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On April 30 2013 07:06 acker wrote:Show nested quote +On April 30 2013 06:29 Sermokala wrote:
I'm not partisan enough to say that hes detached though. I admit what he says has academic groundings but they're completly dejected from common sense.
Papa no tought me the reads good so no. FYI, just because something is common sense doesn't make it true. There's plenty of findings out there that go against intuition. Show nested quote +On April 30 2013 07:03 Kontys wrote:
That is incorrect sir. The makers of military stuff still spend their income and it goes through the economy as with any other sector. We don't measure a unit of production's usefulness by how many people's hands it passes through, but rather by how much an agent (any agent!, so long as they have the necessary purchasing power) is willing to spend on it. That's what defines how needed something is.
Military stuff maybe anti-social, but it's not bad business on purely rational terms. Actually, he's generally correct; the parable of the broken windows comes to mind. Money spent on useless crap is money wasted relative to money spent on useful crap. Otherwise there would be no difference in spending money on, say, shoveling holes in the ground compared to spending money on reducing drunk driving.
He is not generally correct. Military assets are no less useful than reducing drunk driving in the broad sense. You can argue that military spending should be less preferred by government though, but that's politics.
The OP was arguing that money spent on military assets gets stuck and does not flow further into the economy, whilst it obviously does.
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On April 30 2013 04:56 acker wrote:Show nested quote +On April 30 2013 04:30 JonnyBNoHo wrote:
That's not a model that's just demonstrating that the financing is cheaper. It's incomplete. Of course it's a model, it's a simplification of reality into discrete elements. Every model pertaining to reality is incomplete. What matters is that it shows financing is discounted by approximately 80%, assuming long-run treasuries yield 3%, current long-run bond treasuries yield 0%, and the government can finance investments with long-run treasuries. If you have issues with any one of these assumptions that would significantly change the conclusion, that investments that need to be done sooner or later are cheaper to finance now rather than after a full recovery, then you should post a more accurate second-order solution.
It took me a little while to recreate and think about the author's math but here it goes:
The author is not saying that the financing cost is on an 80% discount. The author is suggesting that there is an opportunity cost worth 3% per year for not borrowing money today that, over a 20 year period, will equal 80% of the borrowing not discounted.
So he's saying that the government borrowing money today is essentially equivalent to you or I putting money in an account that earns 3% per year plus inflation. Over a period of 20 years a $1000 account would grow to ~$1806 in real terms. Your gain would have been $806 or about 80% of the initial investment. That's a bit weird and I don't think it's appropriate.
To me what's appropriate would be to judge a project by way of a NPV analysis (Net Present Value). You could then use your borrowing cost in the denominator (adjusted for risk, if appropriate) and as it becomes cheaper, more projects would naturally become viable.
Edit: Just googled up a nice primer on the subject.
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On April 30 2013 07:03 Kontys wrote:Show nested quote +On April 30 2013 06:55 Stratos_speAr wrote:On April 30 2013 06:20 Sermokala wrote:On April 30 2013 05:46 acker wrote:On April 30 2013 05:13 DeepElemBlues wrote:
Or do you really think that at some point in the future someone like Paul Krugman would actually support cutting spending? Even if it was 10$ of tax hikes for every 1$ cut? I have a bridge in Brooklyn to sell you if you believe that. It's a guaranteed success for you according to model modern economic theory (of the 1930s). I believe that people like Krugman would have no objection to, most obviously, cutting the military budget by $1 for every $10 of tax increases in a healthy economy, sans a war with China. In fact, I have trouble thinking of liberals who would object to decreases in military spending right now, let alone in a healthy economy. Now where's that bridge? Military gives a lot of middle class level employment to poor people while training them into a middle class job idk why liberals are so keen on cutting it. Not to mention the technological advancements that the military research gives into the commercial space. Krugman Is 100% dejected from reality and is nothing more then a liberal hack that keeps feeding his people. Most of his stuff is just predatory on peoples populist views. Because the money spent on the military could be spent far more efficiently elsewhere. If you cut $10 from military spending and spend $5 of that on another department to employ people and save the rest, you're going to get a win-win. The only product created by the military is death or tools that lead to death, so there isn't a second (or third, etc.) cycle of productivity that is developed by a military-based job like there is in almost any other sector of the economy. That is incorrect sir. The makers of military stuff still spend their income and it goes through the economy as with any other sector. We don't measure a unit of production's usefulness by how many people's hands it passes through, but rather by how much an agent (any agent!, so long as they have the necessary purchasing power) is willing to spend on it. That's what defines how needed something is. Military stuff maybe anti-social, but it's not bad business on purely rational terms.
