Thursday, April 19, 2007

Alberta Boom and Budget

The provincial government is on a spending spree, taking an almost anti-Keynesian approach towards spending. Rather than saving some money for the rainy day(yeah, there's a heritage fund but this year almost zilch will go into it) , and you can bet there will be one sooner or later, they want to spend now due to political reasons.

And what's this-they are talking about deficit when they should have been sending out those $400 checks again. No, it's time for realpolitik and that demands fervent spending to reduce the 'infrastructure deficit' accumulated during Klein years.

While at almost any other place on earth such spending would be a welcome news, in Alberta it is going to make things worse, at least in the short term. Where is the labour for these projects going to come from? There will be cost overruns, labor shortages, further housing problems and further run up in inflation. Already, inflation is running at around 6% in Alberta.

Most in the government do acknowledge that this boom was unexpected (just as the bust will eventually be). But I think nobody showed any vision as far as oil sands projects were concerned. If the peak oil theorists are indeed right, then there should have been no urgency to rush the development of so many oil sands projects concurrently. They could have fetched even higher lease rates for the oil sands patches by restricting the supply of available area/deposits and arranged the development in a more organized manner. Instead, everyone from a ground zero flipper to the oil companies want to make a quick buck at all costs.

The problem is that if the oil price does fall to the historical levels, we will certainly see another bust. The migratory labour will leave again in search of better pastures, but long time residents of Alberta will suffer. Like in the past.

At this time, a government with vision should have been putting billions of dollars for the rainy day and for diversification of Alberta's economy. The way Norway is doing.
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