I'd like to advance a daring, even shocking proposition: that high oil prices are of benefit, all in all, to a country that exports a lot of oil. Canada, for example.

Hang on, you say: that's, er, obvious isn't it? The world's seventh-largest oil producer, with the world's second-largest proven reserves, we are net exporters of oil, to the tune of over one million barrels a day. Wouldn't it be more shocking to claim that we did not benefit from all this resource wealth — that we would actually be better off with oil at $50 or $60 a barrel, rather than at the current world price of $130-plus?

It would, if that weren't already the conventional wisdom in much of the media. The Globe and Mail, in particular, has invested much effort of late in trying to convince us we are suffering, or will be in time, from the "Dutch disease," so-called for what allegedly befell the Netherlands in the 1970s, wherein a surge in natural gas exports caused such a rise in the guilder that the country's manufacturing sector was decimated. In recent weeks, the paper has gone from suggesting that "Canada's commodity boom is not enough any more," to asking, provocatively, "how long can an economy prosper on the fumes of oil and gas while actual production stagnates?" to a flat-out declaration that at current prices the oil boom is "more of a burden than a blessing."

The remedy for this disease? The paper's London correspondent, Doug Saunders, floated the idea earlier this year, in a dispatch from Norway. Rather than allow the revenues from oil and gas exports to flood into the economy, driving up the dollar and making life miserable for central Canadian-based manufacturers, why not, in effect, stop them at the border: quarantine them, as the Norwegians do, in a state-run fund, to be invested exclusively in non-dollar assets? There was also an intergenerational angle. Rather than distribute the revenues from these non-renewable resources to present-day taxpayers in the form of tax cuts, why not consign them to wise and far-seeing governments, to ensure that future generations benefit as well?

"Across Norway," he wrote, "the oil boom is being paralleled by record growth in the non-petroleum, export-driven economy." By contrast, "everywhere else in the world — including Canada — a boom in oil has led to a decline, if not a complete devastation, of conventional businesses."

When the OECD, in its latest report on Canada, suggested the same policy, not only for Alberta but the feds as well, the Globe could hardly contain itself. "Canada urged to amass oil wealth," it reported. An editorial observed that "Alberta has not saved enough of its resource revenues for hard times or future generations." Meanwhile, "Central Canada is reeling, as manufacturers scale back production or close, and well-paying jobs vanish."

Sigh. Where to begin? Perhaps by noting that, as an empirical matter, the "Dutch disease" is largely a myth. It is not true that "everywhere else" except Norway oil booms have led to national ruin; attempts to prove even a strong statistical correlation have borne little fruit. The United States, to take a significant counter-example, became the world's largest producer not only of oil but of almost every other industrial commodity around the turn of the last century — precisely coinciding with its rise to world dominance in manufacturing. (It's not even clear the "Dutch disease" applies to the Dutch: the economist Max Corden, who did much of the work on the "Dutch disease" as a theoretical model, himself suggested the Dutch experience had less to do with the exchange rate than "the use of [oil] revenues for social service levels which are not sustainable.")

As a theory, moreover, it leaves much to be desired. It's true, of course, that a resource-led export boom can result in a sharp rise in the currency. But the story does not end there. A soaring currency sets off a number of self-equilibrating aftershocks. Lenders, for example, may reduce the interest rate they charge to Canadian borrowers, accepting a part of their return instead in the form of an appreciating exchange rate. For their part, Canadian investors may be smart enough to realize that a rising dollar makes overseas assets a bargain, and snap them up on the cheap, even without a state-run fund to do it for them. May, and have.

There's a more basic argument. Either the resource boom, and accompanying exchange- rate spike, is temporary, or it is permanent. If it is temporary, it will correct itself, as above. If it is permanent, then it is not a "disease" for capital and labour to shift out of manufacturing and into natural resources: that's exactly what should happen.

In any event, there are simpler remedies for what ails central Canadian manufacturing than erecting yet another gargantuan state-run investment fund — Norway's is expected to hit $500 billion next year — just to keep the revenues out of private hands. The experience of the Alberta Heritage Savings Trust Fund is instructive: set up during the last oil boom for broadly similar reasons, it blew hundreds of millions of dollars on ill-judged "diversification" schemes. The Canada Pension Plan was likewise abused for decades under provincial suzerainty, as I anticipate it will be in time under its current "reformed" structure.

The biggest single impediment to Canadian manufacturers, and the one over which Canadian governments have the most direct control, is the level of Canadian income tax rates. Cutting these — yes, even using surplus oil revenues for the purpose — is not squandering our patrimony on short-term frivolities. It's the best investment in raising our long-run productivity we could possibly make, and one that future generations will thank us for.

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