The Dr Seuss problem in public spending plans

If we had some eggs we could have ham and eggs for breakfast, if we had some ham.

Or, the fallacy of the unwarranted assumption:

In a report setting out the case for a vast expansion of GB Energy in the early years of a Labour government, Common Wealth said state-led investment in clean energy would be substantially cheaper than the private sector equivalent – helping to save households money on their bills.

It said renewable investment financed out of Labour’s initial £8.3bn capitalisation would save between £125m and £208m a year on debt interest costs each year – saving up to £1bn in total compared with private-sector borrowing, which is typically more expensive.

Business Green, the media outlet of choice for the subsidy suckers, agrees. Obviously.

It is true that the interest rate on public debt is lower than that on private. For the obvious reason that if the project is mismanaged, or goes over budget, or goes kablooie, or just generally doesn’t work out well then the taxpayers are on the hook for repayment, not the cashflows of the project that has been mismanaged, gone over budget, banged kablooie or just generally doesn’t work out well.

We’ve a transfer of risk that is - for nothing is actually free in financial markets.

OK. But what’s the assumption there that leads to the claimed lower bills? That the public management of the project will lead to the same risk, compared to private sector management, of the project being mismanaged, going over budget, exploding kablooie or just generally not working out.

This from the people who have given us the Scottish ferries - where they managed to bankrupt their own shipyard building the things - and HS2 and Sizewell and, well, you get the picture*. We might even think that similarity of outcome, of risk, might be an unwarranted assumption.

Building things with public money would be cheaper if building things with public money were cheaper. Well, yes, but Dr. Seuss was right you know.

*We particularly relish the national planning system for housing land which produces a shortage of land for housing despite 98% of the country not being used as land for housing.