Michael: > Buildings depreciate at a slow rate; they are expected to > last for decades; computers depreciate rapidly. So, as > investment shifts to computers from buildings, depreciation > per $ of investment increases.
I think it is the other way around and I will explain why I think that. But first, keep in mind that you and I may have different depreciation rate definitions in mind. What I have in mind is the aggregate annual depreciation expense of the entire economy as percentage of the GDP whereas I think what you have in mind is the annual depreciation of a particular asset as percentage of its book value, which is the depreciation rate of that asset. To depreciate a building, or an airplane, you must record it as an asset first. That you bought a building, or an airplane, and then transferred its ownership to some other entity allows you to avoid recording it as an asset. So although this building, or airplane, in reality is a capital investment that has to be depreciated, it does appear as if your annual lease payments for this capital investment are operating expenses. If the other entity also have a way to avoid reporting any depreciation expense for this asset, about which I am not certain since I do not know the US laws that well, then the annual depreciation expense of this particular asset that has to contribute to the aggregate annual depreciation expense of the entire economy will not show up in it. Consequently, the rate of depreciation defined as the aggregate annual depreciation expense of the entire economy as percentage of the GDP (my definition of the rate of depreciation, which is in the aggregate) will look lower than it actually is. In other words, the numbers in the table Doug sent for the expansions in the last few decades may actually be higher than they appear. Of course, this possibility depends heavily on the assumption that the other entity can report the depreciation of the asset under some other category so that it does not show up in the aggregate annual depreciation expense of the entire economy. Can it according to the US laws? Best, Sabri
