BEA tacitly admits widescale failure of markets

[lrellok]

http://www.kansascity.com/2013/06/18/4298502/the-art-of-revising-the-gdp.html Ok,setting the horribly stupid and inane article aside, this change to the GDP is...I don't even have words...Criminally negligent? Grossly incompetent? An outrageous attempt to justify the existence of "entrepreneurs"?

The BEA is the agency of government which keeps all the statistics about the economy. They are proposing adding the development cost of products to the current calculation for the Gross domestic product, on top of the current value. However, the Gross domestic product is calculated by adding together all the sale prices of all products made in the united states.

If markets are pricing efficiently, then all costs of production should be reflected in the final sale price. If it costs more to develop and build a washing machine then the price the washing machine sells for, then producers should stop selling washing machines until the price rises to the level at which all inputs are covered by the sale price. If producers continue operating at a net loss, then they go out of business, and again the price rises (since there are fewer washing machines) until the price exceeds the costs.

For the BEA to be adding the development costs into the GDP mean that the development costs are no included in the sale prices of goods and services in the market, OR that the BEA is trying to count the development costs twice. If the first, then we have wide scale market failure on a historic level. Literally, that would mean that markets are not now and have never set prices efficiently. If the second, then the official records of the US government have just thrown the effort of American workers under the bus for no credible reason other then to make entrepreneurs feel good. This is first tier Randian garbage, completely altering the basic measured of the economy to justify the wealth of the few, by counting their contribution twice. Either the price of development is already reflected in the final products price, or markets have failed. Its that simple.

[upaloopa]

1. development costs are not in the finished product

The finished product is made up of material, labor and overhead.
Development cost are incurred before production starts.
My years as a controller of manufacturing companies leads me to think this article is bull shit.
Genrally development costs are paid for by borrowing then paid back out of profits from the sale of the products.

[lrellok]

4. nonono, i said price. Price!

I did not say that development costs where in the finished product itself, i said they where in the final sale PRICE. If the cost of developing a product is not covered by the profits, then the company goes out of business when they cannot repay the loans. The final price (material+labor+overhead+profit) must also cover the costs of development, and since what the GDP measures is the final price of all products, if markets are pricing efficiently then development costs must be included already.

[westerebus]

2. Welcome to DU.

An other twist to the recovery rope they intend to hang us with.

[Demeter]

3. More rearranging of the deck chairs