Hmmmm....wouldn't NIPA measure transactions, rather than profits? There may be an assumed relationship, that is, as transactions grow, so 'should' profits,' but the GDP or GNPs are not measures, if I remember correctly of profits, but of the volume of financial transactions that have taken place, regardless of whether they resulted in a profit.
Lawry > -----Original Message----- > From: [EMAIL PROTECTED] > [mailto:[EMAIL PROTECTED]]On Behalf Of Keith Hudson > Sent: Thursday, July 11, 2002 5:55 AM > To: [EMAIL PROTECTED] > Subject: Porkie Pies > > > 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] > ________________________________________________________________________ >
