Sex, drugs and GDP

Whoa! What’s this?

The US economy didn’t advance last quarter. Instead, it retreated at a 1% annual rate. The numbers were revised downward at the end of last week.

But who cares? We live in such a strange and exotic era. Threats of war, threats of recession, threats of twerking, it doesn’t seem to matter what happens. As long as the Fed is standing behind it, the stock market stays up.

It went up a little bit on Friday, despite the shrinking economy, while gold dropped another $11, to close under $1,250.

Besides, commentators said the fall in GDP was a fluke. Consumers were still spending more (though not earning more), and the weather was bad… blah, blah, blah. The BEA, who keeps track of these things, says it was the drawdown of inventories that caused the backpedalling. And who knows? Maybe next quarter will show strong growth. Or not.

But here’s a suggestion that we guarantee will get the GDP going: follow the lead of the British. They’ve got the imagination it takes to get GDP up.

We’re not talking about new inventions, innovations, apps or breakthroughs. No, we’re talking about simply jiving the statistic until you get figures you want.

The changes wrought by Britain’s statisticians will add about $15bn to the UK’s GDP or as much as 5% more.

And this is real GDP, not the phoney GDP conjured up by US tricksters. America’s number crunchers use cockeyed ‘hedonic’ adjustments (in which they imagine that things cost far more than you actually pay for them), and ‘homeowner’s rent’ (in which they claim you pay rent to yourself to live in your own house), and other assorted fudges.

The British have a better way.


Bill Bonner on markets, economics & the madness of crowds

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According to our source, the Financial Times, “each one of the UK’s roughly 60,879 prostitutes took about 25 clients a week in 2009, at an average price of 67.16 pounds sterling”. We don’t quite get the meaning of ‘roughly’ in that sentence. It appears to modify a precise number. Perhaps it refers to their way of doing business.

No matter, the Brits have identified a service industry. They’ve measured its length and girth. And now they adjust the national accounts to reflect actual output.

But they didn’t stop there. The Office for National Statistics also said that the nation has 38,000 heroin users. Sales of the drug are big business, with the street price of a gramme at about $50.

This bold new way of charting the accounts represents a major opportunity, especially for places such as Baltimore. We have seen no official figures. But our private estimates tell us that a substantial part of the city’s real GDP has never been reported. Drugs and prostitution are big industries here; the city should get credit for them.

Baltimore’s unofficial motto is “The city that invented crack”, which is a source of great local pride. Some residents maintain that prostitution, too, was invented in Baltimore, but that claim is disputed.

Between the two vices, we could be looking at a 20% increase in GDP. And if other drugs – marijuana, for example – were added, along with illegal gambling, illicit pornography, bribery, racketeering, larceny, and other paying propositions in the underground economy, we would expect to see nearly a 40% boost.

And keep in mind, these are growth industries!

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