The plan focuses on long term growth and the importance of the middle class, rather than short term stimulus. Having said that, they give nod to the role of demand by pointing out that a strong middle class is important to sustaining demand. And they outline six areas for spending that they estimate will create 2.5 million jobs: housing, infrastructure, energy efficiency, work-based training and skills development, pre-K education, and rehiring state & local workers.

The long term recommendations in report take two tracks: people (the "300 million engines") and the economic ecosystem/environment. On the people side, there is the now standard discussions of education and immigration. [Side note: it is interesting to see how immigration has become a routine part of any discussion of U.S. policies on human capital.] I was disappointed to see the education pat of the report cover only "formal" education and subsume worker training into that formal (i.e. certification-driven and class room based) system. The training section was focused on the need to help worker obtain the skills they need to get jobs -- not on the skills they need to keep and improve their jobs. Much more attention needs to be paid to on-the-job training and the continual upgrading of skills and knowledge (what we used to call lifelong learning).

More controversial (and possibly more important) are the report's recommendations on raising workplace standards: "Weak wage and benefit policies and low workplace safeguards threaten the quality of U.S. jobs."

To make more jobs good jobs and to strengthen and grow the middle class while substantially reducing poverty, we propose guaranteed paid leave and sick days, better protection in the event of layoffs, a higher minimum wage, better forms of retirement savings, and protection of workers' right to join a union. Such policies improve productivity, reduce turnover, and provide the middle class with the stability needed for risk taking and increased growth.

The second track of the report is on "strengthening the economic environment." As one can guess, for CAP this does not mean cutting taxed and getting rid of regulations. Rather, it means a number of proactive government actions that are need to harness that improved human capital:

even a car with a superior engine needs good roads to drive on. What we haven't addressed yet is the market environment in which our 300 million engines of growth operate. After all, we can educate and train ourselves to be the most productive workers in the world but still underperform as an economy if our tax system creates incentives to move jobs overseas; if our country neglects the basic research that underpins innovation; if the playing field for international trade is tilted against us; if we cede the industries of the future to other countries; if existing industries fall behind because we ignore market failures; if our transportation system is crumbling; and if our energy is dirty and expensive and the supply unsustainable.

I won't go into all of the recommendations in these areas. There are a number of standard ideas (e.g. doubling the Federal R&D budget and creating a National Infrastructure Bank) interwoven with a number of controversial ones (e.g. imposing a carbon tax, creating a currency misalignment trigger, and curbing high-frequency stock trading with a financial transactions tax). I was disappointed to see the report raises the issue of the transfer of intangible assets to low-tax countries but punts on any solutions to the problem.

I would like to comment, however, on the first item: Create the mechanisms for an adaptive national economic strategy. Like most of the recommendations in the report, this is an item CAP has raised before. The recommendation is 1) to reorganize the federal trade and business agencies into a single department focused on business and competitiveness and 2) conduct regular strategic economic assessments based on improved industry and sector data. [The report also lays out the circumstances where government intervention at the industry or company level is justified.]

As I commented before on these proposals, I strongly support the idea of a National Economic Strategic Assessment and improving our statistical system. Concerning re-organization, I am wary of this idea. As a scarred veteran of the last attempt to reorganize Commerce during the 1980's, I can attest that such a action will not be easy. There are many permutation to the new structure -- although some are better than others. There is no way to completely pull all the competitiveness related programs into one Department (e.g. should worker training programs be in Labor or Education). And there is a lot of vested interests in keeping the familiar structures in place.

On the merits of the proposal itself, my sense is that such consolidations aren't necessarily that helpful. I would support a re-look at the structure of the Commerce Department and the statistical agencies. But there will always be programs and policies that are important to economic competitiveness that will be part of other policy arena's (such as defense or housing). Thus, I don't believe a single overarching competitiveness agency is possible. Coordination - rather than consolidation - seems to be the better course of action.

