The Dim-Post

April 19, 2013

Kicking the tires out from under them

Filed under: economics,finance,Politics — danylmc @ 6:48 am

You can critique the Labour-Greens power-policy on a number of levels. Where do they pluck their estimates of 5000 jobs and $450 million dollar boost to ‘the economy’ from? What happens if our power companies respond to reduced windfall profits by sacking all their staff and scrapping expenditure on the maintenance of their assets?

You can even claim that it amounts to nationalisation of the energy sector and ‘North Korean style economics’, if you don’t actually know what nationalisation is and think that North Korea is a country where publicly listed companies own the electricity infrastructure and pay dividends to private shareholders.

But you can’t fault the politics. The government needs the partial sale of Mighty River Power to succeed. It’s their signature achievement. English needs the cash, and Key has bled so much political capital and invested so much time on this policy that it has to work. And now the shares are finally on sale to New Zealand buyers. It lists on the NZX early next month. They must have felt like they’d finally made it.

But now Labour and the Greens have announced that if they’re elected dividends from these companies will be minimal. How do you quantify that if you’re a risk analyst for an investment fund? No wonder National are furious, and Simon Bridges was close to tears in Parliament yesterday spluttering about the decline in Contact Energy’s share price.

Maybe the market won’t care, and the float will be a success. But if it isn’t, I don’t think the public will be sympathetic when the government blames the opposition. This is an unpopular policy, and government Ministers blame Labour every time they spill their coffee. It’ll also leave English trying to raise money, either through borrowing, spending cuts or tax increases, all of which would kick in in 2014. Election year.

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78 Comments »

  1. On the jobs critique, Labour released the BERL study that they had commissioned. Check it and see if you agree with the workings but you can’t deny the basic fact that lower power costs would equal more jobs and a larger economy. Hell, the entire history of industrial revolution is cheaper energy=greater wealth. Of course taking money out of the power companies’ profits and giving it to households is going to increase the size of the economy and create jobs – the outflow of profits from the country decreases, government revenue decreases but government spending doesn’t, household incomes increase, business costs fall… put that together and it equals more people buying more stuff and businesses able to reduce prices and/or hire more people.

    Comment by Dean — April 19, 2013 @ 7:07 am

  2. But, but, but North Korea!!!

    Comment by Another Kiwi — April 19, 2013 @ 7:48 am

  3. But now Labour and the Greens have announced

    And Winston has joined them. This is going to happen. It’s just a question of when.

    On Bridges, he can run his lines well but he lacks the gravitas required to convince Kiwis to side against their own best interests. His youth and inexperience was on full display on RNZ this morning.

    Comment by IrishBill — April 19, 2013 @ 7:54 am

  4. And the United Soviet Socialist Republic! Oh hang on… United?

    Comment by Sanctuary — April 19, 2013 @ 7:57 am

  5. This is going to create 5000 jobs, lower the price of electricty to end consumers (and therefore the incomes of the power companies) and somehow increase GDP. I doubt it

    You are correct, it’s great political strategy although it’s a bit of a scorched earth policy and therefore isn’t really something to be happy about.

    Comment by Andrew M — April 19, 2013 @ 8:02 am

  6. Politically, it has perfectly wedged the NatAct – they are left defending unpopular high power prices being siphoned off by an already wealthy elite and they’ve shown up as having no plans to stop prices skyrocketing under privatised power companies. Power price rises looks set to be cited as a perfect example of a “sleeper” issue that can be ignited apparently from nowhere.

    I think though the real significance of this policy is the intellectual break with the past it signals – something the howling reaction from the high priests of rogernomics and their acolytes in media confirms. It is a fresh approach, and the complacent beneficiaries of neo-liberal privilege do not like it at all.

    Comment by Sanctuary — April 19, 2013 @ 8:11 am

  7. But the Greens want a particular type of job and I think the whole proposal of more jobs will fall over because they will subsidise jobs that don’t need doing. We will be clean and broke when we could be balanced and wealthy. Having Russell Norman anywhere near control of anything will be the end of us economically. Of course the large number of people surplus will be easily disposed of under other Green policy related to the world having too many people. A ride on the carousel will take on a whole new meaning.

    Comment by Brown — April 19, 2013 @ 8:16 am

  8. from dim
    > But if it isn’t, I don’t think the public will be sympathetic when the government blames the opposition. This is an unpopular policy, and government Ministers blame Labour every time they spill their coffee.

    and

    from Sanctuary
    >You are correct, it’s great political strategy although it’s a bit of a scorched earth policy and therefore isn’t really something to be happy about.

    I think this is correct (both comments). This is the first really open war declaration Labour has made, and there will be casualties both sides. I think it’s great, personally. No potential investor loses out, since Labour have prewarned of this. Only the government books lose, and in the end, they’re only losing because National insists on doing something the majority doesn’t want, and has banked on Labour’s complicity to carry them. That was a grave miscalculation. It could, in my mind, only have been better if Labour had had the fucking balls to do this over a year ago, stalling and possibly derailing the entire sale. But as a solution it’s at least a little closer to seizing back the ownership of our power that National has been doing a zombie march towards for the last 5 years.

