Over at Econlog I have a new post praising Hong Kong, which I recently visited. (BTW, I’d love to discuss the Mont Pelerin Society meeting I spoke at (which was excellent) but am not allowed to–it’s off the record.) At Econlog I positively gushed about the Hong Kong infrastructure, which was recently ranked number one in the world.
On the other hand the Bible teaches us “everything in moderation.” And so does economics (corner solutions are rarely optimal.) So maybe Hong Kong is spending too much money on infrastructure. (This discusses a proposed third runway for the airport):
Having been happy to see white dolphins made the centre of opposition and having seen this opposition vanish on schedule, the lobbyists reasoned that the runway would be certain to go ahead. Events are now falling right in line with that game plan.
As a fall-back ploy, however, they also came up with the stratagem of saying that we must first decide whether we need a third runway and only then discuss the funding of it.
It is somewhat akin to my saying that I must first decide whether I really need a Ferrari and only then look at how I will raise the money for it.
It’s a great idea if I can then say that I can’t afford it and someone else must pay, as the lobbyists think they can make taxpayers pay for the third runway. The purchase has been irreversibly determined – too bad for the taxpayer, too bad for the people who must pay for my Ferrari.
And if the lobbyists say the comparison is inapt, as I don’t really need a Ferrari, well, neither did they need to clog our runways by subsidising minor airlines to operate small aircraft to minor mainland towns in competition with Shenzhen. Their cynicism extends to misuse of the facilities we bought for them.
The fact is that we immediately take into account the cost of anything we want to buy in the decision of whether to buy it or not, and when that cost is HK$200 billion, as in the latest projections for the third runway, it is rank negligence to separate the cost from the purchase decision.
Think about it. Recently our government rejected (but has not yet admitted doing so) a scheme to pay everyone over the age of 65 a pension of HK$3,000 a month. I myself thought it a poorly considered scheme, but I accept that old-age poverty is a problem.
Now let us assume that we put HK$200 billion into an old-age investment fund and target a return of 2 per cent a year, which is not high in ordinary times.
This would yield HK$4 billion a year, enough to pay 111,000 old people that pension of HK$3,000 a month, and we could keep doing it year after year without touching the capital. It would go a long way towards addressing the needs of our indigent elderly.
Should we do it? Would it make more sense for use of the money than building a third runway so that our airport can keep competing with Shenzhen in microlight traffic?
I accept no answer from the third-runway lobbyists. Their only stance can be that we must first decide whether to pay 111,000 people HK$3,000 a month and only then discuss how we would fund the scheme.
There is only one way to do things here. It is to fold a share of the cost of that runway into the airfare of every air traveller who uses our airport. Any investment banker can tell the lobbyists how to do it. But they won’t. People would then go to Shenzhen for microlight flights, and our two runways would be enough again.
That piece hints at corruption, with powerful special interest groups like builders and aviation overriding the broader interests of the elderly.
My first reaction on reading this essay was that a social security system for the poor must surely cost more than a runway; even more than twice as much, if you prefer to double the payments to $6000/HK dollars per month (which is $800US.) The problem is that once you start providing public pensions, you end up discouraging people from saving. You end up with a country where most people have earned really high incomes by international standards (even adjusting for cost of living), but were somehow unable to put money away for retirement. A country where even people making $100,000/year somehow find it impossible to save. In other words, you’ll end up like the US. There won’t be 111,000 Hong Kongers in need, there’ll be 2 million elderly “in need.”
But then I did a bit of research, and discovered that Hong Kong instituted a compulsory saving scheme for retirement in 2000. Presto! No more moral hazard problem. Yes, by all means divert the money from the runway to the elderly poor, who built modern HK with their hard work. It’s a no-brainer for a utilitarian.
And yes, you can have too much infrastructure.
PS. The discussion of the Golden Mean reminds me of this remark by Thomas de Quincey from On Murder Considered as One of the Fine Arts:
No, upon my honor—no. And that was the very point I wished to argue for your satisfaction. The truth is, I am a very particular man in everything relating to murder; and perhaps I carry my delicacy too far. The Stagirite most justly, and possibly with a view to my case, placed virtue in the τò µε´σον or middle point between two extremes. A golden mean is certainly what every man should aim at. But it is easier talking than doing; and, my infirmity being notoriously too much milkiness of heart, I find it difficult to maintain that steady equatorial line between the two poles of too much murder on the one hand and too little on the other. I am too soft; and people get excused through me—nay, go through life without any attempt being made upon them—that ought not to be excused. I believe, if I had the management of things, there would hardly be a murder from year’s end to year’s end. In fact, I’m for peace, and quietness, and fawningness, and what may be styled knocking-underness. A man came to me as a candidate for the place of my servant, just then vacant. He had the reputation of having dabbled a little in our art; some said, not without merit. What startled me, however, was, that he supposed this art to be a part of his regular duties in my service, and talked of having it considered it his wages. Now that was a thing I would not allow; so I said it once, “Richard, (or James as the case might be), you misunderstood my character. If a man will and must practice this difficult (and, allow me to add, dangerous) branch of art— if he has an overruling genius for it—why, in that case, all I can say is that he might as well pursue his studies whilst living in my service as another’s. And also I may observe that it can do no harm either to himself or to the subject on whom he operates that he should be guided by men of more taste than himself. Genius may do much, but long study of the art must always entitle a man to offer advice. So far I will go—general principles I suggest. But, as to any particular case, once for all I will have nothing to do with it. Never tell me of any special work of art you are meditating—I set my face against it in toto. For, if once a man indulges himself in murder, very soon he comes to think little of robbing, and from robbing he comes next to drinking and Sabbath-breaking, and from that to incivility and procrastination. Once begin upon this downward path, you never know where you are to stop. Many a man dated his ruin from some murder or other that perhaps he thought little of at the time. Principiis obsta—that’s my rule.” Such was my speech, and I have always acted up to it; so, if that is not being virtuous, I should be glad to know what is.