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But to come back to Nancy Olewiler’s question: was Innis wrong?

A depreciating currency can go a long way to mitigating the effects of a bust, and to moderating a boom

Innis was certainly right about boom-and-bust cycles in resource prices, but his solution — reduce the importance of the resource sector — doesn’t hold up very well. Innis was writing in the 1930s and 1940s, and we’ve since learned more about how exchange rates work. When exchange rates are fixed — and the gold standard is a form of fixed exchange rates — a reduction in the prices of Canada’s exports leads to an outflow of reserves in order to balance Canada’s payments. In effect, this forces Canada to respond to a downturn by contracting the money supply, amplifying the effects of the original negative shock. Many of the problems that Innis identified can be put down to bad choice for an exchange rate policy. A depreciating currency can go a long way to mitigating the effects of a bust, and to moderating a boom.

More importantly, many of those “ifs” in the staples thesis narrative don’t fit the data. Or perhaps it’s better to say that they fit too many data points, and not just the resources sector. Indeed, you can take a typical staples thesis argument, substitute the word “manufacturing” for “resources,” and get a fairly convincing argument for why it’s dangerous to over-specialize in manufacturing. “The manufacturing trap” is as good a way as any to describe the fate of the former industrial heartland in the U.S. Midwest and in southwestern Ontario.

It is clear that the income generated by resource exports has been broadly shared

It’s also clear that the income generated by resource exports has been broadly shared, or at least as broadly as the income from manufacturing exports. This was not inevitable, and much of the credit can go to Canada’s culture of governance. In countries with weaker governance, resource revenues are usually expropriated by well-connected elites, but Canada’s political culture has avoided that. To be sure, the income generated by (say) Alberta’s oil wealth during the last boom was not uniformly distributed across Canada, but it did show up as increased tax revenues for the federal government, and all households benefited from the increased purchasing power of the Canadian dollar.