The Harrisburg Miasma = Pennsylvania's Miasma

The thing that gets me about the fiscal mess in Harrisburg these days.  The city is so broke it is seeking bankruptcy. Even if that does not go forward, why are they in this situation?  Is the city itself that mismanaged?  Even if you want to think so, the actual fiscal miasma they are dealing with is from a debt owed by something called the “Harrisburg Authority” for building of all things a garbage incinerator.  The full story was written up by the Patriot News earlier in the year.

The real story here, IMHO, is not really about anything specific to Harrisburg, but what this all says about public governance in Pennsylvania.  How many folks really paid attention to whatever public debate there was over the garbage incinerator that has created their current predicament?   All the public authorities and special districts in Pennsylvania create an impossible to decipher mosiac of governance that leads to these problems.   Pennsylvania is by far the most fragmented state in the nation when it comes to local governance.  Most focus on municipalities when they think about that, but it goes far beyond boroughs and townships and cities…  few people really think about the secondary costs of all the ‘other’ governments we have out there.   Why is there a generic “Harrisburg Authority” in existence if not to obscure the public governance.  There is even an Equipment Leasing Authority here in the City of Pittsburgh that is nominally an independent public authority according to the laws of Pennsylvania.

How bad is it? A version of a graphic I made in the past is below.. when you lay out all the official and distinct governments in Pennsylvania this is what you get. Each government is scaled by the number of employees it has. You never know what will jump up and bite you. Somewhere in there is the “Harrisburg Authority”.  From obscurity to what is becoming national news and beyond.

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Paragraphs to Ponder

I believe that a person who is 65 years old and has been forced into Social Security is owed something. But the question is, Who owes it to him? Congress has spent every penny of his Social Security “contribution.” Young workers have no obligation to be fleeced in order to make up for the dishonesty and dereliction of Congress. The tragedy is that most seniors just want their money and couldn’t care less about whom Congress takes it from.

Here’s what might be a temporary fix: The federal government owns huge quantities of wasting assets – assets that are not producing anything – 650 million acres of land, almost 30 percent of the land area of the United States. In exchange for those who choose to opt out of Social Security and forsake any future claim, why not pay them off with 40 or so acres of land? Doing so would give us breathing room to develop a free choice method to finance retirement.

This seems like a very good way to handle the current mess known as Social Security because it’s rather fair to both those who have already paid in and those who are currently paying. Best of all, it takes power away from the federal government, which is reason enough in my book to go forward with this plan.

There’s really no excuse for not knowing…

… that if you don’t check in with the government before wiping your bum, some idiot may blow $9,000 on extra toilet paper and blame you for it.

I’ve looked and looked and looked, and I can’t find anything in the Constitution about the airspace around POTUS being “restricted.” Nor are bullshit security theater antics covered in Article I, Section 8.

India's privatisation problem

When the UPA came to power, the word privatisation was buried, partly out of deference for the communist parties which were
supporting the UPA. The sale of shares did revive after the UPA-2 commenced [history].

On a global scale, the experience with firms like British Airways and AlItalia has done a lot to persuade people that government is a
terrible owner of firms. As a consequence, even though governments worldwide took up ownership of many financial firms during the global crisis of 2008 and 2009, there was never any question that this `nationalisation’ would be more than temporary. In OECD countries, there is full clarity that even if government gets into a firm when the firm is in trouble (for certain public policy reasons), this ownership must only be temporary and government must get out of this unpleasant state as soon as possible.

Given the lack of commitment to economic reform in the UPA, expectations in India on the question of privatisation have been
low. But the problems of public sector firms are glaringly large and the issue does not go away.

We are all used to Air India being a phenomenally bad use of public money. But as T. N. Ninan points out in the Business Standard today, there are quite a few other such breathtakingly large sinks for public resources. As he says:

…it takes a special kind of government company to lose Rs 8 crore a day, while earning just Rs 10 crore as revenue — and that in the booming field of telecommunications. That’s Mahanagar Telephone Nigam Ltd (MTNL) for you. Its big sister, the Bharat Sanchar Nigam Ltd (BSNL), also loses Rs 8 crore a day, though it earns much more revenue — about Rs 90 crore daily. BSNL blames the jailed former minister A Raja for its troubles, but there must be more to the story. Now the two companies propose to merge; expect an Air India kind of situation, with staff from the two companies battling over pay and seniority many years into the future.

Air India, meanwhile, provides more proof that the government is a lousy shareholder. One minister destroyed the airline. Another now watches while the airline cuts flights because it has exhausted its credit and credibility, and therefore has to pay for fuel in cash. The staff, meanwhile, is not paid incentives that are equal to something like half their monthly salary in most cases — and the government expects this de-motivated staff to fight and regain lost marketshare, to offer service with a smile to passengers.

And what about Prasar Bharati, the once supposedly autonomous broadcaster which is now once again little more than a government department? It employs 38,000 people, and loses Rs 2.5 crore a day, to earn about as much revenue. Someone should ask the obvious question: Why is the government in the business of running phone companies, airlines and news broadcasting when it is losing large dollops of money, when private providers are doing a reasonable job, and when there is no shortage of competition? For that matter, does the government need to make watches (at HMT), cement (at Cement Corporation of India), tyres (at Tyre Corporation of India), or shoes (at Bharat Leather)?

The UPA-2 made a big break with the pessimism by moving forward on selling off Scooters India. The long spell of zero privatisation may come to an end, with the UPA-2 selling off Scooters India.

But how might one view the prospect of government selling off some of the other public sector firms? I think a sound approach to this
question involves three elements.

