Dismal indeed

Economics has been called “the dismal science,” a reputation it keeps working hard to earn.

For instance, the New York Times recently reported that because European countries are under the gun to reduce their debt, they are equally under the gun to produce rosier numbers for their national GDP, or gross domestic product, thereby lowering the debt to GDP ratio so beloved by their financiers. The GDP is a number that reflects a country’s total economic output. It makes no distinction between good activities—such as building bicycle paths where cars used to travel—and bad activities —such as closing them and reintroducing cars. What counts is the sum of the activities. To most of us, one take away one is zero. To an economist, one and then another one is two, even though what’s left behind may look like zero. (The merits of that exercise are a story for another day).

So the European Union is leaning on its members to disclose more figures about both the good and the bad activities that take place within their borders. Since both add to the GDP, economists don’t distinguish between the two. The good might include such transactions as charitable contributions and research and development expenses. The bad? Well, how about amounts spent on brothels and illegal drugs? “I thought it was a joke,” said a spokesperson for the Spanish National Association of Sex Clubs, when contacted by a government statistician to inquire about the average cost of the sort of transactions with which his organization is concerned. But it’s no joke: the economic value of the activites in relation to which the inquiry was made is estimated by that spokesperson at $27 billion a year, just in Spain.

Does this exercise suggest that economists are now going to be present at cocaine distribution meetings asking for inventory counts, or at street drug sale transactions demanding receipts? Will police have to postpone the job of apprehending criminals and intervene in order to provide economists with safe passage? Is it any wonder that economists tend not to be held up as role models for young children?

Aside from the data collection difficulty—and therefore potentially unreliable results (how many standard deviations should you include in your samples, for example?)— there are a couple of things about this GDP measurement exercise that puzzle me. One, hasn’t sex work traditionally been referred to the oldest profession? There can hardly have been an uptick in the Spanish economy as people all of a sudden thought: “I must do my bit to increase our GDP. I know what to do: I’ll visit a sex club for the first time.” Sin levels can’t have changed very much over the years, although the thoroughness with which they are counted might have. And surely, lenders are going to be smart enough to footnote any European financial statement showing a huge upsurge in GDP in 2014, knowing it comes from more aggressive counting.

Two, isn’t human nature pretty much the same all over the place? So why bother trying to count the level of sinful activity in every European country? Why not just measure a couple of representative economies? Well, surprise surprise: the report suggests that GDP tallies will rise by two per cent in Italy, Ireland, Portugal and Spain; by three per cent in Germany and France; and by up to four per cent in Britain. What’s so special about the Germans, French and especially the British? Are they more immoral than their neighbours? Does that really make them more deserving of increased debt limits? The spoilsports in all of this feverish counting are the French. They are refusing to include drug and sex trade activity in their measurements because they believe the activities should not be given the veneer of economic legitimacy. As well, some (obviously dullard) economists have pointed out that even if the debt to GDP ratios of European countries do improve as a result of measuring and including the value of illegal activities, so what? Because you tend not to be able to collect taxes from activities that are, well, unlawful.

Is any of this a challenge for Canada? It could be. Liberal finance critic Ralph Goodale claims that the economies of some 140 countries will grow at a faster rate than Canada’s this year. Does that mean the time has come to stand up proudly and say that we can sin with the best of them? This is Canada, where selling sexual services might soon be lawful, but buying them won’t. Will bond rating agencies cause our government to rethink its proposed legislation and make both sides of the transaction legal in order to keep our GDP up?

The dismal science, indeed.

dsimmonds@wellingtontimes.ca