Smoke and mirrors yet again (corrected)

John Quiggin16 Comments

The QR float came in at the bottom of the indicated price range ($2.55 a share for institutions, $2.45 for individuals) and the government sold only 66 per cent of the shares, implying a return of $4.1 billion. However, the government announced a return of $4.6 billion. Unsurprisingly, these figures are bogus. To get there the government included some extras, picked up in later reports:

Dividends due to the government from the company and cash proceeds from a debt facility make up the difference between the $4.1bn worth of shares issued and the total revenue figure of $4.6bn.

It’s pretty rich, but par for the course for this government, to treat the dividends from an asset you are selling as part of the sales proceeds.

A couple of points

* The sale just scraped in at the government’s minimum. What are the odds that some favours were called in, and future favours promised, the get the float over the line?

* As I mentioned last time , the government took on $4.3 billion of extra debt when it restructured QR for sale. So, in cash terms, this sale actually leaves the government marginally behind.

Update In the original version I used reports that said the government had retained a 40 per cent holding, which created some additional puzzles. I’ve now fixed this.

Euroconfusion — Crooked Timber

John Quiggin5 Comments

Most of the discussion I’ve seen of the financial crisis as it affects the eurozone seems to me both confused and confusing. A country outside the eurozone and without the “exorbitant privilege” of being able to sell lots of debt denominated in home currency has three options when it runs into debt trouble: default, depreciation and dependency.

Default is the straightforward solution, but it involves a big loss of face, and unpredictable long-term costs. Depreciation doesn’t directly improve the debt position, since debts are in foreign currency, but by making exports cheaper and imports dearer it helps a country to trade its way out of difficulty, without the need for a reduction in domestic prices and wages. Finally, there’s the option of dependency on an outside rescuer, normally the IMF. This has been the most common solution, but the IMF always demands a price (in terms of policy “reforms”) that makes a rescue only marginally more attractive than default.

A eurozone country doesn’t have the option of depreciation. In return, however, it has two dependency options, calling on either the IMF, or the European Financial Stability Fund. Since the EU would like to keep the IMF out, a distressed debtor can expect slightly better terms from the EFSF.

The default option isn’t affected, except in the same way as any kind of behavior viewed as discreditable affects membership of any club. A government that defaults on its debts might be thrown out of the eurozone, but then again it might be thrown out of the OECD, and the eurozone might expel a member that facilitated tax evasion.

The big question is whether the EFSF will work. That’s certainly challenging, but it still seems like a better bet for debtor countries than going it alone. And of course, there’s more commonality of interest than is often supposed because any bailout benefits the creditors, usually French and German banks

via crookedtimber.org

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Another Paul Howes post

John Quiggin11 Comments

My last post responding to Paul Howes led me to this piece by him in the Daily Telegraph, denouncing anonymous Internet commenters for their unfair attacks on politicians, with specific reference to Joe Tripodi. I don’t want to spend too much time on Tripodi, but my non-anonymous view is that he is a prime representative of the type of cronyism that has ruined the NSW government, and also of the culture of impunity which has led so many members of that government to sail close to (or over) the edge on matters of personal and financial propriety. Moreover, his political views aren’t noticeably different from those of, say, Peter Costello. Howes’ observation that

Tripodi is a nice and fiercely intelligent man, in real life. He loves his family and he loves public policy. He’s been described by another paper as ‘the smartest man’ in NSW politics

doesn’t (for the relevant values of “nice”) contradict this assessment in any way. Tripodi’s resignation is welcome and would have been more so a year ago, when it might at least have saved Labor from a landslide.

Coming to the notion that anonymous comments on blogs and Twitter are making life impossible for politicians, I have a couple of thoughts

First, what’s mostly happening is that things that would have once been said at the pub, and heard only by those present are now out in cyberspace, easily detectable by Google. Some of that stuff is nastier than most people are used to hearing, or seeing in print, about themselves. That’s part of life for bloggers as well as politicians. On the other hand, politicians have long used, and on occasion abused, the privilege of saying what they like about anyone in Parliament.

Second, as regards anonymity, I’d be more impressed by these complaints if journalists and politicians hadn’t long since developed their own self-serving culture of anonymity. I don’t know anything specific about Joe Tripodi’s media contacts, but he’d be an unusual politician if he’d never gone on background to bag out his political opponents or (very likely) his Labor colleagues. This kind of cowardly dirt-dishing, which forms the basis of much political journalism is the opposite of the principled, and personally risky, whistleblowing that journalists like to invoke when they defend their own use of anonymous sources.

See also: Andrew Elder on Howes and a similar whine from Leigh Sales.

Living in the 80s

John Quiggin24 Comments

If you want to see why the Labor party is in so much trouble, it’s useful to read this piece in the Oz by Paul Howes, one of the brighter lights on the right of the party. Howes says

For a generation or more we have witnessed a flowering of tory political culture. We have watched ideas flowing out of places such as the Sydney Institute and the Institute of Public Affairs in Melbourne. The IPA, the HR Nicholls Society and the Sydney Institute may propose policies that are abhorrent to me, but they’ve created a culture of ideas to nourish conservative politics.

