The U. S. Bureau of Economic Analysis is revising how GDP is calculated and extending the revision all the way back to 1929:
Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.
Brent Moulton, who manages the national accounts at the Bureau of Economic Analysis, told the Financial Times that the update was the biggest since computer software was added to the accounts in 1999.
“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,†said Mr Moulton.
The changes will affect everything from the measured GDP of different US states to the stability of the inflation measure targeted by the Federal Reserve. They will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.
The change they’re making involves capitalizing research and development and the category referred to as entertainment, literary and artistic originals. Formerly, R&D was counted as a cost of doing business. Going forward it will be treated as an investment.
Another aspect of the revision is that they will count what has been promised in pensions as liabilities rather than just what is paid into the plans. That could have a drastic effect on what’s shown for states with large, underfunded public pension plans, e.g. California and Illinois.
Nobody really knows how the change will affect what we think we’ve always known or, indeed, whether it will be a better indication of economic events than the old approach was. With any luck it will highlight how perverse some of our policies have been.
Good ol’ Brent…
The one-liners, in the comments section, gives a quick cliff notes version of what people think about this new way to calculate the GDP!
I know Brent Moulton, this is not chicanery…and if anything could show that some of our policies…policies held dear by Democrats are…very problematic.
Considering they are making the change to the entire data set, it is unlikely to do that. You’d have to also have more and more intangible economic goods–i.e. intellectual property.
If those “intangibles” have no value, then downloading music, copying and selling movies, and reprinting books with no payment to the creators cannot possibly be theft.
I couldn’t agree more with that statement.
Can I show him my bank account next? Maybe he can do some good.
Hey get in line, Michael!
Interesting piece on our employment rate puzzle.
http://www.newyorker.com/talk/financial/2013/04/29/130429ta_talk_surowiecki
Steve
I think that article has a serious Occam’s Razor problem. Maybe I’m misreading it but my impression is that the author is saying “there is no problem with the economy—we’re just not keeping track of a huge percentage of it”.
Maybe that’s how things look from New York. It certainly doesn’t look that from here.
There’s a much simpler (and more testable) explanation than that: New York has benefited mightily from hundreds of billions of dollars in subsidies over the last six years that weren’t available to the rest of the country.
I think we’ve probably paid our son ten grand over the course of the last three years or so. He doesn’t claim it. It disappears from my business bank account and . . . poof. I can’t imagine the underground economy is two trillion but it’s obviously large and significant.
“There’s a much simpler (and more testable) explanation than that: New York has benefited mightily from hundreds of billions of dollars in subsidies over the last six years that weren’t available to the rest of the country.”
You bet. Given that we are a NY based firm, we see it first hand. When we talk to a business owner in Iowa……not so much.
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