Tax Refunds as Stimulus?

flaja wrote:

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Throwing money after poor risks in not good business.

Then how do you explain the R&D that goes into completely new products? How did the CD-rom replace the floppy disk if no one was ever willing to take the financial risk involved in designing the CD-Rom? How would cell phones be the norm rather than the exception now if nobody risked a loss of R&D money?

R&D is not a poor risk. But each R&D project is subjected to scrutiny. If you don't believe this, you don't have any R&D experience. The more progress is made, the more the company is willing to fund to take it to the next stage. Believe me, some entrepenuer did not walk up to the a venture board and say, "I bet I could stuff info onto silver disks. How about giving me lots of money?"

flaja wrote:

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There are no guarantees, but projects are evaluated on expected returns and the projected probability of getting that return. High risk requires a high potential return. High risk with low return probability rank low on the list.

Care to give some specific examples? What was the expected return on the investment needed to design and market Pringle's or any other completely off-the-wall consumer product? And how do you explain wildcatting in the oil industry? Why do people risk digging a hole in the ground just on the off chance that it might have oil in it?

No, I don't care to. While I have lots of examples and spend a reasonable amount of time each year doing this, those things are propriatary. I'm sure you will discount my words even though I do R&D for a living since I'm not willing to spell it all out for you.

flaja wrote:

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A perfect case of where the management evaluated the potential benefit and decided that there was value in continuing.

The manufacturer spent money to design Pringle's. They then put Pringle's on the market and the product was a complete flop. At that point the R&D money that had been invested was likely a 100% loss. So why risk even more money in PR? What expectation was there that Pringle's would ever be a profitable consumer product? Like it or not there are some products that no amount of PR can salvage- Beta VCRs, the Edsel, the Commodore computer, the Mom and Pop video rental store that opened on the corner a year before the first Blockbuster came to town. In such situations the initial R&D or startup money that was invested becomes a total loss. But these total losses never stop some people from investing again.

Both of us can only speculate on the Pringles story. Sometimes you look at your product and say "you know, this is really a good product even though it is not selling. Maybe we can get it out there more." For Pringles, that worked. Great product, needed more time. For optical fiber, that worked. For the Betamax, it still didn't work. I still stand by the statement that the decision to move forward was not made because cash was plentiful, but because the risk versus the potential benefit was weighed and decided in favor of going forward.

flaja wrote:

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Investment firms don't work like the lottery, throwing money at everything to see what sticks.

Not all R&D efforts come from investment firms. If we were to eliminate the income tax for the auto companies, I would venture that at least one of them would use the extra money to R&D new auto designs or build new and more efficient factories for the designs that they already produce.
flaja wrote:

Why wouldn't they do that anyway? It is worthwhile to do, they will do it regardless of the tax situation.

flaja wrote:
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Just because there is money available, companies don't just spend it.
Exxon is sitting on $30+ billion in cash. They will spend it one day on good projects, but right now they are sitting tight because the right opportunities aren't there.

Just how long do you expect these companies to be satisfied with the bank interest that their cash pots can earn? This money will either be invested or the stockholders in these companies will demand higher dividends before too terribly long.

That is my point. They will be satisfied sitting on it until they find a WORTHWHILE investment opportunity. They don't just say "we've got lots of cash, let's just go try lots of crazy things to see if one hits is big!!"

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engineer wrote:

R&D is not a poor risk. But each R&D project is subjected to scrutiny. If you don't believe this, you don't have any R&D experience.

You've yet to explain what your line of work is. How do I know that you have experience dealing with R&D issues?

Furthermore, you seem to think that there are a limited number of R&D opportunities that an investor can invest in. If any particular R&D effort is deemed too risky, there will always be a less risky, more acceptable R&D effort to consider. People with large sums of spare money will seldom be satisfied with mere bank interest. They won't sit on the money for long; they will actively find some use for it.

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No, I don't care to. While I have lots of examples and spend a reasonable amount of time each year doing this, those things are propriatary.

Please. I wasn't asking for trade secrets. The examples I asked for need not come specifically from your own work.

