The Olympics are a giant exercise in sports socialism — or crony capitalism, if you prefer — where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.
Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.
Shikha Dalmia, “Why London Is Yawning Over the Olympics: Have Western countries finally outgrown the sports socialism of the Olympic Games?”, Reason, 2012-07-31
July 31, 2012
QotD: The crony capitalist Olympics
July 8, 2012
Economic land mines laid by Blair and Brown’s governments exploding now
At The Commentator, John Phelan wonders if it’s now time for “an economic Nuremburg” for the 1997-2010 British governments of Tony Blair and Gordon Brown:
Like an iceberg, the extent of the damage wrought by the last Labour government is still becoming apparent.
One of the wheezes Labour used to camouflage its vast spending spree was the Private Finance Initiative. These had been brought in by John Major’s Conservatives (to criticism from the then Labour opposition) and involved a private sector entity building something and then selling it or leasing back to the government over a number of years, usually decades.
Upon winning the election in 1997 however, Labour performed a volte face and embraced PFIs. They appealed to Gordon Brown because the liabilities taken on under PFIs would not show up on the government’s balance sheet. In other words, they wouldn’t be included in the national debt figure.
Labour signed up to an estimated £229 billion of PFI projects. That’s almost two and a half times the entire projected budget deficit for 2012 – 2013, or 16 percent of GDP.
[. . .]
Indeed, like the cat who leaves little ‘presents’ around the house for you to discover when you return from holiday, the Labour government of 1997 to 2010 is the gift that keeps on crapping on your carpet. We will be discovering fiscal turds left by Labour for literally decades to come.
If you were being charitable you would ascribe the fiscal incontinence of the Blair/Brown governments to some sort of Keynesian economic theory, though that fails to explain why they applied fiscal ‘stimulus’ for seven years to an already growing economy.
If you were being slightly less charitable you might ascribe it to incompetence of a quite staggering degree. The last Labour government, after all, were probably the biggest set of mediocre idiots ever to govern this country.
And, if you were being even less charitable, you might ascribe it to something more sinister – Brown poisoning the wells when he heard opposition tanks at the end of his strasse.
July 3, 2012
“The longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture”
The Economist on the long-drawn-out European financial mess:
THE longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture. Like the medieval rack, every turn of the crisis tears Europe further apart. This week Cyprus announced it would seek a bail-out. Spain formally asked for money to recapitalise its banks. The Greek limb is close to being ripped off. How long can the Italian one hold?
Monetary union was meant to be a blessing. The euro’s founders dreamed that it would end chronic and divisive currency crises, promote growth and multiply Europe’s economic power. After the creation of the single market, the euro was the next step toward political union.
[. . .]
Now, after first blaming speculators, then profligate states, then, more broadly Europe’s lack of competitiveness, the cardinals of monetary union have belatedly come to understand that the main problem is the euro itself. A new report by a group of prominent economists — sponsored by Jacques Delors, the former president of the European Commission, and Helmut Schmidt, the former German chancellor — describes in telling detail how the euro is destroying itself.
Start with the European Central Bank’s “one size fits all” interest rate, which the report’s leading author, Henrik Enderlein of the Hertie School of Governance in Berlin, relabels a “one size fits none” rate. Differences in inflation are magnified: in countries with higher-than-average inflation (eg, Italy), the real interest is too low, fuelling more inflation; the opposite is true in countries where inflation is low (eg, Germany). Another problem is that the single market is far from complete, so that competition does not even out price differences across the EU. The market in services, which represents the biggest share of economic output, is still fragmented. Moreover, European workers are less likely to move in search of jobs than, say, American ones. A further curse is that countries of the euro zone do not independently control their own money. Because each lacks its own central bank to act as a lender of last resort, troubled countries can more easily be pushed into default as markets panic. Lastly, cross-border financial integration has spread far enough to channel contagion from one country to another, but not so far as to break the cycle of weak banks and weak sovereigns bringing each other down.
July 1, 2012
“Canada was born in debt”
At the Worthwhile Canadian Initiative blog, Livio Di Matteo explains one of the less mentioned but urgent reasons behind confederation in 1867:
The trials and tribulations of the European Union, its debt crisis and the Euro and the suggestion that part of the solution lies in a stronger fiscal union reminds me of the forces behind the drive for Canadian confederation in the mid-nineteenth century. Canadians are usually taught in school that major forces driving Confederation were the potential threat of territorial aggrandizement by the United States in the wake of the Civil War or the need for a larger market given Britain’s move to free trade and the end of Reciprocity with the Americans or the desire to generate the economic resources to build a railway to the west so that it could serve as an investment frontier.