    Comment by Ben Wilson — April 19, 2013 @ 8:19 am

  9. Zombie marching away from, sorry.

    Comment by Ben Wilson — April 19, 2013 @ 8:20 am

  10. i also agree with you , the Greens want a particular type of job and I think the whole proposal of more jobs will fall over because they will subsidise jobs that don’t need doing. We will be clean and broke when we could be balanced and wealthy. Having Russell Norman anywhere near control of anything will be the end of us economically. Of course the large number of people surplus will be easily disposed of under other Green policy related to the world having too many people. A ride on the carousel will take on a whole new meaning.

    Comment by maroc annonces — April 19, 2013 @ 8:28 am

  11. I’ll thank you not to attribute my words to fuckin’ Sanctuary of all people thanks Ben.

    Comment by Andrew M — April 19, 2013 @ 8:28 am

  12. Just for clarity, you are quoting Andrew M, not me :)

    Comment by Sanctuary — April 19, 2013 @ 8:29 am

  13. It’s economic sabotage and a rather petty removal of nose to spite face,

    Sometimes for the greater good of the country a party had to just suck up some previous policies of an out-going govt.
    National kept KiwiBank, KiwiSaver, WFF and Cullen’s bailout scheme.

    Labour on the other hand in response to half the eggs being sold off will chop the goodr’s head off.

    The two main arguments against the partial dale were to the value of the power companies to the whole of the NZ public and the income stream to the govt and hence everyone enjoyed from them.

    Apparently that was an argument Lanour never put forward in good faith.

    Comment by NeilM — April 19, 2013 @ 8:31 am

  14. Sometimes for the greater good of the country a party had to just suck up some previous policies of an out-going govt.
    National kept KiwiBank, KiwiSaver, WFF and Cullen’s bailout scheme.

    That is perhaps the most blatant rewriting of history that I have ever seen. If you honestly believe that National swallowed these “dead rats” (to quote Bill English) because of a belief that preserving them was for “the greater good of the country”, then you need to up your meds.

    These policies were kept because people actually liked them, and a National Party that campaigned on a “vote for us and we’ll get rid of these” platform would never have been elected. And a National Government that abolished these without campaigning on the policy would never get reelected. It may be “for the greater good of the country” to have a National Government, but if it thought it could get away electorally with getting rid of any of those policies, it would do so in a second.

    So … in 2011, National campaigned on a “vote for us, and we’ll introduce a MOM”. They won. So they can do this. In 2014, the Greens and Labour are going to campaign on a “vote for us, you get this power policy”. If people like it, these parties will win, and then they can do it. If not – and if it truly is so terrible then I’m sure National can easily convince people not to vote for them – then they can’t. So what we see here is a proper referendum on the MOM policy, not a silly “doesn’t count” version.

    Comment by Andrew Geddis — April 19, 2013 @ 8:43 am

  15. ” It’ll also leave English trying to raise money, either through borrowing, spending cuts or tax increases, all of which would kick in in 2014. Election year”

    It’s also a problem Labour would face as they won’t have that money plus they’ll have extra spending. How do they pay for it? Raise the retirement age even further.

    And they’re not promising much either -“up to” $450 mil of GDP. So no incease would be a success of their policy.

    Comment by NeilM — April 19, 2013 @ 8:47 am

  16. Control over the means of production rather than outright ownership is not North Korean of course but standard fascist economic policy. The left will be happy. Well done Wussel but Shearer has dropped the ball.

    Comment by Simon — April 19, 2013 @ 9:11 am

  17. Dear Simon @9.11am,

    Your post doesn’t make sense.

    Comment by Sanctuary — April 19, 2013 @ 9:17 am

  18. Wussel? really simon? – kinds invalidates any points you might have to make.
    Im hoping your grown up enough to say something without resorting to pre-toilet training pronunciation – then again, with kids and computers these days im always amazed at what the little blighters can do

    Comment by framu — April 19, 2013 @ 9:18 am

  19. In terms of economic impacts – this policy isn’t cheaper energy, it is an internal subsidy, a cheaper energy policy would be to build capacity or improve efficiency. BERL was very very careful in its analysis to simply model what the assumption that Labour/Greens gave them that this policy will reduce household costs by x dollars. The same results would be achieved if you just gave away via a tax cut or direct payment. The modelling did not include any consideration of reduced capital expenture by energy generators – which will flow on to higher prices or if prices are not able to rise to shortages, these impacts are likely to be more significant and important to the country from an environmental, social and economic perspective.

    Verdict – poor policy, there would be better ways to play the politics – might have a initial feel good to the activists, but then so does cocaine and the medium and long term political effects are negative (i.e., greens and labour still failing to put together a form of credible policy that the average voter can consider confering trust in the form of governance both parties may provide should they form the next government).

    So verdict – poor politics, allows National to reclaim credible management and governance.

