We have seen the articles linking fair value accounting to financial and macroeconomic instability.  Now comes an article in BusinessWeek arguing that expensing of internally-generated intangibles leads firms to look first to R&D and marketing when times get tough.  Moreover, they argue that this effect distorts GDP measures, because cost-cutting show increased income due to the reduced expenditures, but not the hit to firm value.  A snippet:

The trouble is that those GDP and productivity growth figures could be significantly overestimated—perhaps by one percentage point or even more.

That’s because the official statistics are not designed to pick up cutbacks in “intangible investments” such as business spending on research and development, product design, and worker training. There’s ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can’t compete in a knowledge-based global economy. Yet you won’t see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.

In effect, government statisticians are trying to track a 21st century bust with 20th century tools. Not only is that distorting the critical data that investors, policymakers, and corporate executives use to evaluate the economy, but it might also be creating a false sense of relief as Americans battle a brutal recession.