Bloomberg reports that Italy will now begin including its shadow economy in the country’s GDP, in an effort to reduce the national deficit:
Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.
Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said.
In Bloomberg BusinessWeek, Peter Coywrites an excellent piece on the Bureau of Economic Analysis’s upcoming revision of Gross Domestic Product measurement. That may not sound very interesting but Coy does a great job showing the macro and micro angles. To wit:
On July 31, the U.S. Bureau of Economic Analysis will rewrite history on a grand scale by restating the size and composition of the gross domestic product, all the way back to the first year it was recorded, 1929. The biggest change will be the reclassification—nay, the elevation—of research and development. R&D will no longer be treated as a mere expense, like the electricity bill or food for the company cafeteria. It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine. In another victory for intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.
The U.S. generates a disproportionate share of its wealth from the likes of patents, copyrights, trademarks, designs, cultural creations, and business processes. To see the intangible economy in numbers, look at Apple’s (AAPL) balance sheet: Property, plant, and equipment, those traditional forms of wealth from the industrial and preindustrial eras, account for $15 billion of its $400 billion market value—just 4 percent of the total. They’re only 7 percent of market value at moviemaker Time Warner (TWX) and drugmaker Pfizer (PFE).
We watched some of the Diamond Jubilee celebration and loved it. The only disturbing part was to see media comments that the U.K. would have been better off if people hadn’t had the Monday holiday for the Jubilee (much less the Tuesday holiday that some workers also had). The argument was that GDP would have been higher without the holiday.
Perhaps, but workers often make up for lost output when they return from holiday. Much more important is that no nation’s purpose should be maximizing output (and income). Instead, maximizing utility is what societies should be about. While well-being is much less readily measurable than output, measurement difficulties should not seduce us into becoming market fetishists. Perhaps if the U.S. emulated the U.K. (and Europe generally), and we took longer vacations and had more public holidays, our country would be better off (even if output were slightly lower).
Traditional measures point to an American economy that’s up even when Americans are feeling down. Across Europe and in Japan, there is also a sense of confusion over current economic directions—a universal sense that the numbers that have been our staples are increasingly meaningless to everyday people.
Newspapers, radio, and television routinely spout headlines about key statistics on GDP, inflation, and employment—astonishingly influential indicators computed in the United States by the government’s Bureau of Labor Statistics and in capitals around the world. Most seem to have little correlation with the realities on the street.
The Economist features an interesting chart this week, showing the correlation between a country’s wealth, and the average amount its citizens spend on Christmas gifts. Note the two outliers, the Netherlands and Luxembourg.
Despite their considerable wealth, the Dutch have clearly maintained their minimalist austerity chic. Not the case in Luxembourg, which has the highest GDP per capita in the EU, and the third highest in the world.
Though the exact percentage is debatable, the fact is that the vast majority of U.S. GDP is made up of personal consumption. The American consumer doesn’t just drive the U.S. economy, for decades he’s been driving the global one as well. Though that dynamic is slowly changing as Americans cut back on just about everything we buy, for the better part of the last 60 years, the U.S. consumer has been king. And from this has sprung a massive marketing and advertising industry coldly focused on a singular goal: getting us to buy as much stuff as they possibly can.
In his new book Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy, marketing guru Martin Lindstrom trains a bright light on his own industry to uncover all the unsavory things that marketers do to subtly, or not so subtly, influence our buying habits. Lindstrom’s agreed to answer your questions, so fire away in the comments section. As always, we’ll post his replies in due course.
We’ve been writing a lot about obesity recently. First, it was this study about projected future obesity rates, then we covered Denmark’s saturated fat tax, which Steve Sexton then criticized for being inefficient. So, if you’re tired of reading fat-related posts on our blog, I get it. But as long as reports like this one from Gallup keep coming out, we’re going to keep writing about them, especially when they include so many interesting conversation points.
Here are the top-line numbers:
About 86% of full-time American workers are above normal weight or have at least one chronic condition. These workers miss a combined estimate of 450 million more days of work each year than their healthy counterparts, resulting in an estimated cost of more than $153 billion in lost productivity per year. That’s roughly 1% of GDP.
Data is often difficult to comprehend, especially when the numbers are huge. As Sanjoy Mahajan points out, the $14.3 trillion national debt seems impossible to fathom. It’s not a numeracy problem; it’s more a question of how to divide the gigantic number into parcels we can understand. Mahajan suggests using smaller measures we can handle – namely thinking about debt in per capita terms.
Fortunately there are also some media tech folks to the rescue. This spring, two computer engineers from Minneapolis challenged designers and coders to come up with a visual program to help the public understand the U.S. federal budget. You can see the winners here. If you want a fun way to understand the cuts that Obama’s talking about, the game Budget Climb lets you physically experience 26 years of federal spending data in a virtual reality, interactive format.
