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Archive for April, 2014

A rose by any other name …

April 30th, 2014 106 comments

Most of the discussion of the Abbott government’s recently announced revenue raising measure has focused on semantics: is there a meaningful difference between a levy and a tax, has the government broken its promises and so on. All of this is boringly predictable. The last government to treat its election promises as binding obligations was Whitlam’s. Perhaps Rudd would have kept his promises if it weren’t for the GFC (I don’t think he broke many before that), but with that exception we’ve got used to the various theatrical devices associated with ditching promises: Black Holes, debt crises, Commissions of Audit and so on. The reaction of Bill Shorten and the Labor Opposition is equally predictable. The job of the Opposition is to oppose, and in particular to excoriate the government for breaking any promise, no matter how ill advised.

On the other hand, I’m disappointed that the Greens have taken the same line. Their job, in my view, is to use their leverage to promote sustainable social democratic policies, and to oppose regressive market liberal and environmentally destructive policies, regardless of source. So, for example, they were sensible to wave through Hockey’s abolition of the debt ceiling, even though it involved breaking a silly promise. They can’t stop the government breaking lots of promises on the expenditure side, so they should try and achieve balance by supporting sensible proposals to raise additional revenue.

The case in favor of an increase in taxes for higher income earners[1] is obvious. The big cuts promised by Howard in the leadup to the 2007 election, and largely matched by Rudd were unaffordable at the time and became even more so when the GFC led to slower growth in real and nominal incomes and therefore to less of the bracket creep that normally pays for such cuts. Along with Costello’s massive handouts to “self-funded” (but publicly subsidised) retirees the previous year, these cuts are the main reason it has been so hard to achieve a return to surplus after the GFC stimulus was wound back under the Labor government.

So, it makes sense to increase the rate, and to keep it high until bracket creep finally works its magic and restores the revenue raising capacity of the income tax to something like its pre-2007 level. I haven’t done the numbers but it seems as if four more years ought to do it. So, a temporary increase that can be called a levy makes sense. And, if everything else is held constant, an increase in revenue translates one-for-one into a reduction in debt.

Summing up, if Abbott wants to increase income tax on high earners, I’ll support him. And, if he wants to call this policy a “debt reduction levy”, I don’t have a problem with that.

fn1. Doubtless, we’ll get objections that taxpayers on $80 000 a year aren’t really high income earners, although the median wage for full time workers is around $60 000. But the extra tax payable by someone on $80 000 is precisely zero: the levy is only payable on income in excess of that level. Even at $180k, the levy is only $2000/year or about $40/week – a small fraction of the discretionary spending of most people earning this kind of income.

Categories: Economic policy Tags:

Leadership

April 29th, 2014 26 comments

I’ve never been a fan of the idea of leadership[1][2]. This hagiographic portrait of Campbell Newman by Griffith University political scientist Paul Williams illustrates the problem. He describes Newman’s approach to policy execution as following the army’s ” “Task, Group, Individual” paradigm” and is fulsome (in all senses of the word) in his praise, concluding

Whether you support or oppose Newman’s policy choices, the evidence is the Premier is not engaging in random reactionary politics but, rather, adhering to a considered leadership plan. In the end, that’s all anyone can ask.

Well, no.

* We would reasonably ask that Newman should adhere to his election commitments which promised public servants their jobs would be safe.
* We could reasonably ask that basic rights like freedom of association should be preserved
* We could reasonably ask that our government should not spend millions of dollars of our money pushing claims about asset sales that no economist (not even strong advocates of privatisation) accepts.

If “leadership” meant persuading the public of the merits of particular policies, there would be a lot to be said for it. But, invariably, “leadership” means ramming through policies that voters don’t want, and hoping they will forget by the next election. In these circumstances, I’d prefer random reaction to a considered plan to do the opposite of what you promised.

fn1. One of its sadder outings was Labor’s doomed 1996 election campaign, which for some reason added a full stop to the word for its slogan. The sight of a “Leadership.” banner sagging to the floor on election night said it all.
fn2. I’ve long had the idea of writing a book on “followership”, on the general model of The Good Soldier Schweik. The key idea would be that a good follower makes sure that the leader is between them and whoever is shooting at them.

