What goes up must come down; and sometimes, unfortunately, come down with a crash.
If 2014 is the year commodity prices fall, the progress in Canadian living standards during the past decade and a half could also come undone.
And progress there has been. The income of the typical Canadian family has been steadily rising since the mid 1990s, and while this reflects a number of factors, certainly high commodity prices have played a central role.
Wages are up in Alberta and Saskatchewan, and employment has grown year in – year out. Statistics Canada recently reported that employment rose more than 3.5 per cent in Alberta during the past year, outpacing all other provinces and far and away ahead of the lacklustre growth in Ontario and Quebec.
The mining, oil and gas sectors as well as construction have led the way; while in recent years job growth in finance, trade and manufacturing has flat-lined.
A fall in commodity prices could expose just how much Canadians have relied on forces outside of our control for our recent prosperity, and also the limited degree to which we’ve dealt with more fundamental changes in the economy.
The cartels that have maintained elevated potash prices – one of the mainstays of the Saskatchewan economy – are in flux, and oversupply of the fertilizer has put downward pressure on prices.
The oil market is facing similar challenges.
The Financial Times recently examined the capacity of OPEC to maintain a hold on supply, and prop up prices. The balance between demand and supply is changing, and it will require Saudi Arabia to curtail production, and OPEC to enforce country quotas with more rigour.
Over the medium term Iran represents a potentially significant source of new low-cost oil onto the market. And the landscape, quite literally, is changing in the United States, potentially dramatically, as fracking may shift the U.S. from being a net importer to a net supplier of energy.
Canada remains a relatively high-cost oil producer, and the whole issue of access to American and other markets remains to be settled. How Keystone and other issues evolve in the coming year will also be an important part of the story determining medium term growth in the oil patch.
It is certainly too soon to talk about a bust in the commodities market, but these things happen, and as the experience during the mid 1980s illustrates, they can happen quite dramatically.
This should be a worry because it will lay bare the unfortunate policies of our governments to not have saved a much larger fraction of revenues generated from natural resources during the boom times.
But in a fundamental way our labour market has also responded to the Western boom, the prospect of earning higher wages pulling both newcomers and young workers to the growing provinces.
The resource boom has helped raise family incomes since the recession of the early1990s from just above $50,000 to just below $60,000, but in spite of this the typical family is no better off now than it was in 1980, and probably working harder to just to stand still.
This commodity induced rise in incomes has masked the influence of more fundamental changes associated with globalization and the impact of informatics on the production and service sectors, which are leading to more polarized job and wage prospects for the majority.
These forces have been playing out as an undercurrent, a strong undercurrent that will demand more attention when, sooner or later, we won’t be able to rely on international cartels for our economic prosperity.
Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. You can follow him on Twitter @MilesCorak, or read his blog at MilesCorak.com .