Friday, April 26, 2013

Can Dali GDP Be Next?

You know it can't be far behind.

WSJ reports

In midsummer, the Commerce Department’s Bureau of Economic Analysis will release a new way to understand what drives U.S. economic growth. The BEA will tweak its formula to include spending on what it calls “artistic originals.” That includes theatrical movies, original songs and recordings as well as books and long-running television programs. Rounding out the category are commercial stock photography, greeting card designs and theatrical play scripts.

“These kinds of intangible assets have been important, but have gotten increasingly important in the U.S. economy,” BEA director Steven Landefeld said. “This is the latest in a long series of changing the definition of the GDP to keep up with what the state of the economy is.”

The new GDP figures will revise estimates of the nation’s output back to 1929.
FT has more details (my highlight):

The US economy will officially become 3 per cent bigger in July as part of a shake-up that will see government statistics take into account 21st century components such as film royalties and spending on research and development.

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.
Got that, this is going to impact inflation measures, since someone at the BEA is now going to be estimating whether the increased value of films is "real" value or just price inflation? Sweet. Need something done in D.C., just ask the guy that is in charge of this determination. That's called hidden power.

More from FT (my highlights):
The revision, equivalent to adding a country as big as Belgium to the estimated size of the world economy, will make the US one of the first adopters of a new international standard for GDP accounting. 
“We’re capitalising research and development and also this category referred to as entertainment, literary and artistic originals, which would be things like motion picture originals, long-lasting television programmes, books and sound recordings,” said Mr Moulton. 
At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. R&D will now count as an investment, adding a bit more than 2 per cent to the measured size of the economy. (Note: Sounds like double counting to me-RW)
GDP will soar in small states that host a lot of military R&D, but barely change in others, widening measured income gaps across the US. R&D is expected to boost the GDP of New Mexico by 10 per cent and Maryland by 6 per cent while Louisiana will see an increase of just 0.6 per cent.
Creative works are expected to add a further 0.5 per cent to the overall size of the US economy. Around one-third of that will come from movies, one-third from TV programmes, and one-third from books, music and theatre.
Deficits in defined benefit pension schemes will also be included because what companies have promised to pay out will be measured, rather than the cash they pay into plans.
“We will now show a liability for underfunded plans, which particularly has large ramifications for the government sector, where both at the state level and the federal level we have large underfunded plans,” said Mr Moulton.

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