In particular, more and more value is being created by the service industries. This category lumps together relatively low-value services like hairdressing with high-value “intangible” ones – or “weightless” activities, as I’d prefer to call them – such as computer software, telecommunications, biotechnology advances and entertainment.In his recent testimony to the Senate budget committee, Mr Greenspan discussed the findings of the Boskin committee. This group of economists concluded that the failure of the consumer price index to take account of improvements in quality in items such as computers and other electronic goodies means that US inflation has been overstated by a full percentage point. Follow-up work by economists at investment bank Kleinwort Benson in London concludes that the bias is no different in the UK.Professor Danny Quah of the London School of Economics, an expert on weightless economics, says: “The measurement point on relative upwards and downwards biases is just something that has got to be right.

Much less clear, for now, is what these magnitudes are: economic reasoning tells us the sign, but no more.”If prices have been overstated, that means the real value of output has been understated. For real growth is calculated by adjusting the easily measured nominal value of output for price inflation.The Federal Reserve Board has looked into whether published price, output and productivity figures actually make sense. In his testimony the chairman reported that the figures for real output and productivity in the service sector of the economy were implausibly weak. They indicated falling productivity, or output per hour, in services at a time when the returns to owners of service businesses had been steady. It makes no sense to think that services have been getting less and less efficient for the past 20 years, Mr Greenspan argued.The mis-measurement of prices would appear to be the most likely explanation of the anomalies.

It would answer the well-known quip of economist Robert Solow that “you can see the computer age everywhere but in the productivity statistics”.The Fed chairman believes there could be more big gains in productivity to come from computers, drawing the analogy with the spread of electric motors. These were a well-known technology in the late 19th century but were used as one part of steam-driven production systems. It was not until factories gradually converted from vertical processes last century to horizontal ones in the early 20th century that companies began to replace steam with electricity. Businesses do not take the fullest advantage of new technology until they replace existing factories and machinery.Mr Greenspan made it clear that he was not trying to argue that if inflation was lower and real output higher than we have all thought, then there is no need to worry about inflation. Changing the measurements would also raise the estimate of the economy’s potential output growth, so the Fed still needs to worry about how close to capacity business is operating.But some of the policy implications of inadequately measuring weightless, or intangible, activity are spelt out in a new paper from Britain’s Office for National Statistics.

The paper points out that while there has always been a dimension of weightlessness to the economy, it has increased recently. Statisticians have had difficulty keeping track.Some experts have suggested re-classifying activities as manufacturing, services and information, as opposed to just manufacturing and services. Manufacturing involves physical goods, services a clearly linked transaction between a provider and a consumer. The ONS paper lists the unique characteristics of the information sector arising from the weightlessness of its output Information output can take variable forms. There need be no direct contact between provider and purchaser, and the location of the economic activity is uncertain Its value does not lie in its tangible properties It is easy to copy and easy to distribute. Distributors can easily add value to it.It is clear that this is nothing like the sort of economic output we are used to thinking about. In many ways it resembles classic public goods such as defence or education, which share some of the same characteristics.