US Economy

[Edward Campbell]

Except that Prop 13 capped rates at levels unsustainable given the services Californians reasonably expect from their government, sto that they cannot adjust their tax rates appropriately, to deliver those services.

It's become a politically untouchable thing, adding to the misery.  While there are many cases of waste and inefficiency in the state, those aren't the reason for the problem.

But, the sovereign people of California made an informed choice - there were HUGE pro and con advertising campaigns - and then the government continued to offer unaffordable services.

The morally correct but politically suicidal course for California politicians was to cancel programmes, causing great hardship and even loss of life, often to the poorest and weakest, to fire public employees, including the police officers who protect Californians, and so on. Then, and only then, would populism work properly: the people would have decided and then they would have borne the consequences of those decisions - perhaps by being mugged on the street by desperate poor people who no longer fear an ineffectual police force.

 

[Brad Sallows]

>It's a sad irony given that Blue States like California, through the federal tax system, essentially prop up Red States.

Proof?  For all the times I see this (either in the Blue vs Red, or Urban vs Rural context), no-one has yet demonstrated that the money spent in the Red/Rural areas isn't mainly for the benefit of the Blue/Urban areas.  For example, subsidies and investments to promote the development and extraction of foodstuffs and resources and the infrastructure to transport them from the "receiver" to the "giver" are really for the "giver's" benefit. 

 

[Brad Sallows]

>Except that Prop 13 capped rates at levels unsustainable given the services Californians reasonably expect from their government

Remove the invalid assumption "reasonably" and the statement will be correct.  But then, it lays bare the simplest of economic problems which the state in all its progressive glory doesn't want to admit: the desire to spend more than one has.

 

[Rifleman62]

http://www.nationalreview.com/corner/258363/cartoon-day-kathryn-jean-lopez

 

[a_majoor]

$76 billion in cuts to a $3 trillion dollar budget is draconian? What will they say when plans like the "roadmap" proposing $500 billion or more in cuts start appearing on the floor of the Congress?:

http://dailycaller.com/2011/02/03/senate-dems-reject-gop-budget-proposal-warn-against-government-shutdown/

Senate Dems reject GOP budget proposal, warn against government shutdown
By Chris Moody - The Daily Caller | Published: 3:43 PM 02/03/2011 | Updated: 5:30 PM 02/03/2011

Setting the stage for another showdown over government spending, top Senate Democrats rejected the House Republicans’ new budget proposal Thursday, but said they were ruling out a government shutdown.

Senate Majority Leader Harry Reid called House Budget Committee Chairman Paul Ryan’s plan to slash $74 billion from the federal budget “unworkable” and “more draconian than we originally anticipated,” but said he would not consider a government shutdown “under any circumstances.”

Congress and the White House must come to an agreement on the budget before the current continuing resolution expires on March 4, or, if more time is needed to negotiate, pass another stop-gap measure to keep the government funded for an extra few weeks.

The battle over the budget is inevitable: Democrats will resist the cuts Republicans propose, and conservative Republicans may even put up a fight if they don’t find the spending measures adequate. As much as Congress will work behind the scenes to prevent a shutdown, expect to see them out in public working hard not to be blamed if it occurs.

Senate Democrats tried to draw this line early by making an unprovoked announcement about the prospects for a government shutdown like the one that occurred twice in the 1990s when the Republican House could not come to an agreement with President Bill Clinton on the budget.

New York Sen. Chuck Schumer, the third-ranking Democrat in the Senate, said that despite his party controlling the White House and Senate, Republicans would ultimately be to blame if an agreement is not reached.

“I would be against a government shutdown. Period,” Schumer said. “If they don’t budge and say they want a government shutdown, they’re causing it. We’re not going to do that.”

“Some of their ideas are just off the table,” he added. “If you just say, ‘if you don’t do it my way, I’m going to shut the government down, I’m going to let the government default,’ that is so wrong.”

When asked, Republican House and Senate leaders say they have no intention to provoke a shutdown.

