Hi, everyone!
Could anyone suggest some Austrian literature concerning "dutch disease" and "resource curse"?
It would be really interesting to see austrian perspective on this problem. I live in Russia and the real debate here between liberals and interventionists is whether we should keep the Stabilization fund which is being filled by petrodollars or whether the government should spend it all in order to develop russian economy.
Smiling Dave: If by inflation we mean an increase in the money supply, say rubles in Russia, then this is clearly impossible.
True. Inflation is caused by Central Bank printing up roubles for each petrodollar received. It is however aimed at slowing currency strengthening. It might look fun to you when ruble-holders are getting richer on strengthening, but in fact the economy becomes internationally incompetitive and people are losing their jobs. Some liberal economists (that are despised in Russia after free-market reforms in 90s) say that Russia doesn't need all that population, it suffices to have as many people as there is in Canada just to service the oil and gas industry. The problem as I see it is that Russia ain't Saudi Arabia whose 90% of export revenue comes from oil, it has big cities with big plants left from Soviet Union that should stay afloat despite their inefficiency so that people have employment.
From another point of view, there is that old argument that Russian producers buy some of its machinery and materials from abroad, and so the cost of inputs will go up for them, and thus the domestic prices in stores would also go up, creating thereby inflation. In Russia people largely agree with this argument - is it robust from Austrian viewpoint?
Smiling Dave: Other countries will buy up rubles in order to be able to pay for all that Russian oil, decreasing the amount of rubles in Russia
Oil is traded internationally in dollars, not in roubles. But the argument of pressure of dollar inflow on the Russian money market still holds.
Smiling Dave: But the rest of the world will become "excessively dependent" on Russian oil, won't it?
Well, Europe is dependent on Russia oil and gas, and that really sucks for her sometimes, as Russia is not the greatest trade partner. But not the rest of the world. There is also for example OPEC countries that produce oil.
Smiling Dave: Do you do all these things on your own now, to maintain your economic sovereignity, or do you prefer to buy all that stuff from others, working only at your job?
I think it is a sophism. I think there is an argument of free capital mobility on the international level that impedes this Smith's principle of specialization.
Smiling Dave: High inflation rate is caused by money printing.
That's in the long run. In Russia part of the inflation is blamed on state natural monopolies that raise tariffs and no one stopping them. But that's clearly a failure of a state.
I give you the answers that an average economist or a journalist would give in Russia. I would be really happy to hear Austrian perspective on this because that's what Austrians are good at: they bring up new innovative ideas and prospects that get stolen and reworked in big massive formulas by mainstream later.
I'd also like to see some commentary on this. It seems like the "resource curse" is just logic-twisting Keynesian carpet-baggery.
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"Dutch disease" can be translated to "the most efficient use of resources available." From what I understand, "Dutch disease" is simply when high prices for natural resources, like oil, drive away labor and other resources from the industrial sector to the natural resource extraction sector.
What is so wrong with this? It simply means that scarce resources like labor and capital goods are being moved from a less profitable sector to a more profitable one. In other words, it is the most efficient use of resources.
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I think Russia's problem is capital flight. Anyone who is earning big money and has any sense is moving the money out of the country now. If the money being earned in the energy sector stayed in the country there would be an increase in demand for other products causing wages in those sectors to rise. Instead of worrying about how the Russian government should spend its ill gotten gains it would be better to concentrate on strengthening property rights.The Yukos affair and subsequent government thefts have caused an underlying sense of unease about doing business in Russia that probably will not abate until Putin is out of the picture.
DBratton:I think Russia's problem is capital flight. Anyone who is earning big money and has any sense is moving the money out of the country now.
DBratton:If the money being earned in the energy sector stayed in the country there would be an increase in demand for other products causing wages in those sectors to rise.
DBratton:Instead of worrying about how the Russian government should spend its ill gotten gains it would be better to concentrate on strengthening property rights. The Yukos affair and subsequent government thefts have caused an underlying sense of unease about doing business in Russia that probably will not abate until Putin is out of the picture.
Marko:You think, or do you have evidence?
No. Just the press. Are you saying capital is not leaving Russia?
Marko:Because Khodorokovsky`s ownership of Yukos was legal and legitimate.
