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Australia’s fuel crisis exposes a deeper economic failure: decades of prioritising cheap consumer prices over industrial resilience have left the nation strategically dependent and dangerously exposed to global shocks.

The decision by the Albanese Government to temporarily increase liquid fuel stocks but do almost nothing about Australia’s glaring long-term fuel insecurity – laid bare by the Iran crisis – has once again exposed the shortcomings of Canberra’s economic ideologies, which have left the nation dangerously exposed to external forces.

It need not be so. Australia exports several times more energy than it consumes and far more than the United States, which this year became the world’s biggest oil exporter and has lower energy prices. Why can some of that not be directed domestically to lower prices?

It is not just the failure to appreciate the obvious need to protect the nation’s security and resilience. It is yet more evidence of the pernicious effects of the economic theories, or rather ideologies, that are followed by Canberra economists, bureaucrats and politicians.

Cart Before Horseism

These ideas might be best described as “cart-before-horseism”. They put finance first and the reality of industrial output second, which inevitably leads to social and economic deterioration – Australia’s divisive property bubble being Exhibit A.

Had Australia’s political class been paying attention, they might have heard a superior approach being outlined in a speech by US Secretary of the Treasury Scott Bessent. He said, “America has been asleep”, despite being warned about the damage deep economic globalisation, off­shoring and so-called “free trade” (as opposed to fair trade) would do to the country’s industry base.

“Our political class preferred the comfort of old formulas. Cheaper was always better. Offshoring was inevitable. Industrial policy was unfashionable. And strategic dependence was acceptable so long as the cost remained invisible.

“Beneath every one of those mistakes lay a more basic failure in our philosophy.

“In reducing economics to consumption, we forgot production. We measured abundance at the checkout counter rather than the factory gate. We talked about GDP, but not enough about its composition. And we prized low-cost inputs without first asking whether a nation can remain sovereign when it loses command over the things that matter most.”

That exactly describes the failures of Canberra. Little support has been offered to Australian industry, a policy justified by saying it led to lower consumer prices.

And even when, for reasons of risk management and self-reliance, it was obvious that Australia should revive its diminished oil refining capacity – down from eight to two oil refineries – it was rejected on the grounds that importing over $50 billion in liquid fuels annually is preferable because this would be marginally cheaper at the pump.

Energy Minister Chris Bowen used the red herring of renewables, and muttered that the cost would run into the “billions”. Australia’s supine financial media nodded in approval.

It was a failure – to use the economic jargon – to consider, let alone attempt to price, exogenous factors: influences from outside the system. That is what Bessent means when he says the cost of strategic dependence “remains invisible”.

By concentrating only on the price to the consumer, there is an assumption that the system will remain stable and only endogenous (internal) factors ever matter. The events of this year have shown how wrong that assumption can be.

It might also be asked: “If the investment in greater refining capacity costs billions, over what period would it be amortised, what would be the return and how much of the initial investment would be repatriated as corporate tax?”

Wealthy Nations

At issue is what is not taught in economics classes. There is another body of economic thought, now ignored, that puts the production horse before the financial cart. But this is never mentioned or understood.

James Fallows, writing in The Atlantic, notes that the ideas of the 19th-century economist Friedrich List are now invisible in the West. Yet they described far better than Adam Smith, “the father of laissez-faire economics”, how to make nations wealthy.

“In the long run, List argued, a society’s wellbeing and its overall wealth are determined not by what the society can buy but by what it can make. This is the corollary of the familiar argument… give a man a fish, and you feed him for a day. Teach him how to fish, and you feed him for his life.”

The historian of finance Michael Hudson makes the same point. He details how, in Britain and the US after World War I, there was a rejection of “classical political economy” in favour of “unproductive parts of the economy” that are engaged in the extraction of economic rent.

“Unlike industrial and agricultural capital which create new wealth and employ labour – these rentier sectors merely extract wealth, transferring income from the productive host (workers and businesses) to financial elites.”

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Republished with thanks to News Weekly. Image courtesy of Adobe.