Enrique Diaz-Alvarez asks:
>Why are GAAS asinine?.....
GAAS are asinine because they count real investment as negative profit.
>What part[s] of GDP, exactly, is[are] not measured by [GAAS-defined]
>transactions ?
1. Gross Private Domestic Investment (Because R&D and other future-profitability-enhancing expenditures are counted as deductions from net income instead of as increases to capital.)
2. Capital Consumption, because those ["intangible] parts of the capital stock previously mistreated as expenses are not accounted for when they depreciate.
3. Total Corporate Profit is understated to the extent that unaccounted investment tends to increase over time and thus to exceed unaccounted depreciation.
Christian A. Gregory asks:
>>A set of speculative stocks seems to be the last place one would
>>want to "park...a lot of liquid capital," particularly at a time when
>>absolutely secure long-term bonds are yielding a real interest rate
>>exceeding 5% p.a. IMO the term "bubble" is not the best one to
>>describe so selective (among sectors) a market, particularly when,
>>in whatever is currently the most dynamic sector, there are periodic
>>sharp declines in price that, far from "puncturing" a bubble, merely
>>set the stage for a further advance *of those stocks that reasonably
>>merit a leadership role*
>
>So, you're saying that b/c treasuries are returning well, the price of
>Amazon is rational? If so, how long is the long term you have in mind--And
>what do you think will change in internet stocks fundamentals to justify
>this valuation (since they are currently loosing big piles of money)?
No, that's not my argument, merely a response to the suggestion that money is being "parked" in speculative stocks. The price of Amazon is rational, because it represents realistic (not necessarily correct) expectations of the future returns derivable from the unique market position Amazon's "losses" have been incurred to obtain. And, the whole point of my and Lev's critique of the GAAS is that it is wrong to speak of "internet stocks.....currently losing big piles of money" when it would be more appropriate to speak of them investing (gainfully or wastefully, as the case, to be known in the future, may be) big piles of money.
and Daniel Davies asserts:
>All true, but based on a fundamental misunderstanding of what accounts are
>for. The *purpose* of a set of accounts is to be a record of transactions.
>The accounts of a company record the stewardship which its directors and
>officers have exercised over the previous year. Accounts are useful if one
>is valuing a company, but that is not their purpose. Their purpose is to
>allow the members of a company to keep track of what the company has done.
>When a company has spent money on research and development, then that money
>has been paid to somebody else, and is not available to the company any
>more. True, the company will be able to make profitable transactions in
>future, but it can then *account* for them in the future.
The whole point is that money spent in building a factory is just as much "...paid to somebody else, and...not available to the company any more..." as is money spent on inventing and designing the machines that will go into that factory. To call one "investment" and the other "expense" is, from the viewpoint of an economist, asinine, however much money it may save corporations by understating their "taxable net income" (or, later, exaggerating their carryover losses).
Shane Mage
"Thunderbolt steers all things." Herakleitos of Ephesos, fr. 64