    Comment by WH — April 19, 2013 @ 9:31 am

  20. You ask how a risk analyst for an investment fund would react
    Mine sent me this:
    “We are writing to you to advise that we have made a decision not to include Mighty River Power shares in your investment portfolio. This is because”

    I have cut you off at the “because”, because I pay serious money for this information and it is not for the reasons you have outlined.
    I might also add this is from one of the big boys in the business

    Comment by Raymond A Francis — April 19, 2013 @ 9:47 am

  21. Raymond,

    “…because we don’t know exactly how much they will cost you, but the indicated price range is too much for the long-term risk irrespective of anything a future Government will do.”

    Close enough?

    Comment by Flashing Light — April 19, 2013 @ 9:57 am

  22. The modelling did not include any consideration of reduced capital expenture by energy generators – which will flow on to higher prices or if prices are not able to rise to shortages, these impacts are likely to be more significant and important to the country from an environmental, social and economic perspective.

    David Parker was on 9-to-Noon, claiming that “the literature” shows that the policy Labour is proposing does not create under-capacity – if anything it creates a risk of over-capacity. I don’t know if he is right about that (I don’t know what “the literature” is) … but it at least suggests that there may be valid reasons for not including “reduced capital expenture by energy generators” in the modeling.

    Comment by Andrew Geddis — April 19, 2013 @ 10:02 am

  23. Couldn’t the same financial objective be reached by beefing up the Electricity Authority’s mandate to control wholesale prices and separating energy generation from retailing?

    As DMc points out though, great tire slashing politics.

    Comment by Gregor W — April 19, 2013 @ 10:04 am

  24. Hi AG – “the literature” isn’t a powerful argument unless there is a specified source, I’m concious you will be aware of this. From an economics/finance perspective i’d really really really like to see his source.

    Something to note, this policy proposal is not dissimilar to policies in Iran and a couple of other countries of low petrol prices for the public. The evidence to date is that this results in under investment, distorted internal markets (the pressure finds an outlet somewhere) e.g., with cars its people using using their domestic ration for business purposes e.g., moonlight as taxi’s, couriers etc.

    A further thought is I’m not sure consideration has been given to environmental effect e.g., how does this policy knit with an ETS policy. If a policy only makes sense in the presence of another secondary policy or require secondary policies (in this case more regulation/enforcement and direct crown investment in case energy companies don’t have revenue to invest in capital) – then you have to ask whether this compensatory policy will pass and what the additional unintended consequences will be. See thining this through already suggest a series of unintended consequences and additional policy which is likely to need even more additional policy.

    Markets suck, but at least they provide a signal mechanism, in the absence of signals a lot of guessing needs to take place, and we have to ask ourselves whether a simplier policy, such as lower tax rate on low income (and increase in beneficiary payments) would provide better incentives and compensation.

    Comment by WH — April 19, 2013 @ 10:55 am

  25. Internal subsidy or non-progressive tax cut.

    If the issue is the less well of being disadvantaged then targeted assistance would be more effective and less prone to the sort of middle class capture we’ve seen with WFF.

    Comment by NeilM — April 19, 2013 @ 11:03 am

  26. WH,

    Hi AG – “the literature” isn’t a powerful argument unless there is a specified source, I’m concious you will be aware of this. From an economics/finance perspective i’d really really really like to see his source.

    I quite agree. All I was suggesting is that the claim “this policy will lead to insufficient investment in future generation” isn’t a necessary truth, but an empirical prediction. And it also is one that Labour seems to be at least aware of. Of course, they may be completely wrong in their analysis … but I’m wary of claims that “theory dictates that they must be wrong”.

    See thining this through already suggest a series of unintended consequences and additional policy which is likely to need even more additional policy.

    But, of course, this is true of ANY policy change in the electricity generation/supply market. So, either we leave things exactly as they are (accepting the apparent trend of ever-increasing prices and consequent effect on end users), or we change them – with potential unintended consequences. Now, maybe you might say that this big change will have bigger unintended consequences than other smaller changes – but how do you know in advance what consequences (say) a “lower tax rate on low income (and increase in beneficiary payments)” will bring about vis-a-vis Labour’s proposal? What will the effect on economic growth, etc be of taking (say) $400 million out of the Government’s coffers annually to give to poorer people so that they can pay increasing power prices to entities with substantial overseas ownership?

    Markets suck, but at least they provide a signal mechanism, in the absence of signals a lot of guessing needs to take place…

    Of course, a price is a guess – “if I offer this for this, someone will be willing to take it and I’ll make this much of a profit”. And if that signal mechanism is (in effect) dictated by the person doing the selling such that those being offered it have to take it or leave it, and the consequences of leaving it is sitting in the cold and dark with nothing to cook your food, then it’s of questionable worth. So if power prices are “sticky”, in that they go up when demand increases and stay up when demand falls, then you have to question if “the market” is working. And markets aren’t holy writ handed down to us from on high – they either work in producing an outcome, or they don’t.

    I guess we might say an imperfect market that is subject to price-setting by dominant players still is better than a market where prices are set by a Government regulator … but again, that looks to me like an empirical issue on which I’d like to see the evidence. And that’s all I’m saying – claims that one approach “just must” work better than the other should be taken with a grain of salt.

