Member Since: 1/1/2012
Posts: 19,672
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WSJ: "Lady Gaga increases America's GDP"
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Yes, Lady Gaga's Songs Contribute to GDP:
The U.S. government recently announced a welcome revision to the way it estimates gross domestic product. Starting July 31, the Bureau of Economic Analysis will record expenditures for "R&D and for entertainment, literary and artistic originals as fixed investment," grouping them with expenditures for software into a new investment category called "intellectual property products."
What does this mean for GDP? Until this change, as Wellesley economist Daniel Sichel recently told NPR, "If Lady Gaga did a concert and sold concert tickets, the concert tickets would count as GDP," but the money she spent writing and recording an album wouldn't. That didn't make sense, because as Mr. Sichel pointed out, the money an artist invests in a film or song is "really quite analogous to a factory investing in a new machine." The same is clearly true of money invested in R&D for new drugs or smartphones.
Taken together, these new revisions are even more significant than the 1999 revision that added expenditures for computer software to the national accounts. Why? First, by expanding the list of intellectual-property investments used to calculate GDP to include R&D and the arts and entertainment industry, the present U.S. economy is shown to be roughly 3%—or $400 billion—larger than thought. (That doesn't mean we'll see a dramatic increase in GDP after July; the GDP figures going back to 1929 will also be adjusted, lessening the impact of the change on current growth rates.)
Second, the revision reflects the economy's quiet transformation from one based principally on industry to one decidedly based on knowledge and information. Third, this revision opens the door to further changes in the GDP calculation methodology, since the Bureau of Economic Analysis has in essence conceded that the GDP indicator, as now defined, has fallen behind today's economic realities.
This change is more than an arcane issue of interest only to economists. Government GDP figures are used to determine fundamental policy matters that affect everyday citizens' lives, such as budget decisions and funding for federal programs. GDP numbers also constitute a shorthand for evaluating the performance of the national economy.
A clear goal of the BEA's decision is to better reflect the role of intellectual property as a key contributor to the national economy. This change in the measurement of GDP will affect both policy decisions regarding intellectual property and how we perceive ourselves as a society.
Right now there are pivotal cases before the U.S. Supreme Court on the legitimate scope and subject matter of patent protection, including in the growing field of genetics where at least 25% of all human genes have already been patented by private companies. Crucial decisions similarly confront us on the educational funding and direction, particularly in relation to science, technology, engineering and math and early childhood education.
In the past two decades, intellectual property has emerged as the principal driver of economic growth in the U.S. and other developed countries. IP is now, in many respects, the new global currency. This is largely the result of America's successful effort to internationalize its views regarding the economic importance of IP protection, notwithstanding the continuing challenge of piracy. In short, America's place as a world economic leader depends on its ability to cultivate a sufficiently creative "mint" by which to generate, and profit from, this new global currency.
The government's new GDP measure suggests that economists are rightly adjusting to this new landscape. Whereas traditionalists have long counted land, labor and capital as the primary factors of production, economists are increasingly recognizing the productive significance of more intangible factors. This includes IP and, more generally, intellectual capital.
Last year, the U.S. Patent and Trademark Office reported that "IP-intensive" industries supported at least 40 million jobs in the U.S., contributing more than $5 trillion to the economy and accounting for 34.8% of GDP. Given these figures, it is understandable that the Bureau of Economic Analysis would seek to bring the definition of GDP more in line with the actual economy.
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Legend!
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