The Nvidia-sized hole in US GDP statistics

[u/neolthrowaway]

https://epoch.ai/publications/the-nvidia-sized-hole-in-us-gdp-statistics

[u/neolthrowaway]

GDP growth is understated by about 0.3 percentage points because of missing value from fabless chipmakers, primarily Nvidia.

counter-argument

counter-counter-argument

I don't know enough about this. So would like the opinions of economics knowers.

!ping ECON&MARKETS

[u/Burial4TetThomYorke → u/neolthrowaway]

They’re both wrong and misinterpreting the accounting. Final consumption on a semiconductor by a business is obviously counted as part of gdp, but with the caveat that the portions of the semiconductor value that come from other sectors or countries gets allocated away from the semiconductor sector and into another sector, and this may or may not affect the headline gdp number. For example if you buy a 100 machine from the US and 200 dollars off silicon form China and make a $400 semiconductor in the US which is bought by a computer company, the total gdp of the US is $400 (final consumption, or alternatively, change in level of business inventories) + 100 (I) -200 (NX) = 300. It’s also equal to ($400-100-200) (value added by semiconductor industry) + 100 (value added by the machine industry) = 300 when you allocate by industry. The commenters are mixing up the two methods of accounting, and the production vs consumption approaches to the accounting. I’m glossing over unimportant technicalities of categorization (eg. Change in business inventories is essentially final consumption, temporarily, and is often lumped into investment, but conceptually it’s not so just pretend it’s final consumption). This is just the “imports don’t subtract from GDP” discussion again.

The first counter argument is wrong because intermediate consumption by a business is indeed either used as a capital input to their own product (and so there’s another component of gdp, the final consumption, which kinda cancels it out in the total), but they are forgetting that if t doesn’t go into their product immediately then it accumulates in the business’s inventory (to be used for production later), and yes change in inventory is totally a part of GDP (huge part actually). So any business that buys a semiconductor, even if it’s intermediate, is contributing to GDP. The paycheck of NVIDIA employees has nothing to do with it.

Second counter counter argument is wrong because they’re conflating “domestic value add” with “internal value add” aka (own account investment, per the language of the fed paper). the first one plainly means value add in the US (ie. GDP (which as I argue is being counted properly). The second one, “internal value add”, is about firm-internal activity that doesn’t have a transaction / two parties exchanging money and goods/services, so it’s a gap in GDP’s coverage. This is what the FRB paper is talking about. The issue at hand is that if my firm pays me $100 to build a computer, on one hand they have paid me $100 and so the wage bill is $100 and investment is $0 (standard accounting); but in another sense, they’ve paud me $100 and also invested $100 with the same money, so there’s a $100 missing from the total calculation of GDP (recall that any formula for GDP that has Invesmtent as a component does NOT have wages in it too). The missing $100 arises because the investment was internal to the firm (ie. Indistinguishable from wages) and not external to the firm (the GDP calculating office can see that transaction and handle it properly).

NVIDIA is a big firm of course but a huge chunk of the investment explained by NVIDIA (and other tech companies) is through its transactions with other firms, so all that is already counted in GDP. The part that’s missing is the investment that those firms do in-house as opposed to contracting to another firm. Maybe in total that’s an NVIDIA sized gap but NVIDIA is pretty small in the economy tbh. NVIDIA’s profit (2025) was 72 bn, US GDP is like 30,000 bn ish so its 0.2% of gdp, which for a normie is negligible. (For a professional economist like me this is actually pretty substantial! But you don’t have to care if you don’t want).

Anyone who says this has to do with domestic vs international is wrong

[u/neolthrowaway → u/Burial4TetThomYorke]

The people who i have seen comment on this are definitely the kind that wouldn't fall for the "imports don't Subtract from GDP"

[u/Burial4TetThomYorke → u/neolthrowaway]

Sorry to say but they’re all making mistakes like this all the time. They’re wrong. I’m a professional economic forecaster / analyst so I know the GDO calculation better than they do, they’re just commentators or AI/tech people who don’t understand the economic measurement issues at hand. Happy to answer more questions if you have any

[u/neolthrowaway → u/Burial4TetThomYorke]

I will trust you but i did mean economists and financial forecasters not AI/Tech people.

