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<br />- 3 - <br /> <br />(2) to advise members of Congress how we reason! Your <br />advice, to be effective, must be furnished members during the <br />next three or four weeks, To aid you, a perspective in offered <br />in the following: <br /> <br />Perspective: <br /> <br />a, Has the rising "cost" of money cut back the Federal programs <br />for housing, over-land transportati~educational facilities-- <br />as would the WRC 6 7/8% for multi-objective water investments? <br />., .No! <br /> <br />b. How does the Federal government fix the rates of interest on <br />its lending programs? According to the "cost" of money? <br />",Actually, rates vary according to the objectives of <br />government. Thus rates, even on loans, vary from <br />zero per cent, upwards, partly according to whatever <br />subsidy is required to induce local participation. <br /> <br />c, Assume that "costs" of money should be one of several <br />factors, Is 6 7/8% a likely long-term "cost"? <br />,..That may be a likely RATE, but not a real "cost" because: <br />..,bondholders return part of their interest receipts to <br />the government as taxes. That is a significant part, <br />as shown by the fact that municipal bonds currently <br />yield about 5%. <br /> <br />d, Then what is a realistic rate for "discounting" the future <br />benefits from Federal investments? <br />".Most Federal investments for the future are approved <br />without discounting at any rate. <br /> <br />,..In fact, a high level government economist and program <br />expert, Elmer B. Staats,* advised the Joint committees <br />of the Congress: <br /> <br />,....Although a high interest rate implies more <br />efficient allocation of resources between the <br />public and the private sectors, the actual <br />evaluation of projects is equally dependent <br />upon the estimates of undiscounted benefits <br />and costs"!!! <br /> <br />*Speaking as Comptroller General; May 12, 1969. <br />as Mr. Staats explained, is useful primarily in <br />alternatives to the same end. <br /> <br />Discounting, <br />comparing <br />