Thursday, July 10, 2014
You Know The Price. Now Calculate The Cost To You And How Affordible It is Using This Method.
A Simple Way to Calculate the Affordiblity of the Cost to Purchase Anything Lex Loeb Contributor Network . There is a Simple method anyone can use to calculate the affordiblity of most any purchase cost. So many things in life have this big sticker shock factor that can make relatively inexpensive things seem quite expensive with out making an affordiblity analysis and assessment. If you want to add a new bathroom or kitchen to your home and gut the old ones and the contractors tell you the cost will be $10,000 for the fancy new marble clad bathroom you want and $20,000 for a brand new replacement kitchen totaling $30,000 for both it definitely seems like a lot of money. It is a lot of money but the actual cost may be less than it seems because you as the home owner use the bathroom and the kitchen in the house on a daily basis. One way to calculate the actual cost assuming you pay in cash and not on credit is to figure out what the cost per use is. The cost per daily use of both the new kitchen and bath on the first day after the contractor is done installing them is $30,000. The first person to use the new bathroom will take a $10,000 bath the first day and a have a $20,000 kitchen experience that first day. On the second day the cost for using both is half that or $15,000 for both . on the third day the cost is $7500 per each of the three days you had these by the 100th day the cost is $30,000 divided by 100 or $3000 a day! Still sounds expensive. And it is but is is still near brand new. After a 1000 days it is $30 a day and you might have even been able to stay in a motel for that much money instead of staying at home for that but after 1000 days in a motel for $30 a day you don't own the motel but in your home you still own the kitchen and bath room. For $89 a day you can run up a $30,000 tab at a better hotel for a whole year or 365 days. That is an indication that your new bathroom and kitchen were pretty costly except if there are more than the 2 people per hotel or motel room using them then you get to subdivide by third and forth persons using those facilities in your home. A lot of people don't ever spend as much as an entire year in a motel or a hotel happily on vacation in a life time. people tend to take vacations that are less than 7 days per year that require renting a hotel room. Having facilities at home then could be a savings over renting a hotel room with a bath room as fancy as the one that costs you $10000 to build and finding a hotel with a $20,000 kitchen is not that easy to do. After ten years, assuming you paid cash for the kitchen and bathroom at $30,000 your cost per day is down to $8.22 per day and in 20 years it costs $4.11 per day. If you buy a brand new home for $450,000 you can add in the interest with your annual amortized mortgage payments and figure out what the cost per day is the exact same way. It is not very complicated to think this way about cost transactions but you will be surprised how few people actually break down costs on a daily basis to know what the cost is verses their daily income. What ever you pay in cash ends up having lost opportunity costs to earn interest with. If interest rates are 5 % and you pay $30,000 in cash you are losing $1500 in income per year but you may be gaining against inflationary prices of housing by making the improvement to the home if you calculate the rate of inflation into the equation. In the book "The Millionaire Next door" the author discovered that the millionaire next door in America tended to be the person who bought the cheaper used car instead of the new one. Saving money to earn money on money instead of just spending it because you can makes a huge difference with compound interest. Spending money like crazy only makes sense if inflationary rates are high and there is a negative return on saving cash. These kinds of cost calculations are easy to do . Most businessmen understand them intuitively but there are a lot of people who are unable or unwilling to take the time to figure out what the costs are because no one told them they could figure it out by the day or by the hour with simple arithmetic. Knowing the cost of things has to be balanced against the value. If you know you have an asset that is appreciating the cost is a lot less than it seems. That is why borrowing money always makes more sense for business purposes if the business is good than it does for spending on luxury or for showing off with. Using money to show off with can saddle you with very high costs and little appreciation unless you get lucky and buy something flashy like a Picasso that appreciates faster than the rate of inflation and any interest or loss of interest on your costs inputs. people can get really lucky buying expensive oil paint on canvass sometimes. Ultimately those gains are taxable so the costs will be higher than they seem thanks to the appreciation. A 3 pound Cantaloupe in the grocery store that lists for sale at $1.29 per lb. It appears to be a good cantaloupe and you might want to buy it. If it is exactly 3 lbs it will cost exactly $3.87 cents at $1.29 per lb. Maybe it is imported from Chile off season which makes it seem more expensive than they are when locally in season? To calculate the affordiblity