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Both of us can only speculate on the Pringles story.

I cannot say right off where exactly I learned of the initial market failure of Pringle's, but I want to say it was from a recent History Channel program. I am not speculating.

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For Pringles, that worked.

The product didn't work. It took time and a good ad campaign to make it work. If the manufacturer had not been willing to risk that time and PR effort, the initial R&D effort would have been a total loss as far as future profits are concerned.

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For optical fiber, that worked.

When did I say anything about optical fiber?

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For the Betamax, it still didn't work.

As far as I know there was nothing amiss with the technology of Beta. My first VCR back in 1984 was Beta. But JVC had better PR for the VHS format.

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I still stand by the statement that the decision to move forward was not made because cash was plentiful, but because the risk versus the potential benefit was weighed and decided in favor of going forward.

And I still say that you are wrong. Human ingenuity and curiosity say that you are wrong. Thousands of consumer products that didn't make it all say that you are wrong.

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Why wouldn't they do that anyway?

Because they may not have the money to do so. First you say a company doesn't do R&D without having a reasonable expectation of leading to profit, but now you say that a company will do R&D even when they cannot afford to do so. Make up your mind. Companies will only do R&D when they can afford it and they won't always insist on having a reasonable expectation of success.

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That is my point. They will be satisfied sitting on it until they find a WORTHWHILE investment opportunity.

No. They will either pay out the money to their stockholders, or they will use it for a variety of R&D efforts just to see which efforts may lead to new products and more profits. Anyone with a large amount of money that they don't need to spend otherwise will be fools to settle for bank interest.

BTW: When a company's R&D effort fails to lead to a profitable product or service and they pull the plug, can the company not deduct the lost money from their income for income tax purposes? If they lose money in failed R&D, don't they get a tax break? So no R&D effort is ever a total failure so why would any company insist on any guarantee of success?

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At this point I can only assume you are being dense on purpose. I've tried to explain the R&D process to you. If you choose not to believe me or learn something in more depth than the simplistic view you hold, I can't force you.

I didn't say the Pringles story was made up, I said that neither of us knows the inside story of how the decision was made to continue forward. I assume that it was done with deliberation and with faith in the product. Your assumptions are your own.

I didn't say that a company will not do R&D without a clear view to profit, I said they will allow R&D to progress by making conscientious decisions about the payback versus the investment. Same as the Pringles story.

I brought up optical fibers and Betamax because those are both stories of a superior product that did not at first achieve market success. In both cases, the company evaluated the product and decided to stick with it. I know those were considered decisions, not made because of the availability of money, but because they made business sense. Fiber won, Beta didn't, so there are valid gambles that fail. There is not a guarantee of success, but there is an expectation of success.

There is plenty of excess money floating around right now, more than companies are willing to invest. If you change the tax structure, GM will not do anything they aren't doing now. Why? Because they are already pursuing all the worthwhile projects even if they have to borrow to do it. All the money in the world is not going to make them pursue a non-worthwhile project.

Here, we will never agree. I say there is a finite number of worthwhile ideas at any given time that are advanced to the point where you should spend money to develop them further. You say there is an infinite number. We'll have to agree to disagree.

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R&D has an immediate tax benefit as a projected and realized expense. In fact, my R&D that goes to market, is often extended as a "pilot plant" staus for quite a few years because of the taz benefits allowed us.

Im a firm believer in a stimulus rebate. However the :"chump change " of 800 to 1300 bucks will not make an appreciable difference in the spending habits of AMericans. emember, while all other metrics showed a teetering economy for 2 years as we saw the housing bubble coming, the economy was held up by the free spending habits of our fellow citizens.
I feel that a massive rebate of at least 15000 per household, tied to a Tiptonesque directive that

1thou shalt not pay off thy debts with this stash. Thou shalt engage in spending of it , like it were 1999.

2Thou shalt retain thy receipts and forward them with thy next years tax forms to show that thee has not saved, invested , or otherwise taken this boon from the economy at large.

