Matt Stoller: Cato – Privatization Deals Are ‘Fraught with Peril’

Matt Stoller, the former senior policy aide to Alan Grayson, wrote an op ed for Politico, “Public pays price for privatization,” on infrastructure transactions. We’ve depicted this troubling trend as “tantamount to selling the family china only to have to rent it back in order to eat dinner.”

Stoller looks at the political consensus that in an earlier era was gung ho to build major public assets and now would rather rip fees from them by hocking them to investors:

America used to be a country that built things — using public and private resources. Great works of infrastructure provided jobs and returned an incredible social investment. It is inconceivable to imagine the modern economy without the vast investments in infrastructure made by preceding generations — everything from rural electrification to developing the Internet.

So why aren’t we building more of it? One way to think about the question is: Why did we build infrastructure in the first place?…

After all, building infrastructure implies the ability to build things here and being able to use the power of taxation to finance them. Privatizing infrastructure requires the ability to securitize revenue flows. Which one do you think modern America does better?….

The political coalition today augurs for far different policies — despite what the politicians may say. The New Deal coalition melted in the 1970s, the political scholar Tom Ferguson points out, as international competitiveness and environmental costs drove the logic of cost reductions into our political order. Today, we are still living in the Ronald Reagan-Paul Volcker era of low taxes, low regulations, low pay, low spending and high finance.

Today’s intellectual consensus thus fiercely opposes public infrastructure. For example, while it’s always nice to talk about repairing bridges, in 2009, Rep. Peter DeFazio (D-Ore.) pointed out the truth of the Obama administration’s stimulus program: “Larry Summers hates infrastructure. And some of these other economists — they don’t like infrastructure. … They want to have a consumer-driven recovery.”

Both domestic manufacturing and taxation are opposed by the current corporate and political elites. Take the liberal establishment economist Alan Blinder, who horrified former Intel chief Andy Grove when he celebrated as “success” the fact that America today cannot make televisions. Or Michael Boskin, an economic adviser to President Reagan, saying potato chips, microchips, what’s the difference?…

Are these good deals? History would say no. The granddaddies of privatization were Fannie Mae and Freddie Mac, the housing giants whose public role was supporting the secondary mortgage markets. These companies were “private” in the sense that they operated without public accountability. But eventually, their losses ended up on the public’s balance sheet…

In fact, the real allure of privatization is that it offers what looks like a free lunch. The public receives revenue, but privatization keeps the costs hidden by deferring them to the future. Political actors get to close deficits without raising taxes on wealthy interests. And the political muscle is provided by the people who ultimately benefit from the deal — the same way that Countrywide, Fannie Mae and allied private bankers brutalized their political critics in the name of homeownership….

Ultimately, of course, we will have no choice but to rebuild our infrastructure or risk social collapse. It’s not just the disintegrating bridges and extreme weather. Recent global supply chain disruptions suggest that certain parts of corporate America may turn toward a pro-infrastructure posture out of self-interest.

Meanwhile, the ideological fight is not over whether to spend more on infrastructure. It’s whether we should privatize what’s left.

Pointing out that Public Enemy Number One of the Republicans, the Democratic pork machines known as Fannie and Freddie, were privatizations, seems to have put conservatives who would normally tout the sale of public assets on tilt. Stoller posted at New Deal 2.0 on the reaction of the Cato Institute to his piece:

In a recent op-ed for Politico, Roosevelt Institute Fellow Matt Stoller argued that privatizing public assets leads to poorer service at a higher price. Below, he responds to a libertarian critique of that piece.

Cato’s Roger Pilon, who according to his bio held “five senior posts in the Reagan administration,” responded to my piece on infrastructure with an interesting sentiment: agreement.

Stoller does go on to criticize much of the “privatization” that’s taken place since – starting with Fannie Mae and Freddie Mac. He’s right there: These “private-public partnerships” are fraught with peril, not least by giving privatization a bad name, something he doesn’t consider.

