Canada allowed itself to be hypnotized by triple-digit oil prices. Stephen Harper talked of the country as an emerging “energy superpower.” Economist Jeff Rubin became a minor celebrity circa 2008 with a prediction that crude was on its way to $200 a barrel. Even Bank of Canada governor Stephen Poloz was seduced. “The world is telling us that our energy is more valuable than it used to be, and it’s telling us to invest more in that and less in areas that are highly exchange-rate dependent with small margins,” Poloz said in the late summer of 2014, when I interviewed him for The Globe and Mail. “That’s the hard truth,” he added.
A harder truth is that Canada was ill-prepared—both psychologically and economically—for the sudden collapse of oil markets at the end of last year. There is an impulse to forgive ourselves for this lack of readiness. Who could have foreseen that OPEC would decide to sacrifice billions of dollars by refusing to curb production, just so it could hurt shale-oil producers in the United States? “We should be thankful that we’ve got resources as part of our diversification, whereas lots of other countries don’t have that,” Poloz said in September, when asked whether the country had grown too dependent on oil. We should also be aware that commodity booms make the creation of wealth look easy, causing us to neglect other parts of the economy. The Bank of Canada now is counting on exchange-rate-sensitive exports to offset the damage. One wonders if the blow would have hurt so much if political and business leaders had done more to strengthen non-energy industries.
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