Categories: Oz Politics Tags:

Stratification in tertiary education

April 28th, 2014 39 comments

When people call for a university system more like that of the US, they commonly have in mind the idea that Australia should have institutions like Harvard and Princeton, and a belief that more competition in tertiary education would bring this about. There are a couple of obvious problems with this.

First, high-status universities like this provide undergraduate education only a tiny proportion of young Americans. Around 1 per cent of the college age cohort attends high-status private institutions like the Ivy League unis, Chicago and Stanford, and this proportion has been declining steadily over time. Most of the Ivies enrol no more undergrads than they did in the 1950s. Adjusting for population, an Australian Ivy League would consist of a single institution enrolling perhaps a thousand students a year.

Second, the US experience shows that the idea of competition between universities is a nonsense. Harvard, Princeton and the rest were the leading universities in North America before the US even existed, and they are still the leaders today. The newest of the really high status universities is probably Stanford, founded in 1885. Competition between universities is pretty much the same as the competition between the Harlem Globetrotters and the Washington General.s

The reality of US education is a highly stratified system. Below the high-status private universities are the “flagship” state universities, which educate around 10 per cent of the college age cohort (again, a proportion that is declining, or at best stable).

After that, there are lower-tier state universities, two-year community colleges and, worst of all, for-profit degree mills like the University of Phoenix which exist largely to lure low-income students into debt and extract Federal grant money, with only a minority ever completing their courses.

Australia has always had a stratified system, but to a much lesser extent. (More on the history when I get a chance). The big question facing policy is whether to increase stratification, by widening the gap between the “Group of 8″ and the rest, or to treat tertiary education like other public services, available to all who can benefit from it, at the best quality we can provide for everyone.

University education systems mirror and recreate the society to which they belong. A highly stratified system, like that in the US and UK, reflects and reinforces a class-bound society in which the best thing you can do in life is to choose the right parents. We should be aiming at less stratification, not more.

Update Just by chance, one of the lead articles in the NY Times advises that, thanks to increased international intakes, the number of places for domestic undergraduates at the Ivies has fallen sharply

Joining a sinking ship

April 26th, 2014 39 comments

According to news reports, Education Minister Christopher Pyne is going to reprise his successful Gonski exercise of last year with an attempt to remodel the Australian university system along US lines, as recommended by former Howard education minister David Kemp and his adviser Andrew Norton. In particular, he hopes to expand the role of the private sector.

Apparently none of these people have read the stream of reports coming out of the US making the points that

* Whereas the US was once the world leader in the proportion of young people getting university education it now trails much of the OECD (including, if I got the numbers right, Australia)
* US university education, even in the state system, is ruinously unaffordable
* The top tiers of the US system are increasingly closed to students from all but the top 5 per cent (or less) of the income distribution
* The US has the most inequality and some of the lowest social mobility in the developed world
* For-profit education in the US is a scam, based on exactly the mechanism promoted by Kemp and Norton, namely access to public funding/

The US tertiary education system is now like the US health system: world-beating for the 1 per cent, high-quality but incredibly expensive for the top 20, unaffordable or non-existent for the middle class and the poor. And this is the model the LNP wants to emulate

Categories: Economic policy, Oz Politics Tags:

Advance review of the Audit Commission

April 26th, 2014 5 comments

Only a few weeks until Budget Day and Joe Hockey is sitting on, or rather, selectively leaking the report of the so-called Commission of Audit. As promised, I’ve written a review in advance, which I presented to a Senate Committee a couple of weeks ago. It will be interesting to see what, if anything, needs changing when the actual report is released.

Categories: Economic policy Tags:

Anzac Day, 99 years on

April 25th, 2014 Comments off

Another Anzac Day. A solemn occasion to remember the heroism and sacrifice of those who died and to recall with horror the waste of young lives in a war of rival empires. Australians had no quarrel with Turks, nor they with us. And, in the Middle East, as elsewhere, the war achieved nothing and resolved nothing, but rather generated and inflamed conflicts that continue to this day.