    Comment by Andrew Geddis — April 19, 2013 @ 11:24 am

  27. Why is everyone discussing the impact of this policy primarily in terms of free market economic theory when (to me at least) the real story here is a political one of clearly signaled wealth re-distribution from rich capitalist shareholders to ordinary New Zealanders?

    Comment by Sanctuary — April 19, 2013 @ 11:39 am

  28. Sorry to both Andrew W and Sanctuary for misquote. Although in Sanctuary’s case I’d like not to be included in “everyone” in comment 27, thanks. Essentially, I was saying much the same thing, that this policy declares that the wealth will be redistributed. I think that’s a good thing and I just wish they’d done it sooner so that National wouldn’t have sold what we owned in the first place. But a year ago they were too cowardly. I’m damned sure I suggested something along these lines quite some time ago, but haven’t got time to look it up. I pretty much said Labour could have stopped the sale if they’d made it open and clear that they would eventually undo all the goodness of it to the shareholders, perhaps even compulsorily acquired it back. That would drive the value of the stock down massively and make it not worth selling. They could have done this, if they had the balls for … um … such hardballing. I think they might have gotten a poll bounce a lot earlier if they did. The rebuttals centered around bullshit like “that undermines investor confidence in dealing with the government”. Well, DUH, that’s what an Opposition should be doing, undermining confidence in the fucking government of the day, if they really are an actual Opposition, and the issue is actually important, and they do actually have a different view/policy from the Government.

    However, later is better than never.

    Comment by Ben Wilson — April 19, 2013 @ 11:52 am

  29. FFS. Andrew M, I meant above

    Comment by Ben Wilson — April 19, 2013 @ 11:53 am

  30. Why is everyone discussing the impact of this policy primarily in terms of free market economic theory…

    Maybe because that’s how the media’s going to frame it. It would be nice if it could be framed in terms of its political cleverness and the moral value in limiting the transfer of wealth from poor to rich, but we’re unlikely to see that outside of blogs.

    Comment by Psycho Milt — April 19, 2013 @ 12:07 pm

  31. But a year ago they were too cowardly.

    Nah – a year ago would have left National 12 months to come up with a re-framing strategy. Now they have about 6 weeks.

    On top of Fridays news in the NBR that MRP is refusing to release Beca’s engineering report on their 50 y/o plant, there is going to be a whole lot of desperate turd polishing going on.

    Comment by Gregor W — April 19, 2013 @ 12:49 pm

  32. This is probably the last straw for me. I was rattled by the ‘green jobs’ platform and worried by the monetary policy. Now that the Green Party wants to get electricity prices wrong (or wronger, considering that they already fail to re
    flect the environmental impacts of generation) to ‘add to NZ’s GDP’ I’m pretty sure they’ve fully abandoned their pillar of ‘ecological wisdom.’ They’re not Green any more. I quit.

    Comment by **** — April 19, 2013 @ 1:30 pm

  33. >but we’re unlikely to see that outside of blogs.

    Maybe so, but this is a blog. There’s no need to deliberately subvert ourselves to thinking in the way the MSM wants us to. Indeed, why come here if you want to do that?

    >Nah – a year ago would have left National 12 months to come up with a re-framing strategy. Now they have about 6 weeks.

    That means it’s not just cowardly, but also unprincipled, if it was thought out that clearly. I’m being generous by just calling it cowardly.

    I’ll add that it’s also stupid, if thought out like that, but that’s only my opinion, based on the belief that oppositions that actively contest the government on core areas of belief do better than ones that play along. The public likes that when they’re trying to make a choice. They like to see that there’s a difference, that the choice is meaningful. If it’s just down to “who is more polished and presidential?” then Key absolutely shits on Shearer. People want to see mongrel in Shearer, which will draw it out in Key. Then we’ve got a fight, rather than a couple of sparring partners hugging every time someone accidentally draws blood.

    Comment by Ben Wilson — April 19, 2013 @ 2:13 pm

  34. @ Ben

    “That means it’s not just cowardly, but also unprincipled…” completely negates “People want to see mongrel in Shearer, which will draw it out in Key.”

    Most people don’t give a flying fuck about ideology.
    They care about hip pocket politics, which is why this nicely timed, very mongrel pitch should draw Key out (unless he chickshits and tosses the hot potato to Joyce) – precisely the fight you are after.

    Comment by Gregor W — April 19, 2013 @ 2:22 pm

  35. Now that Hugo Chavez is dead Labour and the Greens have identified a gap in the market for populist blowhards. Winston will be furious.

    Comment by tinakori — April 19, 2013 @ 2:47 pm

  36. > These policies were kept because people actually liked them, and a National Party that campaigned on a “vote for us and we’ll get rid of these” platform would never have been elected.

    Maybe, maybe not. National may have thought that getting rid of them was more trouble than it was worth. The fact that “people actually like” some of Labour’s policies has never stopped National from dumping them in the past. And, no, these statements are not contradictory. :)

    Comment by Ross — April 19, 2013 @ 3:33 pm

  37. “Markets suck, but at least they provide a signal mechanism, in the absence of signals a lot of guessing needs to take place, and we have to ask ourselves whether a simplier policy, such as lower tax rate on low income (and increase in beneficiary payments) would provide better incentives and compensation.”

