Who will bail out Germany?

This is the question economist Detlev Schlichter has asked in today’s City AM.

Seems ridiculous right? After all, Germany is bailing out the rest of the Eurozone. Its economy is growing, its budget deficit is low. Greece is the basket case of the Eurozone, with Portugal, Italy, Spain, Cyprus and Ireland not far behind. If you were look at who would be next, both Belgium and France appear on the scene, because both have high public debt, budget deficits and are structurally sclerotic economies (imagine Belgium without the massive EU bureaucracy sucking in money from across Europe and consuming in Brussels).

Germany though? Well yes. It is, once again, wilful blindness to reality. Germany’s public debt is 81% of GDP, this having risen from 61% in 1999. That should indicate that there is a day of reckoning to come. Yes the budget deficit is low, but in an environment of steady growth, low unemployment and very low interest rates (meaning public debt can very cheaply be refinanced), Germany isn’t able to run a surplus. Remember how the Keynesians say that in good times you can run a surplus and pay down the debt you incur in the bad times. Well this is the good times for Germany, and it can’t run a surplus. Why?

Quite simply, the German state is lumbered with the same burgeoning welfare state and social policies that have already been bankrupting its southern neighbours. The difference is that the economic growth Germany is experiencing for now, and the low interest rates are slowing the inevitable slide towards that day of reckoning.

Schlichter points out that in the past four decades “Germany extended considerable, unfunded promises to the populace, mainly in the areas of public health insurance, state pensions and the public care insurance”. He blames this as an inheritance from the Helmut Kohl administration, an ostensibly “right wing pro-business” government. He says it implies effective government debt in excess of 200% of GDP. It is Germany’s ticking time bomb.

The difference with France and the south of Europe is that Germany has a more liberal labour market than all of them, but that isn’t hard. Germany’s state may be more efficient in tax collection and operation than the southern states, with much less corruption, but again that isn’t hard. It was the centre-left government of Gerhard Schroeder that implemented modest reforms (Agenda 2010). He liberalised labour laws, reduced the size of the welfare state and reduced regulation. Merkel has been unable to continue this further, even though she started her administration in a grand coalition with the leftwing SPD opposition, after he resigned as leader as his party had lost badly in the 2005 election. The message was clear. You don’t get re-elected in Germany after implementing radical reforms.

You can now see why Angela Merkel doesn’t want Germany to be the saviour of the rest of the Eurozone anymore – Germany cannot afford it. German voters are as attached to their big generous welfare state as other Europeans, but they have been immune to actually paying for the full costs. The legacy has been rising debt.

So when the protestors in the rest of the Eurozone think Germany will write them cheques to bailout their own bankrupt welfare states, they are deluded. For not only can Germans not afford that, they can’t afford their own. The difference is that German politicians are hoping that no one notices for now, and that the problem becomes someone else’s. On top of that, German taxpayers are carrying, still, the burden of the deeds of their ancestors as guilt that makes them at least partly amenable to helping the rest of the Eurozone.

The problem is that if German taxpayers/voters and politicians don’t confront their own bubble of debt and overspending, they too will face a crisis. That will indeed be a Eurozone crisis, a European crisis and a global one. That’s if Japan and the United States haven’t dealt with their similar looming crises in the meantime.

Peak oil is bullshit - ask George Monbiot

Yes, the poster boy for the green movement, George Monbiot, has come out in today's Guardian admitting he was wrong. 

Oil isn't running out, there isn't an energy crisis.  He's not happy about it, because you see it fits into the broader agenda about fighting climate change...(emphasis added)

For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil – the decline of global supplies – is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike.

Among environmentalists it was never clear, even to ourselves, whether or not we wanted it to happen. It had the potential both to shock the world into economic transformation, averting future catastrophes, and to generate catastrophes of its own, including a shift into even more damaging technologies, such as biofuels and petrol made from coal. Even so, peak oil was a powerful lever. Governments, businesses and voters who seemed impervious to the moral case for cutting the use of fossil fuels might, we hoped, respond to the economic case.

You see, he made the shocking discovery that the free market and the price mechanism delivers some remarkable results:

A report by the oil executive Leonardo Maugeri, published by Harvard University, provides compelling evidence that a new oil boom has begun. The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that.

Yes, the price goes up, so the economics of production change, with more expensive fields and sources becoming economically viable.

Now George is distressed about this because he is convinced climate change is the new armageddon:

The problem we face is not that there is too little oil, but that there is too much.

In other words, the arguments against consumption of fossil fuels on the basis that they are "running out" are absurd.  The claims that aviation is going to collapse, that private motoring is going to evaporate, that export and tourism driven economies dependent on goods and people travelling long distances need to become autarkic "green economies" are nonsense.  

