quote:Question: Is depreciation based on "market value at the time" because if so it could be like an old mint baseball card that increases even thought "naturally" it is decressing. If they stop making computers for a year and you got the latest line before the stoppage and you wish to resell it on the market wouldn't you get an appreciation on it even though its "naturally" depreciating.
I am saying there are three types of depreciation:
Physical depreciation is like your car wearing out, or your house needing a new roof every 20 years. These are the result of use and environmental factors. They must be fixed or replaced by consumers and businesses, but businesses make money on the consumers.
Psychological depreciation is the result of a reduction in people's willingness to pay a certain amount of money for something. Suppose you bought $100,000 in diamonds wholesale and put them in a safe deposit box. 3 months later a huge diamond mine is found in South America. The market value of diamonds drops. You can only get $60,000 for the diamonds you payed $100,000 for. That is depreciation but there has been no physical change in the diamonds.
Legal depreciation is what can be filed with the IRS. The economists get this data and use it to compute NDP. A Machine might be legally depreciated to $0 over five years but a company could still be using it to make money. A man told me his family had a business making wire and they were using machines that were built in the 1920s. Do you think they are listed as worth $0 on their insuranc policy?
The amount of physical depreciation might be 10 times the legal depreciation and it must be compensated for in reality or people's quality of life goes down. That is added to GDP every year and the cycle repeats. I say the economics profession is bullsh!tting us by not trying to get a handle on this physical depreciation.
The appreciation of many things is purely psychological, like that baseball card. Actually much of what happens in the economy is psychological. If most human beings made logical decisions most of the time the economy would be very different. We must figure out how to institute Vulcan economics. Where is Sarek when you really need him?