Future energy policy for NZ

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NZ has in recent years experienced some significant increases in electricity prices. These rises can be attributed to several factors:

1. Latent inflation in exceedingly low capital and operating costs in an era of low interest rates. This is destined at some point to change; whence-forth, we can expect a rise in energy prices.

2. Capital cost structure or framework for distribution and transmission cost pass-thru

3. The high marginal cost of new generating capacity - High because anyone attempting to build a new generating unit has to recover costs without knowing when competitors are commissioning their capacity 

4. The need for all energy businesses to focus on yields rather than profits in a growth restricted market. If you can't cut costs or increase sales, then you are compelled to raise prices in order to achieve the profit growth that shareholder want to see;  but  more importantly the growth executives want  to see so their option incentives deliver the gains that will put them on par with foreign enterprises and other sectors which are able to deliver those gains. 

5. The high cost of natural gas. NZ has small resources of gas and those resources are concentrated in the Taranaki area. Eventually the nation will develop more competitive supplies from other fields, and this will mean cheaper fuel. The benefits may flow through to electricity prices. This assumes however that new supplies are competitive and in a state of oversupply; and that  their geographic location will allow for interconnection through the NZ grid. There is good reason to expect that a new gas resource will be off-grid or too small in size for the resource to make a competitive  difference. If it is so large to support export sales, then the imperative to offer cheap gas is undermined by export prices. This of course will not preclude lower long term contract prices to win an energy supply agreement.

What does this mean for NZ energy policy? Well it probably supports:

1. Energy market reform to encourage more privately owned electricity generation to supply local communities;  which store surplus capacity for timely sale into the grid or captive consumption. This will make more sense as battery prices fall, whether they support wind, wood or solar capacity. Reform of the Resource Management Act (RMA) and council management and land use facilitation will also be important. 

2. The reform of the distribution and transmission pricing so that it does not result in over-investment in said infrastructure.  Observe that under govt patronage NZ capital spending has gone from under-investment to over-investment. From crippling black-outs to pillaging of customer savings. What can we say of NZ energy sector management? We can say that political intrusion has been a huge mistake.

The only political party in NZ which has an energy policy consistent with lower energy prices in the short term is the ACT Party. In the long run, one would expect National policy to increase gas exploration to eventually increase competition, but that could be decades.  Private syndicate investment in generation offers the greatest scope for cheaper NZ energy supplies.  The impact of such an energy policy would:

1. Increase competition in the power market;  resulting in more money in the consumer's pocket. The gains would not however be equal. The disparity can be expected to impact residency decisions. Even in a town or city, you might welcome living in a community with captive power generation and supply arrangements. 

2. Increased energy generation at point of use; reducing transmission demand. Sadly this will have meant prior capacity development was wasteful and that consumers reliant on said supplies will have to pay more.

The prospect of higher costs for some is not a justification for an aversion strategy by government, simply because government just adds to the distortion.

There is an opportunity for governments to optimize this investment however by easing the RMA rules. Ie. If community development was easier,  more people would be living in optimized villages. Why? The reasons for living in communities with identity and connectivity has never been stronger. We don't have the regulatory setting to achieve that. We have dogmatic proscriptions understand which Gibraltar proscribe what is a healthy lifestyle. The practical outcome has been the exact opposite. The justification for adopting private planning is not the fact that the private sector always makes better decisions; it's that the private sector pays the costs of its mistakes - not you the consumer.

Another element of energy policy concerns the locating of generating plants and power lines. Said infrastructure raises two issues:

1. Property ownership - People have a right to compensation for disturbance of person or property.  i.e. Build a generating facility in proximity to a house and people should expect compensation. I would however argue that there should be no compensation for land beyond disruption from use. I would argue that people own the property improvement,  not the land. There is a tendency to consider property rights as intrinsically good; therein failing to ask why they are valued, and therein what actually constitutes property. 

2. Property values - Any investment in property is for the sake of certain values or enjoyment. We might properly ask whether latter parties have the right to undermine the enjoyment of smothers property. In the same way that a person cannot undermine your right to live, they cannot undermine your ability to be productive or to enjoy one's labour. Again, there is a tendency to see property boundaries as intrinsically the basis of property disputes. The shortcomings of this regime have contributed to the collectivisation of property rights such that they have come to be defined as social mores. This development occurred because libertarians failed to provide an adequate solution to contemporary land use conflicts over previous  centuries. Practically they folded and allowed the stat is talk to rule. This was understandable because if the mystic Christian roots for socio-economic values even dating back well before classic economics even developed.

It can only be hoped that sufficient numbers of libertarians will be able to politically advance a common law style of property rights rooted in rationality. To do that libertarians will need to differentiate themselves from 'small government' conservatives who have merely failed to identify the nature of the contradiction that has prompted their political brethren to sell out.

John Key on asset sales: Three Strikes And Your Out!!

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In both October 2011 and January 2012 ( a year ago) I alluded to the threat of a closure of the Rio Tinto alumina smelter, and the prospect of the smelter closure impacting on the electricity market, and the forthcoming power industry privatisation. It loomed at as a compelling reason for the NZ government not selling the power assets - probably the only reason. But given the market outlook its a big one. On the 23rd March 2013, I gave John Key a third warning. Now, I know this guy reads my blog posts because he seems to respond to everything I say. On this occasion however he showed utter contempt for my advice. So what's the problem? Aside from the adage "Three strikes and your out", the problem is that:

The spectre of the Rio Tinto aluminium smelter closing means that 11% of the nation's electricity consumption is handing over the market. That is a big problem for several reasons:
1. The nation's population growth is flat
2. We are in the midst of a recession

The fundamentals for asset sale otherwise look pretty good; but this disposition will remain the case for the foreseeable future. In fact, there is good reason for expecting a future government to increase immigration, and to perhaps expect more Kiwis to return home. There is also the prospect in 5-10 years to expect some offshore resource development, with all the onshore developments that are associated with energy processing. But that's a long way off. In the near-term, we are looking at 10 years of subdued energy demand. More worrisome for Key is the push for reform of the Resource Management Act, which would reduce the cost of installing new generating capacity. This is less of a concern for large capacity additions; but there might be perceived to be a 'pent-up demand' for mini-generators like private wind farms, solar concentrators, mini- and run-of-river hydro schemes. The wind farms are particularly appealing in NZ, given the falling costs of installation, and growing acceptance.

