John Quiggin

From my hotel room in London, I read this SMH report, headlined “NBN benefits ‘grossly overstated’” which in turn refers to a report by “British telecommunications consultant Robert Kenny and Charles Kenny from the US Centre for Global Development” released (in London, as it happens) a couple of days ago.

Five minutes with Google is enough to determine that

* the Centre for Global Development is a genuine and reputable thinktank, with no particular axe to grind

* Charles Kenny is not what you might call an Internet enthusiast, having written, in 2002, a piece entitled Should we Try to Bridge the Global Digital Divide.
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A moving post on marriage rights from reader and occasional CT commenter Tim Scriven.

Slightly anachronistically, here’s what I wrote for the LSE blog in advance of my lecture last night. The blog as a whole is well worth reading.

I’m speaking at the London School of Economics tonight, basically recapping my Zombie Economics book. It’s a bit late notice, but in case any London-based readers are interested, I thought I would give the event a plug here.

Details here

Michael Stutchbury’s piece a while back supporting the QR asset sale (my critique, his response) turns out to have been the first of many as the Murdoch press tries desperately to talk this flop up. But the punters aren’t buying, and even some of the subeditors appear not to have got the memo. This (unsigned) piece in the Courier-Mail says that, rather than repaying the debt that was the pretext for the sale, Bligh and Fraser plan to spray much of the proceeds on electoral bribes of one kind or another. The text gives the most positive spin possible, but the headline referring to a “desperate push for votes” gives the game away.

And if Bligh and Fraser weren’t feeling desperate, the comments on the story ought to make them so. In 127 comments, I didn’t find one that actively supported the government, although there were a fair few that were also critical of the hopeless LNP. My personal favorite from “Skeptic”

Hands up those who reckon they can be bribed by this behaviour. If so, I have a bridge to sell you. Oh, wait, they’ve sold that too…

Bligh and Fraser are doubtless on the way to well-paid sinecures in the financial sector. But those members of the Labor Caucus who don’t have anything lined up post-politics must soon realise that their only chance of keeping any seats at all next time round is to sack them both.

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

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.

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.

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.

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

Another thread for lengthy debates, off-topic exchanges, long posts on regular hobby-horses etc.

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.

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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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.

I just took a look at the share offer document for QR National, and discovered the interesting fact that the company has only $500 million in debt. Looking at the 2009-10 accounts, QR had debt of $7 billion. Of this, $4.3 billion in debt was allocated to QR National, when QR was restructured.

The offer document shows that this was followed by

a restructure of borrowings under which $4.3bn of borrowings from QTC will be transferred to the State under Transfer Notice for nil consideration prior to Settlement (emphasis added)

That is, to sweeten the sale offer, the government has taken $4.3 billion of QR debt onto its own books. It looks as if the government will only sell about 60 per cent of the shares and the price will be at the low end of the indicative range, so the cash proceeds of the IPO will be something like $3.6 billion. That is, it appears that the additional debt taken on by the state as part of the sale will offset nearly all of the sale proceeds assuming a good outcome, and will more than offset the proceeds if the IPO goes poorly. To be sure, the state will still have 40 per cent equity in QR National worth about $2.4 billion, as it did before, but it does not appear that there will be any money at all for schools and hospitals, even on the spurious cash accounting favored by the government.

I’m now fairly confident my analysis is correct. However, I’d welcome correction from anyone who has better info.

Postscript: Another way of looking at this is that the old QR had a gearing ratio of about 65 per cent, so the government’s equity was equal to about 35 per cent of the total capital value. Having taken all the debt onto its own books, the government will sell about the same proportion of the company (now all equity), so its net worth is essentially unchanged, as is the financial position of the general government sector. All that has happened is that QR’s debt has been converted into private equity.

It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.

My column in last week’s Fin was about the communication and policy failures surrounding the release of the draft plan for the Murray Darling Basin. I still hope that a solution can be salvaged, but the release was a fiasco.

No one will be forced out

Accidents of timing sometimes work out in interesting ways. Early this year, the Risk and Sustainable Management Group at the University of Queensland, which I lead, planned a workshop to review the draft plan for the management of the Murray-Darling Basin, then due for release in July. The rather optimistic title was ‘Water policy in the Murray-Darling Basin: Have we finally got it right?’ and the idea was to allow leading economists and scientists, with the hindsight of a few months, to review the plan and its reception.

