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More European “Growth” Shenanigans

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09/30/2014

Europe got some good news in early June as the EU changed its statistical guidelines on how to compute GDP. Among other changes, expenditures on prostitution and illicit drugs (hookers and blow, colloquially) will now be included. Of course, some countries have been including these items for years. Back in 2006, the Greek government was able to increase its reported GDP by 25% overnight by including these items! The reason the Greek government made the change back then was to have more flattering debt and deficit to GDP figures than otherwise. We now know how that story ended. As Tim Harford recently brought to light about Britain´s Office of National Statistics´ (ONS) attempts to include some of these less savory expenditures into its GDP calculation:

The ONS has made valiant assumptions in estimating that 60,879 sex workers are each employed 1,300 times a year at an average rate of £67.16. If true, that is an industry big enough to allow every man in the country between the age of 15 and 64 to visit a sex worker every three months.

For government officials putting stock in GDP figures when drafting new policies, maybe it´s time to come to the realization that these numbers obscure more than they expose. (Cross posted at Mises Canada.)

David Howden is Chair of the Department of Business and Economics and professor of economics at St. Louis University's Madrid Campus, and Academic Vice President of the Ludwig von Mises Institute of Canada.

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