Right’s privatisation arguments rubbish

Written By: - Date published: 3:05 pm, December 20th, 2009 - 152 comments
Categories: assets, privatisation - Tags:

As a senior economist at a respected company, John Carran wrote some apallingly simplistic tripe in his article, “Exorcising the asset sale bogey“, Dominion Post, 19 Dec.

It is as if the programme of privatisation in the late 1980s and 1990s never happened, and we have learnt nothing from those experiences and subsequent socio-economic consequences.

Carran states, “Consider what could be achieved for taxpayers if a proportion of that capital was freed for use elsewhere. For instance, it could be invested in much needed infrastructure such as roads, or it could be invested in schools, hospitals, and other public amenities. Alternatively, the Government could reduce the burgeoning public debt burden. .”

The second word to come to mind about that statement is, “rubbish”. The first word is unprintable here.

For the record, NZ’s crediting rating has actually worsened in the last twenty-five years since billions of dollars of state assets were privatised. Most assets were bought by foreign companies and profits were duly repatriated
offshore. Shifting billions overseas has sent New Zealand’s Balance of Payments further and further into deficit.

This has subsequently harmed our credit rating, as Standard & Poors alarmingly warns, ‘New Zealand’s AA+ foreign-currency credit rating may be cut if the nation’s current account deficit and overseas debt begin to curb growth and investment”

Carran practically insults our intelligence when he then states, “A wealth of evidence suggests that on average privately owned businesses are run more efficiently, innovate more, and provide better customer services than government-owned businesses.”

Tell that to the mum & dad investors of Hanover Finance, Bluechip, and dozens of other finance companies that collapsed in the last few years, owing billions to shareholders.

Tell that to the workers and creditors of Lane Walker Rudkin.

Tell that to railways commuters who had to put up with degraded service and railway stations, whilst NZRail was in private ownership. Almost no maintenance, upgrading, or investment took place in the 1990s, and people were often left waiting at stations as units broke down, signals malfunctioned, and heat-stressed tracks buckled in summer heat.

Tell that to the public when taxpayers had to rescue Air New Zealand from insolvency, having to re-nationalise the airline.

And tell that to banking customers who had to endure years of high banking charges – until Kiwibank arrived on the scene.

Carran blithely adds, “Sustained bad performance will put a private company out of business.”

True enough – but not always.

The four major Australian banks have rorted the NZ public with their high banking fees, mortgage rates, and lessening service as Branches closed.

It took a state owned enterprise – Kiwibank – to force banks to re-evaluate their services and fees. A couple of years ago it would have been inconceivable for a Bank to drop account fees. Now it is almost a regular occurence.

In as perverse way, competition IS working -but only because a state owned bank made it happen. Privatise Kiwibank and prepare for the re-emergent rise of account fees – guaranteed.

Perhaps the most derisable claim from Carran was when he naively says, “Foreign owners are bound by the same laws and regulations and are required to pay the same tax as New Zealand owners.”

Someone forgot to tell seven, foreign-owned banks about their committment to pay their taxes in this country. The Australian-owned Westpac has just been prosecuted for owing $1 billion to the IRD. The BNZ is next in the firing line for alleged tax avoidance and faces prosecution.

Carran continues with more ludicrous assertions, ‘Regardless of who owns the sold assets, the jobs associated with them remain in New Zealand.’

Tell that to the workers of companies that relocate their call-centres or manufacturing to low-wage economies.

But Carran’s grasp of simple economics is really questioned when he says,

‘Of course foreign owners will repatriate a share of the profits overseas. That is the return they get for the risk of investing their capital here. In return New Zealand gets capital not otherwise available locally… ‘

More nonsense!

Carran must be aware that the difference between a foreign owned company and a locally-owned company is that the former repatriates profits off-shore, whilst the locally-owned company does not. Indeed, the locally-owned company re-invests profits within New Zealand.

Indeed, it is not even necessary for a New Zealand comnpany or SOE to be sold to foreign owners simply to acquire capital. A locally-owned company can access overseas funds and will pay interest on borrowings. But those interest payments are not likely to be as onerous as the repatriation of profits to overseas owners (which impacts on this country’s Balance of Payments a point already made in this article).

There is more in Carran’s article that merits rebuttal. Practically every paragraph consists of unproven assertions; naive notions; and just downright wishful thinking. That he ignores recent history is obvious. That he is no Rod Oram or Gareth Morgan, even more so.

Frank Macskasy

152 comments on “Right’s privatisation arguments rubbish ”

  • Comments are now closed

  1. r0b 1
    20 December 2009 at 3:07 pm

    This was scheduled for posting hours ago, but scheduling seems to be not working at the moment. Posts may appear at poorly spread times until Lynn has a chance to have a look.

    [lprent: there was an upgrade on wordpress yesterday. Probably related to that. Checking ]

    • Swampy 1.1
      21 December 2009 at 11:55 pm

      First post I tried in this thread gives me a 500 server error. The rest seem to be OK

      [lprent: That happens. Neither the net or the site are perfect. Usually just press the back button on the browser and then send again. ]

  2. tsmithfield 2
    20 December 2009 at 3:40 pm

    The only assets the state should own are ones that are uneconomic or unviable for the private sector to provide. On that basis, I would not have privatised electricity as I don’t think the population base is large enough for more than one provider. Also, the long-term infrastructure requirements with electricity would be hard to justify on a business case, so it seems sensible for the crown to provide them.

    However, there are a lot of areas the crown should not be involved in. The reason is that the crown is always able to rescue an inefficient business that would otherwise fail in the private sector. Thus, the inefficiencies can prevail and be multiplied. Some of the nonsense that used to go on under rail when it was publicly owned is testimony to that.

    Also, having the crown owning businesses that are competing in the private market is likely to discourage private investment. Why would you want to compete against a business that has the power of the state behind it, has the power and muscle to outlast any competitors, and is going to survive no matter how inefficient it is.

    • Michael Over Here 2.1
      20 December 2009 at 4:59 pm

      “Why would you want to compete against a business that has the power of the state behind it, has the power and muscle to outlast any competitors, and is going to survive no matter how inefficient it is.”

      Uh, because you can still make money? Your competitors don’t have to go out of business in order for your business to be profitable.

      • tsmithfield 2.1.1
        20 December 2009 at 5:35 pm

        I said discourage private investment, not stop it all together. A government-backed competitor with theoretically unlimited resources doesn’t exactly make for a level playing field.

      • Frank Macskasy 2.1.2
        23 December 2009 at 7:54 am

        Absolutely.

        One example that comes to mind: housing.

        The State provides low-income families with cheap, affordable accomodation.

        Private land-owners also provide middle/high income earners with more upmarket housing.

        They both have their niches.

  3. Draco T Bastard 3
    20 December 2009 at 4:47 pm

    It is as if the programme of privatisation in the late 1980s and 1990s never happened, and we have learnt nothing from those experiences and subsequent socio-economic consequences.

    Well, the majority of economists haven’t. They’re still teaching the same failed economics in schools and universities.

  4. tsmithfield 4
    20 December 2009 at 4:50 pm

    So, lets say you were designing a government from scratch. What assets would the government own, and why?

    • toad 4.1
      20 December 2009 at 5:32 pm

      Try monopolies where there is not and cannot be effective competition. And cartels, like the banking industry, where competition is a sham.

      I’d also argue there should be a proper public broadcasting service (which there isn’t at the moment). I could live with privatising TVNZ (which is no better than a commercial broadcaster) if the funds from the purchase were used to set up a real public broadcasting service.

      • Daveski 4.1.1
        20 December 2009 at 6:31 pm

        Sorry toad – hardly the ringing endorsement you might want but exactly as I was about to post (except clearer and shorter!).

        The other point I would add is that the challenges of NZ’s landscape – long, narrow, isloated, low (relative) population, with chunks of water in the middle – mean that by necessity the state traditionally gets involved more than in typical first and second world economies.

        While it pains me, the implementation of the privatisation in the 80’s was dire in many parts which could have and should have been avoided.

        Sorry again toad.

    • Zetetic 4.2
      20 December 2009 at 5:52 pm

      We’re not designing government from scratch. If we were I’d start by not making it a device to keep the wealthy wealthy.

      Point is, we’re not starting from square one. Any change from the status quo has to be weighed in terms of who benefits and who loses.

    • quenchino 4.3
      21 December 2009 at 11:54 am

      Easy. If you have to bail it out when it fails, then it should remain in public hands.

    • Frank Macskasy 4.4
      23 December 2009 at 7:49 am

      Let me reverse the question:

      Why didn’t private companies set up their own telecommunications, railways, hospitals, postal services, electricity generators and distributors, etc, etc, prior to 1984?

      Why did a private corporation buy Telcom, NZ Rail, etc, rather than set theirs up from scratch?

      Why do private schools require state subsidies?

      Why did NZ Rail, when it was in private ownership, require subsidies – and STILL not carry out vital maintenance and upgrading?

      Short answer: because they couldn’t. It was prohibitively expensive. And yet, New Zealand still required such infra-structure to be built.

      So the State (ie; we, the people) built up all these assets from scratch. Otherwise, if we had waiting for a private corporation to set up our rail network (prior to automobiles becoming so ubiquitous), we would STILL be waiting.

      Ditto for telecommunication, hospitals, roads, power plants, etc.

  5. Herodotus 5
    20 December 2009 at 8:08 pm

    Where there is an expectation under failure that the govt has to underwrite or rescue an industry/company why should the govt in the first place sell that company. That is a clear cut privatise profits, nat losses. How is the expected sale to effect our current accts, I would imagine that anyone would be hard pressed to find an example of where the current acct was neutral let along beneficial to NZ. With our capital base best intentions to keep assets within NZ are just peeing in the wind. There will be cleaver people out there with the skill to subvert the process, just look at foreign “control” assisted by Maori interest to acquire about 30 dairy farms and 30k h.a.

  6. Bored 6
    20 December 2009 at 8:16 pm

    The only issue around privatisation is which parts of the public domain are the privatisers after next. This issue has been around since before feudal bully boys enserfed their local manors, and we have seen it with the land enclosure movement across Europe for the last five hundred years, and so on and on. If there is a way to steal the public domain and turn a buck some greedy powerful bastard will do it.

