A flawlessly mismanaged mining boom and bust

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It is amazing to watch as the mismanagement of the mining boom turns to mismanagement of the mining bust. We all know what should have been done many years ago on the way up. Dutch disease is not a mystery. Everyone knows that the currency will rise and rise through a resources boom. The answer to it has been followed very successfully by other nations like Chile and Norway.

You set up huge resource rent taxes and push the money offshore into sovereign wealth funds. Not only does it help keep the currency down, it prevents disruptive volatility in fiscal planning, containing spending during the boom and preventing major deficits on the way down. Meanwhile, your tradable economy isn’t hollowed out so you’ve got something to fall back upon when the commodity price bust arrives. It also helps prevent over-investment in the overheating sectors, preserving the boom for longer by slowing the process by which capitalism itself kills off prices via competition and rising supply.

It’s not rocket science is it? Yet Australia did nearly the complete opposite for ten years. Fair enough. We’re bunch of prospectors and gamblers, government as much as the punters, so let that go.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.