Canmore, Alberta is in the midst of a real estate bubble and its principle wealth-creator (tourism) is based on the same phony economy of low interest rates. Perhaps as a result of these economic fundamentals, the town's expansion into a city is neglecting the mechanisms that make cities work. Canmore has become an urban sprawl. There is also an absurd notion that these new suburbs are “sustainable” and “environmentally-friendly.” Simply put, Canmore's wealth is illusionary. This post outlines the main problems with Canmore and unless corrected, the bust that follows the bursting of Canada's credit bubble will cripple the town's economic and social life.
I moved to Canmore from Kingston, Ontario in late September of 2012. Now despite my criticisms, there is a lot to love about this place. Other than the obvious scenery (located in the Bow Valley, Canmore is surrounded by large Rocky Mountains), the people here are some of the friendliest I've ever met. In a lot of the places I've lived, it's been a struggle to make good friends. Take Kingston for example, I moved there already knowing a few people but as I was not a Queens student, I found it hard to penetrate that culture and be accepted by the friends of friends I had met. Finally, after living there for a year, I had started to make friends of my own. But Kingston lacked green space, the job opportunities sucked, and by September I was living on a friend's couch and the pompous Queen students had arrived back from their summer break. I had been there for a year – it was time to leave. Within a month of arriving here I had made more friends that my entire year in Kingston. In Canmore it's rare to find someone who is over 20 years old and was actually born and raised here. As everybody seems to be from somewhere else, everyone is more open toward making new friends and expanding their social circles. The town is indeed one of the friendliest places in Canada.
Canmore was officially founded in 1886 as a pit-stop for the Canadian Pacific Railway. It wasn't until coal was discovered that the town experienced its first boom. From 1887 to the 1970's, the coal mining industry was Canmore's main export and principle wealth creator. By 1979 the mines were exhausted and when Canmore Mines Ltd. shut down operations, the town experienced economic stagnation. This slump was brief when it was announced that Calgary (only an hour East) would be hosting the 1988 Winter Olympics and that Canmore would host the Nordic events. The town then became a tourist destination and has since enjoyed the prosperity brought by outsiders looking for recreational activities found only in the Rocky Mountains.
As it stands now, the town is a perfect example of everything that is wrong with communities located in Western crony-capitalist democratic states. These problems consist of three factors (some of them outside the scope of local Canmore politics, but influential nevertheless). These problems are: the central planning of money, the confusion over what constitutes “economic growth” and (this one within the realm of local politics), complete ignorance on what makes a city work - as Canmore is becoming a small city. This last problem is compounded by the fact that Canmore's municipal bureaucrats act as if the town really was rich and not merely caught up in a real estate bubble. A perfect example of this is the new recreational centre, Elevation Place, which cost over $39 million dollars. A common complaint I hear among the town's long-term residents is that there was nothing wrong with the old rec centre.
First things first, it's important to realize why Canmore seems richer than it actually is. This has to do with the way money is created and manipulated in the Canadian economy. The Bank of Canada sets interest rates like the way government bureaus set policy. However, interest rates are not arbitrary numbers that can be tweaked without any economic consequences.
Economics is the science of human action. Since we live on a planet of scarce resources, a functioning economy is one where these resources are used efficiently and sustainability to satisfy individual and social needs. Prices, for example, are an objective expression of the subjective valuations each person applies to each resource. Therefore, prices (and the profit-motive) are some of the best indicators as to how to use the planet's resources in the most sustainable way. As resources take time to transform from production goods to consumer goods, and since all humans experience time as a linear motion, each person will have their own “time preference,” a subjective measurement of patience. In society, each person's time preference is aggregated into an interest rate which creditors use to determine the price of loaning money. An interest rate is a natural mechanism of the market, an ever-changing objective expression of the subjective attitudes of millions of individuals.
When a central bank, like the Bank of Canada, interferes with the natural interest rate, they end up distorting the price signals that make economies work. For a time this interference may be welcomed for it creates an economic boom for both producers and consumers. But eventually the scarcity of resources reveals itself and the boom becomes a bust and the economy enters a recession. Although Canada was able to escape the worst of the 2008 Financial Crisis, it's clear that none of the fundamentals have been corrected. The Canadian credit bubble has continued to inflate while the federal government blames the banks and the Bank of Canada blames the individual indebted consumer. While the banks do deserve a share of the blame, a large chunk of this mess was created by Mark Carney's Bank of Canada. In addition, the federal government has encouraged the misallocation of resources into construction and housing via instruments like the Canadian Mortgage-Housing Corporation, the Canadian equivalent to Fannie Mae and Freddie Mac.
In a free price system, where money isn't manipulated by the central bank, an environment where interest rates are low would be backed by capital investments and savings. Instead, cheap credit via artificially low interest rates has created a phony economy where savers are punished and capital investments use long-term resources for short-term gain.
The town of Canmore is riding high on the real state bubble, mistaking rising property values for wealth-creation. And this wealth-effect has its spillover effects in retail. Take my job for example. Here I am, an assistant manager at a grocery store. I literally make double what I would back in Ontario for the exact same work. Not to mention all the benefits like 90% off the price of massages. Is any of this sustainable? Probably not. My job consists of consumers having the disposal income to buy large amounts of food – a luxury in most parts of the world. Now, people need to eat. Even in the worst of a depression I'll probably still have a job, but at the same wage, benefits included? Doubtful. I imagine many of my co-workers will be laid off as marginal workers will be the first to go when times get tough.
