Privatisation has done too much to perpetuate monopolies

It always disturbs me to see how few of our econocrats and economic rationalists – “neo-liberals” to their lefty critics – are willing to acknowledge the many cases where, what looked like perfectly sensible micro-economic reform on the drawing board, turned into a disastrous rort in the hands of the politicians.

But that’s not true of one of the great survivors from the reform era. Rod Sims, now chair of the Australian Competition and Consumer Commission, who’s an experienced econocrat and formerly a key advisor on the 1993 Hilmer report on national competition policy, which urged increased competition at state as well as federal level.

At the commission’s annual regulatory conference last week, Sims criticised the many privatisations of government-owned businesses that have simply bundled up a public monopoly and sold it to the highest bidder, without doing anything to get some competition into the industry, or even to adequately regulate the prices charged by a now-privately owned monopoly.

“Privatising assets without allowing for competition or regulation creates private monopolies that raise prices, reduce efficiency and harm the economy,” Sims said.

Why would governments do such a terrible thing? Because they put short-term budgetary pressures ahead of the best interests of their voters, as consumers and business-users of essential services. It’s actually part of a trick that buys the appearance of good management at the price of paying more than necessary for essential services from now on.

The pollies say: “Look at how much I got for that business, look at how I’ve got the budget back to surplus and reduced government debt, look at how I’ve kept our triple-A credit rating”. (Just don’t look at how much more you’re paying for electricity, for using the airport and for imported goods.)

Adding to these short-term budgetary temptations is the way politics and public policy have become more tribal, more public bad/private good. More “binary” as Prime Minister Scott Morrison would say. By definition, the public sector is inefficient and the private sector is efficient, people think.

It follows that merely by changing the ownership of a business from government to private you’ve made it more efficient. But that’s not economics, it’s just prejudice. Economists believe that whether a business should be privatised should be judged case-by-case, and by the way it’s proposed to be done.

Sims says “privatisation can generate important benefits to the economy, such as improved incentives for cost control, investment and innovation to meet the needs of consumers”.

“There have been many examples of privatisations that have been done well and that have benefited Australia. The privatisation of Qantas was done appropriately, for example, and the privatisation of Telstra was accompanied with measures to promote rather than constrain competition.”

Governments can be bad owners of businesses because – thanks to budgetary pressures – they’re usually hungry for big dividends, but reluctant to provide the extra capital needed to keep up with innovation and changing consumer needs.

But I’ve never understood people who lament the privatisation of the Commonwealth Bank. Its treatment of customers was never very different to that of its three big privately-owned competitors. On aviation, we’ve long had trouble keeping enough competition in our domestic market, but Qantas had plenty of international competitors.

“The problem is that, in more recent years, many of Australia’s key economic assets have been privatised without regulation, and often with rules designed to prevent them ever facing competition. This makes us all poorer,” Sims says.

“You regularly hear people calling for micro-economic reform these days. The best way to do that is to expose more of our economy to competition, and by dealing with excessive market power. Australia has on a number of occasions been doing the opposite.

“Many monopolies are subject to regulation, such as gas pipelines, electricity networks, railways and the NBN. In contrast, many ports and airports, which are essential gateways for our economy, are largely unregulated, mostly due to decisions made when they were privatised.”

In its search for a top-dollar selling price, the Keating government stuffed up the privatisation of capital-city airports, particularly Sydney’s. But nothing Victorian governments have done compares in infamy with the behaviour of the Baird and Berejiklian governments in NSW.

They took the state’s three vertically integrated electricity companies – each owning power stations and electricity retailers – and sold them to the people offering to buy them at the highest price. They became the three oligopolists dominating the national electricity market, Origin Energy, AGL and EnergyAustralia.

Then, when they privatised NSW ports, they promised the new owner of the Botany and Port Kembla ports it would be compensated should the Port of Newcastle start handling containers, not just coal.

Then they made the new owners of the Newcastle port agree to pay this compensation should they set up a container facility. They were so proud of this deal they tried to keep it a deep dark secret.

