Government clearly off the rails on transport policy
All the excitement over the government's decision not to adjust the tolls of the various tunnels misses the bigger question of what's behind its transport strategy, if that is what it can be called. At present the government keeps building more roads to meet demand. But clearly the more roads that are built the more cars will be encouraged on to them.
The government claims to have a railway-led transport policy. But that is clearly not so. If it did it would be building more railways and introduce electronic road pricing or congestion charges to encourage people to use it. Once the rail lines being built are completed there don't appear to be plans for more. Meanwhile, the government spends about HK$40 billion a year on roads.
If we stopped building roads and built more railways, this money - which is about half the education budget - would disappear from the government's budget because the new railway would be funded by the MTR. But such a move carries grave implications for the civil service. Think what would happen to the Transport Department if its mass road building projects were stopped. A lot of civil servants would be out of work.
Road building is linked to land values. The government builds the roads, the adjoining land rises in value, and helps fuel government coffers when it is sold. Then there's the business of awarding contracts and the prospect for some of post-retirement consultancies. If the government were to decide to build more railways and stop binging on roads, then all of this would result in a tremendous loss to the civil service. This is why it has to keep control of building roads.
Look at the new plans for "developing" Lantau. We can imagine the scene: extensive road building, huge increase in land values, all good for government coffers and maintaining civil servant jobs. It's another aspect of the theme we've touched on before. Hong Kong is being run for the benefit of the civil service rather than for the good of the community.
Tim Harford, author of The Undercover Economist had a cautionary tale for fund managers. In an entertaining speech at the 2013 IFR Asia Awards Dinner on Wednesday evening, he compared the stockmarket investment histories of distinguished economists John Maynard Keynes and Irving Fisher, in the 1920s.
Keynes' attitude to investing was reflected in his comment: "Win or lose, this high stakes gambling is a joy to me." Both men felt they had an edge given their economic expertise. Initially Keynes' investments went well and he made a fortune but then things went wrong and he was wiped out. However, family and friends gave him more money to play with and in the run up to 1929 had amassed another fortune.
Fisher too had done well before the crash. Just days before the crash he observed that "stock prices have reached what looks like a permanently high plateau", and said he expected stocks to go higher. After the crash he maintained that it was a temporary fall and was "only shaking out of the lunatic fringe". Three months later he produced a book explaining why stocks would recover. Alas stocks did not reach their pre-crash highs until 25 years later. Fisher had invested in his beliefs and was wiped out.
Keynes, having lost one fortune, was more circumspect and before the crash was uneasy and had begun to adjust his strategy. He still lost money but wasn't wiped put and subsequently adopted a kind of Benjamin Graham approach to stocks by investing in a few well-managed companies he knew and understood and held on to them - a value-investing approach.
As Harford points out he was helped by an attitude encapsulated in another of his famous observations, "When my information changes I change my mind. What do you do sir?" Over the next 25 years he outperformed the market every year by an average 6 per cent.
The moral of the tale? Fisher was so invested in his beliefs he couldn't step away. Keynes following his earlier mishap was more circumspect and less blinded by economic theory in his investments. While Fisher was ruined, Keynes thrived, which is perhaps why on his deathbed, his last words were: "I should have drunk more champagne."
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