Chakrabortty gets his figure by taking the amount of money the Government put into Northern Rock, subtracting the amount by the figure Branson paid for it and dividing the result by the number of taxpayers. Now he clearly isn't saying that we really paid £13 each to Virgin. What he's saying is that we've given something to Virgin which is worth £13 more per taxpayer than Branson has actually paid.
Chakrabortty's mistake lies in the assumption that Northern Rock is worth now what the UK government paid for it in 2008, and that mistake in turn lies in a misunderstanding of what value is.
When my mother in law watches the Antiques Roadshow and some becoiffed smoothie tells a gasping matron that her 18th century heirloom might be worth £20,000, what he means is that somebody would probably be prepared to pay that sum at auction. That's the best way of attributing value: the figure someone else is prepared to pay for a thing. In fact it's the only way of attributing value.
Now turn to Northern Rock. The Government has been trying to sell it for some time, but no one else was willing to pay more than Virgin. The sum beardie paid represents its value now. Moreover the value the Government paid for Northern Rock did not just represent its status as a bank in trouble. Its value was increased drastically because if the Government hadn't bought it the knock-on effects in the UK's banking system would have been profound and severe. So Chakrabortty is attributing a false value to Northern Rock, not only because in the real world no-one was prepared to pay any more than Branson; but also because what the Government was paying for was the continued survival of the UK's banking system. And before you say, well we'd be better off without that, ask yourself how much rice and pasta you have stored in your cellar. Because if the cashpoints run out, you won't be buying any for a while.
Chakrabortty could have argued that George Osborne should have waited longer; that in a few years we'd have got more for it; that Osborne should have sought to remutualise the bank. But no. He chose instead to say that the taxpayer has given money to Richard Branson. Which is not true.
Who is Aditya Chakrabortty? He is chief economics leader writer for the Guardian. But he doesn't know what value is. Go figure.
PS A few days ago (in mid-May 2012) the National Audit Office completed its investigation into the sale of Northern Rock to Virgin. Although concluding that the Government lost money on the sale, it said that this loss "should, however, be seen as part of the overall cost of securing the benefits of financial stability during the financial crisis". BBC Business Editor Robert Peston commented, "For the NAO, that notional £2bn loss is probably a price worth paying: it prevented a banking collapse that could have been contagious and could have led to the demise of other banks". I am still waiting for Aditya Chakrabortty to acknowledge this in his Guardian column.
PS A few days ago (in mid-May 2012) the National Audit Office completed its investigation into the sale of Northern Rock to Virgin. Although concluding that the Government lost money on the sale, it said that this loss "should, however, be seen as part of the overall cost of securing the benefits of financial stability during the financial crisis". BBC Business Editor Robert Peston commented, "For the NAO, that notional £2bn loss is probably a price worth paying: it prevented a banking collapse that could have been contagious and could have led to the demise of other banks". I am still waiting for Aditya Chakrabortty to acknowledge this in his Guardian column.
