Gittins re-writes mining boom history

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By Leith van Onselen

Fairfax’s Ross Gittins has written a spirited post today chastising economists for not questioning the wisdom of the once-in-a-century mining boom, which drove-up the exchange rate and has now guttered other trade-exposed industries:

Now we’re in the final throes of the decade-long mining resources boom, it’s a good time to reflect on how much we got out of it (not all that much, remembering it’s all our minerals) and how well we handled it.

We played it by letting the foreign mining companies do pretty much whatever they wanted, which was to build as many new mines and gas facilities as possible in minimum time. This insane rush came at the expense of all our other industries, but no one questioned its wisdom.

It was left to the Reserve Bank to ensure the miners’ greedy stampede didn’t cause a wages breakout and inflation surge, which it did by repressing the rest of the economy. To “make room” for the money-crazed miners, it held interest rates higher than they otherwise would have been, which may have caused the exchange rate to be even higher than otherwise.

Was any effort made to assess whether attempting to build 180 resource projects in three years was in the national interest? Yes, but the economists left it to the lawyers… the macroeconomists were away at the time.

Gittins makes some valid points, but seems to conveniently have forgotten that he himself was cheerleader-in-chief for the boom just a few years back, and completely failed to see its temporary nature, nor its deleterious impacts on the non-mining economy.

Consider the following quotes, which were compiled last year in The Idiot Tax blog.

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Here’s Gittins writing in the SMH in October 2009:

We don’t have Dutch disease because that describes a situation where the resources boom soon subsides, leaving the economy marooned. In our case, the boom seems likely to run for decades because it’s built not on some cyclical surge in commodity prices, nor the exploitation of a single mineral deposit, but on our prime position as abundant supplier of resources to the Asian region – China, India and the rest – while those countries build the almost endless infrastructure needed to become developed economies.

That’s the point that’s slowly dawning: the resources boom is coming back and has decades to run. It will involve further huge expansion of our mining industry and huge growth in the volume of our mineral and energy exports, either at prices roughly the same as they are now or, quite possibly, higher…

Those industries that can’t stay profitable under the high exchange rate and interest rates will contract and thereby release workers and capital to be taken up by the ever-expanding mining sector.

From the perspective of the overall economy, that won’t be bad, it will be good. Why? Because the economy will be shifting to the production of a more valuable and profitable combination of goods and services.

And here’s Gittins again in October 2012:

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HAVE you noticed how joyfully the media trumpet the bad news they seek out so assiduously? The latest is that the resources boom is finally busting…. Is the much-ballyhooed resources boom about to disappear into the history books?

Don’t be misled… Spending on the building of new mines and liquefied gas plants is expected to grow strongly for another year before it starts to fall back. Even then, it will stay way above what we normally see for several more years.

Coal and iron ore prices may be falling, but don’t imagine they’ll return to anything like what they were…

The econocrats now expect that, by 2019, they will have collapsed to a mere 50 per cent above that 100-year average. Nothing to show for it? This means we’ll remain wealthier than we were (our exports will continue buying far more on world markets than they used to).

All this ignores a further benefit from the resources boom that, though it has already started, is largely still to come: vastly increased quantities of coal, iron ore and natural gas for export. This, too, adds to our wealth.

Yes Ross, the economics profession was derelict in not foreseeing the temporary nature of the mining boom, the Dutch Disease that it reaped on the rest of the economy, nor its long-term deleterious impacts.

But that dereliction extends to yourself.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.