The question misses the point. Foreign investment is wary of Russia because of the way Yukos and others were expropriated. I don't remember Khodorkovsky being accused of committing any wrongdoing in the creation of Yukos. He was charged with tax evasion in what was clearly an attempt to silence a critic of Putin.
Marko:Like Exxon and Shell being granted a monopoly on Sakhalin oil.
They may have obtained title to the oil from certain fields, but that is not any sort of monopoly. Any oil they got had to be sold on the world market.
DBratton:No. Just the press. Are you saying capital is not leaving Russia?
DBratton:The question misses the point. Foreign investment is wary of Russia because of the way Yukos and others were expropriated. I don't remember Khodorkovsky being accused of committing any wrongdoing in the creation of Yukos. He was charged with tax evasion in what was clearly an attempt to silence a critic of Putin.
DBratton:They may have obtained title to the oil from certain fields, but that is not any sort of monopoly. Any oil they got had to be sold on the world market.
No it actually very much is a monopoly, a drilling monopoly because the state obliged itself to keep the competitors away. That is against the homesteading principle. A state can no more sell you all the oil in a megafield than it can sell you all the fish in a sea.
Marko:The only sort of capital that has left because of Putin is the neo-colonial capital that was not doing Russia any good.
OK so you do agree there is capital flight out of Russia then.
Marko:It wasn`t a question. It was a statement to reveal you as a hypocrite. You cry crocodile tears for "property rights", but at the same time conveniantly gloss over the fact there was nothing legitimate about Khodorokovsky`s ownership of Yukos.
You were raising a question about the legitimacy of Yukos' assets. But the question at hand was capital flight. You can raise doubts about Yukos' property titles if you want. But one has to wonder why, if Yukos was built on theft, did not the Russian government charge them with that instead of tax evasion? And why is it only enemies of Putin are guilty of such things? These are the questions any potential investor is going to ponder before investing in Russia.
Marko:Why don`t you admit your problem aren`t "property rights", but rather something entirely different.
The faults I find with Russia are mostly concerned with property rights. There are also the matters of invading neighboring countries and murdering journalists which might cause a potential investor to reconsider investing there, but the lack of property rights is the most important issue.
Marko:No it actually very much is a monopoly, a drilling monopoly because the state obliged itself to keep the competitors away. That is against the homesteading principle. A state can no more sell you all the oil in a megafield than it can sell you all the fish in a sea.
Putting aside the question of whether a state can legitimately own or sell anything, of course one can sell an oilfield. It's just a property right like any other. This was not a drilling monopoly since anyone else who owns land could drill on his own land. It wasn't an oil monopoly since buyers of the Sakhalin oil could also buy oil from elsewhere. And homesteading applies to unowned land whereas the Sakhalin oilfield was owned by the state before the drilling rights were sold to western oil companies.
DBratton, you can spinn it all you want. You know and I know what is at the heart of this matter. The Western big buisiness was never interested in property rights and the free market. They were interested in cronyism and plundering of the Russian resources that rightfully belong to the Russian taxpayer. They fled Russia after Putin put an end to foreign-oligarch cronyism and instead instituted a milder less rampant version of domestic buerocratic-oligarch cronyism.Yukos was seized because Khodorokovsky had allied himself with foreign cronies. Yukos was to be merged with Texas big oil interests. This is when the foreign cronyies started to leave Russia seeing Putin had closed the window for them. That is not capital flight. It is the flight of foreign cronies not interested in growth under conditions of competitions, but who seek to receive state protection and not even through offical state chanells, but through shady backroom deals and bribery.Foreign capital interested in market development knows their assets are not at risk as long as they stay out of politics and never fled the country.
DBratton:Putting aside the question of whether a state can legitimately own or sell anything, of course one can sell an oilfield. It's just a property right like any other. This was not a drilling monopoly since anyone else who owns land could drill on his own land. It wasn't an oil monopoly since buyers of the Sakhalin oil could also buy oil from elsewhere. And homesteading applies to unowned land whereas the Sakhalin oilfield was owned by the state before the drilling rights were sold to western oil companies.
DBratton:The faults I find with Russia are mostly concerned with property rights. There are also the matters of invading neighboring countries and murdering journalists which might cause a potential investor to reconsider investing there, but the lack of property rights is the most important issue.
Why didn`t you say you are a neo-con right away?
Marko:You know and I know what is at the heart of this matter.