Email Chris Moody and follow him on Twitter

Read more: http://dailycaller.com/2011/02/03/senate-dems-reject-gop-budget-proposal-warn-against-government-shutdown/#ixzz1CxnYDv2n

Or for some serious budget cutting:

http://pajamasmedia.com/instapundit/    03 Feb 11

SO I MENTIONED BOB CORKER’S NEW BUDGET CUTTING BILL EARLIER, and I just spent about a half an hour on the phone with him talking about it. Quite a few InstaPundit readers had emailed with questions or comments, so I raised some of those with him. Here are some of the things he said:

Teeth: Some InstaPundit readers thought the bill needed more teeth, but Corker points out that it requires sequestration of funds above the GDP-percentage cap, and that it affects not only discretionary spending but entitlements. Everything is put on-budget. And it takes a 2/3 vote, not a 60% vote, to escape the caps, making it tougher to opt out of than Gramm-Rudman. My suggestion: Add a citizen-suit provision, like environmental statutes have.

Why Not A Balanced Budget Amendment? He says he’s for one of those, too. But he doesn’t think there’s time. He sees a three stage process: (1) Specific spending cuts this spring, but unfortunately those will probably just be in discretionary spending; (2) His bill, which will start to take effect in 2013; and (3) A Balanced Budget Amendment, which will take several years to pass, most likely. He doesn’t think we have time to wait for a constitutional amendment. Plus, the bill adjusts its timetable if a constitutional amendment passes.

Why pick a 20.6% target and not a lower one? Corker says his first choice was 18% of GDP, which is the percentage federal tax revenues have averaged. But he felt that the average of federal spending over the past 40 years was politically achievable, while the 18% number probably wasn’t. “This is about action, not messaging,” he says. He wants to pass something now. Corker thinks our financial position is worse than the Administration does — we’ve benefited short-term from being perceived as a safe haven, he says, but that could evaporate very quickly.

In addition, he notes that this is a lower number than either the Deficit Commission, or the Ryan roadmap (which he calls “great”) will achieve by 2022. The President’s commission would cut about $4 Trillion from the baseline budget; this would cut $7.8 Trillion. The difference, he says, compounds over time. “If we can do more, I’ll be the first to vote for it.”

I should note that the GDP percentage the bill uses is based on an average of the three previous years, which means that — at least so long as the economy is growing at all — the actual percentage in any given year will be smaller than the cap amount. If you average 2009, 2010, and 2011, that number will be lower than 2012’s GDP, so long as the economy is growing. So 20.6% of the average of the previous three years will be somewhat less than 20.6% of the year to which its applied. I think this is a clever way to make the cuts a bit deeper than is obvious.

He says they’ve got momentum, with new cosponsors signing up, and that the bill has already done a lot to get people to look at how much the federal government takes out of the economy. He’s up for more, but “it’s a step forward, and it’s doable.”

He also notes that independents in swing states seem to care strongly about this issue, and that this should help bring Democratic support.

The text of the bill, which is rather short, is here. A one-page summary is here.

http://corker.senate.gov/public/?a=Files.Serve&File_id=af2cc42b-7f97-4ce0-9e42-e036263123e7

 

[a_majoor]

Currency risks:

http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/02/03/bloomberg1376-LG1CAH1A1I4I01-48KGBQ2RG1TRIVSC9G6N4HR7BR.DTL

Roach Says U.S. Faces Dollar Decline as China Becomes Importer
Thursday, February 3, 2011

Feb. 3 (Bloomberg) -- China will curb its reliance on exports sooner than the U.S. can cut its budget and external deficits, removing a support from the dollar that will unsettle currency markets, Morgan Stanley's Stephen Roach said.

"In the next three or five years China will move aggressively to increase its private consumption and reduce its surplus saving," Roach, who is non-executive chairman of Morgan Stanley Asia Ltd., said in an interview in Oslo yesterday. "The U.S. talks the talk, but there is actually no shred of evidence whatsoever that America is going to reduce its budget deficit over that same period."

