The Region

The Untouchables - In Brief

Douglas Clement | Editor, The Region

Published December 1, 2005  | December 2005 issue

Getting a Grip

Ongoing research by Minneapolis Fed economists Ellen McGrattan and Ed Prescott reveals that conventional wisdom regarding productivity and stock market performance is impaired by incomplete measurement.

In five papers written over five years, they explore the importance of both intangible investment and taxes, finding that:

  • Outlays on intangible goods—such as research and development—are treated as an expense (not investment) in government statistics, leading to underestimates of output and value.

  • Changes in taxation of corporate profits and shareholder distributions have a large impact on equity value, accounting for most stock market trends in the United States and the United Kingdom.

The Untouchables [complete article]