Thursday, July 10, 2014

More Economic Illiteracy from the New York Times

I’d have more time to enjoy life if I didn’t feel compelled to correct gross economic errors in places like the New York Times.  I try to give it a day, but if someone else like Dean Baker doesn’t stomp on it first I have to do my bit.

Today’s absurdities can be found in an article about the EU’s push to measure the underground economy—stuff like prostitution and drugs—to improve their estimates of the region’s GDP.  (They’re also switching to a reclassification of R&D expenditures, something the US has already done.)  Actually, in many of their national economies large swaths of the vice trade are fully legal, tastefully zoned, and not underground at all.

Anyway, gross error number one is the claim that, by doing a better job of measuring commercial sex and drugs, statistical agencies will give the impression that economic growth has improved—that this is even their motivation.  No, no, no!  It’s not like that at all!  There will be a footnote in the GDP tables explaining that coverage changed between one quarter and the next.  In fact, they’ll put out two tables side by side, one with the change, the other without.  That will continue for a year or two, even longer if they can’t put together a methodology to extend the new computation back in time.  Sure, some rubes will try to compare numbers from one table to another, not bothering to read the small print, but econoblogging guard dogs like me will give them hell for it.

In fact, I’ll give the New York Times hell for it if they print an article a year or two from now saying that EU GDP shot up, when it was just a change in the methodology.

Then the second blooper is the discussion in the latter part of the article about whether including sex and drugs (without rock ‘n roll, a travesty) will make GDP a worse measure of well-being.  Huh?  GDP is not a measure of well-being.  No one—no one!—in the statistical agencies goes through the expenditures item by item and screens them for whether they make the world a better place or not.  I mean, nuclear weapons are included in GDP.  (They’re entered at cost.  The demand price would be much higher—ask international terrorists or James Bond villains.)  GDP is about how much money is flowing through the economy to produce and purchase goods and services.  That’s something you might want to take into account if you’re looking at the broader picture of how a country is doing, but mainly for a sense of whether the macroeconomy is on track.  Every introductory textbook, even the bad ones (i.e. not mine), say this.

Sorry for the rant, but now the world is back in balance.  The New York Times has disseminated BS and I’ve complained about it.  Life remains normal.

1 comment:

Anonymous said...

Well, the lunatic fringe (eg H Daly, Constanza, ad nauseum) have suggested one could include things like 'natural capital' (and others 'social capital---eg Bowling Alone which counts less than Bowling Togther---its nonlinear). Others have suggested including 'women's work' (the part of men's work allocated to household furnishing, which helps produce children, cleaning etc.) into GNP.

So, why not include in the 'underground economy' besides paid sex work, the unpaid sex work too. Everyone could fill out a form included in their IRS return, explaining how much sex they performed at home or in the park, and then rate its quality and assign a price. By the SMD theorem, you'll get a unique solution --- and everyone is unique so there's 1 for everyone. Set the price.

I'd also add the 'sound of silence' (old song) to GDP. While one can always shift the axes, and translate intermediate goods into final goods, and 'bads' into goods', maybe 'silence' should have a value----'don't write it down'. (I did see on Boston Review a discussion of technology and progress---'one laptop, one child', one cell phone etc.
I guess jihadi webstie are a contribution (they also call the
OLOC idea of negraponte a different name some places).