About every five years, the Bureau of Economic Analysis re-evaluates its metrics for measuring various aspects of the economy as data and tools change and improve. This upcoming Wednesday, the NY Times reports, Bureau officials will be undertaking one such re-evaluation. And the revisions this time around are a pretty big deal:
[The Bureau] plans to give a greater economic weighting to the creation of many types of intellectual property — from books to movies to music to biotech drugs. The economy won’t change overnight, but the numbers will. Going all the way back to 1929, the G.D.P. will look bigger.
We are still using blue model industrial age statistics to measure a post-blue economy. Increasingly, the world described by our statistical models (which are in turn used as a basis for planning by government agencies and business and used as a proxy for reality by commentators and pundits) does not match the actual world we live in. In general, the real world is significantly better than the statistical one—and offers more ground for optimism about American prospects in the 21st century. The economy is bigger and more dynamic than the conventional statistical picture, and America’s global strength is significantly understated by measures that concentrate on the old economy that America is leaving behind rather than the new one that we are busily creating. The changes being discussed here are just one step down an important road: we need to get much better at measuring and assessing the state of our increasingly information-based economy.
The central observation in the piece is certainly true: GDP significantly understates the value of the intellectual property formation that is a key to the knowledge economy now taking shape. This is not likely to be the last revision. Productivity in services is hard to measure but increasingly important, and getting this right will matter more over time.
Three smaller related points come to mind:
1. Getting better figures globally will have an impact on the way we look at different countries. Arab countries likely to fall farther behind as knowledge production becomes factored more effectively into GDP, for example.
2. These changes could help people understand better how the shift to a knowledge economy will help solve environmental problems even as economic growth expands. Including these intangible but real assets in GDP will reduce the energy intensity of the economy—the amount of energy needed to produce a given unit of economic output. Also, if the share of these assets in GDP grows over time, we will see an accelerating shift toward more energy efficiency even as GDP rises. These are all very good things.
3. As we develop better measures of GDP we will also need to think more intelligently about the value of consumption and the nature of income. That most routine interactions with Departments of Motor Vehicles in many states, for example, can be done at home over the internet rather than going down to the office and standing in line, makes people much better off—more free time, less aggravation. But it would be hard to capture that improvement with the current set of economic statistics. Because daily life has been getting better in all kinds of small ways, we’ve all been receiving an invisible social dividend.
[Chart photo courtesy of Shutterstock.]