3 If thee manageth to spend this money within a fortnight or two, thou shalt be rewarded with yet a second equal dip into the basket of thy governments largess

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engineer wrote:

At this point I can only assume you are being dense on purpose. I've tried to explain the R&D process to you.

As I am doing as well for your benefit. If everyone who has money to risk in an investment insists on having some expectation of profit, then no money would ever be invested. Consider the dotcom bubble. Because of the booming economy (courtesy of Ronald Reagan's tax cuts) many people in the mid-90s had large amounts of spare money. They were not satisfied with mere bank interest and they didn't want to wait 20-30 years for a stock portfolio to rise in value. But as the burst of the dotcom bubble showed, investing in dotcoms was very risky and no one should have had any expectation of a profitable return, But this did not stop people from investing.

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There is a difference between R&D at an established company and venture capital used in an upstart company.

Venture capital fully expects that many of the companies they fund will fail but those that do make it more than pay for the failures. It isn't always about the product but the drive of those running the company.

The dotcom bubble was not a complete bust for venture capitalists. Ebay, Amazon, Google and others are doing quite well and made a lot of money for initial investors.

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Farmer -
Your forgot

4.) Thou shalt put thy children into forced servitude to pay for the money we are giving you.

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flaja wrote:

As I am doing as well for your benefit. If everyone who has money to risk in an investment insists on having some expectation of profit, then no money would ever be invested.

Flaja, everyone who invests money has an expectation of making a profit. Try walking down the street and ask everyone with money invested in their 401Ks or other stock vehicle if they expect a profit. Ask those holding real estate if they expect a profit. Everyone invests expecting a profit. Some of those folks are wrong or don't have the correct investment horizon. That's what investment risk is about. After the dot com bubble, people still invested ... to make a profit. Do you really believe what you wrote?

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I can live with that. Ive given my kids 2 things

1Roots

2Wings

They both fly well and know that they can come home to lick any wounds.
Hell, were not gonna indenture our kids with a realistic tax refund any more than we are with a war trhats costing 3/4 of a BILLION a DAY.

But that money is all off the books.

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Tiptonesque? Surely that's the most oblique reference to John Baresford Tipton I've ever heard.

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engineer wrote:

Flaja, everyone who invests money has an expectation of making a profit.

No they don't.

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Try walking down the street and ask everyone with money invested in their 401Ks or other stock vehicle if they expect a profit. Ask those holding real estate if they expect a profit.

You are talking about 20-30 year investments. Historically speaking, at least since the Great Depression, stock prices have always gone up over any 30 year period of time. The value of your investment may go down occasionally during a 30 year period of time, but by the end of the 30 years it is almost guaranteed that your investment account will be worth more than it was worth when you started investing. A stock portfolio that is held for a long period of time is considered a safe investment. Investing in a dotcom was not considered a safe investment by anyone with any intelligence.

Consider the reasons why dotcoms were risky investments with no guarantee of a profitable return in the near future:

1. The internet technology was new and untried as a means of mass communication and commerce.

2. Any dotcom company that was managed by someone who was young and inexperienced (as many of them apparently were) risked being mismanaged (as many of them apparently were).

3. The computer industry may not have been able to produce enough hardware and software to maintain an ever-increasing number of internet users.

4. Internet service providers may not have been able to keep up with demand (this was initially true with ISPs like AOL, Compuserve, Prodigy, Qlink et cetera; my experience with these companies was that service was unreliable and customer service next to non-existent because the companies couldn't keep up with demand).

But thousands of people invested millions of dollars in dotcoms anyway.

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if you haven't read what warren buffet recently said , here is your chance - see bottom link .
of course , he's made his money over many, many years , carefully looking at the world and the economy before making his choices .
he doesn't seem to believe in FIXES , but good government and business practices .
you don't really have to read the whole article , this might be enough :

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As for the decline in the value of the U.S. dollar, he blamed the enormous current account and trade deficits the U.S. is running.

"We're still sending about $2 billion a day to the rest of the world," he said. "Force-feeding a couple of billion a day to the rest of the world is not conducive to a stable dollar."