    But wouldn’t that be an invitation for power companies to increase prices even further? I’m not sure how giving power companies to make even more money is the answer. I think Labour-Greens have realised this.

    Comment by Ross — April 19, 2013 @ 3:41 pm

  38. National may have thought that getting rid of them was more trouble than it was worth.

    Really? The only thing keeping Working For Families/Kiwisaver/Kiwibank in place is … mere inertia and ennui? (Cullen’s bail-out plan I’ll retrospectively give to NeilM – that was a case of a government being put in a position where it had to keep its predecessor’s promises).

    Also, I’m not quite sure what metric “more trouble than it was worth” uses apart from “doing this will cost us votes without realising a sufficient off-setting potential benefit”. Which sounds a lot like “These policies were kept because people actually liked them”.

    Comment by Andrew Geddis — April 19, 2013 @ 3:45 pm

  39. “These policies were kept because people actually liked them”.

    Another expanation is that any party has to change when going from opposition to govt. the reality of actually managing the economy has to intrude on positions that were little more than opposition/partisan rhetoric.

    It’s what generally happens with foreign affairs and trade and I think with much of the economy.

    Comment by NeilM — April 19, 2013 @ 4:11 pm

  40. Another expanation is that any party has to change when going from opposition to govt. the reality of actually managing the economy has to intrude on positions that were little more than opposition/partisan rhetoric.

    Ah! That would explain the current governments single minded obsession with ramming asset sales through and charter schools while letting the economy tank.

    Comment by Gregor W — April 19, 2013 @ 4:18 pm

  41. “Another expanation is that any party has to change when going from opposition to govt. the reality of actually managing the economy has to intrude on positions that were little more than opposition/partisan rhetoric.”

    So, in your view Working For Families/Kiwisaver/Kiwibank have all proven to be positives when it comes to “managing the economy”, Labour’s introduction of them were good for the country, and National’s opposition to their adoption was “little more than opposition/partisan rhetoric”? Is that it?

    Comment by Andrew Geddis — April 19, 2013 @ 6:07 pm

  42. “Is that it?”

    To a large extent, yes.

    Comment by NeilM — April 19, 2013 @ 6:35 pm

  43. Thats fucking retarded Dave, Rus. The ratings agencies will downgrade NZ & foreign investors will fuck off because you are dicks.

    Comment by Tim — April 19, 2013 @ 7:28 pm

  44. Fair enough, NeilM. But I don’t think your view is reflective of what the National Government believes.

    Comment by Andrew Geddis — April 19, 2013 @ 7:54 pm

  45. It’s reflective of what it does.

    Comment by NeilM — April 19, 2013 @ 8:14 pm

  46. > Really? The only thing keeping Working For Families/Kiwisaver/Kiwibank in place is … mere inertia and ennui?

    Not at all. Sure, National might have lost some votes by dumping these policies. Likewise they might have gained some. Given the time and effort to devise substitutes, what was the point in dumping them apart from appeasing some of their most ideological supporters?

    Comment by Ross — April 19, 2013 @ 9:13 pm

  47. > what was the point in dumping them apart from appeasing some of their most ideological supporters?

    I should add that the same will apply to Labour if it governs in 2014. I don’t expect it to change significantly whatever policies National has implemented.

    Comment by Ross — April 19, 2013 @ 9:19 pm

  48. Is it just me or is the real story here not the specifics of the policy, but the fact of the first (AFAIK) major Labour-Greens joint policy launch?

    Comment by Hugh — April 19, 2013 @ 9:57 pm

  49. >“That means it’s not just cowardly, but also unprincipled…” completely negates “People want to see mongrel in Shearer, which will draw it out in Key.”

    I’m not sure what sense of “negates” you’re using here. I’m saying if Shearer had been more mongrel a year ago, clearly stating he was going to go head on with the Government over asset sales, I think people would have liked it, and Labour’s polling would have done well. Instead there was a bunch of soft-diplomatic pussyfooting around, while National got on with pushing this unpopular agenda through. Perhaps he was simply soft and weak then, and is finally finding some cojones. That was why I said it was cowardly. But the suggestion that this has all been gamed out by Labour leads me to say that IF that is the case then it is highly unprincipled, since it allowed the agenda to go ahead, waiting for some perceived moment of political advantage. It’s unprincipled towards the people in this country who don’t want the asset sales, AND it’s unprincipled to the people who do, too. But I don’t think they’re as Machiavellian as that. Indeed I don’t think they’re as smart as that. They were just cowards.

    Comment by Ben Wilson — April 19, 2013 @ 10:24 pm

  50. @Hugh 48. Nope, not just you.

    Combine that fact with the rather fortunate timing of the Roy Morgan poll which has Lab/Green 8.5 points ahead of National, and the media narrative is changed. If the weekend’s polls are anything like RM then the main story of the horse race becomes “What will National give Winston?”.

