As it seems to be economist-bashing time on Futurework I can't resist passing on an amusing item from today's 'Times' which I read on my dogwalk this morning (during which my dog stole another dog's ball and destroyed it in one bite which caused protracted and exceedingly diplomatic negotiations with the other dog's owner) before I turn to the sordid business of earning a few pennies.
<<<< NO FICTITIOUS PROFITS AT UNCLE SAM INC Chris Ayres An economic conundrum is keeping me awake at night. It is this: surely if WorldCom overstated its profits by US$3.8 billion and Merck reported US$14 billion of "phantom" revenues, then the Gross Domestic Product (GDP) of the United States must be wildly inaccurate. In fact, if as many firms have been fiddling their books as we have been led to believe, logic would suggest that the US will have to re-state its own financial results -- that is, its GDP -- for, oh, the past ten years or so. Imagine the Press Release: "Following an internal audit, Uncle Sam has discovered accounting irregularities regarding the sale of approximately $10 trillion of computer equipment during the past decade. All relevant authorities have been informed." President Bush would be forced to send himself to jail -- and then, in a populist move to please voters in Texas, double his sentence. This theory gripped me with such force that I took radical action: I called an economist. The dismal scientist in question was Ken Goldstein, who works for the Conference Board, the economic research company behind the oft-cited Consumer Confidence Index. Goldstein informed me that my theory is both unoriginal and entirely wrong. The eggheads who compile GDP figures, he says, do not use data issued by corporations. Instead, they use something called National Income and Product Account (NIPA). This method of calculating the profits made by US firms without relying on their published financial reports was invented in the 1930s by the late Simon Kuznets. NIPA is so ingenious that Kuznets won a Nobel Prize for it. But hang on a minute. If NIPA is so foolproof and accurate, then someone must have spotted a sufdden and inexplicable difference between its quarterly growth rate and the growth rate of the fictitious profits reported by the likes of Enron amd WorldCom. At this point, Goldstein coughs. Well, yes, he replies. As it turns out, the growth rate of NIPA and Standard & Poor's 500 profits tracked each other for years, but suddenly began to contradict each other in 1998, the year the boom became a bubble. In that year, NIPA figures said corporate after-tax profits had plunged 7.5%. But according to the figures released by S&P's 500 companies, profits had increased by an impressive 3.7%. Clearly someone was telling porkie pies*. At the time, amazingly, it was the Nobel Prizewinner's figures that were questioned, not the S&P 500's. But what did the economists do about it? In the end, nothing. "It was staring us in the face," admits a sombre Goldstein. So forget Arthur Andersen. It was the economists wot done it. >>>> *Just in case an FWer doesn't understand this term, this is the Cockney (London) rhyming slang for "lies". There are thousands of them. e.g.: Aristotle -- bottle; Crown Jewels -- tools; Flowery Dell -- cell (prison); Fork and Knife -- wife; Forrest (Gump) -- dump; Four-wheeler (car, automobile) -- Sheila; Apple Tart -- fart. Got it? M'mm . . . all this is displacement activity -- I must now get on with some work.) ---------------------------------------------------------------------------- ------------ Keith Hudson, General Editor, Handlo Music, http://www.handlo.com 6 Upper Camden Place, Bath BA1 5HX, England Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] ________________________________________________________________________