When its existence became known, the ACCC tied to get it struck down by the court as anti-competitive. But it failed to persuade the judge that trying to maximise the sale price by including monopoly rights in the deal was anti-competitive.

Which shows that it’s not just the ulterior motives of politicians that can turn good reform into a travesty. It’s also that many privatisation deals end up before the courts, where economic questions are decided by judges “learned in the law” but, in too many cases, not as well-versed in economics.

I understand that, in a recent case where one of the state’s public-sector unions sought to object to the NSW government’s wage freeze before the NSW Industrial Relations Commission, an economist brought as an expert witness by the union mentioned that wage increases were supposed to reflect productivity improvement.

He was chastised by the bench for introducing such a novel and controversial notion so late in the proceedings. Really?

My point is that would-be reformers need to be a lot warier of doing more harm than good.

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Start of the end for ratings agencies' dubious influence

Walt Secord, Labor’s Treasury spokesman in NSW, and Michael O’Brien, Liberal Opposition Leader in Victoria, should be condemned for their attempts to score cheap political points when Standard & Poor’s downgraded its AAA credit ratings of both state governments last week. Fortunately, the politicians’ unprincipled carping fell flat.

Both men wanted to have their cake and eat it. Neither was prepared to criticise their government’s big spending to alleviate the state’s pandemic-driven high unemployment – nor admit that, had their party been in power, it would have done the same – but both wanted to portray the consequent downgrade as proof positive of their political opponents’ financial incompetence.

But the deeper truth is that the financial markets and economists have stopped caring about the august pronouncements of the three big American ratings agencies.

Their decline has three causes. First was their loss of credibility following their role in the global financial crisis of 2008. Not only did these supposed paragons of financial precaution fail to foresee the looming collapse, but they actually contributed to it by selling triple-A ratings to the promoters of private-sector securities subsequently discovered to be “toxic debt”.

Just as the scandal surrounding the collapse of Enron in 2001 led to the demise of its auditor, Arthur Andersen, formerly the big public accounting firm with its nose highest in the air, so the financial crisis showed the world that when one for-profit business is paid to report on the affairs of another for-profit business, only an innocent would expect the audit or prospectus report or modelling exercise or credit rating to be genuinely independent.

The second development contributing to the decline of the ratings agencies is the emergence of what the Americans call "secular stagnation" and others call being caught in a "low-growth trap" – where aggregate demand can’t keep up with aggregate supply, and the supply of "loanable funds" exceeds the demand for borrowed funds.

Two side effects of this long-term structural shift of particular relevance to the credit-rating industry are the fall of inflation rates to negligible levels, and the fall of the global real "neutral" official interest rate to a level somewhere near zero.

Especially with the rich world’s central banks – these days, including our Reserve Bank – so heavily into "quantitative easing" (that is, buying government bonds so as to force down their interest-rate "yields"), all this means super-low interest rates, increased private investor demand for government bonds (because there's so little else to invest in), and central banks doing all they can to stop the interest rates on government bonds (including state government bonds) from being driven up by investors.

Third, it’s hard to see how a national government with a floating currency, which borrows only in that currency, could ever default on its debt. (Nor is it easy to see our federal government standing by while one of our state governments defaults on its debt.)

Now do you see why – at least as applies to government securities – events have overtaken the ratings agencies? They’re doing a job that no longer needs to be done, and making assessments of the supposed risk of default on state government bonds that won’t be defaulted on.

This is why our top econocrats have stopped caring about the actions of the rating agencies.

Reserve Bank deputy governor Dr Guy Debelle said recently: "There is the possibility of a ratings downgrade from higher debt, but that really only has a political dimension not a financial dimension, as government bond rates would likely be little changed.

"In any case, a ratings agency should not be the determinant of [budgetary] policy. Fiscal policy should be set to be the most beneficial for the Australian economy and people."