Read more…

Categories: Life in General Tags:

Another one (or more) bites the dust …

April 20th, 2014 184 comments

Coming back yet again to nuclear power, I’ve been arguing for a while that nuclear power can only work (if at all) on the basis of a single standardised design, and that the only plausible candidate for this is the Westinghouse AP1000. One response from nuclear enthusiasts has been to point to possible future advances beyond the Gen III+ approach embodied by the AP1000 (and less promising competitors like EPR). The two most popular have been Small Modular Reactors and Generation IV (fast) reactors. Recent news suggests that both of these options are now dead.

The news on the Small Modular Reactor is that Babcock and Wilcox, the first firm to be selected by the US Department of Energy to develop a prototype, has effectively mothballed the project, sacking the CEO of its SMR subsidiary and drastically scaling back staff. Westinghouse already abandoned its efforts. There is still one firm left pursuing the idea, and trying (so far unsuccessfully) to attract investors, but there’s no reason to expect success any time soon.

As regards Generation IV, the technology road map issued by the Gen IV International Forum in 2002 has just been updated. All the timelines have been pushed out, mostly by 10 years or more. That is, Gen IV is no closer now than it was when the GenIV initiative started. In particular, there’s no chance of work starting on even a prototype before about 2020, which puts commercial availability well past 2035. Allowing for construction time, there’s no prospect of electricity generation on a significant scale before 2050, by which time we will need to have completely decarbonized the economy.

Categories: Environment Tags:

The end of manufacturing in Australia

April 20th, 2014 37 comments

Ross Gittins has a piece, drawing on research by Jeff Borland of the University of Melbourne, in which he presents a “glass half-full” view of the Australian manufacturing sector. He makes some good points, but the overall picture is misleading.

It’s true that, on standard statistical definitions of the manufacturing sector, there’s still a fair bit of employment and output, though both have declined in recent years and will almost certainly continue to do so, given the recent closure announcements. But what’s left of manufacturing looks very different from the mental image the word ‘manufacturing’ produces, at least for me: a large factory, with hundreds of manual workers producing complex industrial products (consumer goods, motor vehicles, industrial equipment and the like).

A closer look at Borland’s data reveals the following:

* Within manufacturing, the main growth area is food processing typified by the production of meat, bread, milk and wine. More traditionally manufacturing-oriented parts of the sector like canning fruit are in decline as we saw recently with the near-closure of SPC.

* As regards employment, the share of managerial and professional staff is expanding, while that of laborers and machinery operators, the kind of jobs we would typically think of as ‘factory work’, is falling. [1]

On the latter point, Borland shows that laborers and machinery operators now represent 30 per cent of a manufacturing workforce of 955 000, implying around 285 000 jobs in total, around 2.5 per cent of all employment. By contrast, in 2011, there were 290 000 schoolteachers in Australia.

To sum up, manufacturing in the traditional senses of the term, is no longer a significant part of the Australian economy. This has a number of implications.

Read more…

Categories: Economic policy Tags:

Tu quoque

April 19th, 2014 133 comments

I’ve written many posts and articles making the point that the political right, in most English speaking countries[1] has been taken over by a tribalist post-truth politics in which all propositions, including the conclusions of scientific research, are assessed in terms of their consistency or otherwise with tribal prejudices and shibboleths.

Very occasionally, intellectuals affiliated with the political right (conservatives and libertarians) will seek to deny this, arguing that isolated instances are being blown out of proportion, and that the right as a whole is committed to reasoned, fact-based argument and acceptance of “inconvenient truths’ arising from the conclusions of scientific research[2], [3].

But, far more often their response takes the form of a tu quoque or, in the language of the schoolyard, “you’re another”. That is, they seek to argue that the left is just as tribalist and anti-science as the right. Favored examples of alleged left tribalism included any rhetoric directed at rightwing billionaires ( Murdoch, Rinehart the Kochs). The standard examples of alleged left anti-science are GMOs, nuclear power and anti-vaxerism, but it is also sometimes claimed that US Democrats are just as likely as Republicans to be creationists.

