Ross Gittins is a survivor. Today from the venerable grey beard:
Now we’re emerging from the decade-long resources boom it’s easier to view the process with greater insight and make a more sober assessment of its costs and benefits.
What happened was a huge jump in the world prices of coal and iron ore as China’s period of rapid economic development of heavy industry and infrastructure caused global demand to outstrip global supply.
The surge in China’s demand caught the world’s mining industry unprepared. Like miners in other countries, our largely foreign-owned miners lapped up the huge increase in prices and profits.
…What then kicked off was a multi-billion dollar race – between rival firms in a country, but also with the many firms in other countries, all expanding their capacity as fast as they could.
It takes a long time to build new mines and bring them into production. So the chances of your mine being completed in time to enjoy the super-high prices aren’t great – the more so because it’s essentially a self-defeating process: the more firms join the race and the harder they try to be among the first to complete, the sooner supply catches up with demand and prices start falling.
…But while the miners are busy gearing up, their foreign customers are just as likely to be coming towards the end of their own boom in investment and construction. The inevitable result is that the global mining industry moves from a starting point of under-capacity to an end point of over-capacity.
This is the eternal story of mining. Only in passing is it ever in equilibrium; it’s almost always in either under- or oversupply – probably spending a lot more time over than under, the less profitable of the two conditions.
Ah, it’s the eternal story today perhaps but it wasn’t so in 2011:
Why is it not a two-speed economy? Because about three-quarters of us work in industries that are neither great direct beneficiaries of the resources boom, nor great victims of the high exchange rate it has brought about.
And also because we live in one national economy, not eight isolated economies. There is a high degree of trade between the states and territories. They are subject to the same exchange rate, interest rate and federal budgetary policy.
A fair bit of the cream from the resources boom goes to thefederal government. And all the mining royalties gained by the WA and Queensland governments are shared with the other state and territory governments via the formula by which the proceeds from the goods and services tax are divided between them.
The rise in the dollar is actually one mechanism by which part of the earnings of the miners is redistributed to all other industries and all consumers, in the form of cheaper imports.
If you think you’ve got nothing to show for the resources boom, all you’re showing is your economic ignorance.
And here is what he said as late as this time last year:
Kevin Rudd keeps saying the China resources boom has ended, but Reserve Bank governor Glenn Stevens said recently the boom was merely ”changing gear” and going through a ”phase shift”. So who should we believe?
The econocrat, of course. The politician is exaggerating. It’s true, however, that we have reached a highly significant point in the boom: though it’s far from ending, we’ve reached the point where it’s gone from making a positive contribution to economic growth (real gross domestic product) to making a net negative contribution.
Gittins was the great apologist for the mining boom, the hollowing out that it caused and the good it was doing the overall economy. Yet he concludes today:
In the aftermath of such booms we realise we should have refused to be rushed. Why does no economist ever warn us to be less short-sighted? Their faulty model.
No Ross, it isn’t in the aftermath. MB warned you over and again. History warned you as well. Yet you bought and amplified the economist’s bullshit models exponentially.
Hang your head thrice over for being wrong, for making many others wrong too and then taking no responsibility for any of it.
