Labour/Green economics – denial or ignorance?

David Farrar points out A bizarre argument made by Danyl at Dim Post – Chart of the day, dead Wood edition, which graphs the share market since the Labour-Green power policy announcements. Farrar comments:

I’m amazed Danyl is trying to argue that as the overall sharemarket is up, then the destruction of value in some companies doesn’t matter.

Yes the NZX is up.That is because global investors are buying shares in Xero like it is the next Google.  It isn’t much use however to the person who only has shares in Contact Energy.

To use an analogy, it is like someone going into your street and burning your house down, but then telling you not to complain about it because the value of the rest of the street has risen.

Contact, Trustpower and Infratil shares are still lower since their drop after the power announcement. They haven’t “burnt down”, but a valid point is made.

There seems to be a wave of denial or ignorance of how sharemarkets work sweeping over the blogs on the left.

Anthony Robins at The Standard also did the graph trick – Economic apocalypse – not – he first called that post “No value has been destroyed”.

And similar from Scott Yorke at Imperator Fish (including a graph): Business elites denounce threat to their profits.

By way of example, the NZ Power announcement spooked the capital markets and led to a massive destruction of shareholder value, which in turn resulted in a loss in the value of many Kiwisaver funds. This potential disaster was only averted when the sharemarket continued to go up and up, resulting in an increase in the value of those same Kiwisaver funds.

Sometimes it’s hard to know when Scott is doing satire, or who he is satirising. At least he admits the aim of sabotaging power company assets:

I’m failing to see the problem. These companies have been doing nicely out of a business model that has resulted in too many people paying too much for their power. Of course their value was going to go down.

It doesn’t seem to have eroded confidence in the capital markets, though, eh?

Market confidence a Labour and Green government are looking less likely after attempt at market intervention, eh?.

Business elites making a lot of money out of an existing electricity model that few people actually understand but which appears to have failed, have slammed the plan. Critics have included the CEO of Mighty River Power, whose salary exceeds a million dollars a year, and stockbrokers who stand to profit handsomely from an uninterrupted partial float of the energy SOEs.

Critics of NZ Power will no doubt be hoping that its flaws will be evident to those cleaners on minimum wage, or solo mums on benefits, struggling to find the money to pay their power bill, and who might have otherwise be tempted to vote for either Labour or the Greens.

The profit bogey man and “poor people” sympathy appeal. This is remarkably similar to Metiria Turei’s latest column in D Scene:

We know that families are really struggling with increasing power prices. At the same time power companies are making even greater profits.

Stripping out excessive profits from the electricity sector is a smart Green solution.

The sharebrokers that are going to get a cut out of selling off our power companies are upset. Returning the excessive profits to New Zealand families will hurt the fat commission they are eying up.

Both Labour and Green camps seem convinced they are socialist saviours. In denial of market and business realities. And probably political.

Scott questioned me when I said “And Labour, which was already struggling with financial credibility”.

If you keep saying that enough, do you think people will believe it?

Some in Labour must surely believe it – John Armstrong in his Saturday column:

“This is part of National’s strategy to make next year’s election a referendum on which party can best be trusted with the management of the economy – a matter of some issue where both parties’ private polling has Labour far behind National”.

I would be as confident betting on financial credibility being the deciding factor in next year’s election as I would betting on a very uneasy sharemarket and plummeting business confidence if a Green Labour finance team take over in the next government.

It’s hard to know whether Labour and Green politicians and supporters are in political denial, or if they are ignorant of how business confidence and sharemarkets work in the real world. Possibly both.

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