I’m pleased that Pilon shares my skepticism towards privatization deals. Since Fannie worked pretty well when it was a fully public agency, I’m not inclined to care as he does about the PR value of privatization, but I will take agreement on the substance where I can get it. In fact, I’ll return the favor, and showcase another area of agreement between us.
The idea of “public goods” is not meaningless, but the definition has to be strict, as economists know, and the means for privatizing ersatz “public goods” have to be clean. Given the vast public sector before us, we’ve got years of privatization ahead. Let’s hope it’s done right.
I too hope these deals are done right. So whenever you see a private actor complaining about environmental reviews, safety reviews, Davis-Bacon restrictions, excessive public input, or pushback against other mechanisms that a democratic society uses to govern its own decisions, you should, as no doubt Pilon would, express skepticism that privatization is simply being used as a way to avoid public accountability.

While chanting “do you want another Fannie and Freddie” every time infrastructure sales comes up probably won’t stop this freight train, the GSEs are so hated, particularly on the right, that it might actually throw a bit of a spanner in the works.

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  1. Lyle

    Its back to the future on infrastructure. The Erie canal was built by New York State, and made the state, so the Midwest states at the time went crazy building Canals. (Ohio, Indiana, and Illinois). Indiana went broke in the early 1840s because they wanted canals everywhere. Ohio’s canals did not do a lot better. Michigan as a state started building the Michigan Central and Michigan Southern as state projects but eventually privatized them because of the financial crisis of 1837. Lincoln determined that the federal government could not build the first transcontinental railroad but had to give aid. The private folks had a bubble on railroads in the 1870-1900 period and eventually got regulated. So went the auto and truck came along the highways and streets were public. (Note that rivers had always been public and the Mississippi had federal aid for navigation at least since 1865).
    So now that time has passed the pendulum swings back, as it always does as the disadvantages of each of the two options manifest themselves.

  2. TK

    Seems to me it’s just another wonderful facet of Disaster Capitalism. Fuck up the economy(and make money doing it), blame the DFH’s for the fuck-up, then the broke ass states and feds have to sell the china. Then after they fuck-up the china the original owners have to buy it back because the society cant function without the china. Same old story.

    1. F. Beard

      Bingo! And how much of the privatisation would be accomplished with loans from the counterfeiting cartel?

      1. Die Drogenkartelle


        Is all privatization fungible? Are all government loan guarantees fungible? Who knows? One thing for sure, “It will take about 49 milliseconds for privateers to see the power vacuum, apply for government guaranteed loan, use loan money to buy public resources, mark up prices on resources, rent/sell resources back to citizens, use tiny percent of profits to fund political contributions, corrupt the political immorality of this once wise nation yet again.” Workin’ for the Yankee Dollar.

        Got foreign bid!

        Get it

        1. F. Beard

          When bondholders pull the plug, the resulting debt pressure forces governments to pay off debts by selling land and other public assets to private buyers (unless governments repudiate the debt or recover by restoring progressive taxation). Most such sales are done on credit. This benefits the banks by creating a loan market for the buyouts. Meanwhile, interest absorbs the earnings, depriving the government of tax revenue it formerly could have received as user fees. The tax gift to financiers is based on the bad policy of treating debt financing as a necessary cost of doing business, not as a policy choice – one that indeed is induced by the tax distortion of making interest payments tax-deductible.
          Buyers borrow credit to appropriate “the commons” in the same way they bid for commercial real estate. The winner is whoever raises the largest buyout loan – by pledging the most revenue to pay the bank as interest. So the financial sector ends up with the revenue hitherto paid to governments as taxes or user fees. This is euphemized as a free market.
          from Michael Hudson at

          1. Country ★ First

            forces governments to pay off debts by selling land and other public assets

            Or by paying higher interest rate on bonds. What UST, US Treasury needs to do now is auction much longer term bonds. 99 year bonds to finance 99% of deficit spending would then lock in the money of bond holders for the duration of many business cycles. This tactic would insulate USA from “necessity” of bailing out cronies & banksters.

            Be all that you can be

    2. nonclassical

      absolutely-check out William Blum’s, “Killing Hope” for full documentation of CIA “shock doctrine” applications throughout the world, or “Confessions of An Economic Hit Man” for central-south american exploitation=privatization
      circa 70’s-80’s…

  3. Peter T

    Privatization of services should be better distinguished form privatization of assets. While the former is often good (if it doesn’t include control functions), the latter is normally bad, because the private party can better calculate what the asset is worth and will pay less than that. (Auctions with different private parties can help, however, where possible.)

