So both of our stalwarts are reporting on very much the same thing. The way in which GDP measurements are to be changed.
Ms. Moore reports in The Guardian about how the BEA is going to change the way that R&D and certain intellectual properties are recorded in the national accounts. Here.
The new ingredients include Hollywood royalties from TV, movies and songs – some Tinseltown magic, really – as well as revenues from scientific research and development. Like a feelgood movie, this will make us feel positive, briefly – boosting our GDP by as much as 3% from its currently anemic level of 0.4%.
For one, it will be harder for us to know when we\’re in a recession. Right now, a recession means several quarters of negative GDP. Getting to negative from where we are now isn\’t hard; getting there when we\’re 3% higher will be. While it may seem useful to avoid recession right now, that is actually a bad thing: it means that in periods when we do get negative GDP, we\’ll be in truly terrible shape.
Hollywood royalties, for instance, are not secure measures of investment.
It is, as I\’ve noted before, the most ghastly piece of codswallop. The woman simply doesn\’t have the first clue on the subject under discussion.
Jeremy Warner reports on the ONS making very much the same adjustments. For this is how it works: GDP ain\’t perfect by any means but it is being continually refined. As as national statisticians agree on a refinement they tend to all roll it out at roughly the same time.
But even if this doesn\’t occur in the months ahead, it will very likely happen in 2014, when the Office for National Statistics is due to change the way in which it calculates the national accounts to take account of investment in research and development and certain intangibles such as intellectual property.
As it happens, R and D is one of the few things that grew right through the original Great Recession. Investment in software fell initially, but has subsequently risen quite strongly, while R and D never fell at all. In nominal terms, both are now some 10 per cent higher than pre-crisis levels. It\’s tangible investment in bricks and mortor, plant and machinery which has taken the real pounding.
The net addition to GDP from including these elements is not going to be huge, but it will be significant. A recent paper by Peter Goodridge, Jonathan Haskel and Gavin Wallis of Imperial College Business School and University College London calculated that growth GDP is being understated by possibly as much as 0.5 per cent per annum as a result of these omissions. Of course, a shift in the level of GDP does not of itself affect growth, but given that these previously unrecorded elements of economic activity are growing faster than the rest, then there is bound to be some positive impact. In any case, these findings also help explain the so-called \”productivity puzzle\”, or why the labour market has remained relatively resilient despite an apparently stagnating economy. Factor in intangible investment, and in fact there has been no fall in labour productivity over the past two years.
So, which reporter gives you a better view of what is happening? Which would you trust to report on other matters economic? Which has a clue?