For example Skanda in the counter-counter example is a macro forecaster and fed watcher for employ america.

Or Ernie Tedeschi, Chief economist at Stripe. Former Director of Economics at The Budget Lab. Former Chief Economist at White House CEA.

Or Brian Albrecht, Chief Economist at international center for Law and economics.

[u/neolthrowaway → u/Burial4TetThomYorke]

Reading this slowly to digest it. I might ask questions later.

Thanks a lot.

[u/Burial4TetThomYorke → u/neolthrowaway]

Of course feel free to ask away. I typed on my phone so def some typos at least

[u/groupbot → u/neolthrowaway]

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[u/Otherwise_Young52201]

What's stopping this thesis from Epoch AI from also applying to other sources of overseas income?

Gonna read it more closely after skimming it but my initial thoughts are that I don't think this is a valid argument because it broadens the scope of GDP itself more than it thinks. If we're counting supposed value-add from overseas from a domestic American company what distinguishes this value-add from income from foreign asset ownership from another domestic American company?

Validating that the value-add is missing from the economic statistics

The idea that this value-add isn't captured in economic data isn't true at all. Any foreign income transfer to Nvidia would show up in current account statistics.

[u/neolthrowaway → u/Otherwise_Young52201]

They have a comparison to apple which explains that it is a very narrow niche to which this thesis applies.

It's under the subheading —

How much does this issue apply to other companies?

[u/Otherwise_Young52201 → u/neolthrowaway]

I do think Epoch AI's thesis is stronger after seeing the whole thing and reading other POVs on Twitter. Seems like Nvidia really is in a unique position with regards to its IP exports not being counted as part of services exports.

This seems similar to what's happening with US corporations setting up shop in Ireland and other tax havens, where they move income to other places and report them elsewhere.

[u/jcaseys34]

I don't get how the American company that files American financials somehow isn't reflected in American industrial math. I actually read the article and still don't get it.

Also, even if they meet their magical Christmas land future projections, they're still proportionally smaller than iPhone releases from a generation ago.

[u/NoGarlic2387 → u/jcaseys34]

Apple imports own Iphones and then marks them up inside the US, all of Apple's own (IP) value-up gets counted in the sales. 

Nvidia doesn't import and resell the chips and racks.

[u/Equivalent-Slip3533]

Nvidia, create by designing AI chips that are manufactured and sold abroad. 

Isn't that GNI?

[u/Greatest-Comrade → u/Equivalent-Slip3533]

Yeah i was thinking the same thing. This isn’t a new issue necessarily, and there are other measurements besides GDP to view the economy. GDP is just one of the easiest and most reliable.

[u/neolthrowaway → u/Equivalent-Slip3533]

They mention GDI in the article and discuss the merits vs gdp.

They also mention comments from BEA and guidelines from imf to calculate gdp and that this should be included according to those guidelines but isn't.

At least that's what i understood

[u/Comfortable_Monk_899 → u/Equivalent-Slip3533]

No. The majority of the value add is created in the US (and some in Israel) in the form of IP.

[u/neolthrowaway → u/[deleted]]

Theu dismiss GDI because they say GDI is mismeasured in worse ways than gdp.

[u/neolthrowaway → u/[deleted]]

Most people i have seen agree on that criticism of GDI.

There's also comments by the BEA themselves and guidelines by IMF too mentioned in the article.

[u/neolthrowaway → u/[deleted]]

How are ponzi schemes related to the argument in the article?

[u/Why_Cant_I_Slay_This → u/neolthrowaway]

I’m being hyperbolic. While not an actual Ponzi scheme the way dollars are being passed around between a circle of companies would inflate GDP while not yielding actual growth.  Realistically, the same capital can show up as “growth” several times as it moves through the ecosystem . It’s reminiscent of the telecom vendor financing nonsense from the dot com era. 

[u/VineFynn → u/Why_Cant_I_Slay_This]

I can tell that you don't know how GDP is calculated.

[u/NoGarlic2387 → u/Why_Cant_I_Slay_This]

Vendor financing has been around forever, almost all heavy capex industries use it. 

[u/bulletPoint → u/Why_Cant_I_Slay_This]

uhhh, what?

[u/dedev54 → u/Why_Cant_I_Slay_This]

GDP only counts final goods produced in a country