This would have been an unremarkable claim to make in the 1980s (a generation ago). But today ?? The Sydney Institute is Gerard Henderson, who hasn’t had a new idea since the “Federation Trifecta” in 1990. Around the same time, the IPA with John Hyde rose briefly above its history as a conduit for business donations to the Liberal Party and its present role as an advocate of anti-science delusionism on issues ranging from tobacco to global warming to the Murray-Darling Basin (the latter not quite so much since the departure of Jennifer Marohasy). The HR Nicholls society has been moribund for years – its last notable contribution was as the 2006 venue for Nick Minchin’s disastrously leaked suggestion that WorkChoices had not gone far enough (he was bagged for this by John Howard in his autobio)

Howes goes on to mention, and dismiss, a plethora of leftish thinktanks (Per Capita, the Centre for Policy Development, Catalyst, the Australia Institute, the Evatt Foundation, the Fabians (Disclosure: in one way or another, I’m associated with most of them)) any one of which has had more new ideas in the last few years than the moribund shells he describes have had in decades.

Howes’ assessment reveals that, like most Australian politicians and commentators he is still in thrall to the 1980s agenda. The fact that, far from coming up with “brilliant new ideas”, Howes is sticking with an orthodoxy that was already solidifying when he was born in 1981 wouldn’t matter if these old ideas had proved their worth. But they have comprehensively failed, most notably in the current global crisis.

Howes is no fool and has at least made explicit what is merely implicit in the thinking of the average Labor politician (Bligh, Fraser, Keneally, Gillard and Brumby being obvious examples). But it is little wonder that the Greens are making such headway when the major parties offer a bipartisan consensus on such tired and failed ideas.

Radioactive sandpit

John Quiggin559 Comments

Since I’ve been incautious enough to mention the N-word in the previous post, I’ll open another sandpit specifically devoted to discussions of the merits, and otherwise, of nuclear power. Any mention of this topic on other threads will be deleted and will risk bans or restrictions on the offender

Update Since it’s still going, I’ve moved it up, which should reopen comments

One-dimensional chess — Crooked Timber

John Quiggin3 Comments

The big issue to be decided by the lame-duck Congress is whether to extend Bush’s tax cuts for the very rich[1]. This is a one-dimensional chess game, with the obvious zero-sum property that if the tax go through, the Republicans win and (at least in standard political terms) the Democrats lose by an equal amount.

There seems to be a near-universal consensus that
(i) The game is a forced win for the Dems (pass a bill extending the cuts for everyone but the rich and dare the Repugs to oppose it)
(ii) The Dems opening move will be to resign

This analysis certainly gives support to the idea of unobserved dimensions, presumably monetary

fn1. The option of not extending them for the well-off, and doing something serious about the deficit without too much impact on demand is way outside the Overton window.

via crookedtimber.org

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Weekend reflections

John Quiggin21 Comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. In keeping with my attempts to open up the comments to new contributors , I’d like to redirect discussion, as opposed to substantive new contributions, to the sandpit(s). As always, civilised discussion and no coarse language please.

Remembrance Day

John Quiggin30 Comments

Over the fold is the piece I wrote for the Fin which ran yesterday, on Remembrance Day. I wasn’t entirely satisfied with the last couple of paras, referring to the present and future, so I need to spell them out a bit more.

First, while I was, in 2002, a fairly enthusiastic supporter of the decision to go to war in Afghanistan, subsequent events and the evolution of my own thinking have led me to qualify that view, and to conclude, in particular, that Australia should withdraw its troops in the near future.

First, some general thoughts

* War is justified only in self-defence (including collective self-defence), and only to the extent that there is a reasonable expectation that going to war will yield a better outcome than not doing so
* Even when war is justified by self-defence, it should not be used as a pretext for securing benefits that go beyond restoration of the status quo ante bellum (bearing in mind that war changes things, so exact restoration is often not feasible).
* Political and public thinking is biased in favor of the belief that military force is an effective way to deal with political problems and a successful use of military force (even if justified) reinforces this bias. So it is important to create whatever institutional constraints are possible, such as requirements for Parliamentary approval of decisions to go to war
* Even when justified ex ante, war is unpredictable and likely to go badly. The idea that having started on a war that has turned out badly, we should “see it through” is a mistake

Coming to Afghanistan, I think the self-defence case is clear-cut. The US was attacked by terrorists trained in and led from Afghanistan, by a group supported by the Taliban government. It’s possible to make a hypothetical case that absent the incompetence and malice of the Bush Administration (backed by Blair and Howard in the decision to start a new war in Iraq) that there was a reasonable expectation of success. However, I observe with some discomfort that much the same case is put forward by many on the left who backed the Iraq war, where, however, the self-defence case was a transparent sham. In any case, we are past the point where continuing the war can be expected to produce benefits for either Afghanistan or the world. It would be better to withdraw and spend some of the money saved as a result (many times Afghanistan’s annual national income) on aid.

Finally, I concluded my post by saying “On this Remembrance Day, we should honour the sacrifice of all those who died by giving up, once and for all, the belief that war should be part of our national policy.” To be clear, I am not a pacifist and do not oppose fighting in self-defence. The idea that “war should be part of our national policy” means to me, that the use or threat of military force can and should be used to advance our perceived national interest. This idea, which forms the basis of military policy in most countries, appears to to both morally wrong and factually false.

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Bligh and Fraser sell Port of Brisbane … to themselves

John Quiggin24 Comments

According to the Brisbane Times, the Bligh government has just sold the Port of Brisbane to a consortium led by the Queensland Investment Corporation. This must have been a tough negotiation, given that the QIC website states

As a Queensland GOC, QIC’s shareholding Ministers are the Honourable Anna Bligh MP, Premier and Minister for the Arts, and the Honourable Andrew Fraser MP, Treasurer and Minister for Employment and Economic Development

Note: As with the QR sale, it looks as if the government has retained about $1.3 billion of debt in the Port of Brisbane Corporation, which now has no assets, so the net proceeds will be less than half the announced price of $2.3 billion.