An excess supply of economic illiteracy

Economic illiteracy is a common fault among our political classes. Two stories off the front page of The Australian this morning. First this: NBN chief Bill Morrow asks who will by the $49bn debt. As if you have to ask:

Australians face a stark choice in how to pay for the $49 billion National Broadband Network — it will either be funded by consumers who use the network or ultimately by the taxpayer via subsidies and writedowns.

NBN chief executive Bill Morrow, writing today in The Australian, raises fundamental questions about how to pay for the federal government-owned network.

He says a “land grab’’ by retailers as they try to gain market share while the NBN is rolled out has driven down internet plan prices to a level that may not reflect the costs consumers are willing to pay in a rational market. “We need to ask whether this is a faulty commercial model where cost recovery isn’t possible or is it an over-heated retail market with a price-centric marketing strategy that needs to change?’’

It’s all Labor except that our economically challenged PM also didn’t get it when he might have done something useful when he was Minister of Communications. And to go with that we now have this: Regulation needed to keep lid on power bills: Victorian report.

A damning review of Victoria’s privatised energy market has called for the reintroduction of price regulation to drive down household power bills and put a ceiling on spiralling electricity costs.

The eight-month independent review found that, after 15 years, market deregulation had failed Victorians and led to significantly higher household power bills.

Left out is the small matter of the Hazelwood power station closure. It shouldn’t be that hard to understand the supply half of supply and demand, but apparently it is.

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16 Responses to An excess supply of economic illiteracy

  1. Shouldn’t the mandated purchase of taxpayer subsidised power also be mentioned?

  2. Tim Neilson

    market deregulation

    I must have missed that bit. I thought that the renewable energy certificate regime was still in full force.

  3. OldOzzie

    What struck me was the atrocious journalistic standards of today

    NBN chief Bill Morrow asks who will by the $49bn debt

    one would assume “buy”

    as for the rest of the article

    But if the need for the NBN to make a modest return was removed and the value of the asset was written down, at a cost to taxpayers, the questions would emerge about how to pay for a faster-than-before broadband network that is universally available. “Do we rely on taxpayers in the form of government subsidies or do we rely on those who are going to use the service,’’ Mr Morrow writes. The spotlight is again expected to fall on the NBN this week with the release of its results tomorrow.

    The NBN has been dogged by controversy after the government decided to embark on a fibre to the node build instead of a fibre to the premises build that would have cabled every home in the nation but been more expensive.

    Slow speeds under the NBN have also proved contentious, with critics blaming the FTTN concept and high bandwidth charges by the NBN.

    But it has emerged that a key driver of the slower speeds is internet retailers not buying enough bandwidth from the NBN to open the way for higher speeds despite charging their customers for high-speed access.

    Mr Morrow says the economic model is not just about making a return but also creating an internal cross-subsidy that means people in the bush have access to better broadband just as people in the city do.

    For the economic model to work, the NBN assumes about 75 per cent of people will take up the NBN and users will pay on average $50 a month for their residential services.

    From the Comments

    $49,000,000,000 — is that all? Just refer it to Stephen Conroy, you know, the guy with red underpants on his head. Or his boss, Mr Kevin Rudd, of New York.

    Abbott told Turnbull fix the NBN mess Malcolm. Turnbull reported back to Abbotts Cabinet 3 years ago mission completed and no further Taxpayer funds will be required.Last November Turnbull had to sink another $19.5 Billion Taxpayer dollars into the NBN and now we are told it is still a Mess.How is Turnbull still PM…….

    KRudd and Conroy sold this useless pup.. charge it to them.

    I am sitting here weeping and drying my economic tears with red underpants.

    Thanks Labor.

  4. closeapproximation

    Retailers taking advantage of general energy market chaos, riding the wave of increasing prices and getting their 2c worth.

    One of the advantages of not breaking the energy system in the first place, is that it makes it much harder anybody along the supply chain to play silly buggers.

    However, regardless of upstream stupidity in the energy supply chain, I would like to know if competition in energy *retail* is actually broken and if so, why?

  5. Peter

    One of the greatest gifts the study of economics has given me, is my now ingrained tendency to think of policy issues in terms of markets, and that means supply and demand. This simple approach of always first considering how the market is working (and of whether there truly is a market failure to be addressed before introducing yet more ill founded regulation that merely assumes without evidence that there is a market failure) has in a sense stood me in good stead. (At least it means I have the personal satisfaction of understanding the issues).

    Not, however, that it has had much impact or benefit when I have been advising governments on policy (something that has been a long standing part of my career). Most politicians, as you say, are entirely economically illiterate and proud of it. A key example I keep batting on about is the negative impact supply side restrictions on land and housing have had on home price over the years. But politicians seem incapable of listening or understanding that if you restrict land availability (supply and increase population beyond sustainable levels (demand) prices WILL rise. They also seem absolutely incapable of comprehending that palliatives like first home buyer grants only harm first home buyers by driving up prices further by allowing potential home buyers to bid prices up to ever higher levels. Simple supply and demand but incomprehensible to politicians who are absolutely impermeable to reason.

  6. Craig

    Na, just a case of economic stupidity.

  7. Myrddin Seren

    A damning review of Victoria’s privatised energy market has called for the reintroduction of price regulation to drive down household power bills and put a ceiling on spiralling electricity costs.

