This week's big idea for wasting public money comes from Professor Edward Chen Kwan-yiu (Dr Dial-A-Quote) of Lingnan University, who wants Government support for something he calls logistics.
Your correspondent was always of the impression that logistics referred to the business of moving and quartering troops but Mr Chen apparently takes it to mean the business of moving goods and he is worried that Singapore is better at it than we are.
It is a shallow argument for anything - let's do it because Singapore is doing it. However, there are some crucial misunderstandings in the report from Lingnan University (it seems any school can call itself a university these days) recommending government support for logistics education.
It concedes that the industry's internal rate of return (IRR) of 6.8 per cent is lower than the opportunity cost of 7.3 per cent but then pulls out of the hat something it calls the 'social IRR' which it claims is 19 per cent.
Let's deal with that 6.8 per cent figure first. IRR is a financial calculation that equates your future discounted cash flow from an investment to the cost of that investment.
If this sounds more complicated than the simple price earnings (PE) ratio that you may use for investment value just remember that financial planners always use it in preference to a PE ratio.
But it does not stand on its own. You have to take into account your cost of capital. In simple terms if your annual rate of return is $6.8 on a $100 investment but you borrowed that $100 and paying an interest charge of $8.5 a year on it you will go bust unless you can improve your rate of return.
