Wandering through the library the other day I chanced upon Too Much Luck: The Mining Boom and Australia’s Future by Paul Cleary. I had thought to write a review but found the book so underwhelming I stopped reading at page 96.
Stephen Kirchner has struggled through the whole thing and his review is here. I particularly enjoyed Stephen’s take down of the sovereign wealth fund argument.
Cleary’s support for a sovereign wealth fund reflects his view that Australia’s resources are finite and that future generations will be left worse-off because the current generation will have exhausted these resources and spent the proceeds. The idea that resources are finite in any economically meaningful sense is fallacious because of productivity growth and long-run substitutability on both the demand and supply sides of commodity markets. The Australian economy is well diversified and not dependent on a single resource, unlike the economies of Norway or Timor-Leste that Cleary views as models for Australia. The so-called ‘resource curse’ is not a function of resources, but of weak institutional frameworks in some resource-rich developing countries. Australia, by contrast, scores very highly on comparative measures of institutional quality.
Australia does not need a sovereign wealth fund – we have rich institutions and we don’t rely on a single commodity.
Update: While on the topic of popular ideas that are just wrong, see Stephen King’s post on generic brands and cheap milk. If our friends in Canberra only read one blog post this month, let it be this one.
A bit of simple logic tells you that the last thing the major supermarkets want to do is put the manufacturers out of business. This would leave the supermarkets with fewer manufacturers to compete to produce home brand products and the other items that are stocked by those supermarkets. The supermarkets would face higher input costs and, while they will be able to pass some of these on to consumers, the higher costs will also mean lower profits for the supermarkets.
Even if the supermarkets fully pass on the input price rises, if demand slopes down then their profits will fall. So no ‘but if they pass it on then the supermarkets wont care’ claims unless you really believe that supermarkets face vertical long run demand for all their products.