Sunday, 17 July 2011

Sunday Mythbusting

(Whilst watching the Wallaby 2rd XV get their arses handed to them by a Pacific nation with the population of Geelong and a GDP per person 1/10th of ours -the Samoans are professionals from England, Europe, Japan and Super15. A lesson learned by the arrogant Australian Rugby Union? )

The Australian media and politicians have a love affair with China importing our dirt and our Coal mining exports - where any interruption due floods/carbon tax/moon phases/African famine/etc is a doomsday scenario.

Economies are generally evaluated by Gross Domestic Product (GDP).

\mathrm{GDP} =
C + I + G + \left ( \mathrm{eX} - i \right )
(GDP = Private Consumption+Gross Investment+Government Spending+(Exports-Imports))

Sidenote: IMO any derived measure that includes government spending as a positive contributor is rooted in feel good spin and propaganda. What if the government is borrowing to spend ala Japan, European PIIGS and USA?

Without getting into Gross versus PPP, Australian GDP is around $1,200,000,000,000. Or $1.2 Trillion.

Thats a lot of money.

Lets Mythbust.

Myth: Our exports to China are the backbone of our economic successes.
  • Total Australian exports to China in 2010 was $58B equivalent to 4.8% of GDP
  • Iron Ore exports to China was $34.6B of that number above or 2.9% of GDP
  • Coal exports to China was No2 with $5.2B or 0.43% of GDP (Less than half of 1%!!!)

Myth: Our Coal exports are key driver of our economic success (when not interrupted by floods/carbon tax/moon phases/African famine/etc)
Fact: Australian Total Coal Exports total $42.9B or equivalent to 3.6% of GDP.

Myth: Mining is a major Australian employment sector.
Fact: Mining Employs a mere 1.8% of the workforce

The whole mining industry contributes less than 8% in total to our GDP.

Australia's economy is based on a credit fuelled Property Ponzi scheme, Retail and Services with the latter two feeding off the former.

The only area of note that I applaud is the rapidly shrinking manufacturing sector which contributes just under 10% to the economy. I applaud its existence and hope it reverses and grows.

Refs to data:
  1. DFAT-China
  2. DFAT-Australia
  3. DFAT - Summary Of Trade
  4. ABS 5206 - National Accounts


  1. great post

    aussies need to appreciate that property >> mining, such that even a slight slowing in property > boom in mining.

    Property ponzi, indeed

  2. When(if) the other sectors go into freefall - the value of inflows from mining and related activities will be fully appreciated.

    Let's face - we don't have much else.

    With affection
    China Fanboy

  3. Re manufacturing - a personal lobbying point of my own - I agree, absolutely hope it survives.

    That it has even survived all the Clever Country crap, the unions contempt, governments disregard and businesses move to globalisation is a wonder.

    The difficult thing is that we have fallen for the services/knowledge economy myth. Of course, it's a myth, particularly for us, in a region of a billion or so individual ardent on educational gain, we're not going to hold it for very long. But globalisation emphasises specialisation - hence most manufacturing processes have gone to the cheapest provider (not us). Yes, I am totally for resources, my heart and soul, but have always believed in a diverse based economy - to blame the demise of industries now due to mining is just too late. Globalisation is the clue!

    China Fanboy

  4. Thanks for the comments. I'm glad you commented many just email me (no abuse yet).

    I'm with you China Fanboy that the 'value' of our mining will be appreciated when TSHTF but when I heard that knob jockey Craig James today talk about our riding on China's demand, it made my post even more important (though my audience is limited). I first visited Karratha in the early 90s when a recession was in full swing and it was booming.

    Burbwatcher, what we can only hope is that the light will come on with the populace, and, the analysis guys like you do is an important part.

    Sure mining is important as is our China trade relationship but neither is the 'cornerstone' of our economy.

    Thanks guys,
    Jesse PS

    Stewart (burbwatcher) thanks for continuing to blog.

  5. Cheers Jesse,

    We need reality checks like this. Good luck with your blog. I hope it gains a following.

    China Fanboy,

    "Globalisation is the clue!"

    Check out this graph.

    What happened at that time to cause all of this fiscal and monetary chaos?

    IMHO two of the major contributing factors were GATT and the WTO. They appear to have had precisely the effects that James Goldsmith feared. In the link below he is discussing this topic with Charlie Rose. You can also hear the counter-arguments (gainsay actually with no substance) from Laura D'Andrea Tyson, Bill Clinton's Economic Advisory Chairperson.

  6. Hey CF,

    That zerohedge graph is a corker. Wow.

    Thats just about the point where things go haywire.

    Who benefited from GATT and WTO. About the top 2% of the population. The pundits would argue that the Banladeshi making my jeans, running shoes and sunglasses on $1 a day are better off but considering I pay $60, $100 and $120 respectively for those items, it smells of exploitation to me.


  7. Jesse,

    That ZH graph was from me replying to CF's comment. I thought you'd appreciate the significance.

    In addition to your observation about "$1 a day" not making these folks better off you have to factor in that most urban migrants in the developing world come from rural areas where they were generally self-sufficient in food.

    James Goldsmith (in 1994) pointed out that bringing industrial agriculture to the developing world through GATT and the WTO would displace over 2 billion rural dwellers.

    I have quite a lot of material in a similar vein that I can send your way. I post comments as 'Anon' on MB. I generally stick to commenting about RE and RE related matters at MB.

    If you want more material drop me a note at MB next time we are both on a thread there or post one here and I will trawl through my archives as time permits.


  8. Aha,

    Cheers mate.

    As someone who once studied late 19th and 20th century Chinese history I find it bemusing that the exploitation that Mao endeavoured to free the Chinese people of, is being revisited with such gusto.

    If you want to write a blog post as a guest feel free.

    Send it to me at with an appropraie Nom de Plume and I'll publish it as a guest post with that Nom de Plume.


  9. As I understand it, scratch the surface and the Chinese are fiercely mercantilist and capitalist. We see it everywhere else in the world where they have transplanted. This was one of the primary drivers for the Communist revolution in China in the first place -- the notion of the 'nation devouring itself'. A nation devouring itself is manifested by worker exploitation, growing inequality, and the rise of get rich quick schemes and Ponzi schemes. A brother in law living in Hong Kong remarked that the locals would go crazy for every announced 'investment opportunity' like a new housing tower development and pour money into it from everywhere, and then suicide when they went bust. Rinse and repeat.