    1. beowulf

      National income is split between labor and capital roughly 2 to 1. In theory, a govt agency doing the same job as a for-profit contractor should be a third cheaper since there’s no shareholders to pay. In practice, that’s just money on the table that govt employee unions make every effort to scoop up. You’re right that contracting out services makes a lot of sense, but the smart play is to limit vendors to non-profits. Non-profits can be run like a small business (they can even fire bad employees!) without the need to budget for capital income share (or most taxes). though somehow I doubt federal auditors ever come down on a defense contractor like this:
      Puzzo rose through the ranks… and built a struggling anti-poverty agency into a $55 million-a-year operation… He has kept a low profile for the head of one of the region’s largest nonprofit organizations, Puzzo drew some unwanted attention recently: Federal auditors said CRT’s top salaries, including more than $300,000 in annual pay and fringe benefits in 2002 for Puzzo himself, were excessive for an agency that runs Head Start preschool programs.

  4. Paul Tioxon

    The political revolution, implicit in the 2 flanks of attack on the liberal nation state of cutting off revenue by not 1. taxing or 2. borrowing, is aristocritization of wealth by forcing the inheritance of all of the states assets into the hands of the power elite. This reverse engineers the leading egalitarian force of the French Revolution, which smashed the last feudal vestiges of power retained by aristocrats. Control of the state’s infrastructure, including the bureaucracy was vested in the hands of the people, not an intermediary between man and God, a pope like king with bishop like nobles, controlling the lands and productivity.

    While there are just some plain common sense sales of obsolete or surplus assets, especially after a war, the backbone of the 20th century industrial might of America, its interstate highway system, its power generating utilities, hospitals and state universities, its airports, bridges and seaport facilities are among the most costly investments, costs and risks shouldered by Federal Government and its citizens via enumerable tax free municipal, state and federal bond issues. These same tax free bonds were frequently the tax shelter of the wealthy, risk free and tax free. Now, after profiting handsomely from the infrastructure which enabled their other investments to expand to unexpected levels of returns, such as the big 3 auto makers gift of miles and miles of roads from sea to shining sea for their customers to wander around in circles with no particular place to go, they want to take those profits and buy the assets because the state can raise revenue by traditional means: taxes or borrowing.

    This is the same kind of opportunistic lending that ensnared the kings of Europe by private banking houses before large credit lending corporations were promulgated, more in line with entrepreneurial enterprise building capitalism and its emerging needs. Since capitalism has been mortally wounded and can not be counted on to provide the profits that sustain wealth and privilege, setting quasi-feudal rent producing scams seems the way to go for American entrepreneurs. The millionaires in waiting, absent the ambition and creativity to build new businesses, will appropriate existing cash cows built by the state’s taxing authority. It beats competing with the Chinese and the better organized CCP.

    Gordon Gekko and the Wall St corporate raiders dismembered corporations for their assets, because they were more valuable dead than operating. America is now being defenestrated by impotent, corrupt and completely debunked financiers who see more value in the pieces of America carved up for sale, than in rolling up their sleeves and transforming a continental electric power grid from an early 20th century collection of popsicle sticks strung with wire to a 21st century distributed power system generating solar electricity and the millions of jobs that it will bring. These and other pragmatic goals which are only in their infant stages of implementation would continue in the proud tradition of national work projects which would retain the economic gains of material prosperity, the home ownership, the educational attainment and growing life expectancy, for the citizenry as a whole. We would all be stakeholders again, with something other than a war effort to bind us together and put us all to work at a living wage. We can be a melting pot once again, drenched in the sweat of industrious activity or covered in blood from the coming explosion in the war of all against all.

    1. Le dioxane

      defenestrated by impotent, corrupt and completely debunked

      ~~Paul Tioxon~

      Does defenestrated refer to only those people no longer using the Windows® Operating System? Or also to those using Opera® Browser?

      Have you paid your ®Taxes this year?

    2. jonboinAR

      I also see modernizing our infrastructure as the way for government-sponsored enterprise to lead the revitalization of the American economy.

      1. Carla

        “I also see modernizing our infrastructure as the way for government-sponsored enterprise to lead the revitalization of the American economy.”

        I’m with you, Jon. But here’s the rub: Who is the government sponsoring? If it’s more of the same private contractors (Blackwater, Halliburton, etc.) who are accountable to no one, we’re just digging the hole deeper and subsidizing shysters at public expense.”

        Without full public funding of all campaigns for federal office, how the heck do we get out of this mess?

