8/20/2011: I’m no economist, and the devil is in the details, but on the surface Andy Stahl’s plan for promoting old growth forests *and* timber jobs looks pretty damn sensible.
8/20/2011: I’m no economist, and the devil is in the details, but on the surface Andy Stahl’s plan for promoting old growth forests *and* timber jobs looks pretty damn sensible.
I’ll say you’re not an economist!
According to the story, there would be a $3 billion payment that would go into an endowment-like trust fund. A return of 8% per year would make up for the loss of federal annual county funds.
But anyone knows that more like 4% annual expenditure is prudent for an endowment — the rest going for growing the endowment with inflation and the growth of the economy. That’s the way the New Partnership would work — hence the need for the private endowment to match the state endowment.
If de Fazio et al. really think an 8% expenditure is going to work long-term, they’re just deluding themselves.
If the finances are this far off with such a silly blunder, I have to wonder about the rest of the details.
I suggest uomatters take an elementary course in finance — either from the famed UO economics department, or the equally renowned business school.
Let’s not let the perfect be the enemy of the good here. You are probably right that 8% will deplete the real value of the trust – unless the historical estimates of 8% real returns to stocks come back. Hah.
But the jobs and environmental benefits will make up for that.
Andy’s plan or variants of it have endorsements from rabid “free market environmentalists” to crazed tree huggers. See http://ti.org/antiplanner/ for more.
It’s time to try this new idea – and Lariviere’s New Partnership too!
Well, let’s hope that Lariviere’s New Partnership is based on sounder financial planning than this forest plan appears to be! (I realize that the full details of the plan weren’t given in the news story.)
You still don’t seem to get understand: even with an average 8% return, unless they reserve half of that for growth of the trust fund, meaning the payout is 4%, they will be falling behind inflation and economic growth in the future. Meaning the problem of county finances will return, with absolutely no hope of a future federal bailout.
I really recommend that you take a UO course in finance, to get up to speed in commenting on economic/finance matters!
I agree that real returns are crucial–and hence I have doubts about the financial side of Lariviere’s plan as well as this one. Here’s are some back-of-the-envelope figures. I’m assuming that the holders of the money will not be investing in timber and other illiquid assets. I “factor out” inflation by always thinking in real returns. In real terms, bonds typically yield 2% real, but forget that for the next several years given current yields; you’ll be lucky to get 0-1%. Stocks are easy: add a 1.5% real div growth rate and a 2% div, and both of those are generous, and you get 3.5% real. So, 2% real is what can be expected from a balanced portfolio.