Many years of industrial, energy and transport policies based on "peak oil" scenarios need to be revisited.   All need to be put on a market footing.   Pursuing unprofitable, unviable renewables with taxpayers' money is fraudulent and wasteful.  Building big new railways on the basis that "people wont be able to get about" without it in an age of "peak oil" is bullshit.

Meanwhile, there ARE environmental arguments about the use of fossil fuels, but those are arguments first and foremost about noxious emissions (which a property rights approach can address), and then about climate change.   However, as I have said before, an appropriate response would be for governments to stop subsidising activities that emit CO2, and get out of the way of those using or developing technologies that offer alternatives.  Let's say "first do no harm".

I can't wait to see how quickly or otherwise the rest of the green movement stops using the "peak oil" rhetoric (they can't admit making a mistake collectively), and starts moving back to the armageddon rhetoric he is using.   A big underground rail loop in Auckland will no longer be about "protecting us from peak oil", but rather "saving the planet".  Hmmm.

Meanwhile, Monbiot's children will be saved being lectured about how we are all doomed since he said "right now I’m not sure how I can look my children in the eyes".  With such self-loathing I'm hardly surprised.

UPDATE:  James Delingpole does a delightful review of Monbiot's previous scaremongering in the Daily Telegraph, and describes him quite appropriately as:

one of those bitter, misanthropic, control-freak kill-joys, green on the outside but red on the inside, the true purpose of whose "environmentalism" is not so much to save the planet as to end Western industrial civilisation.

How long before the Moonbat Monbiot followers Green Party in New Zealand either excommunicates Monbiot or starts showing some contrition, or will it persist in its pursuit of the swivel eyed peak oil doom mongers?

TVNZ7 funeral and braindead TV, where have these people been?

I'm amused at those who chose to hold a "mock funeral" for a little watched state TV channel (TVNZ7) on the basis that without it New Zealand TV would be completely braindead.  As if equating the closure of a TV channel with "death" isn't itself rather childish and unbalanced.   Indeed, quoting the 1.6 million cumulative viewing figure as being meaningful is also rather braindead.  All it means is that at some point, 1.6 million people had the channel on for at least five minutes.  At no point has TVNZ7 had viewing figures representing 1% of all people watching TV at any one point. 

Where were the handful of people who give a damn been?  New Zealand television has been braindead for nigh on 25 years, it all started when then TVNZ CEO Julian Mounter prepared an all out attack against the upcoming TV3, by focusing on adventure, entertainment and by dumbing down national news and current affairs into a simple binary "good vs bad", "us vs them" format.  Lindsay Perigo said so himself not long afterwards.  The focus was on growing the news audience to include the vast bulk of people whose main interest in news is the sport, celebrity "news", disaster and crime stories (so easy to make it a story of victims against adversity) and then some cute kid, animal or quirky piece at the end.

TVNZ7 did not challenge that, it was TVNZ news lite, and had a handful of local programmes with certain high profile commentators who would host debates.  However, viewing figures were abysmal and the standards although higher than TVNZ could hardly be said to have been at the cutting edge of intelligent debate. It didn't present a wide range of incisive opinions with in depth analysis.  National Radio with Pictures it was not (if that is the standard its acolytes were aiming for, though it isn't mine).

However, why the fuss over this channel?

Regional channels did make attempts to have more uplifting TV.  Triangle has done so (excluding Martyn Bradbury) as has CTV over some years, yet the demise of Stratos from nationwide coverage caused far less fuss.  However, it is possible to see more current affairs on free to air TV now than it was 20 years ago, given both TV3 and TVNZ have Sunday morning shows that they did not previously have.

Yet I wont pretend this amounts to anything of particular note.  The reason is simple; regardless of what politicians, pundits, bloggers and journalists think, most people most of the time do not turn on television wanting intellectual stimulus and debate.   Television is an entertainment medium.

Most people, most of the time, don't want the sort of television that the public television advocates want to push.  After all, the Australian ABC has long had audience levels well below that of the big three commercial network oligopoly. The BBC's highest rating shows are indistinguishable from what is on commercial television (talent shows, sit-coms, soaps and sport).

