Out of the mainstream

I managed to get something of a response from the Queensland Treasurer, Andrew Fraser to my critique of the case for privatisation put forward by the government. Fraser says

The global financial crisis has ripped a $15 billion hole in the state budget. There is no evidence to suggest the state is about to see that hole repaired despite the marginal turnaround in the economy.

“The fact is, Queensland will be better off.

“The myth is that John Quiggin represents the view of mainstream economists.

“The Government is not undertaking this process for the fun of it.”

A couple of responses.

First, the sale of $15 billion of assets does not in any way resolve a $15 billion shortfall in income (the “hole” in Fraser’s statement). The sale value of $15 billion (assuming it’s realised) represents the private sector valuation of the earnings from the assets. Perhaps (though this hasn’t been shown) the value in continued public ownership is less than $15 billion, but it can’t be much less. The coincidence between the two numbers is, intentionally or otherwise, deceptive.

Second, if Fraser is right, it ought to be easy to find mainstream economists to agree that his comparison between last years dividends to general government and the $1.8 billion interest saved (mostly by the GOCs) themselves if the assets are sold and $12 billion of investment is foregone. Any takers?

Finally, it’s worth asking why the government is doing this. My guess is that they place much more weight than they should on the AAA rating, and that Treasury is still pursuing the ideological goals of the 1980s and 1990s.

32 thoughts on “Out of the mainstream

  1. It would be amusing if, following these asset sales, the ratings agencies downgraded Queensland government debt even further on the grounds that the state’s long term fiscal position had been made worse.

  2. “My guess is that they place much more weight than they should on the AAA rating, and that Treasury is still pursuing the ideological goals of the 1980s and 1990s.”

    …and it will well and truly catch up with them later JQ when Moody’s or S&P has long gone and taken its meaningless AAA rating with them. Maybe they could take a few overpaid yankee execs with them when they do leave.

  3. Andrew Fraser’s answers, as quoted, are fatuous and arrogant in the extreme. These are the sort of answers given by a person who does not care about objective truth, does not care whether or not he convinces intelligent listeners but is only interested in using obfuscation to disguise his actions from the less discerning among the general public.

    Andrew Fraser is an Accounting Denialist; a denier of simple accounting facts.

  4. Heard Senator Ludwig give a talk about “mandate theory” at QUT a while ago. It didn’t make too much sense to me. His message seemed to be “it’s all good”, the idea seemed to be that both parties work together on tricky issues, and the government… something, not really sure what the point was.

    Anyway, surely in a properly functioning democracy this should have been made an election issue in March? Bligh was silent on it and the independent candidate in Andrew Fraser’s Seat, James Sinnamon, was yelling high and low against privatisation of public assets but he was ignored and actively smothered by Murdoch’s ABC. Against a flood of easy publicity from Madonna King on 612 ABC, Sinnamon got one tiny moment on her show and tried to raise the spectre of such asset sales but she shut him down. According to Sinnamon’s website (about his call to ABC while Fraser was on air):

    “…Madonna King put to State treasurer Andrew Fraser, against whom I was standing in Mt Coot-tha, a question from me: ‘would he commit himself to not privatising further government owned assets?’ Mr Fraser effortlessly brushed it off with a predictably ambiguous response. He claimed that the government had no plans to privatise any more assets and that he was ideologically opposed to privatisation.”

    That’s what happens in a state with no upper house and a mono-media.

    If you watched the SBS show “Dave In The Life” you would recall the politician episode a few weeks ago and that “Dave” also ran in the that seat. He said that he got more votes than James Sinnamon.

    In the show, “Dave” ran on a policy of honesty in politics. Funny how the novelty candidate got more votes than the guy trying to keep the Gov’t honest.

  5. Why is the government doing this? My guess is they are not worrying too much about the AAA, but are looking to squander the the proceeds on the GDP fetish to buy votes. This is all of a piece with the anglo-sphere’s complacency and overleveraging. Australians have had it better for longer than almost every country in the world and so the Minsky moment could be expected to come a little later than it has in the USA.

  6. There are a number of problems with the asset sale. We need to explore the key reason for the asset sale, far from it being an ideological dislike of government assets – the cause is the budget blackhole.

    Firstly, a budget blackhole that extends of the medium term cannot be covered by a one-off asset sale. It means that recurring expenditure is too large so either recurring expenditure has to be cut or taxes will need to be increased.

    Secondly, the AAA rating is wanted. AAA-rating should not (emphasis is on the should) be based on a one-off asset sale. If the credit rating agencies give the State government a AAA-rating based on a one-off sale then that is a bunch of bull.