Well, if you're considering purely rational terms, you'd have to figure out where your society stands on the risk/cost relationship between "risk of foreign intervention" and "money spent on military preparations". If you consider that that a cut in military spending would barely affect national safety then it's natural to feel like you're overpaying for it.
But yeah, all spending does end up flowing to the rest of the economy, albeit in different forms, depending which industries are affected.
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What seems to be the case, though, is that you're cynical not only in relation to (liberal) politicians and pundits, but to the economics profession itself. There's really no discussion to be had when you envision that those who advocate for stimulus are in fact lying about their intents of reducing the debt in the future and that those economists that agree with them using economic theory are also deceivers.
I should have expanded what I wrote specifically explained more by what I meant when I said a political bridge too far.
I don't think they are lying, I think they do agree in principle with the idea of reducing the debt someday. But I think that that is mostly impossible because of change of politics from consensus to the winner-take-all disease that plagues the two major parties and most of the other political factions in the country as well. Not to say that all other countries are better off in that respect, but plenty are.
Look at sequester, it only happened because both parties chickened each other past the limit. They maneuvered themselves into two choices. 1. going to the sequester which both parties had designed to be "so painful" that it would make the other side blink. 2. Government 'shutdown.'
Whether or not the sequester will have more good than bad effects is important but to my point secondary to this: it was created by a spectacularly bad political process that economists actually have very little power to influence despite their good faith intentions. I should have used another example Krugman is in a hyper-partisan phase in his public life.
How is a decade-long (or longer) macroeconomic policy process going to be implemented in this kind of environment. What portions are followed at any particular time depends on what faction is in power.
I believe that people like Krugman would have no objection to, most obviously, cutting the military budget by $1 for every $10 of tax increases in a healthy economy, sans a war with China. In fact, I have trouble thinking of liberals who would object to decreases in military spending right now, let alone in a healthy economy.
Now where's that bridge?
Cutting the military budget and not spending that money elsewhere? I doubt that. This is not a political environment where actual federal government spending cuts are a viable option in the Democratic Party just as much as tax increases are not a viable option in the Republican Party.
The bridge is in your mind.
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On April 30 2013 05:13 DeepElemBlues wrote:Show nested quote +On April 30 2013 05:00 Sbrubbles wrote:On April 30 2013 04:58 XenOmega wrote:
If austerity is never a good thing, when we do repay our debts though? After the economy has recovered, of course. Or was your question rethorical? The real answer is never. Keynesians today don't believe in the second step of Keynes anymore. Paying down the principal on debt is a political bridge too far. There is never a time when increasing debt is not necessary. The economy is bad, we must increase our debt to make it good again. The economy is good, we must not pay off our debt because that might threaten the economy and governmental debt doesn't really matter anyway. That's modern model economic theory for you. Or do you really think that at some point in the future someone like Paul Krugman would actually support cutting spending? Even if it was 10$ of tax hikes for every 1$ cut? I have a bridge in Brooklyn to sell you if you believe that. It's a guaranteed success for you according to model modern economic theory (of the 1930s).
Ehhhh.... Well, If Krugman got his way, he would probably set to work building a Scandinavian style egalitarian society. That'd mean high taxes and high spending together to go with it.
You suggest the notion that paying down debt must involve cutting spending. This is not necessary, since when the economy recovers two things happen that improve the government's position without any political action taken: Tax revenues rise as economic activity picks up, and as people get back to work they become less dependant on government aid and expenditures fall. Therefore it is not necessary to cut spending to get public finances to a strong surplus. This is not a matter of economic theory, but is a fact we know from experience. There have been recessions and depressions before, and it is a universal occurrence.