Treasury Secretary Dr Steven Kennedy said recently: "I don’t think there is any significant implications for Australia from a ratings agency downgrade. It is an important tick of confidence to have the rating agencies’ assessment … but frankly the actual impact on the economy I think would be negligible."

Reserve Bank governor Dr Philip Lowe said in August: "I think preserving the credit ratings is not particularly important; what’s important is that we use the public balance sheet in a time of crisis to create jobs for people."

And more recently: "A downgrade of credit ratings doesn’t concern me. The AAA credit rating had more political symbolism than economic importance."

Just so. Although the ratings agencies have lost their economic credibility and usefulness, state governments remained fearful of the fuss their political opponents would make over a downgrade. But their opponents’ failure to gain traction last week spells the beginning of the end for the agencies’ unhealthy influence over government spending and borrowing.

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Many illusions performed in the name of creating jobs

How on earth can someone get to be Treasurer of our oldest state and yet say something as uncomprehending as that he has to freeze NSW public servants’ wages so he can use the money to create jobs? Fortunately, Victoria’s Treasurer is better educated.

So, for the benefit of Dominic Perrottet, Economics 101, lesson 1: every dollar that’s spent by governments, businesses, consumers or the most despised welfare recipient helps to create jobs. And don’t tell me that, as well as creating jobs directly, your pet project will also create jobs indirectly. That’s also true of every dollar spent.

In high school economics it’s called “the circular flow of income”. They ought to write a song about it: the money goes round and round. That’s because what’s a cost to an employer is income to their employee. And when that employee spends part of their wage in another employer’s business, that cost to the employee becomes income to the other business. (I know it’s complicated, but stick with it.)

You have to be a duly elected politician to believe that only dollars that are spent by governments, bearing the label “job creation”, do the trick – preferably with a ribbon to cut while the cameras roll.

Perrottet claims that “everything for me is jobs, jobs, jobs”. He’s certainly right to believe that the political survival of every government – state or federal – will depend on their success in getting people back to work after this terrible, government-ordered recession. And it won’t be easy.

But if he cared as much about jobs as he claims to, he’d raise state public sector wages by 2.5 per cent as normal and spend big on his specific, look-at-moy, look-at-moy job creation projects.

If it’s all so important, why must one form of job creation be sacrificed to pay for another? Why must Peter be robbed to pay Paul? Perrottet says “this is not about the budget. This is not about savings”.

Really? Then what is it about? Well, one possibility is that it’s about party prejudices. Perrottet hails from the Liberal tribe, whose members tend to regard people who work for the government as overpaid and underworked. If private sector workers are likely to miss out on a pay rise this year, those tribe members might be pretty unhappy about seeing nurses and teachers and pen-pushers escape unscathed.

But I suspect the real reason is Perrottet’s unreal fear of debt and, more particularly, of having the state’s triple-A credit rating downgraded. In the old days, governments worried a downgrading would mean having to pay higher interest rates on their bonds. But these days rates are already so close to zero you couldn’t see the difference with a magnifying glass.

So why are our politicians – state and federal – willing to cede their sovereignty to a bunch of American rating agencies, whose creditability was smashed in the global financial crisis? Not only did they fail to see it coming, they contributed to it by selling triple-A ratings to business borrowers whose debt was later found to be “toxic”.

So why? Because the pollies live in fear of the drubbing they’d take from the other political tribe. Unfortunately, Labor is as much into playing cheap tit-for-tat politics as are the Libs. Being downgraded by a bunch of Yanks on the make is, we’re always assured, the ultimate proof of economic incompetence. Yeah, sure.

Turning to the private sector, its long-established practice is for annual pay rises to be forgone during recessions. Despite the Victorian government’s support for a 3 per cent increase in national minimum and award wages, the Fair Work Commission is likely to follow precedent and give it a miss. The Morrison government wouldn’t have the gumption to propose otherwise.

Individual big businesses will press their unions to skip a beat, and workers afraid they could be next on the dole queue won’t be inclined to argue. Economic orthodoxy says it’s never smart to raise the price of something – labour, in this case – when you’re not selling enough of it. (It’s just a pity there’s so little empirical evidence to support this over-simplified model of how the job market works.)

