Re: Fine work by our new Nobelist

From: Igor (jjweatherby_at_houston.rr.com)
Date: 10/17/04 

Date: Sun, 17 Oct 2004 18:41:10 GMT

royls@telus.net wrote:

> On Sat, 16 Oct 2004 01:20:09 GMT, Igor <jjweatherby@houston.rr.com>
> wrote:
>
>

> OK, now you are lying about what I said. That's normal and expected.
> You said the valuation was based on resource costs, not market value
> and not current spending (look up about 15 lines. Yep. There it
> is.). I repeated that accurately, and identified its inescapable
> logical implications.
>

The stock of resource cost is what is used empirically to estimate a
value. If you take delfated investment and subtract depreciation to get
the flow. You add up the flows to the get the stock. The process is a
bit more complicated to control for bias but this is the idea. Equation
3 shows this. RTFM.

>>>So, because a company that always loses money pays no tax, it is
>>>considered to be more valuable than a company that always makes money
>>>and thus does pay tax. Check.
>>
>>Wrong note it says 1 - tax . This is the after tax value. Presscot
>>clearly states that are sell prices. So if the capital is valued at 1k
>>market then the proceeds after selling are (1- the tax rate) (market
>>value). The problem is you misinterpert this as current expenditures not
>>as a valuation of assets.
>
>
> Noope. I did not at any time mention current expenditures.
>

Either way it is wrong. It is not taxes paid it is the tax rate. That is
why it is 1- tax that determines returns.

>
>>>>The valuation is the price of its
>>>>tangible assets and intangible assets.
>>>
>>>IOW, the assumption is that corporate value does not depend on how
>>>skillfully the company's assets are deployed, or how profitable they
>>>are made, but only on how much they cost to acquire and how much any
>>>returns are taxed.
>>
>>No how much the corporation could be sold for.
>
>
> That is simply false. There is no mention of market value, only of
> costs, tax rates and interest rates.
>

Which determines the fundemental market value of the firm. The eqaution
shows the minimum price a corporation will sell for the after tax value
of its assets. Again RTFM.

>
>>The value is what you can
>>sell the company for.
>
>
> Where is that mentioned?
>

Equation 2 and 3 and the discussion that follows. RTFM.

>
>>The fundemental portion of that is how much are
>>assets worth after taxation.
>
>
> Then why is value calculated on the basis of resource costs, not
> market value of assets?
>

The resource cost accumulated is the value of the asset.

>>In context of growth models which Presscot loosely bases the anaylsis on
>>, it is total factor productivity that is used to measure the stock of
>>knowledge.
>
>
> Gobbledegook.
>

Now we know why you can understand things. You don't understand the
basic concepts are what terms mean. If you want to evaluate a paper on
economics you need to first learn the language and learn some economics.

>
>>>>The valuation of intangibles is estimated from profits. Profits are
>>>>equal to (the interest rate) (tangible capital) + (the interest rate-
>>>>growth trend of output) (intanglible capital).
>>>
>>>This formula means that if output is declining, profits are higher,
>>>and maximum profitability is achieved if all output is eliminated
>>>altogether, as quickly as possible.
>>
>>Not necessarily.
>
>
> Yes, liar, necessarily.
>

Now you show you don't understand algebra either. Even if the (i-g-tax)
is negative it does not mean that (1-taxc)i*capital + (1-tax)(i-g)*stock
of knowledge is negative.

>
>>Prescott derives this from a more complex equation.
>
>
> Sure. One that is equally nonsensical.
>

Have you looked at equation 3. Do you understand what it means? RTFM.

>
>>In steady state the growth of output is equal to the growth rate of
>>knowledge.
>
>
> That is literal nonsense: it lacks dimensional consistency, like a
> claim that profitability is equal to how fast the CEO can run.
>

No. Steady state implies constant growth rates. This is what is observed
empirically. GDP per capita grows at constant rate. If you don't have a
constant rate of productivity(the stock of knowledge) GDP does not have
a constant rate. See Romer 1990 Endogenous technological change or Solow
1956 to see the argument.

>
>>Hence this is showing how the returns to knowledge capital
>>depreciates. As others catch up you lose market share and profits. This
>>is the growth rate for the economy not the firm. Yes in slower growth
>>rate periods R&D gets higher return because you get a jump on
>>competition.
>
>
> Except that in the real world, the opposite is the case.
>
Sure it is. When the economy is growing faster and you are not
innovating you are gaining market share is that what you are saying?

>>>And in any case, profits are
>>>defined principally by how much money the company has spent, not in
>>>the conventional way by how much it has left over after subtracting
>>>what it has spent from its revenues.
>>
>>No it is not the conventional expression of profits but it not how much
>>money was spent either.
>
>
> What is "resource cost" but how much money was spent?
>

A stock not a flow.

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