Instead, because of delays to the election, the workshop was held only a couple of weeks after the release of the ‘Guide to the Draft Plan’, copies of which were still smouldering on the steps of community halls around the Basin. In this context, the sub-title ‘Have we finally got it right’ took on a tone of sardonic irony.

Surprisingly, though, the consensus of the workshop was that, in substantive terms, the draft plan did mostly get it right. Many of the problems we have seen are the result of poor communication and an excessive bureaucratic reliance on the provisions of the 2007 Water Act, under which the report was required. Others could be addressed with sensible government policy responses to the problems inevitable in dealing with the consequences of decades of largely failed policies.

The big communication problem was the media framing of the plan in terms of ‘cuts’ to water entitlements and allocations, resulting in a string of news stories of farmers saying their businesses would be ruined by cuts of the magnitude envisaged in the plan. The presentation of the draft plan by the Murray Darling Basin Authority did little to challenge this framing. As a result, the Gillard government was left to play catch-up, protesting that it had already committed itself to ensure that water would be acquired only through voluntary participation in purchases or water-saving investments.

The discussion of economic impacts was similarly misleading and similarly poorly handled. Model estimates of changes in employment levels were translated as ‘jobs lost’, when in reality they mean nothing of the kind. The most direct impacts will be on the number of irrigation farm operators. Given reliance on voluntary buybacks, the number of operators who will lose their jobs, or be forced off the land, can be precisely estimated at zero. The reduction in employment will primarily take the form of operators choosing to sell their water entitlements to fund either retirement or a shift into other industries.

For most towns and cities in the region, the ‘job loss’ estimates will be similarly notional. Total population in the Basin is growing, and so is employment. A small change up or down in projected employment growth over a decade or so is little more than a modelling artifact.

These purely notional estimates serve to distract attention from the more important results, focusing on the minority of communities in the Basin where a contraction in irrigated agriculture is likely to produce a reduction in total employment or to exacerbate existing adverse trends.

Communication failures are never the whole story. The government should have had, at the ready, a regional development package that would address both unmet needs in regional Australia as a whole and the specific needs of communities in decline, regardless of the cause of this decline.

Instead, policy responses have been narrowly focused on irrigators and irrigation infrastructure. Billions of dollars have been allocated to projects to improve the efficiency of irrigation, despite evidence that very little water is ultimately lost to the system through processes such as leakage and seepage, which mostly return water to rivers and groundwater systems. If even a fraction of this sum were allocated to improvements in social infrastructure, it could generate enough new jobs and social returns to more than offset the adverse impacts of a contraction in irrigated agriculture.

A solution to the environmental, economic and social problems of the Murray Darling Basin is within our reach. A combination of voluntary repurchase of excess water entitlements and investment in social infrastructure could be funded from the $10 billion already on the table for the Water for the Future initiative. Success or failure will tell us a lot about the capacity of the Gillard government to deliver meaningful reform.

I’ve done a podcast discussion with Russ Roberts for EconTalk. There’s also a transcript of the highlights, great for people who lack the time/ to listen to a long podcast.

Although we are pretty much at opposite ends of the spectrum as conventionally viewed (Roberts is a George Mason prof and Chicago PhD and EconTalk is published at the EconLib site) we found quite a few areas of agreement, and had a constructive discussion on the points of disagreement.[1] That’s partly because Russ is a good host, but also because, as Matt Yglesias noted in a tweet not so long ago, my critique of ideas like the EMH is very similar to that of Austrian-inclined critics like Amar Bhide[2]. I plan to have more to say about this.

fn1. I also got a review from Arnold Kling on the same site, which began “I agree with some of it, which might be considered a rave review.”
fn2. I’ve retweeted this, but I don’t know how to hyperlink to it

The policy skills of the NSW Labor government were graphically illustrated by Kristina Keneally’s recent announcement that the scheme offering a 60c/kWh feed-in tariff to anyone who installed solar panels on their roof had attracted far more demand than the government had budgeted for, and that the price would therefore be cut back to 20c/kWh (roughly the delivered price of coal-fired electricity). This pattern has been repeated with a string of schemes in Australia and overseas in recent years. The reason is simple, as can be seen from the graph below.

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It’s time again, once again, for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpit, please.