Investment Or Durable Good? #1

I will start with the meaning of some terms.

Investing - The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit. (Investopedia).  

I take "profit" here in a monetary sense, not an amorphous one that might include, for example, somebody profits by doing more physical exercise or buying dentures.

Investment spending – spending which is part of an investment activity

Consumer good – something purchased (or otherwise obtained), but not an investment. There is no intent to bring about revenue, sales proceeds, or money profits.

Following common usage, consumer goods may be durable or nondurable. Investment spending may be for durable or nondurable goods. Ditto for consumer spending. (Here is the topic on Wikipedia). 

Some people, like here, distinguish between industrial goods and consumer goods. I won’t use the former term. “Investment goods” will suffice in lieu of it and puts more emphasis on the intention to produce future revenue or sales proceeds or money profits.

Easy examples of an investment are purchasing stocks or bonds. A home builder laying out money to build a house for future sale is an investment and all the money he spends to do is investment spending.

Part of what inspired this post is current politics – proposals for government investing in infrastructure, e.g. repairing roads and bridges or building new ones. First consider a new toll road. A hypothetical private investor builds a road expecting to recoup the amount of money used to build it and make a profit from collecting future tolls and maybe rents from gas stations and restaurants at service plazas. Suppose instead a government did this, but future expected revenues amount to only half of the upfront cost. Then by the above meanings the cost of the new road is half investment and half purchase of a durable good.

Next suppose a government spends to repave (resurface) an existing road or build a new non-toll road. That is not an investment by the above meaning. It is far more like buying a consumer durable good such as a house to live in, or a furnace, or water heater, and so forth. In the repaving case, it's akin to spending for a new roof on your residence. 

Therefore, when politicians and others talk about government investing in infrastructure, it is loose talk by the above meaning. In some cases or to some extent, it is investing. Otherwise, it is spending on a durable good.  

A Natural History of Human Thinking #3

This post is a little more about Michael Tomasello's book A Natural History of Human Thinking. The author explains his meaning of collective intentionality.

Conventional cultural practices can evolve into institutions, their key feature not just regulating activities, but constituting them. A human group might make decisions about what to do next by arguing among themselves. For more difficult decisions, the group might form some kind of governing council, which would give otherwise normal individuals abnormal status and powers. Some individuals might become like chiefs. Thus councils and chiefs are cultural creations. (p. 90).

These institutions and their practices with their acceptance and enforcement become “objectified” into the way things are, or ought to be, in the world at large. “Human group-mindedness thus reflects a profound shift in ways of both knowing and doing. Everything is genericized to fit anyone in the group in an agent-neutral manner, experienced as a sense of the “objectivity” of things, even those we have created. Thus is human joint intentionality “collectivized”” (p. 92-3).

Pied Piper Donald Trump

Since Donald Trump won the November 8 election, some of his proposals have gotten more attention. One such proposal is about the country's infrastructure -- highways, bridges, airports, water and sewer systems, etc. One can find several articles/comments about this proposal by searching Google News. Even though Democrats believe there is a need for improving infrastructure, they don't like Trump's proposal. 

One such article is in the Wall Street Journal here. Online subscribers can read the whole article at the link. Others who want to do so will need to find another way, e.g. a library. The ones I have seen have very little detail about his plan. An exception is this document written by two Trump advisers about a month ago. 

Trump’s infrastructure plan strikes me as another half-baked idea from the pied piper Donald Trump. In my view it has a big enough hole to drive an Abrams tank through it. Whence the revenues for the hypothetical private investor (PI)?

Said document says, “For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity.” Again, whence the revenues for the hypothetical PI? The article offers no answer I can see. 

The article assumes that for every $1,000 of an infrastructure project the PI will make an equity investment of $167 and it will borrow $833. If borrowed at 4.5% for 20 years like the article says, the debt service will be $37.5 each year for interest plus $833 in 20 years.  In addition there are all the construction costs for labor and materials, which I will assume is $1,000 to keep it simple. So aggregate cost, simply speaking, is $1,000 + 20*$37.5 + $833 = $2,583. 

The only “revenue” in the proposal for PI is the 82% tax credit, which amounts to a mere $137 (=0.82*$167).  But this could be realized only if PI has taxes due as the result of other operations. Regarded as an isolated business, the revenue would be $0! That’s unless Trump plans for more handouts to crony capitalists.

I leave it to those under the spell of the pied piper, or anybody else, to tell me whence the revenues in excess of $2,583 to cover the $2,583 of costs identified above plus whatever the target profit is. (A 9% dividend on the $167 equity implies a target profit of $300, i.e, 0.09*$167*20.) How much of that revenue comes from the US Treasury in the pied piper's plan? Does he plan to siphon off gasoline and diesel tax revenues, toll revenues, heavy vehicle use fees that truckers pay, etc. that the federal and state governments receive now and have for decades? Are there going to be lots of new tolls on many roads and bridges that have none now and those go to PI?

