The Conservative Cat

Here's how the Economic Wargames Theory starts:

NNP = GNP - Dcap

This equation defines the Net National Product (NNP). It is equated to Gross National Product (GNP) minus Depreciation of CAPital goods (Dcap). The trouble with this equation is that depreciation of durable consumer goods is missing.

You may wonder why it matters that the depreciation of durable consumer goods is missing. Here's the answer.

In an economic wargame society it is necessary to know how to keep score and the tactics of the enemy. An individual's wealth is indicated by his or her net worth. Net worth is assets minus liabilities. Assets are anything which can be assigned a monetary value that can be realized by selling the item. Liabilities are debts which have to be paid eventually. So maximizing assets and minimizing liabilities are basic objectives. However, all assets are not created equal. Some assets maintain or even increase their value over time while others leak like a sieve. If an asset is so expensive one has to go into debt to purchase it, then it is important to know how long the asset lasts; how rapidly it depreciates. Financial advisors tell us that a home is the most expensive purchase that most Americans ever make, followed by automobiles. Hopefully the value of one's home will increase but the value of a car can only decrease. By not supplying reliability and durability data on their products auto makers are leaving consumers in the dark and engaging in information hiding.

The problem with this logic is that the average consumer pays no attention to the Net National Product, but nearly every male human in America can rattle off volumes about how fast a car loses its value. Smart consumers know about the Kelley Blue Book, which is used by insurers to determine the relative value of a car over time. Slightly less smart consumers call their local car mechanic to determine a car's lemon factor. So the information is out there, it's just not provided by the manufacturers. There's a good reason for that: most people wouldn't trust the manufacturer's protestations on the subject.

Now, ask the next question: if the Treasury Department included durable consumer good depreciation in their computation of the Net National Product, would it make any difference in how your shop? of course not! Yet people who have read Economic Wargames may tell you with complete certainty that the government is covering up valuable information you need to make critical economic decisions. You would have no way to dissuade them from that assertion because the author has supplied just enough math to give his hypothesis the appearance of authority.

Don't be fooled by appearances.

Respectfully submitted,

Ferdinand T. Cat