China may post a trade deficit as early as this quarter as imports outpace sales abroad, the government said last month. The country's reliance on trade to fuel economic growth close to 10 percent is now fading as its consumers grow wealthier, removing a key incentive for China to support the dollar. At the same time, the world's largest economy estimates its budget deficit will swell to a record $1.5 trillion this year, as President Barack Obama channels stimulus to revive growth.

"If we don't move to address our deficit before China addresses its surplus then we are going to be facing some pretty significant external funding constraints," Roach said. "That would lead to a significant downward pressure on the dollar and/or higher long-term U.S. interest rates."

China aims to reduce its trade surplus to less than 4 percent of gross domestic product in three to five years, central bank Deputy Governor Yi Gang said last year. Roach said the risk that China will cut its reliance on exports before the U.S. weans itself off external funding is greater than 30 percent.

'Significant Risk'

"Nothing is inevitable, but I think there is significant risk in that direction," he said.

The dollar has lost 13.5 percent against the euro since a June 7 high and is down 14 percent against the yen since an April 2 high. China pegs the yuan to the dollar.

The world's second-largest economy is under pressure to allow the yuan to appreciate as inflation gains steam. Consumer prices rose an annual 4.6 percent in December, the Beijing-based National Bureau of Statistics said on Jan. 20.

China will need to allow the yuan to appreciate as much as 8 percent to avoid further inflation, according to Barton Biggs, who runs the New York-based hedge fund Traxis Partners LP.

China, the world's biggest foreign holder of U.S. Treasuries, saw its portfolio of the securities fall by $11.2 billion to $895.6 billion in November.

Consequences

"If they were to engineer a major reduction in their dollar-based holdings there would be consequences for the currency that would lead to a sharp appreciation and that would impair their export competitiveness," Roach said. "They are not prepared to take that risk."

Still, China will gradually cut its holdings of U.S. assets as its consumers purchase more and save less, he said.

"The world in general -- the U.S. in particular -- can expect sort of a natural, organic reduction of China's buying of dollar-denominated assets," Roach said.

--Editors: Tasneem Brogger, Craig Stirling.

http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/02/03/bloomberg1376-LG1CAH1A1I4I01-48KGBQ2RG1TRIVSC9G6N4HR7BR.DTL

 

[tomahawk6]

There are a couple of ways to go about reducing the Federal budget. Freeze non-defense spending at say 2008 spending levels. The TARP/stimulus  money is largely unspent,why not return that money to the treasury ? Obama's energy policy is a disaster coupled with Mideeast chaos is only going to see fuel prices skyrocketing which will only make any recovery nearly impossible.

 

[a_majoor]

TEA Party movement congress is starting to make the right sounds (proposed $100 billion in cuts, now this):

http://www.nationalreview.com/corner/259524/duffy-use-unspent-stimulus-reduce-deficit-katrina-trinko

Duffy: Use Unspent Stimulus to Reduce Deficit
February 10, 2011 5:56 P.M.
By Katrina Trinko   

Rep. Sean Duffy (R., Wisc.) introduced a bill today that would require unspent and unobligated stimulus funds to be used to reduce the deficit.

“I simply disagree with the governing philosophy that the stimulus represents: that we can grow our economy by growing the size of government,” said Duffy in a statement.

The White House estimates that $7 billion in stimulus funds has not already been spent or budgeted. There is also $161 billion that has been marked for other projects but has not yet been spent.

“Rescinding the remaining stimulus funds and sending it back to the Treasury for deficit reduction would send an important message to the private sector that there has been a fundamental shift in the People’s House from pushing big government policies to pro-growth policies that will empower the private sector to innovate and invest,” Duffy added.

Alex Cortes, who is coordinating a Defund the Stimulus campaign to promote the bill, said that “it’s absolutely clear that the stimulus has failed,” and pointed out that nearly 2.3 million jobs had been lost since the stimulus was passed.