1. Removing entry barriers

The first piece of the story is that it is essential to remove entry barriers in various fields, which were once dominated by the
public sector. Our poster child in this regard is telecom. Private and foreign firms came into Indian telecom; Indian users of telecom
services were huge beneficiaries. Whether MTNL / BSNL were privatised, as VSNL was, was of second order importance. The most important thing that is required for India to make progress is for government to not get in the way of the private sector.

As an example, Indian banking is a place where there are steep anti-competitive restrictions against private and foreign banks. While
I believe we should have strong rules about ownership and governance for banks (just as we should in critical financial  infrastructure), we should not be blocking the rise of suitable private and foreign banks.  We should not be blocking the long-term decline in importance of PSU banks. Getting out of the way of private and foreign banks is as important, if not more important, as the task of selling PSU banks.

2. Dispersed shareholding corporations rather than strategic sales

If all PSUs were sold off, the top 500 families of India would likely endup controlling all of them. This prospect makes one worry,
about the increased concentration of economic and thus political power. It would be far better if India move towards privatisation by creating dispersed shareholding (e.g. ICICI or HDFC) instead of privatisation through strategic sales (e.g. VSNL).

This issue also links nicely to the problem of corruption. A country where spectrum auctions can take place while requiring bids to
be placed in 45 minutes is a country where auctions that sell off PSUs could be rigged. It is, hence, far better to setup a steady drip
whereby 0.1% of the shares of a PSU are sold every day into the pre-opening call auction at NSE and BSE, so that 25% is sold every year. Such a procedure comprehensively eliminates the problems of government process in the sale of shares. The government would merely put out an advertisement, before the story began, saying that over the next 250 days, it will sell 0.1% of this firm on every single day into the NSE and BSE call auctions.

Alongside this sale of shares, government would need to take interest in establishing good quality corporate governance structures
for these companies, which are transiting out of government control into becoming dispersed shareholding corporations.

Even in the case of Scooters India, suppose government decided to sell off its ownership of 95.38% within 100 days. It is better to do
this without bringing any investment banker into the picture, by selling 0.9538% into the call auction for every day in the coming 100 days, after making a public announcement to this effect. Alongside this, government would need to setup a good quality board and then allow ordinary corporate governance procedures to work.

3. GDP growth, not proceeds

Every now and then, these discussions get stuck on the issue of how government can maximise the proceeds from selling off (say) Scooters India. This is the wrong end of the puzzle. The really important story is about how the labour and capital that’s blocked inside Scooters India can turn into greater output. Once that’s done, government collects the NPV of future taxation that this productive enterprise will generate.

The focus should be on getting assets out of public control, while avoiding the corruption or political complexity of strategic sales. As
long as these are achieved, the magnitude of the proceeds is not of great importance.

The Thing About Earmarks

Ever heard the one about “a tale told by an idiot, full of sound and fury, signifying nothing?”

The congressional earmarks saga is a tale told by charlatans trying to distract you from the Really Bad Stuff.

For those who don’t follow this stuff closely, here’s a simple version of how earmarks work:

1) Congress appropriates $130 billion for “Agriculture” (yes, that number is close to the current figure).

2) The Honorable Gentleman from Iowa puts an item — an “earmark” — in that appropriation requiring that the US Department of Agriculture $10 million of that $130 billion to fund the [the Honorable Gentleman from Iowa's name] Corn Research Center in Ames (I just made that up, but I wouldn’t be surprised if it resembles a real earmark).

The case against earmarks is that they:

- Are “pork” used by incumbents to buy re-election (”I earmarked $50 million in the Defense budget to ensure that the little dials on the Army’s radios would be manufactured right here in Secaucus”).

- Promote corruption (Acme Guide Missile Systems, Inc. gives a congresscritter a big campaign donation or a brown paper sack full of cash; said congresscritter earmarks an even bigger amount in a way that forces it to be spent with Acme Guided Missile Systems, Inc.).

- Result in silly/extraneous spending just to bring home the bacon (I seem to recall reading that the late US Senator Robert Byrd [D-WVa] once earmarked money to restore an old store as an “historic landmark” because it was the second location in the US to sell Chanel No. 5 perfume).

All of these things may be true, but here’s the case for earmarks:

- They generally constitute less than 1% of the federal government’s total budget. If that rate holds true for Agriculture, call it $1.3 billion total in that particular area. All the rearing and pitching about them is mostly just a way to distract from the fact that Congress is spending $128.7 billion in non-earmarked funds on Agriculture. Think maybe there’s a little fat in that bigger piece of the budget puzzle? But that doesn’t get talked about, because everyone’s throwing a fit about the Corn Research Center or whatever.

- They limit the power of the executive. Instead of handing Barack Obama $700 billion for “defense” and turning him loose to buy lollipops for the Russians and bombard Baghdad with packages of mail-order Swiss Colony cheese logs, Congress tells him that at least some of that money has to be spent in very particular ways. Granted, it pretty much amounts to those cheese logs going to Boeing workers in St. Louis instead, but any leash on the president, even one held by that bunch of reprobates down the street at the Capitol, is better than no leash at all.

So the two-case for earmarks is a) they’re not a big deal in the scheme of things and b) they may have at least one mildly positive feature.

I agree that that’s not a very strong case, but it’s a case, at least.

The important thing to remember is that all the caterwauling over it is intended to distract your attention from the 99% of the federal budget that isn’t earmarked. It’s pretty much a more boring version of “teh gays are gonna GETTT YEWWW!” or “Osama bin Laden may be under your bed right now — take off your shoes and stand in front of the porno scanner, please” or “the brown people who speak Spanish are going to take your job if you don’t give us another $10 billion to fight them off.”

Watch the birdie.