No one is perfect

No economist or economics journalist is ever completely right.

Take Tim Colebatch, for example.  I've enjoyed his writing this year, but then he came out a couple of weeks ago and said Julia had to go (well, OK, he can claim poll vindication there, but I'm still not convinced), but today he makes this surprising off the cuff claim:

The reason is simple: he keeps rolling out the same old mantras, to the same rusted-on supporters, rather than trying to win the middle ground. His recent policy statements on industrial relations and northern Australia passed muster as sensible policies, but we need a lot more.

No way is the "build infrastructure and they will come" a "sensible economic policy."  In fact, the policy is just to produce a white paper about how to develop the north of Australia, looking at this "food bowl" idea (already looked at a couple of years ago and dismissed as improbable); tourism (which everyone who has been looking at Queensland for the last 3 years knows is vastly subject to currency movements beyond government control, and the weather) and "building an energy export industry" (meaning gas, an idea which private companies are already or planning on doing.)  

 Bad line, Tim.  Even if Gina still owns part of Fairfax, you must get your act together.

The other economics related matter of interest today in The Age is Michael Pascoe's column, in which he suggests Rudd could indeed make a big splash policy wise by promising to borrow a lot of cheap money to build infrastructure.  He says a lot of economists or business figures support this:

Heather Ridout, John Edwards, Warwick McKibbin, Bob Gregory and Bernie Fraser aren't a particularly radical bunch in the usual left-right sense, but to a greater or lesser degree they've all said it could be a good time for the federal government to be borrowing more, not less. The caveat is what that borrowing is spent on: not recurrent expenditure at this stage, but on capital improvements.

Professor McKibbin has been the most radical, suggesting the government borrow big, in the hundreds of billions of dollars big, at low single-digit interest rates and use the money to build infrastructure that offers double-digit rates of return.

A refinement of that broad proposal that would require less borrowing is that the government builds the infrastructure, de-risks it by maintaining ownership for a while (as it turns out the private sector has no idea how many cars might want to go through a tunnel) and then flog it off to the private sector, using the money gained to build the next stage.

Encouragingly, the NSW state budget contained an element of that very thinking in funding the $10 billion WestConnex toll road. With so many failed private-sector tunnels around the nation, the government will build the road, using its access to cheaper finance, and subsequently privatise it.

The NBN model goes part of the way along the Big Idea superhighway, even keeping the funding off the immediate government balance sheet, but it fails on one major test: demonstrable and independently adjudicated double-digit internal rate of return.

McKibbin himself admits the problem with his plan is that you couldn't trust any politician with the money – the temptation to cater for a little vested interest here, a marginal electorate there, some generous political donors everywhere, is too great.

Which is where the establishment of a genuinely independent, arms-length body to supervise the process becomes paramount – a Reserve Bank of infrastructure. Infrastructure Australia is a step in that direction but not good enough, being more of a wish-list body than a ruthless task master.

The Productivity Commission's rigours would need to be employed for a start. Those who have abused government programs in the past would need to be excluded, for example, the Victorian CFMEU after the desalination plant rorting. To be made to work properly, there would be no room for mates of any colour.

It wouldn't be easy to reverse three years of surplus worship, particularly with the opposition sure to run the obvious lines about Labor just wanting to spend and go further into disastrous debt, but it could be done.

Well, as I said on this topic a few weeks ago, I still have this skepticism about how governments (or anyone) can really work out priorities in infrastructure.   I mean, unless its directly related to an industry (a railway line from a mining area to the coast, a new boat harbour near some industry) how do you really put a productivity figure on something like a new cross city tunnel that speeds up a commute by 15 minutes a day?  

I could, I guess, live with massive infrastructure that moves hard towards green energy; but I'm sure many economists would argue that the right technology is something about which governments should not be attempting to pick winners.

A high speed rail system has some Green credentials, but the sparse population that most of it will run through makes it questionable for a country this size.

So, my problem remains:  sure, Pascoe's idea sounds reasonable - but show me the infrastructure that immediately makes sense, and then I'll be completely convinced.