From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: Will Victorians vote stupid yet again...?
Organization: Telecom Australia Research Laboratories, Melbourne, Australia
Date: Fri, 9 Oct 1992 00:29:08 GMT

In article <3314@ariel.its.unimelb.EDU.AU> cm@ariel.its.unimelb.EDU.AU (Charles
Meo) writes:
>In <1992Oct8.044523.705@monu6.cc.monash.edu.au>
suter@fawlty8.eng.monash.edu.au (Mr D. Suter) writes:
>>terms to the other parties. I admit that I'm just guessing, but
>>I think it likely that up to 30% of their revenue is wasted on servicing the
>>debt and on paying those lease agreements - it not just
>>the size of the debt itself! 
>
>I get a bit fed up when people who are 'just guessing' start mouthing off
about
>government debt.
>
>One fact you might consider is that 65% of the external debt is in PRIVATE
>hands, and has nothing to do with the government. This is the fruit of another
>'binge'--the stupid takeovers of the eighties, and now we see bankruptcies 
>where they should be, with the scumbags who did all that stuff. 
>
>In addition, MUCH (not all) of government debt is backed by assets whose 
>lifetime exceeds that of the debt. For instance, consider the water supply
>and sewerage facilities of a medium small town in the country. You might 
>be looking at $3m for a water treament plant and $5m for Stage 3 sewerage
>treatment (1985) so you BORROW because a community of a few thousand 
>doesn't have that kind of scratch lying around in cash. In fact, you`d be
>an idiot if you did. This will typically be a 15-20 mortgage over the rates
>of the community--but unless the town dries up and blows away this debt is
>solid as a rock AND the plant has a life of 40-50 years. In fact, people
>who suggest all government debt should be liquidated are stupid, because
>you are asking the present generation to pay for facilities which will
>extend far into the future. 

Yes, Government debt used to finance assets should be considered in the same
way as any debt used to finance any asset, regardless of who the owner is.  The
thing that's so special about new right (laissez-faire) economists saying that
there should be no Government debt is that they think there should be no
Government assets either.  This is the thin end of the wedge to saying there
should be virtually no Government at all.

The "no Government debt" idea leads to ridiculous notions such as the public
sector borrowing requirement, PSBR, that the Federal Government forces on State
Goverments and Government Business enterprises.  This politically based
requirement has to be satisfied regardless of whether the debt is used to
finance a good investment asset or not.  The Victorian Government's sell-off
and lease-back of railway stock was prompted by having to satisfy the PSBR even
though this was a terrible investment strategy.

>What is lacking (from both sides) in the debt discussion is some analysis
>of how much of the government debt is 'OK' like capital assets above, and
>how much is money down the toilet e.g. lent to sharp operators by
>Tricontinental.
>
>But for heaven's sake, to suggest that capital creation by government
>should be paid for entirely in cash is RIDICULOUS! Government finance
>is not like household finance,

I think there is one similarity when it comes to borrowing to buy a house.  I
think most people understand that this is an economically sound form of
borrowing.

 and the sooner people get this
>through their thick skulls the better off we will all be. In fact, it should
>be engraved on a six inch nail and banged in--that might do it.
>
>Let's get a bit sophisticated here...:-)
>
>Chuck

Chris O'Neill
Telecom Research Labs