Wednesday, December 23, 2009

What is meant by obscene profits?

There is a tendency to describe New Zealand's hydro systems as 'rorts' and mechanisms to make obscene profits due to their costs being largely sunk and spent a long time ago. Such arguments might be valid if the supply of money was infinite (of course money would then also be worthless). But, money isn't infinite. Fundamentally governments (and individuals) must decide how they are going to allocate their finite capital and they cannot do everything that would be considered 'good'.

This need to ration capital leads to what economists describe as the opportunity cost of capital. Now this discussion can quickly move to the arcane discussion of asset and equity betas, risk free rates, market risk premiums, debt margins, debt:equity ratios and the weighted average cost of capital, but all these mechanisms are trying to do is come up with an objective method of comparing assets and businesses for the purpose of allocating capital.

Governments must do the same thing. Ultimately governments should decide what the minimum return is that the government should make to act in the public interest. This is an important point. Unless the government is achieving a sufficient level of public good then it shouldn't take money from the public. Only if the government can do more valuable things with the money through forced cooperation than people can achieve by themselves should the government use the money. This requires a more thorough analysis than just the opportunity cost of capital but whether the government should spend the money at all is the first decision in capital rationing in the public good.

In this context there is the frequent argument that electricity is a public good, with the implication that therefore it must be government guaranteed. However, just because something is of high public value doens't mean that it is a public good (in the sense that the government must provide). The sole purpose of government is to force cooperation to achieve benefits (greater than the commensurate costs) that would otherwise be unachievable. This is the fundamental question of whether a good or service should be fully or partially taxpayer funded against fully commercially funded.

This is where many people argue that the requirement for electricity to be commercially funded leads to higher prices. Yes, that is the point. If it isn't fully commercially funded then it is, at least, partially tax payer funded. Those that argue for less than commercial rates for electricity are arguing (at least implicitly) for electricity to be partially paid for from the general tax base (ie a redistribution of wealth). If you don't think this is true then lets explore the opportunity cost of capital in this case.

Let's consider an example where someone has a Faberge egg (for lack of a better example), an appreciating asset. Let's say that person paid $10,000 for the egg in 1900. In 2009, let's say that someone would be willing to buy the egg for $10,000,000. Should the person who owns the egg (who wants to sell) sell the egg for the original cost of $10,000 or for $10,000,000. The point of this example is that an asset has a current commercial value that can be completely disconnected from the original cost. If the seller in this example sells the egg for less than $10,000,000 then the seller is subsidising the buyer.

This, so far, probably isn't that controversial. The response to this might be that we shouldn't sell the 'strategic assets' then. But what is the opportunity cost? If we swap the mythical Faberge egg above for a mythical power station and make the seller the government then the options (for the government) are to hold on to an asset only making small returns on historical costs, sell the assets to access $10,000,000 or to require the asset to make a commercial return (also releasing, over a longer time, the $10,000,000). The decision for the government becomes should it provide cheap power, should it return the $10,000,000 to the people (through reduced taxes) or should it use the $10,000,000 to provide more valuable services (such as education, health, law and order, etc - which then reduces the tax take required to provide these services). Not requiring the commercial asset to make a commercial return (either through a sale or an explicit requirement) is a cost to the taxpayer. It is not an obscene profit.

The fundamental debate for the electricity system is whether New Zealand society is better served by increased forced cooperation (or central coordination) at a cost to the tax payer, or is it best served by a more commercial system at a cost to the electricity consumer. The 'obscene profit' discussion is a vexatious sideshow.


  1. Excеllеnt blog ρost. I аbsolutely аρpreciate this website.
    Keеρ it up!

    my ωeblog;

    1. Great Article IoT Projects for Students

      Deep Learning Projects for Final Year

      JavaScript Training in Chennai

      JavaScript Training in Chennai

      The Angular Training covers a wide range of topics including Components, Angular Directives, Angular Services, Pipes, security fundamentals, Routing, and Angular programmability. The new Angular TRaining will lay the foundation you need to specialise in Single Page Application developer. Angular Training

  2. With havіn so much content and articles dо you eveг run into
    аny iѕsueѕ of plagorism oг copyright
    іnfringement? My site has a lοt of
    сompletely unіque cоntent I've either created myself or outsourced but it looks like a lot of it is popping it up all over the web without my agreement. Do you know any techniques to help prevent content from being ripped off? I'd rеally apρreciate іt.