        And with the Supreme Court’s Citizens United decision, how do we ever get public funding of campaigns?

    3. nonclassical

      Ask anyone whose community has had their electricity or water resources-infrastructure “privatized”….

      such as those of us in Pacific NW=Puget Sound Electriciy,
      “privatized” by 5 man D.C. “commission” sent to Washington State to do so by Bushitters…

  5. tz

    Being a traditional Austrian, I must point out that Mises wrote a book called “Bureaucracy” pointing out that not everything can be part of the free market. I put it simply that we want the gavel in the courtroom wielded by an impartial judge, not an auctioneer. Mises recognized public goods and externalities and the need to mitigate the effects – econ 101 notes the market fails to correct for it. That is why we have things like patent and copyright, or even torts, slander/libel, and contract enforcement.

    As a libertarian, I am 100% against privatization – if the government has any business doing something, the government should do it itself – it cannot transfer the authority. If the government has no business doing it, it should stop and let the market work under the common legal framework.

    Let me throw in Subsidiarity – a catholic social teaching. One of the other subtle points is that not all levels of government are competent – things need to be done at the level closest to the family, neighborhood, village, county, state, etc. The Department of Education has a SWAT team, knocks down doors and terrorizes families. The local public school probably doesn’t do this. The DoE enforces the one-size-fits-all “no child left behind” turning everything into a cram-school designed merely to pass the test instead of really educating and teaching to think. National privatized education would be even worse. But we have it under the nice name of Sally Mae who sounds nice and not threatening.

    Almost all the infrastructure government is required for involves eminent domain – in the pre Kelo form. You are taking private property for a PUBLIC good. Of course today we take private property, don’t compensate, and it is only to the “good” of whomever lobbies the best – Endangered species results in uncompensated takings, or if the city can get more property tax revenue from a corporate building, it grabs your property.

    If the state wants to return the seized property to the private sector, it should give the roads back to a consortium of the original owners it stole the property from in the first place.

    1. ambrit

      Suddenly, while reading your comment I flashed on the image of China. Marx and Engels were right in the idea of the Dialectic Process. China and the West seem involved in the process of Synthesizing.

    2. Tao Jonesing

      Ah, Ludwig von Mises’ book Bureaucracy!

      That’s the book that convinced me that there was no reason to take Mises seriously. But I laughed real hard on several occasions, so I’m convinced he would have been great at stand-up.

    3. F. Beard

      Mises was in favor of a government enforced gold standard so that makes him a fascist in my book not a libertarian.

      It’s pretty clear in retrospect – how can liberty be dependent on a shiny metal? It can’t be but tyranny clearly can be,

    4. alex

      tz says: “As a libertarian, I am 100% against privatization – if the government has any business doing something, the government should do it itself – it cannot transfer the authority.”

      You’re talking sense. I’m no Austrian, or libertarian of any stripe, but making sense is making sense.

      1. Anonymous Jones

        Well, he’s “making sense” like all tautologies make sense!

        He’s hidden the assumption and put us no closer to a solution.

        Of course, if we had a way to determine and agree upon whether government has “any business doing something,” then yes, no question about it, we should definitely let the government do that.

  6. John Emerson

    I’ve always suspected that if government isn’t capable of doing its jobs well, it isn’t capable of privatizing well either. You wouldn’t want to sell off at a fire-sale price, for example, and you wouldn’t want to establish an abusive monopoly, and you wouldn’t want the privatized entity to make huge profits (off government money) while offering reduced services. But writing the contracts ensuring that things are done right is a rare and difficult skill which is not especially likely to be found anywhere in government.

    This is especially true because privatization demands are very similar to the other kinds of demands that often really do make government services inefficient and expensive. If a private interest bribes some legislators to get them to privatize, why should the result be better when a private interest bribes some legislators to force a public agency to use the private interest’s low-quality, overpriced product?

    “Contacting out”, in fact, was one of the things that groups like the Tweed Ring did very successfully (successful for the holders of the contracts, that is).

    Military contracts have been contracted out for decades, and the $50 hammers are famous.

    1. beowulf

      Exactly right, that’s true at every level of govt. If you can structure the deal as a revenue contract (money comes from user fees instead of taxes), many jurisdiction allows you to waive or at least put the thumb on the scale of the procurement bidding process.