Going further into this would definitely be US politics megathread material.. I'll keep it to economics.
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Cayman Islands24199 Posts
On April 30 2013 07:28 JonnyBNoHo wrote:Show nested quote +On April 30 2013 04:56 acker wrote:On April 30 2013 04:30 JonnyBNoHo wrote:
That's not a model that's just demonstrating that the financing is cheaper. It's incomplete. Of course it's a model, it's a simplification of reality into discrete elements. Every model pertaining to reality is incomplete. What matters is that it shows financing is discounted by approximately 80%, assuming long-run treasuries yield 3%, current long-run bond treasuries yield 0%, and the government can finance investments with long-run treasuries. If you have issues with any one of these assumptions that would significantly change the conclusion, that investments that need to be done sooner or later are cheaper to finance now rather than after a full recovery, then you should post a more accurate second-order solution. It took me a little while to recreate and think about the author's math but here it goes: The author is not saying that the financing cost is on an 80% discount. The author is suggesting that there is an opportunity cost worth 3% per year for not borrowing money today that, over a 20 year period, will equal 80% of the borrowing not discounted. So he's saying that the government borrowing money today is essentially equivalent to you or I putting money in an account that earns 3% per year plus inflation. Over a period of 20 years a $1000 account would grow to ~$1806 in real terms. Your gain would have been $806 or about 80% of the initial investment. That's a bit weird and I don't think it's appropriate. To me what's appropriate would be to judge a project by way of a NPV analysis ( Net Present Value). You could then use your borrowing cost in the denominator (adjusted for risk, if appropriate) and as it becomes cheaper, more projects would naturally become viable. Edit: Just googled up a nice primer on the subject. the borrowed spending won't yield literally 3% per year over 20 years, but not spending that money now means foregoing output and human capital development.
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On April 30 2013 07:28 JonnyBNoHo wrote:
It took me a little while to recreate and think about the author's math but here it goes:
The author is not saying that the financing cost is on an 80% discount. The author is suggesting that there is an opportunity cost worth 3% per year for not borrowing money today that, over a 20 year period, will equal 80% of the borrowing not discounted.
If I'm reading this correctly, the author is saying that, at the end of the 20 year period, 1.8 dollars borrowed at 0% interest over that period is worth a dollar borrowed at 3% interest over the same.
On April 30 2013 07:28 JonnyBNoHo wrote:
So he's saying that the government borrowing money today is essentially equivalent to you or I putting money in an account that earns 3% per year plus inflation. Over a period of 20 years a $1000 account would grow to ~$1806 in real terms. Your gain would have been $806 or about 80% of the initial investment. That's a bit weird and I don't think it's appropriate.
The author is saying nothing of the sort. In fact, this is the exact opposite of what he's claiming; that the government selling 20-year Treasuries at 0% today is not equivalent to the government selling 20-year Treasuries at 3%.
On April 30 2013 07:28 JonnyBNoHo wrote:To me what's appropriate would be to judge a project by way of a NPV analysis ( Net Present Value). You could then use your borrowing cost in the denominator (adjusted for risk, if appropriate) and as it becomes cheaper, more projects would naturally become viable.
I'm glad you posted the wikipedia article in order to get a second-order answer, but could you do the calculations? Off the top of my head, the answer is still equal to what Soltas wrote, unless you believe that the markets haven't correctly priced risk into the current and/or long-term bond rates.
More broadly, I'm seeing no practical imputs into the equation that lead to bonds at 0% interest being more expensive than bonds at 3% interest.
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On April 30 2013 07:45 DeepElemBlues wrote:
Cutting the military budget and not spending that money elsewhere? I doubt that. This is not a political environment where actual federal government spending cuts are a viable option in the Democratic Party just as much as tax increases are not a viable option in the Republican Party.
Would you have facts to support this persistent, nagging doubt?
