Heidi Moore and Jeremy Warner: compare and contrast economic reporting

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?

8 thoughts on “Heidi Moore and Jeremy Warner: compare and contrast economic reporting”

  1. Mmmm…
    Not so sure about that. There’s an assumption there that creating intellectual property creates value. And then said value continues to exist. But does it?
    Let’s look at what actually happens.
    Guy A spends a year writing a really neat bit of software. Stunning app everybody’s talking about & buying. Lots of created value.
    Meanwhile guy B is also writing a really, really neat bit of software. Does the same as guy A’s app but better, faster & with added bells & whistles. Discs containing app A can now be found at the bottom of boxes at computer fairs, priced 10 pence.
    Meanwhile guy C….
    It’s not like building ships or cars. There you still have value in what’s produced even if the new model’s better.
    But with IP it’s easy to have a lot of quite genuine apparently productive employment going on that at the end of the day doesn’t produce much value.
    Is that the answer to the employment puzzle?

    Tim adds: I see your point. But no, that’s not the issue here. For what we measure is the income that people are receiving for the software. Thus the 10 p bargain bin stuff is indeed accounted for.

  2. Heidi Low.

    P.S. There’s a lot of sheepophiles in the Lions party, don’t you think, Tim?

  3. If that’s the case, Tim, then you have to ask how worthwhile is what you’re counting? If increase in GDP is supposed to indicate how well an economy is doing but some of the value is being destroyed as fast as it’s being created, it doesn’t provide a true picture.

  4. So you’re complementing him for having a better grasp of economics than Heidi Moore. He must feel so gratified. Has he written to thank you yet?

  5. Surreptitious Evil

    She’s probably never heard of him, either, in her 15 years of reporting (utter bollocks) from Wall Street*.

    * I assume this is actually Wall Street Plaza, Orlando, rather than the better known one?

  6. Unfortunately I wouldn’t bet on it.

    Actually though, Telegraph reporting on the economic crisis, particuarly the Eurozone, has been outstanding. Jeremy Warner and his colleagues deserve all the praise they get. I’m just not sure “You’re better than someone who knows bugger all” counts as praise.

  7. This critical view of the US GDP adjustments struck me as much more insightful than Heidi Moore’s barking argument that “a higher level of recorded GDP means it will be harder to identify recessions”.

    A couple of interesting points in it. Counting R&D as an investment creates a moral hazard particularly in terms of relabelling certain aspects of government expenditure (seems to be the kind of “we’re not spending, we’re investing” thing G Brown would have loved). Updated historical series are going to be pretty rough estimates – e.g. due to lack of market value information, old “entertainment” IP is going to be evaluated using production costs, and for even older stuff that production cost data isn’t available either, and is going to have to be guesstimated. There’s also criticism of several other classification changes, e.g. the costs associated with house sales will now count as “investment”.

  8. Surely one of the big issues with GDP is that when a private sector company overpays for something it goes bust. When the government overpays for a service then the overpaid amount counts towards GDP, and so nominal growth can be created.

    In fact, isn’t this the cornerstone of Ed Ball’s policies?

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