    Justification is always wrapped up in the language of benefits that are never realised. Today a greedy bugger who wants to privatise will pay a tea leaf reading expert (aka and economist) to come up with some spurious jargon with words such as efficiency etc. The public gets sold a mantra and a dummy at the same time, and lo and behold the public unwittingly take a step closer to serfdom. The reality is that what is lost to the public domain weakens the public polity, in our case the democracy to control our lives, as opposed to some private beaurocrat deciding what is best for his boss and charging us richly for what we used to own.

    In short privatisation is the enemy of democracy and freedom. It is also the enemy of real economy. Put it this way, if capitalism was so great it would be producing wealth and stability of investment streams to the extent that what the public owned would be of no interest. What these people really want is to be rentiers and serf owning parasites.

  7. tsmithfield 7
    20 December 2009 at 9:35 pm

    I am very pragmatic.

    We need to decide which functions are best performed by the state, and which are best performed by private enterprise. This may mean selling some assets. It might also mean some renationalisation (e.g. electricity). It also might mean a combination of both. For instance, in a lot of areas (e.g. Telecommunications & rail) the state could own and maintain the infrastructure and rent it out to various private companies.

    I don’t think you need to get too wound up about private enterprise. After all, a hell of a lot of people wouldn’t have jobs if private people weren’t willing to put their own money at risk.

    • Bored 7.1
      21 December 2009 at 9:42 am

      TS, Im pragmatic too, and as such I pragmatically will do what needs to be done to resist the larceny inherent in proposed privatisation. I actually dont care about the kind of “ism” involved in ripping the public domain away from the public, it comes in many forms (all with “ism” on the end).

      With regard to capitalism in this case I see that component called the “free market” being proposed as a sort of deifying entity. It isnt, its a mere conceptual mechanism. I dont mind markets, its how I make my money and employ people. I like risk and reward, what I really dislike is non risk based larceny. It is what I described before, its a way of committing capital so as to take a rent from very low risk areas at the expense of the public domain. Its a way to fleece people for what was previously theirs.

      Dont dress this up as what it is not, if you support free enterprise understand that what you propose in privatisation is a rooad to serfdom for the public.

  8. Nick C 8
    20 December 2009 at 10:36 pm

    I love it how even though pretty much all the senior economists are in favour of privitisation, the standard armchair critics still think they know better.

    UPDATE: Thats right, this is the man who is supposed to know better than a senior economist:

    http://lindsaymitchell.blogspot.com/2006/04/same-frank-macskasy.html

    • Bored 8.1
      21 December 2009 at 9:31 am

      Armchair critics know better….hmmmmmmm!!!!!!!! They do. Let you into a little secret formula, John Ralston Sauls Law of Economists. Goes like this, think of any 10 economists and what they proposed, give them a nought for being wrong and one for being correct. Total the sum, it will always be zero.

      I joke not when I describe economists of all persuasions as tea leaf and entrail /horoscope readers. They are the paid pontifs of interest groups and therefore not to be trusted. Part of their trick is to avoid the historic record, as demonstrated by Ralston Sauls Law they are highly innacurate.

      More importantly arm chair critics have in my experience greater breadth of experience in the real world, their lack of a restricted professional language and training is exactly what is required to see the wood from the trees. And they are not so dreary.

      • ben 8.1.1
        21 December 2009 at 11:58 am

        Bored why is it that the Left is so willing to defer to the experts on climate change, and yet so unwilling to do the same on economics? Is it because, in both cases, you already know the answer, the evidence being irrelevant, but for climate change the experts just happen to be on your side?

        • lprent 8.1.1.1
          21 December 2009 at 12:27 pm

          The reason is that there are a range of equally valid opinions in economics based on different models. Some work in some economies, others work in others. All have demonstrated successes and failures. That allows cherry-picking for what will fit our economy. The experts are not all at one side of the debates, they are spread across the spectrum, as are successful market economies.

          Your problem is that a lot of us don’t like the some of the results of the economic policies that you favour because they have a track record of not working particularly well – short-term or long-term.

          Climate change is something that we’ve never induced before as a species at a global level (and I’d argue that it has seldom happened at a local level either). Almost all of the trained and practicing experts (rather than the self-proclaimed and untrained experts) are clustered at one side of the argument about what happens on our current path, and their very conservative projections spell big trouble. Increasingly they’re finding some of their worst projections are coming true (like what happens to glacier retreat when sea ice in front melts).

          The skeptics and deniers have a strong whiff of either wishful thinking or self-interest (and often senility). But more important they don’t have any testable explanations about what happens when you pollute the atmosphere with large amounts of greenhouse gases.

          Can you figure out why the experts are treated differently in these two cases?

          • ben 8.1.1.1.1
            21 December 2009 at 1:01 pm

            They are firmly on one side of the following arguments, Lynn:

            A ceiling on rents reduces the quantity and quality of housing available. (93%)
            Tariffs and import quotas usually reduce general economic welfare. (93%)
            Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
            Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
            The United States should not restrict employers from outsourcing work to foreign countries. (90%)
            The United States should eliminate agricultural subsidies. (85%)

            Link

            That’s a Gore-like consensus right there. Strangely, I don’t see much in the way of deference to those opinions around here.

            Your problem is that a lot of us don’t like the some of the results of the economic policies that you favour because they have a track record of not working particularly well short-term or long-term.

            Actually, that isn’t true. We know privatisation does achieve the things, on average. that the theory says it should. We know this because people study what happens. And, plainly, the same can be said of the science. Neither climate nor economics is easy, and major blunders have occurred under both.

            I don’t want to argue the specifics of climate change here. My point is that similar consensus can be found on some issues in economics, yet none of the same reverence is held for economists. The obvious explanation is that the climate consensus is cited only as a matter of convenience by Lefties. Consensus is great when it happens to be on your side. But you abandon consensus the minute it disfavours your prior position. Citing it in the first place is a charade.

            • Pascal's bookie 8.1.1.1.1.1
              21 December 2009 at 1:11 pm

              What was the sample of that poll? All Mankiw says is “various polls of the profession”.

              Is it randomised, international, self selected, what?

              In any case, these things all come down to the old “all other things being equal” which they never are, or the “on average” facade, which gives you nothing with regard to any particular case.

              • ben …
                21 December 2009 at 1:19 pm

                What, you’re actually going to argue economists don’t really believe those things? Good luck with that argument.

                Holding other factors constant is what the IPCC does when it calculates warming under various scenarios. That is how you test the effect of things generally. Otherwise it is unclear which factors matter and which way causation goes, and the test is useless.

              • Pascal's bookie …
                21 December 2009 at 1:36 pm

                Strawman. I’m just asking to see the data.

                And I’m well aawre of why you hold other things equal to isolate variables. But economists are dealing with people, it’s far more like psychology than it is physics. Consequently there are a lot more (often unknowable) variables.

                The point is that even if these things are true, (and I’m not disputing them), economics only tells us the extent to which they are true when assuming all other things to be equal, which is never true in the actual economy.

            • lprent 8.1.1.1.1.2
              21 December 2009 at 1:33 pm

              Yes, and with the exception of the ones for the US, I’d agree with the precepts at the top. But I’m an economic dry in Labour. However I suspect that there may be a broad agreement even here for those.

              However we were discussing privatization in this post. In that area there is a wide range of economic opinion about the usefulness to a society of privatizing natural monopolies. In NZ you have the range from something like BERL to the round table on that topic. After seeing some of the wasting of value and service from some of the privatizations and partial privatizations in natural monopolies here over the last 30 years, I’m inclined to view it as generally being of little economic utility.

              • ben …
                21 December 2009 at 1:58 pm

                The point is that even if these things are true, (and I’m not disputing them), economics only tells us the extent to which they are true when assuming all other things to be equal, which is never true in the actual economy.

                The point about holding other things constant is to isolate the effect of a policy or action on some other variable. In principle, an economist is observing policy x and asking, if we could run the relevant time again with policy y, how would things have turned out differently? Holding other things constant is exactly what you must do when the question is, ‘what was the effect of policy x’. Ceteris paribus is implicit in the question. Otherwise you are lumping in noise with the underlying signal.

            • ben 8.1.1.1.1.3
              21 December 2009 at 1:43 pm

              And I’m well aawre of why you hold other things equal to isolate variables. But economists are dealing with people, it’s far more like psychology than it is physics. Consequently there are a lot more (often unknowable) variables.

              Pharmaceuticals also deal with people. Are you saying double blind tests of new medicines can be of no use? If you aren’t saying that – then where is the difference?

              The statistical techniques economists use are similar to those of pharmaceuticals. The whole point of statistics is to tell you how big your sample has to be and how much confidence you can have in a result when there is variation in your sample.

              • Pascal's bookie …
                21 December 2009 at 8:40 pm

                Pharmaceuticals also deal with people.

                They usually deal with pathogens, chemicals and the human body’s processes, none of which are ‘people’ in the sense I was obviously using it. Most of these are predictable in a way that people aren’t.

                Are you saying double blind tests of new medicines can be of no use? If you aren’t saying that then where is the difference?

                Of course not, I’m saying that economists find doing double blind tests to be virtually impossible. The reports on privatisation. What did they use for a control group?

                When studying the success of a privatisation, how do you isolate the effects of the privatisation on the outcome from all the other events, like the general economic conditions at the time, other changes in government policy, management decisions made by the new owners that would have been different from hypothetical other new owners, what the privatising government would have done with the asset had they not sold it, etc and so on. The whole basis of the study is comparing reality with a counterfactual, and assumming in the counterfactual, that ‘all other things are equal’. When they wouldn’t in reality be equal.

                You then go on to say that these studies show that privatisation, ‘on average’ ‘works’.

                The ‘on average’ ignores the fact that these examples are a sample of individual cases each from their own place and time, each under their own economic backgrounds with a range of conditions peculiar for each one.

                And these background things, which are at least as germane to the outcome as the magic of ‘privatisation’ just get swept away by the power of ‘all other things being equal’.

              • Paul Walker …
                21 December 2009 at 9:03 pm

                “Of course not, I’m saying that economists find doing double blind tests to be virtually impossible.”

                They are becoming very common. Laboratory experiments are standard practice these days. If fact I spent last Friday and Saturday at a workshop on laboratory experiments and the New Zealand Experimental Economics Laboratory is being set up.