Yet it's not hard to understand the disdain many hold against most TV in NZ, especially given the dominant free to air broadcaster is state-owned.  The bigger question is the chicken and egg one.  Did TVNZ result from a braindead culture of whim worshipping entertainment driven airheads, or is TVNZ in fact part of the problem? (take for granted that TV3 has essentially gone along with it)

I'd argue that TVNZ follows the culture (it wouldn't be a roaring success if it didn't tap into it), but that it also reinforces it.  Not challenging it, not extending people, not trying to go a step above the audience.  Not uplifting,  but in fact embracing and celebrating the "average mediocrity" of "everyday kiwis".  Their interests, their understanding of the world, even how they talk is just replicated by TVNZ, or even lowered.   In fact, my favourite braindead TVNZ moment was in 2000, when a TVNZ "journalist" said the "people of Pyongyang took a day off work to welcome the south Korean President", when Kim Dae Jung undertook his historic visit of north Korea.  Braindead indeed.

This airhead culture predates TVNZ, and is now seen in the regular political discourse of many commentators.  It is seen in the hysterical hyperboles seen lately about part-privatisation, the anti-scientific scaremongering about anything nuclear or anything to do with genetic engineering.  Complex ideas, issues that have more than two perspectives and anything that needs plenty of time to explain doesn't work well on TV after all.

The whole issue about the airhead culture is big in itself, and it's the height of hypocrisy for some of those who embrace shallow, sound bite culture and participate in it, to think that a small TV channel that doesn't challenge any of it is the way to deal with it.  The same people who think paying teachers based on performance is wrong think somehow they are well placed to judge the performance of broadcasters catering to the people those teachers helped churn out.

Yet is there a case to say intelligent TV can help?  Arguably yes.

Of course, intelligent TV is widely available and seen throughout NZ.  It's called Sky.

Sky brought New Zealand 24-hour news in the form of CNN, and more recently multiple options ranging from the BBC, Sky News, France 24, Fox News, CCTV and the new channel for nutty conspiracy theorists who are anti-American - Russia Today.  New Zealanders have never had better access to news about Australia, the USA, UK, Europe, the Arab world, China and Russia.  It also brought multiple dedicated channels for documentaries and then classic movies, arthouse movies and well as the mass market entertainment channels it supplies.

Sky started by paying the government for its first network, a series of UHF frequencies, installed its own transmitters and bought content.  It spent the first seven or eight years losing money, and now gets into around half of New Zealand homes.  People who are prepared to pay for the content it provides, which is not just sport, not just movies, but far more content than state TV can ever provide.  Now we all know Sky succeeds because of sports coverage, but nobody would have predicted what it now brings, thanks to an open market, absence of foreign ownership restrictions and absence of local content quotas.  It isn't just because of the poor standards on other channels, because pay TV thrives in the UK, which has seven state owned national non-commercial TV channels (and which heavily regulates three commercial ones to provide "public service content").

Yet that isn't the point according to public TV advocates.  Indeed, they don't like Sky very much at all.  The Listener, once the state owned magazine with a statutory monopoly on TV listings, has already published an article rallying an unsurprising set of arguments about Sky - with it being foreign owned, owned by News Corp (the "devil incarnate" to much of the left), owning the rights to much compelling TV content, and allegations this is "unfair" against a state owned broadcaster that has existed for over 50 years, 29 years of which was in a monopoly position. 

What isn't braindead about embracing such shallow, xenophobic, anti-big business attitudes? 

You see, the Save TVNZ7 club have moved away from this now, as Clare Curran intimated on Twitter saying:

@publicaddress have pretty much said all of that before. Good to hear Maharey on this though. Things have moved on tho. Time to address Sky

A successful business, which has brought far more choice and intelligence to NZ television that any other broadcaster, is now in the firing line from one of those who asserted that she is against braindead TV.

I'd have more sympathy if those who wanted to Save TVNZ7 had raised money to set up their own TV channel - which of course you can in New Zealand, given that there are no legal barriers to entry and there is a surplus of digital TV frequencies available on Freeview.  It is a matter of money.

The problem is that the Save TVNZ7 people don't want to put their money where their mouths are, they want to make everyone do it.  So when the investors in Sky, have put their money in, have done so with no taxpayer subsidy at all, have been supported by around half of the adult population in subscriptions, you might wonder why they don't like that very much.

I'm resigned to free to air TV in NZ being braindead, because it's what most people want most of the time.  There is better on Sky and some regional broadcasters.  There is more online and that is where the media is heading.

I don't trust politicians to bring me better broadcasting, because I don't trust them to buy me food, clothing or buy me healthcare or a pension.  Those who want better should support what is there now and if so inclined, make their own content.  It is remarkably cheap to do so given digital technology (none of which came from public broadcasters).

The coming years will continue the profound revolution in media that has been going on for the last 20 years, a revolution that is challenging existing free to air broadcasters and newspapers.   The ability to access content from all over the world and publish your own content is transforming media, discourse, journalism and starting to affect politics. 

