The Dinosaurs are stirring …

Our beautiful Office Manager breathlessly rushed into our offices this morning (always a good sight) holding aloft a copy of the Dominion Post, the capital’s rag of record, where our recent intervention with some Wellington City Council councillors had become news. Apparently the dinosaurs down south are complaining that having their idiocy pointed out was some kind of attack on the very foundation of our democracy!

The council’s governance portfolio leader, Deputy Mayor Ian McKinnon, didn’t receive a letter but was outraged that his colleagues had. “The debate was in the open and, while there were differences of opinion, no-one tried to hide them. This is really an attack on the democratic process.”


He was probably jealous that he didn’t get the kiddie counting book and calculator with the big buttons we sent to some of his colleagues. We’ll see if we can do better next time, our tightly-constrained budget notwithstanding. However the actual recipients were all faux moral outrage and old-man harrumphing:

Councillor John Morrison was among at least three councillors to receive one of the packages last week. “It is totally derogatory, offensive and pathetic in so many ways,” he said.

A kiddie book is “derogatory, offensive and pathetic”? Really?

Of course the one thing he didn’t say was that we were wrong. Presumably he didn’t want to mess up a good media opportunity with any actual facts – or at least none that the Dominion Post printed – and so nowhere in the story is it mentioned that he supports roading projects with a cost/benefit of only 0.4. Thats right – Mr Outrage seems to stand ready to hose away 60 cents for every taxpayer dollar that’s spent on his pet projects, but it’s somehow offensive when we point it out to him.

In the letter we included with the kiddie book and the calculator we advised that “… it’s never good to look like a dick in public. So avoid making stupid statements about how roads are an investment in the future or how they create jobs, because all the people who’ve already read the book and mastered the calculator will think you’re a moron.”

I know it’s going to feel like tough love, councillor, but we stand by that advice.



A love-letter to Brian Gaynor

Here at the secret Economic Illiteracy underground headquarters near Matamata, we don’t have much time for most economic commentators in the media. Despite being avid fans of Morning Report (our best daily source of unintentional economic hilarity from the politicians being interviewed) we’ve never quite figured out why they keep trying to pass off bank economists as actual economists, when it’s obvious they’re paid to air the views of their employers. And the quality of material in the printed media is little better.

Only …. sometimes there’s a column that just absolutely and totally nails it. Step up, Brian Gaynor, who uses actual facts and figures to make a point in the NZ Herald that has been crying out for quality analysis for decades. The headline says it all – “Brian Gaynor: Overseas ownership is holding NZ back” – and if you thought the headline was good, the body of the article is a tour-de-force of condemnation for the dumb-ass right-wing idea that all foreign investment is good. In Brian’s words:

Our politicians, beginning with Roger Douglas and Richard Prebble, sold a large number of the country’s strategic assets to overseas investors. These politicians failed to realise they were establishing a domestic wealth destruction culture as wealth is mainly created through ownership rather than disposal …

Telecom was sold to overseas interests for $4.25 billion in 1990 and since then has made distributions to shareholders, in the form of dividends and capital repayments, of $14.6 billion …

The Bank of New Zealand was sold to National Australia Bank (NAB) for $1.5 billion in 1992. Since then BNZ has distributed $5.2 billion in dividends to its Australian parent and is now worth an estimated $7.2 billion based on its 2010 net earnings of $602 million and a price/earnings ratio of 12. Thus NAB paid $1.5 billion for BNZ and the latter has delivered total shareholder value of $12.4 billion to its Australian owners since late 1992.

The article keeps on getting better and better, as Gaynor points out that it’s not solely about a loss of profits, but the depletion of available investment capital, the cutting off of international expansion opportunities, and the deprivation of the rest of the economy of high-quality investment opportunities.

This is an article that deserves a wide audience, particularly amongst the benighted fools in the National Party who seem determined to asset-strip the country in a second term of government. Go read it now. And take a bow, Mr Gaynor.

Ken screws up – again

Fresh from his star turn of failing to understand cost/benefit ratios, Wellington Chamber of Commerce head Ken Harris has now demonstrated his failure to understand basic inflation calculations.

Our attention was drawn to this particular pearl of wisdom falling from Ken’s mouth when he took issue with the Wellington council raising the parking charges from $4 to $5. Outrage! Here’s Ken doing battle for the hard-pressed retailers in the capital!

Not only are car park vacancy rates too high to warrant such a fee hike but this 25% jump, coming on top of previous increases over the years, more than outstrips the inflation rate. It is difficult to see this proposed increase as anything more than a revenue raising exercise.