One of the troubles with recessions is they encourage counter-productive behaviour. Fearful of losing my job, I cut my spending and save as much as I can. But when everyone does the same, we all suffer.

It’s the same with wages. When business is weak and profits are down, it makes sense to keep your wage bill low. But when every business does it, the result is no growth in the wages your customers use to buy your product and get you back to health and strength. Allow you to employ a few more people even.

What gets me is that their “debt and deficit” phobia stops even the Liberals from seeing that, at times like this, the role of the public sector is to do whatever it takes to rescue their mates in the private sector (which includes you and me). Even the business lobby groups don’t seem to get it.

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Whatever Tuesday’s budget holds, it’s sure to be fudged

It’s a sad truth that treasurers and finance ministers almost never avoid using creative accounting to make their budgets look better – or less worse – than they really are. But this fudging often costs taxpayers a lot more.

Governments of both colours, federal and state, have been doing this forever, after the bureaucrats show them how. It’s one of the less honourable services public servants provide their honourable masters.

The move from cash accounting to accrual accounting at the turn of the century should have made fudging harder, but federal Treasury solved that problem by sticking to cash while Finance moved to accrual.

Focusing public attention on the cash budget balance has kept alive the oldest and simplest form of fudge. You can make the new year’s budget deficit look smaller than it really is by taking a payment due sometime in the new year and paying it in the last days of the old year.

Pre-paying a bill of $1 billion in this way makes the comparison between years look $2 billion better than reality.

But such tricks are chicken feed. The most wasteful one is the way state governments have tried to retain their AAA credit ratings by using “public-private partnerships” to conceal the extent of their borrowing for infrastructure.

No one can borrow more cheaply that government, but paying a private developer a premium to do the borrowing at a higher interest rate ensures the government-initiated debt appears on the developer’s balance sheet, not the government’s.

The state “asset recycling programs” promoted and subsidised by the Abbott-Turnbull government are also a product of the states’ worries about their credit ratings. You sell off existing government businesses and use the proceeds to fund new infrastructure spending without having to borrow.

Sounds innocent enough, but in practice state governments haven’t resisted the temptation to maximise the sale price of their businesses by attaching to the sale the right to overcharge their state’s businesses and consumers.

This does much to explain the doubling in the retail price of electricity. The states allowed the private purchasers of their poles-and-wires businesses to abuse their natural monopoly, and let three big companies own generators as well as retailers.

Tuesday night’s budget will be affected by two relatively new forms of creative accounting. One is the way the Turnbull government exaggerates its success in reducing the size and cost of the public service by giving people redundancy payouts, then hiring them back as “consultants” on greatly inflated salaries.

Then there’s the Abbott government’s invention of “zombie measures”. You announce cuts in spending, fail repeatedly to get them legislated, but leave them in the budget’s forward estimates, thus making the projected budget balance look better than it is.

But the biggest zombie measure distorting the budget numbers we’ll see on Tuesday is the government’s repeatedly rejected plan to extend the cut in the company tax rate to big business. This one, however, makes the projected budget balance look worse than it is. The biter bit.

But by far the biggest budget fiddle – one we’ll see more of on Tuesday – is the loophole Treasury built into the budget at the time of the laughably named Charter of Budget Honesty in 1996, when the focus of attention was switched to the “underlying cash budget balance”.

The ostensible purpose was to stop wicked Labor governments understating their deficits by counting the proceeds from asset sales as a reduction in the deficit rather than an alternative way of funding the deficit. Rather than sell a government bond, you sell some of the family silver.

But Treasury defined “assets” narrowly to include physical assets (say, real estate) but exclude financial assets (such as shares in government-owned businesses).

What this means in practice is that spending on an infrastructure project doesn’t have to be counted in the budget deficit provided you set it up as a new business which, once it’s profitable, you intend to sell off.

Great trick, which the Rudd-Gillard government was happy to use to hide the then-expected $49 billion cost of its National Broadband Network.