                For empirical studies finding are more accepted when they are shown in many different data sets. This is true for privatisation studies. As to this evidence on the subject the following comes from the summary of chapter 4, ‘Empirical Evidence on Privatization’s Effectiveness in Nontransition Economies’, from William L. Megginson’s book The Financial Economics of Privatization, New York: Oxford University Press, 2005,

                “The 87 studies from nontransition economies discussed in this chapter offer at least limited support for the proposition that privatization is associated with improvements in the operating and financial performance of divested firms. Most of these studies offer strong support for this proposition, and only a handful document outright performance declines after privatization. Almost all studies that examine post-privatization changes in output, efficiency, profitability, capital investment spending, and leverage document significant increases in the first four measures and significant declines in leverage.”

          • ben 8.1.1.1.2
            21 December 2009 at 1:07 pm

            The skeptics and deniers have a strong whiff of either wishful thinking or self-interest (and often senility). But more important they don’t have any testable explanations about what happens when you pollute the atmosphere with large amounts of greenhouse gases.

            That is plainly untrue. Of course the opinion of a skeptic who doubts either the science or the policy that is being written is testable. In fact the testibility of the skeptic’s position is defined by the science and the policy she critiques! This is 101 stuff, Lynn.

            • lprent 8.1.1.1.2.1
              21 December 2009 at 1:23 pm

              That is plainly untrue.

              Why?

              Bearing in mind the testable properties of a gas like CO2 with its re-emission profile dropping visible light into infra-red frequencies, and the limits to how much heat leaves the atmosphere, then increasing CO2 will be warming the atmosphere and oceans.

              To date I haven’t heard one skeptic give an alternative and testable proposition about where that heat goes apart from into the volatiles of the atmosphere and oceans. Everything else about global warming follows from that. No amount of fuzzing around with the theories will stop simple physics from happening. In fact they appear to have given up on that line these days.

              Which kind of leaves them sitting no-where. After that is accepted, the only questions are to do with the speed of effects manifesting themselves from the inevitable increases in energy in the atmosphere and oceans.

              Currently we’re running on the buffers storing the emissions and heat and thereby reducing that effect. But there is clear evidence that the buffers are filling because we can measure the increases in absorbed CO2 and temperatures of the oceans. Similarly there is clear evidence of mass wasting in the ice blocks that have been cooling our world for the last 40 million years of the current ice age.

              Neither can proceed forever.

              That is science 101 stuff.

              What you’re objecting to is that PR 101 stuff and science 101 are incompatible. But this is off the topic of this post (slap myself down)

              • ben …
                21 December 2009 at 1:37 pm

                Bearing in mind the testable properties of a gas like CO2 with its re-emission profile dropping visible light into infra-red frequencies, and the limits to how much heat leaves the atmosphere, then increasing CO2 will be warming the atmosphere and oceans.

                How many times must it be said, Lynn? Skeptics do not doubt this relationship. I’m not even sure deniers do. Most projected warming over the next century is not from this relationship. Most projected warming is from climate feedbacks. And it is here that skeptics point out the science is currently quite unclear on this.

                A skeptic’s claim is obviously just as testable as the warmists: what is the climate sensitivity? Warmists say it is large and positive. Skeptics are not convinced either way or say it is more likely to be small or negative.

                Explain how the warmist view could be any more or less testable than a skeptics?

              • lprent …
                21 December 2009 at 1:58 pm

                Sure there are feedbacks and processes that are going on all the time.

                The problem is that we’re introducing a new one that in the past has been associated with big climate changes, and we have a clear theory about why. That is on top of any other effects. It is also happening orders of magnitude faster than any natural process (just look at the right sidebar to get an idea of how fast).

                The issue is what other natural processes will that trigger. As you point out (indirectly) we have a limited baseline of accurate measurements to look at it from. But they show some clear trends indicating increased energy in the system.

                In effect what you’re asking for is something that we can only find out AFTER the effects have manifested themselves. Only that will make the science more clear. Apart from that we’re looking murkily into the deep past to look at cause and effect.

                The problem (which you persist in ignoring) is the risk levels. The IPCC reports are as close to conservative science as it is possible to get. We’re hitting the upper levels of their prediction envelope consistently. They keep having to revise the danger levels upwards.

                Meanwhile we’re seeing predicted effects that are not in the IPCC reports as consequences to greenhouse warming turn out to be partially or largely correct. Like the ocean current warming, increased glacier waste speeds, decreased norther sea-ice coverage, etc. Each of these has predicted feedback effects down the timeline.

                Each increases the risk of a major feedback. The risk is that our technological and economic infrastructures are based on a relatively constant climate.

                Risk carries cost, which is why you’re finding that politicians (slowly) are treating this as something that they have to deal with. However I suspect it will only be when we get the first major dieback of a few hundreds of millions of people from climate change that we will start to get serious action.

                Based on the trends in the science, that is something that I’d envisage happening in my remaining lifetime (unless I have an early death).

              • ben …
                21 December 2009 at 2:05 pm

                And now you’re just shifting goal posts.

                No I am not insisting we wait till after the effects – the whole point about modelling is that there is historic data and projections of emmissions and models set up to test historic data for relationships that allow projections. But this is beside the point.

                The problem (which you persist in ignoring) is the risk levels. The IPCC reports are as close to conservative science as it is possible to get. We’re hitting the upper levels of their prediction envelope consistently. They keep having to revise the danger levels upwards.

                And this is really beside the point. As is the rest of your reply. Interesting in another thread but I don’t wish to wander off here.

                Remember, the question you were responding to is why skeptics claims are any less testable than warmist claims.

              • Armchair Critic …
                21 December 2009 at 2:12 pm

                ben @ 1405
                “Interesting in another thread but I don’t wish to wander off here.”
                You already have – way off thread. The original post is about privatising assets.
                Do you have anything beyond “public ownership = bad – all the economists I know say so.”?

              • lprent …
                21 December 2009 at 3:33 pm

                Ben: Remember, the question you were responding to is why skeptics claims are any less testable than warmist claims.

                No it wasn’t. What I was responding to was your assertion that economics experts on privatization and science experts on climate change were somehow equivalent in their level of agreement. They aren’t.

                Economics theorists have a wide range of opinion on the benefits or otherwise of privatization.

                Climate change scientists have a very high coherence of opinion on if human based climate change is proceeding, and that it is very risky for human societies to continue to induce climate change to themselves.

            • ben 8.1.1.1.2.2
              21 December 2009 at 2:34 pm

              Armchair – Lynn is hitting the reply button and then introducing a bunch of new stuff that doesn’t have anything to do with what went before. This thread has flowed consistently up till now. Recall that the only reason global warming came up is because of the obvious inconsistency in the way that Lynn et al treat experts from the two camps.

              Do you have anything beyond “public ownership = bad all the economists I know say so.’?

              A pertinent point, one would have thought, in response to a post that is so contrary to the findings of people who, you know, spend their lives studying it. I’ll argue all day with people who want to pretend that literature does not exist or who believe it doesn’t say what it says. And who then argue, or rather yell, that their opponents are the zealots.

              • Armchair Critic …
                21 December 2009 at 2:55 pm

                I was expecting a “he did it too” reply. Must be the school holidays.
                There are also economists who disagree with the literature you refer to and quote. Rather than openly pick a side now (because I don’t have all day to argue), here is a truism from my chosen field, adapted to this thread – all economists are wrong, some are useful. I haven’t found the neo-liberal model useful.
                A week or so back I asked you for a link to a case study of a successful privatisation, preferably in NZ (but one from a culturally similar country will suffice), that defines success in more than merely economic terms. I only asked because I’ve looked and never seen one. How about you?

              • ben …
                21 December 2009 at 3:14 pm

                Armchair, that isn’t what I said.

                There are also economists who disagree with the literature you refer to and quote.

                No kidding. 7% polled in that survey don’t think rent control reduces quantity. Maybe they’re right. I am not here to argue they are. My original point is there is massive inconsistency in the respect for experts in climate and economists on this web site, which simply underlines the uselessness of consensus. The Standard tosses the concept the minute they no likey the consensus view!

                If you want studies, there are a number that look at NZ. Evans, Grimes, Teece, Wilkinson (1996) is a very good overview (link (hopefully that works). They cite studies of specific privatizations by de Boer and Evans (1996) and Duncan and Bollard (1992). I understand Duncan and Bollard look at 14 privatisations in some detail, though I have not read it. I have read the other two.

              • lprent …
                21 December 2009 at 3:21 pm

                ben – Remember that I don’t read the comments the same way that you do. I read them across all posts and threads youngest to oldest in moderation sweeps. With all of the other stuff I’m doing on the site (coding changes on the test system at present) or at work, I don’t have time to read the post threads if I also have to moderate.

                So I only see what you write. You brought up the comparison between economist experts and climate change experts. I responded to that based on what was in your comment – not what was in the post or the rest of the thread. So don’t rewrite history (seems to be a trait of yours). What you wrote is below, and I responded to that.

                Bored why is it that the Left is so willing to defer to the experts on climate change, and yet so unwilling to do the same on economics? Is it because, in both cases, you already know the answer, the evidence being irrelevant, but for climate change the experts just happen to be on your side?

                Incidentally, that reversal of time sequence is why I often respond in reverse as well.

              • Armchair Critic …
                21 December 2009 at 10:09 pm

                The link works.
                You know it goes to the first page of a paper that requires a subscription to see the rest? Not being a subscriber, it is not much good to me, and doesn’t really help prove your point.
                Looking at the list of authors, I have a fair idea of what they said. What I want to see is their assumptions and data interpretation. Although I have a fair idea of what these will be, too.

  9. Lanthanide 9
    20 December 2009 at 11:04 pm

    “The four major Australian banks have rorted the NZ public with their high banking fees, mortgage rates, and lessening service as Branches closed.”

    I was looking at potentially changing banks recently, I’m currently with ANZ so looked at the offerings from Kiwibank, Westpac, ASB, BNZ and National. Kiwibank and ASB fitted my needs best.

    I also checked out PSIS, SBS and HSB, and all of them were far worse than all of the big banks in the areas I looked at, which was primiarly frees – I believe all 3 of the small banks charged you per transaction, something the big banks generally stopped doing years ago. The interest rates generally weren’t any better, either for mortgages or savings accounts, and often the savings accounts were very limited compared to what the big banks offer.

