The way GDP is calculated has been revised. See this graph and explanation as to how much has been added and why...Good Stuff!!

My blogosphere friend The New Arthurian Economics has this graph comparing the old method (Blue Line) of calculating GDP to the new one (Red Line).  The biggest change is classifying Research and Development spending (in business and entertainment ) from an expense, which is not counted in GDP, to "fixed investment" This mostly mostly affects the "I" in our GDP equation = C+I+G+N(x), but there is some impact on "C" as well. This recalculation results in a new, higher level of GDP than previously calculated.

In short, some things, tangible and intangible, that used to be considered as a one time expense and not counted in GDP are now considered to be an integral part of the on-going value of the finished good or service.

Source: The New Arthurian  Economics

Here is the link to the Bureau of Economic Analysis breakdown of the changes. It is in PPT form so it is relatively easy to scroll through to get the gist of the changes.

Here are the major changes as mentioned in the above link:

1. Expenditures by business, government, and nonprofit institutions serving households (NPISH)for research and development (R&D) are recognized as fixed investment. The new treatment improves BEA’s measures of fixed investment and allows users to better measure the effects of innovation and intangible assets on the economy. 

2. Similarly, expenditures by private enterprises for the creation of entertainment, literary, and artistic originals are recognized as fixed investment, further expanding BEA’s measures of intangible assets. 

3. In the NIPA fixed investment tables, a new category of investment, "intellectual property products," consists of research and development; entertainment, literary, and artistic originals; and software.

Great video here of a modern TESLA auto manufacturing facility. Time to play "I spy with my little eye an auto worker"...

Terrific video showing the manufacturing process for the Tesla.  Any worker you see appears to be more facilitator than craftsman.

I see lots of jobs here but they are largely unseen.  They are behind the scenes programming and maintaining the real labor force that largely builds cars--the robotics.  Jobs that need (for the most part) brain/analytical skills as opposed to physical/skill tradesman skills.

Manufacturing is healthy, but manufacturing jobs are transforming from a tool based economy to an i-pad based one.  A bit of exaggeration...OR IS IT???

Economy, Indiana..Firewood, Rabbits and Corn and Corn and Corn....

Here I am in Economy, Indiana.  It is just Northeast of Indianapolis.  Most definitely Corn Country.  The only businesses I saw as I passed through was a place that sold firewood ("Firewood For Sale: Govt Approved") and one that advertised "Rabbits for Sale".


Here is my daughter, Laura, standing at the edge of a field.  Think it is about harvesting time.

From Wikipedia: 2010 census 

As of the census^[2] of 2010, there were 187 people, 73 households, and 47 families residing in the town. The population density was 1,870.0 inhabitants per square mile (722.0 /km²). There were 89 housing units at an average density of 890.0 per square mile (343.6 /km²). The racial makeup of the town was 98.4% White and 1.6% from two or more races. Hispanic or Latino of any race were 2.1% of the population.

There were 73 households of which 31.5% had children under the age of 18 living with them, 50.7% were married couples living together, 11.0% had a female householder with no husband present, 2.7% had a male householder with no wife present, and 35.6% were non-families. 28.8% of all households were made up of individuals and 15.1% had someone living alone who was 65 years of age or older. The average household size was 2.56 and the average family size was 3.17.

The median age in the town was 38.6 years. 25.1% of residents were under the age of 18; 7.5% were between the ages of 18 and 24; 27.3% were from 25 to 44; 27.4% were from 45 to 64; and 12.8% were 65 years of age or older. The gender makeup of the town was 48.1% male and 51.9% female.

Coming and Going: The number of retirees exiting the labor market is greater than the number of people entering the labor market. This can't be good, can it???

Highlighted above are the number of "Retired Workers" (only) in January 2012 and in June 2013. If you subtract the two, this will give you the number of people who officially retired and may or may not have left the workforce between those two dates.  I will presume they left the work force for this exercise.

37,504,073 minus 35,752,299 = 1,751,744.  To get a monthly average, divide that by 18.

This means 97,320 people, on average, are exiting the labor force each month to retire.

From January 2012 the Labor Force went from 154,356,000 to 155,798,000 (see highlighted numbers below) ---an increase of 1,442,000.  To get a monthly average, divide by 18.  The Labor Force is the sum of the number of employed PLUS the number of unemployed, as defined by the BLS.

Source: BLS

Divide that by 18 months and the average increase in the labor force each month was 80,111.

This means 80,111 new people, on average each month, entered  the Labor Force in the past 18 months.

Just using these two major pieces of data on labor market movement, we can easily see more people are exiting the Labor Force, on net, than are entering.

This is one of the contributing factors to the decline of the unemployment rate in the past 18 months. The job creation alone we have experienced is not enough to credit the decline.

I hope this helps provides some clarity regarding this important issue.

Nice current event example illustrating a Negative Externality. Water treatment plants in England are polluting the waterways

Here is a current and relevant example of a market not taking into account "Negative Externalities" in the production of a good.

If the production of a good imposes a cost on others that is not paid for by the producers and/or the consumers of that good, then it is said to have created a negative externality..  To correct for this externality the government can internalize that cost by imposing taxes or penalties on either the producers or consumers of the good.  This will "internalize the external cost" of production and consumption of the good.

In the example below, water treatment plants are pouring refuse into the public waterways for "free" instead of paying for proper clean up of that refuse by installing the equipment necessary to clean it.  The dirty water is polluting areas that others use for recreational or other purposes.

The article suggest the fines are not high enough for the polluters to changer their behavior.  The fines are cheaper to pay than installing the necessary equipment.

Revealed: how UK water companies are polluting Britain's rivers and beaches  Utilities face 'pitiful' fines despite huge profits, with sewage spills cited as causing particular distress

""The most persistent and frequent polluters of England's rivers and beaches are the nation's 10 biggest water companies, an Observerinvestigation has revealed. 

The companies, which are responsible for treating waste water and delivering clean supplies, have been punished for more than 1,000 incidents in the past nine years, but fined a total of only £3.5m. 

The revelations have raised concern that the financial penalties are far too low to change the behaviour of an industry that generates billions of pounds in profits and shareholder dividends. The charge is backed by the Sentencing Council for England and Wales, which is proposing major hikes in penalties. 

Pollution incidents, which have included sewage illegally pouring into a harbour for more than a year, and managers destroying records, show no sign of declining, according to data obtained from the Environment Agency (EA) under freedom of information rules. Only a third of the 1,000 incidents led to a fine (of an average of just £10,800); the rest resulted in cautions.
"In law, the 'polluter pays' principle is supposed to deter companies from damaging the environment, but in this case the penalties appear to be so pitiful that water companies seem to be accepting them as the price of doing business," Joan Walley MP, chair of the Environmental Audit Committee (EAC), told the Observer. "The sentencing council must ensure that courts take into account the profits made from environmental crimes, and that fines have a sufficient deterrent effect."""

Here is a PowerPoint I created to show how this plays out in a supply and demand graph.  Key concept in AP Microeconomics!!

Social Welfare Analysis---Negative Externalities

Uploaded by Gene on WizIQ Tutorials