Trouble is, the contortions NBN Co had to go through to sustain the pretence it would be profitable were sufficient to blight the project long before Malcolm Turnbull began fiddling with it, as my colleague Peter Martin has explained.

But this wasn’t sufficient to dissuade Scott Morrison from using the same trick in last year’s budget to hide the cost of the second Sydney airport and the inland railway by claiming that, in some imaginary world, they’ll be profitable businesses.

Trouble is, you can keep the spending out of your carefully fudged version of the budget deficit, but you can’t keep your additional borrowings out of the government’s accumulated debt. Watch out for more fudging on Tuesday night.

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Sorry, but using migration to boost growth ain’t smart

Ask an economist where the growth in the economy will be coming from and it's surprising how often they fail to give the most obvious answer: from growth in the population.

Why don't they? Partly because it's an admission of failure: more people, bigger economy. Wow, that must have been hard to engineer.

Economists aren't supposed to believe in growth for its own sake. Their sales pitch is that economic growth is good because it raises our material standard of living.

But this is true only if the economy grows faster than the population, producing an increase in income per person (and even this ignores the extent to which some people's incomes grow a lot faster than others).

This simple truth is obscured by economists' practice of measuring growth in the economy without allowing for population growth.

Take the national accounts we got for the June quarter last week. We were told the economy grew by 0.8 per cent during the quarter and by 1.8 per cent over the year to June.

Allow for population growth, however, and that drops to 0.4 per cent and a mere 0.2 per cent. So, improvement in living standards over the past financial year was negligible.

Over the past 10 years, more than two-thirds of the growth in real gross domestic product of 28 per cent was accounted for by population growth, with real growth per person of just 9 per cent.

It's a small fact to bear in mind when we compare our economic growth rate with other developed countries'.

We usually do well in that comparison, but rarely admit to ourselves that our population growth is a lot higher than almost all the others.

Our population grew by 1.6 per cent in 2016, and by the same average rate over the five years to June 2016. This was slower than the annual rate of 1.8 per cent over the previous five years, but well up on the 20-year average rate of 1.4 per cent.

So in the past decade we've been relying more heavily on population growth – read, increased immigration – to bolster economic growth and make the improvement in our material prosperity seem greater than it is.

By now, much less than half our population growth comes from natural increase (births minus deaths) and much more than half from "net overseas migration" (immigration minus emigration).

Meaning, of course, that the even-faster rate of population growth over the past decade has been a conscious act of policy.

Almost all our business people, politicians and economists support rapid population growth through high migration. With that much conventional wisdom behind it, who needs evidence?

It's certainly rational for business people to support high migration. Their concern is to maximise their own living standards, not those of the rest of us, and what easier way to increase your sales and profits and salary package than to sell in a market that keeps expanding?

But I oppose "bizonomics" – the doctrine that the economy should be run primarily for the benefit of business, rather than the people who live and work in it – and the older I get the more sceptical I get about the easy assumption that population growth is good for all of us.

For a start, I don't trust economists enough to accept their airy dismissal of environmentalists' worries that we may have exceeded our fragile ecosystem's "carrying capacity".

But even before you get to such minor matters as stuffing up our corner of the planet, there are narrowly economic reasons for doubting the happy assumption that a more populous economy is better for everyone.

The big one is that the more we add to the population, the more we have to divert our accumulation of scarce physical capital – housing, business equipment and public infrastructure of roads, public transport, schools, hospitals and 100 other things – from "capital deepening", so as to improve our productivity, to "capital widening", so as to stop our productivity per person actually worsening.

The feds decide how much immigration we get, but it's the hard-pressed states that have to keep increasing their infrastructure spending to keep up with the needs of their ever-expanding populations.

But the states allow discredited American credit-rating agencies to limit how much they can borrow. And then there's the glaring inconsistency between believing in rapid population growth and the smaller-government brigade's eternal struggle to stop tax increases and limit government borrowing.

