burst. Millions of Canadians would lose their homes & cars, consumption would drop, and Albertans would be out of a job anyway – all for 10-30% of the national wealth to support Alberta’s oil industry.

Instead, what Alberta needs is SOCIAL supports – not price & market supports (also known as corporate welfare), and not a pipeline to carry goods to a market that doesn’t exist. These social supports include building infrastructure for public goods, extended EI benefits, working class tax breaks, environmental reclamation and government sponsored investment in wind energy, which Alberta has plenty of. It also means diversification in labour including manufacturing, clean energy sectors, service sectors (such as health care), and STEM education. It will be infinitely cheaper (0.1% of GDP as opposed to 30%), and create better long-run results both socially and economically.

It’s not that non-Albertans don’t care – they do! Some non-Albertans, like myself, specifically care enough to make Albertan families secure in the long-run with short-run social supports, and not let them get caught in the staples trap that sucks the life out of Canada as a whole for what will be short-term employment in a dying sector.

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This entry was posted in Demand, Economics, Environment, Labor, Markets, Public Policy, Sociology, Wages. Bookmark the permalink.

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