Pethokoukis, Economics, U.S. Economy

Is America richer than it thinks?

Image Credit: Falling Money on Shutterstock

Image Credit: Falling Money on Shutterstock

As mentioned earlier, the US Commerce Department will soon release recalculated GDP numbers that will reclassify “intangible” asset spending as investment, particularly research and development spending. Also, as Bloomberg BusinessWeek notes, “intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.”

The net effect is to expand the size of the US economy by 3%. But BBW’s Peter Coy points out that “economic theory is ahead of accounting practice” and with the right yardsticks, even more of the intangible economy would go on the books:

The U.S. generates a disproportionate share of its wealth from the likes of patents, copyrights, trademarks, designs, cultural creations, and business processes. … If all forms of intangible investment were officially recorded, they would exceed investment in bricks, mortar, and machines, according to estimates by economists Carol Corrado of the Conference Board and Charles Hulten of the University of Maryland. Intangibles include brand-building, worker training, and the development of advanced organizational practices like total quality management, which meet the definition of an investment because they create assets that will produce revenue a year or more in the future, says Hulten. Those, however, will continue to be treated by the government as expenses. Brent Moulton, the BEA’s associate director for national economic accounts, says their investment nature can’t yet be measured accurately enough to use as official data.

1. Maybe the US economy is stronger and Americans are richer than we think, explaining the disconnect between job growth and GDP growth.

2. Poor accounting tools also suggest GDP and productivity numbers are understating US innovation, even beyond all the free online goods that don’t make it into the official data.

3 thoughts on “Is America richer than it thinks?

  1. Does the GDP also include theft of IP by non-US actors? What is the value of a trademark which is freely counterfeited by manufacturers in countries that cannot or will not enforce international law? Unrelated, but if the fed purchases $85B/mo securities, does that drive GDP up or down?

  2. well the first question would be how do you define job growth?

    absolute terms?

    % of the population terms?

    The number of people actually in the job market?

    larryg will be here soon enough. it allows him plenty of wiggle room to run his mouth and put for allegations through ?’s thus never having to commit to them across the spectrum. He loves this type of thing.

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