Undeterred by prior embarrassments, Stephen Moore is determined to be the #1 clown over at the National Review:
Establishing personal accounts will require about $2 trillion in government borrowing over the next 15 years. But once the accounts are in place, the government saves about $10 trillion in future obligations. Any private business with large pension obligations would sign on to such a refinancing plan in a heartbeat. The debt restructuring would substantially improve the firm’s balance sheet and its stock price would rise – reflecting improved long-term finances even though its current cash flow would be reduced. Why doesn’t Congress make this rational financial decision?
Easy Stephen. Because most of us know by now that you have calculation is a fraud. If a dishonest CFO wanted to model out a discounted cash flow model to suggest benefits of a project greatly exceed the costs, he might do one of a couple of things: (1) truncate the expected future costs to cover a period shorter than the expected future benefits; or (2) play games with the discount rate assumption. Mr. Moore’s $2 trillion figure is likely an example of (1) and I’m suspecting his $10 trillion figure has used a risk-adjusted return and not the expected return to equities. But you never know as these privatization hacks often use the expected return to stocks as if this is a risk-free return.
This kind of dishonesty has a name: Andrew Fastow. But then we know Mr. Fastow learned finance and was simply conning Enron shareholders. I’m not sure if Mr. Moore understands enough finance to realize his calculations are a fraud.