The idiom "PI in the sky" seems fitting. 😊

Job creation

The Entrepreneurial Way to 4% Growth is a recent Wall Street Journal article. Online subscribers can read the whole article at the link. Others who want to do so will need to find another way, e.g. a library.  Some quotes from the article are:

1. New firms are the country’s principal generator of new jobs. Data from the Kauffman Foundation suggest companies less than five years old create more than 80% of new jobs every year. While the nation seems more enthusiastic than ever about the promise of entrepreneurship, fewer than 500,000 new businesses were started in 2015. That is a disastrous 30% decline from 2008.

2. Silicon Valley [ ] already receives disproportionate attention from Washington. This sliver of the nation’s entrepreneurs—high-tech companies and the venture-capital investors who fund them—has shaped the narrative of entrepreneurship for too long. By my estimation, these “rock star” firms, less than 5% of all startups, have much higher failure rates and create proportionately fewer jobs than the 40% of all new businesses started every year by franchisees.

3. The application of complex Dodd-Frank provisions has led community banks to finance fewer and fewer promising businesses—despite their unique knowledge of local markets.

4. Anti-growth policies like ObamaCare and minimum-wage increases make hiring workers prohibitively expensive.

The following are my comments.

- The US Gross Domestic Product (GDP) fell 2.9% in 2009, the worst result since The Great Depression in the 1930's. Like me, one might expect that the subsequent GDP growth would have been quite good. It wasn't. I have no doubt that the policies of Barack Obama and his administration contributed a lot to the anemic recovery. See here, then click on MAX to show the most years. Indeed, BO's presidency was the first ever to not have a year of at least 3% GDP growth.

- Contrary to the WSJ article, about 2 years ago Hillary Clinton asserted in a speech: "Don't let anybody tell you that, you know, its corporations and businesses that create jobs." What a remarkably stupid comment! Google, Amazon, Facebook, Uber, etc. each employ 1,000's of people, but started with a handful at most.  

- It would be interesting to learn more about job losses, e.g. (a) sorted by small, medium, and large businesses, and (b) sorted by the age of the firm.

Interview with Thomas Sowell

Thomas Sowell - Production, Inequality and Human Capital is an interview with Thomas Sowell about his new book Wealth, Poverty and Politics.  I haven't read the book but plan to. There are two versions -- 2015 and 2016. The latter is an expanded version of the former with a lot more statistics (per others).

Why Did Trump Win?

Trump Won Because Voters Are Ignorant, Literally  (When a solicitation hid the article, I refreshed the page and that removed the solicitation.)

"But, to be fair, Clinton’s victory would also have been."

"Voting is more like doing the wave at a sports game than it is like choosing policy."

TV show about North Korea

Last night we saw a show about North Korea on the National Geographic Channel. It was made in 2006-07 and is available on You Tube. What a depressing place! The people are brainwashed and greatly revere Kim Jong-il despite the deplorable standard of living of most of the population and political prison camps. The common folk do not even have family pictures in their homes, only those of their "Great Leader", past and present.

A doctor from Nepal made a 10-day visit and removed cataracts from 1,000 people blind in one or both eyes so they could see again. Then they praised and thanked Kim Jong-il, and the doctor not at all.

Election 2016

Gomer Pyle used to say, “Surprise, surprise, surprise!” Many people, including me, were surprised by Donald Trump’s winning the election for President over Hillary Clinton.

Ding-dong, the witch is dead! Politically, that is. What a Trump presidency will bring is a huge unknown. I hope it will be better than if Hillary had won. Hillary’s way is near always anti-freedom, more government controls, more government spending, and more foreign meddling and giveaways. While avoiding saying so, she advocates a walk toward socialism or totalitarianism, rather than a sprint as desired by Bernie Sanders. This is on top of her personal character -- corrupt, power-lusting, two-faced, chronic liar -- and conflicts of interest via the Clinton Foundation.

Proposition 61 on the California ballot failed, deservedly so in my opinion. It would have put price controls on prescription medicines, and only for the privileged benefit of state agencies and employees, about 12% of residents. The stock prices of pharma companies jumped about 10% yesterday in response, which still did not offset the price drop over several weeks prior to the vote. Of course, Bernie Sanders was all for it.

Post-season MLB #10

Congratulations to the Chicago Cubs. They became World Series champs for the first time since 1908 by beating the Cleveland Indians 8-7 in game 7. It was a long thriller.  The Cubs led 6-3 after 7.5 innings. Then the Indians scored 3 runs to tie it in the bottom of the 8th inning. Neither team scored in the 9th inning. Rain delayed the start of the 10th inning. The Cubs scored 2 runs in the top of the 10th, and the Indians scored one run in the bottom of the 10th.

It was the 7th time a team had won the World Series after being down 3 games to 1, last done in 1985.

The Cubs' Ben Zobrist was named MVP of the series. He drove in the go-ahead run and scored the final run in the 10th.