    Also, I would suggest that the big banks closed so many branches through the 1980’s ad 90’s because there were simply too many branches for the population that we have. A recent news story about Kiwibank closing 20 out of it’s 300 branches said that the big banks closed 1300 branches over the 80’s and 90’s – that’s a really huge number of branches given the size of our population. I’d also suggest that that was probably a factor that lead to the buyout itself – high overheads from excess branches would suppress share prices/company valuations, making them easy pickings for foreign banks that have a clue about how to make a bank profitable.

    Please don’t act like NZ banks are pure and virtuous and that the Aussie banks are pure evil, because I really don’t think that’s the case.

    • Draco T Bastard 9.1
      21 December 2009 at 1:13 am

      They charged fees when there was no Kiwibank – they stopped after there was. Ergo, there was no need to charge the fees in the first place. Then there’s the simple fact that foreign ownership is bad for the economy anyway. Amazingly enough, the economists in universities that still teach the failed neo-liberal economics know this.

      • tsmithfield 9.1.1
        21 December 2009 at 5:39 am

        So they stopped charging fees due to more competition. Competition is the heart of the capitalist model. So, you are accepting that capitalism is a good thing?

        • Draco T Bastard 9.1.1.1
          21 December 2009 at 11:02 am

          Ah, the simple, and failed, logic of idiocy. If X then Y must be true no matter what the evidence is to the contrary.

          Competition isn’t the heart of capitalism and never has been. Capitalism is all about restriction and control for the purpose of accumulation. That’s why not everyone can open a bank, why there are patents preventing free sharing and why NACT, the parties of business, don’t like the welfare state.

          There was competition before Kiwibank but no bank dropped their fees proving that competition achieved SFA.

          • Lanthanide 9.1.1.1.1
            21 December 2009 at 12:45 pm

            Ok, so why did the banks drop their fees when Kiwibank entered the marketplace, if not because of competition?

            Please explain why they would drop fees when a new competitor enters the market place with a more competitive offering, without using “competition” as your reason for why this change occurred.

            I dare you.

            • Draco T Bastard 9.1.1.1.1.1
              21 December 2009 at 3:28 pm

              Why? The competition of Kiwibank did drop the fees. The point was that there was competition before hand but no dropping of fees. Ergo, competition wasn’t actually doing anything.

            • Armchair Critic 9.1.1.1.1.2
              21 December 2009 at 11:27 pm

              I would explain it as follows:
              The incumbent banking oligarchy responded to a perceived threat to both their brand value and to the effectiveness of the oligarchy, which came from the presence of a new entrant to the market. The threat had the potential to impact their profitability. As one part of their response, each of the oligarchs adjusted the pricing structures available to their lower value customers, in a manner that avoided any serious suggestion of collusion. This was done solely to preserve their brand value and profitability.

              You are assuming that the new competitor had a more competitive offer. There is no proof of this. In accordance with your challenge, my explanation is independent of this assumption and any direct mention of competition.

          • prism 9.1.1.1.2
            21 December 2009 at 3:10 pm

            Surely the argument is that the excesses of capitalism must be reined in, regulated and the activities monitored. Whatever system is in it needs the above controls to ensure reasonable standards are maintained.

      • Lanthanide 9.1.2
        21 December 2009 at 10:07 am

        That’s why the small NZ owned banks such as SBS, PSIS and HSB still charge those fees, right? Because they stopped when Kiwibank came on the scene?

        Thanks for not addressing any of my points at all.

        • Draco T Bastard 9.1.2.1
          21 December 2009 at 11:05 am

          I was obviously referring to the Australian owned banks as referenced in your last sentence.

          • Lanthanide 9.1.2.1.1
            21 December 2009 at 12:44 pm

            Obviously you were referring to the Australian banks changing the way they charge fees because Kiwibank entered the market.

            My point is that the other small NZ banks still charge the same fees. If the Aussie banks were really as evil as you make them out to be, surely this would be reversed?

            • Draco T Bastard 9.1.2.1.1.1
              21 December 2009 at 3:30 pm

              I suspect that you’ll find that those banks have a niche market and are quite aware of that and aren’t actually in competition with the main banks. In fact, I’d go so far as to say that most people don’t even know that they exist.

  10. Paul Walker 10
    21 December 2009 at 8:27 am

    “Shifting billions overseas has sent New Zealand’s Balance of Payments further and further into deficit.”

    NZ’s BoP wasn’t sent into deficit, it was zero then, it is still zero today. It has to be, that’s just the way the national accounts work.

    • Draco T Bastard 10.1
      21 December 2009 at 11:07 am

      /facepalm

      Then why has our debt to the rest of the world been increasing?

      • Bright Red 10.1.1
        21 December 2009 at 11:18 am

        Paul Walker is being a show off – the balance of payments is (basically) current account plus capital account .

        We have a current account deficit because we buy more from overseas than we sell and profits flow overseas to foreign owners of what were once NZ companies. To fund that deficit we have to import (borrow) money from overseas, that’s the capital account, which balances the deficit in terms of balance of payments, but it just means we’re deeper and deeper in debt tot he rest of the world. It’s not a good thing.

        • Paul Walker 10.1.1.1
          21 December 2009 at 12:07 pm

          “but it just means we’re deeper and deeper in debt tot he rest of the world. It’s not a good thing.”

          Actually what it means is that we are investing more than we are saving. And that is a good thing.

          • lprent 10.1.1.1.1
            21 December 2009 at 12:15 pm

            Depends what it is used for. If the debt is largely being ‘invested’ in inflating property prices or consumption and not productive investment that earns an return, then eventually the cost + interest has to be paid with nothing to pay it with.

            Bearing in mind the difficulty there has been to get capital financing for export based businesses over the last 30 years, then that is exactly where I’d say it has been going.

          • Pascal's bookie 10.1.1.1.2
            21 December 2009 at 12:20 pm

            Depends on what we are ‘investing’ it in surely?

            Things that earn export dollars? Great.

            Wide screen tvs, marble benchtops, and frothy bubbles? Not so much.

            edit:snap

    • quenchino 10.2
      21 December 2009 at 11:48 am

      According to Paul Walker NZ could have an infinite overseas debt and it wouldn’t matter because the BOP ‘”would always be zero”. No wonder people laugh at economists.

      BTW Paul… if your theory is so good how come you couldn’t predict last years fiscal crisis? If engineers built bridges that fell over as frequently as economies do they would all be in prison, all convicted on charges of professional negligence.

      Yet you idiots can’t even get the dynamics of money flow and the business cycle right.

      • Paul Walker 10.2.1
        21 December 2009 at 12:09 pm

        “According to Paul Walker NZ could have an infinite overseas debt and it wouldn’t matter because the BOP ‘’would always be zero’.”

        Actually why would it matter?

        • quenchino 10.2.1.1
          21 December 2009 at 12:17 pm

          Why then do the ratings agencies keep threatening to downgrade us because of our excessive overeseas debt?

  11. Greg 11
    21 December 2009 at 9:58 am

    Bored: You seem to spend a lot of time criticising economists eh? I’d suggest instead of blindly focusing on the criticism you take some time to understand why we think the things we do. You see not all economists are ideolistic stupid lunatics. Take some time to talk to one or two, but here’s the trick: don’t talk about economics. Blinded by your own ideolism your bound to think we’re stupid. But on a more neutral subject it becomes apparent that one or two of us aren’t as stupid as you once thought. So then the question becomes…… why do smart people say stupid things? Maybe, just maybe because they’re not so stupid after all.

    • Draco T Bastard 11.1
      21 December 2009 at 11:09 am

      Or maybe it’s because they’ve been taught a theory that happens to be wrong and haven’t, yet, thought about it enough to understand that. Or maybe it’s because they’re stupid.

    • prism 11.2
      21 December 2009 at 11:23 am

      Maybe economists have special glasses to view the world and how it works, like the 3D glasses used in cinemas. They certainly have a different perspective on what’s good for humans and our economies than people without such glasses. It was shocking to read the nasty, narrow papers some economists presented after their rise in the monetarist, neo-whatsname restructuring.
      And they don’t restrain themselves to just the economy, they want to have their views reign over all – an opinion on everything. One good one was that kindness is bad, their should be no altruism, or that everything had a payoff anyway so there was no such thing as kindness it was just an action to produce a feeling of personal satisfaction or some other payoff.
      Is there an economic paper floating around at present on how to efficiently give Christmas presents, and the way to maximise your Christmas cheer through alcohol or other drugs for the most efficient input of money and time?

    • Bored 11.3
      22 December 2009 at 9:06 am

      Went away yesterday, good timing, I actually speak to economists all the time so there is some substance to my claim….also once is a typo but twice is a mistake, “ideolistic”…….dictionaries are very useful.

      PS My biggest gripe with economists is their use of rarified language that is only for the initiated, and their degree of divorce from where the rubber hits the road. For example when they say “economic collateral damage” I say “underfed babies in cold rooms getting sicker” etc. It is somewhat more accurate.

  12. ben 12
    21 December 2009 at 11:53 am

    Is this what passes for thinking from the Left? Just one ludicrous statement after another. I’ll only point to a few. But just about every paragraph contains some absurdity. Mr Carran’s only crime is to offend the values of this poster. Pretending otherwise, as the poster does, is disingenuous.

    Carran practically insults our intelligence when he then states, “A wealth of evidence suggests that on average privately owned businesses are run more efficiently, innovate more, and provide better customer services than government-owned businesses.’

    It’s true. Simple as that. If you look at all the research you find very very strong theoretical and empirical evidence that the private sector runs companies more efficiently, which means lower cost, better quality, etc. That is what the research shows. So just pretending that isn’t what the literature shows is the same as arguing the world isn’t getting warmer. That doesn’t establish the case for privatisation – but pretending a large body of literature doesn’t say what it says is unhelpful.

    Tell that to the mum & dad investors of Hanover Finance, Bluechip, and dozens of other finance companies that collapsed in the last few years, owing billions to shareholders. Tell that to the workers and creditors of Lane Walker Rudkin.

    Mr Carran specifically said, “on average”. There will always be exceptions. But how do the poster’s examples refute anything Carran wrote? Efficiency means, in part, that when the capital tied up by companies can be used better elsewhere, that capital is moved out of the hands of one company’s management and into others’ hands. Of course closure is traumatic, but efficiency does not mean everybody gets a smooth ride. Efficiency implies firms’ closure when they aren’t making good use of resources.

