Economic Report of the President - includes intangibles

The Economic Report of the President was released last Friday. Understandably much of the focus by the press/pundits/blogsphere is about the macro economy outlook (for example, see "How the Economy Looks From the White House"). But within the document there are a number of interesting references to intangibles and innovation.

First of all, let me draw your attention to the document's specific discussion of investments in intangibles (on page 56). This discussion not only talks about current BEA efforts to include intangibles, such as R&D, as investments in the GDP calculations. It also argues for a broader view of intangibles, such as human capital:

Some researchers have argued that investment in intangibles should be defined even more broadly (Corrado, Hulten, and Sichel 2009; Corrado and Hulten 2010). In addition to research and development that builds on a scientific base of knowledge, for example, there is an argument for treating as investment the money firms spend on other sorts of new product development, such as the development of new motion pictures or new financial services products. Businesses also spend money on strategic planning, the implementation of new business processes, and employee training, all of which may add significantly to future productivity and thus arguably should be treated as investment as well. Taking an even broader perspective, time and money devoted to formal education add to the human capital of the American workforce and thus to its future productivity. While accounting accurately for the value of these investments poses some difficult measurement challenges (Abraham 2010), their importance to future economic growth should not be overlooked. According to some research (Krueger 1999), returns on human capital generate the lion's share of national income.

I welcome this attention -- and hope it might be the groundwork for the creation of a crosscutting look at investments in intangibles assets in the Federal government's budget (see earlier postings).

I should note that the Report raises a number of data questions, such as the discussion on pages 52 and 53 about measures of the service economy. See also a WSJ piece on "White House Highlights Need For New Data Based on Changing Economy."

The Report also includes a discussion of trade in services -- highlighting the importance of royalties & license fees and business services. To its credit, the Report talks about the contribution of trade in intangibles without falling into the all too common trap of "services will save us." In addition, in a footnote the Report references the issue of companies locating their intellectual property "in low-tax jurisdictions, minimizing their global tax liability as well as measured U.S. royalties and license fees."

Interestingly, the discussion of innovation is tucked in the section on "Improving the Quality of Life" (Chapter 8). Here the discussion is, predictably, on technology-focused issue: measuring technological innovation; IP; funding of R&D; commercialization of university research; wireless and spectrum. Unfortunately, we still can't seem to get beyond our narrow policy thinking on innovation.

BTW - the Report also has a section on modernizing unemployment insurance, including an endorsement of work sharing programs (see earlier posting) and use of UI funds to support entrepreneurship.