Not quite.
From here.
In the '50s people bought cars every two years, and style details were heavily advertised. I remember tailfins. I suppose car companies still advertise based on style, but I’ve seen fuel economy and quality played up far more.
I’ve had my Prius for six years, and it is about good as new. That was sure as hell not true with cars I had in the '60s and '70s.
That site also says, “This “game theory” seems to be stuck in academic never-never land and is rarely mentioned in the real world.”
That number may not have been true when the article was written in 1999, but the quote was just as much nonsense.
If you want to read more of Dal Timgar’s nonsense, he reproduced that entire article here at the Dope. As you might guess, his knowledge of economics was exactly as bad as that article made it out to be.
I never said economists did not know what depreciation was. I said they do not compute and report Demand Side Depreciation. It is easy to look up Net Domestic Product but how often is it mentioned in the Media compared to Gross Domestic Product?
Get an Economics 101 book and look up NDP. It gets about half a page in a 400 page book. But the NDP equation only accounts for Supply Side Depreciation, which is what I have been saying. Food is not a durable consumer good. A Durable Consumer Good is defined as lasting 3 years or more.
psik
I never said economists did not know what depreciation was. I said they do not compute and report Demand Side Depreciation. It is easy to look up Net Domestic Product but how often is it mentioned in the Media compared to Gross Domestic Product? It is increasing GDP that is called Economic Growth.
Get an Economics 101 book and look up NDP. It gets about half a page in a 400 page book,if it is there at all, sometimesitis not. But the NDP equation only accounts for Supply Side Depreciation, which is what I have been saying. Food is not a durable consumer good. A Durable Consumer Good is defined as lasting 3 years or more. But that is kind of the point. If 10,000 Americans spend $3 each on hamburgers that is $30,000 added to GDP. If 2 Americans spend $15,000 each on cars that is $30,000 added to GDP. But those hamburgers will be gone in less than 24 hours. The cars will probably still be in use 5 years later. The cars will still be part of the wealth of the country. But by not computing and reporting the depreciation of all durable consumer goods the economics profession is implying that cars are consumed like hamburgers.
psik
PS - a 5 minute edit limit is ridiculous
Also crash safety has gone up as well as reliability. No idea what point psikeyhackr thought he was making wrt comparisons between cars now and in the past, or why it’s such a shock that car companies continue to refine their designs year after year. Were we supposed to just pick a time in the 60’s and say ‘well, that’s enough design work…this is the ultimate and we’ll just make cars to this pattern from now on!’?? That would kind of suck, much as I love muscle cars from the late 60’s and early 70’s. Though they LOOK good, when you look at them mechanically today they suck for things like suspension, drive train and even engine efficiency for weight to power. Which is why a lot of folks today do resto-mods instead of just straight restoration if they actually want to drive the things.
Yeah. Old cars are dangerous. Old cars pollute. California has a program to buy old cars from people. Old cars use more gas.
I remember paying for tune-ups and doing some myself. A bet a lot of car owners today don’t even know what one is.
Not everything is getting worse.
As a shorthand, since-number measure, it works reasonably well. No economist actually thinks GDP describes the entirely of the concept of economics. You may wish to look up the concept of “straw man argument.”
Sure, we just get this:
I will concede that the GDP is a Strawman as long as we are never told how much of it goes to only replacing crap that we need just to stay in the same place. 
Saturating a market might mean a decline in sales thereby reducing GDP. It would be like my not buying another car if I already had 3 that could last 50 years.
psik
The people who buy stuff on credit are only trying to resemble the people who don’t.
Irresponsible spending habits are the symptom of societal ills, not the cause. People spend too much for the same reason they eat too much or drink too much. Stuff fills a void. Stuff masks anxieties and insecurities. Stuff makes the pain of life (temporally) go away. Take away the voids, insecurities, and the pain and maybe people won’t seek out things so much.
My but you are brilliant.
If you look at the equation for NDP it is obvious that depreciation is subtracted after GDP is computed. The response was STUPID!
psik
I didn’t say that quote. It was the person on Quora, as should have been very clear. The rules here are dead set against people attributing quotes falsely.
Wait. Was that Beetlejuice? I thought I heard something. Must have been the wind.
psikeyhackr,
I’m going to consider this inadvertent. But know going forward that quotes are sacrosancy here in Great Debates. Do it again and you’ll earn a warning.
What seems “obvious” from an apparent mathematical calculation is not necessarily the case.
If you look up the Accounting Equation, you will get this: Assets = Liabilities + Equity. It might seem similarly “obvious” to you that the way to calculate a company’s assets is to total up all their liabilities and all their equity. That’s what the equation says, right?
But if you’re starting a new company and you’re doing the books for the first time, the more practical calculation is to sum up all of the assets that the company holds (which is a clear number), along with all the debt that it owes (another clear number), and from the difference of those two figures, you’ll find out how much equity the company has. The original accounting treatise, written by the father of double-entry accounting Luca Pacioli, advised exactly this process for any already existing firm that wanted to begin using the new Venetian method of bookkeeping for the first time. So what might look like a clear mathematical process is no such thing. The power of algebra lets us turn things around. So no, we don’t calculate assets by summing liabilities and equity. At least, not normally.
