Collapsing case for privatisation

John Quiggin137 Comments

The Bligh government’s case for asset sales rests in part on a supposed fiscal emergency arising from the global financial crisis and in part from the general ideological claim that putting infrastructure assets into the hands of the private sector will promote economic efficiency. Both parts of the case have taken a knock in the last couple of days. A study by Access Economics confirms the findings of the union-commissioned study by Bob Walker and Betty Con Walker (derided by the government and state Treasury at the time) that the budget position is much stronger than has been admitted so far.

On the second point, Liberal Lord Mayor of Brisbane Campbell Newman has conceded that the days of private toll roads are probably over. As I’ve been saying for years (getting on for decades now) these projects always involve a social loss. In the 1990s, it was almost always the public that took the loss while private operators made out like bandits. In the easy money environment of the 2000s, private investors made silly investments, and often lost the lot. Now that everyone has wised up, there will be no more deals like this.

By far the best solution would be for the state government to buy back all the toll roads, and replace ad hoc tolls with a coherent system of congestion pricing. The Bligh government instead, plans to sell off its own toll roads. As for congestion pricing, Anna Bligh has made her view pretty clear “not while this government is in office”. In reply to which I can only quote Men in Black – “Your offer is acceptable”.

H/Ts Darren Godwell, Tom Miller, Nancy Wallace

Abbott abandons half the population

John Quiggin93 Comments

Tony Abbott’s latest move, floating the idea that people under 30 should be denied access to the dole, is clear evidence of why he should never be Prime Minister. For that matter, it’s an illustration of the weaknesses that made him a second-rate (at best) minister under Howard.

The political calculation is obvious, although the arithmetic looks dubious to me. The idea is to appeal to the anti-youth prejudices of the older voters who form the core of Liberal party support. But older voters are hard to shift in general, and the kind of people who would like this proposal are mostly rusted-on Liberals, though they might once have been One Nation types. By contrast, Abbott’s overt appeal to bigotry against the young will surely cost the Libs votes among this group at a time when their attitudes are still being formed

Coming to the policy merits, Abbott’s supporting “reasoning” if such a term can be justified is that this measure will encourage people to move to “areas where there are skills shortages, such as in the Western Australian mining sector.” We are talking here about the age group where most people start forming long-term relationships and having children (median age for first child is 29, and appears to be declining at the moment). And, even if they are temporarily unemployed, most people in this age group have made career choices that are unlikely to be consistent with a flit to WA to work in the mines. And, even with relatively strong conditions, I doubt that the demand for labor in the mines extends say, to a cry for hairdressers, or bartenders or shop assistants, to pick a few occupations at random[1].

This idea seems too silly even to come from a focus group. In fact, it seems about on a par with the ideas I come up with after a triathlon and a few glasses of muscle relaxant. I usually manage to refrain from communicating these marvellous ideas on the blog, let alone announcing them to the public at large.

fn1. ABS used to publish data on unemployment by usual occupation, but they seem to have stopped.

(H/T Nancy Wallace).

Update: More from Kim at LP

Unit pricing

John Quiggin51 Comments

When we were at the supermarket the other day, I noticed, and made use, of some helpful new information for buying toilet paper. Next to each of the various offerings was the price per sheet. Since the brand was the same, it was easy to identify and buy, the cheapest offering, rather than doing a complex estimation and calculation.

I vaguely assumed I was enjoying the benefits of the market for corporate control, as the supermarket, formerly a small Coles outlet had been taken over by Foodworks. But this article by Ross Gittins informs me that a requirement for unit pricing has been introduced by the Rudd government. Gittins is sceptical, saying:

It’s a nice idea – the kind that appeals to economists – but I doubt it will do much good. It assumes shoppers are a lot more diligent and coldly calculating – a lot more ”rational” – than most of us are.

Since I’m an economist, my delight in this innovation is consistent with the first part of Gittins’ claim, but as a shopper I disagree with the second part. The great thing with this is that I don’t have to be diligent or calculating – the calculation has been done for me. Certainly, I’m benefiting from this without even knowing there was a policy, whereas I never even looked at the unlamented Grocery Watch site.

Hope (crosspost from CT)

John Quiggin27 Comments

I posted this at Crooked Timber. I plan something a little more specific to Australia when I get some time

One reason that many on the left of politics preferred Obama to Hillary Clinton is that his rhetoric, at his best, promised something more than incremental reform, a promise summed up by slogans like “Change we can believe in” and “Yes we can”.

Given the political realities of the US, and the obvious fact that Obama is instinctively a pragmatist and centrist, it was never likely that this would translate into radical policy action in the short run. Still, it seemed at least possible that an Obama presidency would begin a renewal of a progressive project of transformation, setting out the goal of a better world. One respect in which this hope has been fulfilled, for me, is in Obama’s articulation of the goal of a world without nuclear weapons, and in the small but positive steps he’s taken in this direction.

I plan to talk about the specific issue of nuclear disarmament in more detail in a later post. The bigger point for me is that after decades in which the left has been on the defensive, it’s time for a politics of hope. We need hope to mobilise a positive alternative to the fear, anger and tribalism on offer from the right. Centrist pragmatism provides nothing to match the enthusiasm that can be driven by fear and anger, as we have seen.

What the politics of hope means, to me, is the need to start setting out goals that are far more ambitious than the incremental changes debated in day-to-day electoral politics. They ought to be feasible in the sense that they are technically achievable and don’t require radical changes in existing social structures, even if they may set the scene for such changes in the future. On the other hand, they ought not to be constrained by consideration of what is electorally saleable right now.

