Gordon Tullock explains his theory of popular revolutions and palace coups
01 Apr 2015 Leave a comment
in economics of bureaucracy, Gordon Tullock, income redistribution, Public Choice, rentseeking Tags: Arab Spring, autocracy, military coups, palace coups, popular revolutions
[I]n most revolutions, the people who overthrow the existing government were high officials in that government before the revolution.
If they were deeply depressed by the nature of the previous government’s policies, it seems unlikely that they could have given enough cooperation in those policies to have risen to high rank. People who hold high, but not supreme, rank in a despotism are less likely to be unhappy with the policy of that despotism than are people who are outside the government.
Thus, if we believed in the public good motivation of revolutions, we would anticipate that these high officials would be less likely than outsiders to attempt to overthrow the government.
From the private benefit theory of revolutions, however, the contrary deduction would be drawn. The largest profits from revolution are apt to come to those people who are (a) most likely to end up at the head of the government, and (b) most likely to be successful in overthrow of the existing government. They have the highest present discounted gain from the revolution and lowest present discounted cost.
Thus, from the private goods theory of revolution, we would anticipate senior officials who have a particularly good chance of success in overthrowing the government and a fair certainty of being at high rank in the new government, if they are successful, to be the most common type of revolutionaries.
The policy world and academia offer widely different opportunities for early career researchers
15 Mar 2015 Leave a comment
in applied price theory, applied welfare economics, economics of bureaucracy, economics of education, occupational choice, organisational economics, politics, Public Choice
Academia rewards findings that are different and unexpected. In policy it is more important to be right than novel—after all, millions of lives may be impacted by a policy decision. In academia, people argue a lot about the direction of an effect but very little about the magnitude: in policy it’s the reverse…
Richard Lindzen on back when periods of warming were climate optima
12 Mar 2015 1 Comment
in Public Choice, environmental economics, global warming, rentseeking, economic history, economics of bureaucracy Tags: green rent seeking, climate alarmism, Anti-Science left, Richard Lindzen
NZ taxpayers made a $20 million profit on its $30 billion state owned enterprises portfolio!
11 Mar 2015 Leave a comment
in economics of bureaucracy, industrial organisation, politics - New Zealand, privatisation Tags: privatisation, state owned enterprises
KiwiRail is such a dog that the Treasury reports on the rate of return to the taxpayer on the state owned enterprises portfolio by excluding KiwiRail from its calculations of rates of return.
The Treasury doesn’t do similar adjustments for state owned enterprises that are performing unusually well, so total shareholder return figures should be reported without this KiwiRail exception. If you buy a dog, you should own up to the fleas it spreads to the rest of your portfolio.
Trying to pretend that KiwiRail is just not there, or survives on the largess of someone other than the one and only New Zealand taxpayer, does no one any favours. This KiwiRail exception will have to apply for at least 10 years to the annual commercial portfolio report of the Treasury. I want to know the total shareholder return, including KiwiRail every year without exception or special pleading.
That total shareholder return of -8.2% in 2012 is worthy of comment too:
The portfolio generated a net loss after tax of $1.8 billion driven by a restructuring of KiwiRail’s balance sheet and reductions in bottom line results for Meridian and Solid Energy, affected by hydrology and coal market deterioration respectively.
It’s time for the government to wash its hands of Solid Energy and let it go bankrupt – updated
11 Mar 2015 1 Comment
in economics of bureaucracy, politics - New Zealand, survivor principle Tags: corporate welfare
Government owned mining company Solid Energy lost $182 million last year. It is already received nearly $200 million in corporate welfare in bailouts from the New Zealand taxpayer. It’s time to call a halt.
The Christchurch-based coalminer is negotiating with banks in a bid to reduce its $320 million debt. In 2013, its annual revenue dropped by a third to $631 million.
Solid Energy invested heavily on a strategy that energy prices were going to go up and up. That investment strategy was against the market sentiment of that time, much less afterwards and the collapse of oil prices.
While Prime Minister John Key said on March 2 that it was not the Government’s preferred option to put more taxpayer cash into Solid Energy, Minister of Finance Bill English flatly ruled out cash, loans or guarantees. I hope Bill English wins that political struggle at the Cabinet table for the sake of the long-suffering New Zealand taxpayer.
What is worse, the government has indemnified the directors of Solid Energy against unspecified liabilities thus giving them an open-ended cheque-book, from what I can see, to trade while insolvent:
State Owned Enterprises Minister Todd McClay confirmed last month that the Crown has offered an indemnity to the board of Solid Energy last year, but would not comment on what it was.
Asked if directors had raised concerns with him that they might be trading while insolvent, English said: “Any director of a company like this has that question uppermost in their mind. They need to be sure all the time that they’re not trading while insolvent.”
Directors’ duties regarding trading while insolvent is the last line of defence against financial irresponsibility. There are both civil liability and criminal penalties for trading while insolvent under company law.