of the cost you first have to mentally peal away the throw away parts of the cantaloupe like the skin and the seats assuming you like your cantaloupe really clean and not cut too close to the Rhine, then you may be buying just two pounds of cantaloupe fruit that actually is consumed for $3.87. The real price per pound is then $3.87 divided by the two pounds of edible fruit it likely contains. (This is not necessarily accurate but just for demonstration purposes). The actual cost of this fresh cantaloupe is then really closer to $1.93 cents per pound. knowing this you can compare the cost of the cantaloupe to grapes that may be listed at $1.29 cent a lb or pears and apples at 89 cents per lb. If you are a vegetarian you can compare the cost of buying the cantaloupe to not buying meat. There are some types of meat that cost less then $1.93 per pound and a lot more types that cost well over that per pound. As a vegetarian on the same budget as the meat eater you can definitely afford to buy the cantaloupe because you probably are still saving money not buying meat. Cantaloupes are not big ticket items. A new pair of eye glasses with a quality frame can cost you $300. It certainly seems expensive for a pair of prescription eye glasses and you need them to read or drive. You will have to buy a new pair of eye glasses because your old ones have an old prescription that no longer works. You can choose instead an ugly generic frame for $200 total or get a better more durable pair of new glasses for $300. How do you analyze the merits of affordiblity of either cost for comparison purposes? First you think of how long the eye glasses will last if you don't loose them or break them. A good guess might be five years? you decide on five years and possibly longer to calculate the affordiblity. The first you you do is take the two prices $300 verses $200 and divide each by 365 days in a year and then divide each by five. The results for the $300 pair is 16 cents per day and for the $200 pair the result is 11 cents. Now you have something to compare. The cost of each new pair of glasses per day for the next five years. The $300 pair is one of your lowest daily expenses at a mere 16 cents per day and you only save around 4 cents per day getting the ugly $200 cheap pair of new glasses. If you loose your new pair of glasses after just one year the costs respectively are 82 cents per day verses 55 cents per day for the cheaper pair. Refining your analysis it may be possible to say that the cheaper pair may break before the more expensive titanium ones do so if the cheap pair breaks after the first year it costs you 55 cent per day where as the better pair lasts two years before you loose them and it costs 41 cents a day. It is possible that the more expensive pair is the better bargain even though it costs 100 dollars more or 50% more than the $200 pair. The daily calculation of cost helps a lot in figuring out how much your rent verses owning a home or apartment compares in terms of affordiblity (at least before inflation or deflation --see the end of the article for some discussion on that) Say you can rent a store space or an apartment for a business or for living in and it costs $1200 per month. you pay first and last month to begin with so you can assume you get your last month deposit back eventually. The cost then per day assuming 30 days per month is then $40. If you pay that rent for a business then you need to make at least $40 to pay the rent and not to break even on all other expenses. For an apartment space at $40 a day you can then compare what your take home pay is per day by dividing your monthly income or expected income by 30 days. Add in all other costs for a business per month or living in an apartment and divide by the number of days in a month to see how affordable it really is for you with your income. You might be surprised how few people go out to buy or rent property without having any idea of daily expense allowances to pay for it. Banks Prue-screen borrowers to help them figure it out but don't put it on a daily basis but on the monthly basis. You add all the expected monthly utilities and the taxes and insurance if you are buying and you start seeing numbers you did not realize were involved in calculating your living expenses or business expenses. If you want to go further you can divide these costs by the number of hours, minutes or seconds in a day. Sounds crazy? Its not. Say you rent the apartment for $1200 a month and the utilities total $300 on top of that per month. The total cost per month is then $1500 which per day is $50. Per hour the cost is $2.08 and per minute the cost is about 3 and one half cents. At $2.08 per hour the apartment or shop space is pretty cheap compared to say spending $10 to go see a 1 hour film at a movie theater. If cable television expenses are part of the utilities it might pay to order a better movie package deal. Just add the additional expense and divide by the number of days and hours or minutes as you please. Businessmen learn quickly that usually it is a lot cheaper to rent then to buy their shop space because if their expenses are $1500 per month it is just $2.08 per hour assuming they can sell there 24 hours. If the shop is only open 8 hours a day then the cost is about $6.25 per hour. If the store generates $200 or more in sales per hour