Grattan unreliable on electricity networks

The Grattan Institute has just released a report blaming high electricity network costs on public ownership and excessive reliability standards. I commented on a draft of the report, but there wasn’t much change in relation to my comments.

My comments are over the fold. Let me offer the following, slightly ad hominem argument. Grattan has backed the National Energy Guarantee, a radical change in Australia’s energy policy, which was justified mainly by the occurrence of a single blackout in Adelaide. Yet it asserts (without any evidence I can see) that the responses to earlier blackouts in Queensland and NSW represent unjustified “gold plating”.

Read More »

Bitcoin kills the efficient market hypothesis (now with full article)

I have a piece in the New York Times looking at the implications for the bitcoin bubble for economic theory and, in particular, for the (Strong) Efficient (Financial) Markets Hypothesis (EMH) which states that prices determined in financial markets reflect all the available information about the value of any asset. If that’s true then governments can’t improve on a policy of allocating investment to those assets with the highest market return, which can be achieved by letting private capital markets determine all investment decisions.

Bitcoins have no inherent usefulness, being a record of pointless calculations. They are useless as a currency (their putative purpose) and are now being promoted as a store of value on the basis of scarcity alone. This leaves supporters of the EMH with a dilemma.

If Bitcoins are indeed worthless, then financial markets should price them at zero. But the introduction of futures trading actually boosted the price in the short run. Even after recent declines, there’s no sign that prices will reach zero any time soon.

On the other hand, if Bitcoins are valuable simply because people value them, then asset prices are entirely arbitrary. The same argument can be applied to any financial asset.

Dean Baker at CEPR has a nice followup, making the obvious but crucial point that, since financial services are an intermediate input to production, we want the financial sector to be as small as possible, consistent with doing its essential tasks. As the experience of the mid-20th century shows, a market economy can function perfectly well with a financial sector much smaller than the one we have today. As Bitcoin shows, the massive expansion since then is nothing but wasteful speculation. The financial sector should be cut down to (a small fraction of its present) size.

Read More »

Greens back renationalisation

The Greens have announced a policy of renationalising the electricity grid, starting with transmission. Since that’s exactly what I proposed last year, it’s no surprise that I agree.

The crucial aspect of the policy is that it should begin with a reduction in the allowable rate of return to a level comparable with the long-term government bond rate. This ensures that the assets can be reacquired at their true value rather than paying the premium invariably associated with regulated rates of return based on spurious market comparators.

On a more snarky note, I can’t resist the observation that these assets were never fully privatised in the literal sense of the term. Rather, in many cases, they were sold to foreign governments operating through sovereign wealth funds.

Three gigs at the Senate

I’ve appeared (or rather, been heard by teleconference) at two Senate inquiries this week, one on the Northern Australia Infrastructure Facility and one on the problems of the TAFE system. In addition, i completed a submission to the inquiry into the Future of Work and Workers, which is now available on the inquiry website.

The Future of Work submission was about the way in which technology and labor market institutions have interacted to generate the “gig” economy of insecure employment, continuously threatened by technological disruption. The key point is that decades of anti-union and anti-worker legislation and state action have created a situation where technological change is likely to harm rather than help workers. A summary is over the fold
Read More »

Renationalisation needs to break with corporatisation

My latest Guardian article is headlined The core of the argument is that, to make a success of renationalisation, we need to do more than buy back privatised enterprises, and run them as publicly owned corporations. We need a different model. A starting point would be the statutory authority model used in Australia with great success, before the Hawke-Keating government adopted the corporatised model as a step towards privatisation.