Do we appreciate the mining boom?

The AFR this morning has an interesting survey of how Australian’s perceive the benefits of the mining boom. Here’s the chart of the results:

The AFR represented these results as “mining boom benefits go unsung”. I’m not so sure. The one unequivocal general benefit of the mining boom is invisible. That’s because it is the avoidance of a counter-factual. If there had been no mining boom, then it is likely that unemployment would be closer to 10% and asset prices likely much lower. It has been the attractiveness of Australian mining assets and associated capital flows, as well as the high income growths associated with record terms of trade, that have together supported the adjustment to lower levels of borrowing in the household sector without tipping into outright deleveraging.

As Glenn Stevens has confessed, this adjustment would have had to transpire anyway. To imagine what that would have been like without a mining boom, one need only take a quick glance at any number of other Western countries where asset prices have corrected.

I’m not sure if this widely understood but the results of survey certainly support the contention. Seeing the boom as of big benefit nationally without so much personal benefit fits the bill.

There is grist in this survey for both the government and the mining anti-tax lobby.

David Llewellyn-Smith
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Comments

  1. Without the mining boom, we’d be New Zealand. Not Spain, not Ireland, New Zealand.

    Anyway, too busy to fight about this today. The most fascinating result for me is that people (even Greens!) overwhelmingly believe the mining boom has been good for Australia, but bad for them personally. This is a situation the mining lobby would be extremely pleased with, and desperate to maintain. No wonder they pump millions into those feel-good mining ads on telly.

    Sleepers Wake!

    • The most fascinating result for me is that people (even Greens!) overwhelmingly believe the mining boom has been good for Australia, but bad for them personally.
      Precisely – this is strange and bizarre to me. Maybe they’re thinking it’s good for someone else at least?

      • If nothing else, the populace is bombarded with new of international economic gloom. Thus far we have escaped such fate.

        Intuitively there is recognition that our circumstance is different. Cognitively there is recognition the prime point of difference is the mining boom.

        Subsequently acceptance that even if in a direct experiential sense the boom does not personally benefit all, indirectly the boom is of great benefit to the nation.

        • Oh that is gold.

          Intuitively? Cognitively? Direct experiential sense?

          How about brainwashed?

          The majority says that they have not benefited at all from the mining boom, and yet they still believe the mining boom is a good thing. Why? Because they’ve been bombarded with several years of propaganda (sorry “news”) about how Australia is “booming”, and how we’re all doing fabulously well from the mining boom.

          What hasn’t been highlighted (until very recently) are the downsides to the boom. I mean, I reckon you could go into a shopping mall in Cairns, and you’d get a majority saying the mining boom is a good thing. People still haven’t connected the dots between the mining boom, the strong dollar and the decline of trade-exposed sectors.

          They’ll get there though. They’ll get there.

    • Yes. Very pleased to see such a mature and widespread understanding of the benefits of the boom.

  2. I’m not really sure I follow your argument here H&H. A sector that employs less than 3% of the workforce is not capable by itself of preventing twice as many people as it actually employs from being out of work. Are you saying that the inflow from mining investment has driven the appreciation of the dollar, which has allowed Aussie consumers to keep on consuming at a reasonable level and prevented us from disleveraging outright?

    I had a related discussion last night with my brother, who is a supervisor in the resource sector here. It’s clear that although mining investment has continued to accelerate at ever-increasingly mind-blowing speeds and is continually reaching new paradigms, the overall economy has not responded positively. While mining activity continued to glow ever whiter-hot, broad economic activity softened following the withdrawl of the stimulus toward the end of 2010.

    So the biggest mining boom in our history has kept getting boomier but the economy has not – you’re saying that it is nonetheless holding the level of activity that does exist afloat? I think I’ll need more evidence to be convinced of that.

    You’re not saying that Swan’s massive attack on the budget will be offset as long as mining continues to off like a frog in a sock?

    • Leftee

      Sorry friend you are still leaving out the effects of the external account. It does exist despite the assurances of our mutual friend that it doesn’t.