He said U.S. voters have "some interesting and good choices" in this year's presidential election.

link :
WARREN BUFFET

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hamburger wrote:

if you haven't read what warren buffet recently said , here is your chance - see bottom link .
of course , he's made his money over many, many years , carefully looking at the world and the economy before making his choices .
he doesn't seem to believe in FIXES , but good government and business practices .
you don't really have to read the whole article , this might be enough :

Quote:
As for the decline in the value of the U.S. dollar, he blamed the enormous current account and trade deficits the U.S. is running.

"We're still sending about $2 billion a day to the rest of the world," he said. "Force-feeding a couple of billion a day to the rest of the world is not conducive to a stable dollar."

He said U.S. voters have "some interesting and good choices" in this year's presidential election.

link :
WARREN BUFFET

The simple laws of supply and demand indicates that if we spend dollars in other countries (either by fighting wars therein, giving foreign aid thereto, or buying products there from) these other countries will develop a surplus of dollars which will naturally drive down the price of dollars. And when other countries don't spend their currency in the U.S. a shortage of these currencies will develop here and their price will go up due to the scarcity.

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flaja wrote:

The simple laws of supply and demand indicates that if we spend dollars in other countries (either by fighting wars therein, giving foreign aid thereto, or buying products there from) these other countries will develop a surplus of dollars which will naturally drive down the price of dollars. And when other countries don't spend their currency in the U.S. a shortage of these currencies will develop here and their price will go up due to the scarcity.

Brilliant, can i assume a PhD in economics?

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flaja wrote:

engineer wrote:
Flaja, everyone who invests money has an expectation of making a profit.

No they don't.

Yes, they do. It might be foolish to expect success, but they do it expecting success anyway.

flaja wrote:

But thousands of people invested millions of dollars in dotcoms anyway.

Exactly. They thought they would make money. They didn't invest in dot coms because they knew their money was probably lost but thought it was cool, they did it because they thought they could make money! It might not have made sense in retrospect, but at the time that is what they believed. Maybe we should take a poll. Does anyone on A2K reading this invest money without the expectation of making a profit? How about you Flaja? I assume you have some investments. Do you expect to make a profit on them?

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dyslexia wrote:

flaja wrote:
The simple laws of supply and demand indicates that if we spend dollars in other countries (either by fighting wars therein, giving foreign aid thereto, or buying products there from) these other countries will develop a surplus of dollars which will naturally drive down the price of dollars. And when other countries don't spend their currency in the U.S. a shortage of these currencies will develop here and their price will go up due to the scarcity.
Brilliant, can i assume a PhD in economics?

I was merely explaining the basic economics behind Buffet's comments.

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engineer wrote:

Yes, they do. It might be foolish to expect success, but they do it expecting success anyway.

They do it hoping for success while being willing to suffer a total loss of whatever is invested. But since you believe that all investors expect success before they make an investment, what was the percent chance that any given dotcom investment was going to be successful?

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flaja wrote:

engineer wrote:
Flaja, everyone who invests money has an expectation of making a profit.

No they don't.

Yes, they do invest with the expectation of making a profit. They don't expect every investment to pan out but they expect the total investment over several investments to reap a profit.

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flaja wrote :

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They do it hoping for success while being willing to suffer a total loss of whatever is invested.

i have yet to hear anyone saying that they would be "willing to suffer a total loss of whatever is invested " .
even gamblers going to las vegas usually don't expect a wipeout .
hbg

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hamburger wrote:

flaja wrote :

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They do it hoping for success while being willing to suffer a total loss of whatever is invested.

i have yet to hear anyone saying that they would be "willing to suffer a total loss of whatever is invested " .
even gamblers going to las vegas usually don't expect a wipeout .
hbg

Some investors are willing to suffer a total loss of what they invest just to have the chance of enjoying high profits if the investment ends up being successful. Such investors are gamblers in this regard, but they will only gamble with money that they can afford to lose.

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Tax Refunds as Stimulus?

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