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Edwards breaks down booming economic misconceptions

Editorial
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The Reserve Bank’s John Edwards has presented an optimistic interpretation of Australia’s economic progress over the past ten years in his latest work ‘Beyond the Boom’.

Edwards has taken it on himself, in this most recent Lowy Institute Paper, to dispel some of the more common economic beliefs about the Australian mining boom.

Chiefly, he argues that the economic prosperity of the boom was not wasted, whether by the people who benefited financially from their direct employment in the industry, or by the Labor Government who took over from the Coalition in 2007, one year shy of the Global Economic Crisis.

One of the most arresting features of Edwards’ treatise on our modern economic history is the clarity with which he guides the reader’s understanding of the subject matter.

Even someone with little financial or political background will be able to understand what Edwards means when he describes various measures of economic performance against the GDP, doing so in a way that is considerate enough in explanation to cater for the interested layperson.

Edwards argues that international reverence for Australia’s prosperity over the last ten years has not been based on misleading information, and that the sceptics along with their warnings about the dire straits faced by Australia, are wrong.

The most important notion Edwards has to offer is quite bold; that the mining boom is by no means over, and even that it may have barely begun.

The crucial point he makes is that the face of the mining and greater economic boom is one that is destined to change.

So far our understanding of the boom has been based on increased investment in mining and processing expansion, on high prices for iron ore and coal, and on high demand for our mineral exports from China.

Edwards seeks to mitigate our impressions of the impact of the boom, in the context that it had far less impact than we have been led to believe by interpretations of mining’s contribution to the GDP.

So too does Edwards attempt to allay our fears about the apparent downturn, explaining that the post-2008 economic world is very different to the one we knew before, and that a large part of the changes we believe have happened to the boom are based on it spanning both sides of the GFC.

The upshot of Edwards’ arguments is that the boom has not ended, but simply shifted gears to a new paradigm which, in the coming years, will develop several new features.

One will be emphasis on our trade relationship with Japan as an export destination, taking up the slackening demand from China

One only has to look to Rio Tinto’s new Australia-Japan Studies Chair at the University of Tokyo to see new corporate groundwork for that relationship going into place.

Interestingly, Edwards also points to the increasing requirements for technology-based skills.

With the advent of automation, the mining industry will become increasingly dependent on comparatively high-tech maintenance and operations services, and lessen the demand for manual labour performed by tradespeople.

He stresses the importance of education in the coming years, with a cautious eye on Coalition government policies relating to the proposed Gonski reforms and budgetary changes to university fee capping, changes that could stymie the flow of intellectual capital in this country.

He also tackles the broader implications of alternatives to the current government's measures for achieving a balanced budget, suggesting that a return to surplus will be brought by taxation measures rather than budgetary cuts.

However, Edwards is evenhandedly apolitical in his assessments of the economic policies of Coalition and Labor governments over the past 15 years, and passes no judgement on the politics behind the policies.

The release date of 'Beyond the Boom' coincided with the post-budget media fallout last May, and so is a topical, relevant academic assessment of what brought us to this point, and where we need to go.

In short, this book is a must-read for anyone wishing to broaden their knowledge of modern economic history in Australia, and an enjoyable way to learn more about measures of the mechanisms that drive our country’s growth.

Image: AFR

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