And it just so happens that something similar is going on with Net Domestic Product calculations.
If you want to calculate GDP, there is more than one way to do that. One way is to calculate all the wages that workers earn (adjusting for taxes and transfers), along with “net operating income” of business, and then adding a factor for depreciation. We can write out that equation, a little bit simplified for convenience: GDP = Compensation of employees + net operating surplus + depreciation.
Do you see that equation? In order to calculate GDP according to this method, you have to add depreciation to the other terms. That is the actual way the figure is derived with this method: the income method. In order to derive the GDP term, you add all those other terms – including depreciation – together. We can do a little bit of algebra now, just like we did a little bit of algebra with the Accounting Equation. We can move depreciation to the other side. And what we get is: GDP - depreciation = the rest of those terms.
Another way to label the rest of those terms is Net Domestic Product.
You can take GDP and subtract out depreciation, or you can just add the rest of the terms together without depreciation. They’re the same thing. If I were going to explain to someone what Net Domestic Product is, I would do the same thing that all those simple explanations on the internet do. I would say that you start with GDP (because people think they think know what GDP is) and then subtract out depreciation. But if I were going to try to teach people how to calculate NDP from first principles, I wouldn’t do it this way, because you can’t actually calculate GDP from the income method without first figuring out what NDP is. The actual way to calculate GDP in this manner is to first calculate NDP and then add depreciation. What seems “obvious” is not so obvious once we learn how the actual figures are constructed.
And really? NDP is not so important. It’s interesting to think about, from a certain perspective, but it’s not a commonly used measure because it leaves out a lot of important things. (This yet another story that comes from the philosophy of the national accounts when they first devised.) Even GDP has some very important limitations.
The point of the national accounts is to add up to GDP, not NDP. Despite its limitations, GDP is the interesting figure. NDP is more a historical curiosity, and it happens to be just one step along the way to actually calculating GDP using the income method.
I would advise more care before claiming someone else’s response is STUPID. It’s better to understand a topic before criticizing other people.
Thanks, Hellestal.
When you start up a company for the first time are all of the Assets new? What if some of them are used? Doesn’t the asset start off with a depreciated value?
The problem is we never get start up an economy. It was going before all of us were born. A PhD economist named Raymond Goldsmith pointed out that the depreciation of durable consumer goods was ignored in 1952. He died in 1988. The economics profession has not been saying anything about Demand Side Depreciation in all of that time and they do not suggest that accounting be mandatory in our schools. Double-entry accounting is 700 years old. Don’t we have the computers to handle it?
It looks like the system is designed to keep most people ignorant and running on a treadmill. Don’t banks that give car loans and used car dealers have to cope with that depreciation? Most of the time economists mention depreciation it is about the depreciation of money.
Before 1900 consumers did not buy cars, air conditioners and televisions. So this is a 20th century issue. Adam Smith and Karl Marx were no involved but they are who we hear about when economic arguments come up. What did Keynes say about Planned Obsolescence?
psik
If the asset starts out “used”, then you record in your books the current value of the used asset.
Assets that have depreciated somewhat in value from their original level still have positive value. That is precisely why they are still assets recorded on the books, instead of trash in the dumpster. You can find an approximation for the current value of used assets by looking at how similar used assets are bought and sold in secondary markets. This is not always easy to do for esoteric objects, but the concept is straightforward.
It’s important to note, though, that a balance sheet lists a stock of assets. GDP does nothing of the kind. GDP is a flow, not a stock.
He might’ve been right about that in 1952 (making the heroic assumption that you have correctly conveyed his idea).
He would not be right about that today.
Depreciation of consumer durables is an extremely important topic. Any proper macroeconomic model will disclose its method for incorporating both the stock of consumer durables, as well as how said stock is calibrated to depreciate over time in the model.
You’ve made a few assertions in this thread that are patently untrue.
This is one of them.
You could have taken a mere sixty seconds on Google Scholar looking up “depreciation durable goods” and you would’ve gotten hits. It’s not a lot to ask. Honestly, it isn’t. Here’s a paper from 2003 (pdf) about using the stock of consumer durables compared with nondurables to create a model for asset pricing. I link to it in particular just because it’s one I read relatively recently, but it works like any other: the stock of consumer durables declines from depreciation, and increases from new purchases. As it happens, you can find many more such papers if you actually go out and look first instead of your current technique of complaining about topics you demonstrably do not understand.
As with your comment above, this is also patently untrue.
Only a fraction of economists focus on international exchange rate appreciation and depreciation. Most economists deal with narrower issues, either the macroeconomy considered at the country level or microeconomic issues, and in the clear majority of cases when “depreciation” is mentioned, the topic is the loss of value of the stock of available goods. If you think otherwise, then whatever previous exposure to economic ideas that you’ve had has been terribly skewed.