I spent last week at the Aspen Ideas Festival, talking about Betsey’s and my research on the Economics of Happiness. You might think that my message—that incomeandhappinessaretightlylinked—would be an easy sell in Aspen, which is the most beautiful and most expensive city I’ve ever visited. But in fact, it’s the millionaires, billionaires and public intellectuals who are often most resistant to data upsetting their beliefs. You see, the (false) belief that economic development won’t increase happiness is comfortingly counter-intuitive to the intelligentsia. And it’s oddly reassuring to the rich, who can fly their private jets into a ski resort feeling (falsely) relieved of any concern that the dollars involved could be better spent elsewhere.
I don’t know enough about the Chinese economy — or the U.S. economy, for that matter — to say just how big a deal this is, but I sense it’s potentially pretty big:
China said local governments owe debt equal to more than a fourth of the country’s economic output, the first time Beijing has put a number on such debt, fueling fears banks could again face mountains of bad loans and underlining the limits Beijing faces as it battles inflation.
The National Audit Office said Monday that local-government debts total some 10.7 trillion yuan ($1.65 trillion), or 27% of China’s gross domestic product last year. The report Monday was billed as a comprehensive tally of such debt, much of which was incurred during a two-year stimulus-spending binge ordered by Beijing to fight the effects of the global recession.
Some analysts say the National Audit Office’s figure failed to count certain kinds of local government debt, meaning the actual total could be even higher.
Either way, the figure released Monday affirms analysts’ belief that the true level of China’s government debt is considerably higher than has been acknowledged by the Finance Ministry, which puts just the central government’s debt at 17% of GDP without taking into account local governments’ debt.
This week: Why is our vision getting worse? Could an airline-style loyalty program work for public transportation? Why rich people are bad at reading the emotions of strangers, and a Cornell study uncovers corruption among Amazon’s top reviewers.
No one seems to have noticed that the Fed’s latest unemployment projections just don’t make sense. While most economists are concerned about a jobless recovery, the Fed is forecasting lots of jobs, but little recovery. Yes, today’s projections suggest only tepid output growth in the next few years. And given this, it’s hard to see how we will make much of a dent in the unemployment rate. Yet the Fed believes otherwise, cheerfully (wishfully?) forecasting declining unemployment.
Our current slump began a lot earlier than you think. Which means that we’re halfway to a lost decade.
Many people date the financial crisis as beginning when Lehman collapsed in September 2008. But the economy was already in recession. The NBER reckons the recession began in December 2007. But look closely, and you’ll see that it may have begun a year earlier.
That’s the case I made in my latest Marketplace commentary, which you can listen to here. The point is more easily made with a simple graph. (Click inside the story for a bigger version).
The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that the red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ. I’ve also plotted the peak, trough, and latest reading of each measure.
This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.
National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news.
There’s a fascinating debate on happiness going on over at The Economist. Officially, the motion is that: “This house believes that new measures of economic and social progress are needed for the 21st-century economy.” My own contribution tries to discipline the grandiose rhetoric of both sides, concluding that:
[T]he benefits of new happiness data have surely been overstated. But we economists compare benefits with costs. Adding a couple of questions to existing surveys is so cheap that it almost certainly passes any cost-benefit analysis. And when the motion passes, we nerdy social scientists need to stop writing grandiose treatises and get back to the mundane grind of social science, mining these data for yet more incremental insight.
On the airport bus in Helsinki, a Finnish woman asked my wife, “What is the biggest difference between Europe and the U.S.?” There are lots of possible answers, but the most striking to me is the tremendous diminution of mutual trust in the U.S. over the past few decades. Why does this matter economically? Because a number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.
There’s a growing sentiment among economists that GDP is a poor measure of a country’s well-being. (See our recent podcast on the topic; also, the research of Joseph Stiglitz.) The latest fad among European governments seeking to separate the overall health of citizens from sluggish economic data is to ask them if they’re happy. The results aren’t exactly encouraging. Less than half of British adults feel they are thriving. And France now ranks as the world’s most pessimistic country, with only 15 percent saying they expect things to get better in 2011.
A new report from the OECD paints a fascinating picture of how citizens from different countries stack up on an assortment of metrics: from who works the longest hours, who shops the most, to who is most trusting of others. The annual report, titled “Society at a Glance 2011 – OECD Social Indicators,” is chock-full with interesting data on all kinds of social behaviors.
Automobile ownership proceeds at a pace that depends on the absolute level of a nation’s economic development. Driven by growth in China and India, the number of people who own cars is expected to reach 2 billion by 2030.