One factor that receives very little mention is the fact that the prior to 1867 the colonies of British North America were heavily in debt and faced a fiscal crisis of their own. The solution to the colonial debt crisis that Confederation allowed was the creation of the federal government that was given strong revenue raising powers and assumed provincial debts and thereby stabilized the public credit. Public debt charges in 1867 already accounted for 29 percent of federal budgetary expenditure and by 1880 had only been whittled down to about 24 percent. Canada was born in debt.
Canada was created with a large debt as the provincial and local levels of government had invested heavily in transportation infrastructure — canals and railways in particular. In 1850, there were only about 66 miles of track in operation but by 1860 about 2000 miles of track had been built in eastern Canada. The total cost of building these railways in British North America up to 1867 was 145.8 million dollars the bulk of which was for the Province of Canada — Ontario and Quebec. By way of comparison, Canada’s GDP in 1870 has been estimated at about 383 million dollars.
[. . .]
Confederation was designed to fix a massive debt problem. Creation of a new political entity — the dominion government — would allow for the current debt burden to be serviced and for more credit to be obtained on foreign markets to fund the railway projects of the late 19th century — the CPR, Canadian Northern, etc… Confederation was a solution to the debt crisis but required a form of government that reduced sovereignty for the member units in order to stabilize the public credit. In the Canadian case, as acrimonious as the discussions were, the process was facilitated by the fact that the member units were all British colonies with similar institutions.
June 24, 2012
Conrad Black: Don’t blame Canada
In his weekly column at the National Post, Conrad Black refutes Jose Manuel Barroso (who appeared to refer to Prime Minister Harper as a “nobody” recently) that the European crisis was made in North America:
Stephen Harper is absolutely correct to refuse to contribute to World Bank assistance to Europe. The reward for the consistently intelligent fiscal management of Canada by both governing parties for more than 20 years should not be to assist rich countries that ignored our example and the warnings of their own wiser statesmen until the wheels came off the Euro-fable in all four directions.
The president of the European Commission, Jose Manuel Barroso, made the point at the G20 meeting in Mexico last week — in, as he thought, a reply to Harper’s comments on Europe’s self-generated economic and fiscal problems — that the current economic crisis originated in North America. That is not entirely true. It originated in the ill-starred fiscal and social policies of most European countries, and the tinder was set alight by bad financial, social, fiscal and regulatory policy in the United States.
Margaret Thatcher, Angela Merkel, and even Gerhard Schroeder, as well as a number of Austrian, Dutch, and Scandinavian leaders all warned that Europe could not continue to guarantee employment to all job-holders as a steadily shrinking percentage of Europeans worked and the public sector share of GDP rose, infused with the steroids of over-bountiful social democracy. Most countries of Europe today are like the little pigs who didn’t build their homes from weather-proof materials.
Furthermore, it is no rejoinder to Mr. Harper to complain about the Americans. It would be no less logical to blame the floundering of Dalton McGuinty’s Ontario on booming Texas, since both jurisdictions are in North America. In the same line of reasoning, I would like Newfoundland’s involvement in the drug wars in Mexico fully examined.
June 22, 2012
Greek government getting serious about debt issues: selling off government land
It’s surprising it’s taken this long for the Greek government to consider selling off excess government-owned land as a way to address some of their debt issues:
There’s little that shouts “seriously rich” as much as a little island in the sun to call your own. For Sir Richard Branson it is Neckar in the Caribbean, the billionaire Barclay brothers prefer Brecqhou in the Channel Islands, while Aristotle Onassis married Jackie Kennedy on Skorpios, his Greek hideway.
Now Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.
The Guardian has learned that an area in Mykonos, one of Greece’s top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations.
However, if you’re in the market for a lovely little Greek island, you should also consider that land costs are going to be only a small part of your investment:
Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to develop basic infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.
Also on the block for sale are other government monopolies:
In its battle to raise funds, the country is also planning to sell its rail and water companies. Chinese investors are understood to be interested in the Greek train system, as they already control some of the ports. In a deal announced earlier this month, the Greek government also agreed to export olive oil to China.