I’ll argue over the fold that these examples don’t work. What’s more important, though, is what the tu quoque argument says about those who deploy it, and their view of politics. The implied claim is that politics is inherently a matter of tribalism and emotion, and that there is no point in complaining about this. The only thing to do is to pick a side and stick to it. What passes for political argument is simply a matter of scoring debating points for your side and demolishing those of the others. So, anyone who uses tu quoque as a defence, rather than seeking to dissuade their own side from tribalist and anti-science rhetoric, deserves no more respect than the tribalists and science deniers themselves, who at least have the defence of ignorance.

Read more…

Categories: Politics (general), Science Tags:

Sandpit

April 18th, 2014 24 comments

A new sandpit for long side discussions, idees fixes and so on.

Categories: Regular Features Tags:

Weekend reflections

April 18th, 2014 33 comments

It’s time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.

Categories: Regular Features Tags:

Tim Nicholls makes a little progress in thinking about privatisation

April 17th, 2014 24 comments

All through the Bligh government’s three year campaign to sell public assets, I challenged Treasurer Andrew Fraser to a public debate on the issue, or at least to a response to the criticisms I and other economists made of the government’s case. Fraser never responded: even when we spoke at the same event (to a friendly business-oriented crowd) he gave his speech and left before anyone else was allowed on the platform. Doubtless, he made the judgement that this was the politically clever thing to do: by sticking to events that could be scripted, and relying on the authority of Queensland Treasury, he maintained controlled of public discussion. We all know how that worked out.

Now there’s a new Treasurer, pushing the same arguments. I challenged Tim Nicholls to a debate on the “StrongChoices” campaign[1]. I don’t suppose he’s going to respond in person, but he has at least acknowledged my criticisms (as reported by Paul Syvret) and attempted to rebut them in this piece in the Courier-Mail.

Nicholls’ argument is confused, as the case for asset sales has always been, but he does make at least some progress. The usual magic pudding is in evidence: selling assets is supposed to repay debt, finance new infrastructure spending and obviate the need for higher taxes to maintain services, all at the same time.

But there is one point of light: responding to my observation that the StrongChoices website counts the interest savings from selling assets and paying down debt, but not the foregone earnings of public enterprises, Nicholls says

the value of a government-owned asset is not the same in private sector hands. Governments are not well placed to act nimbly when it comes to changing markets and commercial decisions. Who thinks the value of Telstra would be the same if it reverted back to full government ownership? What about the Commonwealth Bank?

While Nicholls’s specific examples don’t work well (see below), he at least expresses the right general principle. Privatising assets is a good deal for the public if their sale price is greater than their value in continued public ownership (and assuming that the gain isn’t achieved by raising prices or reducing service quality). Indeed, that’s true of every kind of sale: there’s a net benefit only if the item sold is worth more to the buyer than to the seller.

So, there’s a simple fix for the StrongChoices website. Instead of quoting the total sale price for assets, give an estimate of the difference between the sale price and the value in continued public ownership. I did this for both of Nicholls examples, the Commonwealth Bank and Telstra (all three “tranches”) and found a net loss to the public in every case except T2, the second Telstra tranche where the value was inflated by the Internet bubble. Even in that case, we would have done far better off by selling the overvalued Internet assets and using the proceeds to buy back the rest of Telstra, as I advocated at the time, just before the bubble burst.

fn1. If, as has been reported, the Queensland Government paid good money to a PR firm for this ludicrous name, then there is certainly an opportunity to cut waste and efficiency by dumping.

Categories: Economics - General Tags:

Polls and punters

April 15th, 2014 21 comments

I’ve written a few times about the idea that betting markets provide a more accurate guide to political outcomes than do polls or ‘expert’ judgements or statistical models (which usually incorporate polls along with economic and other data). The problem is that, close to an election, they all tend to converge. So, the best time to do a comparison is early in the election cycle. Right now there’s quite a sharp contrast. The polls have had the (federal) ALP and LNP just about level for months, but the betting markets have the LNP as strong favorites.

One possible explanation is that governments generally do worse in polls than in election, so that the polls underestimate the government’s support. I’ve heard this claimed, but never seen any systematic evidence to support it. Another possibility is that market participants know something that’s not reflected in the polls. I’m sceptical on this.

The final possibility is that betting markets this far out from the election are thin and inefficient. If that’s right, then the odds for Labor look very favorable. I’m not going to bet myself (I did OK on my one foray into the US Republican primaries, but the hassle involved was too much to make it worthwhile), and I’m not giving betting advice.