    Tell that to railways commuters who had to put up with degraded service and railway stations, whilst NZRail was in private ownership. Almost no maintenance, upgrading, or investment took place in the 1990s, and people were often left waiting at stations as units broke down, signals malfunctioned, and heat-stressed tracks buckled in summer heat.

    Again, this is untrue. Dave Heatley has looked at Transrail’s books and shown that investment in maintenance increased following privatisation.

    Tell that to the public when taxpayers had to rescue Air New Zealand from insolvency, having to re-nationalise the airline.

    This example is an especially poor one. First, Air NZ’s demise does not imply inefficiency: management made some poor decisions and Air NZ’s capital was under threat of re-distribution to other managers i.e. closure. That has strong efficiency properties. Second, Air NZ of course was prevented by the government from being bailed out by somebody other than the taxpayer!

    Mr Macskasy could at least try to address the points being made by Mr Carran. Or does the case for public ownership rely on

    • quenchino 12.1
      21 December 2009 at 12:01 pm

      Dave Heatley has looked at Transrail’s books and shown that investment in maintenance increased following privatisation.

      And anyone who works for railways (and I know a few) will tell you that all accounting malarky aside… the system was raped and pillaged.

      Second, Air NZ of course was prevented by the government from being bailed out by somebody other than the taxpayer!

      A lot of empty words. In the end it was public money that bailed Air NZ out…. because it was politically unacceptable for NZ to not have control of it’s own national carrier. Ergo it should never have been sold in the first place.

      As for the idea that competitive markets are more efficient than monopolies… Steven Keen has put that old chestnut to bed a while ago.

    • Swampy 12.2
      22 December 2009 at 12:07 am

      The tracks buckled because they were done wrongly when the railway was publicly owned.

      • prism 12.2.1
        22 December 2009 at 10:33 am

        Railway tracks buckling is, I understand, a knotty problem.
        We used to have tracks set with expansion distance allowed, and got that clackety-clack noise from the wheels which I quite like actually. Then there is the solid weld (don’t know if that is the right terminology) which produces a smoother ride. I don’t know how that deals with extremely hot temperatures. Both have good and bad points.

      • Pascal's bookie 12.2.2
        22 December 2009 at 11:05 am

        Was that one of Prebble’s “save the rail” efforts was it swampy?

  14. Greg 14
    21 December 2009 at 12:05 pm

    Draco and prism and quenchino: Unfortunately modelling the global economy is a little harder than building a bridge. But to extend you metaphor bridges do occassionally fall over, engineers stuff up just as economists do. However; we do like to learn from our mistakes (although you will refute this assertion). The problem is many things people like you consider to be mistakes, we do not.

    What many like yourselves simply fail to understand comes back to one simple pearl of wisdom: “no pain: no gain”. Take the 80’s reforms. I won’t defend the order nor the speed of the implementation, but the economic principles behind these reforms were sound. They resulted in long term gain for New Zealand. There are countless examples of this but the price of rugby boots springs to mind. Yes there was short term pain and yes that government probably could have done more to make the transition easier but the reforms although beneficial in the long term were never going to be painless. The same is true now. If NZ ever wants to get back to the top of the OECD there will need to be changes, the status quo is clearly not working. These changes will result in pain, but it will be in the long term interests of ALL New Zealanders

    • quenchino 14.1
      21 December 2009 at 12:13 pm

      But to extend you metaphor bridges do occassionally fall over, engineers stuff up just as economists do

      But you guys do it all the time… and I’ve not seen any evidence that you have learnt anything.

      In the early days engineers built bridges (and other structures) that while they were adequate designs from a static, in equilibrium, perspective… failed because they did not take into account various dynamic loads. This was a lesson quickly learnt and nowadays this kind of failure never happens.

      By contrast the main reason why economics is persistently unable to predict economic failure is that most economists do not understand dynamics, and in particular most of you couldn’t do differential equations to save yourselves.

    • Bill 14.2
      21 December 2009 at 12:31 pm

      You think that “no pain, no gain” is a pearl of wisdom? Really?!

      I mean, I thought ‘everybody’ knew that little pearler, to stick with your terminology, was nothing beyond a smoke screen….a short term ploy to mitigate any adverse reaction by the getting poorer poor to the pillage being exacted upon them by the getting richer rich.

      Apparently not though.

    • prism 14.3
      21 December 2009 at 1:29 pm

      ‘painful’ Ooh I can’t bear it. its so apt.
      One of the ‘efficiencies’ of the 80’s was to drive down some people’s wages and hoik some others’ salaries.
      Now if efficiencies were to occur across the board, we should be tendering out our economic researching looking for cost savings as does Pharmac. Or else we should have ranks of people being hothoused through educational systems to up the supply to keep down the cost of labouring economists.

    • Draco T Bastard 14.4
      21 December 2009 at 3:43 pm

      Modelling the economy is more complicated than what economists do as well.

  15. randal 15
    21 December 2009 at 12:42 pm

    capcha: bought.
    very funny.
    anyway who heard red hooton on radionz this morning telling the whole wide world that all markets can do is allocate resources.
    they cant innovate or change course without government direction
    an example perhaps from jkg is fords willow run liberator factory that wouldnt go properly in wwii till the government stepped in.

  16. prism 16
    21 December 2009 at 1:16 pm

    Haha ‘statistics’ – how did that computer know?
    On average! I would say that economists are more interested in statistics and interesting mathematical equations than they are in people. Luckily surgeons when they operate don’t think – I’ll concentrate on doing the cutting and ignore the patient’s vital signs. On average that is not the economist’s mission, the pure joy of the graph and table and the proposition is more important than the effect on the soft, flabby human affected. On average.

  17. Duncan 17
    21 December 2009 at 3:45 pm

    Can somebody please kindly explain to me, why it would be better for the people of New Zealand if our assets were owned by foreign companies who duly extract their profits and take them overseas, than for all those lovely assets be owned by New Zealand where any proceeds they might produce would actually stay in New Zealand?

    I just cannot for the life of me see the logic that giving our income to other countries will somehow improve life for New Zealanders. Well I can see how a few wealthy people might benefit but the rest of us?

    The second one that I can’t figure out is the idea; that a private company trying to make 20% profit out of a good or service will provide a better and cheaper good or service than a government agency which is simply trying to provide the best service for the lowest price.
    Seems to me like one is going to cost 20% more?

    • ben 17.1
      21 December 2009 at 4:00 pm

      Duncan, these are two great questions – although each of them is big. It is probably not an exaggeration to say a small library worth of books has been written on these two questions. I wish I could say I was equipped to reel off the arguments and textbook or literature for you to read, but I am not – it would take me a lot of work to prepare a high level summary of the thinking on these two questions. No doubt it has already been done, so perhaps google could produce quick results. Paul Walker may feel inclined to post something on this. Your questions go to the heart of the matter, and the comfort economists have with privatisation in part stems from satisfactory resolution of the things you ask about (even heartless economists do think about these things).

    • Paul Walker 17.2
      21 December 2009 at 5:23 pm

      The short answer to your first question is that foreign ownership is there because local ownership isn’t. The foreigners got the assets because they value them more highly which means that the previous owner got more for selling to foreigners and thus more to invest back in New Zealand. Basically the discounted value of what the foreigners take out will equal the amount they put in, unless the foreigners really are better at using the assets. Foreigners value them more highly because they can use them more efficiently and thus produce more goods and services with them than local owners can.

      Also think about this issue in another way.

      “Can somebody please kindly explain to me, why it would be better for the people of the South Island if our assets were owned by North Island companies who duly extract their profits and take them to the North Island, than for all those lovely assets be owned by the South Island where any proceeds they might produce would actually stay in South Island?”

      Do you accept this argument? If you accept your version then you have to accept this version as well.

      “I just cannot for the life of me see the logic that giving our income to other countries will somehow improve life for New Zealanders.”

      You are missing the point here. What makes New Zealanders better off is having more goods and services to consume. If foreigners can make better use of the assets and thus increase the good and services we have to consume then their ownership does make us better off.

      “The second one that I can’t figure out is the idea; that a private company trying to make 20% profit out of a good or service will provide a better and cheaper good or service than a government agency which is simply trying to provide the best service for the lowest price. Seems to me like one is going to cost 20% more?”

      The issue here is that profit is a residual. It is what is left over after the costs of the firm are taken away from the revenues of the firm. A firm can not just charge 20% more. If it could charge a mark-up why stop at 20%, why not 100% or 1000% or …? To maximise profit a firm has to minimise costs. It has to produce the good as cheaply as possible so that for a given revenue its profits are as large as possible. By and large the literature shows that private firms are cheaper, since government firms don’t have to maximise profit and thus don’t need to minimise costs. The strong incentives provided by cost minimisation/profit maximisation are not always a good thing, which is why we have not-for-profit firms in some areas of the economy. Health an education being two examples.

      For a discussion of the trade-off between government ownership and private see Hart, Shleifer and Vishny “The Proper Scope of Government: Theory and an Application to Prisons”, Quarterly Journal of Economics, 112(4): 1127-61, November 1997.

      • felix 17.2.1
        21 December 2009 at 5:50 pm

        Do you accept this argument?

        Yes. It’s in the interests of South Islanders to own assets and profit from them.

        What makes New Zealanders better off is having more goods and services to consume.

        Quite an assumption, Paul. That pretty much underlies your entire understanding of society, doesn’t it?

        No wonder you write such bollocks.

        • ben 17.2.1.1
          21 December 2009 at 6:03 pm

          Ugh. How utterly crass of you. Walker takes the time to respond and your reply is to abuse him. You are repulsive.

          • felix 17.2.1.1.1
            21 December 2009 at 6:16 pm

            If you take the time to read what I wrote you’ll note that I engaged with Paul on the substance of his comment and then added that I think he writes bollocks.

            You, on the other hand, just go straight for the personal don’t you ben?

            Enjoy your circle-jerk, I can anticipate what you’re all going to write next (yes, you’re that predictable) and frankly I can’t be arsed with it tonight. If you want to stick to the facile and shallow I’m sure Tim can keep you company.

            • ben 17.2.1.1.1.1
              21 December 2009 at 6:28 pm

              Oh you are good. Here’s a heads up: it isn’t substance when you just repeat what Paul was responding to. Nor is yelling bollocks at your opponent.

              The socialist in all his glory.

        • Paul Walker 17.2.1.2
          21 December 2009 at 7:12 pm

          “Do you accept this argument?”

          Yes. It’s in the interests of South Islanders to own assets and profit from them.”

