Comments for The Long Run Blog

Comment on Do Ads Like This Really Work? by kamamer

kamamer — Tue, 01 Dec 2009 19:51:02 +0000

I don’t know if I mentioned this in a post but Pizza Hut once had a promotion where you could get two toppings for the price of one. Most people assumed that mean if you got, say, 200 g of cheese, you got 200 g of cheese and 200 g of bacon. But if you ordered the deal, you got 100 g of cheese and 100 g of bacon. You weren’t getting anything extra.

I got pissed at Radio Shack once. If you applied for their card in the store you got $10 off your purchase. What they don’t tell you verbally but its in the fine fine fine print, there was a $20 fee to get the card, billed on the first statement.

There was a radio station in Detroit that had a contest for $1 million. Wow. Huge. In what amounted to radio fine print, they note it’s $100,000 in a mutual fund that would be $1 million by the time you retired in 50 years, assuming xyz.

Comment on “Be Your Own Banker” by Brett

Brett — Tue, 01 Dec 2009 02:34:06 +0000

I have no idea what you are talking about (what does it have to do with the banking system?), but from the tone of your comment and the language you use (“power”, “contract”), my guess is that you are an insurance agent who promotes this system.

Comment on “Be Your Own Banker” by peterkavalas

peterkavalas — Tue, 01 Dec 2009 02:22:02 +0000

In order to understand the value of this process requires an understanding of our banking system. Most people have no idea how the banking system works. Because if they did, they would realize the power of this system. It has nothing to do with investing and everything to do with lending. The contract is the key component, everything else is of no consequence.

Comment on Deflation, Not Inflation, Is Your Worst Enemy by Brett

Brett — Mon, 23 Nov 2009 03:05:26 +0000

No stupid questions, Jon. They give us a chance to elaborate, so thank you.

The determination of what is fixed and variable generally depends on both a) the correlation to production and b) the time frame. If a cost goes up proportionally with the number of units, it is a variable cost. If for example you produce 100 widgets using 100 watts of power and the next year you produce 200 units using only 150 watts (assume no productivity improvements), then the first 50 watts used were for fixed overhead (lights, heat etc). The second 50 were directly tied to production and when production doubled, so did use of power. You can say the fixed cost is 50w to maintain the building irrespective of actual production. So some costs will be fixed and some variable even within some ingredients.

Time frame. All costs will change somewhat over time. Rent in most cities will rise over time- you can’t rent retail space in NYC for what you did 25 years ago, obviously. But if the rent is fixed for the term of the lease (or you own the building), it is a fixed cost over the planning horizon. Economics is one of those “all else equal” concepts and it helps to note the time frame of the analysis and categorize variables accordingly.

Comment on Deflation, Not Inflation, Is Your Worst Enemy by jonsn0w

jonsn0w — Mon, 23 Nov 2009 02:30:31 +0000

Hi Brett,

I’m still trying to understand finance and economics, which probably brought me here through some skeptical websites. So please try to bear with my stupid questions.
In your example:

If prices rise say 3% per year on average (moderate inflation), after a few years this results in about 10% more revenue for the same amount of production. Those sales in our example ought to go to $109.3 million, variable costs to $43.6 million while fixed costs remain at $40 million

wouldn’t the fixed costs (rent, energy, etc) also be influenced by the inflation and go somewhat up during those 3 years?

Comment on How is Vegas treating jugglers? by Brett

Brett — Thu, 12 Nov 2009 17:18:07 +0000

Thanks Michael!

Comment on GDP, Truth Twisters and, well, Duh by Brett

Brett — Wed, 04 Nov 2009 14:53:21 +0000

I stumbled upon a different estimate of stimulus spending by quarter: $80B in 2Q and $85B in 3Q. If so, it appears the multiplier was <1 in 2Q and rising above 1 in 3Q. Estimating multipliers = throwing darts.

Comment on GDP, Truth Twisters and, well, Duh by Brett

Brett — Tue, 03 Nov 2009 23:43:50 +0000

Agreed. Does anything work as the government promises? As you said, it was “being sold”. I also see little value in calculating multipliers, especially over such short periods. But, if you want to indulge, I think it may have been less than 1 as such: ~$125B spent vs $113B change in GDP Q/Q. Of course, we’re guessing here, but time will tell. It is certainly possible it turns out to be >1; and it won’t be constant since velocity, psychology and other factors play a part.

Comment on GDP, Truth Twisters and, well, Duh by Gavin Andresen

Gavin Andresen — Tue, 03 Nov 2009 23:31:14 +0000

If I’m following your math, it looks like the stimulus has a multiplier of about 1.

The government spent a dollar, and GDP went up about a dollar. That makes sense to me, since government spending is one of the terms in the definition of GDP.

When the stimulus was being sold back in January, we were told that the multiplier should be 1.3 in the third quarter (rising eventually to 1.5 — see Greg Mankiw’s blog for discussion and pointers to the Romer/Bernstein PDF).

I agree that Romney is wrong when he says “the stimulus didn’t work.”

However, it seems to me it would be reasonalbe to say “the stimulus didn’t work as well as we were promised.”

Comment on Deflation, Not Inflation, Is Your Worst Enemy by mattical

mattical — Fri, 16 Oct 2009 23:36:32 +0000

Deflation is only your enemy if you are highly leveraged. People who own, rather than borrow, cash benefit from increased purchasing power.

Borrowers are hurt by deflation because they repay debt with stronger dollars. The reverse is true for lenders; they benefit like cash owners–if they get their money back.

Once again, if you own cash deflation is your best friend.