News You Really Need To See: “Counting Drugs and Prostitution in GDP Makes a Mockery of Budget Rules”

“Counting Drugs and Prostitution in GDP Makes a Mockery of Budget Rules”

Bloomberg Businessweek, May 23, 2014

The news that Italy plans to include prostitution and illegal drugs in gross domestic product sounds like a joke. But it’s not just an Italian initiative.  New European Union rules require member states to include in GDP the value of all income-producing activities, including prostitution, the production and consumption of illegal drugs, and black market sales of cigarettes and alcohol.  The beauty?  By counting prostitution and drugs in output, Italy will raise its GDP and thereby lower the ratio of debt to GDP, which will make it easier to comply with European Union rules on indebtedness.  The same will go for other countries. … Governments of European Union members are not supposed to let their annual deficits exceed 3 percent of GDP or accumulated debt exceed 60 percent of GDP. … Countries outside the European Union that want to make their economies look larger may want to follow suit.  Italians have no monopoly on drugs and prostitutes.  According to research by two Turkish economists, Ceyhun Elgin and Oguz Oztunali of Bogazici University in Istanbul, the shadow economy (not just drugs and prostitution) averages just under 18 percent of GDP in OECD and EU countries.  It’s 42 percent in Latin America, 37 percent in post-socialist countries, 32 percent in the Middle East-North Africa region, 43 percent in sub-Saharan Africa, and 33 percent in Asia, by their estimates.”

Quickie Analysis:  Well, that’s one way to achieve economic growth.

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