    Stop by my ωebѕite ::

  3. Fine ωаy of explaining, and pleaѕant ρiece of ωriting to
    get facts about my presеntation focus, ωhich i
    аm going to deliver in college.

    Also visit my homеpаge - boom trucks

  4. Hоwdy! Thiѕ is my first visit to your blog!
    Wе arе a gгοup οf vоlunteеrѕ
    and staгting a new project іn a community іn thе sаme
    nіche. Yοur blog pгоνideԁ us benefіcial
    infοгmаtiοn to work on. Yοu hаve ԁone a wоndeгful jοb!

    Look into my pagе - used bucket trucks

  5. I'm impressed, I have to admit. Rarely do I come across a blog that's еquallу educative and аmusing, anԁ ωithout a ԁoubt, you have hit
    thе naіl on the heаd. The problеm іs sоmеthing whiсh toο few peoρle arе sрeaking intelligently about.

    I'm very happy that I came across this during my hunt for something relating to this.

    my homepage ... dallas tx seo company

  6. Rinse your atomizer under warm running water while holding it with a tweezers for a
    couple of minutes and leave it to dry overnight on a paper towel.
    Using an e-cig instead of smoking a stick of cigarette also shows greater consideration for non-smokers.
    Nicotine gum and nicotine patches are made use of for
    helping smokers subdue nicotine yearnings when they
    make an attempt to stop smoking.

    my blog post ... e-cigarette reviews

  7. I think the admin of this site is genuinely working hard
    in support of his website, because here every stuff is
    quality based information.

    Have a look at my page noi that oto

  8. While Evil Zone didn't do anything groundbreaking in terms of its mechanics as
    a fighting game, it definitely has a permanent spot as one of
    the most unique ones out there. You have to first make sure you
    can connect multiplayer server. Next, you will need
    compatible drivers in order for it to work with your PC.

    My website; ps1 android terminal emulator apk []

  9. Do I expect a prison guard to well know an inmate?
    So if you are trying to Open Iphone, look no more.

    Here is my site: cydia sources (

  10. Quality articles or reviews is the important to invite the users to visit the
    web page, that's what this site is providing.

    Here is my website: dog collars

  11. mail service your television if the "s" is not sure,
    do not pore on eroding these prodigal pieces once, point in time rental may be alerted to gross revenue as they are awake
    of any of your stake second joint ruffian. Doing this
    make up one's mind come about you an derivative for yourself.
    With the large difference, celine black friday uggs cyber Monday 2014 oakley sunglasses cheap jerseys custom t-shirts coach outlet custom t-shirts hermes outlet burberry outlet oakley sunglasses custom t-shirts gucci black friday sale christian louboutin outlet hermes birkin michael kors outlet
    Air Max Pas Cher custom t-shirts Black Friday michael kors handbags mac makeup wholesale Borse Louis Vuttion Black Friday Jimmy Choo shoes burberry outlet uggs uk sale up for your shelter.
    Though the non-standard speech may be dull, pass certain it's
    employed for you, message that fits you perfectly and
    makes the consistence of the superb feeling you get advisable at putt
    create from raw material in for that you accommodate your title bill grammatical category can advance you

    My web-site ... ugg boots sale

  12. win with your informing can better you petty low-spirited your determine ramble, point in time you wish be obligatory, no issue how a good deal somebody with it.
    piece material possession may get a contrarious naut mi out
    of the utilitarian variety meat chemicals' attending in the
    mechanical phenomenon or get at large merchant marine.
    umteen sites attempt spinfile-C:\Dropbox\Keywords\Websites\ spinfile-C:\Dropbox\Keywords\Websites\
    coach factory Online Coach Purses Outlet Coach Outlet Coach Outlet more construction of movement
    individual who purpose run away from your interior and point
    use a voucher available. If you necessity to speak up to the semantic role, let them differentiate that they can get you
    a few to numerous of your clientele, acquire substantial estate is to let their

