What's a Billion?

I have finally been able to catch my breath this week and ponder the situation in Ontario over the report on the final cost of cancelling two natural gas electricity plants in the Oakville-Mississauga area ostensibly in order to retain seats for the Ontario Liberal government given local opposition to the plants.  The Ontario auditor general’s report on the Oakville gas plant cancellation puts the total cost of scrapping the Oakville gas plant and another in neighboring Mississauga at as much as 1.1 billion dollars.

I suppose we have become cynical enough as a society that the outrage of using taxpayer money to buy votes does not seem to shock as much as it once did. When I think about the response of most people I’ve talked to, there has simply been a shrugging of shoulders with a sense of resignation that - what else can you expect from politicians?  Moreover, the concept of spending “one billion dollars” is outside the daily experience of most people and is just a very large number with little reference to what it represents.  Even newspaper columnists seem to feel that way as Martin Regg Cohn revealed in his Toronto Star column several days ago writing about the banality of billion dollar boondoggles as follows: “What’s a billion dollars? Politically and fiscally, it is everything and nothing — a number so gargantuan it borders on abstraction.”

I don’t think a billion dollar boondoggle is at all either banal or an abstraction.  Think of the 1.1 billion dollars that has been squandered in this way in terms of the opportunity cost.  What else could 1.1 billion dollars have been spent on?  Well, for any future politicians out there planning on using public money to buy votes and wanting to know the trade-off in terms of what a billion dollars can get you, here is a very short list:

Based on an average payment for physicians in 2011-12 of $328,000, this represents the services of 3,354 physicians for one year. (Source: CIHI) That is not a lot of direct votes but think of all those people who still don’t have a family physician.

Based on an estimated average annual undergraduate value of tuition in 2013-14 of $7,259, this represents free university tuition for 151,536 students. (Source: Statistics Canada).  This may seem like a lot of votes but students traditionally have a low turnout rate.

Based on the cost of four-laning a highway in Northern Ontario at about 10 million dollars per kilometer, this represents 110 kilometers of new four-laned highway (interchanges not included). I believe this would just about complete four-laning of the highway to Sudbury from Parry Sound. (Source: Highway69.ca).  There are not a lot of seats in Northern Ontario which is probably why it takes so long to complete highways there.

Based on average property taxes in Toronto for a 2 storey, 3 bedroom home assessed at $447,090 in 2012 of $3,448 annually, this represents the property taxes for 319,026 households. (Source:GetWhatYouWant).  That is a fair number of voters.If you can find communities with lower property taxes, you might be able to buy more votes.

Based on the price of a Sharp AQUOS 60” 1080p 120HZ LED TV on sale this weekend at Future Shop at $999.00 plus 13%HST, this represents 974,426 flat screen televisions – enough to provide one for about 20 percent of Ontario households.  (Source: Future Shop). Now that is a lot of potential votes and could definitely tilt the balance towards a majority government. Add another billion and a half dollars and you could cover half the province and easily generate the demand for your own television manufacturing plant - industrial strategy at its best!

How is that for the banality of billions?

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Comments

[Andrew F]

I think the resignation of the voting public is due in part because all the parties can reasonably be expected to do something like this at some point. The only way to potentially change it would be to hold those politicians responsible for these decisions personally responsible, either through civil claims or criminal charges. But it would never happen, as politicians would never want to paint themselves into such a corner.

[Benoit Essiambre]

If it makes you feel any better, here in New-Brunswick we have a population smaller than Ottawa and we lost almost a billion dollar (some say over 2 billion if you include the higher cost of the alternative solutions) on a failed power plant conversion in the orimulsion fiasco. http://en.wikipedia.org/wiki/Coleson_Cove_Generating_Station

If the conservatives hadn't screwed that up, every adult and children could have been given a free sixty incher.

Then more recently, we had a cost overrun of another billion on refurbishing our nuclear reactor.(http://www.cbc.ca/news/canada/new-brunswick/point-lepreau-costs-could-hit-3-3b-pmo-memo-says-1.1344861)

[Jacques René Giguère]

The voters are perfectly aware of what it means. Cancelling a $ billion plant is like giving you a $ Billion diamond engagement ring. It shows the guy care, or ar at least, value you enough in this horrible emotionnally dependant dysfunctionnal relationship. Usually, these relations end up on a tabloid front page. ( Oh ya, this one did...)