      1. nonclassical

        …That is quite different than selling of PUBLIC financed and paid for INFRASTRUCTURE, THEN SUBSIDIZING it at public
        cost, for privatized PROFIT..

        and I am quite close to top level military-industrial- complex grade one Pentagon clearance “research and development” (R @ D) contractors…

        these two considerations should not be mixed…

  7. Dave of Maryland

    “Political actors” – That pretty much sums up Reagan & all his cohorts.

    Politicians for the TV generation. Politicians with paid-up memberships in SAG & AFTRA. Those are unions, by the way, and darn good ones.

    To paraphrase Alec Baldwin in a current Capital One commercial, relax, I’ve played a politician on TV.

    “Private actors”, that’s another good one.

    Acting is empowerment. Let’s all take up the method. Put up live webcams, just like the girl-cams. The new standard: Your politician is live on cam 24/7. Anthony Weiner’s weiner would get some competition.

    FINALLY ! We have the solution! Political actors with 24/7 POV web cams. Technology to the rescue! Who will be the first?

  8. readerOfTeaLeaves

    In fact, the real allure of privatization is that it offers what looks like a free lunch. The public receives revenue, but privatization keeps the costs hidden by deferring them to the future.

    Privatization is a Jabba The Hutt of externalities; from it follow a myriad of other externalities and they all feed on one another as time passes.

  9. Susan Truxes

    If Larry Summers “hates infrastructure” as a means to get the economy on track and prefers consumer spending, and if Geithner is his protege, they must be planning on loaning us all a lot more money for our next shopping spree. It must have been Summers and Geithner and the banks themselves who derailed the plan to jump start the economy with infrastructure projects. But their logic is nuts. Or they only want rich consumers to run the economy. If I project my own feelings about “shopping” and being a “consumer” I think its possible we have lost an entire generation of shoppers. Even when I have the money, I don’t want to spend it. The thought now makes me angrier because I keep seeing Larry Summers’ face.

    1. alex

      Susan Truxes: If Larry Summers “hates infrastructure” …

      Then it’s a fair bet the government should invest in it. Summers has never, in his entire career, been right about a single major policy issue. It’s hard to beat a track record like that.

  10. Capital Terrorism

    Waaay too gentle on Wall Street’s Fannie Mae. Please, tell us something we don’t know, but largely suspect.

  11. Home Path Violence

    Organized criminals routinely conspire with other “wiseguys” to administer usurious acts of violence (so-called loans) from victims, there is little difference between the actions of our privatized (so called public) entities.

  12. Max424

    “Take the liberal establishment economist Alan Blinder, who horrified former Intel chief Andy Grove when he celebrated as “success” the fact that America today cannot make televisions. Or Michael Boskin, an economic adviser to President Reagan, saying potato chips, microchips, what’s the difference?…”

    If these men truly hold these views, then clearly; Alan Blinder and Michael Boskin are ten thousand times more dangerous to the future of the United States than ten thousand John Walker Lindhs could ever be.

    Lindh got 20 years. Ten thousand, times ten thousand, times 20 years, equals … carry the one, watch the zeroes … hmm … these two treasonous fucks should be shot.

    1. Max424

      Only if they’re still alive, of course. If they’re dead, their bodies should be exhumed and transported to an undisclosed location in the Far East, then dumped in the Indian Ocean via helicopter.

  13. Johnny Woo Bybee

    “The Justice Department has told Fannie Mae that it does not plan to seek criminal charges against the company, an important step for the District-based mortgage funding giant as it tries to move beyond a multibillion-dollar accounting scandal. ” Washington Pustule, 2006

    Coincidentally perhaps, the Regent University School of Law (a skool founded by televangelist Pat Robertson) was tapped by the Bush Administration to fill positions in justice.
    Can it be argued that dumb, dangerous, luddite-assholes bubble to the surface to enable and defend outrageous criminality by allowing their own common sense to be destroyed by convenience, surrender and stupidity? Is it true that people will do just about anything to collect their pay? God help us all indeed!

  14. Eureka Springs

    As a long time fan/reader of Mr. Stoller, I really hoped/anticipated his next guest post here might address the Roosevelt Institute getting in bed with Pete Peterson.