The implication is that Rio Tinto is effectively using the power privatisation issue to "extort" a concession. The deal looks like this:
1. The government subsidies Rio Tinto in the long term to stay
2. The government takes a hit on the asset sale price

Ultimately, it might not even be the government who pays. The government might be setting up a lot of voters for failure; or will it be its reputation. I suspect the pain will be less if it just accepted the lower return because at least it can say, Kiwis had the opportunity to buy the asset. He can also argue that 'they got the price it was worth'. Well, true 'today'. But who knows what a bit of policy could do in the future?

Notwithstanding the benefits of selling the asset, it makes more sense to retain it for the time being. It would not do Key's reputation any arm by delaying the sale for 5 years. Interest rates will stay low, so whilst the government is getting a 10-12% return on investment, they are only paying 4-5% interest on the public sector debt. In the meantime, they might be able to raise economic activity. In fact, the global economy should start looking a lot more positive by that time.

John, you need to listen more. If I've told you once, I've told you three time. False pride go'eth before a fall. Your prospects for a third term looks pretty bad. Thanks for the legacy! Defer the privatisation. Great ideas have their time. Your timing is wrong.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

What NZ should do with its privatisation proceeds

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It seems inevitable that National Party is going to sell off some more power company assets - the prestigious hydro assets. Probably not the best timing since we are currently in a drought. Buyers will be thinking; oh dear, we better mark down the price for potential adverse climate change response. Maybe NZ is going to be a drier place? This on top of the possibility of Rio Tinto closing its Aluminium smelter.

The NZ government government is saying its going to pay down the state's debt. This makes a lot of sense for several reasons:
1. The debt levels of NZ are rather high
2. The terms of trade of NZ are rather favourable; and they can be expected to deteriorate as more food is grown offshore
3. Its actually a reasonably good time to sell off assets - particularly if the process can be used to encourage NZ savings. This is good because there are too few opportunities for NZ'ers to invest, and these are high-yielding assets.

NZ needs to take a look at Norway's approach to prosperity. It does not perform all the exploration work, and then give it away to the private sector. It places some value on its national assets; giving its people a 'windfall' and not the private, commercially-motivated operator who has the capacity to delimit its risk. The NZ has have to set the right 'terms and incentives', as otherwise no one will want to perform any work, and you don't want to be expropriating profits or changing terms down the track; that's just not fair to them.

The focus seems to be upon conventional oil & gas development in NZ - whether onshore or offshore. The much under-appreciated asset is methane hydrates - that sit on the seabed. Japan has been developing the engineering to extract these resources around Japan, and NZ could take a leap from its book in terms of developing an offshore gas hydrates market. There are several compelling reasons:
1. They are lucrative resources - large in size
2. Its easy extraction - a glorified form of dredging
3. The gas can be channelled into NZ's gas pipe infrastructure
4. NZ has a shortage of gas - which is contributing to the very high prices of it. More gas means the country can decommission its high cost Huntley coal-fired power station.
5. It can potentially displace a large import bill for petroleum into NZ

There is actually no better time to develop such energy resources because:
1. Interest rates are very low and set to stay low; so if you can make lucrative returns; this is a good time in use debt
2. The emerging markets are energy-poor in Asia so there is a great opportunity for those countries who get their political terms (i.e. sovereign rating) right; and keep them consistent.

There is a particular shortage of expertise and capital accumulation in small, consumption-driven countries like NZ. This can make the country vulnerable. This is not a deficiency in capitalism; its actually caused by socialism driving the value of emerging market labour down because of the distortive impacts of surplus Asian labour suddenly released onto global markets. This means governments are destined to need to finance  efforts at the margin to keep the economy secure. I don't like it; but its better to protect your labour than sabotage their preparedness to live; because ultimately dogmatic retention of ideas is a betrayal of those ideas because principles need to be held in context. Capitalism did not create the problem; and it will inevitably solve the problem quickest; but it requires the discretion and empathy of capitalists to 'cover' the threat posed by distortions to our values. This support will be required for at most 20 years; and if we upskill our labour, for much less time. This is why many of these European nations like Germany and Switzerland, Holland etc have been able to sustain their economic strength despite their high cost of living. They upskilled everyone rather than simply laying them off in the United States. In the US, you have this bitter intractable debate about who is responsible for the 'poor & destitute'. There is no discussion about what's causing it. One side says 'not my problem, work harder, get a job, get skilled' and the other side says 'can't live, can't get a job, need your money'. Its a false dichotomy because two parties - Conservatives and Democrats, and even some anti-intellectual libertarians, which is not going to be resolved unless these people learn some epistemology (a branch of philosophy). The problem is causeless assertions, i.e. Having unreasonable expectations, whether its the cause of other people's malaise, or a question of empathy (conceptual value judgement). Either way, it sux when these people drive the political debate.

Of course its the same issue in NZ - except there is less money; more reliance on foreign investment. This is why energy is critical, or why business and labour need to develop a greater respect and understanding for each other's position. Wealth holders deserve rights and recognition for their interests; and without the 'discretion' to retain it, to do as they please with it, there is not going to be a solution to this intractable problem. It starts with principles people - and it starts with your constitution - its starts with not having one...because they are a piece of dogma destined to undermine principled, contextual understanding of ideas.  Simple prescriptions don't work; they are too easily misappropriated by vested interests. That means no arbitrary 'representative democracy' because its not a rational process.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The economics of NZ renewable energy

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Wind and solar power generating options are falling in price; though you might wonder at what point these options will become viable. Well, in the realm of 'green ideology' that decision-point might be reached soon. i.e. The commercial viability of solar and wind turbine systems might soon be at hand. The question is whether you should participate; or defer that decision. I say that it depends - and here is why....

You can buy a low-capacity system to meet your low-capacity needs, but consider several points:

1. Your system is not necessarily an asset because it might not meet your future needs like it might meet your present needs. i.e. If you in future have an electric car, then your small household system will not be satisfactory to meet the high-demand of your car. You'll be back on the grid. The clumsy or gorky system of old will probably not be compatible with your future system. 

In the next 10 years, I fully expect some very compelling developments in the fields of energy economics. One of the biggest developments will be in the realm of battery devices. I expect this innovation to come from carbon nanotubes as a form of heat storage or thermal as opposed to electrochemical battery. I fully expect that we will advance material science to a point where will be storing heat on an atom-scale. The materials are already known; its just a matter of engineering a scalable solution. These solutions will be very cheap as well. Carbon and silicon are widely available. 