That is where the future is - not a small state owned TV channel, nor in considering ways to regulate one of the country's most successful broadcasters (particularly when just about any way that a government might consider regulating it will breach the country's WTO commitments on audio-visual services).

UPDATE:  Mark Hubbard has also written well on this.

Kiwirail's asset revaluation - because Labour concealed the truth with accounting: UPDATED

Regular readers will remember that I’ve been long critical of the bizarre Treasury valuations of the social policy/heritage/commodity sector subsidy project called Kiwirail. So the latest report that this “asset” is to be revalued hardly surprises me. However, I am enormously dismayed at the unprofessional politically driven basis for valuation of this business which was instigated by the previous Labour government. It is one thing to throw taxpayers’ money at buying it back, another to hide what a real dud it is on the government accounts. Let’s bear in mind that neither Labour, nor the church of the Holy gRailway the Greens, have any interest in really showing what it’s worth.

So let’s start with the latest announcement. What does it mean?

The short version is “I told you so… again”. What was reported before has finally happened.

The land assets will remain under the NZRC, which has in fact been the case since 1 April 1982 when it was created. There was always a peppercorn rental of NZ$1 paid for use of the land under the rail corridor, which given that the Crown isn’t paid for the land under the road network, has always seemed an easy compromise in dealing with the thorny issue of valuing strips of land with little alternative use (especially roads, given land without access to roads has greatly diminished value). This should not be controversial, but let’s be honest about what the valuation of that asset should be – the market value of the land if sold. A study commissioned by the MoT valued it, in 2001, at NZ$462 million. This could be indexed to today’s values and priced, but I doubt it would top NZ$1 billion. Bear in mind this was never privatised in the first place, because every time TranzRail closed a rail line (which was rare), the corridor would, ultimately, be able to be sold by the Crown.  So the valuation was done professionally based on assumptions of the value of neighbouring land being applied, in most instances, to a narrow inaccessible corridor.

Yet the Annual Report 2011-2010 indicates land is valued at just over NZ$6 billion. This is quite absurd, so is the asset write down going to address this? Let’s continue.

The transfer of the other assets to a separate SOE is exactly what happened before the last privatisation, when NZ Rail Ltd was set up. The logic of this is clear, as the issues around rail land and its use are complex. Partly because of Treaty of Waitangi claims over Crown land, partly because the confiscation of past land under the Public Works Act means that if the land isn’t to be used for rail purposes, the previous owners or their successors must be offered the land back.

So the new SOE will be responsible for everything, other than the land, just like before. This is already raising the spectre of a new privatisation among those who treasure Kiwirail because they think it will be the saviour in the event oil prices and climate change suddenly decimate the viability of road transport.

Bill English states the total assets are being written down from NZ$13.4 billion to NZ$6.7 billion, this being both the land and the operations business. A simple halving of value, indicating a lot of in depth work was not done into this at all. The Kiwirail press release explains this further by saying that the non-land business will carry a valuation of up to NZ$1.3 billion “reflecting the revenue generated by it” rather than the current NZ$7.8 billion.  That's helpful in analysing this further.

The land component of the valuation seems to retain most of its book value, as it will be worth around NZ$5.4 billion, yet wont be expected to make a return on most of that asset (given the land under the roads isn’t expected to either). A small writedown of around NZ$600 million, but not nearly enough. Has the land under the rail network really shot up in value by a factor of 11 since 2001?  Kiwirail's Annual Report indicates that a professional valuation was done, no doubt in good faith. However, does that really reflect the market value of this land? If a railway line across a field, or behind some warehouses or houses is sold, are there really any other likely buyers beyond the neighbouring property owners? The discrepancy between valuations seems extraordinary, and I doubt whether valuations of railway corridors are done frequently enough in New Zealand to enable it to be equated to other such valuations.  

Setting that to one side, the valuation of NZ$1.3 billion for the operating business still seems wildly excessive. It was bought for NZ$665 million. How has it suddenly become worth double that since 2008? Is it revenue? Well no.

In 2011 it had gross revenue of NZ$667 million. It also got nearly NZ$345 million from taxpayers (yes you’ve spent more than a billion on this one and counting). However, its operating costs were NZ$567 million. Cool NZ$100 million profit before government right? No. Once you remove roughly NZ$60 million in subsidies for operating Auckland and Wellington passenger rail services, you’re down to about NZ$40 million. Not so good then.

