Canada riding oil while U.S. withers

When the good times roll, there isn’t much incentive for change.

“But if and when a high exchange rate causes widespread distress among employers and lots of unemployment, that exchange rate will be the focus of much analysis and will take the blame it deserves. At that point the creation of a monetary union for the prevention of such a calamity will surely come up again,” he told me.

That said, he later added this caveat, gleaned from his many years in economics: “ As an economist of advancing age I have learned that making forecasts always is risky, especially if it involves the future, as a wit once noted.”

On that point, Grubel is dead on. Whether it’s dollarization, or price controls, or any other whimsical idea cooked by economists and spoon-fed to gullible reporters, we should know better than to mistake short-sighted, whimsical theories for good public policy.

But there other reasons why this idea of officially hitching our wagon to the U.S. proved to be a one-hit wonder.

The spike in commodity prices, intensified by Katrina and Rita, has reminded people of the vast differences between the U. S. and Canadian economies. The two countries don’t form a natural currency zone.

While Canada’s economy and capital markets thrive on the back of rising energy prices — our stocks have advanced 70% in the last three years compared to 5% for the U.S., in Canadian-dollar terms — the U.S. is grappling with a $8-trillion debt, an over-extended consumer and a wilting dollar, despite interest rate increases.

The same could be said for Ontario and Alberta, “strange bedfellows in a common currency,” said Drummond. Debt-free Alberta is handing out $400 to each of its citizens, while Ontario has been reduced to begging for more money from the federal government.

For the pro- dollarization crowd, their argument really had very little to do with a separate or common currency. Like most Canadians, they just didn’t like seeing the dollar get that low so they came up with the knee-jerk idea of dollarization.

After a recent speech in Vancouver by Finance Minister Ralph Goodale, someone brought up the idea — and the audience just laughed.

As much as some Canadians dreamed about adopting the U.S. dollar, the big question at the time was whether the U. S. really wanted anything to do with us.

Which prompts an interesting thought today, considering the sorry state of the U.S. economy. It might not be Canadians pleading for another shot at a North American monetary union. It might be the Americans begging us.