    Comment by Pascal's bookie — April 19, 2013 @ 10:38 pm

  51. Ben, I too suspect it was more opportune than anything else. This may have been cooking for a while; probably not a year, but timing is everything.

    Comment by Gregor W — April 19, 2013 @ 11:09 pm

  52. Does ‘spanner in the works’ get more proverbial than this?

    Comment by deepred — April 20, 2013 @ 12:05 am

  53. “The two main arguments against the partial dale were to the value of the power companies to the whole of the NZ public and the income stream to the govt and hence everyone enjoyed from them.

    Apparently that was an argument Lanour never put forward in good faith.”

    Bingo. The tyres are still smoking after this u turn

    Comment by Swan — April 20, 2013 @ 7:31 am

  54. @NeilM,

    It’s reflective of what it does.

    That’s a statement about actions – and no-one is denying that National has maintained some of the 5th Labour Government’s policies in place. The debate is over why it has done so. You say (I think) it is because dumping these would have been bad for the economy and National (being prudent economic managers) have realised this and so held off abolishing them. I think this analysis is contrary to the observable facts.

    http://www.stuff.co.nz/blogs/opinion/568798/i-National-must-keep-the-dead-rats-down-i

    http://www.colinjames.co.nz/management/Management_column_07Jun.htm

    http://dimpost.wordpress.com/2012/05/03/left-wing-dead-rats/

    Comment by Andrew Geddis — April 20, 2013 @ 8:22 am

  55. Yes, both Labour National are making a greater good argument for diminishing the State’s capital stake In the power companies and diminishing its dividend return.

    But only one party was vociferously arguing the exact opposite just a few days ago.

    Comment by NeilM — April 20, 2013 @ 8:51 am

  56. “Markets suck, but at least they provide a signal mechanism, in the absence of signals a lot of guessing needs to take place…”

    This claim seems to me to still be relying on an erroneous belief. An educated guess also provides a signal. The question is which one is more likely to be accurate, and in a general sense the answer is “we don’t know”. As you say, it’s an empirical issue rather than something that can be determined a priori, but, if that is the case, then no general claim about the greater accuracy of market signals over other types can be known to be correct, and when we turn to specific areas of the economy we discover the mundane truth that in some cases markets work better and in others they don’t.

    But I think we need to get rid of the subtle privileging of market prices that occurs when people say that government intervention will distort prices. This implies that the market price must be correct or closer to correct than any alternative, and that is something that, according to standard economic theory, we cannot know.

    Comment by Tom — April 20, 2013 @ 9:33 am

  57. ““The two main arguments against the partial sale were to the value of the power companies to the whole of the NZ public and the income stream to the govt and hence everyone enjoyed from them.”

    I think you misunderstood a few things there Neil.

    Firstly, the two main arguments are that:

    1)The sales are deeply unpopular (remember the petition and all the brouhaha about mandates?)

    and

    2) That the government’s arguments about the benefits of the sale don’t add up.

    It is in support of the second argument that the role of dividends is used as a premise.

    The point wasn’t that the dividend stream must be maintained as an article of faith, but that the govt simply ignored the dividend stream to make its case work. That criticism stands, and it has no bearing on a question of whether sacrificing dividends to lower power prices is a good idea or not.

    Comment by Pascal's bookie — April 20, 2013 @ 9:55 am

  58. >Ben, I too suspect it was more opportune than anything else. This may have been cooking for a while; probably not a year, but timing is everything.

    It’s been an obvious option since the get-go. An opposition can *always* say they will undo the work of the government, if it is highly unpopular. In fact, they can forestall it from happening just with that threat. It’s one of their basic duties. “Keeping the government honest”, and all that. The fact that they couldn’t or wouldn’t seize this by the horns, something that they would have had the Green Party support the entire time (not to mention populists like Winston), is one of the biggest parts of my dislike of the Labour party. It seemed to me that their opposition to the asset sales was half-hearted at best. I believe they are conflicted, and this result is actually a win for the neoliberal remnants who are still wielding a lot of power in there.

    But I’m still happy about what they’ve done this week. It’s probably something that should be done anyway, regardless of whether MR or any other assets get sold. It’s a bold move, and I think it will be popular. There is a good chance that some historical patterns are going to be broken, next election. National may not get their usual 3 terms. Winston may not get to be kingmaker for a left coalition. The Greens may take that spot. Shearer may be able to work with them, and all his apparent weakness may turn into strength (although that is not new, most elected prime ministers have that happen to them, the office generates its own momentum) and his apparent indecisiveness could be seen to be sensibly compromising.

    Comment by Ben Wilson — April 20, 2013 @ 10:07 am

  59. “2) That the government’s arguments about the benefits of the sale don’t add up.”

    Your argument is circular. You assume Labour to be right to conclude National is wrong.

    Watching power companies go from being heroes – the jewel in the State’s asset and income crown – to capitalist rentier villains has been bleakly entertaining.

