What we’ve learned since we developed national income and product accounts before World War II is that growth can work through accumulation (Solow), that growth is far more important for welfare than business cycles (Lucas), and that ideas are more important for growth than capital (Romer).
If our NIPAs reflected this, how would they change? Brian Domitrovic:
The key to Mr. Romer's analysis is that ultra-developed economies tend to have a high and rising degree of non-depreciable capital. Driving production in these economies are increasingly fewer machines—which wear out, must be serviced, and replaced—in comparison to "book knowledge"—the formula for a drug, computer code, a distribution system—that does not depreciate at all. Therefore, ultra-developed economies come to devote fewer resources to maintaining the capital stock and more to actual production.
In light of the new growth theory, a good portion of what counts as output—fixing all those old machines—should be minimized in the aggregate output statistic, just as development of non-depreciable capital, in which the U.S. specializes, should be given extra weight. In recent years, America has been doing far more than Europe to create permanent (not to mention sharable) capital goods, and this fact at present is not captured in GDP.
Don’t even get me started about China. They’re putting up huge growth numbers based on stuff that no one else wants to do, in a system that’s rigged to measure those things from the age when we were interested in doing them. And yet people worry about that.