Children, no matter what the redistributors promise, you cannot redistribute the future before it’s been created

Sir, Martin Wolf writes: “A case can be made for borrowing for high-quality investment, especially when real interest rates are so low… But the increased spending needs to be paid for by effective and efficient taxation… What is needed is honesty: the country can choose to raise spending. But, if it wants to run a sound fiscal policy, this will mean substantially higher taxes” “Austerity is dead. Long live austerity” June 16

Honesty? Are the low real interest rates on sovereign debt for true, or are these not much a function, an illusion, caused by the regulatory subsidies to sovereigns? Does a 0% risk weight for the sovereign, and a 100% for unrated citizens, which is what the Basel Committee’s standardized risk weights establish, really mean nothing when it comes to allocating bank credit to the real economy?

Yes, it would clearly have been better to launch different “high-quality” public investment programs, than that dumb kicking the crisis can down the road program financed with Tarps, QEs and what have you.

But, just like saying “risk-weighted” does not mean it has really been risk weighted, saying “high-quality” does not signify for one moment that it will be of “high-quality”. In fact, all around the world, what we continuously see is a reduction in the capacity of governments to deliver high-quality investments. Could that be because of their 0% risk weight, they are now less forced to do so?

Wolf also writes: “a quarter of Labour’s promised increase in spending goes to eliminate student debt, while leaving universities far worse off. This is an irresponsible and regressive benefit in favour of future winners.” Here again remember, mentioning “future winners”, does not guarantee one iota the students will be the future winners.

You young, please, don’t listen to siren songs. The future, no matter what the redistribution profiteers promise you, cannot be redistributed before it’s been created.

PS. Students, If you want universities to better help you be future winners, pay them 50% of what they actually charge you, with some basis points in you future earnings.

@PerKurowski

Beware of revolving-doors public-projects’ managers who are neither public servant nor respond to private ownership.

Sir, let me see if I understood what Martin Wolf has written in “The public sector needs to be better at accounting for its assets” April 14.

Number one Wolf holds that you should not focus on solely on one dimension, like on net public debt, but that you need to consider the overall performance of government, including the management of assets. I could not agree more. That is why for soon two decades I have insistently argued that bank regulators should not focus solely on avoiding bank failures, but need look much more at the role banks should play in the allocation of credit to the whole economy.

Then Wolf argues the importance of not to reduce public debt by passing along projects, like infrastructure, or sell off assets, like student loan books, to parties who by definition have a much more expensive funding. Again I could not agree more. In my country Venezuela, I even saw privatizations of public services designed to provide the government with huge windfall incomes, leaving the citizens saddled with the need to during decades pay exorbitant tariffs for such services.

And Wolf mentions a recommendation of the Growth Commission of the London School of Economics related to the need for “independent and professional identification and evaluation of public sector infrastructure programs.” As long as you make sure the selection of the evaluators is objective and independent, who could argue with that?

But then Wolf brings up a recommendation expressed by Dag Detter and Stefan Fölster in their book “The Public Wealth of Nations” that though the “ownership of assets does not need to be private… existing public wealth needs to be professionally managed"

And here I intuitively disagree.

Either good public servant, as good public servants, manage public project professionally, or they should be managed by good private professionals responding to the incentives and the responsibilities that comes with ownership. The professional manager who is neither a public servant, nor an owner, nor responds to owners, is precisely the sort of unaccountable breed we best stay away from. Those are the ones usually trafficking the so-called revolving door between government and the private sector.

PS. For good government transparency, I would add the need to separate ordinary government functions from its assumed redistribution functions, so as to have a clear idea of how much the redistribution costs, and thereby keep the redistribution profiteers at bay.

@PerKurowski ©