Economic data and intangibles

This morning, BEA released its Benchmark Input-Output Accounts of the U.S. Economy, 2002 report. Input-output tables show the flows among the various sectors/industries in the economy. The BEA table details over 400 industries.
Yet, these tables are out of date. Like all other industry-level data, the tables use the current classification system. That system provides great detail in the manufacturing and manufacturing-related areas. But in the intangible and service areas, activities are lumped together. For example, “Flat glass manufacturing “; “Other pressed and blown glass and glassware manufacturing”; “Glass container manufacturing”; “Glass product manufacturing made of purchased glass” are all separate categories with their individual input contributions and output flows from every other industry individually measured. “Internet service providers and web search portals” are thrown together — no recognition that ISPs are a different, though related, from search portals — and that ISPs are different among themselves (dial up versus broadband, simple email versus websites). “Hotels and motels, including casino hotels” are a single category — as if all of those serve exactly the same customers. “Food services and drinking places” are one category – McDonalds, that top-of -the line expense-account restaurant and your local pub are all the same. “Management, scientific, and technical consulting services” are combined in one category. Retail trade is one category. Of the over 400 industries tracks, over 300 are in manufacturing, agriculture, and mining (over 275 in manufacturing). Yet those industries provide less that 30% of total economic output. So three-quarters of the detail of the models are devoted to between one quarter and one third of the economy.
The purpose of I-O models is to understand the connection among economic activities: so much steel goes to auto production, building construction, etc. This is useful in helping policymakers understand both the national economy and regional economies. If auto production declined by 10%, we can see what will happen to the steel industry. But if activities are all lumped together, it is impossible to track those activities precisely. It is as if our measure for the steel-auto example above was simply metals and durable goods.
The economist at BEA and elsewhere understand the problem. It is not their fault. The problem is that updating the model to reflect the shift to the I-Cubed Economy from the Industrial Economy is a huge – and expensive – undertaking. Right now, this is not a priority for either Congress or the Administration. Until it is, BEA will have to do the best it can in updating and revising the numbers. And the rest of us will have to tease out what relevant information we can for the date we have.
More on that in my next posting.

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