  15. Jessica

    “After all, building infrastructure implies the ability to build things here and being able to use the power of taxation to finance them. Privatizing infrastructure requires the ability to securitize revenue flows. Which one do you think modern America does better?…”

    I don’t think we do the one because we are better at it. We got better at it because we did it.
    This is the link for exactly how when the finance sector takes control of an economy, it harms actual production.
    At a deeper level, I think all this happened largely because the real next-infrastructure projects we were ready for in the 60s and 70s were mostly about producing knowledge, not about producing things. But no one knows yet how to run an economy centered on knowledge production. That requires doing two things at the same time: turning the knowledge completely free and rewarding the knowledge producers. One at a time can be done, but not both. The ways we know to reward knowledge producers all involve crippling knowledge into a being a thing, so that it fits into what we do know how to organize.

  16. Pepe

    as international competitiveness and environmental costs drove the logic of cost reductions into our political order.

    how does this follow? how do we know that the traditional allies of the FDR legacy weren’t either corrupted by money, or rendered irrelevant by the newly co-opted?

    1. Pepe

      Sort of like: The Roosevelt Institute taking Peterson’s money and then coming up with a corrupt healthcare proposal.

  17. beowulf

    Public-private partnerships are usually sold as way to “leverage” private capital, yet the govt has the lowest cost of capital in the world (because the Fed now pays interest on excess reserves, its literally cheaper for Tsy to borrow money than to just print US Notes), the intent of these partnerships is to provide a guaranteed profit to favored interests.

    And yet clearly there’s a lot to be done. During WWII, Roosevelt’s National Resources Planning Board laid out quite the blueprint of an organized system of public investments (its charming that its chairman addresses the President as “My Dear Mr. President”, Frederic Delano was FDR’s uncle).

    Then Uncle Fred and company (including the inevitable Beardsley Ruml) went crazy and issued another report calling for a cradle to grave welfare state. Whereupon Congress almost instantly abolished the NRPB. :o)

    1. Yves Smith Post author

      Just to finish your thought……but the private capital isn’t cheaper than what the municipalities could borrow at. That’s the little lie at the center of this scam. On top of ripping out far more in the way of upfront fees and expenses than you’d ever see in a bond deal, the required returns are in the high teens, way way higher than muni borrowing rates. Even Greece borrows at a better rate than that.

      1. beowulf

        And as Michael Hudson and the late Bill Vickrey both pointed out, worthy public investments should fund themselves from the resulting increase in the municipality’s land value taxes.
        What President Obama did not acknowledge is a basic principle that every transportation economist is taught: Transport investment normally can pay for itself, simply by a windfall-gains tax enabling cities or other jurisdictions to recapture the higher rent-of-location and site value along the right-of-way.

        Marginal cost pricing of all [city-provided] goods and services, along with a tax on site values to finance the deficit of increasing returns activities, is both efficient and equitable.

    2. Max424

      Hey, beowulf. You’re everywhere. I ran across your name in the comments section of The Infrastructurist, about a month ago, back when the mighty Mississippi was terrorizing the heartland.

      I thought this was cool:

      “The US Government annually spends 4.0% of GDP, $600 billion, on public investment spending (defined by OMB as infrastructure, education and R&D), every dollar of which adds to the national capital stock. There’s no reason it should be counted in the federal budget deficit, indeed we could profitably spend another $200 billion or so on necessary infrastructure work. And it should cost us precisely nothing.”

      Damn straight. This nation could be as great as it pretends to be, all that is required is a little MMT and … here it comes … some central planning. In other words, we could do the World War II thing ( create purposeful 16% average growth, and 2% average unemployment), anytime we want.

      And I think it’s necessary. Simultaneously defeating the Nazi’s and the imperialist Japanese was pretty easy; surviving peak oil, however, will prove a tad more difficult (peak oil is to WW II as the sun is to a bic lighter). For that, we’re going to need a massive infrastructural build-out based on a coherent central plan.*

      *And dare I say, a slightly heightened sense of national purpose would prove helpful.

      Note to neo-liberal/liberal economists and thinkers: Filling pot holes and sweeping city streets, though necessary, will not help us “Win the Future,” let alone “Survive the Future.” Brawn …and brains… will be needed; so I guess that leaves you guys out (Sayonara!).

      1. Max424

        We might want to get started soon, too, because peak oil is not sitting around waiting for us to get our shit together.

        Ian MacDonald, relevant passage: “Thus, the story of 2010–and it’s a very important story indeed … unable to meaningfully increase global oil production to meet demand, the world ate through inventories.”

