Previously on this blog and in my presentations over the last couple of years, I’ve pointed out that we are not adequately measuring what’s happening in the economy because GDP was developed during the 1930s to measure the industrial economy. In significant ways, it underestimates the value of digital products and services.
I even referred back to a great old quote from Senator Robert Kennedy – http://njacknis.tumblr.com/post/16816367505/robert-kennedy-on-measuring-the-economy-too-much
So it was with interest that I read earlier this week (“Getting Creative With the G.D.P.”) that the Federal government will be adjusting GDP this fall to better account for the new economy. In March, the Government issued a report about this topic, entitled “Preview of the 2013 Comprehensive Revision of the National Income and Product Accounts: Changes in Definitions and Presentations”.
The BEA report says:
Currently, expenditures for private R&D are not recorded as final expenditures in the calculation of gross domestic product (GDP). Expenditures for purchased R&D are classified as intermediate inputs, and the costs of producing own-account R&D (that is, production of R&D by an enterprise for its own use) are simply included with the other costs of production and are not identified as contributing to the output of a separate commodity.
Investment in R&D will be presented along with investment in software and in entertainment, literary, and artistic originals in a new asset category entitled “intellectual property products,” … The recognition of R&D as investment will improve BEA’s measures of fixed investment, allow users to better measure the effects of innovation and intangible assets on the economy, and make the NIPAs more consistent with recommendations in the SNA [the government’s “system of national accounts”].
The strategic consultants, McKinsey, in commenting on this change this week, noted:
In our knowledge-based economy, this is a sensible move that brings GDP accounting closer to economic reality. And while that may seem like an arcane shift relevant only to a small number of economists, the need for the change reflects a broader mismatch between our digital economy and the way we account for it.
The change doesn’t fully address the under-measurement of the impact of the digital economy, but it does start to fix the problem. Now, as both the public and private sector make investments in expanding the digital sector of the economy, the return on those investments will become clearer.
© 2013 Norman Jacknis