> 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.
>
OK, though I didn't read this in Lev's piece. Two questions:
1) How big is "the extent to which unaccounted investment tends to exceed unaccounted depreciation"? Software purchases were recently changed from expense to investment, albeith (rightly) with a short depreciation schedule.
2) Is this increase of unaccounted investment over unaccounted depreciation over time really good news for shareholders? I have read that in the early 90's tech companies were expected to trade at a lower P/E ratio than the market, because even when they were profitable, they needed to plow back so much money into investment and R&D just to stay in business that there was hardly ever any free cash flow to put into shareholder pockets. And, let's not forget, this is the ultimate goal of the business, to put cash in the pockets of shareholders, preferably before some technological innovation drives the company into the ground.
Looking forward to the reply,
-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique