On July 31, 2013, the Bureau of Economic Analysis revised the way it measures GDP, with the goal first and foremost “to better measure the effects of innovation and intangible assets on the economy.” Specifically, this means, among other things, counting private investments in research and development as measurable capital. In the BEA’s own words, it goes like this:
Recognizing expenditures by business, government, and nonprofit institutions serving households for research and development (R&D) as fixed invest ment, thus improving BEA’s measures of fixed investment. (page 14)
We also now know, according to the BEA’s new accounting practices, that in 2012 there was $559.8 billion more gross domestic product than previously thought. The vast majority of this is due to the intellectual property accounting: “capitalization of research and development” accounted for $396.7 billion (see previous link; page 17).
Critics will say this is “magic” and wealth cannot be made out of thin air simply by pretending to count it. These critics will be wrong. Intangible assets, intellectual property, research, data, analysis, knowledge — inarguably these are capital deserving of measurement. They are perhaps the most important capital in the world today. They are, however, difficult to measure. Still, that should not stop us from the attempt. Indeed, the BEA’s attempt to better account for these capital is a step in the right direction.