Before the data is released I felt it important to get my take on GDP revisions out there. There will be the standard outcries about political manipulation of the numbers and this is really not the intent, nor the outcome, of this process. This article from Bloomberg.com explains the process a bit. This article does a little better (especially on the R&D front and it mentions economic history). The U.S. economy is dynamic and constantly changing. We can call it innovation or entrepreneurship or development, but at its root it is change. Change in the products and services made and changes in the processes used to make them. These changes require us to change how we account for different aspects of the economy over time.

The revision will make growth in some quarters look better. Of course, in some it will make it look worse. (For completeness it is possible that some will have no change in growth.) Yes the changes may adjust our thinking about particular time periods or eras, but accuracy is important. Listen, GDP and growth accounting are boring and tedious, even to many economists, but the numbers-geek in me says it is vital to get the numbers right.

One of the major adjustments is the change in treatment of research and development will be significant. It will be very interesting to see how this changes numbers from the 1970s to the present in particular. It is common to refer to the U.S. as a knowledge-based economy, as opposed to a production-based economy. Given this current attitude I think research and development are much better thought of as investment rather than expenses.

I will be waiting for that report to see exactly what changes it implies and what the technical notes tell us.

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