        “You have been warned.”

        If we don’t want to be reduced going extremely local, as in, “It’s every last man for himself!” I think we should at least think about going local … at the nation-state level.

        In other words, I think the US needs to roll back its participation in Globalism a tiny bit (COMPLETELY!), because if it doesn’t, it precludes any possibility that it will be able to fend for itself in a future where other tougher, smarter, more cohesive nation-states will rape and pillage, at will, those nations that are either uninterested in themselves, or have abandoned themselves completely.*

        *Of course, if you’re a Republican, a sell-out Democrat, or a neo-liberal, this is ALL to be desired, and the rape and pillaging of our homeland will come — and has come — with your heartfelt blessing.

        1. Max424

          Sell-out Democrat? Giggle. Is there any other kind?

          With Grayson in forced retirement, who do we have left? Well, we got ourselves Sanders vs the 99 assholes, and Elizabeth Warren* vs The World.

          * Is Liz a Democrat? I don’t even know. Or care. What matters is, she seems to be the rarest of birds … a Beltway participant with honor intact.

  18. F. Beard

    So-called “credit” is the means by which the rich loot the poor.

    When will so-called liberals and progressives face that fact?

    1. Max424

      I’m an old school New Deal liberal (and a part-time pool room hustler), and I, for one, am in total agreement. Here’s what my experience has taught me:

      The second best way to rob somebody, is to loan them money out of your own pocket.

      The first best way to rob somebody, is to loan them money that was previously in their pocket.

      1. F. Beard

        The first best way to rob somebody, is to loan them money that was previously in their pocket. Max424


        And that is an art well and long mastered by the bankers.

    1. Cedric Regula

      A long time ago we figured out privately held, unregulated, geographical monopolies are a bad idea. Looks like we are about to relearn why.

  19. LRT

    I have participated in several privatisations, and have had service in the UK, the US, and Continental Europe from many utilities, some of which have been privatised and some nationalised and some first one and then the other.

    My experience is that nationalised infrastructure companies suffer from becoming a sort of mutual benefit society for the public sector unionised work force. An essential component of their being is a legal monopoly position.

    So we had, for instance, the absurd work practices at British Telecom in the UK, the overmanning, the technical backwardness, even the lack of the most basic safety management, the refusal to invest, the refusal to train. The problem with investment, in the eyes of the unions, was that it led to loss of jobs. Remote maintenance led to fewer site visits. Central databases rather than card indexes led to fewer jobs maintaining the card indexes. The problem with training was that it siphoned off the natural leadership of the working class. And so on.

    A similar situation applied to the continental phone companies, Germany being notoriously backward technically. Standards of no merit were invoked to bar imports. You then had a situation in which government, national industry and unions collaborated to freeze innovation and keep up prices. The loser was the country as a whole. The hostility with which the PTTs regarded any sort of novel equipment import or connection had to be experienced to be believed. If you thought ATT post Carterphone was bad, this was the real thing!

    In the UK, you had a similar situation in the auto industry until the long slow death of Rover took the government out of the business. In France, Renault improved dramatically after privatisation. In the UK and Europe, the utility companies have basically gone to the US model of rate-of-return regulated private supply, and service has improved substantially as a result from the days when all utilities were state monopolies.

    What’s the right way to do it? This like many things in life is a 2 x 2 matrix. You can be private or state, and you can be monopoly or not. As a matter of experience, I think I’ve had the best service at the lowest cost from a private sector with strong regulation.

    You cannot do without regulation. But you also cannot really have state companies in a sector and also competition.

    The thing to read on this is Mancur Olson. You see clearly what is going on: the interest groups are seeking to maximise their well being. Even if the rents they extract are a small fraction of the costs on society they impose, they will do it, its in their interests. This is going on in state sector as well as private, and you have to use the two mechanisms of competition and regulation to keep it in check.

    This is what happened with Rover. Everyone in the UK paid more for vehicles so as to give the Rover work force a tiny fraction of the costs this imposed. The company was uncompetitive, so this was the only way to keep it in business. Most of the money went in profits to lower cost competitors, typically subsidiaries of non-UK companies. It was totally insane. The workforce probably got a few percent or less of the extra costs imposed. But it was better than nothing, so they were very ready to go on strike for it.

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