Still, I’d be interested in responses from those among my fellow economists who’ve claimed efficiency properties for betting markets. I guess Andrew Leigh is precluded from commenting, and Justin Wolfers is a long way from the action in Oz, but I’m sure there must be others willing to jump in

Categories: Economics - General, Oz Politics Tags:

The “People’s Budget” that doesn’t add up

April 14th, 2014 23 comments

The LNP government in Queensland is launching a massive and expensive campaign to persuade voters to accept the sale of publicly owned assets. This follows an earlier campaign by the Bligh-Fraser Labor government (remember how well that worked out!) and looks likely to make the same claims, with the additional (self-contradictory) claim that the Labor government, whose policies the LNP is now adopting, drove the state to dangerous levels of debt. In particular, the LNP campaign repeats the central error of Labor’s, namely the claim that selling assets provides a way to fund public expenditure without taxation.

Technology moves own. Whereas Labor gave us a printed pamphlet (reproduced on the web), the LNP offers an interactive website where we can make our own choices. This would in principle, be quite a useful contribution to public debate. If it were available generally, it would be possible for voters to weigh up various proposed initiatives, and assess whether new public services are worth the revenue measures that would be required to fund them.

Unfortunately, but unsurprisingly, this version is rigged. The website claims that it is necessary to reduce gross public debt by $25-30 billion and offers three ways to do so: raising taxes, cutting spending or selling assets. The more we do of one, the less we have to do of the others. I assume (and will check later) that the amounts listed for the tax and spending measures are derived from the forward estimates (four years). By contrast, the asset sales are a once-off measure.

The real dishonesty in the setup comes at the end. If we do want the government wants and agree to all the proposed asset sales, the estimated proceeds are $34 billion. The reward is a $1.7 billion saving in interest, which we are then invited to spend on desirable things.

There’s just one problem. The calculation has omitted the fact that, if we don’t own public enterprises any more, we forgo their earnings. Fortunately, there’s a relatively easy fix. The 2013-14 Budget Paper 2 has a section devoted to public non-financial corporations. The total Earnings Before Interest and Tax of these enterprises was $3.7 billion. Of this sum, $1.2 billion was paid to the state in dividends, about $500 million in tax-equivalent payments (state-owned enterprises aren’t subject to company tax, but make these payments in the interests of competitive neutrality) and the rest was either paid in interest on debt or retained to finance future investment.

How much will the public lose from the asset sales?. Most obviously, we will lose the dividends, which virtually wipe out the proposed interest savings. The tax equivalent payments are a loss to us as Queensland citizens, but (assuming the private owners pay similar rates of tax, which is not guaranteed) are offset by a corresponding benefit to the Commonwealth. And the debt calculation almost certainly includes the debt held by these enterprise, so part of interest we save is has already been covered by their earnings which will no longer be available. Finally, retained earnings contribute to future growth and are a real loss when an asset is sold.

So, if we sold everything, we would forgo $3.7 billion in income, far more than the $1.7 billion the government suggests we can gain. However, a close reading of the options indicates that the proposal isn’t for a complete sale. Electricity transmission and distribution assets are going to be retained, with some form of private participation. This is supposed to save $28 billion, whereas an outright sale would fetch more,

Still, an honest presentation of the proposal would have the asset sale yielding a net loss of up to $2 billion. Like its predecessor the LNP proposes to cash in the proceeds of privatisation and ignore the loss of revenue it entails

Categories: Economic policy Tags:

Asset sales, yet again

April 12th, 2014 18 comments

Among the most unkillable of zombie ideas is the belief that governments can solve their fiscal problems by selling assets. What’s particularly surprising about this belief is that it is most strongly held by the kind of politician who likes to talk as if government and household budgets are exactly the same. But would anyone suggest to a household struggling to make ends meet that it would be a good idea to cash in the super, or sell the house and rent it back from the new owners, in order to pay off the credit card? The advice of course, would be to get your expenditure and income in line before addressing the debt problem.