These are exciting times; though you could be forgiven for thinking otherwise if you listen to the tragic greenies. The sad point is that these 'parasites' are destined to sabotage the real progress that science is capable of. The non-thinkers will get in the way of progress. Under our political system, we are looking at another dark ages despite the developments in science. You might wonder how that is possible. The reason will be apparent in 20 years time.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

What the frack? Coal seam gas development in NZ

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NZ oil & gas producer Todd Energy has responded to criticisms that its fracking process used to extract coal-seam methane is a threat to life. ‘Fracking’ or hydraulic fracturing has emerged as a controversial process on the basis of claims made from mature producing basins around the world. Todd Energy argues that its operations are at “great depth and away from freshwater aquifers”. You can view the company’s 177-page submission to the Parliamentary Commissioner for the Environment, Jan Wright, who is due to report by year-end. It is important to acknowledge that the legitimate concerns to fracking need to focus upon the particular application of the user. Broad generalisations cannot be made. For instance, Todd Energy is drilling to a depth of 3.5km (see presentation), so there is little prospect of any waters at these depths contaminating human ‘surface’ activity. Having said that, it would be preferable to avoid any contamination by:

1. Minimising the use of chemicals which can contaminate

2. Using chemicals which have a benign impact on the environment, or which otherwise are so chemically unstable that they breakdown in the natural environment

The problem is that Todd’s approach is conventional oil & gas exploration; even if it uses fracking methods to increase recover. The problem is that relatively shallow methods have a different impact because:

1. Their impact has an effect on the near-surface hydrological system

2. Their chemicals are coming into contact with near-surface fluids

3. The number of holes being drilled is far different

4. The amount of water released into surface runoff

The implication is that it’s really a ‘straw argument’ to package all fracking as ‘akin to Todd’s’, just as its inappropriate for the green movement to castigate the use of all fracking. Sadly, there appears to be a propensity for vested interests to polarise the debate. In fairness to Todd; they do make the disclosure that their position will differ from other users of fracking technique. We might expect them to distance themselves from practices and practitioners which they would regard as ‘unsafe’ for legal reasons.

There are several different applications of near-surface fracking:

1. Methane extraction from shallow coal measures

2. Hydrocarbon extraction from shallow oil shale deposits

The Todd suggests that the industry is in the process of developing ‘non-toxic alternatives’ that will have a benign impact on the environment. That would have to strike people as entirely unsatisfactory because these chemicals might be retained in groundwater. It matters little whether they account for 1% or 10% of the water used; if they are toxic, then they need to be better assessed before they are used in the environment.

The arguments that fracking can cause earthquakes is a moot point because any such ‘stimulation’ could only have averted a bigger event; and for that reason, any ‘dubious impact’ is more likely to be beneficial rather than adverse, since it would be entail releasing energy build up prematurely. 

The argument by Todd that “oil and gas explorers seek to avoid seismic faults, partly because they could lose hydrocarbons they are targeting into such faults”, strikes me as a dubious argument when explorers generally have a poor understanding of the location of fault structures, as the Canterbury earthquake recently demonstrated. This is not to say that major faults cannot be identified; but that methods of detecting faults rests largely on the application of geophysical seismic surveys, and such surveys will only detect faults where there is a significant offset indicated by offsetting ‘reflector beds’ in survey profiles. 

Attacks upon critics as ‘vested interests’ is silly because the oil & gas industry is just as ‘vested’; and as I have shown, their lack of critical, objective thinking upon their own arguments is a testament to their ‘shared’ lack of respect for facts, along with opponents in the green movement. We cannot under-estimate the significance of fracking in terms of boosting the oil and gas extraction from existing fields. This however is not reason to contaminate areas if there are alternative options. Clearly conventional exploration at 3,000-4,000m doesn’t present an immediate threat, but neither is it a compelling argument for contamination. In the defence of these companies, the 1-3% chemical mix will be further diluted at depth. It might be prudent however to avoid contaminating these deeper reservoirs, for are they not the intended destination for future CO2? The implication is that rupture of these deep reservoirs due to CO2 emplacement for global warming mitigation might result in these contaminated waters coming to the surface. We need to know the toxicity of these chemicals. My own view at this time is that there is a lack of compelling evidence for significant anthropogenic global warming at this time; so carbon sequestration is not justified. Matters might change in future.

The fact that well-casings fracture and release their contents into the environment is reason for concern. The question is – is it significant. We must acknowledge that oil & gas producers don’t want pressure loss; so one would expect them to fix any leakage. The question is whether they tolerate leakage. We might well argue that Todd’s activities are more dangerous because there is the possibility of its casing failing over a longer distance, and might the stresses be greater upon casings at 1500-2000m as opposed to 300m. The secrecy with respect to drilling fluids is also a reason for concern; though it may simply reflect the extortive influence that the green movement has over industry. Todd argues that deep fracking has not resulted in any evidence of groundwater contamination in the last 20 years. It strikes me as likely that no one is looking for such contamination, so such empirical evidence is misleading. The question is whether it drilled any holes in the 300m near-surface environment to attempt to detect contamination. I doubt it because it had no reason to look. i.e. No motive to hold itself accountable. In fairness, the contamination may or may not be there, and need only be explored, if in fact a casing ruptured and released large amounts of drilling fluids. I wonder at which point these fracking chemicals are added? Have they demonstrated that the well retains integrity before they add the chemicals?

We might want to consider the following news given the fact that coal seam gas industry is a huge business in the USA, accounting for about 12% of the nation’s gas production. That is a lot of holes. The USA has mature experience with fracking and the nation has a large population; so the muted and belated criticism of the industry might speak to the safety of contemporary practices. Doesn't the sourcing of domestic water supplies from groundwater not raise a safety concern; both now and in the future? In man Are US pastures contaminated by the chemicals used in drilling fluids? This should be the first question given the size of the US industry. 