Bearing in mind that the NZ$345 million from taxpayers is a capital grant to replace and renew some assets, you’ll also see it’s clear this isn’t a sustainable business able to renew its capital.  Otherwise it would take out debt that would be repaid over the depreciated life of those assets, which of course is not going to happen (but Treasury of course has taken out debt to pay for the nationalisation and all of the capital grants).  Bear in mind also that the market valuation when Toll Rail was nationalised was only NZ$435 million. Has the government really trebled the value of this business even though it has never paid a dividend yet? 

One guess as to why Opposition Finance spokespeople haven't asked that - because they fully supported this destruction of taxpayer wealth.

So the valuation continues to be generous in market terms. Kiwirail, if sold, would not go for the sort of money on its accounts, even if it continued to get hundreds of millions of dollars in subsidies and grants every year.

The use of replacement cost as an asset valuation gives a false impression of the value of an asset if it to be sold, simply because it does not generate sufficient revenue to justify ever replacing the asset on the scale (and in the same way) as it was originally acquired.

My previous post on this was right.

Kiwirail is not an “investment” in its current form, but rather an emotionally laden piece of heritage that mixes some commercial elements, some local public policy elements with a lot of hyperbole and wishful thinking.

Debates about pouring taxpayers money into it need to be based on some market based accounts, accounts that might actually show it can generate a reasonable rate of return based on what it could be sold for – but which wouldn’t ever justify the money poured into it so far.

For that reason, given both National and Labour have thrown over a billion into this taxpayer owned bonfire, and the Greens are just gagging to throw billions more at it, means that having debates based on reasoned balanced analysis are absent when most of those involved prefer conspiracy theories around corruption, hyperbolic evangelism about rail “saving the economy” and economic illiteracy.

Most of my past posts on this subject are summarised in this one, on what it would take to make the railway a viable business.

It includes the following ones:

-  The Greens posted a link to a great presentation on Kiwirail, which actually destroys most of their own self-generated myths about the business.  I link to it here.

-  Where is the rail network viable?

-  Bill English admits the rail network is virtually worthless

Another good read is this from Ross Clark which explains that the "failure" of rail privatisation is because there are some serious questions about the viability of rail at all.

UPDATE:  I know this article has been linked to by a couple of forums.  Please read the articles at the bottom and indeed the presentation I linked to here. You can romanticise as much as you like, and I have a stack of Rails magazines from the 1980s and 1990s, and the NZ Railway Observer as well, so I am a rail enthusiast at a personal, emotional level, but the hard economic facts are that rail is an expensive way to move goods given the high capital costs of the bespoke equipment and infrastructure.  Only when volumes are high, frequent and over long distances do the fuel and personnel advantages start to offset this.  It's about economics.  In the US, rail freight succeeds in spite of serious undercharging of trucks on untolled interstate highways, in NZ Road User Charges contribute to a very different picture.

Union and religious bullies tell you when your business can trade

Once again, union bosses and socialists - most of whom haven't created wealth from scratch in their entire lives - have found common cause with conservative Christians, in blocking legislation that would have allowed businesses to open the days they want to - this time in Timaru only.

For shame. 

I expect it of the nasty little busybodies in the Green and Labour parties, who can't even let an owner-operator business open the days he wants to, who embrace the religious (who they spurn most of the time), because they fear that some more people might feel like they have to work on a public holiday.

It is not about allowing people to shop.  It is about allowing property owners to decide when they can open their businesses to trade. THEIR businesses, not Maxine Gay's, not Peter Shearer's. 

It's none of your bloody business.

Same to the petty preachers who think because it is against THEIR religious belief to do business on certain days, think they should by force demand others obey their beliefs.

Get out of the way.   The fact that National MPs opposed this shows that the shadow of Rob Muldoon hangs over this party with such gutless "pragmatic" despisers of choice and free enterprise.

Jacqui Dean's attempt to let her constituents decide for themselves if they wanted to open on Good Friday and/or Easter Sunday, has been thwarted by 70 MPs who think they know best.

Yes it was only Timaru, but so what?  It is one step towards freedom.  If only more constituency MPs would do the same, then the country could see tiny roll backs across the land, and eventually they might get it that there is no point having such laws at all.

It wouldn't be compulsory to open on those days.  Where is there a law making that compulsory?  Who even suggests that, except those with the warped post-modernist belief in floating strawmen that distract from the real argument - property rights.

I haven't seen the breakdown of who voted on this Bill, but all those who opposed it have shown themselves up for what they are - petty minded little busybodies who think they know best how ordinary men and women, shopkeepers, run THEIR businesses.  Forgetting of course, that these business owners are those who pay the wages of the MPs and indeed the edifice of the state these MPs so love to harness to do their bidding.