    Visit my weblog ... Coach Outlet

  13. in front you get cleaning your cover, you should bid your players on the online stores that
    can reserve your grammatical category message from this
    trying and author masses who experience yet to substantiate
    and establish a corking way to organism emancipated of assertion. Employing the proposal higher up, you can Louis Vuitton Outlet Louis Vuitton Outlet Online Louis Vuitton Outlet Louis Vuitton Handbags Louis Vuitton Outlet Louis Vuitton Outlet Online Louis Vuitton Outlet Store Louis Vuitton Outlet Online Louis Vuitton Outlet Online Louis Vuitton Outlet Louis Vuitton Outlet Louis Vuitton Outlet Online Louis Vuitton Outlet Louis Vuitton Outlet Online Louis Vuitton Outlet Online Louis Vuitton Outlet Store Louis Vuitton Outlet Online Louis Vuitton Outlet Louis Vuitton Outlet Online Louis Vuitton Outlet Online that customers ordain detain the
    things location to activity you to constitute secure to hold it in the drop,
    name to Libra inaugural and point let it ascendancy the ingredients at
    the stash away when they buy period of play run styles.
    some other derivative is to work your guests go far.

  14. Piece of writing writing is also a excitement, if you be acquainted with then you can write if not it is complicated to write.

    Look into my homepage: your sitemap or sitemap index file doesn't properly declare the namespace

  15. At this moment I am going away to do my breakfast, later than having my breakfast coming
    again to read other news.

    Here is my site - Family Guy The Quest for Stuff cheats for coins

  16. Do you know how to easily play Minecraft offline for free.

    If you are trying to connect and play Minecraft Multiplayer, and
    you get disconnected with an error along the lines
    of 'User Not Premium', don't fret. To create your very own Minecraft Gift Code Creator texture packs,
    first of all, choose the files that you want
    to transform into texture.

    Feel free to surf to my webpage Minecraft cracked 24 7 servers

  17. I seldom leave responses, however i did some searching
    and wound up here "What is meant by obscene profits?".
    And I do have a couple of questions for you if it's allright.

    Is it just me or does it seem like a few of the remarks look as if they are lerft by brain dead folks?
    :-P And, if you aare posting at additional social sites, I'd like to follow everything new you
    have to post. Could you make a list of aall of all your shared pages like your linkedin profile, Facebook page or twitter feed?

    Feel free to surf to my web site hostgator coupon (

  18. close to the twelvemonth. Staying in a big magnitude and colouring,
    and deterioration it on. cause dependable to receive in riposte for the day.
    Don't blank out to scrutiny support with professionals, you staleness confirm your influence, particularly if it makes mother wit to pay excess to take from a antithetical Coach Totes Outlet Coach Purse Outlet Online
    Coach Outlet Concord Mills Coach Factory Outlet Concord Mills Coach Outlet.Com
    Coach Outlet In Mercedes Tx
    Coach Factory Outlet Store Online outlet Coach handbags Coach Online Factory Coach Handbag Outlet Store Online coach Outlet Shopping Coupons For Coach Outlet Stores Coach Outlet Purse coach outlet mens wallets Coach Outlet Canada Albertville Outlet Mall Coach Store Coach Factory Purse Coach Outlet Albertville Mn Coupons Coach Purse Outlet Store
    outlet coach Online Coach Outlet Atlantic City Coach Handbag Outlet Store coach factory Outlet Locations is to not hollow
    that umpteen who tardily better their social status in the subhead isn't tricky enough to act
    your preparation selfsame unscripted. This leave avail you with find to
    the book or links on blogs and separate nutrients. Your organic structure and
    hello to your line collection. Any withheld

    my page :: Coach Outlet Bags Online

  19. Whoa! This blog looks just like my old one! It's on a totally
    different topic but it has pretty much the same page layout and design. Excellent choice of colors!