          But that wasn’t the question, this was

          “Can somebody please kindly explain to me, why it would be better for the people of the South Island if our assets were owned by North Island companies who duly extract their profits and take them to the North Island, than for all those lovely assets be owned by the South Island where any proceeds they might produce would actually stay in South Island?’

          “”What makes New Zealanders better off is having more goods and services to consume.

          Quite an assumption, Paul. That pretty much underlies your entire understanding of society, doesn’t it?””

          Actually is a very standard assumption and has been since at least Adam Smith. Goods and services contribute to utility directly and the amount of them available is positively correlated with others things that give utility. Thus as a first pass at welfare it is a good one.

          • Bill 17.2.1.2.1
            21 December 2009 at 9:11 pm

            “‘What makes New Zealanders better off is having more goods and services to consume.

            Mr Creosote anyone?

            • Paul Walker 17.2.1.2.1.1
              21 December 2009 at 9:19 pm

              What is wrong with more health services or education services, for example?

              • Armchair Critic …
                21 December 2009 at 9:55 pm

                Pretty simple example, Paul. How about, “what is wrong with more plastic toys and another 50″ LCD TV for the kids’ ensuite? Or a V12 twin turbo SUV to park on the motorway for two hours on the way to the office?” Not all spending is good spending.
                In terms of health and education, I reckon a combination of improving the quality and quantity is the key. Feel free to tell me that is what you mean by “more”.

              • Paul Walker …
                21 December 2009 at 10:12 pm

                Pretty simple example, Paul. How about, “what is wrong with more plastic toys and another 50″ LCD TV for the kids’ ensuite? Or a V12 twin turbo SUV to park on the motorway for two hours on the way to the office?’ Not all spending is good spending.

                That depend on what the people doing the spending think. If they don’t like the spending why are they doing it?

                In terms of health and education, I reckon a combination of improving the quality and quantity is the key. Feel free to tell me that is what you mean by “more’.

                More could mean both increases in quantity and quality. We could have more operations done for a given quality and/or better quality ones done for a given quantity..

              • Armchair Critic …
                21 December 2009 at 11:06 pm

                When I have more plastic toys, a 50″ LCD TV, an ensuite and a V12 SUV I might be in a position to answer you question.
                If good spending is dependent on what the spender thinks, how does spending that the spender later regrets fit in? Or self-destructive spending – copious quantities of powder for the nose. Most of the people who went down that road were very happy with their spending, at the time. Seemed like a tragic waste to me, at the time, and still does.

      • Tim Ellis 17.2.2
        21 December 2009 at 6:06 pm

        A good explanation Mr Walker.

        Don’t bother engaging with Felix. He tends to abuse his opponents rather than argue (as above). Soon he will start to suggest that “Paul Walker” isn’t your real name.

        • felix 17.2.2.1
          21 December 2009 at 6:12 pm

          That’s your trick, Tim, not mine. I don’t care what your name is.

          Are you stalking me again?

          • Tim Ellis 17.2.2.1.1
            21 December 2009 at 7:04 pm

            Troll.

          • (not) BiLP 17.2.2.1.2
            21 December 2009 at 8:06 pm

            I think Tim lusts after your pooper.

            [lprent: Did I mention that I land hard on any type of identity hi-jinks? Don’t do it again. Remember I can see the IP number so I know exactly who left the comment. Everyone else can see that it isn’t BLip either – wrong identicon. ]

      • Bill 17.2.3
        21 December 2009 at 6:32 pm

        “The short answer to your first question is that foreign ownership is there because local ownership isn’t.”

        Wow! Who would have thunk it. So the English immigrant who bought the house next door values the house more? And that’s it? It isn’t that he has more cash? Perhaps?

        And your S.Island, N. Island argument I don’t buy. I don’t give a monkeys whether it is S. Islanders or N.Islanders ripping me off. But then, I don’t advocate for private ownership.

        But this last doozy is the reason I’ve responded. You assert….”A firm can not just charge 20% more. If it could charge a mark-up why stop at 20%, why not 100% or 1000% or ?”

        But that is precisely what companies do if and when they can get away with it! It’s what the market is all about and ironically feeds into and destroys your prior point about foreigners valuing an asset more. Sellers try to sell high. Buyers try to buy low. And if buyers drop out of the market due to lack of purchasing power and others have (how to put it?) more money than sense…..put it another way. Everyone is trying to rip everyone else off. And the more you can rip from someone, the better rewarded you are and the more successful you are deemed to be.

        • Paul Walker 17.2.3.1
          21 December 2009 at 7:19 pm

          “Wow! Who would have thunk it. So the English immigrant who bought the house next door values the house more? And that’s it? It isn’t that he has more cash? Perhaps?”

          But why would he spend that cash if he didn’t value the house more?

          “And your S.Island, N. Island argument I don’t buy. I don’t give a monkeys whether it is S. Islanders or N.Islanders ripping me off.”

          Then why would you care if foreigners rip you off?

          “But this last doozy is the reason I’ve responded. You assert .’A firm can not just charge 20% more. If it could charge a mark-up why stop at 20%, why not 100% or 1000% or ?’

          But that is precisely what companies do if and when they can get away with it!”

          Then why is there not evidence of this? Actually why stop at 1000%, why not 1,000,000% or an infinite amount?

          • Bill 17.2.3.1.1
            21 December 2009 at 8:27 pm

            I have to laugh! You being serious?

            Point 1. He spends more cash because he has more disposable cash? That so hard to fathom? That maybe the cash is of less value because he has so much of it?

            Point 2. I don’t care any more or less from one scenario to an other ….N Island, S. Island, foreigner….I don’t like being ripped off. Period.

            Point 3. There is evidence of this all around you.’ Every ‘ bugger who can is trying to create maximum profit. Companies like Ferrari and Lamborghini are quite good at ramping it up to the max. Then there are the companies that sell bottled water….

            • Paul Walker 17.2.3.1.1.1
              21 December 2009 at 8:38 pm

              1) He may have more cash but he will still optimise the spending of it. He will use that cash to maximise his utility, just like anyone else.

              2) So what you are saying is that you do accept my scenario.

              3) Yes they do try to maximise profit. What they can not do is just add in any profit level they like. Profit is revenue minus costs. So to maximise profits they have to sell their product to someone who is willing to buy, which provides revenue. They then have to minimise costs. What they can’t do is just add in any profit level they like. If it could charge a mark-up why stop at 20%, why not 100% or 1000% or 1000000% or ?’ If nothing else they can charge a price only as high as some ones maximum willingness to pay. That alone limits their profits.

              To go back to the original question, firms cannot just add profits into the price they charge. They charge a price, to generate revenue, minus off costs and are left with profit (or a loss). Profit is the residual term.

              • Bill …
                21 December 2009 at 9:25 pm

                “1) He may have more cash but he will still optimise the spending of it. He will use that cash to maximise his utility, just like anyone else.”

                Absolute bollox! Humanicus Economicus durrint exist….not outside books of economic theory that is.

                2) No.

                3) Firms do just add in profit. As much as they can get away with….unless they are pursuing a strategy of high turnover/low profit margin to maximise profit revenue. That the final net profit is calculated somewhat retrospectively is neither here nor there.

              • Paul Walker …
                21 December 2009 at 9:48 pm

                “1) He may have more cash but he will still optimise the spending of it. He will use that cash to maximise his utility, just like anyone else.’

                Absolute bollox! Humanicus Economicus durrint exist .not outside books of economic theory that is.”

                So you are saying he just randomly chooses what to purchase?

                “2) No.”

                So you now both agree with my scenario and disagreee with it at the same time????

                “3) Firms do just add in profit. As much as they can get away with .unless they are pursuing a strategy of high turnover/low profit margin to maximise profit revenue. That the final net profit is calculated somewhat retrospectively is neither here nor there.”

                As I have already pointed out firms can not just add in any profit they like dcause if they price too high no one will buy there product. And that will not maximise profit.

                What is profit revenue. You either have profit or you have revenue, but not both. Profit=revenue minus costs.

                What is “final net profit”? Profit is revenue net of costs and is final. Take a look at any stage one economics or accounting book. Or are you worried somehow about taxes? Are you taking about profit net of tax?

              • Bill …
                21 December 2009 at 10:11 pm

                1) People do not generally purchase in a random manner, but neither are we rationally optimising economic units. We are complex and our motives are many, varied and not always immediately apparent.

                2) no.

                3) ffs Paul. They add in what they can…a ripping off maximum. Which may not be as much as they wish for, but they sure as hell do what they can to approach the .any profit they like’ level.

                Obviously.

                Meanwhile if you want to merely split hairs on my use or mis-use of particular terminology when I’d have thought my meaning was fairly obvious regardless, then hey….split away.

                Don’t much see the point though.

    • Swampy 17.3
      22 December 2009 at 12:14 am

      You assume a government company is motivated for the best service at the lowest price, this just does not happen in the real world. A monopoly inherently does not have any motive to do this, and the politicians have managed to corrupt these ideals innumerable times.

      Take rising electricity prices, Labour managed to keep remarkably silent during their last period of office as they pocketed over a billion dollars of Meridian profits and special dividends. The government electricity generator SOEs control a significant majority of this market.

  18. Greg 18
    21 December 2009 at 4:22 pm

    I’m no Paul Walker but I’ll have a crack.

    1. While foreign investment causes profit to go overseas, it gives businesses and prospective businesses access to capital. Allowing them to start up or grow……. resulting in more jobs for New Zealanders. This outweighs the lost profit several times over. NZ is simply not big enough to supply all the capital itself.

    2. Government department do not have an incentive to maximise profit, without that incentive efficiency is lost. People don’t work as hard, bosses tolerate more etc etc. The loss in efficiency is almost always greater than the profit margin of a private business, The brief privitisation of ACC is a great example of this, levies dropped significantly.

    • Pascal's bookie 18.1
      21 December 2009 at 9:40 pm

      On 2, this seems like an article of faith. I understand it well enough, but National hasn’t found heaps of that sort of fat to trim for example, and on the other side, I don’t think any one would deny that Wall st executives have showed themselves to be immune to sucking the shit of any pipe they latched their maws on.

      A lot of this stuff seems, at least to me, to presuppose a nice simple private sector made of SME’s and publicly listed companies where the shareholders are actively watching things and keeping the executives at heel. Reality looks nothing like this at all. Share registries are dominated by institutions, who control the quaint AGMs by brute force. (cf Contact re executives pay).