    Asset sales must make economic sense. There are always cases for efficiency via the private sector. However, the economic case is not being made. The primary reason for the asset sale is illogical. The asset sale is the easy choice for a government. It makes things easy for politicians instead of reforming spending and public services.

  7. Finally, it’s worth asking why the government is doing this. My guess is that they place much more weight than they should on the AAA rating, and that Treasury is still pursuing the ideological goals of the 1980s and 1990s.

    or just more typically corrupt ruling-class favors for favors. too charitable John.

  8. Bligh seems to be caught in a trap of her own devising. She’s carefully constructed an image of decisiveness in order to distance herself from Beattie. Beattie of course would, when faced with a serious political problem, do a backflip with the aplomb of a Nadia Comenici, claiming full responsibility (without consequences for himself, naturally) and vowing to listen more to the people of Queensland in future. This formula worked well for Beattie until the electorate finally could no longer suspend disbelief. Bligh can not now dust off the Beattie script and salvage any of her much-diminished credibility.

    The truly sad thing is that we seem to live in an era where politicians draw such lines in the sand over utterly unworthy policies. If you have to go down in glorious flames, far better surely to do it over the Whitlam reform agenda, or postwar nation building, than over imperial adventures like the Iraq war or this stinking fish. Even now, Bligh could salvage something by announcing she’ll spend the billions raised on renewable power generation or some such investment that would address some real strategic issues and yield revenue into the future. But, of course, she won’t.

  9. One additional comment: it’s more than interesting that the other major budget measure, viz. jettisoning the fuel subsidy, has generated no political heat. The political consensus was, and still is, that tax increases are political poison, which is why Beattie never attempted it. Yet it seems that taxpayers are perfectly willing to pay more if they can see why it is necessary. This lesson remains unlearnt.

  10. Hal9000 :
    If you have to go down in glorious flames, far better surely to do it over the Whitlam reform agenda, or postwar nation building, than over imperial adventures like the Iraq war or this stinking fish. .

    I think you’ve misspelt that Hal9000 – isn’t it meant to be “the nightmare Whitlam years”
    The decline since Whitlam is beyond sadness.

  11. Thank you Megan for your mention of my standing as a candidate in the state elections. I am beginning to lose count of the number of anti-privatisation rallies I have attended at which speakers will put the need for anti-privatisation independents to stand at the nexte state elections. At the union protest which started in Roma Street in early July one speaker said that all candidates should be qeustioned as to whether or not they would oppose privatatisation. Well, it had already been done, except it was ignored by Rupert Murdoch’s Courier Mail newspaper and Rupert Murdoch’s — sorry, Your — Brisbane local ABC Radio station.

    One of a number of articles which shows how Brisbane’s local ABC radio station 612 is indeed culpable for having helped to bring into being the effective Third World tyranny that we are now living under in Queensland is “Brisbane ABC suppresses alternative candidates in state elections despite listener dismay with major parties” of 30 Apr 09.

    Amongst some of her listeners, Brisbane Morning Show presenter and Courier Mail columnist Madonna King has an undesrved reputation of being a tough and tenacious interviewer. In fact, at best, she only creates a good illusion of doing so, whilst usually pulling her punches well and truly short of what would be required to hold Queensland’s current sub-abysmal crop of state politcal leaders properly to account. Any more than half-way competent journalist who had bothered to familiarise themselves with the controversy over privatisation and who had any idea of the true meaning of democracy would have faced had no difficulty in turning Premier Bligh and Treasurer Fraser into mince meat long before now for the way they have treated the Queensland public.

    An example of an inteview where King did not even attempt to put up any pretence of being a tough interviewer was the session this week in which Premier Bligh was asked Questions by her audience. All the same tired old cliches that every Queenslander must have heard from Bligh’s lips a hundred times by now were repeated yet again, without being challenged in the least. She had to make the tough decisions in order to do what she knew was right for Queensland. Her first priority is to keep al Queenslanders employed (presumably breathing in car exhaust for at least 8 hours per day in the sun as traffic controllers), she needs to ‘communicate’ the supposed necessity of privatisation better to Queenslanders etc. ad nauseum.

    On another topic, population, King was again silent as the same Premier who blamed her almost countless instances of misgovernment on population growth talked about further population growth as if it were not a decsion that we could or should have any say over.

    Courier Mail journalist Craig Johnstone’s, largely very good feature article of the problems of population growth “Shut the Gate” of last Saturday 1 November had already been forgotten by both King and Bligh. The debate that Johnstone said was necessary was apparently already over and forgotten.