I seem to recall that you were active in the prior US Politics thread in 2011 and 2012. Surely you can pull up utter Democrat intransigence on all government spending during sequestration, the election, the fiscal cliff, or some other area? Then you could suggest that Democrats aren't willing to cut spending while the economy is below long-run output...have the Democrats ever said anything about government spending and taxes in a healthy economy? I know Krugman has, though it wouldn't support your...narrative.
Maybe the Republicans offered a 1:10 spending:tax deal some time ago. You could look for that.
Less sarcastically, I seem to recall that it was the Democrats begging the Republicans for a balanced spending:tax deal for the last two years. Is my memory fading, or did history rewrite itself recently? I have no doubt that a handful of Democrats oppose any cuts to M/M/S on principle, but not nearly enough to sink any cut in spending whatsoever. Or, for that matter, even some cuts to M/M/S.
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On April 30 2013 08:00 Kontys wrote:Show nested quote +On April 30 2013 05:13 DeepElemBlues wrote:On April 30 2013 05:00 Sbrubbles wrote:On April 30 2013 04:58 XenOmega wrote:
If austerity is never a good thing, when we do repay our debts though? After the economy has recovered, of course. Or was your question rethorical? The real answer is never. Keynesians today don't believe in the second step of Keynes anymore. Paying down the principal on debt is a political bridge too far. There is never a time when increasing debt is not necessary. The economy is bad, we must increase our debt to make it good again. The economy is good, we must not pay off our debt because that might threaten the economy and governmental debt doesn't really matter anyway. That's modern model economic theory for you. Or do you really think that at some point in the future someone like Paul Krugman would actually support cutting spending? Even if it was 10$ of tax hikes for every 1$ cut? I have a bridge in Brooklyn to sell you if you believe that. It's a guaranteed success for you according to model modern economic theory (of the 1930s). Ehhhh.... Well, If Krugman got his way, he would probably set to work building a Scandinavian style egalitarian society. That'd mean high taxes and high spending together to go with it. You suggest the notion that paying down debt must involve cutting spending. This is not necessary, since when the economy recovers two things happen that improve the government's position without any political action taken: Tax revenues rise as economic activity picks up, and as people get back to work they become less dependant on government aid and expenditures fall. Therefore it is not necessary to cut spending to get public finances to a strong surplus. This is not a matter of economic theory, but is a fact we know from experience. There have been recessions and depressions before, and it is a universal occurrence. Going further into this would definitely be US politics megathread material.. I'll keep it to economics.
Shamelessly quoting myself to add some relevant things.
Since getting into the study of Economics a few years back I've always wondered how people manage to throw the tag "Keynesian" around so carelessly. Keynes's name as a rallying call was last really relevant in the 1970s during the emergence of so-called "monetarism", championed by Milton Friedman.
From today's student's perspective, Friedman himself is very much in agreement with Keynes, supplementing the relationships suggested by the Phillips curve ("you may trade inflation for unemployment") with a better understanding of how central banking and financial markets interact with the real economy. It all fits together quite nicely.. supplement it with understanding of the role of currency zones as investigated by Mundell and Fleming, and you've got a pretty good package to evaluate macro-policy.
In terms of purely theoretical thinking, the level of government indebtedness is not a factor in measuring a country's long term economic potential. R-R made a very surprising move to investigate it utilizing econometrics. Standard growth theory stated that government indebtedness, ceteris paribus, was not a factor. As such, their results were received with scepticism, and almost immediately begun to break apart. Others attempted to recreate their results using available historic data, but were unsuccessful. The data error was just icing on the cake.
Government indebtedness indeed doesn't matter. The US government has not been unsustainably profligate and the financial markets have failed to signal any warning on the credibility of the US debt position. The supposed "debt crisis" is all smoke and mirrors created by the Republican party utilizing the ongoing depression politically by misrepresenting it. It's called "shock treatment" among political science types: The recognition that under extreme conditions people are more likely to approve of extreme policy, even if the extreme policy demanded by politicians has nothing to do with the condition facing the country.
What is interesting though, is what are the real objectives of the republican ideologues for the future of the US?
