> 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
This has sent me back to my textbooks. According to "Macroeconomic Theory" by Gardner Ackley: "national income is the sum of all (a) wages, salaries, commissions, bonuses, and other forms of employee earnings (before deduction of taxes or social security contributions); (b) net income from rentals and roy-alties; (c) interest income; and (d) profits, whether of a corporation, partnership, or proprietorship, whether paid out to owners or retained in the business, and before deduction of taxes based on income." This suggests that overstated profits such as those of Enron and Worldcom would be included in national income (NI). They would also, according to Ackley, find their way into GNP, since GNP is equivalent to national income plus depreciation. GNP minus depreciation is also equivalent to net national product (NNP) which is equivalent to NI. In national accounting, income and product may simply be thought of as opposite sides of the coin. Income, as above, is the sum of all incomes including profits. Product is the value of all transactions at market prices, which would also include profits. Again, this suggests that overvalued profit income or CEO perks, and goods and services which are overpriced because they include excessive profits or overvalued perks, would find their way into the national accounts and hence GNP. Given the foregoing, I'd conclude that the GNP of the US (and other countries which have indulged in the .com bubble) may well be overstated. The important question is by how much. Ed Weick > > > > 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] > > ________________________________________________________________________ > > >
