Australia has a bigger share of the seaborne coal market than Saudi Arabia has of the world oil market. And Australia has a bigger share of the seaborne iron ore market than all of the OPEC counties combined have of the world oil market. Everyone knows that if OPEC doubled their oil supply the world oil price would fall. Yet Australians are being told that our decision to double our iron ore exports between 2007 and 2014 had no impact on the price of iron ore.
Someone is talking crap.
While it's hard for mere mortals to turn water into wine, it's easy to turn wine into water. Just take a glass of wine, add a very large quantity of water and, hey presto, you've got water. But if you add water, one drip at a time, to a glass of wine, it's virtually impossible to decide when it stopped becoming wine and started becoming water.
So what's watery wine got to do with the price of iron ore? Lots.
Between 2005 and 2014 Australia built or expanded almost 400 mines. Not surprisingly, doing so put enormous pressure on the cost of the labour, capital and raw materials need to build them. Even though the mines were often in remote areas, their construction drove up the cost of building hospitals in Canberra and factories in Melbourne.
In 2013 the mining industry, which employs only 2 per cent of Australians, was responsible for 60 per cent of all capital expenditure in Australia. Think about that. Nearly two thirds of the things being built were for an industry that employs only one fiftieth of the workforce. Tony Abbott believes that mining will define the economy of our future, but no economist believes it will ever be a major employer.
As the mining companies bid against each other for skilled workers and scarce materials as they rushed to double our mining output the Reserve Bank of Australia steadily lifted interest rates to 'make room' for the mining industry's enormous expansion. What 'make room' really means, however, is that the RBA was trying to discourage the non-mining sector from investing and employing to prevent wages and inflation from rising too fast. The demise of manufacturing and tourism is proof of what a good job of they did.
It gets worse. The RBA's high interest rates made Australia an attractive place for foreigners to invest spare cash. And as foreign money flooded into Australia chasing high returns it pushed our exchange rate up which, you guessed it, made it even harder for the non-mining industries to compete internationally. Tourist arrivals in North Queensland fell by 370,000 between 2009 and 2011. Foreign students decided it was cheaper to get a degree in Britain than in Sydney. And of course the car industry announced it just couldn't keep going when the exchange rate was 30 per cent above its long term average.
While the Abbott government was adamant it wouldn't subsidise the car industry it continues to provide billions of dollars' worth of support to the miners. In explaining the $5 billion northern development bank announced in the budget Joe hockey was adamant that funds would only go to mining projects that weren't otherwise commercially viable. Good thinking Joe.
So what's all this got to do with watery wine, I hear you ask again. And again, my answer is lots.
While no one outside the Minerals Council of Australia doubts that the "mining boom" caused inflation, high interest rates, high exchange rates and harmed other industries, no one can really point to 'which mine' caused the problem. Like the drops of water that are gradually added to the glass of wine, the proponents of each of the hundreds of new mines argue that it wasn't their mine that caused the problems for the rest of the economy.
Like Julius Caesar's assassins, it seems that if enough people cause a harm, all can claim their innocence.
Many of the hundreds of new mines that were built during the boom were subject to an economic impact assessment. Each of them claimed they would boost the economy. Each of them claimed they would create jobs, boost exports and contribute tax revenue to the budget.
None of the hundreds of new mines, or the hundreds of economic impact statements, said that their project would push the exchange rate up. None of the new mines said that their project would push the price of coal or iron ore down. And none of the new mines said their project would be the major recipients of the billions of dollars worth of taxpayer funded infrastructure subsidies. While the camel's back is clearly broken, each straw is claiming its innocence.
Between 2014 and 2015 the volume of iron ore exports rose by 15 per cent but the value of iron ore exports fell by 24 per cent. While every individual mine argued that their increased output would lead to an increase in the value of our exports, in reality we are now selling more iron ore in order to get less money.
Bizarrely, many politicians and commentators have argued that lowering the price of our biggest export is a good thing, and proof that the "free market" is working well. While it is true that competition policy is usually designed to protect consumers, the idea that Australian policy makers should make rules to protect Chinese steel consumers is rather new twist on the definition of the "national interest".
Tony Abbott's latest back flip on his support for Senator Nick Xenophon's proposed parliamentary inquiry into the iron ore market highlights how debased our economic and political debate has become. Apparently the global mining industry are such a flighty bunch that if we were to simply ask them to explain why they doubled their iron ore capacity between 2007 and 2014 they might never invest here again. Is the Prime Minister seriously suggestions that while shareholders can ask such questions parliamentarians cannot?
And while our Prime Minister was busy genuflecting before the apparently omnipotent, yet flighty, mining industry, the BHP CEO thought he would give us a lecture on what a waste of taxpayers dollars asking him questions would be. This from the guy whose company recently admitted to a Senate inquiry that they funnel their profits through Singapore to ensure we have as little taxpayer money to "waste" as possible.
Australia only gets to export its commodities once. Unlike coffee, cars or computers, we don't get to grow or make more iron ore in our lifetimes. While the OPEC countries decided in the 1970s to ignore the advice of foreign oil companies, restrict their supply, and keep the price of their oil high Australian policy makers seem convinced that doubling our supply and driving the price down is the way to go. One of us is completely wrong.
Many apologists for BHP and Rio Tinto's strategy focus on the fact that Brazil is expanding their production of iron ore as well. While it's true that Brazil has around 30 per cent of the world market (compared to our 50 per cent) it's also true that they would benefit from any agreement to restrict supply and boost price as well. Has the Prime Minister sounded them out about such a deal? Has the trade minister? Wouldn't it be good to have a Senate inquiry and ask them either what the Brazilians said or why they haven't asked?
Richard Denniss is an economist and executive director of The Australia Institute.