+ Show Spoiler +They DO know all I have just spoken. They are neither stupid nor uneducated. They know what they are doing. So what is their aim? They want prosperity, inequality and military power. Unashamed concentration of wealth in the hands of the few, protected by the many poor hands which then, with little opportunity cost, may be used in global wars of domination.
Is that it? The birth of an era of unbridled American power ruling the world, incidentally not for the benefit of the many, but for the benefit of the few. Because they want the wealth for America? Because they want the military power for America? Or both, because it's their world after all, and not the Chinks' world (or whatever you call the Chinese communists :D).
I don't want to derail too much from economics. Real politik hailing from the G.W. Bush era demands that republicans continue attempts aimed at shrink the statism.
It would be interesting, as a side story, to hear what the politically conservative in this thread think about these "visions of America" hidden in the folds of political scheming.
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On April 30 2013 08:21 acker wrote:Show nested quote +On April 30 2013 07:28 JonnyBNoHo wrote:
It took me a little while to recreate and think about the author's math but here it goes:
The author is not saying that the financing cost is on an 80% discount. The author is suggesting that there is an opportunity cost worth 3% per year for not borrowing money today that, over a 20 year period, will equal 80% of the borrowing not discounted. If I'm reading this correctly, the author is saying that, at the end of the 20 year period, 1.8 dollars borrowed at 0% interest over that period is worth a dollar borrowed at 3% interest over the same.
Yes, that's what he's saying.
1.8/1.03^20=1
Show nested quote +On April 30 2013 07:28 JonnyBNoHo wrote:
So he's saying that the government borrowing money today is essentially equivalent to you or I putting money in an account that earns 3% per year plus inflation. Over a period of 20 years a $1000 account would grow to ~$1806 in real terms. Your gain would have been $806 or about 80% of the initial investment. That's a bit weird and I don't think it's appropriate. The author is saying nothing of the sort. In fact, this is the exact opposite of what he's claiming; that the government selling 20-year Treasuries at 0% today is not equivalent to the government selling 20-year Treasuries at 3%.
Same thing. Discounting 1.8 by 3% per year over 20 years is the same as compounding 1 by 3% over 20 years. It's just the inverse of the above.
The way I worded it is correct. The author is claiming opportunity cost. That means the government (effectively and right now) has the option to earn 3%. In the author's mind, borrowing now means saving 3% thus not borrowing now involves a 3% opportunity cost.
It's a bit wonky, opportunity cost is the foregone benefit from doing something else. So when choosing to do project A the opportunity cost is project B. Here, the comparison is project A now vs project A later while saying nothing about what project A is or if it is worthwhile at all to begin with or if the value of the project changes with time.
Show nested quote +On April 30 2013 07:28 JonnyBNoHo wrote:To me what's appropriate would be to judge a project by way of a NPV analysis ( Net Present Value). You could then use your borrowing cost in the denominator (adjusted for risk, if appropriate) and as it becomes cheaper, more projects would naturally become viable. I'm glad you posted the wikipedia article in order to get a second-order answer, but could you do the calculations? Off the top of my head, the answer is still equal to what Soltas wrote, unless you believe that the markets haven't correctly priced risk into the current and/or long-term bond rates. More broadly, I'm seeing no practical imputs that lead to bonds at 0% interest being more expensive than bonds at 3% interest.
Yes I can do the calculations. It's easy. Just open excel, put in the cash flows and use the NPV formula "=NPV()".
The issue I'm raising is not the difference between a 3% and 0% bond. We're evaluating projects here, not whether or not interest rates are low or high by historical standards. NPV takes into account financing costs along with other costs and benefits while the author is only concerned with financing costs.
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On April 20 2013 04:17 Sub40APM wrote:Show nested quote +On April 20 2013 02:40 AnachronisticAnarchy wrote:
Still not a good idea to have debt, least of all 15 digits of it. It's just common sense. No one says accumulating debt is 'good'. what they are saying is 'accumulating debt now, to get more people employed and then paying it off when the economy is growing stronger is better than on top of a weak economy instituting austerity' which is what the RR paper, its political advocates and even R when he gave interviews to conservative papers all suggested.