Solid Energy has already been a black hole for nearly $200 million in taxpayers’ money as well as considerable bank write-offs of loans.
The company appeared before the Finance and Expenditure Select Committee of Parliament this morning. It told MPs the company was solvent and marginally cash positive, but looking at another significant loss this year.
It should be a matter of policy that the government, any government, should not indemnify directors of any company, be they government owned or not, for breaches of directors’ duties. It’s a matter of the rule of law and of governments not privileging itself in the marketplace at the expense of the taxpayer.
What is the point of having a State Owned Enterprises Act and setting up these businesses as companies with a duty to be as successful as a company not owned by the government if they don’t have to obey the most fundamental safeguards in company law when push comes to shove?
If these indemnities have indeed been issued by the government for breaches of directors’ duties regarding insolvency, and it seems as though they have been, what is the Crown liability to creditors if Solid Energy is indeed trading while insolvent? These indemnities may allow the creditors to pierce the corporate veil and sue the New Zealand government.
In the revenge of directors duties, the directors of banks and any other creditor will have a director’s duty to sue the New Zealand government for all it can get as a result of these indemnities.
At a minimum, the New Zealand government will have to settle out of court or go all the way to the Supreme Court because hundreds of millions of dollars are involved from the bank write-offs, past and present.
Naturally, the ideological blinkers of the opposition party in New Zealand prevents it from saying the obvious, which is calling for the Solid Energy to be put in receivership. The Labour Party spokesman on state owned enterprise attacked the stewardship of the Minister of Finance as a shareholding Minister, but had nothing to say in terms of solutions, including putting the company into receivership.
The Green Party did a little bit better in 2013 when its spokesman talked about a need for a transition to sustainable jobs – the Green party code for layoffs:
“The National Government need to take responsibility for their mismanagement of Solid Energy and cut their losses,” said Mr Hughes.
“The banks that made risky loans to Solid Energy need to bear the cost of their mistakes”. “Coal is not going to be the fuel of our future if we are to stabilise our climate”.
“New Zealanders and Solid Energy workers need a just transition into more sustainable jobs – jobs that don’t fry the planet.”
“The longer this Government effectively denies climate change, the more taxpayer money will go to subsidising coal and its foreign backers.”
Things are getting desperate when the Greens find a corporate welfare so appalling that they actually oppose it, if only because of support for lower carbon emissions. That is one green hypocrisy too many if it supported a bailout of a coal miner.
Bureaucracy also landed on the Moon too
25 Feb 2015 1 Comment
in economic history, economics of bureaucracy, economics of regulation, law and economics, technological progress Tags: conspiracy theorists, moon landing, moon landing hoax
Yet another way to beat the share market
24 Feb 2015 Leave a comment
in economics of bureaucracy, financial economics, Public Choice, rentseeking Tags: political connections, share price event studies
Over the ten trading days following the announcement of Timothy Geithner as Treasury Secretary, financial firms with a connection to Geithner experienced a cumulative abnormal return of about 12% relative to other financial sector firms. This reversed when his nomination ran into trouble due to unexpected tax issues.
That is what Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak, and Todd Mitton found recently.
Geithner had important social connections from his time as president of the Federal Reserve Bank of New York. He knew some people in finance very well – including those at large and small firms – but some others he did not know at all. This spike in share prices for connections to Tim Geithner was somewhat special as the authors explain:
when Henry (Hank) Paulson became Treasury Secretary in May 2006 – there is no evidence of a positive impact on the stock price of connected firms.
The argument put forward explaining the value of these connections had nothing to do with any suggestions of impropriety whatsoever. What happened was the value of connections spiked in a crisis such as the global financial crisis in 2008:
it was entirely reasonable for market participants to suppose that immediate action with limited oversight would have to be taken, and that officials would rely on a small network of established confidantes for advice and assistance. In fact, this is exactly what happened while Mr Geithner was at Treasury.
When the going gets tough, the tough only have time to ring friends and associates for advice and new staff.
Déjà vu all over again: Sovereign Funds, a History of Bad Timing Version
20 Feb 2015 Leave a comment
in economics of bureaucracy, fisheries economics, rentseeking Tags: New Zealand superannuation fund, sovereign wealth funds, state owned enterprises
Josh Lerner analysed about 2,600 sovereign fund investments over the last 25 years, to find that:
these funds are “trend chasers” rather than good market timers — they are likely to invest at home when domestic equity prices are higher, and invest abroad when foreign prices are higher. This tendency to shun assets when their prices are low has taken its toll on the returns at these funds…
sovereign fund investments made in a fund’s home country tend to do worse than foreign investments, at least in the short term. Industry price-to-earnings ratios of domestic investments tend to drop in the first year, while international investments have a positive change in the first year. Moreover, when politicians are involved in sovereign funds’ decision-making, more money is funnelled to poorly performing domestic deals
Utopia, you are standing in it! 
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