    The eight-month independent review…..

    How independent Senor Andrews ?

    The panel, led by former Labor deputy premier John Thwaites and commissioned by the ­Andrews government,……

    Bwahahahaha – Dan ‘Hugo Chavez’ Andrews, part time Premier of Victoria and full time CFMEU puppet, commissions Labor Mates to come to the conclusion that defacto re-nationalisation of the electricity sector should commence.

    Anyone surprised by this ?

  8. max

    President Donald Trump :Trade Wars with China Start Monday

    https://mishtalk.com/2017/08/13/junkies-dilemma/

    The demagogue is one who preaches doctrines he knows to be untrue to men he knows to be idiots
    ~ H.L. Mencken
    Democracy is the theory that the common people know what they want, and deserve to get it good and hard. H. L. Mencken

  9. Paul Farmer

    I was left speechless by morrows statements , this from the head of the nbn , you would think we could find someone to run the nbn who wasnt so ecomically illiterate . The argument that competition is somehow driving down prices beneath the value that consumers would otherwise pay , is so patently ridiculous it’s laughable .

    Think about that statement for a moment , why stop there , why don’t we set pricing policy in other parts of our economy at prices that represent the maximum that consumers can bear ? Let’s remove all consumers surpluses in our economy in favour of giving producers surpluses so they can get a return on all assets in our economy ? That’s a sure fire way to destroy your economy and the whole essence of what prices are supposed to convey in terms of information to producers to guide future investment decisions and the allocation of resources . Sigh have we. Of learnt anything from the last 250 years of economic history ?

  10. mh

    This must be the “good debt” that Treasurer Scott Morrison was referring to.

  11. H B Bear

    Myrddin Seren clearly you are not a fan of Kabuki theatre. Since I have started eating my steel cut oat porridge this winter I find I appreciate it’s beauty much more. Perhaps you could try it?

  12. Tel

    He says a “land grab’’ by retailers as they try to gain market share while the NBN is rolled out has driven down internet plan prices to a level that may not reflect the costs consumers are willing to pay in a rational market.

    Well the biggest distortion in the market was Telstra owning almost all of the copper lines, and then the next biggest distortion to try and fix that up again was price fixing imposed on Telstra for leasing out unbunded local loop. On top of that there’s the long time government imposed distortion where people in the remote bush areas get massively subsidized by the cities.

    However, putting those down as given… most ADSL/cable users are sitting on plans in the vicinity of $50 up to perhaps $80 per month and that covers all the normal usage patterns for the majority of households. Those plan prices have been fairly stable since the first NBN business plan was written, and anyway all prices in the IT industry have come down, and comms prices have come down somewhat pretty much exactly in line with what was expected.

    Wireless data prices have come down significantly faster than fixed line prices, and these are completely separate from any NBN scheme. The mobile data quotas just keep going up, even if you stay on the same monthly payment…

    Putting all that together, I’d say NBN are fishing around for an excuse to slam the consumers with higher monthly prices and justify that with a bit of economic sounding gobbledygook.

    “We need to ask whether this is a faulty commercial model where cost recovery isn’t possible or is it an over-heated retail market with a price-centric marketing strategy that needs to change?’’

    There’s nothing “faulty” here, I’m sure you can check TPG’s balance sheet they would not be selling anything below cost. I doubt Telstra is making a loss on their mobile data either given that they have been making both good returns and good growth in the mobile space. We all knew that fixed line uptake was going to weaken as wireless technology improved. We all said as much, even the NBN business plan admitted it… they just underestimated the significance. Many, many people (including myself) were explaining

    The NBN fanboi numpties kept saying, “You can’t change the laws of physics… nothing travels faster than light” but now it turns out the professional RF engineers seem to know the laws of physics better than some sit at home guy with a big file sharing portfolio.

    Imagine that!

  13. Yohan

    Before the NBN nationalized the networks, you could get a bare bones phone+internet package for $50 per month. Now that price is $70-80 per month, the extra money being the NBN network cost.

    And yet Bill Morrow thinks this price it too low, and that consumers in a rational market would pay more.

    No you fucking dickhead, they would pay less. They were paying less to begin with until you forced price rises on them by government mandate.

  14. H B Bear

    Paul Farmer – private companies, particularly IT and telcos, are capable of acting in an un-economic fashion, at least in the short term at least. Anyone remember the global prices paid for auction of 3G spectrum? No-one would argue that these were vastly in excess of what their long term value was “worth” and it either took a series of mergers, forfeitures and other mechanisms to ultimately place spectrum at suitable prices with well capitalised companies or subsequent asset write-downs to reflect the underlying economic value of the spectrum.

    Bill Morrow is absolutely correct someone is going to cop it in the neck over the NBN – either consumers over the long run through higher prices or taxpayers in the short run through debt write-offs. In short everyone will wear the cost except the real culprits – KRudd and Conroy who are off enjoying six figure government guaranteed pensions.

  15. Neil

    It’s all Labor except that our economically challenged PM also didn’t get it when he might have done something useful when he was Minister of Communications.

    He did. Turnbull changed the NBN from FTTP to a combination of FTTP and FTTN so it gets finished before we all die and presumably cheaper. Labor signed contracts that made it impossible to do much else.

  16. .

    $49 billion National Broadband Network

    That’s a lie.

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