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? Unmasking the Economy |
| Brad Setser on Intangibles ?
February 05, 2006
Intangible booms and busts
One of the really interesting things about putting intangibles into GDP is that the booms get bigger and the busts get deeper. Take a look at this chart (taken from the cover story). By my rough estimate, intangibles add about half a percentage of growth to the boom, and take off 3 tenths of a percent from growth in 2001. (these are very rough estimates).
I think in the end, this is a very volatile economy, not a smooth one.
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Is the same 0.5% of growth 'addable' to the GDp of 2003-05?
This is fantastic stuff - truly thinking that is ahead of its time.
I have posted a post citing this on my blog soo.
Posted by: Kartik at February 6, 2006 12:43 PM
Also, if there is so much hidden wealth in the economy that is intangible, does it still mean that there is a housing bubble in certain parts of the country?
I recall the post in Dec about how the housing bubble was a bigger share of GDP than tech was at the height of the tech bubble, and how this guarantees a downturn.
Is this still as probable? Or does the shadow economy lend support to current housing prices?
Posted by: Kartik at February 6, 2006 12:46 PM
It's true that Microsoft's exports are classified as "plastic," that being the bulk of a CD's material. The classification of product today would give Adam Smith, an old customs hand, fits.
On the other hand, the fact that Starbucks sees the bulk of it's growth in China does not mean that Starbucks will be bringing bucks home in coffeebags.
Nor does the failure to recognize R&D mean that one can cash out of much of the R&D that, regardless of how it is classified during the process, winds up being sunk cost when product sales occur.
So oil companes drill fewer dry holes because they are using more advanced software and drill guidance; they are still applying those costs to well drilling and not retail operations. If they are outsourcing their drilling as most of them are, the loaded cost is paid, and becomes an incremental reduction probably offset by the increased depth and difficulty of crude recovery.
It's not just comic that Ford is asking for Mazda to help in auto design, there's an element of pathos in there too. Where does Mazda book that income? That's the question!
Posted by: Rick Gandenberger at February 6, 2006 02:33 PM
How do you handle the domestic versus international components of intangibles? An American company building a plant abroad is really making an investment there, not here, and if the income derived is used to make further investments there, than I don't see how much if any accrues to the domestic market. Is it just borrowing some growth from abroad?
Posted by: Lord at February 6, 2006 03:15 PM
"the conventional numbers don't capture the emerging knowledge economy"
When I read this article I almost fell off my chair. What does this remind of? The dotcom bubble!
The same words were used to discribe the companies with huge evaluations and no products, no income. It was the new economy with evaluations based on IP and innovation.
We all know what happened next!
Posted by: missi at February 9, 2006 11:14 PM