Cortes is also holding out hope for some bipartisan support for the bill, particularly from the House’s Blue Dog Democrats. And he thinks some Democratic senators might be sympathetic. “How does a Claire McCaskill [D., Missouri] vote on this issue?” he says, noting how she’s trying to define herself as a fiscal hawk. “How does [Sherrod] Brown [D., Ohio], who has come out and said the stimulus hasn’t worked as he liked?”

Brown told the Ohio newspaper the Beacon Journal late last month that the stimulus hadn’t succeeded in restoring economic confidence or encouraging Americans to spend more.

 

[a_majoor]

Talk about shorting:

http://pajamasmedia.com/tatler/2011/02/11/arianna-huffington-prepared-to-sell-the-huffpo-for-a-year-and-a-half/

Arianna Huffington prepared to sell the HuffPo for a year and a half?

Look, we all know that it can take a while to sell any kind of property in Obama’s economy, but if what the Tatler has learned is true, Arianna Huffington started making the moves to sell the Huffington Post much earlier than her loyal lefty following realizes. Shortly after the AOL-Huffington Post deal went public, the Tatler has learned that there was a conference call between AOL bigs, Arianna Huffington, and some of the bloggers involved with Patch.com. Patch.com is the AOL-owned web site that drills down to very local coverage of restaurants, entertainment and news. According to what we’ve heard about this conference call, one or more of the Patch bloggers expressed concern about Huffington’s obvious far left political leanings and biases, and how Huffington’s left wing advocacy might impact the nonpartisan Patch.com. Press reports have said that in her new role as part of the AOL deal, Huffington becomes editor in chief of a slew of AOL-owned sites including Patch.com, and Huffington has been quoted saying that Patch.com is a key part of her strategy for generating deep and local coverage of the 2012 elections. According to our source, Arianna Huffington responded to the political question by saying that she herself had been concerned about how her politics might impact the sale of the HuffPo, so she has worked to moderate the HuffPo‘s voice for the past 18 months to boost its appeal.

So, in other words, she started selling her Obama stock short less than a year into his time in office. She went corporate by stealth long before AOL overpaid for the HuffPo. And, if our source is correct, has been plotting to sell out the thousands of mostly lefty bloggers and commenters who make up the bulk of the HuffPo‘s daily operations for quite a while.

What does this say about what Huffington really thought Obama’s policies would do to the US economy?

 

[a_majoor]

The sale of State owned assets could cover the hole (so long as the time is used to make deep and permanent cuts to spending, and lowering the tax and regulatory environments to promote economic growth):

http://www.newsweek.com/2011/02/20/sale-of-the-century.print.html

Sale of the Century

The deficit debate remains fixed on tax hikes and spending cuts, but there is another option.
by Niall FergusonFebruary 20, 2011
Dave & Les Jacobs / Cultura-Corbis

In my favorite spaghetti western, The Good, the Bad and the Ugly, there is a memorable scene that sums up the world economy today. Blondie (Clint Eastwood) and Tuco (Eli Wallach) have finally found the cemetery where they know the gold is buried. Trouble is, they’re in a vast Civil War graveyard, and they don’t know where to find the loot. Eastwood looks at his gun, looks at Wallach, and utters the immortal line: “In this world, there are two kinds of people, my friend. Those with loaded guns … and those who dig.”

In the post-crisis economic order, there are likewise two kinds of economies. Those with vast accumulations of assets, including sovereign wealth funds (currently in excess of $4 trillion) and hard-currency reserves ($5.5 trillion for emerging markets alone), are the ones with loaded guns. The economies with huge public debts, by contrast, are the ones that have to dig. The question is, just how will they dig their way out?

