06 January 2017

Putting the sunk in sunk cost #nlpoli #cdnpoli

Muskrat Falls is basically an $800 million tax on the people of Newfoundland and Labrador. That's roughly the amount you get using numbers Nalcor chief executive Stan Marshall made public last summer.

Muskrat Falls is a tax on the people of Newfoundland and Labrador.  Always was that.  Never was anything else.  The plan was to collect the tax by doubling electricity rates.  Regular readers have known this since *before* Danny Williams announced the scheme.

Take all that as the starting point when you hear Dwight Ball tell Anthony Germain on the CBC St. John's Morning Show that Ball is spending a lot of time trying to figure out how to keep our electricity prices from doubling.

Ball says we have to manage the cost of the project and we'd be faced with it no matter what. That is the  sunk cost fallacy and Ball did a fine job of reciting every version of that faulty logic as the justification for carrying on.  You clearly don't understand that sunk cost is a logical flaw if you are saying that you have to keep going because you have already spent all that money.

But anyway...  the key thing for our purpose here is that Ball has been talking since 2012 of finding some way to reduce the size of the Muskrat Falls tax. He's talked about it as using sales to "mitigate" the impact on rates.

That idea is just like Muskrat Falls:  it never made any sense.  The whole reason that the Conservatives invented Muskrat Falls in the first place is because the whole scheme was so wildly expensive that no one would buy the electricity.  That was when the project was $5.0 billion, not $12 billion on the way to $15 billion as it is right now.

Whatever money you made off sales on the spot market - if you made any at all - would simply make the size of the rate increase in this province a tiny bit smaller.  But the only people committed to covering the whole cost would be local taxpayers.  Under the federal loan guarantee, the government has to jack up rates to cover the costs so you really can't "mitigate" anything in the way Ball used to talk about it.

Basically, if Ball wants to avoid doubling electricity rates  and he refuses to halt Muskrat Falls - like the charter member of the Muskrateers that he is - then that leaves two choices.  Ball can get someone else to pay for the costs.  Economist Ian Lee mentioned that to On the Go's Ted Blades on Thursday afternoon.  Lee talked about federal cash in some form but said there was nothing going on.  He suggested something through Equalization or maybe a one-off deal.

Lee's a bit behind the curve.  The talks with Quebec,  brokered by Ottawa, are a way to try to get the cash to Newfoundland and Labrador without triggering all sorts of cascading problems in federal-provincial relations from a direct bail-out.

The other option for Ball is to take the Muskrat Falls tax from people in another way.  That could be in the form of spending cuts.  That one isn't very likely given that the government already overspends by about $2.0 billion and the politicians won't come to grips with that.  That could be in the form of keeping some of the taxes that are supposed to be temporary,  like the levy and the gas tax. People will throw up their hands at the thought but really Muskrat Falls is nothing but a tax collected by a new means.  They could also introduce some new taxes but,  frankly, if you don't want to increase taxes via Muskrat Falls, the only option you have is to cut spending by an amount equal to the amount of tax.

It's taken six years for folks to figure out Muskrat Falls.  Dwight Ball's interview with Anthony Germain or the cabinet ministers furiously retweeting a ludicrous puff piece about the Bull Arm-Whiffen Head-Come-by-Chance "Golden Triangle" are basically about that far behind the curve still.

Muskrat Falls put the sunk in sunk cost fallacy.  We are already sunk as we persist on our current course.

We need to change direction.


The alternative is rapidly becoming a question not of federal financial aid but of federal administration of a bankrupt province.