    Comment by NeilM — April 20, 2013 @ 10:36 am

  60. Nice try Pascals Bookie. As a bookie of Blaise I would have thought you would understand risk. It was Labour that equated govt debt to the power company returns and claimed that because one was less than the other selling was a bad idea. What they missed out was the difference in risk. Paying down debt is zero risk, whilst investing in power companies is risky. Ironically an important risk is political/ regulartory risk. National never ignored the dividends, you dont have to. This is simply an asset divestment to pay down debt which affects the government net worth not one bit. That private ownership of capital tends to be a winner for the economy is fairly well established.

    So Labour have u-turned. I guess rio tinto will be happy.

    Comment by Swan — April 20, 2013 @ 11:25 am

  61. “What will National give Winston?”

    Good point. A guarantee not to increase the superannuation age? Tax breaks for private healthcare?

    Comment by Sacha — April 20, 2013 @ 12:03 pm

  62. “investing in power companies is risky” – only if the ‘market’ is distorted as neo-lib Bradford did with ours. There’s a reason the state always owned such long-term strategic resources.

    Comment by Sacha — April 20, 2013 @ 12:05 pm

  63. “– only if the ‘market’ is distorted as neo-lib Bradford did with ours. There’s a reason the state always owned such long-term strategic resources.”

    Eh? Heard of the Clyde Dam? Methanex? It’s not always risk free when the government invests.

    Comment by Swan — April 20, 2013 @ 12:13 pm

  64. “Your argument is circular. You assume Labour to be right to conclude National is wrong.”

    Care to explain that? Because I don’t think I was making an argument of any kind, let alone a circular’ one.

    Are you suggesting that it is false that Labour was arguing that the government’s case for the sales didn’t add up? Or that the dividend stream wasn’t a premise in that argument which Labour was making?

    That is all I said, whether or not Labour was correct is simply beside the point. I made no claim whatsoever about the soundness of Labour’s argument, I merely said that the argument they made was not the one you seem to think it was.

    The desperation and bullshit Labour’s opponents are reaching for is disappointing to be honest. And it will likely do them no good whatsoever, they are looking more and more like Labour 06-8.

    Comment by Pascal's bookie — April 20, 2013 @ 12:31 pm

  65. @Swan, tl;dr version: You’re an idiot.

    Comment by Pascal's bookie — April 20, 2013 @ 1:10 pm

  66. Pascal B, no that isn’t how my tl;dr version would have read, I am not trying to call you an idiot. Although if you swallowed Labours argument around dividends vs debt without picking up the elementary hole in their argument, perhaps I should be.

    Comment by Swan — April 20, 2013 @ 1:51 pm

  67. PB,

    The point wasn’t that the dividend stream must be maintained as an article of faith, but that the govt simply ignored the dividend stream to make its case work

    Well the opponents made keeping that income steam one of the major arguments against the partial sale. Ok so that’s no longer an argument, since like a few days ago.

    And the circularity of your argument comes from dating National did not consider the loss of income steam, they did they just concluded there was a greater good argument – just like Laboir is dong since a few days ago.

    Perhaps Labour will get in but just as Key never stopped the exodus to Australia Laboue might not doing anything useful for power prices and supply.

    This attempt to undeine the partial sale might is getting a big round of cheers for being a stick eye for National but the loss of income is going to be a stick in the eye for whatever govt we have after the next election.

    Comment by NeilM — April 20, 2013 @ 2:01 pm

  68. Neil. the whole debating point around the deficits stems from when national accounted for the proceeds but ignored the lost dividends, it’s referred to here, after they first came out with some numbers that did include the dividend loss:

    Asset sales make the Government’s deficit worse. We have been critical of National and the Treasury, which on this was National’s lap dog, for booking the proceeds of sale but not showing the lost dividends and retained earnings that will result. The recent Budget Policy Statement does it for the first time. “The [interest] savings from the sale are less than the forecast foregone profits.” The Government deficit will go backwards by $100 million a year.

    http://www.stuff.co.nz/dominion-post/comment/6575138/Head-to-head-English-and-Parker-on-assets

    That’s the argument Labour has been making around dividends. That once you take them into account, the deficit is worse than without a sale. Leaving the merits of the argument to one side, it is simply not true to claim that they are making “keeping that income steam one of the major arguments” here. They are arguing that the sales will make the deficit worse. The dividend claim is just a premise in the argument.

    And your claim about circularity is hilarious. It would be less so if your comments don’t assume from the outset that Labour is acting in bad faith about this in order to conclude that it’s just more bad faith from Labour. It would still be wrong, but just less hilarious.

    Comment by Pascal's bookie — April 20, 2013 @ 3:24 pm

  69. PB,

    “DAVID When you sell a state-owned asset like Mighty River Power you forego the income that that brings in.

    SUSAN I understand that.

    DAVID So what you’re effectively doing- It’s like selling your business, putting an extension on your house – you feel much better for that, but you lose the income from the sale.”

    So that was their primary argument against asset sales. It wasn’t just a rebuttal of an argument about reducing debt. I don’t think anyone has made the argument that asset sales will reduce the governments operating deficit.

