Good discussion. In a way, how much does it "matter" whether they actually get depreciation "right" (using conventional categories)? Shouldn't we be more concerned that depreciation (in say, NIPA) tracks with what investors in those capital goods *believe* will be their depreciation (either because the authorities are accurately reflecting investors' beliefs, or because the authorities wind up shaping investors' beliefs)?
As the BEA paper points out [thanks Doug], a large part of depreciation estimates depend on projections of future events that are unforeseeable and socially determined (but the estimates of the future events are "charged" to the asset today, as the BEA paper points out). The paper cites oil price changes, interest rate changes and "natural" disasters. I would add changes in growth rates and income distribution (per Cambridge Controversy). State owned assets are even more arbitrary (the paper blithely speaks of depreciating missiles!). The "correct" depreciation will only be known years from now and at that point is an ex post exercise that isn't relevant to what usually interests us. For example, someone interested in a marxian or classical political economic framework of course wants to know today's profit rate but if that includes depreciation it is really the capitalists *perception* (or projection) of his profit rate. Predicting the future of his capital differently than the capitalist will harm your effort to assess and predict the economy -- even if, 10 years from now, it turns out that your projection of depreciation was more accurate than his! As in Keynes advice for investing in the stock market, the point is not to be "right", the point is to be right about what other people think is "right". Paul BTW: There are very few empirical assessments of profit rates and productive labor, etc. We've discussed some of them a bit before. Shaikh & (Pen-l's own) Tonak is one. Mosely (still on Pen-l?) is another. A new paper appeared recently in the CJE by Mohan who tracks the RoP from 1964 to '01. Mohan uses a broader definition of the capitalist class than S & T and in his results stresses the income accrued to supervisory employees out of profits (I am not sure I found this convincing). He also finds a higher percentage than most of the current profit rise is due to capital productivity (if true this could give a bit more life to the economy). People wanting a copy should contact me OFFLIST.