then the rent is possibly a bargain. To compare buying the building to run the same business in you might end up having expenses that are twice as much which means $12.50 per hour. Businessmen end up with a second line of business which is the investment in real estate this way, had they not invested in ownership they could rent two identical spaces in different places and gross sales of $400 in sales for $12.50 an hour instead of just getting $200 for $12.50 with the expenses of just one location. If you wondered why Starbucks needs so many cafe locations the affordiblity cost analysis determines their replication of the prototype shop in as many viable locations as possible. A company like Starbucks knows its costs and likely pay back before making any new investment in a new location. Rarely do they buy the location building because additional expenses take capital that could go to new cookie cutter duplicate stores. Mortgage home ownership affordiblity is one of the hardest things for people to understand and again they need to do more than let the bank amortize all the costs into a big monthly payment and check that against their monthly income. The reason why is mortgages can be better suited for business purchase of property than for buying a residential home. A home mortgage can cost as much as starbucks pays to rent a urban hole in the wall for a shop assuming you could buy a starbucks franchise or a mansion on the hill with the same amortized mortgage payment a month the better deal is the starbucks franchise because the business generates funds to pay the mortgage and the residential mansion is a money pit, It eats money on maintenance expenses and repairs verses the business that is likely to generate more cash flow than capital invested. Very few homeowners ever think of their homes as real investments but imagine them as investments due to the artificial appreciation that comes from inflation. Homes have had real appreciation averaging about 5% compounded in areas where base property values gone up in price faster than the inflation rate but that does not cover the expenses of repair and maintenance necessarily. It works well for Some Californian beach front properties and those can exceed a 5% compound rate of return just because of the acceleration of demand and limited supply. The real estate brokers and landlords as businessmen can buy real estate as both an investment and as a cash generating business. Doing the calculations on affordiblity you might find a duplex is a better buy then a single family home because it generates income and does not just have expenses. When the real estate boom was on it was not uncommon to see people taking out $3500 amortized loans per month that did not include taxes , insurance costs and utilities. Say all of that came to around $5000 a month, the cost to own this lets say $650,000 home . It was definitely above average but a fairly common price at the time of the boom. That means the holding expense was $60,000 per year. A lot of people seemed to have the money for that in boom times but then in various parts of the country suddenly those prices collapsed to less than half in some locations! If a joint working couple could afford it with a gross income of $120,000 per year if one of them lost their job they would quickly find the expenses were not as manageable. Too few people bothered to calculate the cost of borrowing the money for a house like that. They got a brand new house for $650,000 list price with a mortgage that we will arbitrarily say was a 30 year fixed costing $5000 a month. Total payments over 30 years assuming no pre-payments occur and the house is not sold before 30 years passing and the total cost of the house is then, excluding inflation / deflation calculations, is 30 years x 12 months x $5000 per month. Total cost? $1,800,000.00. Thanks to inflation that can be expected the banks are not counting on retaining all of that cash flow as profit. Actually the banks figure most home owners will sell out before 30 years rolls by. The banks try to protect themselves from inflation and deflation but it is hard to do and beyond their control. Some of that cost is utilities. $1.8 million dollars seems like a lot and it is because of your lost opportunity costs in not having got a mortgage to buy a subway sandwich shop instead that could have generated 3-10 times as much cash in the same period of time as one example. $1.8 million on a per day cost however is relatively affordable. $164 per day to own the big fancy $650,000 show off prestige home including utilities. That is maybe cheap compared to a $500 a night five star hotel room but you could have lived in a four star hotel with room service maybe for $79 a day instead or rented for less than half the $164 per day. So it would cost you half as much to have rented a place for around $2500 per month instead of paying $5000 a month and you could have retained half the money to invest in the joy of owning a business for cash flow instead of a money eating superficial prestige home. $164 is just $6.83 per hour to live in the home and if you have a family of 4 then the total cost per hour per person is just $1.70 per person. That is cheaper than buying three or four separate hotel rooms on a nightly basis and by the hour depending on a variety of factors. Reducing all costs to simple defined units as per onces and pounds or seconds, minutes, hours ,days and months is one of the secrets of cost analysis and figuring out your specific affordiblity range. It helps to play around with a calculator before making purchases thinking analytically. It is also true of dealing with your government and letting it run amok over charing for services like public schools. You find out that your local schools average $10,000 per year per student and you hear that the bureaucrats and unions want to reduce the number of school days per year to 236, just an example, then just divide by the number of days per $10,000 per student. Wow it only costs $42.37 cents for your kid per day in taxes. If if there are 25 students in a class room, each class room nets $1059 per day to stay open for the public. now if the teacher got half of that as pay per day, about $530 per day, he or she would be earning about $75.66 per hour if the school hours are 7 hours in a day. Teachers working 236 days a year 7 hours a day would net $125,000 a year then not including the other days in the year they are not in the class room working. That seems like a reasonable amount of money going to teachers if not on the high side? But then where does the other $125,000 go? Remember in this example the teacher is only paid half of the $10,000 per year per student and what if some classes have 35 students and not just 25? The only way to make a comparison of cost and value then is to compare the public school that costs $10,000 a year with a private school that is just $5000 per year and might happen to have the same class sizes and a 300 school day year. Very few voters bother to do any calculations at all when it comes to analyzing costs and affordiblity of public schools because too many make the assumption that it is something they get for free that they don't have to pay for. That is a complete fallacy. Even if you are just renting the el chepo apartment in town and you live in a town with property taxes you are very definitely helping to pay those property taxes as part of the rent you pay the landlord because the land lord does not simply give taxes out of his profits to the government he passes on those cost as part of the rent to renters and still has to make a profit after that. The landlord that does not make any profit or looses money renting is like a homeowner in foreclosure who just walks away from the property. Properties have to at least pay for themselves or there is no sense in owning them as a businessman. The renter is pretty keen on numbers. He sees that his kids get a $10,000 a year public education and his rent is only $1200 per month so it seems like a great deal. That renter does not tend to understand that if the people promoting school vouchers had their way his kids could go to the $5000 a year private school instead and get a better education for less without all the money being wasted by the private school where half the money seems to disappear in thin air with no known benefits to the students. A voucher program would save the public schools $5000 per year per student and allow parents to pick the best school. Now if the full $10000 per available for any private schools you bet there would be more private schools that were worth that kind of money that showed up in town. A compromise to save everyone money would be to allow vouchers for say $6000 to any private school with the parents paying anything over that and that would attract more quality schools at least as good as the $5000 a year school that was already better than the twice as expensive public school system. If a school cost a parent an extra $2000 per year over the $6000 voucher it should help lower rental costs at the margin and might only cost a parent an extra payment of $166 per month to send their kid to a better school or by a daily rate of $5.55 per day. Children trapped in the child exploiting public school business with no voucher choices have no other options no matter how good or bad the public system schools are. The renter thinking he gets $10,000 for free sending his kids to the one size fits all over expensed public school is getting a lot less then he thinks with none of the better options a voucher system would afford him. Voucher kids removed from public schools would give public schools fewer students to have to concentrate on teaching and that is also a consideration. Each kid removed for a $6000 voucher either leaves an extra $4000 in the school system for the remaining students or goes back to taxpayers in the form of lower tax expenses. There very few people working in public schools as math teachers who can do this simple sort of math for some reason. All they know how to do is add but they are mentally challenged when it comes to subtracting. With schools like like this it is not new math that makes the difference but no math. The students are kept in ignorance probably so the grand public school exploitation of children can keep up it's infinite momentum instead of giving parents and children more choice with vouchers. Most public agencies have the same sort of new math where subtraction is out of the question and where the number of school days are reduced to less and less per year while annual expenses are supposed to be infinite. Some schools have so few real teaching hours that then you find out that school