Update: Ah, I didn’t notice that the article had originally been published in 2010, hence my expressed surprise that it had taken so long for these measures to be considered.
June 18, 2012
Rerun of the Greek election
The Economist summarizes the results of yesterday’s election in Greece:
WHEN deciding whether to grant citizenship to an outsider, the Ancient Greeks would put the matter to a vote, tossing coloured pebbles into a clay jar. On June 17th almost 29.7% of voting Greeks picked the colours of New Democracy, a centre-right party that broadly supports the country’s EU bail-out agreement. It was seen as a vote to remain citizens in good standing of the single currency. New Democracy narrowly beat Syriza, the “coalition of the radical left”, which was threatening to rip up the bail-out agreement. That would have resulted in ejection from the euro area or at least ostracism (another Ancient Greek practice) from its fellow members.
On the face of it, this do-over election has generated the kind of result euro-officials were hoping to see in the first election on May 6th. The leader of New Democracy, Antonis Samaras, will now seek to form a coalition with other parties that broadly support the bail-out. The Greek people can look forward to the sweat of fiscal austerity, not the tears of financial chaos. They can expect chronic misery rather than acute disaster.
[. . .]
What about the economy? As our piece last week reported, it has spent the last six weeks in suspended animation. Unfortunately, economies do not keep well in the freezer. The hesitation has wreaked great and irreparable harm. The banks have lost more deposits. The government’s arrears have grown. Erik Nielsen, chief economist of UniCredit, reports that pharmacists have suspended credit to the government, hampering the supply of medicines. The pebbles cast in May have spread damaging ripples through world markets, which have not reversed themselves. They “introduced yet another round of uncertainty” that the second bail-out programme “was not built to deal with.”
May 31, 2012
May 22, 2012
Reason.tv: Is Austerity to Blame for Europe’s Economic Woes?
May 8, 2012
Absurd meme of the month: that European countries have imposed draconian fiscal austerity
For all the gasping about the impact of fiscal austerity on weakened European economies, it’s hard to detect from the actual numbers:
(Image from the Mercatus Center)
See all those coloured lines dropping precipitously? Me neither.
Veronique de Rugy asks where the “savage” spending cuts can be seen:
Austerity is destroying Europe, we are told. In fact, this “anti-austerity” slogan was a big reason for the victory of newly elected socialist François Hollande to the presidency of France. Interviewed in The Economist a few weeks ago, Hollande’s campaign director said “We are not disciples of savage spending cuts.”
But then, I look at the data and I am asking: What “savage” spending cuts?
Look at [the chart above]. It is based on Eurostat data which you can find here. Following years of large spending increases, Spain, the United Kingdom, France, and Greece — countries widely cited for adopting austerity measures — haven’t significantly reduced spending since 2008. As you can see on this chart:
- These countries still spend more than pre-recession levels
- France and the U.K. did not cut spending.
- In Greece, and Spain, when spending was actually reduced — between 2009–2011 — the cuts have been relatively small compared to what is needed. Also, meaningful structural reforms were seldom implemented.
- As for Italy, the country reduced spending between 2009 and 2010 but the data shows and uptick in spending 2011. The increase in spending represents more than the previous reduction.
In addition to failing to curb spending, several governments have raised taxes (which has a negative effect on growth in the economy and can — contrary to popular wisdom — actually reduce the total tax collected as people and companies change their habits to minimize the impact of the tax change).
April 17, 2012
Argentina’s latest economic lesson
Jan Boucek explains why Argentina is providing a helpful example to other countries on what not to do in economic policy:
This week, President Cristina Fernandez de Kirchner announced the seizure of Spanish oil company Repsol’s stake in Argentine oil company YPF to give the government 51% control. Spain is outraged and has recalled its ambassador. […]
Ms Fernandez justified her move on the grounds that YPF has failed to invest sufficiently to prevent Argentina from importing ever greater quantities of fuel. The fact that Argentine oil reserves have been dwindling means the sector needs greater and increasingly sophisticated investment to reach more complex structures, just like in the North Sea. Expropriation isn’t going to attract that kind of high-risk investment.
[. . .]
