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New Economic Analysis

This week will be, and already has been an eventful one in matters economic. I could name a constellation of events, but remind just the Central Banks meetings and the several announcements on Indices like the PMIs (Purchasers Managers Indices) in Europe, or the unemployment data in that continent to name a few. But for me the really important event is the announcement this Wednesday of the new methods of economics analysis of data to be released by the competent authorities in the United States. In particular the inclusion of R&D expense as a positive component in the account of Gross Domestic Income, is something innovative and at first appraisal well guided.

There’s already some criticism, from analysts considering the potential of manipulation of hard to obtain and judge historical data – just remember that the US institutions proposing this change, want to account to all relevant data historically and way back to 1929…. For me , as an optimist, not putting my hands in a fire, surely the result will be in the right direction. And the potential to add the equivalent of the GDP of an entire Country like Belgium is absolutely awesome!

There is also the possibility to account properly for things like Art or Intellectual Property, which goes a long way to do justice, economic justice to all creators, innovators and as this Bloomberg leader says a just recognition:

‘ In recognition of the increasing value of intellectual property, the BEA will begin to capitalize long-lived artwork, such as television programs, books and movies, instead of treating them as a production expense. The change in the treatment of various forms of “intangibles” spending will have the effect of raising the level of nominal GDP in 2007 by 3 percent, according to the BEA. ‘

The acronym BEA refers to the Bureau of Economic Analysis. The other big change relates to define benefit schemes for pensions, that will now be accounted on a an accrual basis, instead of the current cash basis:

‘ The other big change is to transactions in defined-benefit pension plans from a cash-accounting basis to an accrual basis. Instead of counting a company’s contribution to the pension plan as employee compensation when it is made, the new methodology will measure the value of pension benefits as they accrue. That accounting change will boost both personal income and the savings rate.’

Let’s wait and see if this will really materialize. Someone is comparing this to a Olympic feat, but I would not be so hyperbolic. Nevertheless it is definitely an event bound tho seriously change the way Economic Analysis is done and to influence this endeavor globally.

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