Will you go bankrupt before Social Security?

John Quiggin25 Comments

In his push for Social Security privatization choicepersonal accounts abolition, George Bush is raising the prospect that, some time around 2050, Social Security will go bankrupt. This claim has been refuted quite a few times, so let me raise a different answer.

If you’re a young working-age American, don’t routinely pay your credit card balance(s) down to zero each month, and don’t have top-flight health insurance, it’s odds-on, based on recent experience[1] that you’ll go bankrupt at some point.
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A general request for civil discussion

John Quiggin20 Comments

There’s lots of interesting issues under discussion at present, but, inevitably, vigorous discussion is sliding into flamewar. No individual comment has been offensive enough for me to intervene, but there’s a lot of shouting going on. That tends to reduce comments threads pretty rapidly to repetitive exchanges between two or three people – entertaining for a little while, but a turn-off after that. Could I ask everyone involved to take a deep breath and avoid any personal criticism for a while. There’s plenty of meat left in these issues, I think.

The OECD on user pays

John Quiggin15 Comments

I normally ignore OECD reports on the Australian economy, since they are in essence, a Paris republication of the Australian Treasury policy line of the day. The OECD is largely staffed by officials from national treasury departments on temporary postings, and its primary source in consultations is the Treasury. If there has been an instance of substantive disagreement between the OECD and the Australian Treasury in the past 30 years, I’m not aware of it (corrections welcome on this!). Of course, if you think Treasury is always right, this isn’t a problem.

The latest calling for a renewed push on reform and so on, fits the pattern perfectly. But there was one para that caught my eye, and so I’ll try to dig out the report.

The health system, it said, needed more market incentives and a strong user-pays approach.

Private health insurers should be able to cover risks outside hospitals, while there should also be less reliance on paying doctors on a fee-for-service basis, which encouraged them to over-service their patients.

This seems entirely self-contradictory, but consistent with my general view of the OECD. Fee for service is the only real “user pays” system, since a privately insured person faces exactly the same incentives as someone consuming free public health services. On the other hand, concern about medical over-servicing and support for central planning as a method to control it has been a characteristic feature of the Treasury/Finance view for many years. But, I’ll have to read the whole thing.

Update Treasury is pretty well-informed about the Australian economy, and likes to play its cards close to its chest, so the OECD reports are a useful guide to the way Treasury is thinking. But when Treasury gets it wrong, don’t expect the OECD to correct them. In early 1990, for example, when anyone in the private business sector could have told them a catastrophic crash was under way, the OECD Report said “A severe recession is unlikely … the task for policy is to ensure that the necessary weakening of domestic demand continues”.

This report is also interesting reading for those who now deny that the current account was the policy target driving the credit squeeze that gave us ‘the recession we had to have’.

Banned in Brisbane

John Quiggin65 Comments

We in Brisvegas finally got to see Outfoxed on the ABC last night. It didn’t get a cinematic run because the Murdoch papers (a monopoly here) refused to run more than minimal advertising for it.

It was interesting. I haven’t seen enough of Fox to know whether it was a fair and balanced picture, but the traits depicted were exactly those of the RWDB bloggers who follow the same line as Fox on most issues[1]. Blatant partisanship is combined with a hypocritical pretence of devotion to the unvarnished truth. For “we report you decide”, insert “fact-checking their asses”.

There’s nothing wrong with partisanship, and I’m not shy about announcing my own position. But even partisans have an obligation to be truthful, while acknowledging that they are more likely to focus on facts that are consistent with their own world-view. From what I’ve seen, Fox fails this minimal test, while denying that what it presents is propaganda rather than news.

fn1. This isn’t true of all rightwing bloggers. Some engage in honest debate, and others make no pretence of objectivity. But Instapundit sets the pattern, and many others follow.

Looking for unicorns

John Quiggin29 Comments

Greg Barns raises the prospect that liberal Liberals might cross the floor to block illiberal government legislation in the Senate. This will take one government senator if the rest of the Senate is opposed, or two if the government can line up an additional vote, say from Family First. As Barns observed, this happened a couple of times under Fraser

And during the 1980s, when the Liberal Party was in opposition, it was liberals such as Ian Macphee, Peter Baume and Fred Chaney who curtailed the impact of the Liberal Party’s social conservatives on matters such as immigration and women’s rights.

Of course Macphee lost preselection and Baume and Chaney were marginalised. But, as Dave Ricardo pointed out in recent comments, if you want to look at what’s happened to the 1980s liberal wing of the Liberal party, you need only look at its remaining representative in Parliament – Philip Ruddock.

Bill Gates invented the Internet?

John Quiggin63 Comments

Occasional commentator on this blog, Tony Healy, puts on his thinktank hat to criticise my latest piece in the Fin (Subscription required), writing for the (anti-open source) Institute for Policy Innovation. I argued that most innovation on the Internet had not been driven by patents and copyright, but by creative collaboration of which blogs are, for me, the paradigm example. Tony’s response starts with Google, which is fair enough. Although there are lots of oddities about Google’s business model, it’s a commercial product (as are its competitors) and it’s an essential part of the Internet.

His next claim, though, strikes me as simply bizarre. He says

The Internet was an academic curiosity until the (commercial) release in the mid-90s of Windows 95 which, for the first time provided transparent access to the Internet, vastly expanding the population that could access the Internet

I’m a veteran of the Mac-PC wars, and I’m confident that of all the many claims and counterclaims I heard before 1995 “PC users can’t access the Internet” was not one of them. It’s true that setting up peripherals of all kinds has become easier over the years and that “Plug and Play” was a big Mac advantage in general before W95 (and to some extent still is), but if it was as decisive as Tony suggests here, Microsoft would have been out of business long before 1995.

I’ve seen many accounts of the Internet in which Gates played a key role, but the decision they point to is the free release of Internet Explorer, in competition with Netscape. This doesn’t suit the case Tony is making and he doesn’t mention it.

So, I should modify my claim that nothing worthwhile came out of the dotcom mania. Search engines and Google in particular benefitted from dotcom money. This raises an interesting question for my more technically qualified readers. If there were no dotcom money around, could the usual collaborative processes of the Internet have produced something like Google, or would we still be relying on favorites lists and so on?

What I’m reading

John Quiggin8 Comments

I’ve just finished Who Rules? How government retains control in a privatised economy by Michael Keating. Keating’s basic analysis, with which I agree, is that governments are facing a problem of rising demands and bounded state capacity. Hence, wherever possible, they are economising on capacity, for example by using regulation rather than direct public provision of goods and services. Thus, the reforms of the 1980s and 1990s are seen, not as cutting back government but as making it more effective. An obvious inference is that, if the size of the public sector, relative to the economy as a whole, has remained roughly constant for the past 25 years, and the effectiveness of the state has been enhanced, then government is playing a larger role than before, contrary to the hopes of neoliberals and the fears of social democrats. I think this is broadly correct.

Not surprisingly, Keating has a more favourable view of the reforms, many of which he helped to implement, than I do. On almost every point, I felt he was a little too supportive of the reform agenda and a little too dismissive of the critics[1]. Still, it’s an important contribution to the debate, and well worth reading.

fn1. Interestingly, I get quoted a few times, but mainly for criticisms of the pre-reform status quo, such as the observation that industry policy in the era of tariff protection was ad hoc and incoherent.

PPPs and renegotiation: Citylink and Scoresby

John Quiggin20 Comments

One of the big questions about Public Private Partnerships is what happens, when the deal needs to be renegotiated in some way, 10, 20 or 30 years after it was signed. This story about changes to an interchange affecting CityLink in Melbourne is of interest. The deal is being financed in part by replacing some payments due to be made by Transurban (the Citylink operator) with a smaller upfront payment. The financial arrangements are too complex to permit a clear assessment, but one point is striking.

Last year Transport Minister Peter Batchelor said the Government wanted $200 million for the upgrade. Transurban said it wanted to pay only $150 million – the eventual figure.

So, starting with a a $50 million gap between the initial positions, Transurban got the whole $50 million and the public got nothing.

Related to this is an interesting kerfuffle over the Scoresby (Mitcham-Frankston) motorway. As many will remember, the Bracks government initially promised not to impose tolls, then reneged, copping a lot of flak in the process. The Opposition leader, Doyle, has promised to renegotiate and remove the toll. This has presented the Bracks government with interesting incentives. Usually governments involved in PPPS want to stress what a good deal they have got for the public, in terms of the toll revenue that has been promised the private ownership. But now the situation has been reversed. Faced with Doyle’s promise, the government and its agencies commissioned a PwC report[1] which said that scrapping the tolls would cost $7 billion, with a cost of $4.5 billion for buying out the project. By contrast, construction cost is about $2.5 billion plus “other financial costs” of $1.3 billion.

It appears from these reports that the value of the tolls that have been alienated is nearly three times the cost of building the road[2]. Of course, the government’s report has been produced under pressure to make the repurchase option look as unfavorable as possible. But then, the vast majority of published analyses of PPP projects suffer from the opposite bias.

What’s even more striking about this is that, in PPP circles, the Mitcham-Frankston project is being touted as a huge success, evidence that we are finally getting these things right. Something does not add up here.

fn1. The conclusions have been released, but the interesting bits like the traffic projections are, as usual, commercial-in-confidence. At least, when I asked for them, that’s what I was told.

fn2. Using the $4.5 billion buyback cost and accepting that some of the “other financial costs” would be incurred under standard procurement would give a less extreme result. But the $7 billion number is the one the government has been touting.