I’ve written yet another paper making this point, which, along with my recent post on capital recycling, got a run from Paul Syvret in the Courier-Mail. Nothing new for those who’ve been paying attention, but, clearly, lots of people haven’t been.

Derp, a 20 year history

April 10th, 2014 221 comments

Noah Smith’s classic definition of “derp” as “the constant repetition of strong priors” was developed with particular reference to solar energy, to refer to people who’ve taken the view, at some point in the past, that solar energy can’t work, and who are neither willing to change their minds, whatever the evidence, nor to state their views once and for all and remain silent thereafter.

The classic illustration of this would have to be Ted Trainer of the University of New South Wales. For the past 20 years, he’s been writing and rewriting the same paper, showing that renewables can’t possibly sustain a consumer society. Here’s a version from 1995, and from 2003, and here’s the latest.

What’s striking is that, while the numbers change dramatically, the conclusions don’t. The 1995 report says, in essence, that solar PV is totally unaffordable for all practical purposes. [1] So, our only hope is to embrace a massively simpler lifestyle,

The most recent version, written at a time when cheap solar power is a reality, has much less scary numbers. He estimates that the capital investment required for decarbonization of the economy would amount to 11 per cent of GDP. That’s still an over-estimate but it’s in the right ballpark. Trainer rightly observes that this number far exceeds current investment levels and is unlikely to be attained. But, unlikely as it may be, it would certainly be chosen if people accepted Turner’s conclusion that the only alternative was to live in huts with peat roofs.

And, over time, the insistence on negativity about renewables has led Trainer to promote views that are the opposite of his original concerns about simplicity For quite a few years, his work was published primarily at pro-nuclear site, Brave New Climate[2].

If Ted Trainer actually wants to help save the planet it’s time for him to abandon the campaign against renewables and urge society to accept the relative modest reduction in the rate of growth of income needed to decarbonize energy supply. Once the prospect of massive extinction has been staved off, we will have plenty of tiem to think about a simpler lifestyle.

fn1. As an illustration, the cost of a system to charge an electric car is estimated at $350 000, an estimate that is supposed to take account of optimistic projections of efficiency gains. These systems haven’t quite arrived yet (as usual, there are a bunch of technical difficulties to be overcome) but it appears they will soon be on the market for less than $10000. These systems have an obvious potential to resolve the problem of mismatch between peak PV availability at midday and peak demand in the evening, and may therefore reduce the conflict associated with the idea of a “utility death spiral”/

fn2. BNC ran into the same problem. In his eagerness to push the idea that nuclear power is the only way to save the planet from global warming, Barry Brook ran slabs of anti-renewable nonsense from climate delusionists such as Peter Lang.

Categories: Environment Tags:

Reviewing the Commission of Audit, in advance

April 10th, 2014 6 comments

Just about every incoming conservative government since the 1980s has instituted a Commission of Audit report on taking office. These Commissions are pieces of political theatre rather than serious attempts to examine the whole of the government’s operations – given a small secretariat and a short period in which to work, it could hardly be otherwise. The conclusions are entirely predictable: the outgoing Labor government left a financial disaster; drastic action is needed, mostly consisting of measures the new government has always favored but which it chose not to mention (or to disavow explicitly) during the election campaign; there will be pain, but we will all be better off in the long run

What’s less predictable is the use that the government makes of the report. In general, this depends on the polls. If the government is riding high, the report is released in a blaze of publicity and the new government’s first budget contains deep cuts. The idea is that an expenditure of political capital early makes room for sweeteners in the leadup to the next election. On the other hand, if things are already going badly (eg the Baillieu government in Victoria) the report may be suppressed altogether. The middle path is to keep the report under wraps until close to Budget day, when the choices about how to respond have to be made in any case.

That’s the way the Abbott government has gone. The Audit Commission finished its interim report (usually the most important one) in February and its final report in March, but neither has seen the light of day.

So, I’m preparing a ‘review’ of the report based on a combination of past precedent and the leaks emanating from the Treasurer’s office. It’s surprisingly easy, and it struck me that I could enhance my productivity by turning the review into a template which could then be used for generations to come. Just plug in the names of the new PM and Treasurer, the LNP credentials of the Commissioners, the number of billions in the shock-horror headline number and so on. The section on policy recommendations would be easiest of all. Just start with the standard list of 1980s micro=reform and fiscal policy agenda items (along with my standard rebuttal), then delete those already implemented, add back any that have been repealed, and voila, the job would be done. It seems as if this could all be done in MS Word, but maybe a report generator is what I need. Would anyone care to help me with the tech aspects?