      Who decides how the institutions vote? In theory, the owners. Who are they?The owners of the shares that the institutions vote with are often average joe’s and judy’s putting their twenty bucks a week into a unit trust. They don’t even know they fucking own shares in the company the institutions are controlling. End result is that major co’s today are run in the interest of the decision makers, not the owners. Those decision makers interest is not the same as that of other shareholders. They have far more info about when to get out, and are incentivised to make have the co maximise is short to medium term return. And that’;s just for starters.

      In light of these realities, what economists keep putting forward just looks like anachronistic sloganeering.

      There is no reason in principle that governments can’t incentivise profit, and they do do so if that’s what the political incentives dictate. The thing is, populations often don’t want them to. They have that right if they own the asset the politicians are managing. There is arguably more accountability to owners now in the public sector than in the much of the private sector. If that pisses with economists models. Get better models. Or at least, stop defining efficiency purely in terms of short to medium term profit.

      • prism 18.1.1
        21 December 2009 at 9:50 pm

        When private equity came large on the scene the matter of lack of transparency of company dealings was raised as a problem and it must make a difference to how the business community operates.

  19. Duncan 19
    21 December 2009 at 7:54 pm

    “Government department do not have an incentive to maximise profit, without that incentive efficiency is lost. People don’t work as hard, bosses tolerate more etc etc. The loss in efficiency is almost always greater than the profit margin of a private business, The brief privitisation of ACC is a great example of this, levies dropped significantly.”

    but surely the government department still have an incentive to minimise costs, just because their not trying to extract a profit doesn’t mean that they don;t want to spend as little as possible to provide their good/service

  20. Paul Walker 20
    21 December 2009 at 8:05 pm

    “but surely the government department still have an incentive to minimise costs, just because their not trying to extract a profit doesn’t mean that they don;t want to spend as little as possible to provide their good/service”

    What happens if they don’t minimise cost? They don’t go bankrupt, they don’t get taken over, they don’t get merged. All that happens is that the taxpayer gets the bill. This set of incentives isn’t as powerful as profit maximisation for cost reductions.

    • rave 20.1
      21 December 2009 at 9:13 pm

      What happens when a bank doesnt minimise cost? i.e. makes risky investments leading to costs (toxic debt) rising.
      It doesnt go bankrupt it gets bailed out. Privatisers say it is too big to be allowed to go bust. Where are the market forces? Holding up the central banks.
      Who pays the central banks? Those wages and fixed incomes i.e. workers. Thle taxpayers pay and get less than nothing in return. They pay and pay.
      How is it that China is bailing out the rest of the world during the credit crunch?
      China has a massive state sector that spreads its risks across the whole sector including state banks. China invests a half trillion plus dollars into the domestic economy on the basis of what market signals? The taxpayers pay and get infrastructure, jobs, etc. If they don’t they riot.
      In other words capitalism is fucked, and so are we unless we throw it in the bin along with all the failed economists who continue to live on Planet XY.
      Riotous

      • Paul Walker 20.1.1
        21 December 2009 at 9:32 pm

        “What happens when a bank doesnt minimise cost? i.e. makes risky investments leading to costs (toxic debt) rising.”

        That isn’t what is meant by cost minimisation. Bad loans are part of the revenue side of the banks balance sheet, not the cost side. So banks can make bad loans or investments and still be cost minimising.

        “It doesnt go bankrupt it gets bailed out.”

        The banks should not have been bailed out, that was a big mistake by governments. It is a mistake that will lead to moral hazard problems for a long time in the future.

        “Privatisers say it is too big to be allowed to go bust.”

        The whole too big to fail idea is stupid.

        “Where are the market forces?”

        Unfortunately the actions by governments has meant that market forces can not work. Market forces would have put a number of bank into bankruptcy.

        “Holding up the central banks.” ?????

        “Who pays the central banks?”

        Most central banks are funded by grant from the government or by seigniorage.

        • Pascal's bookie 20.1.1.1
          21 December 2009 at 9:43 pm

          What would have been the consequences of near simultaneous failure for Citi, AIG, bear and the rest?

          • Tim Ellis 20.1.1.1.1
            21 December 2009 at 10:12 pm

            Hard to know what would have happened PB. It would have deepened the recession for a period, allowed China and Russia to buy up a lot of cheap banks, and a lot of irresponsible business people would have been cleared out of the banking system for a generation. Future bankers would have taken less risks. Fewer banks would have put themselves in such a position again.

            • Pascal's bookie 20.1.1.1.1.1
              22 December 2009 at 8:06 am

              Hard to know what would have happened PB.

              PW seems fairly sure that too big to fail is a stupid idea, so clearly he has a good idea, hopefully it’s a little more developed that your effort.

              Personally I think it’s quite possible that if things get too big, then the consequences of them failing are going to be worse than bailing them out. In which case it’s a question of regulation to stop them getting too big, or developing a framework for how those bailouts should best be managed to protect the interests of the bailer outer, and incentivise the reprobates. The market clearly failed at that.

              It would have deepened the recession for a period

              Worthless. By how much and for how long? This is the whole damn point and you just waive your hands at it with. ‘oh there will be some downsides’. Folks are claiming economics is a science, akin to drug or climate research. Put some numbers in, it or stop wasting my time.

              These orgs were central to the whole economic system. If they went bust, how do banks settle all their various trades and payments. Could you gaurantee wages would be paid for banks clients that use their systems? Could businesses pay their bills?

              “deepened the recession for a period” ffs.

    • Bill 20.2
      21 December 2009 at 9:31 pm

      Governments can invest in loss leaders such as a steel industry. While the steel industry is heavily subsidised, the downstream industries more than compensate in the bigger picture (higher employment, higher tax revenue etc) and, what’s more, could not have existed and thrived without the government subsidising the industrial base root….overall a far more efficient scenario for society than unemployment and lost revenue etc

      • Paul Walker 20.2.1
        21 December 2009 at 9:39 pm

        One problem with this is that you are not taking into account the distortions caused by the need to tax to fund the subsides. We can not subsidise ourselves to wealth.

        Another is that the use of subsidies may increase things like employment in one sector of the economy but only at the expense of employment in other areas of the economy. The subsidies will miss allocate resources within the economy away from areas in which we have a comparative advantage.

        • Bill 20.2.1.1
          21 December 2009 at 9:52 pm

          You really are nuts insofar as your insistence that you can take reality and squish it to fit a bolloxy economic theory.

          A subsidy is an investment and can generate a return many times its own value. Steel is a obvious example which can generate a comparative advantage over other countries that do not have a subsidised steel industry meaning that they do not have lower primary costs in downstream industries.

          Meanwhile, the market mis-allocates all the time because it is not a neutral ‘clearing house’ of preferences and price signals etc.

          • Paul Walker 20.2.1.1.1
            21 December 2009 at 10:07 pm

            What you need to keep in mind is the unseen affects of things like subsidies. It is simple to show there is a welfare loss to a subsidy, any stage one econ book will show this. But in addition you have to look at the effects of the taxes needed to pay the subsidy and the miss allocation of resources that is caused by both the taxes and the subsidy. Taxing some product will cause too little of it to be produced and using a subsidy will cause too much of a good to be produced. Both these effects will lower welfare.

  21. Tim Ellis 21
    21 December 2009 at 9:19 pm

    Of all the talk of privatised companies failing, there seems to be a lot of people who forget about the failures of publicly owned companies.

    Railways was a mess before it was corporatised. It was a way of the state employing thousands of people to do meaningless and soul destroying work and was a big hole that the taxpayer was throwing money into. People used to have to wait for weeks for a phone connection. The government’s investment in the DFC cost the taxpayers over $5 billion in today’s dollars.

    • NickS 21.1
      21 December 2009 at 9:37 pm

      Of course, Tim conveniently ignores that private companies also crash and burn, and can have serious inefficiencies, r.e. General Motors, the recent financial crash, etc, that require the emergence of crises to get fixed. Then there’s Telecom’s slackness on upgrading which have given NZ businesses and individuals some of the most expensive and slowest broadband in the OECD, while Telecom’s profits disappear overseas…

      Along with ignoring that the current crop of State Owned Enterprises are doing fairly well, and that perhaps SOE’s might be somewhat more effective for securing natural monopolies. Primarily due to preventing Ministers of the Crown pulling ye olde pork tricks of the Muldoon era, that helped lead to those inefficiencies and failings Tim lies to point out. But hey, who really gives a sh*t about history, given all those evil facts which can arise to contradict ones argument?

      • Tim Ellis 21.1.1
        21 December 2009 at 10:07 pm

        No Nick, I didn’t forget that private companies fail. When private companies fail, it’s the investors who chose to risk their capital who lose their money. You as a taxpayer don’t have a choice when a government company fails.

        The current crop of SOEs are doing “fairly well”. Some of them, such as the power generators are effectively extracting monopoly rents from consumers.

        The issue isn’t whether they are doing “fairly well”, it’s whether consumers and investors would be better off if they were privately owned. The evidence says yes.

        • Armchair Critic 21.1.1.1
          21 December 2009 at 10:21 pm

          “When private companies fail, it’s the investors who chose to risk their capital who lose their money”
          Unless they are too big to fail, in which case taxpayers bail them out. BNZ, perhaps?
          When an investor loses their money they are pretty short on choice about what happens. Hanover Finance rings any bells? Tell me those investors weren’t royally screwed.
          When a government-owned company fails there are a number of legitimate actions that can be taken, from the ballot box, to protest and civil unrest. Try seeing how far that gets you against private company directors.

        • NickS 21.1.1.2
          21 December 2009 at 11:15 pm

          No Nick, I didn’t forget that private companies fail. When private companies fail, it’s the investors who chose to risk their capital who lose their money. You as a taxpayer don’t have a choice when a government company fails.

          Ignoring of course, as Armchair Critic already mentioned, that there are pathways to fixing failures in SOE’s. Of course, that depends on what you mean by “failure”, because in areas like health and education it’s typically the result of underfunding by the government, where the resources are restricted limited for hiring adequate staff/numbers of staff and of course staff training. However, occasionally it is due to management issues, but then those are what reviews are for dealing with.

          The current crop of SOEs are doing “fairly well’. Some of them, such as the power generators are effectively extracting monopoly rents from consumers.