If there is ever a nuclear war which poisons all surface water with nuclear fall-out; the spectre of deep pure water might be a compelling value proposition....do we really want to contaminate it today because we cannot find a current application for that water. The world changes; and we need foresight to anticipate the implications of our actions. I'm just as worried by the green arguments as the corporate arguments.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Wanganui: Small town thinking for big town problem

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NZ residents of Wanganui are being asked whether they ought to approve a $141 million flood mitigation plan - a huge cost burden for a depopulating town, when there is a far more prudent and lucrative opportunity - build a hydro-electric scheme. My thoughts posted at Wanganui Chronicle letters below:

How about a flood mitigation scheme upriver to avoid the prospect of a flood and generate hydro-electricity for a century for free. Maybe the city could get free electricity, to offset the extortion by the power companies after stage 2 of the privatisation/self-regulation. Perhaps the council could finance the scheme through its EnergyDirect investment (50% owned by the council)....though maybe self-regulation precludes such vertical integration. I forget.

I might add - a few greenies might be flooded out of the valley at the same time. Seriously, though, why spend $141.4 million on remedial work when you can create something of value or productive, that ultimately serves 2 purposes, perhaps 3 (water supply in times of drought).

This of course is too abstract for councils accustomed to reactionary solutions. Why spend on costs when you can create assets. Of course Annette Main, whose property lies in this vicinity could be expected to have a vested interest, so maybe no progress will be made. Perhaps she needs to keep a back seat in our extortion-based political system.

Think about the following figures - electricity prices in NZ - page 148 of the Ministry of Development website. Comparing the ratio of residential electricity prices / industrial electricity prices - suggests a 2.5x premium for residential consumers over bulk electricity consumers. Its the worst ratio in the world...then look at the same ratio for gas...its even worse 4.8x - so consumers are being ripped off by producers and distributors of gas and electricity despite the capital cost of these assets being fully sunk by govt by the 1980s, and no fuel cost for the 70% of generating capacity which is hydro.

Perhaps rate payers ought to convince the council to 'invest' in new generating capacity rather than spending on 'damage prevention'....that's a rather expensive contingency planning 'cost' for an event that may not occur; protection which might not work; and work that offers no improvement. Perhaps council could even protect ratepayers from the extortionate prices of the national powerco's by offering ratepayers a cost+ROI electricity price; or better still adopt market pricing, and retain the power asset revenue to alleviate future rates. Concessional electricity prices could also be used to attract new industries. You wanted jobs didn't you. Cheap electricity is known to attract jobs. But will you allow a dam on the Wanganui River?? If it protects your homes?

Am I missing something?

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The case for privatising NZ electricity assets

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According to the NZ Herald, Ernst and Young has produced a report which suggests NZ state-owned assets are reaping high returns; in fact higher returns than the median for private sector businesses. This poses a case of – why sell – when the public enterprises are more profitable, and the government has a lower ‘risk-free’ cost of capital than the private sector. There are problems with this analysis:

1. The fact that electricity assets are making huge earnings can actually be a good time to sell. The problem is that they are doing so because they are able to extort higher profits from the public because of poorly conceived self-regulatory electricity market. The NZEM is self-run and designed with private companies in mind. The implication is that these assets in private hands would lead to very high electricity prices, and either a lot of complaints by investors to re-regulate, or the high cost option of the govt buying back these assets. Think ahead NZ!

2. NZ’s economy is not growing, so you might reasonably expect these generators to use their market power to extract or ‘extort’ higher earnings from higher prices…because its not a competitive market, and the option-incentive for CEOs will be similarly driving all CEOs to make the same decision. The problem is CEOs have an expectation of driving higher profits. They can’t do that in NZ…so why are they not going overseas? Because they are too small, so hard to make profits. Most companies who invest abroad lose money.

3. Hydro-electricity assets are strategically important because no other substantial hydroelectric dams will be permitted by an ‘environmentally conscious’ NZ population. Hard to imagine any new dams being justified. More likely higher-cost wind capacity because its incremental, particularly with new molten-salt solar storage plants being under development. Expect solar wind farms around Nelson and greater island inter-connection.

4. There is a big overhang in the electricity market – the prospect of Rio Tinto not finding a buyer for their aluminium smelter, or the prospect of its closure in the next 5 years. This will result in 13% of NZ’s electricity demand ceasing to exist, so there is really no new demand for electricity in the short term. That means higher electricity prices on existing assets to justify lower sales. CEO’s will be forced to raise prices (since they can) to get higher salaries.

5. This of course underpins the ‘incentivisation’ idea of John Key. The idea that market discipline and ingenuity is going to see these CEOs extract higher returns. They will – but by mostly rising prices. Running a hydro plant is not rocket science!

The solution is to not sell hydroelectric power assets – except Solid Energy – which is a thermal project. The market is not a legitimately fair market regime, and the assets are politically sensitive in the sense that electricity costs are important for NZ’ers. If NZ wants to be competitive, this is not the way to go for small business or consumers. Next you will have to raise welfare benefits to adjust for higher electricity prices. It is really a hidden form of taxation. I’ve seen it all before in Australia.

“Labour says the Government delayed the release of the report until after Parliament rose for the holidays because it knew it undermined the economic case for partial privatisation”.[i]

Probably true; but then the Labour Party was too dumb to actually raise these concerns anyway. The argument was always there to be made, with or without the Ernst & Young analysis. In fact, I have made the case on Facebook, to the Labour member for Wanganui, and on my blogs. Doesn’t the Labour Party do its research? No, they seem to rely on policy from the top….and its all political ‘reactionary’ rhetoric. There are no analysts in the party…all party bureaucrats relying on analysis by government bureaucrats.

The fact that Mighty River earned a yield of 8.2% on its investment of course does not mean the asset will be sold for $3.5billion. However the fact that it’s a “no-growth” asset in terms of limited potential to build more dams because of environmental risks, and planning objections to wind farms, means any new capacity is high-initial-cost, but there is no population growth anyway. CEOs need incentives to stay in the job. You need to be sure there is no option incentive for CEOs to extort higher profits.

The problem I find is that NZ needs to have an intellectual debate about the values of this country. Either this is a socialist paradise or it’s a market economy. If you are looking at a ‘market economy’, then you need to look at foreign markets or increasing immigration. If you are looking at immigration, then it has to be significant volume to achieve growth in profits and asset values. That is what will retain people, and stop their movement abroad. This of course means NZ’ers need to come to terms with a NZ with a different cultural identity…this is the problem…most older NZ’ers don’t want this, so NZ is destined to remain a welfare state, with high costs and low-value opportunities.