Categories: Economic policy Tags:

‘Recycling’ publicly owned capital assets

April 9th, 2014 14 comments

I tend to be a little bit behind on buzzwords, but suddenly I’m hearing this one all the time. The politically toxic idea of privatising public assets is being repackaged as ‘recycling’. The idea is that the public sells one asset, and uses it to buy another.

There is one version of this idea that is, at least arguably, sensible. Suppose the public sector has a greater capacity to bear the demand risk associated with some kinds of projects (for example, ports) and that this risk is greatest in the early years of operation, after which revenue streams become predictable. Suppose also that the public sector wants to keep its gearing ratio (debt to assets) low for one reason or another. Then it would make sense to undertake development in the following sequence. The government decides a new port is needed and contracts for its construction on a fixed price basis (with rewards and penalties for early or late completion). When the port is built, it is operated as a government business enterprise until the demand risk settles down. Then it is sold and the proceeds are used to build a new port, or some other piece of income-generating infrastructure. So, at any given time, construction companies are bearing construction risk, the government is bearing demand risk and the private sector owns and operates various ‘mature’ assets. This process of recycling can, in principle, be carried on indefinitely

There are arguments for and against this kind of recycling, but they are irrelevant to the proposals actually on the table, which involve selling income generating assets and notionally allocating the proceeds to projects that generate no income. For example, according to Warren Truss, the NSW government

have sold the Port of Botany and they have raised a lot of money from that which is now being put into road systems. They’re interested in selling the Port of Newcastle and that is be used to revitalise the central city of Newcastle.

It seems highly unlikely that the road systems can be recycled to fund new investment, let alone a revitalised central city. This isn’t recycling in the proper sense of a sustainable process – it’s melting down your tools for scrap, and using the money to pay the rent.

Recycling’ public assets is a one-way trip to the fiscal scrapyard

Categories: Economic policy Tags:

Freedom of speech (if you’re a boss or a bigot)

April 6th, 2014 87 comments

Hard on the heels of the fiasco over the “Bolt clause” in the government’s proposed changes to the Racial Discrimination Act[1] comes the news that the government is prohibiting public servants in the Department of Prime Minister and Cabinet from criticising it in any medium, even anonymously, and urging colleagues to dob in violators. Except for the handful of people who took the government’s talk about free speech seriously, there’s no surprise here. But I’d like to respond to this from the “Freedom Commissioner”, Tim Wilson of the IPA, who says

“Ultimately public servants voluntarily and knowingly choose to accept these limits on their conduct when they accept employment”.

On the contrary, it seems clear from the report that, at a minimum, the interpretation of existing rules (allowing free comment in general, but not on matters related to your own work) is being tightened. For example, the kinds of comments made by Greg Jericho under the pseudonym Grog’s Gamut, which were considered acceptable in the past, now appear to be proscribed.

More generally,it’s important to remember that Wilson, like all propertarians, is no friend of free speech. Propertarians may oppose governmentally imposed restrictions on the speech of people who have no dealings with the government, but the standard position is that any employer, or landlord should be free to sack or evict, anyone they don’t like for any reason, including their political views. Of course (echoing Anatole France) the position is one of majestic equality. If you don’t like the views of your boss, or landlord, you’re entirely free to quit your job, or move out (but not of course to sleep under a bridge).

As for the government, the principle applying to public servants apply equally to pensioners, road users, beneficiaries of national defence and so on (that is, everyone). You knew what you signed up for when you decided to stay here, rather than doing the decent libertarian thing and seasteading or moving to Mars. So, if the government chooses to impose conditions on your political activity, you’ve got no right to complain.

Update It’s been pointed out in comments that the directive, from the Department of Prime Minister and Cabinet applies only to staff in that department and not, as I originally read it, to the Commonwealth Public Service as a whole. It appears to be a tightening of existing restrictions, but not, as I suggested above, a wholesale removal of freedom of political opinion. I’ve edited the post accordingly.