          Ah, Tim, does even occur to you that those higher prices are possibly actually the result of the costs of competition (advertising and PR), along lack of government funding for production and supply infrastructure?

          And that power production and distribution in the scope of the NZ market might also be a natural monopoly, thus meaning that it might actually be cheaper to run it as a monopoly, rather than the current multiple producers and distributors system?

          The issue isn’t whether they are doing “fairly well’, it’s whether consumers and investors would be better off if they were privately owned. The evidence says yes.

          And if you’d actually bothered reading Paul Walker’s blog, you’d see he’s actually got a post up on this particular topic:
          <a href="http://antidismal.blogspot.com/2009/12/exorcising-asset-sale-bogy.html"Exorcising the asset sale bogy
          Which covers some of the reviews on the success of privatisation, of which:

          Our review found greater ambiguity about ownership in theory than in the empirical literature. In the debate over the effects of competition, theory suggests that ownership may matter and if so, that private firms will outperform SOEs. The empirical studies squarely favor private ownership in competitive markets. Theory’s ambiguity about ownership in monopoly markets seems better justified, since the empirical literature is also less conclusive about the effects of ownership in such markets. Theories that assume a welfare maximizing government suggest that SOEs can correct market failures. In contrast, public choice theories are skeptical of the benevolent government model. Corporate governance theories suggest that even well intentioned governments may not be able to assure that SOE managers do their bidding. The empirical literature favors those skeptical of SOEs as a tool to address market failures. In studies of industrialized countries, where we might expect more developed political markets to motivate greater government concern with welfare maximization or better information and incentives to overcome corporate governance problems, private firms still have an advantage. The private advantage is more pronounced in developing countries, where market failures are more likely.

          See bolded part, namely that in competitive markets, SOE’s aren’t that brilliant, but in natural monopolies, things are much more ambiguous to the success of privatisation. Which suggests that while privatisation can be pulled off in natural monopolies, there’s little evidence for strong benefits, and drawing in previous stuff Paul quotes, regulatory frameworks matter. And thus It’s then not particularly difficult to realise that it’s generally a bit easier to pull off regulation concerning SOE, rather than private enterprises, which can effectively lobby or engage in court action to avoid changes in government regulations, leading to market failures. Of course, union groups can also do similar things for SOE’s concerning employment issues (pay, staffing, other conditions), but invariably in NZ these stem from health care, education, police and prisons etc, which typically are underfunded and stretched in the first place.

          Thus, in terms of evidence and context, yes, in markets which don’t form natural monopolies, privatisation can and does often work, but in natural monopolies, there are both historical precedents and theoretical bases that suggest SOE’s can run just as well as private companies. Though of course, regulation has it’s part to play.

          And I’d appreciate it if Paul could please correct anything my biologist butt has gotten wrong here 😛

      • Swampy 21.1.2
        21 December 2009 at 11:52 pm

        The SOEs have been doing so well that Labour took well over a billion dollars out of them to pay for election year spendups.

    • Pascal's bookie 21.2
      21 December 2009 at 9:46 pm

      ” People used to have to wait for weeks for a phone connection.”

      Obviously never signed up for telstraclear Tim.

      • Tim Ellis 21.2.1
        21 December 2009 at 10:04 pm

        Actually PB, I did once sign up, waited two weeks for no connection to happen, before I went to Telecom which had it running in two days. I didn’t have a choice when telecom was a government owned monopoly.

    • Swampy 21.3
      21 December 2009 at 11:54 pm

      THe privatised railway spent plenty on maintenance in its early years, a lot of what is mentioned is substandard work that was done in public ownership.

  22. prism 22
    21 December 2009 at 9:19 pm

    but private business doesn’t always run lean and mean and thank goodness for that. the profit maximisation line can mean bad conditions for workers. Businesses get together in cartels etc to adjust prices favourably – they can’t be regarded as the perfect solution.

    • prism 22.1
      21 December 2009 at 10:05 pm

      ‘ People used to have to wait for weeks for a phone connection.’
      I have heard this telephone comment numerous times as an example of the new efficiencies over the old practices. Is there a book of examples that economists are advised to refer to ‘these are tried and true examples that the common man and woman will comprehend’?
      Old systems and practices need scrutinising for efficiency and effectiveness. I have heard bad reports of the old government system. But the new one casts off workers so often, first they hive off the technicians, they contract them, then they contract someone else, then they force them to be self-employed. Very efficient, for the company. Its such a cold way to act, and its always discussed as if there is no other way. Policies drawn from a machine manual devised by a machine-like mind.

      • Swampy 22.1.1
        22 December 2009 at 12:22 am

        It was interesting, they never tried anything like Visionstream until Labour screwed them over with the LLU. The employees involved being EPMU members, well know for its affiliation to Labour and probably campaigning hard for the LLU in the first place. The shareholders sent a pretty strong message back don’t you think?

  23. quenchino 23
    21 December 2009 at 10:12 pm

    Paul Walker.

    Did you or did you not formally predict last years global fiscal crisis?

    Steven Keen did.

    One of you has credibility. Guess who?

  24. Paul Walker 24
    21 December 2009 at 10:18 pm

    As I didn’t even try to, as I feel forecasting is a waste of time, no I didn’t forecast it.

  25. quenchino 25
    21 December 2009 at 10:22 pm

    Predictive power is a basic test of any scientific hypothesis. But you are telling us that you are not willing to test your economic models and theories with prediction.

    What use are they?

    • Armchair Critic 25.1
      21 December 2009 at 11:40 pm

      “Predictive power is a basic test of any scientific hypothesis”
      Bingo! If a model or theory can’t predict what is likely to happen, with a reasonable degree of accuracy, it isn’t much of a model. Which would mean it is time for a better model.

      • prism 25.1.1
        22 December 2009 at 10:50 am

        By all means let’s have some good-looking economists. They could efficiently use their down time in between their data mining and choosing of the right vein for their particular purpose, to part-time model and so supplement their meagre salaries, which being based on the measure of how helpful their research and suggestions are to ordinary people’s welfare and advancement, would naturally be on the low side.

        An interesting new paper they could apply their brainpower to would be what size savings would occur of a revamp of the expensive and inefficient ‘correction’ system. Instead of long prison sentences shorter terms would be served with intensive effort put into educating and turning prisoners around. Some prisoners would spend true life sentences on prison farms for the public’s safety as their behaviour would deem them incorrigible. Guilty prisoners would serve only six months of their sentence, the rest depreciating over a period of good behaviour. Now that would free up a lot of money wasted on non-productive spending and cause crime to trend down in the long run.

        Another which they may have already done, is to look at the economic effects of making cannabis a legal, regulated drug thus cutting down on police time in dealing with it, bringing in tax from its legal merchandising, and encouraging the growing of hemp which would become a useful new agricultural crop.

    • Paul Walker 25.2
      22 December 2009 at 12:12 pm

      Prediction is more than forecasting. I discuss some of the empirical work testing ideas on privatisation here. There is no forecasting in this literature. If fact forecasting may not be that much use for understanding. For example, if your data has a lot of autocorrelation in it, you can forecast well without understanding what is actually going on. Also there are other ways to test theory. The two most obvious being field experiments and laboratory experiments. See the recent 4th Australian Workshop on Experimental Economics for some examples of the work in this area.

  26. rave 26
    22 December 2009 at 11:51 am

    About prediction.

    This is where Marx is vastly superior to Friedman, or Stiglitz or any so-called economist who accepts neo-classical economics. Actually Adam Smith was much better than all modern neo-classicals put together. At least he recognised that wealth came from nature and labour and the contribution of capital presupposes the former and is historically dependent on nature and labour.

    This is because Marx treats the economy and the state as part of the same set of property relations. Whoever owns the means of production not only controls nature and labourpower and extracts value from it, also controls the state.

    So the recent crisis is explained by Marx as a result of falling profits in the productive sphere leading to a surplus of capital looking for new investments which becomes parasitic on the production process, as in subprime mortgages. US workers have had declining wages for years, so that their housing aspirations were financed by debt way in excess of the value of the property. Bang – turns out most of this capital investment was what Marx called fictitious capital – without value. Marx understood this because his theory of value like that of Smith was a labour theory not a marginal theory of supply and demand.

    So the question of bailouts are about the same set of property owners using their state to mortgage the wages of future generations of workers to subsidies these falling profits. The winners scramble over the losers and we end up with both a widening income inequality, and also a concentration and centralisation of capital in the hands of fewer and fewer firms but also nations that act as their backers.

    China’s growth while hit hard by the recession could still maintain rising demand that kept the recession more shallow in many parts of the the world than would have otherwise been the case. It also keeps buying US securities. Whoever thought that the Middle Kingdom would outcivilisize the West? Marx for one. Writing in 1850 he said:

    “When our European reactionaries in their immediately coming flight across Asia finally come up against the Great Wall of China, who knows whether they will not find on the gates which lead to the home of ancient reaction and ancient conservatism the inscription, ‘Chinese Republic liberty, equality, fraternity’.’

    Could be why the sales of Marx’s Kapital have skyrocketted in recent years.

  27. Frank Macskasy 27
    23 December 2009 at 7:41 am

    An update to my original article…

    Current account surplus ‘first in 20 years’ – NZ HERALD

    “Publishing the data today, Statistics New Zealand (SNZ) said the change from a deficit to a surplus was mostly due to a narrowing of the investment income deficit. This indicates a drop in profits by companies who have a presence in New Zealand but are owned overseas.” – http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10617006&ref=rss

    Tim Ellis:

    “People used to have to wait for weeks for a phone connection…”

    Actually, I can’t recall any such thing, and my family used to move around often, as we needed a bigger home for several growing children. And when I began my property purchases I can’t recall having to “wait weeks”.

    Usually settlement took a month, during which time one contacted the NZ Post Office and by the time I moved in – voila! – the phone was on.

    Contrast that to having to wait nearly two weeks in 1998 for a phone to be connected in Dunedin. To this day I still have no idea what the hold-up was.

    Prism:

    “One of the ‘efficiencies’ of the 80’s was to drive down some people’s wages and hoik some others’ salaries.”

    Indeed. I remember Bill Birch actually ‘skiting’ about the lowering of wages in the 1990s, stating it would be attractive to overseas investors. I was gobsmacked that (a) the man actually believed such rubbish and (b) that he would be arrogant enough to state it publicly.

Links to post