Wednesday, March 26, 2008

Where 2 + 2 = Infinity

Scientists should stick to bunsen burners and leave financial calculations to those who can add, subtract, multiply and divide.

The mathematically challenged Anthony Scott writes in this morning's Herald:-

"The real significance of the $700 million capital fund for innovation in the pastoral and food industries is in danger of being overlooked......"

The corrected version is:-

"The paltry insignificance of the $700 million capital fund for innovation in the pastoral and food industries is in danger of being overlooked....."

He goes on to say:-

"They are important issues and deserve close attention. But they miss the larger point of this announcement and attendant reactions.

The package does three things:"

After which he details not three but just two bullet points. Perhaps the missing 'thing' was the confusion sown by the package in the minds of those economic simpletons who who can't tell the difference between capital and income.

The best is kept for later however.

"With private sector contributions included, the fund may distribute up to $2 billion over the next 10-15 years."

Remember folks, the private sector is to contribute dollar for dollar. So, we have a $700 mil fund, earning interest at say 10%. Retain 3% for inflation proofing and you've got $49 mil to spend each year on scientific endeavour. (That's somewhere about the figure Jamdertin was talking.) Add the private contribution and there is about $100 mil per year, in real terms, each year, for 'the next ten to fifteen years.'

To use John key's immortal words, I'm buggered if I can see how that gets to two billion dollars.

One hundred million dollars per year is not really a hell of a lot when one puts it into perspective. Why, it's only 0.06% of Fonterra's turnover.

Maybe, Mr Scott has been taught to value investment by ANZ financial advisers or the good people from BlueChip.

Clearly he has been conned by the snake oil salesmen from Labour.


David said...

I think you are mistaken. It's not just the interest that goes towards the funding, the whole $700 million will be spend over 10-15 years.

An I expect the executive director of the 9 crown research institutes has very little to do with bunsen burners.

Clunking Fist said...

True. Using an after tax and after inflation rate of 3%, I reckon the amount available to spend is $82M a year for 10 years ($58M for 15 years), before allowing for admin costs and industry contribution. But i'm open to having me maths checked.

I can only imagine the snouts in the trough, though: the fund managers will need an office, computer system, letterhead, PAs, communications staff, probably cars (to visit those seeking funding) and health insurance. A professional development budget, team building exercises, someone will have to be employed to write the corporate identity manual, the sexual discrimination rules, rules on travel allowances. Someone will need to visit Austria and Oregon State to see how they do it. Lawyers will need to ensure that the vetting processes do not breach rules on natural justice. Someone will have to write on the Ethical Standards of investment (will they won’t they invest in GM projects, projects that require chemical testing on animals, etc). Some one will need to audit whether or not the industry participant actually contributed their share, etc. Sheesh. Why don’t we just cut taxes: it’d be easier, surely..? Will there be any of the $82/58 million left in the first year, after all that?

Adolf Fiinkensein said...

David, if that is so then there will be a much reduced amout of interest income available. You can't have it both ways. Then when you apply a 'present value' formula to the calculation, the total mojey spent over ten years will be worth about half of it's face value.

A con is a con is a con and your man fell for it.