I would suggest another organizational idea: the creation of "competitiveness" agency outside the government. Specifically, we should establishment of National Foundation for Science, Technology, and Creativity patterned after the United Kingdom's National Endowment for Science, Technology and the Arts (NESTA). As I've noted before, NESTA takes a broad view of innovation unlike many other technology and innovation programs. Its portfolio of programs covers a variety of areas, including science awareness, early stage investments in technology companies, open innovation projects, design, and arts and cultural fellowships. NESTA is an independent organization; it complements but does not replace government funding of science, technology, and innovation. A United States version of the endowment could be seeded as a public-private partnership, with initial funding from both sources. It would then use income from the endowment and returns from strategic investments to support most of its activities. Creating a US version of NESTA would complement the assessment process outlined in the CAP proposal.

In sum, the report is a good starting point for a whole series of debate about fostering long term growth in the U.S. economy. Let us hope that we can have that debate - and not either continue to ignore the issue or focus on non-consequential parts of the issue.

Legislative recommendations:

1. Require patentees and applicants to disclose the "Real Party-in-Interest," by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance. [Comment: Is anyone against transparency? Not that I can tell -- at least not in public.]

2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney's fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases). [Comment: Is there something wrong with the copyright legal standards that would preclude their adoption in patent cases? If not, this sounds fine.]

3. Expand the PTO's transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB). [Comment: OK, this might be controversial if the intent is to restrict software patents.]

4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer. [Comment: This goes after the recent tactic of targeting downstream end users, which is what I define as an example of abusive litigation.]

5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts. [Comment: The argument against this seems to be that it takes away the litigators work-around the eBay decision. From my point of view, shutting down the dual system is a good thing. We need to change how ITC deals with IPR violations as an unfair trade practice.]

6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public. [Comment: Again, transparency good.]

7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges. [Comment: so, what's the criticism? We should hire unqualified Administrative Law Judges?]

Executive actions:

1. Making "Real Party-in-Interest" the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the "ultimate parent entity" in control of the patent or application. [Comment: Again, is anyone against transparency?]

2. Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims -- particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field. [Comment: Are we against better training and guidance on claim clarity for examiners? Or is the concern that the examiners might make it harder to get software patents?]

3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology -- for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll. [Comment: Is anyone against providing educational information?]

4. Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders -- including patent holders, research institutions, consumer advocates, public interest groups, and the general public -- is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop -- and make available to the public -- more robust data and research on the issues bearing on abusive litigation. [Comment: When in doubt about how to strongly confront a problem, call for more studies.]

5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient. [Comment: Is the real criticism of this proposal that the interagency review might find that limited exclusion (rather than the current blanket "nothing comes in" order) is more appropriate?]

So, what is the bottom line? When I look at all the proposals, I come away the same conclusion as others (for example, see here and here): probably a step forward but doesn't get at the heart of the problem. The heart of the problem is patent quality.

That is not to say that litigation isn't an issue (see "How patent trolling went mainstream" and "Tactical Shift Put Patent Firms on Political Radar." But some have argued that the solution is already in place. According to a recent op-ed in the New York Times ("Make Patent Trolls Pay in Court"): "Section 285 of the Patent Act, as well as Rule 11 of the Federal Rules of Civil Procedure, give judges the authority they need to shift the cost burden of litigation abuse from the defendant to the troll." Using these tools and the Administration's proposals will alleviate some of the problem.

But the real key comes back to the patents themselves. We need to make sure that we have the IP equivalent of South Beach waterfront property rather than Everglades swampland.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

For intangibles the story was the other way around: exports of business services rose slightly more than imports and royalty receipts (exports) rose slightly more than royalty payments (imports). As a result, the intangibles surplus grew slightly by $211 million in April. [Note that last month's report indicated that the surplus also grew in March. Today's revised data shows that the intangible surplus actually declined in January, February and March.]

On the other hand, April was a disaster for our trade in Advanced Technology goods. The deficit skyrocketed from $3.4 billion in March to almost $7.9 billion in April. Every category except nuclear technology saw a worsening of its trade position. The biggest growth was in the deficit in information and communications technology (ICT). The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Absent from the many analyses and discussions of scientific peer review are two intangible but very important byproducts: 1) feedback to the applicant and 2) exposure of the reviewers to new hypotheses, techniques, and approaches. Both of these phenomena have a virtual mentoring effect that helps move science forward. Such learning can occur as a consequence of both manuscript review and grant application review, but the review of grant applications, by its very nature, is more iterative and impacts the direction in which research moves very early in the investigation.