could cost less than a quarter as much per student if they reduced the hours of instruction to an intensive shorter period of time that yielded better learning results. Most public school graduated certainly remember that the actual number of hours of instruction are far less than the number of hours spent at school. With some delicate calculations it is even possible to reduce the number of teachers in public schools to half and have several instruction shifts per day to save money. Even more money can be saved by finding the absolute best teacher in the world and recording his or her instructional lessons and putting them on the internet. Online college courses are all the rage these day but online k-12 is out of the question even if better apptitude test scores are possibly achieved with the teacher-less Internet. An even better system once you can calculate the cost is to realize that maybe students would perform better with less teaching and more pre-recorded instructional lessons if they got some share of the $10,000 per student public kitty for getting good exam results in classes. The renter does not even realize that if half the $5000 per student per year is disappearing into thin air that his kid could get some fraction of that as an incentive to get either good grades or better grades than the last report card. The math of envy is bad math. It is as bad as free lunch math because there is no way to have a free lunch no one has to pay for. To calculate anything in terms of cost and affordiblity , including homes, rentals, cantaloupes, etc things have to be reduced to common denominators for comparisons likes months, days , hours and then you can do an analysis of how much things really cost. A pair of eye glasses at just 16 cents a day is not a lot different than a bad pair for 11 cents a day but you can't see that price information without doing some analysis and thinking about things. School vouchers seem to be a free lunch for someone till you realize it is your kid that is going to pay if you don't select more options like vouchers where you and your kids make the choice and not the power elite bureaucrats. lost opportunity costs are hidden everywhere. Renting can save you enough money to buy a cash generating business. Prestige homes can cost a few dollars an hour to own but in the long run they create no return on capital. Home ownership becomes pure conspicuous consumption even when rent is cheaper and makes more sense in terms of saving money so you don't need to work as hard after retirement. Calculation of costs can also help you to understand big government health care take over plans where eye glasses will be taxed so your $300 pair of glasses eventually will cost $320 ...one calculation says it wont cost you very much per day after five years and another says it won't actually buy too many quality pairs of glasses for people who can't afford them. An other calculation based on the bill shows the money really just goes to bureaucrats like the 16,000 new IRS agents and not one single new optometrist. You have to analysis costs and affordiblity of virtually everything that affects you especially when you are forced to pay. If the extra taxes just go to new fancy bureaucratic offices then where are the cost savings to anyone? And what was this nonsense about stretching the health cost curve before the bill was past by congress? You have to makes some assumptions by guessing to figure out what pretty obviously is other sources of funding will be required like the new proposed VAT tax which essentially compounds the income taxes you already pay as a multiplication factor since the income tax is not being replaced or offset by the VAT but compounded by it. People receiving social security income might also want to figure out what they get per day and per hour. discounting Medicare on the forms say you get $1200 a month then that is about $40 a day minus taxes you pay if any. Did you ever pay $40 a day in social security taxes when you worked to get that eventual outcome once retired? The social security system hopes you live less than 15 years after retirement because they then pay off less. go back and calculate what you paid into social security and how long you would have to live, factoring in inflation as it is supposed to be inflation adjusted, to see how many years you have to live to get more than you paid in. $40 a day is the same as an 8 hour day , not working , which is a mere $5 an hour benefit. You are getting less not working then some government employee exempt from social security with a super class a plan that pays out $200 a day or more and you were denied the same plan but forced to participate in social security. The public employee has a record of paying out no more than you did in social security taxes and statements showing investments grew over time to pay for that and you said you were against George Bush's plans to privatize social security because you did not do the math yourself but relied on the media reports that lied to you. Uou won't know you were lied to unless you do the math yourself. That is the trick--Doing the math yourself to check the reported results. It is easy to do if you get in the habit of thinking about how to reduce the cost figures to dollars per hour, minutes, days, months or working hours as shown in this article. * Big footnote: There