Tuesday Morning Links

This and that for your Tuesday reading.

- Sam Pizzigati interviews Richard Wilkinson and Kate Pickett about the fight against inequality and the next piece of the puzzle to be put in place:

[Pickett:]...In The Spirit Level, we have all these correlations between inequality and social problems, and we have theories and hypotheses about what is driving these correlations. But we didn’t know then whether or not the drivers we hypothesized — things like status anxiety — were actually higher in more unequal countries. Now those kinds of data are being used increasingly in psychological research. So, for instance, there are papers looking at levels of social solidarity in relation to inequality in different European countries.

Wilkinson: Solidarity in terms of whether people are kind and helpful toward each other, whether people are willing to help old people or their neighbors or the disabled.

Too Much: Your upcoming new book, which I hear has the working title, Crisis of Confidence, will go into much of this new psychological research?

Wilkinson: Yes. I worry that many people think that these things we’ve been writing about — like violence or poor educational performance — all go on out there in “society” and have nothing to do with what they think matters most to them, like their own personal and emotional ups and downs and the well-being of their friends and family. So I’m rather keen to show how inequality gets into our intimate worlds.

- Meanwhile, Rick Noack looks at how inequality has undercut economic growth in numerous developed countries including Canada. And Joseph Stiglitz writes about the damage ineequality has done to the U.S.' youth.

- Keith Reynolds discusses Ontario Auditor General Bonnie Lysyk's findings about the gross waste resulting from the use of P3 structures based on unfounded assumptions:

Risk transfer is the magic bullet that is used to justify spending more money on public-private partnerships. The thinking is that the private partner absorbs large amounts of risk that would otherwise be carried by the province and that this justifies additional costs. In the Ontario example, the AG says the government uses calculations that assume there is five times as much risk from public procurement as there is from a public-private partnership.

How much risk is actually involved? The Dominion Bond Rating Service published a document in February outlining how it rated the credit worthiness of P3s. It concluded most P3s were "of low to moderate risk." If this assessment is good enough for P3 investors listening to the DBRS, maybe we should be listening too. As a specific B.C. example, a Finance Department memo obtained under Freedom of Information looking at the Fort St. John Hospital P3 questioned the return the company was getting for taking on risk. The Internal Rate of Return (IRR) is the return the company expects to get back on its invested capital. The government memo said that the IRR the company was demanding in return for accepting "risk" was ridiculous given that:

• There is no revenue risk in a hospital project.
• Counter-party risk is the province, so as long as the proponent manages the projects minimal equity risk.
• Only political risk, which is relatively low.

The Ontario auditor general went even further questioning the whole underpinnings of the "risk transfer" justification.  She found that there was absolutely no "empirical data" supporting the valuation of the cost of risks transferred to the private sector by P3s.  The risks to justify the enormously higher costs, she reported, were anecdotal.

- But perhaps even more telling than the strength of Lysyk's findings is the weakness of the counterargument - and Paul Boothe for one isn't going to let the fact that the argument for P3s relies on wishcasting stop him from keeping up a steady stream of fact-free anecdotes and reliance on an incestuous consultant industry to evaluate itself.

- A new OECD working paper finds that contrary to the Cons' spin, a properly-administered set of environmental regulations doesn't need to cost the economy anything. And Scott Vaughan points out that Canada could easily turn renewable energy into a far larger export industry if we weren't stuck with a government determined to push the dirtiest energy sources available.

- Finally, Jim Stanford offers some good economic news from 2014 (while pointing out that there's still a long way to go).