    I guess Labours proposal – to follow on from Shearer’s analogy – is like keeping your business but giving away the product at cost. It feels good…

    Comment by Swan — April 20, 2013 @ 4:45 pm

  70. Well Swan, seeing I have been saying that we need to keep these statements in context, let’s have a look at what led up to that exchange:

    DAVID Let’s start from the beginning, then. Do we need to have exactly that $2 billion or not? The way the government’s put its books in order, or not in order, is by putting forward an argument that we need to sell our state-owned assets. I don’t believe that that’s the way that we should be going forward. There are other alternatives.

    SUSAN Do you agree, though, that the government should be running a surplus? They should not be in deficit? Households have to tidy up their act. Do you agree that the government books should be in surplus?

    DAVID Well, of course we should be in surplus, and that’s what the Labour government did for nine years while it was in government, and that’s what it handed on to the National government – government books that were in surplus.

    SUSAN Yeah, but to be fair, there’s been a GFC.

    DAVID When you sell a state-owned asset like Mighty River Power you forego the income that that brings in.

    SUSAN I understand that.

    etc.

    http://tvnz.co.nz/q-and-a-news/transcript-david-shearer-interview-5397270

    Looks like they were talking about the deficit to me. What’s all that stuff about “running a surplus”? What the hell is Susan talking about there, that Shearer is directly responding to, and more to the point of this discussion, why did you select to chop it out?

    Comment by Pascal's bookie — April 20, 2013 @ 5:14 pm

  71. People being unable to tell the difference between a nation and a business has been a root problem here for some time.

    Comment by Sacha — April 20, 2013 @ 5:14 pm

  72. PB,

    What has running a surplus got to do with asset sales? Very little. It is about the balance sheet not the operating surplus/deficit.

    Look at what he said. He didn’t say “well the Nats want to get back to surplus, but I can tell you assets sales are not going to help achieve that goal”. He used an analogy to say asset sales are self-evidently bad because you lose the income stream . That is a self contained argument and analogy, and it is certainly the one I remember hearing most often from Labour.

    Labour has never said anything along the lines of “we don’t particularly care about the income stream, but we thought the Nats might, given how much they care about money and stuff!”. But that is how you are trying to write the history on this.

    Comment by Swan — April 20, 2013 @ 5:36 pm

  73. ” “well the Nats want to get back to surplus, but I can tell you assets sales are not going to help achieve that goal””

    I reckon that’s pretty much exactly what he was meaning given the context:

    The way the government’s put its books in order, or not in order, is by putting forward an argument that we need to sell our state-owned assets. I don’t believe that that’s the way that we should be going forward.

    you disagree that that is what he was saying there, that’s fine.

    Comment by Pascal's bookie — April 20, 2013 @ 5:50 pm

  74. >I guess Labours proposal – to follow on from Shearer’s analogy – is like keeping your business but giving away the product at cost. It feels good…

    Sure does as a consumer of the product. It’s almost as good as that business being infrastructure the government owns and runs at cost because the product is a vital good for the growth of the country. Just like power was before they made it into SOEs that had to generate profits. That’s where all this bullshit gouging began. We only didn’t choke on it quite so bad, because the profits at least went back to the government. If Labour do actually do this, then MR won’t be very profitable, and could be reasonably cheap to buy back, should they decide to do that.

    Comment by Ben Wilson — April 20, 2013 @ 6:17 pm

  75. The cognitive disincentive from Labour supports, apparently Labour never ever argued that the income stream from the power companies was a reason for not selling them, is quite remarkable.

    I was a Luke warm supporter at best of the partial sale, had an open mind over a CGT, voted for Clark and may have been convinced that this current proposal from Labour had some merit.

    But the dishonesty is a little disconcerting. Much like how if one didn’t support taking GST off fruit and veges then one hated children. Does Labour believe in anything.

    Comment by NeilM — April 20, 2013 @ 9:45 pm

  76. NeilM/Swan,

    Even if Labour has changed its position on the value of the SOE income stream, so what? The facts on the ground have changed (or are going to change) with their part-privatization. As Bernard Hickey puts it in the Herald today:

    Voters and political parties could previously console or convince themselves that power company super profits weren’t such a problem because they came back into government coffers in the form of dividends and higher asset values. In effect, it was another form of tax that was collected broadly, then returned in the form of government goods and services.

    The only major outliers were the privately owned Contact and Trustpower, but they were small enough not to matter that much.

    The SOE sales programme changed all that. It proposed handing those super profits to the richest New Zealanders in the form of shares and dividends.

    So as facts change, policy positions change. Doesn’t necessarily mean either policy position is a good one, but claiming there’s some sort of radical inconsistency at work seems a bit OTT.

    Comment by Flashing Light — April 21, 2013 @ 7:50 am

  77. >but claiming there’s some sort of radical inconsistency at work seems a bit OTT

    But “cognitive disincentive” is *such* a beautiful malapropism. Pascalle West couldn’t have done better. It’s up there with “in the dog books” for phrases I have to use this week.

    Comment by Ben Wilson — April 21, 2013 @ 10:24 am

  78. Cognitive disincentive is real Ben.
    I find that whenever I think, it tends to discourage action; “Should I put pants on before I get on the bus? Meh…”

    Comment by Gregor W — April 21, 2013 @ 10:37 am


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