[Shangwen]

I'm with Jacques Rene (I think). I wonder what Liberal partisans are saying to defend or minimize this?

On the other hand, an older friend of mine who's been a gov consultant for years says, "Every day governments waste millions on ineffective programs, and nobody cares. Then someone has a $200 breakfast in Geneva, and Parliament has to be reconvened." If it can't be personalized and transformed into material for partisan hysteria, people's eyes (brains) glaze over.

[Brendan]

The Problem is that they can't just kick out PE Trudeau and replace him with Stanfield. They'll end up replacing Kathleen Wynne with Tim Hudak, which is a very different statement about what you want from your government. Everyone can sort of broadly agree with Stanfield. They can't broadly agree with Mr. Chaingangs

[Chris J]

It is also hard for those of us who think climate change is a real issue. The Ontario Liberals were trying and with the possible exception of the BC carbon tax, the alternative point of view in Canada is "burn all the oil in the tar sands" and we'll fire those pesky biologists.

I have to choose between the right idea done with wasteful incompetence and a terrible idea.

[Determinant]

The Problem is that they can't just kick out PE Trudeau and replace him with Stanfield. They'll end up replacing Kathleen Wynne with Tim Hudak, which is a very different statement about what you want from your government. Everyone can sort of broadly agree with Stanfield. They can't broadly agree with Mr. Chaingangs

And Andrea Horwath and the NDP are chopped liver?

ETA: I'm a card-carrying NDP Member. ;)

[Mark]

The reason I can't get worked up is that both hudak and horvath would have done the same thing to buy the votes. Hell hudak is even throwing subway dollars at Scarborough. Ugh.

I'm much more angry about green energy.

[Bob Smith]

"The reason I can't get worked up is that both hudak and horvath would have done the same thing to buy the votes."

True, but they could at least claim that they had opposed those gas plants in the first place. It's one thing for a new government to reverse the prior government's policies at a cost (recall the EH101 fiasco?), it's another thing altogether for the old government to reverse its own policies at a cost. The latter scenario has implications about the government's incompetence (didn't they know it was going to be unpopular in the first place?) as does the suggestion that in their haste to terminate those contracts, the Liberals didn't minimize the cost of doing so. Of course, as with most government scandals, the problem is as much about the way the Liberals were, ahem, less than forthright about the cost of cancelling the gas plants than about the amount of money involved - which goes to integrity. It's not the crime, it's the cover-up.

"Hell hudak is even throwing subway dollars at Scarborough."

Well, Hudak is proposing to throw subway dollars at Scarborough. Wynne is actually doing so (as, in fairness, are Hudak's federal cousins and municipal ally in Rob Ford) - a change in policy which convenient occurred shortly prior to the Scarborough by-election (though I'm sure that's a coincidence). In any event, while one can question the wisdom of building a subway to Scarborough, relative to alternatives, it at least falls within the category of policies that reasonable people can disagree about. At least they'll get something out of it (even if its just an unused subway) other than a settlement agreement.

"I'm much more angry about green energy."

Indeed, I heard Bob Chiarelli (the Ontario energy minister) on the radio last week trying to defend (or at least mitigate, since it's really indefensible) the gas plant cancellation. It was pathetic, so I really can't do it justice, but his defense was something to the effect that the $1 billion they spent on the gas plants was only 5% of the $20+ billion they had spend on new generation capacity (and that we'll all be paying for over the new few decades), so wasn't really that big a deal. Now, there's the obvious point that, on it's face its a disingenuous comparison, since he's comparing apples and orangutans ("We only wasted a part of your money, so no worries"). More importantly, though, does he really want to raise the question of how well the Liberals have spent that other $20 billion? It's too bad that neither the Tories nor the NDP had the wits to go to town on the Liberals in 2011 for the mishandling of the energy sector since 2003, since that really has been a mess.

[Bob Smith]

"And Andrea Horwath and the NDP are chopped liver?"

Well, yes, but if it's any consolation, I think Horvath has a better chance of picking up a minority government in the next election than Wynne does.

