You simply must spend some serious time examining (bigger word than reading) the 13 February BusinessWeek cover story, “Why the Economy Is a Lot Stronger Than You Think: In a Knowledge-based World, the Traditional Measures Don’t Tell the Story.”
“We” “know it.” Economic-evaluation measures are lagging reality in the economy. Badly. This landmark article supports that idea with incredible clarity—and eye-popping statistical support.
E.g.:
“Business investment in intangibles such as product development and training is critical for long-term profitability, but it doesn’t get counted in GDP.” The unreported annual sum was most recently $978 billion, almost as much as the reported investment in physical capital. Re-calculate, and “investment as a share of the economy is rising rather than falling.”
“Household outlays for education, the most important investment in the future of the next generation, are improperly counted as consumption.” Re-calculate, adding in this uncounted $224B, and “personal savings were positive, not negative.”
BW also offers an “Intangibility Index,” the ratio of R&D to Capital Spending. It suggests that many companies “get it.” Since 2000, R&D spending at the 10 largest companies that report R&D (e.g., GE, P&G, J&J, Microsoft, Intel) has risen 42.1% while capital spending is up but 2.1%.
Fascinating, well-researched, and important reading.