It is hard, indeed it seems impossible, to get across the message that using up resources to produce loss-making forms of output causes an economy to slow, lowers the standard of living and reduces employment. Keynesian economics is driven by C+I+G; whatever you spend on makes no difference. So here’s an interesting story, about which Malcolm Turnbull has had an important role to play:
The company building the National Broadband Network could blow its budget by as much as $15 billion after revealing that revenue flow will slow and the costs of construction are far greater than it first expected.
The government-funded company revealed that its peak funding will now come in between $46 billion and $56 billion, up from the $41 billion assumption it previously held.
The company is aiming to complete the build — which will pass eight million homes by 2020 — for $49 billion, which is 20 per cent more than its original forecast. A worst-case scenario would see costs blow out by 36 per cent or $15bn.
The increased funding has smashed the rate of return that the project will generate for the government, which will now come in the range of 2.7-3.5 per cent. The previous rate of return was around 5 per cent. Despite the low return the project will remain off the budget.
The funding increase has been brought on by increases in the capital and operational costs of the build as well as increases in the costs to roll out of fibre to the node technology.
This is the final para of the story, which for some reason did not mention Malcolm.
The NBN received another $4.7bn of government funds in the past year to take its total equity to $13.2 billion in equity at end of financial year 2015. Total government equity contributions are capped at $29.5 billion.
This is just one example of the worldwide waste of resources in one government stimulus project after another. No modern textbook, other than mine, can explain to you why our economies are heading over the cliff. As the latest news has it, Aussie stockmarket tumbles amid growing fears over health of global economy. You’ll have to remind me again what it is that has caused all these problems? Is it still the GFC from 2009, you numbskull kidders? Meanwhile, a bit of whistling by the graveyard:
Treasurer Joe Hockey said that while markets would fluctuate, the fundamentals were still good for the global economy, particularly the US.
He said several factors would cause volatility in the markets in the next few months, particularly any decision by the US Federal Reserve to move on interest rates in September.
“If they do increase their interest rates, then you will see movement of money from equity markets, probably into bond markets,” he said.
He said such volatility would hit confidence in Australia and that’s why the government had to keep reminding people that their economy is one of the fastest-growing in the world right.
The fundamentals are disastrous in the US and not so good here either. These Treasury advisors do not have a clue.