The conventional wisdom holds that, aside from resorting to inflation or default, debts can be reduced only through belt-tightening austerity measures—some mixture of higher taxes and spending cuts. And yet politicians are notoriously leery of proposing hikes or cuts big enough to make a real dent in the debt. President Obama’s latest budget proposal includes a five-year freeze on nondefense discretionary spending and tax increases on higher earners. But even if all goes according to plan, the gross debt will still rise above 105 percent of gross domestic product—and stay there.

The root of the problem is, of course, a lack of political will, extending down from the president himself to the lowliest Tea Party activist living on Social Security and Medicare. But a convenient excuse for ongoing borrowing is also provided by Keynesian economic theory, which states that a fiscal squeeze will tend to reduce economic growth, thereby widening the gap between revenues and expenditures. Fiscal hawks respond that a bond-market panic induced by excessive borrowing could be even nastier.

Yet there is another fiscal option that neither party seems to be considering. The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books.

There are three different arguments against such asset sales. The first concerns national security. When Dubai Ports World bought the shipping company P&O in 2006—which would have given it control of facilities in a number of U.S. ports—the deal was killed in Congress in a fit of post-9/11 paranoia. The second argument is usually made by unions: private or foreign owners will be tougher on American workers than good old Uncle Sam. Finally, there’s the chauvinism that surfaced back in the 1980s when the Japanese were snapping up properties like Pebble Beach. How could the United States let its national treasures—the family silver—fall into the hands of inscrutable Asian rivals?

Such arguments were never very strong. Now, in the midst of the biggest crisis of American public finance since the Civil War, they simply collapse. First, standards of public safety and security are unlikely to be compromised by a change of ownership unless military technology is involved (and the U.S. has already sold a startling amount of that to foreigners, by the way). Second, the goal of public policy should not be to protect public-sector workers from market discipline that will raise their productivity. Finally, why is selling assets to Asians worse than paying them an annual rent called interest on the national debt?

The mystery is why freedom-loving Americans are so averse to privatization—a policy that has been a huge success nearly everywhere it’s been tried. From Margaret Thatcher’s Britain, where the word “privatization” was coined, to present-day China, selling off government-owned industries has not only improved the fiscal position of governments; it has usually enhanced the efficiency with which the sold assets are managed.

The figures are impressive. Since the 1990s, about 75,000 medium-to-large firms have been privatized all around the world, from Argentina to Zambia, as have hundreds of thousands of smaller enterprises. The total proceeds: $735 billion. The United States accounts for only a tiny fraction of that number. Other countries are miles ahead. On a visit to Beijing in November last year, I even heard a leading Chinese economist half-seriously recommend the privatization of the Great Hall of the People. Yet American fiscal reformers—including the boldest of them, Republican Rep. Paul Ryan—tend to steer clear of the P word.

So let’s get down to business. What can the U.S. federal government and the various bankrupt states put up for sale? No, not Yellowstone or Yosemite. Those natural wonders should always belong to the nation. And no, not Alaska, much as many moderate Republicans would love to sell Sarah Palin to the Chinese.

In fact, the U.S. government currently has about $233 billion worth of nondefense “property, plant, and equipment,” according to the Treasury’s Financial Management Service. That is almost certainly an understatement. The government owns somewhere between 600 million and 700 million acres of land, or about 30 percent of the country’s land surface, much of it in the Western states, where as much as half the land is federally owned.

Washington could also sell its stakes in the Southeastern Power Administration and related assets as well as the Tennessee Valley Authority’s electric-power assets. There’s Amtrak (which runs at a loss) and the extensive hydroelectric empire of the U.S. Army Corps of Engineers.

And then there are the assets that have the potential to be among the most lucrative of all: America’s highways. Plenty of other countries—Japan, Turkey, and even China, to name just three—have already privatized substantial parts of their transportation infrastructure, leaving private companies to manage both revenues and maintenance.

