A bit more on Queensland asset sales

John Quiggin33 Comments

Updated: Following some criticisms by the Queensland Treasurer, I’ve updated the estimates to exclude gains made by the Port of Brisbane on the sale of its shareholding in Brisbane Airport. Obviously, there are other adjustments that ought to be made to get a proper comparison between the interest savings from privatisation and the income foregone. Treasury has the resources to do this, but instead has chosen to present a totally invalid apples-and-oranges comparison between current year dividends and projected whole of government interest savings

I have a piece in today’s Fin criticising the Bligh government’s case for asset sales. I will probably post it here tomorrow. In the meantime I’ve picked up and confirmed a bit of additional information.
(i) Although the estimated sale price is $15 billion, about $7.5 billion will go to repaying debt held within the Government Business Enterprises themselves. That’s currently being covered out of the revenue of the GBEs, so this debt repayment will make no difference to the fiscal position of the government. The net return to general government is also about $7.5 billion, and it’s only this money that can be used to repay general government debt.[1]
(ii) The estimated interest saving from a AAA rating is $266 million over four years
(iii) The Port of Brisbane and QR[1] produced pretax profits of $553 million in the last reporting year. These state-owned enterprises don’t pay tax to the Commonwealth, but make tax-equivalent payments to the state so it’s pretax income that is relevant.

Port of Brisbane: Pretax 2009 $332 million [3]
QR: Pretax 2008 $221 million

This provides a simple basis for assessing the short-term fiscal impact of privatisation. The gain from privatisation, assuming the sale took place now, the estimated price is realised, the risk-adjusted interest rate is 6.5 per cent and sale costs are ignored would consist of
(a) interest savings from debt repayment, 6.5 per cent of $7.5 billion or $490 million
(b) savings from the AAA rating, $66 million per year
for a total of $551 million per year

So, the short-term effect of privatisation is roughly neutral. In the long term, it seems likely that returns would grow at least in line with inflation, while interest savings would remain fixed in nominal terms. Hence, privatisation would result in a long-term fiscal loss.

Perhaps there is a case for privatisation that would outweigh these fiscal losses, but, if so, the government hasn’t put it forward.

fn1. The alternative would be to do a whole-of-government comparison, taking account of all debt repayments and using Earnings Before Interest and Tax (EBIT) as the comparator.

fn2. Note that this calculation does not include Queensland Motorways or Forestry Queensland. These organisations roughly broke even in the most recent period, but they hold assets that can be expected to grow steadily (and, in the case of forests, literally) in value in future years.

fn3. This excludes a $275 million profit on the sale of shares in Brisbane Airport, but includes other valuation gains, which have been earned consistently in recent years.

Libertarians and delusionism

John Quiggin338 Comments

This post from TokyoTom deplores the fact that (TT excepted) supporters of the Austrian School, and for that matter libertarians in general, are almost universally committed to delusional views on climate science. The obvious question is why. As TT points out, there are plenty of political opportunities to use climate change to attack subsidies and other existing interventions. And the fact that the environmental movement has shifted (mostly) from profound suspicion of markets to enthusiastic support for market-based policies such as carbon taxes and cap and trade seems like a big win. Most obviously, emissions trading relies on property rights and Austrians are supposed to like property rights.

On the other hand, given the near-universal rejection of mainstream climate science, we can draw one of only three conclusions
(a) Austrians/libertarians are characterized by delusional belief in their own intellectual superiority, to the point where they think they can produce an analysis of complex scientific problems superior to that of actual scientists, in their spare time and with limited or no scientific training in the relevant disciplines, reaching a startling degree of unanimity for self-described “sceptics”
(b) Austrians/libertarians don’t understand their own theory and falsely believe that, if mainstream climate science is right, their own views must be wrong
(c) Austrians/libertarians do understand their own theory and correctly believe that, if mainstream climate science is right, their own views must be wrong

While (a) clearly has some validity, most of the comments on climate science made here by self-described Austrians and libertarians suggest that either (b) or (c) is true. But which?