      Without mining and the wholesale sale of everything that either moves or doesn’t our external account would be in a complete mess. What would the dollar be without mining? 40c 60c..Prior to this boom in our TOT I always used assess the equilibrium value (that at which we payed our way) as being 40 cents.
      Given the decline in both the overall Industrial Relations balance, combined with all sorts of anti-business laws and taxes, in the last few years, I’d suggest that, without mining, the A$ equilibrium value might be less than 1A$ = USD 0.30

      Without mining and the associated boom in capital inflow none of the Rudd stimulus would have been possible. Rudd didn’t finance the stimulus the capital account funded the stimulus.

      Unemployment 10%…I don’t think so….way higher. However this is hard to state. Our whole life would look very different without mining and the associated capital flows. Maybe we would have normal unemployment levels…just a much lower standard of living.
      I don’t know but the one thing is sure is that the nation would look nothing like it now does,

        • That’s because you don’t understand economics and worse you are a fool who doesn’t know they are a fool!

          You’re just a cheap moron with a stupid chip on your shoulder which and an economic viewpoint of 5 minutes and the depth of bathwater

          • Sheesus Flawse wrongside of the bed. ?… Dude calm hey.

            Poor old Mav.

            Actually I think you both have great posts and i get the crown for whacky late night posts on my mobile plus i am suffering from babylagg with a 4 month old! 😉

            Anyhoo play nice 🙂

            Where is Admin theses days 😉

      • New Zealand is Australia without valuable dirt. They survive on agricultural exports and tourism, just like we’d be doing if not for the “good fortune” of our mineral resources.

        And yet, the Kiwi unemployment is 6.3% not “way higher” than 10%, the NZ dollar is worth 82c not 30c, and last time I was over there the Kiwis weren’t living in grass huts. Kiwi cities and suburbs looked much like Australian cities and suburbs … actually, a bit nicer.

        They have the same banks and the same absurdly overpriced property. They speak the same language (sort of) and have similar levels of education. Ok, so the Kiwis have slightly lower incomes, but not dramatically so. In 2007-08 median NZ incomes were pretty much the same as in NSW, Victoria and Queensland in PPP terms.

        The counterfactual exists and its called New Zealand, and it doesn’t look anywhere near as bad as many people suggest.

        If you want to suggest that the counterfactual would look more like Ireland and Spain — debt ridden governments handcuffed to the Euro — and not New Zealand, I’d want to see a bit more evidence than a few wild assertions.

        • I think your NZ argument is better taken up with HnH. To date he has not humoured you in that respect! Today might be the day. 🙂

          • I know. For some reason he thinks we’d be more like Ireland — a small open economy in Europe that exports knowledge-based services to North America, handcuffed to the Euro, and coming off a monumental construction boom.

            Why, I don’t know.

      • Hi Flawse.

        I think Lorax makes a good point though – without mining, the NZ dollar is worth rather more than 30c US and their unemployment rate is not greatly higher than ours. When was the last time our dollar was worth that little? Would it really be worth less than a third of it’s current value without the mining boom?

        Without compelling evidence to the contrary, I continue to think that the positive effects of the ming boom are heavily overstated (note that I still think it’s a good thing that we have a big backyard full of all these valuable rocks – that ought to keep 3D1K happy).

        ps: I sent you a personal message via another forum some time ago – I’m pleased to see that it looks like you are feeling a bit better!

          • Ah, good stuff.

            Yep, being crook really sucks. I’m only just regaining the use of my foot, which is hard since I’m a labourer who needs to be on my feet all day.

            I’m just hoping the broad-spectrum blood test shows that my prostate is fine and that I don’t need the, erm….more intrusive test!

            Cheers.

  3. “Without the mining boom, we’d be New Zealand.”

    Except that we would be like New Zealand would be had it not been able to export its surplus labour to Australia over the last decade or so. Both NZ and Australia would have 15% plus unemployment.

    • Why? Because of all the employment generated by mining?! Seriously, you guys should consider comedy as a career choice.

      New Zealand unemployment rate is in the mid-sixes. Not mid-20s like Spain, or mid-teens like Ireland. 6.3%. And to think, they don’t have any iron ore!

      • “Seriously, you guys should consider comedy as a career choice.”