American highways sold to foreign investors? It may sound unthinkable, but it’s already happening. Indiana recently leased the operation of the state’s principal 157-mile highway to a consortium led by the Spanish company Cintra and the Australian investment bank Macquarie. For the next 75 years, the consortium will collect the tolls from motorists. Indiana got $3.85 billion upfront. The city of Chicago has done a similar deal, leasing out its Skyway toll bridge for $1.83 billion. A few other state governments have been moving hesitantly down this same path, usually by setting up public-private partnerships to manage stretches of highway.

But there’s so much more that could be done. California’s government has an estimated $103 billion in assets, including state highways with a book value of $59 billion. Are you telling me a sovereign wealth fund from, say, Singapore couldn’t do a better job of running those choked and often potholed roads? Yet one of Gov. Jerry Brown’s first acts since returning to office was to cancel a planned privatization of state-owned office buildings.

From sea to shining sea, American politicians are running scared from the only credible solution to the country’s fiscal crisis. Rather than publishing honest balance sheets with meaningful valuations of both their assets and liabilities, they’d rather maintain the fiction that it’s their job to invest billions in high-speed railroads and the like.

Let’s face it: if you want to see serious investment in America’s infrastructure—and the American Society of Civil Engineers estimates that a full upgrade would cost $1.3 trillion—it isn’t going to come from the likes of Governor Brown, much less President Obama. They’re broke, folks.

There are, remember, two kinds of economies in this world: those with guns and those who dig—those with piles of cash and those with mountains of debt. Sure, the debtors can keep on borrowing until their creditors revolt, or they can try to dig their way out with austerity budgets. But a better idea would be to get smart and start inviting bidders to what could be the sale of the century.

 

[Redeye]

The sale of State owned assets could cover the hole (so long as the time is used to make deep and permanent cuts to spending, and lowering the tax and regulatory environments to promote economic growth):

http://www.newsweek.com/2011/02/20/sale-of-the-century.print.html

The author of this piece should see how flogging Crown assets worked out for Ontario.  It's a great short-term plug, but not a long term solution for anything really.

 

[Edward Campbell]

The author of this piece should see how flogging Crown assets worked out for Ontario.  It's a great short-term plug, but not a long term solution for anything really.

I think that is a gross oversimplification. There are many, many (possibly even most) economists who would disagree and who will provide lots and lots of math to show that private property usually outperforms public property - which is to say that it (private property) provides a greater net benefit to the commonwealth (domestic tax base, etc) than do public assets. It is a wee bit counter-intuitive but I also think the economics is on Thucydides' side.

 

[Redeye]

I look for example at the sale of Highway 407 and of Ontario Hydro and wonder where the benefits are to the taxpayer for these moved - other than a one-time infusion of cash.  Similiarly, when one looks at the experience of the UK in privatization of all sorts of things, it seems like the benefits are in fact nowhere near what are claimed.  Privatization of British Rail, for example, has been an almost totally unmitigated disaster.

The even worse cousin, though, following UK politics (and Nova Scotia's, as they've been big on them lately) are "private finance initiatives" or "public-private partnerships".  Interestingly these seem to be gaining steam in Canada when the evidence from the UK suggests they are in fact not a good deal for the taxpayer at all.  Interestingly, some of the best coverage of much of the mess in the UK is a satire magazine, Private Eye - they tend to reveal the sordid details long before the mainstream press does (and thus, they have a column every issue showing how long it takes before their stories break.  They have been lately covering the impact of privatization on the MoD in the UK, in particular the creation of QinetiQ, which a UK National Audits Office report found was an atrociously bad deal for the UK taxpayer.

In many - if not most cases - economics suggests that provision of most goods and services is best left to the private sector.  However, there are many cases where the market fails, which is why governments exist in large part - to ensure that services are in place - infrastructure being a major example.  What seems to happen when the decision is made to sell off such assets is that the terms are generally most favourable to the private sector investors but when things fall apart it's the market - and the taxpayer - left holding the bag.

I think that is a gross oversimplification. There are many, many (possibly even most) economists who would disagree and who will provide lots and lots of math to show that private property usually outperforms public property - which is to say that it (private property) provides a greater net benefit to the commonwealth (domestic tax base, etc) than do public assets. It is a wee bit counter-intuitive but I also think the economics is on Thucydides' side.

