Bill English’s buggering around with budget numbers is bad enough—expect from him tomorrow the sort of sleight of hand used by other governments in a similar debt hole—but I hadn’t realised the Greens were ready to join the big budget liars. But with their commissioning of BERL to lie for them, they’ve made a bid for the big league.
The commissioned report purports to show that the government can somehow magically earn more for itself by not selling half of the assets they propose to—and will no double now be waved by economic illiterates to say (rather as they have with other reports): “Look, even the dismal scientists agree partial-privatisations are piss poor.”
Eric Crampton explains the simple process however by which BERL’s Ganesh Nana throws up exactly the result which the Greens ordered: the magic dust Nana sprays around is all the assumptions he starts with, not one of which holds water.
Garbage in. Propaganda out.
And another large cheque for a consultant happy to lie for a living.
UPDATE: “Present discounted value, explained slowly.”
2 comments:
You could argue that some of the assumptions would hold water, but that the ones that do are kinda irrelevant to what's going on.
So at current bond auctions, the price of government financing is relatively low. And, the SOEs are paying higher dividends than that cost.
BUT: debt cost are sure to rise. And, it's pretty unclear what a dividend yield on an SOE like meridian really even means. We know how much it would cost to replace their fixed capital assets like dams and such. But the big part of their earnings currently is rent accruing to having the right to run the only low cost electricity generation in the country - hydro. Nobody can build any more of it - the Greens and DoC have made sure of that. So is the excess of revenue over current costs, divided by replacement cost of capital, a good measure of the SOE's rate of return, or should be be imputing an asset value to the regulatory rent coming from having the right to have a hydro dam? If the thing were sold, the value of that regulatory asset would be bid into the price really hard. Dividend yields on sale price would be much lower, but the asset's value is higher than we're currently assessing.
Is Nana a sort of resurrected Bernie Madoff? Sure he looks like.
Has his investment consultancy ever made money for whoever he had advised? If he thinks he has the perfect knowledge of the market, then why the fuck he dabbles in writing insightful reports about investments when in fact he can't fuck'n even make a dollar for himself in having an overwhelming foresight of how the markets work. The guy needs to go and commit bestiality with a horse. That's where his eonomics knowledge is useful.
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