Empire envy?
Marko:...resources that rightfully belong to the Russian taxpayer.
Who is not a libertarian? Nothing belongs to the people at large. Especially not oil and mineral rights that have already been sold to a private party.
Marko:Yukos was seized because Khodorokovsky had allied himself with foreign cronies.
How does that justify siezing Yukos? Businesses form relationships with foreign businesses all the time.Yukos was seized because Khodorokovsky opposed Putin.
Marko:Yukos was to be merged with Texas big oil interests.
Khodorokovsky was proposing to ship oil to an American refinery. And he planned to have his stock listed on the NY stock exchange. No merger was contemplated.
Marko:This is when the foreign cronyies started to leave Russia seeing Putin had closed the window for them. That is not capital flight. It is the flight of foreign cronies not interested in growth under conditions of competitions, but who seek to receive state protection and not even through offical state chanells, but through shady backroom deals and bribery.
They started to leave when the Putin administration began to steal their assets.
Marko:Foreign capital interested in market development knows their assets are not at risk as long as they stay out of politics and never fled the country.
Well that's reassuring.
DBratton:OK so you do agree there is capital flight out of Russia then.
I remember Putin threatening to intervene in the stock market this year because valuations had risen too much. So I suppose he did cause some capital flight.
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DBratton:Who is not a libertarian? Nothing belongs to the people at large. Especially not oil and mineral rights that have already been sold to a private party.
DBratton:Khodorokovsky was proposing to ship oil to an American refinery. And he planned to have his stock listed on the NY stock exchange. No merger was contemplated.
DBratton:They started to leave when the Putin administration began to steal their assets.
I don't think anyone has answered my question so far.
I want to see some Austrian literature concerning the problem of "resource curse" and "dutch disease" because I couldn't find any on the web.
It's interesting because this problem clearly seems to be a perfect example of market failure where the government should step in and create some stabilization fund or distribute high oil incomes across the economy.
The problems of the "dutch disease" are well-known. If the country is resource rich and the export resource prices are high, then 1) the inflow of petrodollars cause inflation 2) government becomes independent from the taxpayers and authoritarian because now it's rich; 3) economy becomes resource-oriented, deindustrialization is happening because of the rising value of national currency; 4) the increase of imports leads to excessive dependence of the country, disappearance of economic sovereignty, very sick reaction to any slight negative shock;
Maybe the property rights is the real problem in Russia. But still the phenomen of "dutch disease" is known to be in other oil-rich countries, also Norway has cured this problem in 70-s by creating the Stabilization fund.
Dzmitry Kniahin:If the country is resource rich and the export resource prices are high, then 1) the inflow of petrodollars cause inflation
The inflow of "petrodollars" might cause some inflation, but that would also mean that the extra money could be spent on foreign goods, meaning an increased purchasing power for the people of Russia.
2) government becomes independent from the taxpayers and authoritarian because now it's rich
That's a problem with nationalization of natural resources, not with the free market. The two are complete opposites.
3) economy becomes resource-oriented, deindustrialization is happening because of the rising value of national currency
Two responses to this one:
1. What is so bad about a resource oriented economy? If it is more profitable to extract resources than to manufacture goods, then the most efficient use of resources is to further extract more resources.
2. This point contradicts your first point. In your first point you said that inflation results. In your second you say that the national currency rises in value (deflation). Which is it? Why is either bad if it comes through the market place?
4) the increase of imports leads to excessive dependence of the country, disappearance of economic sovereignty, very sick reaction to any slight negative shock
Increase in imports? If your country is EXPORTING huge amount of natural resources, how can you say there is a problem with importation? Again, this is another contradiction.
In any case, free trade is key to economic growth. If Russia has key oil and natural gas reserves but China has a strong manufacturing sector, isn't it beneficial for each country to specialize in its respective strengths? If Russia only produces oil and natural gas, the price for those would be cheap; and if China manufactures goods, the prices for those goods would be cheap. The Russians benefit from cheaper manufactured goods while the Chinese benefit from cheaper oil and natural gas.
But consider for a moment what would happen if Russia decided to keep its manufacturing sector operating. This would divert labor, capital goods, and other resources from the natural resource extraction sector to the industrial sector. This would make BOTH natural resources AND manufactured goods more expensive, hurting the average Russian!