    A few months ago, when a caller called in to articulate very well the case against further population growth, King appeared to accpet all her points, but the very next day, when a caller called in to propase some way of solving Brisbane’s chronic population-growth-driven congstion by fiddling with diesel taxes in some way, the details of which I missed, she had completely forgotten about population growth.

    I phoned the ABC to register my complaint that day, but received only a verbal assurance that my views would be passed on to Madonna King.

    This pattern, exmplified by King, whereby our media periodically reports honestly and even with seeming passion against powerful vested interests on the burning issues of the day, but, within days, has forgotten it all again, is one way that the public are manipulated by our newsmedia.

    BTW, I also written about this also here and cross-posted that to Larvatus Prodeo, where it attracted a few comments.

  12. I do find it somewhat amusing when governments defend privatisation on the grounds that there is a hole in the budget that needs to be fixed.

    The net cost-benefit of either public or private ownership would surely remain the same regardless of the overall state of the budget. So what is the government saying? That it is okay to waste resources on an inefficient policy so long as the budget is in a healthy position. But now that the budget is in a worse state, we have to take stock.

    If the budget is in a mess, one-off asset sales won’t fix it. Reform of income and expenditure items needs to occur. And if the government already has a budget crisis when demand for resources is still high, how much worse might it get if an economic downturn leads to reduced demand for commodities?

  13. Good points Sean. Even if privatisation might be economically beneficial in theory, whether or not governments can be trusted to manage the sale process and invest the proceeds wisely is another matter entirely.

    While privatisation is often seen as the imposition of free market ideology, in practice it is usually just opportunistic governments wanting to get their hands on the cash.

  14. I would love to see the bill they have already wracked up in progressing the asset sales. I heard a rumour that it was running above $500,000 a week in advisors fees. I am sure they will get a bonus if they manage to sell them as well.

  15. Since Andrew Fraser is advised by his Treasury, I can only conclude that these advisors are either incompetent or obsessed with their S&P rating (along with their eternal quest to remain in budget surplus) because it is perceived as their KPI. Contrary to Andrew Fraser’s claim, John’s point is entirely mainstream and uncontentious. But, of course, I am far too non-mainstream to be take seriously on any economic matter. ‘Mainstream’…’non-mainstream’ – what is all this about anyway? And why would a Treasurer care to use such a label for an influential social-democratic economist? I think you know the answer to that!

  16. @JJ

    JJ :
    I heard a rumour that it was running above $500,000 a week in advisors fees. I am sure they will get a bonus if they manage to sell them as well.

    already the assest sales are creating wealth 🙂

  17. This has been cross-posted as a comment in response to the article “Melbourne’s skyrocketing population: Kelvin Thomson speaks out in Melbourne November 11” of 27 Oct 09:

    QIC boss: $15billion Qld fire sale to pay for population growth

    I just heard Brisbane local ABC radio’s Madonna King interview Doug McTaggart the Chief Executive of the Government owned Queensland Investment Corporation (QIC).

    He talked of 20,000 (I think) people moving up to Queensland each quarter.

    I am not sure how this topic came into it, but Madonna King asked if that would cause property prices to go up and he unsurprisingly confirmed that it would. Then Madonna King suggested that property would be a good investment.

    In other words, Madonna King apparently sees profiting from others’ needs for such a basic necessity as shelter being a good thing and, presumably, allowing (or deliberately causing) population growth to drive up property values is also a good thing, although se didn’t state that explicitly.

    A regular feature of her program is a discussion of property values with a real estate investment adviser. In those sessions she talks as if its inherently good if property prices go up and bad if they remain the same or go down

    Then, on other occasions, Madonna King rails with seeming passion against housing unaffordability and the plight of the homeless. At least one of her Saturday Courier-Mail columns in the previous month was devoted to this issue, However, she seems inexplicably incapable of understanding the obvious irecconciliable conflict of interest between property speculators on the one hand and ordinary Australians needing secure adn affordable shelter on the other. As I put in a media release as Lord Mayoral candidate on 4 March 2008 in response to one of Prime Minister Rudd’s similar expressed concerns about housing unaffordability:

    Mr Rudd needs to decide whether he will continue to serve the interests of the property sector or whether he will provide ordinary Australians with affordable housing, but he cannot do both.

    Naturally my media release was not published.

    Doug McTaggart also went on to explain how population growth necessitated the Queensland Government’s fire sale. The argument he put was, the Queensland faced 3 choices:

    1. Not build the infrastructure necessary to provide jobs for and meet the needs of the new arrivals;
    2. Raise taxes; or
    3. Sell off assets (“Rearrange the balance sheet” as he put it at one point.