Is it any wonder the long-suffering denizens of our chronically under-serviced outer suburbs end up diverting so much of their dissatisfaction onto immigrants who arrive uninvited by boat? Sometimes I wonder if that's by design, too.

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Why I wish we'd had our credit rating downgrade this week

You can tell by when a government releases its midyear budget update how well it's going with the budget. If it's doing well, it publishes as early in December as possible.

If it's doing badly, it publishes as close to Christmas as it thinks it can get away with, when normal people are busy with parties and preparations and not paying much attention.

This year we got the update just six sleeps before Santa's arrival. Draw your own conclusions.

And this year the government was worried, we're told, that the continued slippage in its efforts to repair the budget would prompt the credit rating agencies to downgrade our AAA status.

Labor was already salivating at the prospect, with finance spokesman Jim Chalmers confidently predicting a downgrade would "smash confidence in our economy" and "push up borrowing costs for households and small businesses".

You beauty! If that doesn't improve Labor's chances of beating the Coalition at the next election, what will? A little damage to the economy in the meantime? A price Labor would be happy for us to pay.

In the event, however, all three ratings agencies announced the update had done nothing to change their views.

But the government isn't off the hook. The most aggressive publicity seeker of the three, Standard & Poor's, didn't confirm our AAA rating, it said the update gave it no reason to change its "negative outlook" for that rating.

So the agency's supposed fiscal sword of Damocles remains hanging over Scott Morrison's head at least until the budget in May.

To tell you the truth, I'm sorry it didn't fall this week. That's not because I bear the government any ill will, but because the sooner we're downgraded, the sooner the public will realise there's little to fear from a downgrade. The ratings agencies are toothless tigers.

In any case, there is no good reason any sovereign Australian government – federal or state – should allow a few American for-profit businesses to dictate how much it should or shouldn't borrow (nor engage in hugely expensive ways of disguising the true extent of its liabilities).

The ratings agencies' credibility has been destroyed by their part in the global financial crisis. Not only did these all-wise experts fail to see it coming, they contributed to the conflagration by awarding AAA ratings to the promoters of "collateralised debt obligations" – for the small fee – that soon turned into "toxic debt".

It's long been questionable whether the agencies were leaders or followers in identifying the risks attached to the bonds issued by businesses and governments, but since the GFC there's little doubt the financial markets don't need their advice.

When Standard & Poor's downgraded US government bonds in 2011, the financial markets took no notice and the two other agencies left it hanging out to dry.

S&P downgraded Greece's government bonds only months after its budget cover-up became public in 2009.

All three agencies downgraded Britain's bonds immediately after Brexit, but market yields (interest rates) on those securities actually fell.

So it's not at all clear that a downgrading of our credit rating would do anything much to increase the interest rate at which our government can borrow.

And while it's technically true a downgrading of Australia's "sovereign" credit rating would flow on to the ratings of our banks, it's not clear this would increase their borrowing costs abroad, nor that there would be any flow-on to home buyers and small businesses.

While Labor's Chalmers was telling anyone who'd listen of the disaster about to befall everyone with a mortgage, the chief executive of ANZ Bank, Shayne Elliott, was telling his shareholders that a downgrade had already been priced into the funding costs for Australian banks.

Should the banks actually pass on that increase on to their customers, it would tell us less about the Turnbull government's budget failings than about the failure of successive governments – Labor included – to do enough to encourage greater competition between the big four banks, generous party donors that they are.

It suits neither the government nor the opposition to admit that the rating agencies' pressure on us to cut government spending is diametrically opposed to the advice we're getting from the two genuine international economic authorities, the International Monetary Fund and the Organisation for Economic Co-operation and Development.

Their advice is that, with our economy weaker than it should be, we still have plenty of "fiscal space" to strengthen the economy by borrowing to finance increased spending on worthwhile infrastructure.

All this is why I say that, these days, the economic significance of our credit rating is long gone.

It retains much political significance, however.