EU and US have more or less been doing that since the 1930's, yet somehow they always forget the paying off part. Don't give policymakers with short term goggles more excuses to fuck up everything in the long run.
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On April 30 2013 09:27 Flyingdutchman wrote:Show nested quote +On April 20 2013 04:17 Sub40APM wrote:On April 20 2013 02:40 AnachronisticAnarchy wrote:
Still not a good idea to have debt, least of all 15 digits of it. It's just common sense. No one says accumulating debt is 'good'. what they are saying is 'accumulating debt now, to get more people employed and then paying it off when the economy is growing stronger is better than on top of a weak economy instituting austerity' which is what the RR paper, its political advocates and even R when he gave interviews to conservative papers all suggested. EU and US have more or less been doing that since the 1930's, yet somehow they always forget the paying off part. Don't give policymakers with short term goggles more excuses to fuck up everything in the long run.
When the slump is over the public finances will be back in balance as a matter of course. As the economy recovers, tax receipts go up, and unemployment claims go down.
Claims that the US is on an unsustainable fiscal path are political shock treatment, aimed at coercing people (politicians and citizenry) to accept extreme policy based on extreme conditions, never mind the fact that the treatment offered has nothing to do with the condition.
As for the EU, now that's an interesting story of many colliding national interests. Also, the euro as currency zone with low overall inflation is very much a mixed bag.. I've written about it elsewhere in this thread and it's getting late (page 2 I think). Suffice to say, the European story has very little to do with overall debt levels.
The claim that we always forget about paying off is erroneous. Key piece of evidence would be the development of US and British public debt position following WW2. A development very much like what we should be aiming for once this recession is finally over.
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On April 30 2013 09:19 JonnyBNoHo wrote:
It's a bit wonky, opportunity cost is the foregone benefit from doing something else. So when choosing to do project A the opportunity cost is project B. Here, the comparison is project A now vs project A later while saying nothing about what project A is or if it is worthwhile at all to begin with or if the value of the project changes with time.
Ok, that makes sense. OTOH...
On April 30 2013 09:19 JonnyBNoHo wrote:
Yes I can do the calculations. It's easy. Just open excel, put in the cash flows and use the NPV formula "=NPV()".
The issue I'm raising is not the difference between a 3% and 0% bond. We're evaluating projects here, not whether or not interest rates are low or high by historical standards. NPV takes into account financing costs along with other costs and benefits while the author is only concerned with financing costs.
If you want to evaluate projects, that's your call; we'd all be better off for it. However, despite the rather illuminating ruminations on the workings of Excel (no, really!), I have yet to see you post a single result from your knowledge of NPV.
Something tells me that actually using NPV is is somewhat more complicated than posting a wikipedia article; I can understand your reluctance to run an analysis. However, that still only leaves us with the first-order solution. Which is, are there any projects that should be done, given a total savings of approximately 80 cents on every spent dollar by the time of bond maturation?
Given no second-order answers to the contrary, I'd be very surprised if this didn't encompass most federal infrastructure projects. The only projects that I might be able to see not benefiting are those concerning computerized or other high-tech works.
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Oh god it's 4 AM again... I'm off to catch some Zs.
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well, military spending as a form of government stimulus is fairly weak.
If you think about it, spending $20 million on a fighter jet versus a public infrastructure project is a huge world of difference in terms of which one actually will have the bigger long term benefit for the economy.
e: this is why Japan and Europe have such developed public infrastructure and we don't.
