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The economics team at Goldman Sachs has made another run at trying to determine whether official statistics are undermeasuring America’s rapidly evolving digital economy. The bank now believes even more strongly that “technological change is not fully reflected in the real output statistics.”
From a bottom-up perspective, there’s all that missing growth from free digital goods. From a top-down perspective, Goldman economists note that the “growth of domestically generated profits and incomes (GDI) is outpacing that of GDP, a departure from earlier decades” and that “US profits generated in tax havens totaled over $300bn in 2018, some of which represents unmeasured domestic production.”
And a bit more detail here (bold by me):
For free digital goods, we average across the three approaches explored above to form our baseline. Importantly though, in the case of Brynjolffson et al. we exclude all consumer surplus generated by search engines and email (to avoid misattribution); we also assume that on average only a third of US consumers derive the associated consumer welfare estimates from these activities, to avoid overstating the impact for the population as a whole. With respect to business capex in information technology, it is worth noting that the broad importance of ICT output in the economy continues to grow, despite the decline in business investment in hardware. Our estimated contribution from business ICT reflects the value-added share of the various high-tech industries, which show a fairly stable share for the computer and electronic products industry but a sharp increase for other technology industries.
In our central estimate, we estimate that the pace of annual real GDP growth is understated by around 1.0pp of GDP, up from 0.5pp in 2005 and 0.3pp in 1995. While the results contrast with Moulton’s finding that mismeasurement has actually declined—to 0.47pp today in PCE terms vs. 0.95pp in 1996)—the results are not directly comparable. Central issues such as healthcare quality, software quality, smartphone services and free digital goods measurement, and profit-shifting are not explicitly addressed in Moulton’s analysis.
Our results also suggest that nearly half of the slowdown in measured productivity growth since the financial crisis can be explained by measurement issues. We caution that the uncertainty around our estimates is large, particularly that pertaining to free digital goods and healthcare consumer inflation.