        Why is it necessary to start with all this denigration stuff?
        My post had nothing to do with the employment in mining. Maybe you don’t bother reading before you set off on your chosen path? If you did read what I wrote then you obviously don’t understand economics and until you do I suggest you lay off the personal vindictiveness.

      • “New Zealand unemployment rate is in the mid-sixes.”

        So add half a million more unemployed to that to allow for all the potential workers they have exported to Australia over the last decade and you’ll have a decent idea of where we would be without the mining boom.

        Mining doesn’t employ huge numbers of people directly, but unlike government spending there is a real multiplier effect. How big? Nobody knows for certain. This Crikey article quotes a Qld government estimate of 4 http://blogs.crikey.com.au/pollytics/2010/06/15/how-profitable-is-mining/.

        With mining directly employing 3.0% of the full time workforce (ABS Quarterly Labour Force Survey, Feb 2012), that means that directly and indirectly, around 12% of full time employees owe their job to the mining industry (assuming that estimate of the multiplier is correct). Mining employment has more than doubled in the last 7 years.

        • What about the jobs lost in manufacturing, tourism and other trade exposed sectors, and the negative multiplier effect of these job losses?

          There’s a reason why both sides of politics won’t let the car industry die.

        • “What about the jobs lost in manufacturing, tourism and other trade exposed sectors, and the negative multiplier effect of these job losses?”

          Well, exactly. If we only had the losses side of the ledger, we’d be in deep doodoo.

          But I suppose you’re going to tell us next that if it weren’t for the mining boom, these industries would be all sweetness and light. Sorry, but it won’t wash. Those other industries are in trouble in plenty of other places that haven’t had a mining boom.

          • Not all sweetness and light but a lot healthier. Again, I point to New Zealand. No disaster there.

            Neither option is wonderful, but an Australia without the mining boom would have been a more diverse economy, and I would argue, a fairer and more resilient economy.

            But we’ll never know will we. We’re stuck with the reality where miners get fabulously wealthy and the trade-exposed sectors get absolutely smashed.

          • Lorax, your letting your tendency for hyperbowl to creep in…it’s called ‘structural adjustment’ and thus far is being effected with comparatively little fallout in terms of unemployment.

          • You call it structural adjustment, I call it hollowing out.

            I’d see it as a necessary evil if I believed the mining boom had legs, but I don’t. I see a country in the process of destroying the very industries it will rely on when the mining boom ends.

            Unlike the structural adjustments of the 1980s, this adjustment is inflicting pain for absolutely no reason.

          • drsmithyMEMBER

            Lorax, your letting your tendency for hyperbowl […]

            It’s hyperbole, pronounced high-per-bowl-ee.

  4. “That’s because it is the avoidance of a counter-factual. If there had been no mining boom, then it is likely that unemployment would be closer to 10% and asset prices likely much lower. It has been the attractiveness of Australian mining assets and associated capital flows, as well as the high income growths associated with record terms of trade, that have together supported the adjustment to lower levels of borrowing in the household sector without tipping into outright deleveraging.”

    But the counterfactual would have had impacts and reactions and if necessary Australia would go Japanese rather than have a very deep recession with massive unemployment. Stopping at the first level of analysis of a counterfactual is very superficial. Don’t forget Australia as a sovereign issuer of a fiat currency has options not available to Euro users like the PIIGS.

  5. Explorer
    Whichever way you go at it our living standard would be much lower. As you say as an issuer of currency we could have devalued which also, in our case, would have meant higher inflation. The degree of over-consumption and under-production we have involved ourselves in would not be possible without the support of the capital account.
    Maybe 50 years ago, as I’ve continuously pointed out, we could have gone Japan. Latterly we couldn’t go Japan. Japan has continuously run a CAS. We chose over-consumption. Thus we have run 50 years of CAD’s. There has been no political will, in 50 years, to ever take the necessary austerity that would have been involved in a more productive Australia consuming a lot less.

  6. The mining boom has certainly saved us, however, because this has been the most massive, everyone thinks it will continue forever, whereas history shows that supply of commodities will inevitably overshoot demand, prices fall (as does the AUD), labour for mine expansions is no longer required, mines automate and then where does that surplus labour go ? Back to the East coast to start up the tourism industry and driving Perth taxis ?