Governments – federal and state – still live in fear of a downgrade simply because they know their political opponents would parade this as a disaster for the government, the economy and public and private borrowers, as well as objective, authoritative proof that they are utterly hopeless economic managers.

Credit ratings are now little more than something the politicians use to slag each other off.

This is why I'm sorry we weren't downgraded this week. Only when the public experiences the ratings agencies' inability to have much effect on the interest rates we pay will they lose their power over our governments, and the pollies lose credit ratings as a political football.

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Oh no, not a credit rating downgrade

Sorry, but I've put Standard and Poor's and the two other big American credit rating agencies on a negative watch.

For me, the rating agencies' involvement in the global financial crisis has destroyed their credibility forever. I can no longer take their solemn pronouncements seriously, nor hear them with the reverence or contrition they imagine themselves entitled to.

The rating agencies were one of the private sector institutions charged with upholding standards of behaviour in America's financial markets, putting investors' interests ahead of their clients' and their own.

They were supposed to be a bastion against crisis and collapse, but they betrayed their trust.

The way their system works is that institutions wishing to borrow money by issuing bonds or other securities have to pay rating agencies to give those securities a rating of their credit worthiness.

The agencies' job pre-crisis was to be the hard-headed wise men who could see through the smoke and mirrors created by "innovators" on the make. They failed.

While everyone else in Wall Street was making money hand over fist, they didn't resist the temptation to get in for their cut.

They obliged their paying customers by awarding AAA credit ratings to securities subsequently exposed as "toxic debt".

In the process, they exposed the obvious conflict of interest involved in the common practice of governments attempting to protect the interests of investors and others by requiring businesses to buy "independent" certification from other businesses.

To an extent, governments around the world give the rating agencies a captive market by requiring certain organisations to hold only those securities certified as AAA.

This was how some Australian local councils got sucked into America's toxic debt crisis.

Trouble is, with this monumental blot on their record, we can no longer be sure what game the ratings agencies are playing and in whose interests they act.

In the case of government ("sovereign") borrowers, the agencies take it upon themselves to issue ratings. They then have the temerity to present the government with a bill for their services, though no self-respecting treasury pays up.

They seem to be pretty tough on government borrowers, though the lines they draw between safe and unsafe levels of debt seem pretty arbitrary.

What I wonder is if they have higher and holier standards for government than they have for their private sector fellows.

Why not? Everyone in business (and a lot of people in treasuries) know that governments, because their actions are not the product of market forces, are therefore non-rational and prone to being either mad or bad.

The agencies want us to believe their deliberations are highly scientific and sophisticated, applied consistently across the world.

But it's open to doubt how true that is.

After all, many of us believed the line that the whole towering edifice of ever-multiplying derivatives and synthetics built up before the financial crisis was the product of amazing advances in statistics and the science of finance, which had rendered us far smarter than we used to be at "managing risk".

When it comes to signalling changes in the riskiness of particular borrowers, the agencies purport to be the leaders: their vigilance causes them to be the first to see the problems looming, with the market following their lead.

But it's common for the market to turn against some borrower, leaving the agencies scrambling to adjust their ratings to fit. Are they just purveyors of conventional wisdom?

Whenever a downgrading of one of our governments is threatened, the media unfailingly assure us this would be a bad thing because the government would have to pay higher interest on its debt.

If this is still true, it's much less so than it used to be. And if there is still a premium to be paid, it's smaller than it's made to sound.

The rating agencies' loss of authority since the financial crisis is evident.

When, in 2011, in a rush of blood to the head – or maybe a touch of the megs​ – Standard and Poor's announced it had cut the US Government's credit rating to AA+, the other two did not follow suit and the market took not a blind bit of notice.

The yield (interest rate) on US Treasury bonds continued falling. Moral: don't try to get smart with the world's reserve currency.

But something similar happened when the three agencies downgraded Britain to AA- in the wake of the Brexit vote. Yields on British bonds have since fallen, along with those of other "sovereigns", including us.

Sometimes there are forces more powerful than a bunch of for-profit rating agencies.

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