Prime Minister John Key said the companies would "reap the benefits of sharper commercial disciplines, more transparency and greater external oversight".[ii]

Sorry, but this is not going to happen in a privatised market. Higher prices is what you can expect as the political pressures for lower prices evaporate. Greater external oversight? I doubt it. After privatising – the government is going to change the market structure? I doubt concerns about sovereign risk will allow it, and if the buyers are American, the FTA agreement will not allow it, i.e. They will sue the NZ govt. Of course if these assets are sold, then investors who retain these stocks will pay. My advice is take a stag ‘traders’ profit on these assets. Foreigners will not be interested in them. Too much sovereign risk.

“Ernst & Young's report shows the three companies have performed well compared to their private sector counterparts”. [iv]

That is because you are not comparing ‘like-with-like’. Other businesses can sell assets abroad. Australian power companies are servicing growth markets. You need to keep the context. When you buy a house in ‘no growth’ Wanganui, you expect a higher yield than ‘growing’ Auckland, i.e. Wanganui 12-13%, Auckland 5-6%. That is life, so expect 12% from these power assets; but these CEOs will push it higher to get an incentive bonus, so be very careful how the boards of these enterprises incentivise their executives.

Labour finance spokesman David Parker said the state-owned power companies' strong performance was "no surprise to me….This is further proof that these companies are already well run and profitable, and that they're not going to be better run as a consequence of private ownership…It further underscores that the only way these companies are going to make more money substantially is by increasing prices”. [vi]

True enough….but I suspect he does not know the reason why. It’s not because the yield is high or they are particularly well-run; it’s because they have the power to raise prices.

A recession and a self-regulated market context are not the right time to sell power assets. By all means sell Air NZ and Solid Energy, but again first eliminate the spectre of a 'carbon tax', as that nonsense science will only undervalue the Solid Energy assets. Empirical science is a scam. These scientists don't really understand their methodology. Such is the quality of public education. The biggest problem is the lack of critical thinking taught in our schools - public or 'religious dogma' inspired private schools. Privatise public schools by all means - but first discover rationality.

References

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[i] “Government’s sell off-firms are top performers” by Adam Bennett, NZ Herald, website, Jan 5, 2012.

[ii] “Government’s sell off-firms are top performers” by Adam Bennett, NZ Herald, website, Jan 5, 2012.

[iv] “Government’s sell off-firms are top performers” by Adam Bennett, NZ Herald, website, Jan 5, 2012.

[vi] “Government’s sell off-firms are top performers” by Adam Bennett, NZ Herald, website, Jan 5, 2012.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Rio Tinto out - the extortionists move in

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“Rio Tinto puts Tiwai Pt smelter on block” by Brian Fallow, NZ Herald, website, Oct 18, 2011.

This is an interesting move – Why is Rio Tinto selling off some of its aluminium assets? Zinc alloys more popular? Alumina reserves at Gove near exhaustion? Overpriced power in NZ due to a failed privatisation policy? Inability to build a hydro plant due to a poor regulatory regime?

NZ has the lowest average electricity generating cost in the world, but the mark-up of residential over industrial electricity prices is among the highest in the world. i.e. Higher than Japan or the Philippines. For an industrial company like Rio Tinto this is not usually a problem, as they have the financial muscle to build their own capacity. This is not so easy in NZ given the communities sensitivity to thermal energy. The National Party has said it is opposed to Helen Clark's policy of prohibiting new thermal power generation. The other problem is the structure of the electricity market. There is a very large resource of lignite in Southland...but clearly the National Party has created so much bad press about coal mining that I can't see Solid Energy having an easy time developing that resource. Its a very good lignite resource in fact...but there are other uses for this fuel, i.e. A Victorian university is developing a compressed fuel briquette.

Companies sell assets which are dogs or which are not a strategic mix because of their other asset mix or price outlook. Selling 1/3 of capacity means this is a strategic jettisoning of high-cost, low or no-growth capacity. That’s why its unstrategic. And yes, its hard to compete with China because it has subsidised electricity, and offers the cheapest conversion costs in the world….and I suspect there is large resources of alumina in Mongolia or Siberia….but that needs to be confirmed.

These assets are dogs....if you are an investor...do not buy them. NZ - if you want to avoid losing an export industry...think about electricity market restructuring. This will however bite into the govts hidden tax collection from privatisation....so it looks like these assets will probably be closed in years to come unless a 'mysterious' buyer emerges. The last ($500mil) upgrade to the NZ plant was in mid-1995, so the depreciated value of this asset must be close to zero....and this is a protracted recession.

The implication of this asset sale is - NZ will in about in 3-5 years have a spare 12% capacity surplus, so this means NZ generating assets are in many respects a dog for investors given that the country has bugger all industrial activity and population growth. Thus profitability will have to come from customer extortion. Trust me....you don't know how painful government can get. Consumer extortion in a small, stagnant market like NZ is the most lucrative way to make money; particularly if you function in a 'self-regulated' market.

The implication is - it would be silly for the NZ government to sell off its power assets for the next 5 years; and it would be silly for the NZ people to allow them to do it until they compel the Commerce Commission to fix the flaws in the NZ electricity market structure. The flaw is the structure of the market. With 70% essentially free hydro generating capacity, and electricity prices charged at the marginal price (set by thermal and wind capacity), NZ is paying the highest cost of electrcity, when there is actually very little demand. i.e. Why do generators need to charge so much - they don't need to build any more new (expensive) capacity. Prices are rising because executives cannot get bonuses until they can extort profits from residential consumers. This is why NZ needs an effective regulation system. Nothing about Labour, National, ACT or the Maoris give me reason to think any of them have the intellect to anticipate these issues.

Big business will realise....because they have smart analysts like me. Ok, not as good as me, but then few of them have as much respect for facts, nor have they studied philosophy, so public policy can be a 'no go' zone for them. Too much conflict. Morality...uuuhh!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Black gold in NZ - we just need to find it!

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It is good to see the NZ government promoting oil & gas exploration. My opinion is that they are not doing enough. Here is an NZ Oil & Gas Presentation for 2011, which provides a good overview of the NZ industry. There are several points I would make:

1. The effective tax rate on oil & gas production is 20-25% of profits - based upon the 20% royalty and a nominal income tax because although the tax rate is 28%, any discovery resulting in production is only going to be realised after capital has been recouped and a scaled up exploration and development program has been advanced, i.e. Don't expect much income recovery.