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On April 30 2013 09:47 Kontys wrote:Show nested quote +On April 30 2013 09:27 Flyingdutchman wrote:On April 20 2013 04:17 Sub40APM wrote:On April 20 2013 02:40 AnachronisticAnarchy wrote:
Still not a good idea to have debt, least of all 15 digits of it. It's just common sense. No one says accumulating debt is 'good'. what they are saying is 'accumulating debt now, to get more people employed and then paying it off when the economy is growing stronger is better than on top of a weak economy instituting austerity' which is what the RR paper, its political advocates and even R when he gave interviews to conservative papers all suggested. EU and US have more or less been doing that since the 1930's, yet somehow they always forget the paying off part. Don't give policymakers with short term goggles more excuses to fuck up everything in the long run. When the slump is over the public finances will be back in balance as a matter of course. As the economy recovers, tax receipts go up, and unemployment claims go down. Claims that the US is on an unsustainable fiscal path are political shock treatment, aimed at coercing people (politicians and citizenry) to accept extreme policy based on extreme conditions, never mind the fact that the treatment offered has nothing to do with the condition. As for the EU, now that's an interesting story of many colliding national interests. Also, the euro as currency zone with low overall inflation is very much a mixed bag.. I've written about it elsewhere in this thread and it's getting late (page 2 I think). Suffice to say, the European story has very little to do with overall debt levels. The claim that we always forget about paying off is erroneous. Key piece of evidence would be the development of US and British public debt position following WW2. A development very much like what we should be aiming for once this recession is finally over.
I don't need an econ 101, obviously in times of economic prosperity it is easier to balance a budget. Yet, since the 70's the only time the US had a budget surplus was when they were reaping capital gains tax from the dotcom bubble. So in that time frame, if we forgive them the 80's, we should expect some more surpluses besides the 4 Clinton years. If I look at figures like that I feel it is really hard to believe politicians actually give a shit what happens after their terms are over, which was my point. Don't give short-sighted people too much leeway when it comes to policy that they won't follow up on. (I am using the US data as an example, not singling them out in this debate btw).
I don't think I read your text on page 2, I will look into it tomorrow or something, now it is time to play starcraft...
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On April 30 2013 09:48 acker wrote:Show nested quote +On April 30 2013 09:19 JonnyBNoHo wrote:
It's a bit wonky, opportunity cost is the foregone benefit from doing something else. So when choosing to do project A the opportunity cost is project B. Here, the comparison is project A now vs project A later while saying nothing about what project A is or if it is worthwhile at all to begin with or if the value of the project changes with time. Ok, that makes sense. OTOH... Show nested quote +On April 30 2013 09:19 JonnyBNoHo wrote:
Yes I can do the calculations. It's easy. Just open excel, put in the cash flows and use the NPV formula "=NPV()".
The issue I'm raising is not the difference between a 3% and 0% bond. We're evaluating projects here, not whether or not interest rates are low or high by historical standards. NPV takes into account financing costs along with other costs and benefits while the author is only concerned with financing costs. If you want to evaluate projects, that's your call; we'd all be better off for it. However, despite the rather illuminating ruminations on the workings of Excel (no, really!), I have yet to see you post a single result from your knowledge of NPV. Something tells me that actually using NPV is is somewhat more complicated than posting a wikipedia article; I can understand your reluctance to run an analysis. However, that still only leaves us with the first-order solution. Which is, are there any projects that should be done, given a total savings of approximately 80 cents on every spent dollar by the time of bond maturation? Given no second-order answers to the contrary, I'd be very surprised if this didn't encompass most federal infrastructure projects. The only projects that I might be able to see not benefiting are those concerning computerized or other high-tech works.
Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis 
All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not.
One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it:
Comparing Benefits to Costs
Once the analyst has calculated all benefits and costs of the project alternatives and discounted them, there are several measures to compare benefits to costs in BCA. The two most widely used measures are described below.
Net present value (NPV). NPV is perhaps the most straightforward BCA measure. All benefits and costs over an alternative's life cycle are discounted to the present, and the costs are subtracted from the benefits to yield a NPV. If benefits exceed costs, the NPV is positive and the project is worth pursuing. Where two or more alternatives for a project exist, the one with the highest NPV over an equivalent analysis period should usually be pursued. Policy issues, perceived risk, and funding availability, however, may lead to the selection of an alternative with a lower, positive NPV.
Link
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On April 30 2013 11:18 JonnyBNoHo wrote:Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not. One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it.
