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jeffrey simpson

The Harperbuck, hovering around 75 U.S. cents, ought to be a campaign issue, politics having little to do with economic rationality.

The strength or otherwise of a currency has often been a political signal, rightly or wrongly, of an economy's performance, at least relative to that of other countries.

Dollar up, economy strong; dollar down, economy weak. Economy strong, good for incumbents; dollar down, bad for incumbents. Simplistic, of course, but then slogans and images are central to any campaign.

Reasons far beyond the control of a national government, as in Canada's case today, explain a falling or rising currency, but since when did domestic voters exculpate or praise governments for local consequences caused by external pressures? When things go well domestically, governments hog credit; when things slip, they blame external factors.

Long ago, in the election campaign of 1962, the Progressive Conservative government of John Diefenbaker (the feet-of-clay hero to some Conservatives today) pegged the Canadian dollar at 92.5 cents. This was the era of fixed exchange rates, unlike today's floating rates, and the political result was immediate and negative for the Diefenbaker government.

Economists argued a 92.5-cent dollar would help exports and could therefore be justified. The Diefenbaker government naturally agreed. Canadians, not then accustomed to such sudden swings, saw devaluation as an implicit admission of economic weakness caused by government mismanagement.

Liberals and other PC critics called the 92.5-cent dollar a "Diefenbuck." They printed copies of fake "Diefenbucks" and distributed them at Diefenbaker rallies. Needless to say, the Chief was not amused. Canadian voters, however, were not amused with him. They reduced what was then the largest parliamentary majority in Canadian history to a minority.

The world economy is much more integrated today and exchange rates float. Perhaps this new reality limits the political impact of the loonie's level. So, too, central banks' decisions on interest rates and money supply can influence the relative value of a currency. The Bank of Canada's reduction of the base rate in an attempt to stimulate the economy (and in response to the federal government's astringent fiscal policy), has contributed to the loonie's declining currency value.

Still, politics being politics and therefore being full of hyperbole and mischaracterizations of reality, it remains modestly surprising that the NDP and Liberals have not jumped on the slumping dollar.

A simple talking point would be, "You, Mr. Harper, have so mismanaged the Canadian economy that our currency has lost a quarter of its value against the U.S. dollar. The world, sir, is passing judgment on your stewardship of the Canadian economy. It will be Canadians' turn on Oct. 19."

Fair comment? Nobody predicted several years ago that the price of oil would plummet because of a glut caused by U.S. production and Saudi Arabia's decision to keep on pumping even as the price fell.

Canada, despite its extensive supplies, is a price taker for oil (and natural gas). So when the world oil price tanked, so did the oil-based economy of Alberta. You could argue the Conservatives paid too much attention to that sector and not enough to others – a favourite charge of the opposition parties – but they haven't explained just what Ottawa could have done to prop up the price of oil (or natural gas and other commodities, for that matter).

The recent collapse of the Chinese stock market revealed underlying problems with the management of that country's economy. What would the opposition parties have done to protect Canada against this collapse?

The loss of manufacturing jobs. This fact is a staple of NDP and Liberal attacks. At the margin, there is something to this critique, but manufacturing jobs have been disappearing in many Western countries (except Germany) for a long time, as lower-cost producers entice factories to establish there.

Still, despite these kinds of plausible arguments from the government to explain the currency's slide, the fact remains that the Canadian economy has underperformed the U.S. economy recently by a wide margin.

Canada has a trade deficit, a current-account deficit, a higher rate of unemployment than in the United States, a slower economic growth rate for 2015 and likely for 2016, weaker job growth, less per-capita investment and lower productivity.

The weak dollar – the Harperbuck – flows from all these factors, some imported, some homegrown. Fair or otherwise, it's surprising the opposition parties haven't jumped on the currency's decline.

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