Economic Measurement: Progress and Challenges

Abstract

The national income accounts, together with the source data which they use, form the core of our economic measurement system. The development of the concepts and measurements of national income are among the most important achievements of modern economics, replacing the older notions of national wealth of the physiocrats and mercantilists, for example. Is national income and product, confined to market activity, the appropriate fundamental concept? Yes, but we ask a lot of national income and product accounting. It is used, most importantly, to gauge economic progress. How much better off are we than our parents or grandparents? Is the economy growing adequately, slowly, or rapidly in recent years? And, are we at a cyclical turning point? The information requirements, of course, will differ depending on the question. Gaps in inventory measurement may be an appropriate resource claimant to those interested in cyclical issues whereas finding, identifying, and incorporating new products and quality change more rapidly may be far more significant to long-term economic growth. We also tend to have a survivor selection bias in our concern with the speed with which new ideas and concepts are incorporated into the national accounts and other data series. Superlative indexes, hedonic regression methods for quality change, and many others were much more obvious after some years of diffusion throughout the profession than at their inculcation. As a result, the gap between major suggested improvements and their adoption by statistical agencies can be extensive, often decades (Erwin Diewert, 1999). Should national accounts be extended to nonmarket activity? Nonmarket work time is perhaps the most important area for supplemental information. Natural resources and the environment are close behind (William D. Nordhaus and Edward Kokkenlenberg, 1999). R&D capital, environmental capital, human capital, and other intangibles are high-priority items but should be dealt with in the form of satellite accounting, so I applaud the BEA’s recent initiatives in this direction. I come to this conclusion for a variety of reasons, not to suggest that technological capital and human capital are less important than tangible capital. In fact, perhaps quite the opposite, they are all complementary (Boskin and Lawrence Lau, 2000), but the issues in definition, classification, and measurements are still more problematic for these items than for traditional items, and therefore I believe they should not be added directly to the National Income and Product Accounts (NIPA). In short, my own view is that substantial improvements can and should be made in the traditional domain of the national accounts. Improvements in the core national accounts should not be sacrificed to a proliferation of satellite accounts. In principle, we should do both, and sufficient resources should be provided to accomplish these tasks.