However, latter point about the learning by the reviewers is very important and often missed. The process is a two way exchange of information - not the one-way (judgment/critique) process that one normally associates with peer review. The reviewer learns in two ways: from the applicant and from the interaction with fellow reviewers. The younger reviewers learn about what it takes to write a successful grant application. Reviewers learn about new areas of research, data and techniques. Going beyond learning, interaction among reviewers (and even between reviewers and applicants) can lead to new collaborations and other knowledge exchanges outside of the specific review activity.

In sum, the article is a great example of how intangibles (relational capital, human capital and structural capital/knowledge) is created in activities seemingly for an unrelated purpose.

Regrettably, the report perpetuates the misunderstanding that intangibles equals IP:

According to a figure cited in the president's 2006 Economic Report to Congress, 70% of the value of publicly traded corporations is estimated to be in "intangible assets," that is, IP.

No - the 70% covers all forms of intellectual capital and intangibles. Some are covered by intellectual property rights; others are not.

This is an unfortunate missed opportunity. By equating intangibles solely with IP, the Commission was unable to fully develop the richness of understanding that the topic deserves. For example, the discussion of trade secrets dances around the issues of human capital, knowledge sharing and technology transfer that come with running a multinational corporation.

Interestingly, one of the short term recommendations comes directly out of broader concept of intangibles and human capital. The report recommends the expansion of work visas (green cards) for STEM university graduates -- noting that many of these students are forced to return home after graduation:

Many of the 77,000 graduates who return home every year have knowledge of American intellectual property, gained in the course of their studies or in internships during their time in the United States. This intellectual property is of great benefit to foreign companies, enabling them to more quickly and effectively compete with American companies, both in overseas markets and even in the American market.

Thus, the work of the Commission is incomplete. A focus on fostering US of the intellectual capital is needed to expand on the Commission's work. I look forward to hearing about the formation of the Commission on the Fostering of American Intangible Assets.

Motorola Mobility officials said they see significant business logic to having a factory close to the engineers who are designing a new flagship smartphone and the customers they hope will buy it. Officials say it aids innovation while allowing for leaner inventories and lower shipping costs. "Doing that work of actually assembling the phone close to home will allow us to fix things faster, innovate faster," said Dennis Woodside, chief executive of Motorola Mobility, a division that was bought by Google last year for $12.5 billion.

Close relations and tight links between engineers, manufacturing and customers -- sound like a key relationship intangible asset. This is what is driving competitive advantage -- not what some politicians claim about low regulation and "business environment".

[Smithfield] has developed genetic strains that the company's annual report promotes as "the leanest hogs commercially available."
In the largest single Chinese purchase in the United States, that history and know-how will be absorbed into a firm that has its own global ambitions. Officials of Shuanghui, already the largest pork producer in a nation where pork consumption has exploded in tandem with national income, have said that they want to make their company one of the premier meat producers in the world.

The deal comes amid a record flow of investment by often cash-rich Chinese companies into the United States. While Chinese firms have taken over some well-known U.S. brands, including the AMC theater chain and IBM's personal computer business, the Smithfield acquisition is the first major foray into the food industry and the most significant in terms of a daily consumer item.
Thilo Hanemann, a Rhodium Group analyst who tracks Chinese investment in the United States, said the deal represents an emerging strategy of Chinese companies to buy up market-leading expertise -- whether the insight an AMC has into running a national theater chain or the skill Smithfield has in raising, slaughtering and processing pigs.
In many cases, he said, "Chinese companies are buying assets in the U.S. not to expand in the U.S., but to gain a competitive edge at home."

In other words, the Chinese economic strategy recognizes the importance of intangibles and knowledge assets as the drivers of competitive advantage. U.S. policymakers need to understand the same.

More important to me is the fact that these studies are being undertaken. This is a very fruitful line of inquiry and should help inform changes to corporate reporting, such as the International Integrated Reporting Framework (see previous posting).

