This morning, the BEA released its latest R&D Satellite Account. No, it is not an analysis of R&D in space technology. The “Satellite” refers to the fact that it is a complimentary offshoot of BEA’s regular analysis of the economic – focused on R&D activity. Here is the bottom line from the report – Research and Development Satellite Account:
GDP would be an average of 2.9 percent higher between 1959 and 2004 — or $284 billion higher in 2004 — if research and development spending was treated as investment in the U.S. national income and product accounts,
Right now, spending on intangible assets, such as R&D are counted as costs rather than investments. The BEA data shows how badly that treatment distorts our view of the economy. In fact, researchers at the Federal Reserve and the University Of Maryland have calculated that our economic statistics under count our business stock of capital by $8 trillion and our annual business investment by $800 billion (see our April working paper Measuring Intangibles: A Summary of Recent Activity).
And if you still don’t think this mis-treatment of intangibles has serious consequences, see yesterday’s posting on how the numbers sank the $8 billion buyout of Harman.
The BEA and Fed work is a good first step at correcting the problem. But there are still much more to be done to fully incorporate intangibles into our economic statistics — and into our economic thinking and policymaking.