is nothing like a real estate housing crash or a financial market crash to show that people buy a lot of things without understanding the real nature of the cost of owning them. Credit cards and other installment debt is one of the biggest things causing confusion. A larger percentage of American home buyers quickly proved that they lacked basic understanding of their own mortgages. Mortgages did become complicated with the introduction of variable rate and other gimmicks but clearly the people taking advantage of these financial instruments did not understand the cost and had no realistic understanding of to calculate affordiblity of the home purchase. Yes the sub-prime mortgages with zero down and low starter teaser rates subject to market variation were a potentially complicated game but the mortgage lender was required to show the home buyer the fine print. An adjustable rate mortgage always potentially had the ability to raise monthly payments. They were not called adjustable rate mortgages for no reason. Banks liked the idea of these instruments because when we had last had double digit inflation they got stuck with cheaper inflation dollars paying off mortgages that essentially with junk money meaning the banks lost money in the long run on the transactions. Inflation with a fixed rate mortgage can be like getting a home for free at the bank's expense. The bank protected protected itself because they borrowed the money from depositors and the depositors were paid back in inflation dollars too at a lower interest rate then the banks got from the fixed rate mortgages. Inflation was the reason banks invented adjustable rate mortgages because banks actually have failed because inflation caused them to give away first their profits and then their capital. Inflation causes a large transfer of wealth in society as it can also lead to over compensation in price with a financial bubble. Calculation of the affordiblity of the purchase cost of anything then does have an inflationary factor. In times of real inflation where labor and goods go up in price because too many dollars are in circulation, means fixed rate borrowing can be cheap or even free. Inflation is a moving target and can move to the opposite effect of price deflation in which case having any outstanding loan is bad business. Inflation, deflation, adjustable mortgages aside, calculating the affordiblity of cost is still very simple. You need to keep the basic calculation simple because you cannot predict inflation/ deflation rates. You can factor those in later after figuring out if you have the cash flow to be able to afford a purchase and how much a purchase really costs. You need to compare things like rent verses ownership costs and you need to figure out a metric or measurement standard (such as the cost per day) where you can compare how much you earn and/ or if in business, how much you need to earn to be able to make payments or what the longer term value is in an outright purchase. If your business wants to rent a store front that costs $2000 a month then you figure out what the cost per day is by dividing that by 30 days and the cost per day is then $67. Then you need to figure out what the cost per day of other expenses are say $100 for an employee including benefits to watch the store, heat ,electric , water and other utilities. Don't forget the cost of insurance per day. Add all that up and it might come to like $250 per day--just as an example so you know then you have to make at least that much money not in sales but in profit per day to cover those expenses. For the people who think that stores should have no mark up and should just give their products and services away for free this is the simple explanation of why they cannot. Say the goods cost $200 a day that they might sell and then the cost of distributing those goods from the shop cost $250 including labor that means the store has to sell at least $450 a day just to break even. Anything above $450 a day is profit that accrues to the owner assuming he or she does not have to buy new stock from additional funds not accounted for by the $450 assumed expenses per day. If the owner only sells $550 dollars in sales in a day his income for the year assuming open 365 days a year, just $36,500. A shop owner could make more money just getting a job in someone else's store, maybe walmart , with that much money coming in and the owner might decide it is not worth staying in business for that much money. if however he or she nets $1000 a day with expenses of $450 per day then he or she nets $550 per day which for a year is an income of $200,750 of which the various governments and income taxes gets more than 40% yielding about $120,450 as the after tax income which is just a bit more than $10,000 a month. The store owner then can decide if that is enough money to work extra hard for and of course he or she could open more stores and hire more employees with some of that money. Stores use other metrics to decide if the costs are worth while staying in business with including sales per square foot of space and even sales per hour per square foot of space in the store. Computer inventory machines can keep tract of everyone coming in and going out and the business can become very scientific in as far as concerns cost stability to know how many new employees are worth having