A revision of data for the GDP will reconsider the value of work by people such as “Star Wars” creator George Lucas, at the 2011 Scream Awards with Darth Vader. Associated Press file
GDP to feel the force of creativity
- Article by: Neil Irwin Washington Post
- April 22, 2013 - 4:59 PM
WASHINGTON - Huzzah! America’s economy is around $400 billion bigger than you thought it was. And the details of why include some really important lessons about the contributions that the creative class, including corporate research and development staff and America’s filmmakers, TV producers and songwriters, make to the economy. “Star Wars” creator George Lucas and his counterparts, it turns out, are more important to growth than the numbers have previously captured.
The Bureau of Economic Analysis (BEA) is doing a “comprehensive revision” of the data that form the raw material for gross domestic product, the most widely cited measure of how the economy is doing. And it appears that the numbers, due out this summer, will increase the size of the U.S. economy by about 3 percent.
So what is the BEA doing, and why should anyone care?
First, some basics: GDP aims to capture the value of goods and services produced within U.S. borders in a given periods. The BEA generally does this by measuring the value of goods purchased by consumers. The logic goes like this: When you buy a washing machine, the price you pay captures the value of the work of everybody in that chain of labor and materials that went into creating that washing machine: The sales clerk who sold it to you, the trucker who delivered it to the store, the factory worker who assembled it, and so on. Instead of trying to measure each input from the ground up, they are all encapsulated in the “personal consumption expenditure” that takes place when you buy the washing machine.
But when the washing machine company invests in long-lasting assets — a factory, for example — it contributes to GDP through a second column, for fixed investment. Investment is treated differently than the routine expenses involved in making something.
Which brings us to George Lucas. When he made a “Star Wars” movie, his company spent a lot of money to create the film. It then owned a copyright, and could make money for many years afterward on that investment. In other words, it’s a lot more like our washing machine company building a factory than it is like the routine process of making washing machines. The same is true for a lot of types of intellectual property: When Apple researchers develop the iPad, or Suzanne Collins writes a “Hunger Games” novel, it is an upfront investment that will have a long payoff.
So now BEA will treat research and development and creation of artistic works as longer-term investments, not unlike factories, equipment or software. On a purely technical level, this should more precisely match GDP in any one quarter to the actual economic value the nation generates in that span.
There are a couple of bigger lessons here.
One is just that measuring economic performance is really hard. We are a nation of 311 million people and $16 trillion(-ish) in annual output. The assumptions you make in creating your benchmark economic statistics can create big swings in the reality you see. Per capita personal income has been growing reasonably well over the last 15 years, but median household income has been stagnant to falling. The unemployment rate has fallen to 7.6 percent from 9.9 percent over the last three years, but a big chunk of that has come from a decline in proportion of Americans who are in the labor force. Given the murkiness of these statistics, it is important for people looking to draw conclusions about where we are and where we’re heading to look at a wide range of statistics, and to understand how they interrelate. There is no single reality about the economy.
Second is that we have an increasingly knowledge- and information-based economy, with all that entails. Think of it this way: U.S. economic output is about to be 3 percent higher than we thought it was. But most of that mismeasurement came from inadequately capturing the contributions of some of the highest-paid, most skilled members of society. In other words, the U.S. economy is even more heavily driven by the iPad designers and George Lucases of the world — and proportionally less by the guys who assemble washing machines — than we thought.
© 2013 Star Tribune