 

[Edward Campbell]

...
In many - if not most cases - economics suggests that provision of most goods and services is best left to the private sector.  However, there are many cases where the market fails, which is why governments exist in large part - to ensure that services are in place - infrastructure being a major example.  What seems to happen when the decision is made to sell off such assets is that the terms are generally most favourable to the private sector investors but when things fall apart it's the market - and the taxpayer - left holding the bag.

With respect, the "economics" suggests no such thing. The "economics" suggests that a competitive private sector always outperforms the public sector because, inter alia, it is better able to control costs. With regard to "infrastructure" I offer, just as one example, the Japanese transit systems - mostly private and all better than what we have here in North America.

I agree the popular (read uninformed) public perception is that "something" was lost and little, is anything, was gained when public assets are privatized, but the public perception is often (usually?) wrong - especially when it deals with economics.

The reason there are so many "sweetheart" deals made in disposing of public services is that public management has, usually, been so poor that they, the assets, are nearly worthless. Once again: would you buy any Canadian public transit system,? No, not if you are sane and have more than a third grade education. Would you accept a Canadian public transit system as a gift? No, again. You would start going broke the instant you assumed ownership of such inefficient, mismanaged assets.

But Jim Laxer et al would agree with you ... of course no respectable, adult economist would agree with Jim Laxer, so ...

 

[Redeye]

With respect, the "economics" suggests no such thing. The "economics" suggests that a competitive private sector always outperforms the public sector because, inter alia, it is better able to control costs. With regard to "infrastructure" I offer, just as one example, the Japanese transit systems - mostly private and all better than what we have here in North America.

Respectfully, this claim is nonsense.  Japan's railway system began to be privatized in 1987, and the privatization only happened because the Government of Japan absorbed all of the debt - and held most of the shares until about 2006.  I can't seem to find much information on the profitability of the successors, but given that they basically got a massive subsidy by being relieved of their debts I don't see what real difference it would make.

I agree the popular (read uninformed) public perception is that "something" was lost and little, is anything, was gained when public assets are privatized, but the public perception is often (usually?) wrong - especially when it deals with economics.

I'm not talking about public perception, though, which I agree is often wrong.  What did taxpayers in Ontario gain from privatization of Ontario Hydro?  What would they gain long term from, say, the privatization of the LCBO?

The reason there are so many "sweetheart" deals made in disposing of public services is that public management has, usually, been so poor that they, the assets, are nearly worthless. Once again: would you buy any Canadian public transit system,? No, not if you are sane and have more than a third grade education. Would you accept a Canadian public transit system as a gift? No, again. You would start going broke the instant you assumed ownership of such inefficient, mismanaged assets.

See above re privatization of JNR.  Running things like passenger rail service - or any form of mass transit system is very, very difficult to do profitably, because it's hard to generate revenue sufficient to meet expenses.  Why do we have mass transit, then?  Because we've decided it's socially optimal for whatever reason (less traffic, better air quality, whatever), and therefore we subsidize it.  That's the way things are for most utilities and infrastructure - they have to be built out of tax revenues because the private sector won't efficiently deliver them ex nihilo particularly well.

The British experience with their rail system, for example, shows privatization didn't pan out as expected.  The service requires massive subsidies still, service quality seems to have deteriorated, and while some fares have fallen (for commuter service on multiple trip passes for example), other costs have soared, and there's been little reinvestment in maintenance, rolling stock, etc.

I'll try to dig into this a little more in detail with more sources, haven't enough time at the moment.

 

[Edward Campbell]

I was thinking of e.g. local transit in Japan, like the private subway systems in many cities. It's been a few years since I was there but I recall that Kyoto, for example, has an efficient network composed on numerous private subway lines - all interconnected and, though the agency of a (private) coordinating service inter-scheduled.

