Originally Posted by Fern
My exact thought.
The others seem highly suspect as well.
E.g., pensions - OK, we're counting defined benefit plan contributions paid in on behalf of employees as wages. OK, I can see that. But they've changed it to also count amounts only promised and not funded? That I can't see. And when/if those unfunded amounts are paid in in the future they'll have to subtract them back or they'll be double counted. That sounds like an accounting mess waiting to happen.
Umm, not really. You definitely know that making the switch from cash to accrual requires some work at the time, but going forward it is extremely easy. You, for instance, would certainly have no problem. The only way a mess could happen is if you are employing absolute morons.
Why should the obligations related to wages for companies not be treated as wages? GDP previously reflected accrued wages after all.
It seems to me that if they don't follow GAAP, which would be the reporting basis for companies/entities with such plans, it's going to be quite problematic.
Now, I'm not a GAAP guy. I'm a tax guy and that may be my problem. But unless GAAP just changed simultaneously with the the BEA change I see a complicated problem with such adjustment and counter-adjustments
'Simple' cash to accrual would, I think, require a lot detailed info for what I imagine is a lot of plans. Again, if they're just going along with a GAAP change it won't be a problem.
Or, to put it another way - we can increase our GDP by promising ourselves benefits we can't pay. Or, if considering "Artistic Originals", we can raise our GDP by sitting around watching old re-runs of Seinfeld.
Not sure what the problem here is. Businesses, could for some reason, decide to declare massive unfunded pensions in order to inflate GDP. We could also increase our gdp by having all of america go out and purchase a whole bunch of crap (or maybe I should say purchase a whole bunch of extra crap) on the last day of the period. Will inflate the numbers. Of course, when everyone goes and returns everything the subsequent period there won't be a huge effect in the long run now will there?
I'm assuming government plans are included. If so, estimates of unfunded liabilities reach into the trillions. And we've also begun seeing defaults, i.e., local govt benefits that will never be paid. If gov plans are covered in this change it's strikes me as far too optimistic to include all that in GDP as if it's a certainty the benefits will be paid.
Further, watching reruns of Seinfeld is certainly economic activity. If, again, all of America was watching Seinfeld rather than working (for instance) GDP would then accurately represent the economic impact of Seinfeld, while also representing the lost impact of everyone not working. Still, best to account for that tv watching.
I'm not following you here. My impression was that the Seinfeld revenue from reruns was being included in current GDP even though the show was made in 1998 or before. I.e., that revenue even though received in 2007 should not be accounted in that year, but I think it should be included in the years the show was actually produced.
Honestly, if your complaint was about showing r&D in GDP prior to the finished good, you would have an excellent point. There is a very good argument that R&D should not be included in GDP. I don't agree with it, as it is entirely not finished goods/services. I understand the reasoning behind it, but it is just flat out wrong.
My other problem with the inclusion of ALL R&D expenditures is their apparent assumption that all R&D expenditures result in a useful asset. I think much of R&D results in nothing of useful value. E.g., large amounts of R&D are expended on drugs that are unsuccessful and will never be approved.
Again, I, perhaps mistakenly, think they're double counting. The wages etc incurred in the R&D are counted toward GDP, then accounting for all those expenses in the aggregate (capitalized GDP) again.
I also don't see the difference in terms of GDP in a product produced that has a short life versus one that has a long life.
TBH, I've given up trying to understand WTH they're doing. I've resigned myself to the fact that they're numbers have no relevance to me, much like the reported inflation rate. They can use their numbers for their purposes and I'll ignore them for my purposes. Their 'basket of goods' is simply too different from mine to do me any good.
Fern