because they can help add to the bottom line as opposed to being a dead weight cost which they often do become depending on business conditions and the continued viability of what ever products are being sold in the market place. Individuals and governments can use a calculation method that figures out what the cost per hour , minute ,day , or any set time period would be. Costs also include lost opportunity cost which are substitute or alternative uses of money that could potentially generate bigger better returns that are lost due to bad decision making. comparing the cost of buying to renting on a cost per day basis can give you a platform to make comparisons of the possibilities that exist beyond just making a quick decision. A mortgage can set your payment requirements for 30 years so that a time metric comparison will not take into consideration that dollars will be likely worth less due to inflation in the future. That can later be factored in as a variable . As you get older you may also make less money on an annual basis should you retire before the mortgage is paid off so that could be another calculation variable or adjustment to counteract inflation considerations. Time is money and money is time when you are making money. When you are spending money time is a wasting asset and money can be a completely lost opportunity. It always seems to be easier to spend money. Spending is seemingly effortless compared to making money. That feeling comes from ordering a meal in an expensive restaurant quickly enjoying it and then being both out of money and food. Using up a tank of gasoline is as good as coasting your car down hill but to get it filled up with gas again and up to the top of the hill you either have to have more money to spend, need to go to work or have to push the car all the way up the hill again to coast down on another occasion. Spending money does not speed up or slow down time but it dues use up time that could have been used for working instead of spending. The need for more money to spend what is already spent means you owe time working. Things don't work the same way in government finances because in government finance working is spending money more than half the time. and everything that government does it does with finite resources based on other people's working hour money. When calculating whether a government service expenditure is worth while you have to calculate the total cost where jobs are longer term entitlement spending on special interests. Government employees can have benefits that go far beyond what they are actually paid per hour. Veterans of foreign wars are an example of people who have expensive entitlements that will last their life times and those benefits include veterans hospital health care for life which is part of the bargain for risking one's life fighting a war. It adds complexity to the calculations of the cost of war and peace. You cannot assume peace necessarily costs less than war because in peace time government will find new ways to grow bigger and short of having a shooting war there is always some new directive like a war against drugs or crime or against poverty or against prairie dogs. It does not matter. Government just wants to spend more because it what leaders seem to think having power is for. If you think government should be run like a business the government will turn government into a business owner where they won't compete and will destroy competition for the sake of having a monopoly. There is no fun in having political power it seems if you can't abuse it or so seems to be the case with far too many politicians. The metrics for measuring what the true costs of government are a bit different than for measuring costs for private personal spending. When it costs government $300,000 or more to keep 20 first graders in a class room and to teach them you might expect that with money like that the government would be producing 20 sure future Harvard PhD graduates but the reason for government spending money like that is not to produce better quality successful students it is to spend the money as fast as possible by a deadline date so as to go back to the legislature to ask for more. The more you spend in government service the more important you job is assumed to be. If you have the taste and delicacy to spending $500 an hour you may be a school district administrator but if you can blow a million dollars an hour you probably work in the Pentagon and because you spend money so well you probably are a 6 star spending general. If government agencies were given ratings on the basis of millions of dollars an hour that they are able to spend then maybe we could figure out what big government is for. If the total cost of the Iraq and Afghanistan war comes to 4 trillion dollars after all benefits are paid to retired troops years from now. The costs may not be more than a bit more than nine million dollars an hour for 50 years. What a great bargain with all the treasure the US got out of the conquests of having these two wars. That is not to say that the war might not have been inevitable but is to say that war is an expenditure process that probably should be avoided. it would have cost less to give every Iraqi and Afghani citizen a couple of thousand dollars in exchange for giving us relative peace in their countries in exchange. . Close