English is right: of course it’s just a guess

Pick a number

Finance minister Bill English might be ruing his burst of frankness yesterday. But he’s right.

Asked at the budget policy statement briefing about how confident he was about the estimated $6 billion the government estimates it will get for its float of shares in the four state owned energy companies, Mr English said the it was just a guess.

Then he went further.

"I just want to emphasise that it is not our best guess; it's just a guess. It's just to put some numbers in that look like they might be roughly right for forecasting purposes.

"That's an honest answer."

And it was. Anyone decrying Mr English’s comments as some big revelation is showing not only their ignorance of economics but also the worst kind of old fashioned, command-economy statist mentality.

Of course it’s just a guess. No one is going to know for certain until the shares are floated on the market. That’s how markets work.

The idea that someone can sit in the Treasury – or the Minister’s office – and come up with a sure fire figure on what the market is going to pay for those shares is living in some kind of economic fantasy land.

The Treasury’s guess, by the way, is a split the difference variety: the estimated range of income from the sales is between $5-7 billion, and Treasury chose the mid-point figure – and this is the second key point – because it had to have some figure for its forecasts.

This is because economic forecasts are not ends in themselves; for all that politicians and some economists occasionally talk as though they are.

Governments make economic forecasts because they want a rough idea – a guess, if you like - about how much revenue they will get, and from where, and also to calculate the strengths and weaknesses in the economy so any necessary policy adjustments can be made.

Those forecasts are means to an end. Such “guesses” are made because they are necessary for making policy decisions, and are not made for their own sake.

An economy is not some sort of scientific closed set, but an ongoing experiment in human behaviour, with an infinite number of variables.

That means economic forecasting – and economic management - is an art, not a science. Sometimes, as in the post-2008 global environment, that art takes on a decidedly absurdist tinge, not to mention venturing into some of the more lurid fantasies of a Hieronymus Bosch or a Salvador Dali.

In this particular case, the Treasury has, for its fiscal forecasts, to make an assumption about how much the share floats will bring in. It cannot know for certain what the figure will be because no one knows what the shares will sell for. That will depend on variables such as the state of the global financial markets at the time – and if you can pick that accurately, why aren’t you rich? – how the New Zealand economy is performing, as well as any number of other unknown variables.

All this reflects the realities of the uncertain world we are in. For what its worth, the Treasury’s mid-point guess of $6 billion is a little under some of the forecasts by private sector economists – one estimates $6.2 billion; another $6.5 billion.

Personally, I suspect the shares will sell quite well, and for a very good price at the high end of that $5-7 billion range. Think about it: the energy companies concerned are mature firms, with very strong cashflow, good medium to long-term prospects, and an effective government guarantee.

In today’s global financial market, that is a pretty good bet. But, like everyone else in these times, I’m guessing.
 

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9 Comments & Questions

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How are all the 'mums and dads' who are currently struggling to pay their already hefty power bills, going to benefit from the PRIVATISATION of the four State-Owned energy companies?

('Partial' privatisation is arguably like partial pregnancy? )

Who is going to benefit from the PRIVATISATION of the four State-Owned energy companies?

The public majority '99%' - or the wealthy / corporate '1%'?

Remember the bad old days of the 'inefficent' Department of Electricity and local Power Boards?

When you could afford to use a heater in winter, and have a relaxing soak in a hot bath?

'Inefficent' , in my considered opinion, is really corporate-speak for 'we haven't yet got our filthy hands on it'?

Penny Bright
waterpressure@gmail.com

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Penny, in California they have something called the Public Utilities Commission that regulates what the private power companies can charge. It provides the security that the private companies will keep the power on, and the oversight by government that there will be no price gouging. Power is an essential part of any society and as such, too important for it to be left to private interests. That said, private companies are likely to keep non-essential staff to a minimum, unlike the government.

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Yes, I remember those days well - power cuts every weekend was the norm. And such crappy service wasn't even cheap - we all paid for it through high taxes and a corrupt import licensing system that really did benefit only the 'lucky 1%'.

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Buy some shares in the company - then those "massive" profits will supplement your power increases ;-)

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Estimates (guesses) are fine but they should really be using the bottom end of the range when it comes to selling an item (the bid price).

Any upside from that would be great but picking the middle of the range to value the companies is rather optimistic.

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Even the country's economic performance and rate of growth is a bit of a guess according to Allan Bollard. He clearly hasn't got a clue about his job, so why would a career politician like Bill English have a clue about his job either.

No need to sell these assets anyway, because in a few years time our chief creditor China will foreclose on the whole of NZ and everything, including the Beehive, the expansive bronze statue of Gerry Brownlee in the reconfigured Cathedral Square and Penny Bright's cowgirl hat, will be placed in the hands of receivers for a firesale of Greek proportion.

Ni hao Steven Joyce, ni hao John Key.

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errrr..... I think you are confusing me with my good friend and fellow community activist /'public watchdog' Lisa Prager?

I'm the one who wears a scarf - not a 'cowgirl hat'?

:)

Penny Bright

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Maybe if you are a shareholder/part owner you will get a 50% discount on your power bill??

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To "Bunter" and "datacraft" Spot on.
I wonder what planet "Penny Bright" is from?
Planet Stoopid? or maybe planet Dreamy?
Does anbody know? If they do then I think we should be told.

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