Posts by Keith Ng
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OnPoint: Election 2011: GO!, in reply to Dismal Soyanz,
then either they can create an asset in which the value created can be used to purchase the shares or they have to sell an existant asset – which is it?
1) People can create wealth.
2) People can use that wealth to buy things.People using wealth to buy things means that wealth cannot be used to buy other things (this is the concept of opportunity cost). Whether people choose to buy one thing or another has nothing to do with the amount of wealth that was created.
Say you have $10k of cash sitting in the bank account. You buy $10k of shares in an SOE. Your total wealth is $10k. ($10k of shares)
Say you have $10k of cash sitting in the bank account. You don’t buy anything. Your total wealth is $10k. ($10k of cash)
Say you have $10k of cash sitting in the bank account. You borrow $10k and buy $10k of SOE shares with it. Your total wealth is $10k ($10k shares, $10k cash, minus $10k debt).
You see what I’m getting at here?
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I'm trying to get my head around the difference between the govt owning the shares and the income from them reducing the amount of tax that has to be extracted from me - and me owning the same shares and receiving the income - the question I'm trying to answer is "am I personally better off?" - it seems at a first hack at the problem I'm better off if the govt owns the shares because if I own them I have to pay tax on any income from them
How much you benefit depends on how much money you have to buy shares. So basically, it depends on how rich you are.
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The problem with this perspective is that there is no way you can ever create (net) assets. What is missing is the dynamic element of agents receiving income from some source (exports, if we are looking at NZ as a whole in the current account context).
Yes there is - when you take something, invest labour and capital in it, make it better and sell it for a profit. That's how the economy grows. We create value all the time, just not in the act of selling shares.
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OnPoint: Election 2011: GO!, in reply to Dismal Soyanz,
Like mortgage lending? Or consumer debt financing?
That is productive for the lender (i.e. They make money out of it).
I don't see why the asset that is liquidated must be one that is "productive" (e.g. a loan to a company producing widgets).
Because we live in a capitalist society. Because our entire banking system exists to utilise every cent of capital that's available (to be precise, utilise many cents for every cent that's available).
You really have to go out of your way to make sure that your money is genuinely idle. And if you did that, you probably aren't the kind of guy who buys shares in an SOE.
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OnPoint: Election 2011: GO!, in reply to Dismal Soyanz,
Not that I am disagreeing with you but what if the money used to buy the asset is cash?
There is no cash. Not unless it's physically under your mattress. If it's in the bank, the bank is already doing something with it. And if you go buy something with that cash, then the bank cannot do whatever they were doing with it.
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OnPoint: Election 2011: GO!, in reply to Dismal Soyanz,
may not be true if the productive asset is held by NZ residents as the investment income is not lost to NZ.
GAH! The operative word is *sell*. The plan is to *sell* the asset. If NZ residents are to get the asset, they must buy it. In order to buy it, they need money. To get this money, they must sell something in NZ (in which case, who buys *that*?) or they must sell something overseas (in which case, we no longer profit from that overseas asset).
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OnPoint: Election 2011: GO!, in reply to Gareth Ward,
Please just remember everyone that Key has explicitly said he’ll sell these assets and only buy others with the proceeds. There is still arguments against that, but we aren’t just getting rid of assets here, we’re swapping them.
Possibly the best argument against is that we aren’t increasing assets here, but capping our asset investment
NO. In fact, that's the most deceptive part of the argument.
Let's say borrowing costs 5%, current SOEs return 7%. Let's say the government is faced with a project that's expected to return 6.5%. Should they a) sell current SOEs to fund this project, b) borrow, or c) not do it at all?
Think carefully about it.
What if the project returned 10%?
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The answer is that the SOE is a red herring. There is no reason to sell the profitable SOE simply as a source of cash when you can borrow for a lower cost.
Borrowing for productive activities *is* capitalism. The level at which you borrow depends on your ability to pay it back, the opportunities available and the cost of borrowing. Arbitrarily capping it at some fixed level, and ignoring all other factors is fucking crazy.
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OnPoint: Election 2011: GO!, in reply to Neil Morrison,
Which is part of Key's argument. We have a high level of debt and sooner or later we will have to deal with that or pay higher interest rates.
Yeah, what Ben said.
More specifically, our downgrade risk isn't due to net debt (public + private debt) in isolation, but the effect that it has on our current accounts (i.e. heaps of money going overseas to service our debt). Selling off productive assets reduces our debt and the interest payments, but if we lose investment income in the process (because we sold the productive asset), then we are no better off.
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I do not see that AsureQuality, Learning Media and Quotable Value operate as natural monopolies.
Nor for that matter is TVNZ. Or Air New Zealand. Or Animal Control Products. Or even Landcorp.
I'll concede AsureQuality and Landcorp. Animal Control Product is insignificant. Learning Media does primarily government business, which makes it an interesting (if not particularly relevant) case.
With TVNZ and Air NZ, they have significant features of a natural monopoly - capital intensive, high barriers to entry, etc. Moreover, when they started out, they certainly were.
QV - authoritative services seems like a kind of natural monopoly too, but I haven't given it too much thought.
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Not necessarily. You could be mortgage free, but with a smaller house.
You're stretching my analogy. All I'm saying is that when you sell equity to pay off debt, you don't end up any richer.
To simply rule out any asset sales carte just doesn't make sense.
I think I spent quite a lot of time saying the exact opposite of that.
To build on the opening analogy, it's not just about having a house or not having a house, but the size and nature of the house. And it would be a fool that would not actively consider what is best along that continuum.
Yes. The value of our assets have to be compared with the value of other potential assets, but it also has to be considered alongside the cost of the debt. Right now, that last part is being ignored.