The U.S. economy grew by an annualized rate of 1.7 percent in the second quarter of 2013, according to gross domestic product (GDP) data released Wednesday morning. The Commerce Department says the rise stems from business investments, particularly in buildings, and an upturn in exports and the civilian aircraft industry.
While this was certainly great news with most analysts expecting a growth of 1%, it was Hollywood research and development, along with an accounting change that while announced in March, was finally implemented yesterday.
Continued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More
New method to calculate GDP
The Bureau of Economic Analysis (BEA) changed the method it uses to calculate GDP to better reflect the economic contributions that come from businesses investing in research and development and the creation of copyrighted works like films and television series. That’s right, all those horrible reality shows as well as true contributions that make for a lot of money, e.g. The Iron Man films that have grossed nearly three billion worldwide.
While some might argue that this is just an accounting trick, that is a shortsighted argument. While others will suggest that it’s just “Obama manipulating numbers to make up for his economic flailings,” that is weak as well. Every five years, the BEA looks at how the GDP is measured and makes changes where appropriate. In this case, they tracked back to 1929, and found 3% missing from the economy. Consequently, according to these new numbers, research and development and entertainment added $471 billion to the revised $16.2 trillion overall economy through the end of 2012.
R&P expenditure comparison
Compared to other countries, the United States is seriously lacking in its R&D expenditures. Due to this, the lion’s share of this found half-trillion dollars comes from film, television, literature and music.
The investment in films, television shows, literature and music produced by the entertainment industry was approximately $74 billion in 2012, and $75.3 billion in Q2 of 2013.
GDP failed to reflect monetary investments
Prior to this change, the BEA only measured downstream revenues produced by the entertainment industry. GDP failed to reflect the money invested on the production side. These productions are copyright protected and can be licensed for decades. Also when productions decide to film a movie or television show in a local community, they invest a great deal of money when they create production facilities, employ local workers as members of the cast and crew, and rely on local small businesses over the course of production. Finally this investment will be reflected in real GDP numbers.