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Unforgivable, at least by me

John Quiggin67 Comments

The SuperFreakonomics chapter on global cooling is still being kicked from one end of the blogosphere to another, with error after tired delusionist error being pointed out. Most of the time, it’s just sloppy contrarianism of the type you might expect from people who hang around with rightwingers a lot and are in a rush to produce a controversial book. But there is one point that, coming from Steve Levitt, I find unforgivable. Before pointing it out, I’ll quote what I said about Freakonomics when it came out, in a post entitled “Getting the data to talk”

what Levitt has taken from the economics profession is not so much a body of theory to be applied, as a set of tools for empirical analysis and an unflinching willingness to look at social and policy issues without regard to social norms or received wisdom. More importantly, he’s combined all this with creative flair and an impressive capacity to see the right way of teasing compelling conclusions out of refractory data.

Looking back, I still think this judgement stands up as regards Freakonomics, which makes the tragedy of Superfreakonomics all the greater.

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Bligh’s bad arguments for privatisation

John Quiggin33 Comments

The Bligh’s government’s original case for the asset sales announced in the June budget was that the state’s finances had deteriorated drastically since the previous assessment at the time of the March election, as part of the generally declining outlook for the world economy. That argument has collapsed as the Australian and global economies have strengthened with the result that the Queensland state budget managed a surplus for 2008-09, as opposed to the projected $500 million deficit.

It would be possible to argue for some (though not all) of the proposed privatisations on the grounds of economic efficiency, but of course arguments of this kind are no more (and, given the epic failure of financial markets seen over the past two years) arguably less valid than they were before the crisis, at which time Labor rejected them.

That leaves the argument that the asset sales will improve the state’s finances. Such arguments depend on showing that the value derived from selling the assets exceeds the value realised by keeping them in public ownership. In this opinion piece, Bligh attempts to make such a case, but the arguments involve hopelessly invalid apples-and-oranges comparisons. When a policy is defended by such obviously shoddy arguments, the only reasonable inference is that the correct assessment comes out the wrong way.

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The prehistory of “liberal fascism”

John Quiggin16 Comments

A week or two ago I was doing a bit of work on the Wikipedia article on political correctness, and I came up with what may well be the first introduction of the term (initialised as “p.c.”) to the general public, as represented by the readership of the New York Times, in an article by Richard Bernstein.

At least since the 1970s, the description “politically correct” or, in Australia, “ideologically sound”, had been used within the left to mock those who were excessively concerned with doctrinal and linguistic orthodoxy. The story of how “political correctness” turned from an inside joke to a Marxist-inspired assault on All We Hold Dear is reasonably well known. Bernstein traces its emergence as a pejorative to a conference by the Western Humanities Conference held, appropriately enough, in Berkeley.

For me, at least, the real surprise in this article came right at the end, with a quote from Roger Kimball, now of Pajamas Media, who said “It’s a manifestation of what some are calling liberal fascism”. Apparently, Jonah Goldberg owes him royalties.

Update I haven’t made proper use of the excellent NYTimes search facility until now. This search shows a string of sardonic references to political correctness in the Arts section (and one reference to its use by the Chinese CP) appearing in the years before Bernstein’s piece. After that, there’s an explosion). And “liberal fascism” made its first outing (post-1980 at any rate) in a 1988 story about the Dartmouth Review, spoken by then editor Harmeet Dhillon.

What is it with governments and car races?

John Quiggin57 Comments

Just about every Australian city has had a disastrous experience with a publicly-subsidised motor race. In most cases, the governments concerned have been advocates of market liberalism, who somehow find it possible to make an exception for motorsport.

Adelaide spent a fortune to buy the Grand Prix, only to see Jeff Kennett spend even more to entice it to Melbourne (at the same time as he was closing schools and sacking hospital staff). Economically unsound from the outset, the Grand Prix has experienced steadily declining attendance and interest, and is unlikely to last beyond 2015.

Kate Carnell in Canberra wasted a fortune on the V8 Supercars before admitting defeat. Before that, there was the Greiner government’s Eastern Creek fiasco. Now, we have another fiasco on the Gold Coast.

I’ll pass over the easy pointscoring about a government, claiming to be reduced to such straits that it has to sell off the family silver, blowing over $10 million on a sporting event. Even supposing we had to spend this money on sport, surely we could do better than this low-grade exercise. I have a few suggestions over the fold, and would welcome more.

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