Agencies such as the Bureau of the Census, Bureau of Economic Analysis, National Science Foundation, U.S. Patent and Trademark Office, and the Copyright Office should form an interagency group that, along with expert advisors, would study the advisability and feasibility of an ongoing and systemic national business survey of intellectual property. Like the Business R&D and Innovation Survey (BRDIS), the IP survey would include samples of businesses in the service and manufacturing sectors. It would probe uses (e.g., licensing) and holdings of intellectual property and costs of acquisition and maintenance. Because of the nature of the production of digital goods, including the prominence of user-generated content, the business survey should be complemented, if at all feasible, by a detailed consumer survey of user-generated content and use. This would include, among other things, measurement of the amount of production and distribution of digital content by non-business entities (i.e., by users), and also measurement of the consumption of such content by both business and the population at large.

Readers of this blog will know that I routinely call for better data on intangibles. As I pointed out recently in our analysis of the federal budget, government statistics are a key intangible asset. The importance of that data was highlighted in a Washington Post story on attempts by conservative activists to kill off a key government data collection activity. It is not just government programs and policy making that is tied to this economy data. Companies, such as Target use the data for key business decision.

Our need for more and better data is even more accute in the I-Cubed (Information-Innovation-Intangibles) Economy. As noted in our 2005 study Reporting Intangibles: A Hard Look at Improving Business Information in the U.S.:

American businesses, investors, regulators and policymakers are flying blind. The United States is now in an intangible economy, but financial reporting and accounting systems can't deal with intangibles. Our business reporting system is, in many ways, not even adequate for the Industrial Age, let alone the Information Age. As a consequence, business, investment and economic policy decisions are being made "in the dark" (to quote the title of a recent study).

The situation has gotten somewhat better--at least in awareness. Starting this summer, the BEA will start counting R&D as an intangible investment rather than an expense in the GDP data. On the company side, a group known as the International Integrated Reporting Council (IIRC) just released their Consultation Draft on the International Integrated Reporting Framework -- which includes specific breakout for intangibles: human, social and intellectual capital (see previous posting).

The National Academies' call for improved data on how companies treat their copyright and other intangible assets is one more step in the right direction.

So I repeat my questions from last month. Are we seeing a reversal of the historic trend of a growing labor force due to greater participation? Is a lower labor force participation rate the new normal? And what does that mean for future economic growth?

The National Academies' Board on Science, Technology, and Economic Policy (STEP) has just released a new report on Copyright in the Digital Era: Building Evidence for Policy. The report takes a step back from the copyright debate to ask the important question about what do we actually know about the implications of copyright policy.
Their answer is not encouraging:

This debate is poorly informed by independent empirical research. Although copyright law's efficacy and second order effects are largely empirical questions amenable to systematically collected data subject to transparent analytical methods, this type of analysis is too rarely conducted. Instead of asking, "What is the research-based evidence?" partisans tend to rely on claims of and evidence marshaled by stakeholders. This situation contrasts with the emerging pattern in patent policy discussions, where empirical research has begun to play an important role in the genesis and resolution of important policy changes and whose support is becoming institutionalized.

The report lays out a series of research questions and data collection efforts. Importantly, it spells out the benefits to all parties of an evidence-based policy approach:

With respect to changing incentives for creators, distributors, and users, research could help determine
    •  how the expenses involved in creative expression and distribution differ across sectors and the role of copyright in generating revenues to offset those expenses;
    •  under what circumstances sources of monetary and/or non-monetary motivation outside of that provided by copyright are effective in motivating creative activity;
    •  the motivations of various types of users and potential users of creative works, including both infringers and lawful users; the effects of enhanced enforcement remedies on promoting creativity, technological innovation, and freedom of expression; and
    •  how the costs of distributing creative content are affected by social media and other new technologies.

With respect to the enablers of and impediments to voluntary licensing transactions in copyrighted works, research would help determine
    •  the significance of transaction costs as barriers to utilization of copyrighted works;
    •  the extent of problems involving orphan works (whose owners cannot be identified), user-generated, content, and collaborative and iterative works;
    •  what are successful arrangements for managing transaction costs;
    •  the roles of public and private institutions in facilitating licensing;
    •  the relationship of transaction costs to legal rules such as compulsory licenses; and
    •  changes in transaction costs with new technological and business developments.