This gets to my second criticism: the service sector doesn't necessarily produce wealth. Wealth is created through production, investment and savings. When consumers spend money on the various luxury items found in Canmore's downtown, it is an effect of wealth, not the cause. Canmore doesn't export anything; it only imports. Snowboards, bikes, the food offered at Safeway and Sobeys? It's all imported. There are locally-produced Canmore goods but they are few and fewer are exported. In addition what is imported is rarely innovated on and become exports themselves. This process, according to Jane Jacobs, is what makes an economy prosperous.
But Canmore does “export” tourism, just as it once exported coal. Tourists are the reason that all the speciality shops and retail giants stay in business and expand. But who are these tourists? In my experience they have been yuppies from Calgary. Amateur real estate investors caught up in the bubble and ignorant of the parallels with the American experience. In sum, the Calgary folk are a result of the credit bubble. A few of them may have legitimate connections to the oil sands, but this sector is prone to velocity in the markets, just as any other. Wealth is never a guaranteed thing. Furthermore, the oil sands alone don't account for the vast expansion of Canmore's economy.
So what else contributes to the Canmore economy? British Columbian tourists? Same deal. Real estate and service sector contributions. There is little production, investment and savings. There is investment, but it's shrouded in cheap credit and allocated to real estate. There is production, but it's based on imported goods that require an export independent of tourism to be truly sustainable. The only other sector worth mentioning is government, but clearly, since the state can only tax its “productive efforts” are anything but.
It seems to me (and I hope someone can prove me wrong) that Canmore's prosperity can only be accounted for via artificially low interest rates and thus, according to Austrian Business Cycle Theory, must end in a bust. But before getting to that, allow me to criticize how the town's municipal authorities are dealing with the phony prosperity. Jane Jacobs, in her magnum opus, The Death and Life of Great American Cities, described what makes a city prosperous and what makes it decline. Her findings, independent of Austrian economics, often come to the same conclusion regarding human action. As Canmore is rapidly growing from a town to a city, it's important to analyze what Jacobs wrote and how it relates to Canmore's experience.
The obvious problem is in the smallness of Canmore's downtown while its suburbia grows. Streets require “mixed uses” to generate a meaningful economic progress. One can see this develop on the Sunny Side, where restaurants and cafes have been established to accommodate the “industrial” sector of the town alongside all the condos. But this process is haphazard and limited by zoning laws. The downtown core of Canmore is a perfect example of what the town should develop into: small blocks with a mixture of residential and commercial uses. The core is a square pattern; the buildings accommodate both residential and commercial uses as well as public and private uses. (Note, the terms “public” and “private” are not in the economic sense of voluntary and coercive means but in the sense that one's home is private but the sidewalk outside their door is “public” even if privately owned).
The ideal structure of Canmore's downtown breaks down when one contrasts this to the recent development outside the core. The further one travels from the core the more predominate suburbs become. Suburbs aren't necessarily bad – but as the town continues to expand these suburbs will be absorbed into the city neglecting their original purpose of “country-living.” Because the suburbs are predominately residential, finding commercial property requires either a long-walk or a short drive and this is considered “environmentally sustainable.” This concept of environmental sustainability brings up another problem with the urbanization of Canmore.
Canmore has something called the Sustainability Screening Process. This process is to, according to the town's bureaucrats, “provide an opportunity for people with new planning and development concepts and designs to describe how the proposal will provide a net benefit to the community and build on the Town’s sustainability initiatives. It also allows for both Council and the public an opportunity to consider and assess the proposed benefits. ”
An example of the SSP is the proposed renovation of the Canmore Hotel, or the “Ho,” the oldest building in town and the second-oldest hotel in Alberta. The owner of the Ho – some Calgary investor – must go through the SSP red-tape in order to get the town's approval. Aside from the fact that his own property is at risk of the whims of the town's bureaucrats he must also deal with the busy-body residents who feel they have an intangible property claim in the historic Hotel.
Other examples include the condos that litter the country-side. Some of these places use only timber and stone as building materials, earning them the town's approval for “sustainable practices.” But what is sustainable about this? Of course, timber and stone are real authentic resources but they require much energy to extract and mould into fancy-looking houses. The technologies arising from the market process has made home building more energy efficient and less dependent on using large quantities of scarce resources. For example: concrete instead of stone. Yet for Canmore's bureaucrats, their arbitrary definition of sustainability requires exerting more energy and using more resources.
The town's bureaucrats are also acting as if the gravy train will never stop. Since Canadian municipalities receive a large portion of their loot from property taxes, it's little wonder that – for a town in the midst of a real estate bubble – the bureaucrats are spending money like it grows on trees. When the bust comes, and Canmore's property values fall, so will the tax receipts. Interest payments for things like Elevation Place will shoot through the roof and – no doubt – these hapless bureaucrats will be asking the provincial government for bailouts.
When Canada's credit bubble implodes and reality dawns, Canmore will find itself broke with many of its resources misallocated into dead-end developments. Canmore will find itself as it did in 1980 – an old coal mining town that failed to diversify its exports. The only difference is that this time there will be no tourist industry to save them. There will be no rich Western consumers ready to buy a second home in the Canadian Rockies. Unless Chinese or Chilean tourists decide to make Canmore their Canadian destination, things are bound to get worse before they get better.
Canmore can escape this fate, however. Although it may be too late to reverse a lot of the malinvestment, there are several routes that can be taken either now or after the fact. First off, Canmore residents can fire everyone on town council (there is an election this Fall) and replace them with more liberty-minded, sound money politicians. They can rely less on government spending and on an economy based on tourism. If bureaucratic red-tape is cut and property taxes are abolished, Canmore can find itself the beacon for entrepreneurial activities. That is, essentially, what needs to be done. Entrepreneurship needs to be emphasized and the coercive power of the state diminished. Only then can Canmore thrive on a diversified economy rather than the single-state enterprises of coal mining or credit-bubble induced tourism.