Over the fold, I’ve set out some thoughts I have for goals of this kind. At this stage, I’m not looking for debate on the specifics of these goals or the feasibility of achieving them (again, more on this later). Rather, I’d welcome both discussion of the general issue of what kind of politics the left needs to be pursuing, and suggestions of other goals we ought to be pursuing

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Straws in the wind

John Quiggin169 Comments

Serious action to reduce CO2 emissions has been stymied in Australia and the US for the moment. So, to get an idea of what is likely to be feasible, and on what timescale, we have to look at Europe, which has both a working Emissions Trading Scheme and a bunch of special incentives to promote renewable energy. At least on the latter point, there is some cause for optimism.

Here’s a graph of new installed capacity and decommissioned capacity for 2009 from The European Wind Energy Association (link here was broken and is now fixed-JQ). The results pretty much speak for themselves, but I’ll add a couple of observations.

The fact that solar PV was a major source of new installed capacity surprised me. Until now, solar (along with fusion) has been one of the contenders for the tag “the energy source of the future and always will be”. But, on current trends, solar is set to be a major contributor in the future. Of course, the outcome so far has been the result of large subsidies, such as feed-in tariffs. But, even as the subsidies are cut back the volume of installations continues to grow. Before long, solar could be competitive with coal on the basis of the ETS and peak-load pricing, without the need for an extra “renewable” subsidy. Gas is likely to be cheapest for some time to come, but there are sound reasons for not wanting to depend entirely on an energy source that can be cut off at short notice.

The other point is that for coal (and also, less surprisingly for nuclear) installed capacity showed a net decline. The combination of the ETS and strong political opposition has made the construction of new coal-fired power stations in Europe almost impossible, at least without a commitment to CCS or some other sweetener.

On this issue, where Europe has led, the rest of the world will follow sooner or later. The big question is whether it will be too late. The good outcomes we are seeing in Europe suggest that, even with a few years’ slippage, big reductions in emissions will be possible in time to stabilise global climate.

Kaggle

John Quiggin8 Comments

At dinner last night (an event to celebrate various research awards won by people at UQ) I was talking with an engineering professor about the question of how to promote innovation without reliance on patents and forms of monopoly rights (usually referred to as intellectual ‘property’). One solution is to offer prizes for valuable discoveries[1]. This is a nice idea, but there are lot of practical problems in setup and administration. Nicholas Gruen has an interesting startup, aiming to simplify this process. Read about it here.

fn1. This doesn’t rule out IP, but it offers a potential alternative.

Which Road to Serfdom?

John Quiggin125 Comments

Both here and at Crooked Timber, libertarianism is getting a bit of a run. So, can anyone find me a copy of Hayek’s prescient 1944 book, The Road to Serfdom, which predicted that the policies of the British Labour Party (policies that were implemented after the 1945 election) would result in relatively poor economic performance, and would eventually be modified or abandoned, a claim vindicated by the triumph of Thatcherism in the 1980s? This book, and its predictive success, seem to play an important role in libertarian thinking.

Despite a diligent search, the only thing I can find is a book of the same title, also written by an FA von Hayek in 1944. This Road to Serfdom predicts that the policies of the British Labour Party, implemented after the 1945 election, would lead to the emergence of a totalitarian state similar to Soviet Russia and Nazi Germany, or at least to a massive reduction in political and personal freedom (as distinct from economic freedom). Obviously this prediction was totally wrong. Democracy survived Labor’s nationalizations, and personal freedom expanded substantially. Even a defensible version of the argument (say, a claim that, Labor’s ultimate program included elements that could not be realised without anti-democratic forms of coercion, and that would have to be dropped if these bad outcomes were to be avoided) could only be regarded as raising a hypothetical, but unrealised, cause for concern.. Presumably, this isn’t the book the libertarians have read, so I assume there must exist another of the same title.

Time for the B team

John Quiggin81 Comments

I spoke yesterday at a Forum on the Bligh government’s privatisation program. I got a presentation ready (it’s over the fold) but spoke off the cuff instead.

As well as my oft-stated critique of the government’s case for privatisation, I took a look at the broader budget problems facing Queensland. Although the government has overstated these problems to promote the privatisation push, they are real enough.

The fundamental problem is that the government is committed both to high quality service and to keeping Queensland a low tax state. According to standard measures, Queensland’s tax effort is about 85 per cent of the Australian average, which amounts to a shortfall of around $1.5 billion, or pretty much the gap the government is trying to fill. In addition, Queensland provides more business subsidies and incentives than any other state, most notably the indefensible Investment Incentives Scheme. To the extent that these incentives actually attract new business to the state they increase the demands on infrastructure and thereby create even more problems. Mostly, though, they are just a waste of money.

The government has committed itself clearly and publicly to providing Queenslanders with services that are as good as those in other states. That can’t be done while also holding down tax revenue.

Looking at the political situation regarding the asset sales, it seems to me unlikely that they can be stopped while Bligh and Fraser are in charge, and unlikely that Labor will change leaders unless electoral defeat appears inevitable. I’ve therefore concluded that, in the absence of such a change, I’ll be giving the Greens my first preference and the LNP my second.

In a democracy, it’s important that parties should alternate in office to some extent, and it follows that it can’t be reasonable always to prefer one major party to the other. As a general rule this hasn’t had any practical implications for my vote – for most of my life, long-running Labor governments were a rarity. But Queensland Labor has been in for 20 years, with only a brief interruption under Borbidge, and it shows. It looks like it’s time to give the other side a go, unimpressive as they are.

Update More from Mark Bahnisch at LP

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