Big GDP Update

GDP gets revised continuously. But it gets updated more rarely.

Updating is what happens when they decide they’ve got the data and technique to measure something they couldn’t measure before. So, they go back and figure out that component for all the officially tracked quarters (back to 1947) or years (back to 1929) and add it in.

They just did one of these updates. On July 31, 2013, they added a component to GDP. This component better measures how intellectual property contributes to the economy. More specifically, R&D will be treated as an investment rather than an expense. Also to be treated as investment are long-lived assets like movies, music, TV shows and books.

The effect on the data is that the levels of real GDP will be marked up by about 3% for the entire period. The old data will be taken down, and the new data will go up, so this will be seamless.

The effect on growth rates in the future will be about a 0.1% increase each year.

Note that no one is claiming that any of this means that we are richer than we were before. Instead, they’re saying what we know is more accurate. So this is analogous to having a mental account of how much money is in your checking account, and then balancing your account and finding out that there was always a little more there than you thought.

This is a very good thing for getting our politicians focused on what’s important:

It’s a great idea, if late. The BEA has the 20th century economy down cold. It can tell you about personal income trends in Anchorage, Alaska, or America’s annual output of rubber products and plastics.

…

Thanks in part to the power of ideas, the nine or 10 most valuable companies in the world are headquartered in the U.S. (It’s nine on days when PetroChina edges ahead of Wells Fargo (WFC).) Only three—General Electric (GE), ExxonMobil (XOM), and Chevron (CVX)—are in the world’s top 10 for tangible fixed capital …

Here’s a chart:

In many ways, this is telling you something you should already know. No one goes to school to “learn to make things” any more (the black line). We go to school to learn to make ideas and concepts (the orange line).