August 7, 2018


Technology helped America's economy way more than we thought (Lydia DePillis, 8/03/18, CNNMoney)

At the end of July, when the Bureau of Economic Analysis released its blockbuster 4.1% economic growth rate estimate for the second quarter, few noticed another announcement from the statistical agency: A total revamp of its gross domestic product calculations, going back decades.

Deep in the guts of what makes up the GDP, the agency had incorporated new information about cloud computing, cell phones, and other rapidly evolving technologies. And while the updated calculations only changed overall economic growth by a tiny bit each year, total business investments climbed by almost a whole percentage point on average for each year between 2002 and 2017.

That's a big jump, and presents a brighter picture of economic activity after the recession than the one we had before last Friday, the agency said in a briefing with reporters.

Such adjustments aren't new. Every five years, the federal government's economic number crunchers announce that they were a little bit off, because of changes in business practices that they couldn't track in real time.

Accelerating inflation in the 1960s prompted better measurement of price changes, for example. In the 1980s, IBM helped the agency understand how computers were getting cheaper and better at the same time.

"When BEA does one of these benchmarks, they try to target one of these areas where they know there's been a lot of technological advance that hasn't been captured in the numbers," says Brent Moulton, who recently retired after a 30-year career split between BEA and the Bureau of Labor Statistics. "When the decision was made that software really should be counted as part of investment along with hardware, that led to a large increase in growth rates over the 1980s and '90s."

But it's become harder to keep up with those changes lately, as new technologies have diffused through workplaces in ways that statisticians still don't fully understand.

That mismeasurement could be part of the reason why growth numbers have been disappointing in recent years. If federal agencies haven't been able to capture all new economic activity, that's a lot less concerning than the idea that America is really becoming a less dynamic nation.

"One question is whether it accounts for the slowdown that we've had in productivity," says Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology, who studies the impact of technology on the economy. "I think we're probably missing more and more over time because more of the economy's becoming digitized."

Posted by at August 7, 2018 1:17 PM