Better Accounting Will Boost U.S. GDP

On Wednesday, the Bureau of Economic Analysis will release new statistics on the nation's Gross Domestic Product (GDP) for the second quarter. The main number — the total value of all goods and services produced in the United States — will be about 3 percent bigger than it would have been. It won't be bigger because of a change in the economy, but rather a change in accounting.

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The size of the U.S. economy will be getting a bump tomorrow. That's when the latest gross domestic product statistics come out. The number will be larger, not because our exports have improved or because of new jobs, it's because of an accounting change. David Kestenbaum with our Planet Money Team explains.

DAVID KESTENBAUM, BYLINE: An economy is a tricky thing to measure. You got millions of people buying hamburgers and coffee and cars and socks, then there's all the stuff you can't touch, like haircuts. There's also all the things the government does: police officers, firefighters, thousands of numbers that we, as a country, try very hard to add up.

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UNIDENTIFIED WOMAN #1: Just in (unintelligible) and the latest GDP report, the U.S...

UNIDENTIFIED WOMAN#2: Let's start with the GDP data we're looking at.

UNIDENTIFIED MAN: The economy is picking up speed.

KESTENBAUM: The Gross Domestic Product, the sum total of all goods and services we produce. Well, almost all. It turns out we've been missing a few things, like music. To help explain, I called up Dan Sichel. He's an economist at Wellesley.

DANIEL SICHEL: I'm actually a Lady Gaga fan.

KESTENBAUM: Lady gaga fan.

SICHEL: Yeah. So there you go.

KESTENBAUM: What's the Lady Gaga song you like? I ask just because we're going to have to play one now.

SICHEL: Big fan of "Telephone."

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LADY GAGA: (Singing) Stop calling, stop calling, I don't want to think anymore. I left my head and my heart on the dance floor.

KESTENBAUM: Now, certainly, some parts of Lady Gaga empire get counted as GDP.

SICHEL: If Lady Gaga did a concert and sold concert tickets, the concert tickets would count as GDP.

KESTENBAUM: Songs she sold online, CDs, all that gets counted. But something was missing. We weren't including the value of the time she spent working on new songs, working in the studio. That's an investment, he says, and it should be counted as GDP.

SICHEL: It's really quite analogous to a factory investing in a new machine.

KESTENBAUM: Imagine Lady Gaga sitting in front of her laptop, staring at the sky, thinking up new songs. That's economically valuable. It turns out it's not just music we've been doing wrong, movies, too, for a long time now.

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KESTENBAUM: "Star Wars" ticket sales from 1977, yes, that was in GDP, but not the cost to make the actual movie. The scripts, the wookie costume, the Death Star, none of that was counted. But that, arguably, was an investment that went on to pay off handsomely. We also haven't been counting money that companies invest in research and development. That's another thing that's being fixed. Why did we get this wrong for so long? One reason is just that the accounting rules for GDP were written in a much simpler time.

It used to be when a company made something, that thing physically existed. You could drop it on your foot and it would hurt. But increasingly, our economy produces intangible goods, things that are worth something but you can't touch, like computer software. Steve Landefeld is the director of the Bureau of Economic Analysis, which produces the official GDP numbers.

STEVE LANDEFELD: I mean, a lot of this is about intangibles and intellectual property becoming a much more important component of GDP, our trade, our competiveness. And it's essential we get a better handle on it.

KESTENBAUM: If you add up all the changes, Landefeld says he thinks they will boost annual GDP by hundreds of billions of dollars. Significant.

LANDEFELD: Roughly 3 percent.

KESTENBAUM: That's like a big adjustment.

LANDEFELD: Mm-hmm, yeah.

KESTENBAUM: Our economy just magically grew 3 percent.

LANDEFELD: Well, I think it was always that big, but we hadn't been measuring all that.

KESTENBAUM: Historical GDP numbers will also be adjusted, so on the charts tomorrow, it won't look like a big jump. Landefeld says for most people, the important thing to pay attention to is change in GDP. Did it go up or did it go down? The actual number, it's always just going to just be this mind-bogglingly big thing. Right now, U.S. GDP is around $15 trillion. David Kestenbaum, NPR News.

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