It's ok Jonny, we know you do your best. That said, didn't you say that you could do the calculations just two posts ago, using Excel?
I'm quite aware that the author's analysis is incomplete, but it still remains true that that it's the best approximation currently available to us. If you say that NPV is more accurate (and it certainly is!) but can't use it, we might as well shoot the moon and say we should ask Ernst and Young or the CBO for a writeup.
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On April 30 2013 12:31 acker wrote:Show nested quote +On April 30 2013 11:18 JonnyBNoHo wrote:Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not. One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it. It's ok Jonny, we know you do your best. That said, didn't you say that you could do the calculations just two posts ago, using Excel? I'm quite aware that the author's analysis is incomplete, but it still remains true that that it's the best approximation currently available to us. If you say that NPV is more accurate (and it certainly is!) but can't use it, we might as well shoot the moon and say we should ask Ernst and Young or the CBO for a writeup.
I could do the calculations if I had the data... which I don't, so I can't
I any case if someone wants money spent it's their job to provide data and show that the project is worthwhile. "Financing is cheap" just doesn't cut it.
Edit: I have no problem with spending more on infrastructure or taking advantage of cheap financing in general. I just don't want that to be an excuse for more million dollar bus stops in Virginia or whatever. I want real, meaningful shit.
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On April 30 2013 07:17 Kontys wrote:Show nested quote +On April 30 2013 07:06 acker wrote:On April 30 2013 06:29 Sermokala wrote:
I'm not partisan enough to say that hes detached though. I admit what he says has academic groundings but they're completly dejected from common sense.
Papa no tought me the reads good so no. FYI, just because something is common sense doesn't make it true. There's plenty of findings out there that go against intuition. On April 30 2013 07:03 Kontys wrote:
That is incorrect sir. The makers of military stuff still spend their income and it goes through the economy as with any other sector. We don't measure a unit of production's usefulness by how many people's hands it passes through, but rather by how much an agent (any agent!, so long as they have the necessary purchasing power) is willing to spend on it. That's what defines how needed something is.
Military stuff maybe anti-social, but it's not bad business on purely rational terms. Actually, he's generally correct; the parable of the broken windows comes to mind. Money spent on useless crap is money wasted relative to money spent on useful crap. Otherwise there would be no difference in spending money on, say, shoveling holes in the ground compared to spending money on reducing drunk driving. He is not generally correct. Military assets are no less useful than reducing drunk driving in the broad sense. You can argue that military spending should be less preferred by government though, but that's politics. The OP was arguing that money spent on military assets gets stuck and does not flow further into the economy, whilst it obviously does.
Military spending isn't useless, but it isn't as efficient as other expenditures.
Take random salary X that goes to a military man. This man can put his salary back into the economy, so his money is being helpful to the overall picture. However, the product of his labor is not; if he makes weapons, then those weapons are bought (one round of profit to go through the economy) and then those weapons turn into death. The efficiency stops there.
Take same salary X and imagine it is going to a teacher. That person's salary can go back into the economy, same as the military man. However, the product of his labor is more efficient; it turns into education, which benefits, countless students, which then use that education to, in turn, become more productive, making more products, which benefits the economy far more than the military man's product can.
Furthermore, this example isn't related to the economy. It can relate to hard products. Any product A can turn into the direct necessities or comforts of life, both of which contribute to an individual increasing their productivity in work; this can't happen in the military setting, as, even if the product results in a comforting sense of security that can result in being more productive, the product of a military man's work is death, which isn't economically advantageous. Furthermore, many products can be "re-used" in an economic sense, whereas weapons cannot. Military products (weapons that cause death) are unique in that their life span in the economy abruptly ends after they are made and then sold to the first individual to use them, as they just cause death (which doesn't contribute to the economy much at all). The vast majority of other produced goods can cycle through the economy in either a direct or indirect manner to further benefit society economically, whereas military weapons cannot.
The point is that, at the point where military spending goes beyond what is necessary for national security (a point that the U.S. is FAR, FAR, FAR, FAR, FAR past), that spending becomes less efficient than spending in other sectors.
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EPT