2. There is a significant income for NZ from local, competitive energy supply, though oil is likely to be processed in Australia. There will be a lot of jobs and engineering work.

3. The NZ government ought not to wait for these private companies to give the country attention; it ought to expedite their own exploration efforts. i.e. Spend $50mil over the next 2 years contracting geophysical surveys over the most prospective areas. This will give a better idea for future exploration, as well as attract private interest. Establish a state oil company and seek private equity so that there is a 'bidder of last resort', and this enterprise ought to be sold off when the market for risk capital arises, or the risks fall.

The motivation for this approach is:

1. NZ has yet to have a significant oil discovery. Until that happens, NZ will not be taken seriously

2. NZ should not be letting foreign nations decide its fortunes

3. NZ needs to place some faith in its oil and gas potential

4. NZ needs to recognise the huge potential of its offshore areas - they trump the offshore mineral potential, and yet the governments primary focus is on these areas. They are getting all the political focus.

5. NZ is in a global recession. Commodity prices are high, and NZ needs to invest in income generation. There is no better area to do this than oil and gas!!!

6. NZ could have a $1 trillion future fund to match Australia's in 2030 if it appreciates its offshore oil potential

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

NZ - high electricity costs were part of your game plan

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You might wonder how NZ is stacking up in the energy savings stakes. Well, I have just written this article in response to a NZ Herald article suggesting that power demand is flat in NZ. We need to remember of course that the population growth rate is also flat. But there are other factors as well. Consider the issues here.

NZ power is among the most expensive in the world. My power bills here are as much as I would pay in the Philippines or Japan; the most expensive countries for power in the world. The difference of course is the following:

1. Japan imports all its coal, uranium and gas (as LNG), and the Philippines is very similar; even worse in the sense that most of its power is purchased from independent foreign companies under very unfavourable contractual terms accepted by the Ramos administration.

2. NZ power costs of production on average are the lowest in the world thanks to the fact that 70% of electricity generation comes from 'free fuel' hydro plants, the capital cost of which was fully-written off over 40 years of operation, but recapitalised when these corporations were sold off. Was this a good divestment for NZ? I suggest not given the lack of real and effective competition because all electricity is now sold at prices to justify small increments of electricity capacity increase at the 'margin' to meet demand. In fact, with flat population growth, there is little real need for new capacity. So why the increase in prices? Well, I guess its because the operators can, and their shareholders demand, stronger profit growth that they can deliver. Its a choice between investing offshore, in which case they are a minor player, or extorting wealth from NZ. Yep, you guessed it, extortion is more profitable and safer given that you already have the relationships with business.

If memory serves me correctly, these assets were sold by a Labour government, and supported by the National Party. It was not good decision-making given that:

1. These assets were sold too cheaply to foreigners

2. High electricity prices are an obstacle to national savings and investment

I guess, if you are a greenie, high electricity prices are good for the environment, because paying exorbitant prices diminishes your capacity to afford electricity. So you can well appreciate the 'post-industrial' lifestyle of the cavemen because you will be living in a nirvana when you can't afford what they could not even conceive of.

The good news is that real wealth generation is occurring as well as the extortion. The extortion is really just a means by which business offset the cost of government, i.e. Basically business passes these costs of government on to the consumer in higher prices, because government is an 'instrument of the people, apparently for the people'. You might want to question that wisdom. hehe. Universal suffrage was not such a good game plan after all. hehe.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Offshore oil development blessing for NZ

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The protest against offshore drilling does not “highlight the dangers of oil spills”, it represents complete ignorance of oil exploration and discovery, with no consideration of the benefits. Firstly, oil is an indispensible ‘global commodity’. If there is to be exploration, the best place for it is in the remotest part of the world, such as north-west of NZ. Suggests that fracking chemicals present a toxic threat is absurd given the volumes involved. Of course such campaigning is compelling news for those whose contempt for mankind extends back to biblical times.

Notwithstanding the (still uncertain) consequences of the Gulf of Mexico spill, the solution is a better legal framework, not misinformation intended to extort political appeasement under the existing system. In this respect, the protesters will be part of the problem, and will have no impact upon government policy.

I presume the protesters will ride bikes to Castlecliff Beach and plant trees to achieve offsetting carbon abatement credits for the senseless burning of trees on the beach. Most oil spills result from tanker transportation, whether collisions or groundings during storms. The worst spill was caused by the Iraqis in the Gulf War. Well blow-outs are a relatively rare event, and any comparison between development in the Gulf of Mexico (I estimate 50,000 drill holes) compared to around 300 all over NZ is stark. We would be so lucky to have a ‘gusher’. Perhaps they ought to lobby car manufacturers for more fuel-efficient engines. Why don’t they finance engine technology enthusiasts? The potential wealth flowing from a NZ oil discovery would actually allow the government to finance more tangible conservative values.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The opportunities in energy for NZ

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In recent months I have been writing about the prospects of NZ staging a magnificent turnaround - albeit in the next decade, perhaps longer. I have made the argument that the world is going to be looking for oil, and eventually they are going to make their way to NZ. It is not enough that they come looking here, but it will also take some time for them to find something. It is not that I know something that they don't on the exploration-side, its just a fact that NZ has vast areas of offshore basins upon which carbonate oozes can accumulation, and in which oil can develop. This article by the NZ Herald suggests that oil explorers are starting to enter the NZ market.

The other reason why this is big is the fact that NZ is such a small nation, with just 4 million people. The implication is that NZ is potentially going to be like those small European nations like Norway, which grow rich from oil. Brunei is of course another good example. It will come...though its hard to say how much oil wealth NZ possesses...there is good reason to think it will make a substantial difference to the country. It is probable it will be gas rather than oil. If I reflect upon the geological basins of the world which most resemble the NZ context, it is likely to be the North Sea (UK-Norway fields). The proof however remains in a comparison of the geology and ultimately the evidence that comes from performing exploratory geophysics and drilling. There needs to be the right rock types, sufficient accumulation, structural development, cap rocks.

The other important development in NZ is going to be the development of iron ore resources. NZ has vast iron ore sand deposits containing titanium and vanadium. These additives will prove to be high value in the context of their ready access, because they will allow the low-temperature smelting of these ores into high-strength steels. There is probably more work to perform on these ores.

