On Monday, we had Dr. Steven Sheffrin here to talk about our national government’s debt and our annual deficits that add to that debt. He mentioned that other countries seem to get in trouble with creditors when their debt to GDP ratio gets to about 90%. Well, after listening to this little story on NPR’s “Morning Edition,” you will see that we just stepped away from that limit a bit, by changing the way we calculate GDP. As I mentioned in my Econ 255 class, we only count final goods in those GDP calculations. However, it was recently announced that certain intangibles, that were once considered intermediate goods and services, are now being shifted over to the final goods column as investment. Research and Development, software, and other intellectual property production will be considered investment goods, which count in GDP, instead of as intermediate goods, which do not.
This change in GDP accounting is not such a sudden change and has been discussed for a few years now. For instance, here is a Bureau of Economic Analysis (BEA—these are the folks who do our GDP accounting) paper by Ana M. Aizcorbe, Carol E. Moylan, and Carol A. Robbins from January, 2009, discussing the issue.
Of course, as you see in the story, there will really not be in big jump in GDP as a result because the BEA is going back through all previous years and recalculating GDP for those years as well. And I don’t think creditors will buy the new change as a reason to delay downgrading our debt, either.