With respect to the enforcement challenges, research could help determine
    •  how much is spent by governments and private parties on copyright enforcement;
    •  against whom enforcement efforts are targeted and what remedies are sought and granted;
    •  the results of enforcement efforts in terms of compensation, prevention, education, and deterrence;
    •  how the effectiveness of enforcement efforts is changing with the expansion of digital networks;
    •  the costs and benefits of current enforcement methods vis-à-vis those associated with proposed new enforcement methods;
    •  the relative vulnerability of different business models to infringement; and
    •  the costs and benefits of fair use exceptions and the Digital Millennium Copyright Act (DMCA) safe harbors.

In assessing the balance between copyright protection and the statutory exceptions and limitations to copyright, research could help determine
    •  the costs and benefits of copyright exceptions and limitations in terms of the economic outputs and welfare effects of those individuals, businesses, educational institutions, and other entities that rely on them;
    •  how copyright and the various categories of limits and exceptions interact with innovative and/or disruptive technologies and platforms; and
    •  what adverse effects, if any, exceptions and limitations have on copyright holders and their potential to generate economic outputs and welfare effects.

Eventually, research will help inform decisions about key aspects of copyright policy, including
    •  the appropriate scope of copyright protection;
    •  the optimal duration of the copyright term;
    •  the best arrangements for correcting market imperfections that inhibit voluntary licensing;
    •  appropriate safe harbors and fair use exceptions to copyright;
    •  effective enforcement remedies for infringing use and the best arrangements for correcting deficiencies in enforcement mechanisms;
    •  the advisability of reintroducing a formal registration requirement; and
    •  the advantages and disadvantages of reshaping the copyright regime with different rules for different media.

In a time when much of our policy debate seems to be driven by ideological stances, the report's arguments for policy grounded in empirical research is a welcome change. I expect many of the partisans in the copyright debate will take issue with the National Academies' recommendations. That should not stop the rest of us from supporting the report's findings.

Thus, the data suggests a general and overall slowdown of economic activity in March. However, because the deficit declined in March, this should push the 1Q GDP number up in the next revision (as the deficit is a negative in the GDP calculations).

Just the opposite was true for our trade in intangibles, with economic activity expanding as both import and exports grew. But the intangibles surplus grew by only $29 million in March. Exports of business services rose slightly more than imports and royalty receipts (exports) rose slightly more than royalty payments (imports).

The story was also a little difference for Advance Technology Products - where the deficit declined by almost $1.6 billion with both exports and imports growing. The improvement in the deficit was due largely to a rise in aerospace exports. Exports also surged somewhat in electronics and in information and communications technology (ICT). The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

This general discussion of business investment highlights an ongoing problem with the GDP numbers. The statistics measure investment in various forms of tangible investments: structures, ICT equipment, off-the-shelve software, industrial equipment, transportation equipment and "other" equipment. It does not give us any guidance on investment in intangibles. So we do not know whether companies have increased or decreased their investments in important areas such as knowledge, human and organizational capital.

That is partly going to change soon. As I've also mentioned before, BEA is making a major revision in the GDP calculations later this year. Two of the big changes will help make the GDP data more accurate: capitalization of research and development (R&D)and capitalization of entertainment, literary, and artistic originals (movies, music, books, art work, etc.) Currently, both R&D and the cost of creating entertainment, literary, and artistic originals are treated as a direct expense. Under the new system, they will be treated as investments, as they should be since they have long paybacks not just immediate returns. As part of this shift, investments in these items will be specifically captured in the nonresidential fixed investment data. There will be separate data for software (now a subcategory of equipment), R&D, and entertainment, literary, and artistic originals. These changes will occur on July 31 with the release of the advanced estimate of GDP for the 2nd quarter of 2013 and will include revisions going back a number of years (in some cases to 1929). This should allow us to get a better picture of the I-Cubed Economy.

Note: the second estimate of 1Q GDP will be released on May 30. So today's GDP number is still subject to significant later revision.