Wednesday, May 1, 2013

Bitumen Bubble a Joke

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Recently, Albertan Premier Alison Redford told the public that massive government debts and deficits were a result of a “bitumen bubble.” Clearly, Alberta’s finances are the result of an economic calculation problem. An institution can’t allocate resources efficiently if price signals are ignored and money is forced from people. Most mainstream economists ignore this fact. Those who dip into the “staples theory” of economic development tend to support Redford’s argument – or at least the notion of a “staples trap”. The idea of a staple resource is an interesting one. Pioneered by Harold Innis, the basic explanation says that Alberta’s economy rests on whatever staple resource the state decides is the most exportable.

I call the theory interesting because it is similar to Jane Jacobs’ theory on how civilizations develop. According to Jacobs, a staple resource is found – such as obsidian by hunter gatherers – and a community settles around it, or homesteads it. Staying in one spot has its advantages as human beings begin to discover repetitions in nature. People learn that some animals can be domesticated and how different seeds can be mixed to create new plants. They discover that trading with each other makes everyone better off. Eventually people learn how to find oil and use it to power the most technologically advanced society the planet has ever seen. Jacobs cited cities as the source of wealth, Austrians look to the individual, the state clings to arbitrary monopoly power.

Property-ownership, voluntary trade and specialization are all actions that result from stationary living. Markets make the original staple that brought the people to the territory less relevant in the economy. This process is evident yet haphazard in Alberta’s history: it began as agricultural but influenced by Ottawa’s railways before moving into provincial “bitumen bubble” territory. A better option would be to allow entrepreneurs to generate the wealth of civilization and determine the boundaries of order.

Instead of hoping for high oil-prices to pay off debts, the Alberta government should – at the very least – stop taxing and regulating everything in sight. Prosperity comes from free markets, not by exhausting staples controlled by crony-capitalists and bureaucrats. Wealth is not a property bubble caused by the federal government and the Bank of Canada. The people living here deserve better. The Alberta government should secede from Confederation and then abolish itself. It’s a 108-year experiment that has failed miserably.

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