    Interestingly, both Kevin Rudd and Rupert Murdoch’s Australian newspaper neglected to tell the Australian public that selling off public assets was part of the price they would have to pay for the population growth that they insist is so much in our interests. (See, for example “Population is destiny” in the Australian of 19 September.)

    Somehow, it apparently occurred to neither King nor McTaggart that another choice should be offered to the Australian public:

    4. Reduce immigration and stablise our population.

    McTaggart’s ‘argument’ in favour of privitasation was reported almost immediately afterwards on the ABC’s 10AM news bulletin.

  18. I thought this quote was pertinent

    Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

    C. S. Lewis

    Bring on the robber barons

  19. Picket State Parliament to stop the theft of Queensland’s public assets

    Tell Anna Bligh to get her hands off OUR public assets!
    Time/Date: 4:30-6pm, Tues Nov 10
    Meet Outside State Parliament, Cnr George & Alice Sts, City

    For more information, visit saveourpublicassets.org

  20. Doug McTaggart is the co-author of a popular introductory economics textbook but he seems to have forgotten his economic principles.

    Look at the textbook and you will find that the principles espoused suggest that inward migration generates significant wealth and employment and, therefore, significant tax revenue. Migrants are, very definitely, not just a cost!

    Look further in his textbook and you will find that, inasmuch as privatisation creates firms that have a degree of monopoly power, then prices will rise and they will become inefficient organisations. The trouble is that to sell such entities off at a good price, you need to give them some monopoly power. Only one word is required to provide an illustration of this in reality: ‘Telstra.’

    I should add that nothing that Doug McTaggart said contradicted the point that John made. Its an old trick in debating: the best way to counter an inconvenient truth is just to ignore it. I really expect more from influential Queensland economists (a group to which I clearly don’t belong to!).

    In relation to daggett’s point about controlling population, this is important, but it is a national, not a state, issue and, thus, not directly relvant to the topic.

  21. @nanks
    Yes Nanks – whe you have been around long enough you can see just this

    “The decline since Whitlam is beyond sadness.”

    The trouble is, the world is now peopled by upstart fanatics with a cure all, with no memory and plenty of mad ideology. And lord help them, they are too young too young know what fools they are, but far far far worse, they work in Treasury.

  22. and in banks, and in government…the nerd generation playing with computer models and not an punce of common sense anywhere. Robots Nanks, robots…we may as well have them running everything now because the human factor has been lost along the way somewhere (you know…when people did things that were supposed to be decent and principled and moral and ethical as opposed to just “efficient”).

  23. Well you do hold certain views that the mainstream economic think are oddball, such as your denial of a link between minimum wages and unemployment.

  24. @melaleuca
    Well Id sure like to know why underemployment and unemployment has been rising for about the same three decades as exec remunerations. I think there is a whopping big rigidity at the top of the labour market.

  25. What Id really like to know is when, exactly, is the invisible hand going to giveth instead of taking away?

  26. Mr Fraser seems to like the snarky response. It is a pity because i have heard that he is supposed to be intelligent – he obviously doesn;t like to demonstrate it. Excerpt below from Nicole Butler on ABC.

    “ANDREW FRASER: Professor Bob Walker who the QCU have hired to provide this advice provides low rent, rented advice that suggests that there is an endless ability for any government anywhere in the world to continue to go into more and more and more debt.

    He has views which are not in accord with reality and professor Bob Walker isn’t a credible part of the debate.

    BOB WALKER: That’s a pretty immature comment from a public officer I would have thought. I mean, I’d prefer instead of paying the man he actually engaged with the issues and the facts that were presented. I mean I’m not sure he fully understands accounting.

    NICOLE BUTLER: Professor Walker has previously sat on advisory committees for the Commonwealth Auditor General, chaired a commission of audit of state finances in New South Wales and he’s also spent nine years as a chairman of a state owned corporation.”

    full interview is at http://www.abc.net.au/worldtoday/content/2009/s2747556.htm

  27. @Alice
    Alice, i was suggesting that perhaps this is the argument that the government has in its head. Perhaps government think that we would rather have the private sector run the state because both options are negative, but that the private sector would be a lesser evil.

    Personally I am yet to see a justification of the sales that makes sense from a taxpayers perspective. I have heard lots of reasons why Treasury like it (bureaucratic power), why the private sector like it (they make money), why lots of advisors like it (they make money) and the politicians like it (makes it look like they are making tough decisions – they cant think of anything else – their advisors like it).

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