The YPF seizure continues Argentina’s cavalier attitude towards other people’s money shown back in 2008 when Ms Fernandez grabbed some $24 billion of private pension funds and used central bank reserves to meet debt payments. More recently, the country has been in a spat with the IMF over the quality of its statistics. Argentina claims inflation is running at somewhere between 5% and 11% but private independent estimates put the number at somewhere around 25%. The Economist is refusing to publish official Argentine inflation data.
Update: Well, regardless of the state of the economy, President Fernandez de Kirchner has a friend in the White House! President Obama has indicated his support for the Argentinian claim to … the ¿Maldives?
President Obama erred during a speech at the Summit of the Americas in Cartagena, Colombia, when attempting to call the disputed archipelago by its Spanish name.
Instead of saying Malvinas, however, Mr Obama referred to the islands as the Maldives, a group of 26 atolls off that lie off the South coast of India.
The Maldives were a British protectorate from 1887 to 1965 and the site of a UK airbase for nearly 20 years.
April 16, 2012
“This sort of investment pays for itself ten-fold over a very short period of time”
You see? This is what’s wrong with private enterprise, especially in California. Those wimps aren’t willing to invest in something that will “pay for itself” ten times over in a “very short period of time”. That’s why all the greatest economic advances have come from over-aged students, business council speechifiers, bureaucrats, and career apparatchiks!
If you believe calling your opponents names is a sign that you have lost the argument, then this new high-speed rail commercial from the California Alliance for Jobs — in which unexpectedly macho proponents of the
$41 billion,$110 billion,$98.5 billion, $68.4 billion high-speed rail project deride skeptics as “wimps” — is pretty much the end of the line […]What reveals the intellectual bankruptcy of the high-speed rail project is not the insults but that what is supposed to be a rousing propaganda piece comes off like an orientation video for new hires at a failing company.
The video’s cast includes
hacksrespected citizens from Operating Engineers Local 3, including Alliance for Jobs Executive Director Jim Earp, along with leaders from what’s usually referred to as the “business community” whose skill sets cluster around serving on business councils rather than doing any actual business. There’s also a career apparatchik and the founder of the “I Will Ride” Student Coalition, who is apparently a UC Merced senior but looks at least a decade too old.[. . .]
Again, why not just claim the Fresno-Bakersfield line will end up carrying 38 million people, the entire population of California, every day? It would be no less accurate than the current claims, which have been made with no data on ticket costs, no comparative studies of existing bullet-train ridership, or anything else that can reasonably pass for due diligence.
Oh, and nobody actually knows where the bullet train will go to or from. (Past, present and possibly future candidates include Corcoran, Borden, Fresno, Anaheim, Los Angeles, San Francisco, and some guy named Dave’s rec room.) You wouldn’t build a patio with the amount of planning that’s gone into the high-speed rail project.
To put the headline into a bit of perspective, note that only one high speed rail line in the world is profitable. This is an old hobby horse of mine and I’ve posted about High Speed Railways a few times before.
Update: And to answer the question about why parts of Europe, Japan, and China have high speed rail systems and neither Canada nor the United States do, here’s a brief overview I wrote last year:
The best place to build a high speed rail system for the US would be the Boston-New York-Washington corridor (aka “Bosnywash”, for the assumed urban agglomeration that would occur as the cities reach toward one another). It has the necessary population density to potentially turn an HSR system into a practical, possibly even profitable, part of the transportation solution. The problem is that without an enormous eminent domain land-grab to cheat every land-owner of the fair value of their property, it just can’t be done. Buying enough contiguous sections of land to connect these cities would be so expensive that scrapping and replacing the entire navy every year would be a bargain in comparison.
The American railway system is built around freight: passenger traffic is a tiny sliver of the whole picture. Ordinary passenger trains cause traffic and scheduling difficulties because they travel at higher speeds, but require more frequent stops than freight trains, and their schedules have to be adjusted to passenger needs (passenger traffic peaks early to mid-morning and early to mid-evening). The frequency of passenger trains can “crowd out” the freight traffic the railway actually earns money on.
Most railway companies prefer to avoid having the complications of carrying passengers at all — that’s why Amtrak (and VIA Rail in Canada) was set up in the first place, to take the burden of money-losing passenger services off the shoulders of deeply indebted railways. Even after the new entity lopped off huge numbers of passenger trains from its schedule, it couldn’t turn a profit on the scaled-down services it was offering.