Yeah! That’s the champion of free enterprise laying the smack-down on those lilly-livered public servants that want to deny him $4/hour parking for his SUV! The increase “more than outstrips the inflation rate”!

Only it doesn’t – probably because the hard-working Ken didn’t bother checking what inflation amounted to since 2004, when the council last raised the parking charges. Or maybe he’s just a dickhead, it’s sometimes hard to tell with lobbyists. A quick tour around the Reserve Bank’s inflation calculator revealed that there’s been a 23.5% increase in the CPI from the beginning of 2004 to the beginning of 2011, so that $4 fee in 2004 is now the equivalent of $4.94 in 2011 – completely in line with the council’s new parking charges.

In other words, Ken’s utterly wrong, economically illiterate, and incapable of using Google to obtain the answers to basic questions. In other words, he’s perfectly qualified to be the CEO of a business lobby organisation, which aren’t exactly the pinnacles of intellectual achievement.

Luckily there was one person who was making economic sense in this debate – the bloke who works for the Wellington council. The unlikely-named Stavros Michael (presumably related to George) said that “”Businesses that are open during the day in the CBD benefit from paid parking through higher turnover, while those businesses that operate in the evening do not benefit because people hog the limited number of spaces all night.”

It’s a worry when the public servants make more economic sense than the private sector lobbyists.

Cage fight! NZ Super Fund vs South Canterbury Finance

Governments like to portray themselves as sensible and prudent investors of those hard-earned taxpayer dollars. Unfortunately the real-world imperatives of acting like dicks and lubricating the loyalty of narrow voter bases tends to rather undermine this image of a boring-but-conservative Uncle who’s wisely counting every penny.

Take, for instance, the comparison between Bill English’s decision not to invest in the NZ Super Fund – which has a proven record of delivering above-market investment returns – and instead piss a big chunk of cash into that poisonous rat-hole known as South Canterbury Finance – which has a recent track record of losing every dollar it can. Let’s see how that played out.

First up, the NZ Super Fund, now a $19 billion colossus astride the investment landscape. in 2010/11 it made a 23.04% return on investment, all without resorting to calling up Mark Hotchin and asking him for contributions to a Ponzi scheme. Bill English decided that investing in a proven winner wasn’t really his style, so declined to stump up with the government’s contribution of around $2 billiion.

Basic maths will tell you that New Zealanders have missed out on a return of $460 million this year by not throwing that $2 billion at the Super Fund’s stellar managers. Bill’s dumb-assed reason for not investing was that he’d have to borrow the cash to do it, which would have added to the deficit and incurred interest costs … of about 5.5%. So he’s thrown away $460 million so he could save $110 million – well done Bill!

Instead, he decided to bail out South Canterbury Finance’s many investors, to the tune of about $1.8 billion – you’ll notice that this is within the ballpark of the figure he decided not to add to the Super Fund’s coffers. The dust has yet to settle on this particular fiasco so the total losses won’t be known for a while – other than to say that they’re going to be ugly.

To date the loss estimates are running around $1.2 billion – but wait, there’s more! If Bill had to borrow to put money into the super fund, he would also have had to borrow to pay off Torchlight and co – he sure didn’t find the cash down the back of Treasury’s sofa – which adds another $66 million to the total, assuming we’re only paying interest on the losses, rather than the total.

Imagine the scene:

Treasury: “We recommend you put a couple of billion into the Super Fund because those guys really know where their towel is, and we’ll make stacks for the New Zealand taxpayer even after interest costs …”

Bill: “Nah, doesn’t suit the lobbyists. Got anything that pisses away a billion or two so I can buy a few votes?”

Treasury: “There is this one company that’s in breach of its obligations under the Retail Deposit Guarantee Scheme …. “

The rest, as they say, is history.

Where does the Chamber of Commerce find them?

The teletype machines in our underground headquarters have been running at full throttle over the last few days as the wall of idiocy continues to wash over Wellington.

Rather than taking a fact-based approach to whether throwing $2.4 billion of taxpayers money down the rat-hole that is Wellington’s bit of the Roads of National Party Significance, alleged leaders of the business community are busy claiming some kind of mystical dewy-eyed benefit will magically accrue from more roads.

Step up to the plate, Wellington Employers’ Chamber of Commerce Chief Executive Ken Harris. Here he is in full flight:

“It is crucial that the proposed investment between Ngauranga Gorge and the airport goes ahead,” chamber chief executive Ken Harris said.

