GDP Goes Hollywood
Did you know that every five years the statistics that determine the Gross Domestic Product‡ (GDP) are reviewed and modernized as the U.S. economy changes? The GDP is one of the main indicators used to measure the health of our economy, so this review is very important.
Earlier this month, the Bureau of Economic Analysis (BEA) conducted a comprehensive revision‡ of the GDP statistics from 1929 through 2013. This time around, the revisions included changes to intangibles, including books, movies TV shows, music, photographs and even greeting cards. Specifically, “intellectual property products” (an idea for a movie franchise) were moved from expense to investment classifications. This includes research and development; entertainment, literary and artistic originals; and software. They will be considered fixed assets‡ to account for their ongoing contributions, such as royalties‡ authors receive for their book sales.
Including specific works and ideas from the ever growing “knowledge economy‡” was done to fill a void because these intellectual property products had not been labeled as an asset until now. Check out this recent New York Times piece, Getting Creative with the GDP‡, to learn more about these recent additions to the GDP.
These changes are important in making sure the GDP calculation stays relevant and current. Since the recent revisions created only a minimal statistical change to the GDP, the general consensus to date seems to be that the findings do not change the overall picture‡.
What it does change is the outlook on creativity and innovation. For example, research and development is often viewed by most companies as an expense and not an asset. It’s difficult to place a continuing value on it because sometimes it’s successful and sometimes it’s not. The goal is not to place a specific number value on each individual intangible. Instead this change in GDP reporting is a paradigm shift in how we view the overall value of imagination and the creative process.
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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.