The important point is that the longer NZ takes to develop these resources, the greater their worth. The market for high-strength steels is yet to really develop, and there is still plenty of oil in the Middle East, so it will be another decade before oil prices go crazy. Resource-rich countries like Russia, Australia, Venezuela and NZ will perform really well. I think its just remarkable that the world's richest nations are not doing more to avert this problem. i.e. They ought to be investing in more efficient engines. i.e. The internal combustion engine is really very inefficient. The modern fuel cell is pretty efficient, but it produces at access of heat, when in fact the world needs the more useful form of energy, electricity. The Stirling engine is a far matter design, but it suffers from the same problem.

I would not be surprised if some NZ'er or an Australian comes up with the ground-breaking technology which sees developments in this area. It will be some frustrated engineer who could not get government funding, who mortgaged their house to develop the technology, and they end up selling out for a 3% royalty. Its the Sarich engine scenario all over again.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

A prosperous outlook for NZ - an energy boom?

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There are of course numerous factors you look at when you decide a place to invest, a place to live, or a place to holiday. For these activities NZ has a great deal of appeal because its low-income per capita has decimated the currency. It has often lagged between 0.5-0.75 USD for the last few decades. This collapse occurred after the 1960s commodities boom. In days gone, countries like Australia and NZ were among the richest countries in the world.

I can see a time in about 10-15 years when the NZ currency will be stronger. It is possible that NZ will capture some of that long-lost glory. That is a long time off. I am expecting NZ to have an energy boom. i.e. Methane hydrates mined from the sea floor, lignite pellets, and perhaps even conventional gas. With offshore oceanix areas the size of the EU, and a stagnant population of just 4.2 million, there is economic potential in those 1000-metre deep southern seas. It will take time to find, delineate and develop these resources, however one good discovery will compel a great many other explorers because China and India need energy. That is a lot of wealth for such a small country. Expect it to have its own 'Norwegian-style' economic miracle.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Performance of Wanganui Mayor NZ

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Michael Laws is a rather high profile mayor in NZ. Mostly it is because of his antics. It always gets a lot of national attention, as well as derision. His conservatism is popular with the retirees in Wanganui I suspect. But let's look at his performance. The council rates are increasing by 4.5% in 2010/11. This seems most enough when you consider inflation, but one might ask why councils can't achieve cost reductions through efficiencies, particularly when we are talking about a rural region subject to steady population.

I think one of the biggest opportunities for saving public money is by adopting a per volume cost for water usage. I note the impact of free water on the community. My neighbour said 'Andrew, don't worry about wasting water, its free'. I replied 'nothing is free', someone always pays. The reality is that Wanganui water is expensive because it is derived from bores as opposed to regulated dam storage. The implication is that if there was an increase in population, we would need to develop more boring capacity. I note that the council recently developed new boring capacity to substitute for the failed no. 1 bore. It should have simply adopted a pro-rata pricing of water. Now, this might be harder than it sounds, i.e. Maybe the water in NZ is unmetered. I guess, unlike Australia, they are so accustomed to having free water. Even so, even if usage was collectively based on the premise of 'user pays', it might still have some effect, even if weaker. i.e. My neighbour would be less inclined to say 'its free', knowing that collectively I was paying more because of his actions.

Another big mistake is for Wanganui Council to have paid $20 million (my understanding) for Wanganui Gas. This utility is a legacy of the old electricity and gas board days. By buying the balance of the utility from its JV partner, it is exposing rate payers to commercial risks which we don't need. Consider for starters that the industry is undergoing consolidation. How is its retail arm 'Energy Direct' going to compete with the full service providers. I might add that the window of opportunity to sell this utility is dying. Consider that the ratio of residential to industrial gas prices in NZ are the highest in the world- even higher than statist Japan, where consumers always get a bad deal. Literally slaves to the state. NZ residential gas prices based on last years prices are 10x greater than the prices for utilities. The reason of course is that the NZ privatisation scheme was a sham, and the very uncompetitive regime for gas and electricity in NZ. Consider that consumers are baying full price for electricity, when most capacity is operated at almost zero cost. Water is free, and no fuel cost. Markets demand you pay the marginal price, which is the cost of high-cost wind, also near-free to operate, but costly to install. The implication is that if some person decided to commission a 600MW power plant, prices could halve, and the utilities would still make a great profit. The current regime is huge profits for the utilities, as well as government, and it raises the question of whether the utilities have paid huge kickbacks to secret bank accounts in Switzerland in order to structure 'deals' like these. Hard to say if its incompetence or corruption. There is a fine line between stupidity and deceit.

It ought to be apparent though that Wanganui Council has on benefit to derive from being in the industry given that the returns are never going to be greater. Get out why you can! Coal seam gas would erode their profitability when developed in the Waikato Basin, greater convergence can be expected, etc. There is better ways to attract jobs that by propping up historical practices.

It is apparent that the council is creating a problem of future unfunded liabilities by underspending on the maintenance of public infrastructure. These problems or cost items will not disappear, which means that the Council is moderating rate increases by increasing future contingencies. I am a believer in very small government, so the idea of a local government having $84 million in debt is ridiculous, particularly one which cannot attract people (i.e. rate payers). Worse still is the fact that they project it will increase to $96 million before falling. Who can know that is reasonable - that the debt will fall to $66mil in 2018/19? Are they projecting a population explosion to justify it, or an increase in future rates? Hard to see if this is possible if they are pushing capital outlays into the future.

Laws makes the argument that Wanganui will be among the 'elite' group of 16 councils (of 73) able to reduce debt in this period. This says nothing since Wanganui is among the few councils likely to be forecasting stagnant population growth. i.e. No capital expenditure demands. Such 'relativist' statements are therefore misleading.

I do think the council is doing a good job improving the visual appeal of the city. This will attract tourism, and improve property prices. Wanganui is a great place to live, and I also support their desire to improve the negative perception of Wanganui. People seem to think this town is overrun by gangs. I have yet to see any gang activity in the year I have lived here. Not seen a gang member at all, and we live close to hot spots of trouble. Maybe this is the result of the anti-crime initiatives, because I must say in the first 8 months of living here, I was seeing a police car every day. Now its once a week.

I also appreciate the opportunity the council has given to make public submissions. Not a believer in representative democracy, but better than nothing. No accountability, so its one-sided representation. What is the point of disclosure if you have no recourse for 3-4 years; and that recourse is zilch in comparison to the rest of the unthinking electorate.

