Hey, America: Entertainment Just Made You Hundreds of Dollars Richer

Thanks, television reruns — the economy appreciates your existence

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Well, kind of.  But what Americans are watching at the movies and on TV has changed the economy.

Yesterday, Alan B. Krueger, the Chairman of the Council of Economic Advisers, announced that the U.S. gross domestic product (GDP) in the second quarter of 2013 grew 1.7%—but that wasn’t the only new news, as past GDP numbers were also adjusted (the first quarter 2013 number moved from $16 trillion to $16.5 trillion, for example). It’s a change that’s partly the result of calculations that now factor entertainment and innovation. Adding the entertainment industry to the formula, according to Kreuger, presents a more accurate picture of the economy:

The comprehensive revision to the national accounts, which is the first since July 2009, includes additional source data received by the Bureau of Economic Analysis, as well as methodological changes designed to better reflect the evolving nature of the U.S. economy. For instance, the GDP data released today … adopts an expanded definition of business investment that includes spending on research and development (R&D) and the creation of original works of art like movies.

The report is available at the Bureau of Economic Analysis website; it specifies that the new investment category of “intellectual property products” includes “research and development; entertainment, literary, and artistic originals; and software.” That investment now counts as “intangible assets” rather than expenses. In short, money spent making movies or writing books or painting pictures is now seen as belonging to the same category as money spent on, say, a new machine for a factory: they’re both investments in future business success and economic growth.

The idea, as Jeff Sommer explains in the New York Times, is that once a qualifying piece of entertainment is created, it can be consumed—and paid for—many times over, generating dollars far into the future. (Ephemeral entertainment, which the government has decided will only be watched once, isn’t counted; sorry, The Bachelorette.) It’s a change that can make sense even to those of us without minds for economics, since these days things we make and buy in America are, in the words of Shane Ferro at Reuters, “increasingly intangible.”

And just how much money comes from “entertainment, literary, and artistic originals”? The revision analysis for the 2012 GDP added $74.3 billion for that category alone.

(MOREObama and Amazon: Booksellers Speak Out)

In another op-ed in the New York Times, Jared Bernstein and Dean Baker calculate that the growth caused by the change—an additional $560 billion that was suddenly added to the economy—means that, technically, everyone in the country is worth about $1,800 more than he or she thought a few days ago. (The math: $560 billion divided by about 314 million people equals about $1,800 each.) Those numbers are a pretty close match with predictions made when it was first announced that GDP methodology would be changing.

If we look at just entertainment investment—that $74.3 billion for 2012, for example—that comes out to an extra $237 per person.

But don’t go splurging yet.

In the same op-ed, Bernstein and Baker point out some of the problems with this new expansion of the entertainment economy. For one thing, the GDP doesn’t count a lot of the entertainment people actually consume (like uncopyrighted online videos or unpaid blogging) and, for another, the jump in dollar value of the economy doesn’t change its growth rate, which means everything still feels slow to the average citizen.

At least in the U.S., that is: if applied to a country like Bhutan, famous for measuring its citizens’ happiness rather than their money, there’s no telling what such a change might do.

(MORERise of the Zombeavers: Hollywood Sinks Its Teeth into the Micro-Budget Movie)

2 comments
salilmehtany
salilmehtany

The traditional GDP revision based on a statistical re-calibration, would make the prior two recessions (at a minimum) look significantly worse.  However, this year's new definitional adjustments to the national accounts provide an overwhelmingly large upward bias to real growth.  As a consequence, the net real GDP revisions from both source components together provides a far rosier impression of the underlying growth versus what we thought before (including the compositional changes within the labor market changes).  http://statisticalideas.blogspot.com/2013/08/masked-statistical-recalibrations-in.html

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