US to Make Money Grow on Trees by Adjusting GDP Measure

by Justin Vélez-Hagan  In a move that is expected to increase the US economy by more than 3% this summer, the U.S. will be among the first to implement new international […]

by Justin Vélez-Hagan 

In a move that is expected to increase the US economy by more than 3% this summer, the U.S. will be among the first to implement new international accounting standards that will take into account R&D and film royalties, among others.

According to the Financial Times, the additional GDP will be similar to the size of the economy of Belgium.

Much of the increased GDP will be due to intangible assets that have been previously unaccounted for, yet are considered real assets of the new millennium.

“We’re capitalizing research and development and also this category referred to as entertainment, literary and artistic originals, which would be things like motion picture originals, long-lasting television programs, books and sound recordings,” said Brent Moulton, manager of national accounts at the Bureau of Economic Analysis.

Currently, R&D is merely counted as a cost that businesses incur to create their final goods and services.  The rationale behind the move is that the R&D is used as intellectual property that creates other products within an organization or can be sold to other companies to develop their own products.

The adjustment will particularly benefit states with a large amount of government R&D investments, such as produced within the military.  The GDP of New Mexico is expected to jump by 10%, while other states like Louisiana will only see small increases of less than 1%, if any at all.

Although the adjustments are unlikely to change overall trends and business cycles, politicians are already considering how the adjustments can be used, or misused, to promote their particular party.

Much like the U3 unemployment rate, considered to under-represent the total number of unemployed in the country, is used by the Obama Administration to prove its economic policy measures successful, the concern is that the new upward adjustment will provide evidence for economic growth that is also seemingly improving faster than it actually is.