The political importance of jobs in the oil sands

2012-04-18

in Canada, Economics, Politics, Psychology, The environment

Economists sometimes defend inflation by saying that it is a useful means for allowing the real income of some people to fall, without actually reducing the nominal amount. This is connected to human psychology. For some reason, it is more upsetting to have your salary cut by 2% at a time when prices are stable than it is to experience an amount of inflation that generates the same reduction in what you can consume. People like having an income that seems to grow or stay the same, even if it is an illusion, and they hate having an income that seems to shrink.

A related asymmetry arguably exists in terms of entire industries. Once an industry exists, it will fight for survival no matter how irrelevant or damaging it has become. People in the industry will lobby their political representatives for assistance and – especially if the number of people employed is large – they will often succeed.

This is why Canada still has an asbestos industry, even though the material is too dangerous to be used domestically and most people agree that it is unethical to sell abroad.

One reason why I worry about the rapid pace of oilsands expansion is because of the ever-larger constituency of people whose livelihood and financial security now depends on the continued operation of the oil patch. In the future, it may become completely obvious that the oil sands are bad for Canada and bad for the world. Even so, the more people employed by the industry, the harder it will be to wind down. It will also require scrapping more multi-billion-dollar hardware.

Growing the oil sands is politically easy; shrinking them is almost impossible. That’s another argument for slowing the pace of growth. It means there will be less inertia to overcome when we make the transition from digging up ever-more oil to phasing out our fossil fuel industries.

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