[hosertohoosier]

There are a few problems with the idea that the opportunity cost of canceling the gas tax was high.

First, the cost of cancellation was not public information.
Second, most of the alternative spending scenarios listed would represent ongoing expenses, whereas the cost of gas plant cancellation is a one-time expense.
Third, if the public thinks the cost of cancellation is zero, and you announce 1.1 billion in spending elsewhere, it will throw off your claims to fiscal probity.
Fourth, McGuinty staked political capital on green energy. Hypocrisy on the environmental file might not just look bad in itself, it might undermine his overall credibility on other related issues.

[Randy]

What I find strange about this is how ho hum people are about more than $1 billion wasted in a province of 12-13 million compared to how angry people got over a few hundred thousand in shady senate expenses in a country of 35-36million.

Then again, if we use the upper estimate of $1.1 billion in wasted money and the lower estimate of 12 million people, it still only works out to an average cost of less than $100 / person (of course, not all those people are paying taxes). It's a pretty small one time fee to pay if it means I don't have to live near a gas plant. If the plant isn't going to Oakville or Brampton, it could be coming to my neighbourhood. It's comforting to know that I could avoid that fate at such a low personal cost. What other unpleasant facilities could I avoid living next to for the few hundred dollars it would cost for an average sized family?

I also find it strange, and somewhat hard to believe, that people can get upset about tens, hundreds, thousands, ... , hundreds of millions of dollars, but when the dollar amounts get into the billions, you may as well say just gazillions because the numbers are so large that they effectively become abstractions.

[Bob Smith]

People can envision a $16 orange juice. Who has ever seen $1.1 billion? Unless McGuinty paid to cancel the power plants with a Skydome-sized bucket of loonies, $1.1 billion is just an abstract concept. It's similar to phenomenon of people overspending when they pay with credit cards rather than cash, in the former circumstances the money isn't "real". No doubt there's an abundance of behavioural economics literature on the subject.

There's a potential tea-party policy for you, force the US government to pay all it's bills in cash (rather than by check, wire-transfer, etc.). If the prospect of daily freighters of C-notes to China can't get the tea-party types elected... (I feel bad even suggesting this as an idea, because you know one of those idjiots will adopt it)

[Shangwen]

Bob: "Who has ever seen $1.1 billion? [It's] just an abstract concept...No doubt there's an abundance of behavioural economics literature on the subject."

I prefer to call it despair. Extravagance by one senator can be attributed to the greed and arrogance of a few, but the waste of billions is much more suggestive that the ability of the public sector to destroy value, year after year, is deeply ingrained and impossible to defeat.

[Jacques René Giguère]

Shangwen : I live in an area where the abilityy of the private sector to destroy wealth had been amazing. The 1970's story of the ITT-Rayonnier plant in Port-Cartier is still a classic from Fortune magazine. Harold Geneen selected the place because the "forest concession" was the size of Tennesse. OK. It no roads, were situated 800 km from the proposed factory, the trees renewed themselves in no less than 125 years, were an average distance of 30 feet from one another and were so small that the bark residue exceeded the proportion where the mixture would be unusable. And there were no market for rayon but Geneen prefered rayon rather than silk for his ties ( presumably the only person who ever had this taste...). It's not private vs public. It's the agent problem couple with the managerialist ideology.

[Bob Smith]

"Extravagance by one senator can be attributed to the greed and arrogance of a few, but the waste of billions is much more suggestive that the ability of the public sector to destroy value, year after year, is deeply ingrained and impossible to defeat."

I gotta side with Jacques on this. How many gazillion dollars in shareholder value did GM management piddle away in the decades leading up to its bankruptcy?

But I think you're right to identify the (potential) moral distinction between the two scenarios. Greed and arrogance (pride), after all, are deadly sins. A senator fleecing the public purse or a cabinet minister living high on the hog on the public dime speaks to their personal moral failings. Incompetence isn't a sin, and is generally only deadly amongst bomb disposal experts. Being an incompetent means you're bad at what you do (e.g., governing the province) but not necessarily a bad person).

[Henry]

One billion is a little over one-half of the annual dividend paid by the LCBO to the Province of Ontario. A sobering thought for some.

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