Heating options and insulation in NZ

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NZ is a fairly cold place. Surprisingly a great many houses are still uninsulated. What is more crazy is that the NZ government is attempting to compete with a lot of European countries by trying to encourage greater fuel efficiency. Their policy comprises offering grants to households which install air or water heat pumps, insulation and solar units.
I like the idea of establishing these technologies. The simple fact however is that they are overpriced because governments are trying to promote their environmental credentials. It really is a false economy, much like the $14-21K first home grants in Australia, which only succeeded in forcing up the price of property, and further expanding household debt in Australia. Worst of all, the most vulnerable section of the economy is being sucked in during a time of recession. Governments are evil ....long live their stay in purgatory.

So what should you do? Well interestingly, its often the technologies which are not subsidised which make the most sense, particularly those which you can install yourself, i.e. Wool insulation as opposed to pink bats.

I have spent a lot of time researching the various options, and as much as I like a heat pump, I'd be inclined to wait for better technology options because a heat pump is basically the reverse of a $1000 refrigerator, yet they cost $4500-5500, plus installation $700-1000. That $1000 subsidy goes straight to the manufacturer because of the rip-off prices. Basically they are expensive because countries like Germany are providing huge subsidies.
At this point I would invest in a nice warm wool jumper. Same for insulation. Air foam for $4000, when 3 people can install it in a day, its overpriced. Wait for competition. There is no justification for it. Roof insulation makes more sense and you can install it yourself.
A $70 oil heater makes the only economic sense at the moment. Just wait until the manufacturing capacity grows, eventually prices will drop. There will also be new technologies like Stirling solar engines and fuel cells. A good woollen jumper costs you $300. Sorry, I paid too much :)
I might add that local governments are ripping off the people by charging $260 to install every little thing. A solar panel, a open fire place all require council approval. Would it not be better to just require licensed installers to by-pass such cost constraints, and perhaps for non-licensed installers to require such approvals. Please, in the interests of ending slavery to an unthinking state!

How should the NZ government boost the economy?

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It so happens that the NZ places a great deal of weight on what I think. In fact every day before the Prime Minister eats his Sultana Bran he calls me up and asks me "Andrew Andrew, what should I do, I can't live without your insights". Anyway, I thought I'd share some of the advice I gave him today.....

First of all, I am no Keynesian advocate. I deplore the idea of stimulating the economy simply because I deplore the economic policies that leave the economy in a situation where there is excess capacity, whether because of over-investment or over-consumption. Over-investment is of course the result of bad planning, over-consumption the result of excess debt creation. In the case of the later, this occurs because of government. The US government is key because:
1. Its the largest economy in the world
2. It is the largest financial centre in the world, and London is just as bad
3. It is the world's reserve currency, which means that most debt is denominated in USD, so they don't have to worry about repaying foreign currencies, since they just print their own cruddy currency to repay the world. This of course tells you to expect a fall in the USD. Which makes me think the Japanese have more to worry about then the USA. China will be ok as well because they are the centre of future growth. Poor Japan though. Those innocent souls investing in postal savings bonds at 1% return on investment.. he he. No wonder the governments wanted to sell the scheme. hehe. Nope, very sad. I keep telling people you cannot trust government. They are evil people. Why do you vote for them.

Ok, I've fallen off topic here. So back to stimulus. Given that the US and other Western governments have created this slump in demand, and they did that by stimulating household debt/demand. Surely the only justification for now going out and stimulating government demand/debt is by increasing the productive capacity of the economy. So how might the government do that. I can suggest the following ideas:
1. Investments that use as much local content as possible
2. Investments that provide stimulus to every aspect of the economy, eg. rural and city, white collar and labourers.
3. Investments that increase the domestic productive capacity, reduce costs, or increase efficiency, prefereably in those areas that need it.
4. Investments that will provide work to small business as opposed to big contractors sending most of the profits abroad

So lets look at some possible projects:
1. A very fast rail service from Auckland to Wellington: Such a service will go through mountains (like Japan), or alternatively around the coast via New Plymouth if that saves on capital costs. The attraction is the jobs created, local railway making, local raw materials (iron sands). The trains could be made in Australia, the technology imported from Germany, France or Japan. This is one of my favourites because it would be more energy efficient, reduce emissions, replace old train services, stimulate regional economies before & after. The argument could be made that NZ'ers could not afford to buy the tickets. True. Next!
2. Energy projects would make a lot of sense but NZ already uses renewable and domestic energy supplies, so there is no point in investing in them, unless it was a proposal which would reduce imported oil used as a transport fuel. This makes a lot of sense. The question is how? The railway idea helps, but its probably not viable. NZ has no car industry, so it does not make sense to start one given the small size of the economy. It would not be feasible to convert cars to electric engines, or to replace them. An attractive option however is to produce biodiesel from wye and bio-ethanol from timber. This would take time mind you, but why not start the problem with annual crops like maize and sugarbeet. Within a decade NZ would no longer need imported oil. Another compelling program would be a search for coal seam gas. I actually know a lot about this having just prepared an energy report on the subject. The intent or hope is that by government kickstarting coal seam gas expenditure through Solid Energy, it will be able to establish a competitive gas supply to the conventional suppliers, and it will also kickstart investments in gas reticulation pipelines on both islands. The consequence will be cheap gas, which will attract more industrial activity as well given the weakish NZD.
3. Communications projects make a lot of sense as well. The future is very much going to be technology driven, and I think by offering cheaper, high speed internet NZ has the potential to rejoin the technology race. It is lagging in this respect. I think the key to improving things is to make NZ a more attractive place to live. Over-investing in property did not help as now we are going to witness a lot of job losses. High speed data therefore makes a lot of sense, as well as getting computers into schools.
4. Education makes a lot of sense too, but what is the point if people just go overseas. Unless NZ can appeal to people, attract higher income jobs, it has little hope of doing that. I think most people have a bad perception of education frankly. There is this obsession with formal education. I consider myself a pretty smart guy, and truth be told, I learned most of it by reading books, analysing issues, breaking down arguments. Any education needs to be critical and systematic, it does not need to be formal, and it does not need the sanction of government. There are better ways to convey credibility to prospective employers than getting a certificate from a government.

I can't think of any other investments that people should make, but there are probably more. Tell me what you think!