Any service that requires subsidization is, by definition, improperly priced. Transportation subsidies are a classic example of bribery. No one likes to pay the full cost of an essential service so people band together and force the government to make someone else, e.g. me, pay for something I do not use - like, for example, local public transit for you. Now, there are benefits, to me, when you use public transit - less congested streets and less pollution, for example, but it is not clear that those benefits are worth the transfer of wealth from me to you. We need to do that cost benefit analysis for ALL public services - even defence, by the way - in order to understand what we are doing with out own money.

I would argue that less than 1/100th of 1% of Canadians, including most with PhDs, have ANY idea about the costs and benefits of ANY public "service." The level of ignorance is especially acute amongst the political and chattering classes.

 

[Redeye]

I was thinking of e.g. local transit in Japan, like the private subway systems in many cities. It's been a few years since I was there but I recall that Kyoto, for example, has an efficient network composed on numerous private subway lines - all interconnected and, though the agency of a (private) coordinating service inter-scheduled.

Actually, according to Wikipedia, that's not really the case - Kyoto's subway lines are run by a municipal agency.  A private corporation does operate them, but I can't find much information on how they were built - it's the massive capital outlay to built such a system that makes it very difficult for such systems to arise absent some form of government assistance.  Recall that when, for example, the railways were built in North America, even though there was a lot of private investment, it was still crucial that government be involved to get the lines built.

Any service that requires subsidization is, by definition, improperly priced. Transportation subsidies are a classic example of bribery. No one likes to pay the full cost of an essential service so people band together and force the government to make someone else, e.g. me, pay for something I do not use - like, for example, local public transit for you. Now, there are benefits, to me, when you use public transit - less congested streets and less pollution, for example, but it is not clear that those benefits are worth the transfer of wealth from me to you. We need to do that cost benefit analysis for ALL public services - even defence, by the way - in order to understand what we are doing with out own money.

You're right about subsidization - this is where economic models break down because price-based models alone do not reflect the cost/benefit to society of such systems - thus the need for public discourse about them.  Similarly, externalities of all sorts play into a lot of regulatory regimes.  The cost, for example, of the pollution generated by production,  consumption, and disposal of any particular good generally is not reflected in pricing.  An argument has been made that incorporating such costs (though there's no easy way to do it I'd say) might shift consumption decisions.  Making shoppers pay for plastic bags, for example, drops demand for them and shifts consumer preferences to reusable bags, which ultimately reduces those otherwise externalized costs.

You've also hit on something particularly relevant to discussing the US economy - defence - its costs.  It seems like defence is a sacred  cow in US politics, and there's really almost no point in a fiscal responsibility discussion without it.  Some elements of the GOP, for example, jumped all over President Obama for negotiating the New START - though I would think that cutting the US nuclear arsenal (and the cuts are modest to say the least) will likely trigger some savings.  There's been stories of procurement projects buying things the military doesn't want (like the DD-X/DDG-1000 project) which I can't imagine the cost of.  Obviously, defence is an important thing on which money must be spent and on which there's probably little return on investment to the public, but the general tone in the US in particular seems to be that no one wants to have a really frank discussion.  It seems, by contrast, that in Canada the F-35 debate is providing that sort of discussion, but we've never seen the CF as the sort of sacred cow the US military is.

I would argue that less than 1/100th of 1% of Canadians, including most with PhDs, have ANY idea about the costs and benefits of ANY public "service." The level of ignorance is especially acute amongst the political and chattering classes.

I'd agree, for the most part.  One need only initiate a conversation about healthcare with the average Canadian to see this.

 

[observor 69]

In a number of examples, airline routes, rail systems where the money making parts subsidizes the less profitable part, public versus private ownership is necessary.

 

[GAP]

What about the bridge over to PEI...that was built privately, on a 30 year contract then it reverts to public ownership....

 

[observor 69]

What about the bridge over to PEI...that was built privately, on a 30 year contract then it reverts to public ownership....

Where is the unprofitable part?