Stagnation and Recession of Measurement

We are living an era of frustration. Despite the broad set of measures undertaken by central banks and governments around the word and the daily effort of firms and workers to innovate, we are seeing now recession risks to join the top list of most debated topics together with secular stagnation and Eurozone crisis. With a world Gross Domestic Product growing at 3.1% in 2015 – the lowest level since 2009 – these concerns get reinforced.

There no unique cause that can explain the widespread arise of lackluster data. One piece of the puzzle is definitely the issue related to the widening conflict between the measurement of national income and the expansion of the service sector. In a recent column on Voxeu, Diane Coyle in a piece with title “Digitally Disrupted GDP” reminds us of the serious problem GDP data have in capturing fully productivity growth coming from information technology-based services like on-line retailers as well as digital products. Prof. Coyle correctly notices that measurement problems have always troubled judgements based on GDP statistics because, for instance, homework is not accounted as contribution to the national income. Whereas housewives got a job over the years, the problem this time is that the economic activities ignored by GDP statistics – as zero-priced digital products and blogging – are getting a more and more important role in modern economies.

Statistical agencies constantly work to improve the measurement of the national account data through revisions of accounting methodologies, like the recent one that recalculated R&D expenditures as investment. The measurement problem will be fixed, but I worry that the current inaccurate GDP data will motivate misguided policy responses and induce unmotivated pessimism in financial markets.