Even though the original post was overstated, the general trend is clear, as Jeff Sparrow points out here. The government is seeking to remove any restrictions on the speech of its powerful friends, while tightening restrictions on its enemies, in keeping with its general tribalist approach to politics.

fn1. So-called because the aim was to create room for racially offensive lies by people the government likes (such as Bolt) while ruling out lies the government dislikes, such as the Holocaust revisionism of Fredrick Toben. It turns out that drawing a legally watertight distinction between Bolt and Toben is more difficult than the government expected.

Categories: Oz Politics Tags:

Sandpit

April 5th, 2014 53 comments

A new sandpit for long side discussions, idees fixes and so on.

Categories: Regular Features Tags:

Weekend reflections

April 5th, 2014 13 comments

It’s time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.

Categories: Regular Features Tags:

Why nuclear power worked once in France and might work again in China

April 4th, 2014 181 comments

That’s the question I looked at a while back in this piece in the National Interest, which I was too busy to post about at the time. TNI’s headline, which I didn’t pick, is the more definitive ‘China Can Make Nuclear Power Work‘. The key point is that, when France embarked on a crash program to implement nuclear energy in the early 1970s, all the right ingredients were in place: a centralised state in which a skilled technocratic elite could push projects through without much regard to public opinion, the ability to fix on a single standardised design, low real interest rates and preferential access to capital, and the ability to fix pricing structures that eliminated much of the risk in the enterprise.

Over time, these factors were eroded, with the result that as the program progressed, the cost per megawatt of French nuclear plants tripled in real terms. As the Flamanville fiasco has shown, whatever the secret of French success 40 years ago, it has been well and truly lost now. And the picture is equally bleak for nuclear power in other developed countries. New nuclear power is far more expensive than renewables, even after making every possible allowance for the costs of intermittency, the various subsidies available, and so on. That’s why, despite the vast range of different policy settings and market structures in developed countries, the construction of new nuclear plants has been abandoned almost everywhere.

But China today looks, in many respects, like France in the 1970s, a technocratic state-capitalist society with the capacity to decide on, and implement, large scale projects with little regard to anyone who might object. If nuclear power can be made to work anywhere, it’s probably in China.

Obviously, pro-nuclear commenters like Hermit and Will Boisvert are welcome to have their say on this one.

Categories: Economics - General, Environment Tags:

Inequality is caused by ideology, not technology

April 2nd, 2014 63 comments

I’ve just had an article published at New Left Project, under the title Don’t Blame the Internet for Rising Inequality. Much of it will be familiar, but I want to stress a particular, and I think novel, critique of the idea that skill-intensive technology is responsible for rising inequality

while technology explains the decline of the middle and working classes relative to the professional and managerial class, even this latter group has barely maintained its share of national income since the 1980s. The real gains over this period have gone to a subset of the top 1 per cent, dominated by CEOs, other senior managers and finance industry operators. This group has nearly quadrupled its real income over the past 30 years, far outpacing the professional and managerial class as a whole.

This is a major problem for the Race Against the Machine hypothesis. Much of the growth in income share of the top 1 per cent occurred before 2000, when the stereotypical CEO was a technological illiterate who had his (sic) secretary print out his emails. Even today, the technology available to the typical senior manager—a PC with access to the Internet, and a corporate intranet with very limited capabilities—is no different to that of the average knowledge worker, and inferior to that of workers in tech-intensive specialities.

Nor does the ownership of capital explain much here. Even for tech-intensive jobs, the capital and telecomm requirements for an individual worker cost no more than $10,000 for a top-of-the-line computer setup (amortized over 3-5 years), and perhaps $1000 a year for a broadband internet connection. This is well within the capacity of self-employed professional workers to pay for themselves, and in fact many professionals have better equipment at home than at work. Advances in information and communications technology thus can’t explain the vast majority of the growth in inequality over the past three decades.

On the same day as this came out, Paul Krugman was demolishing another version of the argument, the zombie idea that current high unemployment in the US is due to a “skills gap” which apparently emerged on the day Lehman Brothers collapsed.

Categories: Economics - General Tags: