The Great Canal

John Quiggin24 Comments

It looks as if the WA election may turn on a PPP scheme: Liberal leader Colin Barnett’s proposal for a canal bringing water from the Kimberleys to Perth. This seems to me like complete lunacy. The estimated construction cost is $2 billion, but given a 10-year staged construction process, accumulated capital costs will be closer to $3 billion by the time the first water flows. The private owner will want a nominal return of at least 10 per cent, and depreciation of 4 per cent[1]. That’s more than $400 million a year in capital costs alone, or something like $800 a household. I think a saw an estimated water flow of 200 GL, which suggests $2/kl in capital costs.

But that’s just the start of it. Water is heavy. Every kilolitre of water is a tonne of matter that has to be transported nearly 3000km with no assistance from gravity. I have no idea how much this would cost, but I’d be amazed if it could be done for $1/kl. And all of this is before treatment and reticulation, and without even thinking about evaporation and seepage, environmental issues, native title, compensation for non-indigenous freeholders and so on. Desalination is considered expensive at $1-2/kl but it looks like a marvellous bargaing compared to this.

The proposed contract is take or pay, so if demand falls short (this scheme will supply around 400kl/household, more than total consumption for many) the loss will be borne by existing public water suppliers.

Barnett has apparently committed himself to the scheme without any sort of feasibility studies, and, according to the Fin, scored a big win with the TV audience in his debate with Geoff Gallop by doing so. But, on the evidence of this scheme, he’s unfit to be trusted with a footy club raffle, let alone running a state government.

One interesting feature of this kind of scheme is that I’m in agreement with the Institute of Public Affairs. We have very different views on infrastructure policy in general, but we can both recognise a boondoggle when we see one.

Update 5/04 The Fin quotes a Treasury report that estimates the cost at $6.50/kl which includes higher construction costs. That sounds about right to me, and confirms my conclusions about Barnett. The story says the $2 billion promise was based on a proposal from Tenix (the planned private partner) that was exceptionally sketchy – apparently they didn’t even know the route of a major gas pipeline in the area.

Further update Rob Corr is all over this story. For what it’s worth, I’d judge that Barnett has a few days left to back off the idea and claim he’s been misunderstood. Any longer than that and he’s better off brazening it out all the way to the election. But three weeks is a long time in politics.

fn1. It’s supposed to be a BOOT apparently, so the capital will have to be amortised over 25 years or so, making 4 per cent a lower bound.

Weekend reflections

John Quiggin38 Comments

This regular feature is back. The idea is that, over the weekend, you should post your thoughts in a more leisurely fashion than in ordinary comments or the Monday Message Board.

Please post your thoughts on any topic, at whatever length seems appropriate to you. Civilised discussion and no coarse language, please.

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?