Italian officials have decided to turn to things such as
prostitution and illegal drugs to save their economy. They are not making these things legal, but they are
including them in GDP figures now.
The office of national statistics in Italy previously
announced that it would begin calculating the country’s gross domestic product
to include illegal activities.
This is to include “drug trafficking, prostitution and smuggling
services (cigarettes and alcohol).”
There is no word yet on whether political bribes will also
be included in the GDP figures.
(Sorry, that is my sarcasm.)
Due to the change in calculating the statistics, it has
effectively taken Italy out of a recession. If GDP were calculated on the old, traditional basis –
meaning not including black market activity – then Italian politicians would
have to face questions about a recession.
But by including drugs and prostitution, there is no official recession
As a libertarian, I believe that drugs and prostitution
should be legal, as long as nobody is harming someone else. There should not be victimless
crimes. If someone steals money to
buy drugs, then he is guilty of stealing.
In addition, I believe that most black market activity is
legitimate. People are just trying
to avoid bad government laws. But
seeing the government trying to include economic activity for things it deems
illegal is just desperation. It is
blatant manipulation of the numbers to paint a rosier picture.
By counting drugs and prostitution, it doesn’t make the
average Italian’s life any better.
It doesn’t raise their standard of living by officially not being in a
recession. It doesn’t get anyone a
job. It doesn’t produce anything,
other than different numbers on a report.
GDP as a Measure of
I have had issues with using GDP as a measure for quite some
time now. It is a good measure of
the long-term success of a country or society, but it does not necessarily give
an accurate picture of what is actually happening in the present.
I have a good analogy for analyzing GDP statistics. Think about the spending habits of
different families, but don’t take their income into consideration.
For example, let’s say that one family spends $150,000 per
year. Let’s say another family
spends $50,000 per year. Without
knowing anything else about these two families, you can probably guess that the
family spending $150,000 per year is better off. They will probably continue to be better off in the
You might be wrong in this guess, but you will probably be
right in most cases. It is
reasonably safe to say that the family spending $150,000 per year probably has
a much higher income than the family spending $50,000. But there are exceptions.
But what about two different families that each spend
$150,000 per year? Just because
they spend the same amount, does this mean they are in the same financial
One family might earn a net income of $200,000 per
year. They are saving $50,000 per
year and have a considerable net worth.
The other family may earn a net income of $140,000 per year. They are running a deficit of $10,000
per year. They are accumulating
more debt each year.
These two families are currently spending the same amount,
but that doesn’t give you a good financial picture. You know they both earn far more than the average family
that spends only $50,000 per year.
However, the family that is running a deficit is probably
going to have to cut back soon.
They won’t be able to service their debt at some point. Meanwhile, the family that is saving
and investing an extra $50,000 each year will probably be able to increase
consumption at some point, even just with interest payments from their savings.
The GDP measure is very similar. It tells you about current economic activity, but it doesn’t
give you a good picture of savings and investment, which really are the key to
long-term growth and productivity.
The fact that Italian officials changed the statistics means
absolutely nothing, except that they are desperate for some good news. It doesn’t help the Italian economy one
These Italian bureaucrats should get a real job. At least the prostitutes are selling
their services on a voluntary basis.