“Freight volumes are expected to increase 70 per cent by 2030. This, combined with projected population growth and growing visitor numbers, means that infrastructure needs to be in place to meet the increased demand.”

Uh, yeah. If you’d bothered to actually read the NZ Transport Agency’s own documents, Ken, you would have seen that there’s a benefit/cost ratio on this roading boondoggle of only 0.4. Spend a billion, get back $400 million – and yes, that includes every benefit that the Transport Agency could find down the back of the sofa, including freight growth. From the look of the methodology, they appear to have even counted some benefits twice, just to, you know, make sure they hadn’t missed anything.

So perhaps the hard-working Ken can explain why destroying hundreds of millions of dollars of economic value is a crucial investment? No? Didn’t think so.

Our advice to Ken: stick to what you know. Nothing difficult like maths or long division or reading complex documents or thinking for yourself, but something more in keeping with your role as the Chief Executive of Wellington’s business lobby group. Like golf. But get your caddy to calculate the score, because you’re definitely not up to the job.

Pissing away the transport funding

Local government doesn’t always attract the intellectual superstars – although there are always exceptions, of course – but a group of councillors at the Wellington City Council bellied up to the bar and effortlessly downed a whole bucket of stupid last week, pretty much proving that raw intelligence is not a prerequisite to being elected.

We’re talking, of course, about the Gang of Nine who are trying to back the Wellington council into a corner over funding for local motorways. This came about because the Empire (in the form of the NZ Transport Agency) demanded obeisance from the council and required that they resolve to support the roading plans before the designs have even been released.

You’d think that any councillor with an actual spine would have told the Transport Agency to get on their bikes (or back in their stretched-limo BMWs) and clear off. Apparently that didn’t even occur to this group of “rebel” numpties. But hey, we’re the Economic Illiteracy Support Group, not the Spineless Dickhead Preservation Society, so our interest was only piqued when we looked at what they were apparently supporting.

Yes folks, it’s that giant cup of cold economic sick called the Roads of National Significance, Transport Minister Steven Joyce’s gift to the country. It’s the largest, stupidest and least cost-effective capital project the country has seen since Rob Muldoon stopped Thinking Big, a $10.7 billion hole in the country’s pocketbook.

And the Gang of Numpties are trying to get $2.4 billion allocated to the Wellington region when it’s a money-losing dog from end-to-end. It’s a spectacularly bad investment, wasting money at a rate that would make the directors of South Canterbury Finance look like superior economic managers.

Take just one roading component – the bit between the Basin Reserve and Wellington airport, which apparently requires a tunnel and widened roads. Even using the fully Bernie Madoff-compliant cost/benefit approach of the NZ Transport Agency, this particular piece of wisdom has a benefit-cost ratio of just 0.4. So for every dollar “invested” in this scheme, there’s just 40 cents of payback. You’d think that even a city councillor would be bright enough to figure out that this is a lousy deal, but apparently not.

Looked at as a whole, the entire Levin to the Airport saga pisses away something like a billion dollars in economic value, and that’s only if you believe the fairy-tale benefits from the Transport Agency and ignore any cost blowouts. It’s likely to be much worse in the real world, if this white elephant is ever built.

So we can only hope that this soap opera of economic incompetence being played out at the Wellington council has some kind of political motivation, because it would be truly depressing to discover these councillors were genuinely so stupid they thought that hosing a billion dollars of taxpayer money against the wall was a smart move. And seriously, what were Wellington voters thinking when they ticked the ballot paper for this collection of intellectual pygmies?

However never one to duck any challenge, the Economic Illiteracy Support Group is intervening and we’ll be sending support packs to some of the Gang of Numpties this week. Stay tuned for the media release.

A new year … and more idiots

Since we founded the Economic Illiteracy Support Group we’ve been hard at work setting up the structures and procedures we’re going to need in the year ahead. It’s an election year, so it’s going to be busy.

We’ve constructed our underground headquarters in the wilds of Matamata, recruited essential staff members and commenced the 24/7 scan of the Interwebs for economic stupidity. We’ve even calibrated our patented high-performance Moron Filters to ensure that Don Nicolson from Federated Farmers doesn’t overload the system with his dumb-ass column in the Sunday Star Times each week.

So we’re now officially in business and planning our first intervention, scheduled for this week. We think there’s a ripe and juicy target in Wellington that’s currently pegging the newly installed Stupid-ometer in to the red-zone. So stay tuned!