Ordinary passenger trains can, at a stretch, share rail with freight traffic, but high speed trains cannot. At higher speeds, the actual construction of the track has to change to deal with the physical problem of safely guiding the fast passenger trains along the rail. Signalling must also change to suit the far-higher speeds — and the matching far-longer safe braking distances. High speed rail lines cannot be interrupted with grade crossings, for the safety of passengers and bystanders, so additional bridges and tunnels must be built to avoid bringing road vehicles and pedestrians too close to the trains.
In other words, a high speed railway line is far from being just a faster version of what we already have: it would have to be built separately, to much higher standards of construction.
Getting back to the California HSR line; it goes from A to B on this map:
Okay, you think, at least Fresno will get some snazzy slick rail service . . . except this section will be built but not operated until further connecting sections are built . . . at a later date. Maybe. It will be the track, including elevated sections through Fresno, and the physical right-of-way, but no electrical system to power the trains; but that’s fine, because the budget doesn’t include any actual trains.
April 5, 2012
Why government stimulus is usually a bad idea
Mike Milke of the Fraser Institute:
Frum’s praise for Ottawa’s go-slow approach on balanced books is premised on the perception that if Ottawa actually cut spending (as opposed to slowing the rate of growth) such actions would endanger our prosperity: “If you reduce spending too fast, you crimp your economy,” wrote Frum.
But that’s a mistaken notion.
To use just one example from a large body of research, in 2009, leading fiscal policy expert and Harvard University professor Alberto Alesina and his colleague Silvia Ardagna reviewed stimulus initiatives in Canada and 20 other industrialized countries from 1970 to 2007. In the 91 instances where governments tried to stimulate the economy, it turned out the unsuccessful attempts generally were the ones based on increased government spending. Alesina noted that “a one percentage point higher increase in the current [government] spending-to-GDP ratio is associated with a 0.75 percentage point lower growth.”
In other words, stimulus spending doesn’t increase economic growth; it harms it.
To see how Ottawa’s own stimulus spending was unnecessary, consider how Canada emerged from the last recession and how government stimulus spending had nothing to do with it. Our recession ended in mid-2009; it was only about then that federal and provincial governments started spending extra (borrowed) stimulus cash.
To credit stimulus spending for the end to Canada’s recession, one must argue that extra (borrowed) dollars mostly spent after June 2009 somehow magically rescued the Canadian economy before June 2009.
All the borrowing did have one effect: It added to the existing large federal debt mountain, forecast to hit $614-billion in 2015, up from $457-billion in 2008.
The government’s stimulus spending was demanded by the opposition, but evidence since then indicates that the minority Tories would probably have passed a stimulus budget even if the opposition didn’t give them political cover.
April 3, 2012
At the “School of American Declinism”, the NYT is head cheerleader
Jon, my former virtual landlord, sent me this link to an article on the inevitable rise of China and matching inevitable decline of the United States:
The senior leadership of the Chinese government increasingly views the competition between the United States and China as a zero-sum game, with China the likely long-range winner if the American economy and domestic political system continue to stumble, according to an influential Chinese policy analyst.
China views the United States as a declining power, but at the same time believes that Washington is trying to fight back to undermine, and even disrupt, the economic and military growth that point to China’s becoming the world’s most powerful country, according to the analyst, Wang Jisi, the co-author of “Addressing U.S.-China Strategic Distrust,” a monograph published this week by the Brookings Institution in Washington and the Institute for International and Strategic Studies at Peking University.
[. . .]
The United States is no longer seen as “that awesome, nor is it trustworthy, and its example to the world and admonitions to China should therefore be much discounted,” Mr. Wang writes of the general view of China’s leadership.
In contrast, China has mounting self-confidence in its own economic and military strides, particularly the closing power gap since the start of the Iraq war. In 2003, he argues, America’s gross domestic product was eight times as large as China’s, but today it is less than three times larger.
[. . .]
Mr. Wang writes that the Chinese leadership, backed by the domestic news media and the education system, believes that China’s turn in the world has arrived, and that it is the United States that is “on the wrong side of history.” The period of “keeping a low profile,” a dictum coined by the Chinese leader Deng Xiaoping in 1989, and continued until now by the departing president, Hu Jintao, is over, Mr. Wang warns.
“It is now a question of how many years, rather than how many decades, before China replaces the United States as the largest economy in the world,” he adds.
