Neoclassical economists are so dimwitted that they mix up their models with reality. To help combat them, and to help them understand, it is therefore important to come up with a simple model, to explain the pity and the tragedy of our wild resources sell-off. Not that we need delude ourselves that the neoclassical nitwits supporting this disaster are patriots. They do not think of their field of study as being about wealth creation. Therefore there is no conflict between their view of their subject and their basic quisling nature.
For the moment, while our banking, currency, and resource allocation markets are so dysfunctional, and in such disarray, we ought to look askance at many forms of foreign lending to us and foreign investment in our country. We ought to spell out what types of foreign “capital importation” particularly, give us a very good gain and not much in the way of a loss.
Lets take two examples.
Example 1: Two years ago our banks, curse their black hearts, borrowed from foreign banks, about 9% of GDP more than they lent to foreign banks. How are we better off now for this behavior? We are not. The net effect was simply to overvalue our currency such that we lost more of our manufacturing.
Example 2: Imagine that a foreign company came in, bought some land in a new industrial park, set up a factory, and started investing in machinery, employing people, and selling a lot of gear made in that factory, here and overseas. We would have everything to gain from this second example and nothing to lose.
The Australian economists are so dimwitted as to conflate the first example with the second. But how often do we see examples of the second type of investment these days? While the policy settings advocated by Australian economists are in place we aren’t about to see many examples of this better type of “capital importation.” In fact the less good type of “capital importation” is going to crowd out the better type, until the nation is impoverished. So for the moment these bank-to-bank loans ought to be ruled out.
But there is another type of foreign investment, that under current conditions is buggering our future. This is for reasons that are not just about banking and fiat currency dysfunction. I am talking about our natural resources industry, and the nutty way our mineral and energy resources are allocated in our society. When it comes to resources we are “selling off the farm” and anyone who doesn’t acknowledge this (and think its a terrible thing) is an idiot or a liar.
For resources allocation we want to consider six permutations. The six will consist of three resource allocation systems, and two money and banking scenarios. The two money and banking scenarios are 100% backing/Growth deflation or alternatively fractional reserve fiat with consistent inflation.
The three resource allocation systems are homesteading-only. Homesteading and royalties. And the third is of course our unbelievably poxy system which incorporates …… Auctions …. Auctions of leases …… Leases being set up for an unbelievably large area and resource in many cases …… royalties added to that …. and company taxes added as well.
We will see that under this last arrangement:
1. Our guys overborrow
2. Resource companies start acting like real estate rent-seekers.
3. The advantage lies with the deeper pocket outfits. Which is why Rio Tinto and BHP could be, and probably are, run by morons and the profits would still come out their ears during any resource boom.
4. The deepest pockets are the Chinese communists, so we may as well be paying them the Danegeld already and save them the trouble of coming here and digging holes in the ground.
5. Our companies will see their interest in essentially LAUNDERING this countries natural resources, over to the communists. Thats what the model will predict. That is what is happening. Its a rent-seekers heaven, and a bankster-paradise, at the expense of the Australian public, seen from a multi-generational perspective.
This all comes out from our policy mix. Yet neoclassical economists are so dimwitted that they treat the situation as if it was always free-enterprise, with the same outcomes, totally regardless of our policy mix.