Intellectual property products (IPP) such as software, patents, and original artwork have become a much larger share of the capital stock over time. Our FRED graph above shows that the IPP share of the current-cost capital stock rose from 5.6% in 1980 to 14.5% in 2023.

A unique feature of IPP is that it depreciates much faster than traditional capital. IPP isn’t usually subject to the physical depreciation from wear and tear that affects buildings, computers, and equipment. But it is subject to obsolescence from new technological innovations. A competitor’s innovation can quickly render a patent or algorithm irrelevant.

The Bureau of Economic Analysis (BEA) assumes that software, for example, depreciates at a rate of 33% per year, which is much faster than physical wear and tear.

Our second FRED graph above shows annual depreciation for equipment, structures, and IPP as a share of the current capital stock. Depreciation of structures (orange dashed line) and equipment (blue solid line) have remained stable over time, at around 3% and 13%, respectively. Depreciation of IPP (green dotted line) was 24% in 2023.

In short, this faster pace of growth and depreciation of IPP implies that more investment is necessary to maintain the current capital stock.

How these graphs were created: All these series are in millions of dollars, not seasonally adjusted. First graph: Search FRED for and select “Current-Cost Net Stock of Fixed Assets: Private: Intellectual property products.” Click “Edit Graph,” use “Customize data” to search for “Current-Cost Net Stock of Fixed Assets: Private: Nonresidential,” and click “Add.” Input the formula a/b and click “Apply.” Second graph: Search for and select “Current-Cost Depreciation of Fixed Assets: Private: Nonresidential: Equipment” and follow the same steps as above, dividing by “Current-Cost Net Stock of Fixed Assets: Private: Nonresidential: Equipment.” Use the “Add Line” tab to add the next two series and their divisors: “Current-Cost Depreciation of Fixed Assets: Private: Intellectual property products” / “Current-Cost Net Stock of Fixed Assets: Private: Intellectual property products” and “Current-Cost Depreciation of Fixed Assets: Private: Nonresidential: Structures” / “Current-Cost Net Stock of Fixed Assets: Private: Nonresidential: Structures.”

Suggested by Cassandra Marks and Hannah Rubinton.