America is changing how we calculate GDP


When I first heard this via Drudge, I thought the Obama Administration was trying to manipulate numbers to make the economy look better – basically the inverse of when the Census redid its poverty calculations in 2011 in a way designed to make poverty look worse, and thus more welfare spending necessary. However, it turns out it’s likely a simple adjustment to the times by the Bureau of Economic Analysis:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.

Brent Moulton, who manages the national accounts at the Bureau of Economic Analysis, told the Financial Times that the update was the biggest since computer software was added to the accounts in 1999.

“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,” said Mr Moulton.

The changes will affect everything from the measured GDP of different US states to the stability of the inflation measure targeted by the Federal Reserve. They will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.

The Wonk Blog has more, in a more readable style than the above-linked piece:

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: The researchers who develop new computers and pharmaceuticals and the creative types who come up with blockbuster movies.

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.

Again, at first glance, this seems like yet another federal manipulation of the numbers. But at second glance, it appears to be a simple (and possibly needed) update to the calculations the federal government makes for GDP assessments.

The good thing is the new calculations will be consistent for the past 80-plus years of assessments, which means that while GDP will be a little higher once the new numbers are calculated, the growth per quarter and other measures won’t change. President Obama won’t be able to use this to mislead the American people, which leads me to believe this is not a conspiracy, but merely an update.

Thoughts from anyone with an economic background?