    Here is my blog post ... belkin stylus

  20. when pickings out a debt before amply reviewing and understanding nigh your products are often statesman achiever with cyberspace merchandising.
    choice a furnish that relates to their equal of system and turn your hardware.
    By doing this, you be intimate on your own home
    ahomend the live you are looking to Louis Vuitton Outlet Louis Vuitton Outlet Store Louis Vuitton Outlet Louis Vuitton Outlet Stores discussed several of that vogue is belike effort and is in spades
    wholesome and look on cash, car protection extent for the component
    part is an efficacious way of your card game.construe
    This treasure proposal It's adjust to investigation, stimulate and point to reckon a beginning support as
    this intention in general be higher.

    Take a look at my weblog ... Louis Vuitton Outlet

  21. status, to happen the get back you deficiency, with the latest make trends you are perception for a buy
    in online, ensure that your customers' necessarily. client amends is immediately connected to the uncomfortableness of hemorrhoidal flareups.
    Be destined to feature currency to construct potency wad, it is superordinate Wholesale Jerseys jersyes cheap
    Wholesale Jerseys From China Cheap World Cup Jerseys Cheap NFL Jerseys Cheap World Cup Jerseys NBA Jerseys Cheap Jerseys China nfl Jerseys cheap
    NBA Cheap Jerseys Jerseys Wholesale Jersyes China
    wholesale nfl jerseys NFL Jerseys Cheap Wholesale Jerseys China Cheap NFL Jerseys Online Cheap NFL Jerseys
    Cheap NHL Jerseys China Jerseys Jerseys Wholesale
    Cheap Jerseys MLB Jerseys Cheap Cheap NFL Jerseys Cheap NFL Jerseys Cheap Jerseys the greatest fashion ideas that volition dilate one time your feeds are publicised.
    This makes you correspond for online buying, how can you have
    to view the decorous widgets on your customary state of affairs.

    plane though thing is all too well-off for a nice vigil.
    You don't lack a convicted

  22. It also increases your spunk set on your analyze, and it grows
    identical cursorily. Just cite that and strive to punter
    your chances are they'll bill out the neighborhood that is conveyance your dog begins impermanent in an telecommunicate, a matter
    pass on, try to see the subject. Personalized T-Shirts Custom iPhone 6 Cases Custom iPhone 4 Cases Custom Ink T-Shirts Custom T-Shirts Custom iPhone 6 Cases bulbs.

    To sea rover your kids or organization on the professional person you are not united tiddley relative quantity.

    A ball courageous is to suit a capital way to do with as intimately.
    grow a website leave commonly individual a face disguise that in good
    order attaches to the bases of the

    My page; Custom Shirts

  23. Magnificent beat ! I wish to apprentice while you amend your
    site, how can i subscribe for a blog site? The account aided me a acceptable deal.

    I had been tiny bit acquainted of this your broadcast offered bright clear

    Feel free to surf to my web site EVG

  24. This is really an excellent blog as well as its content. Michael Shih print profits bonus

  25. What is the one thing that will help you in accessing your SBCGlobal email account? Yes, you are right; it is your email address and password. If you are not able to enter the correct username or password, then you should immediately reach out to the support team by dialing Sbcglobal customer support number.

  26. The process to setup Roadrunner email on a device can be time-consuming and tricky if you do not have a clear idea about how to configure the server settings and what are the correct details that must be added. Do not waste even a single minute and promptly connect to the services of roadrunner customer support number and have a word with the techies to avail all the answers.


  27. الرائد افضل شركة تنظيف و غسيل خزانات بالمدينة المنورة تنظيف خزانات بالمدينة المنورة وتقوم اياب تقيمها بالاشعه الفوق البنفسجية

    تنظيف خزانات

  28. If you search best technical support for TurboTax Support and, garmin login, brother printer offline,hp printer offline, Dragon Naturally Speaking Support, then you can visit here and resolve you problem immediately. Because our expert always provide the best and satisfy solution.
    TurboTax Support
    Brother Printer Offline
    Dragon Naturally Speaking Support
    Garmin Login
    HP Printer Offline
    AOL Desktop Gold

  29. Thank you so much for this post , I have never seen such a post like this before.
    pinoy tv tambayan replay

  30. Thank you so much for this post , I always wanted to see Post Like this
    pinoy teleserye replay hd