The official line regarding the biggest change in the way US government statisticians wield their slide rules in 20 years is that, in the 21st century friction free economy, it no longer makes sense to ignore intangibles when working out productivity.
After all up to 80% of a listed company’s market value can be down to intangibles, so why not apply the same rule to national economies? It simply reflects the way that the world has changed. Of course the fact that doing so just happens to create 3% ‘growth’ out of thin air at a time when this is sorely needed is just a happy coincidence…
The kind of intangibles we are talking about here are things like film royalties, and spending on RnD. RnD currently counts as a cost of doing business, but in future will be included as an investment – so not only the sales revenue generated by goods will be included, but also the manufacturers’ investments in developing them.
It’s the equivalent of adding a country the size of Belgium to the world economy, and will likely result in a rash of other countries following suit as the US provides the de facto standard for GDP measurement around the globe.
As is so often the case when the statistics are tweaked, the move has not been without controversy. For starters there are those who say that this is an unhelpful unilateral move by the US which at a stroke renders its figures un-comparable with those from other countries.
But perhaps the gravest allegation made against this intagibles methodology is the accountants’ cardinal sin of double counting. This argument states that, whilst there definitely is value in intangible assets, it is already accounted for in the old methodology, as the value of brands, RnD etc is already reflected in sales. Would Apple really sell so many iPads and iPhones if it hadn’t invested in creating such a great brand and strong product line up in the first place? Probably not.
What’s more the new measures are being applied retrospectively all the way back to 1929, thus creating plenty of work for economists and historians as well as affording the US authorities the appealing prospect of seeming to recalculate their way out of the economic mire.
Here at MT stats has never been our strong point, but this looks a lot like smoke and mirrors to us…