Andrew Smithers on Tangible and Intangible assets

henry tapper

10 months ago

I have received this message together with a paper

This recently published paper tests the validity of changes made in the calculation of US national accounts, most importantly BEA’s revisions No.s 11 and 14, and concludes that they were a mistake and should be rescinded. (I understand that similar changes were made in UK national accounts).

On the revised data profits are at a record high level as a percentage of US national domestic income (Figure 7)

and returns on capital (Figure 8) at near record highs (Figure 8).

Without a significant fall in corporate profit margins (Figure 6),

the assumption of constant returns to scale will cease to be supported by data. As it’s a fundamental assumption of the Stock Market Model, as set out in The Economics of the Stock Market OUP 2019, it provides a test for that model.

My expectation that profit margins will narrow sharply over the next few years, while firmly held, is thus clearly biased.

The data show that the

(i) corporation tax falls on investment not on returns to shareholders and

(ii) the policy of subsidising corporate R&D has been highly successful in boosting such expenditure and a total failure in stimulating growth.

Insanity has been defined as “Doing the same thing over and over again and expecting different results”. I conclude that switching policy from subsidising IP to subsidising tangible investment, or at least reducing the tax on it, seems sensible both theoretically and pragmatically.