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Why We’re Ungovernable, Part 9: Crime Becomes Growth

Ah, the Italians. They’re good for at least one entry in the “Why We’re Ungovernable” series each year, and their latest is the best yet:

Drug trafficking, prostitution revenue set to boost Italy’s GDP result

Italy has announced it will start including estimated revenues from prostitution and illegal drug sales in official gross domestic product (GDP) figures.

The country’s National Institute of Statistics says starting next year, the GDP result will also include estimates on the value of the black market in cigarettes and alcohol.

The move has been driven by new European Union rules requiring nations to include all activities that produce income in their national accounts, regardless of their legality.

The institute says the procedure would be it will be “very difficult for the obvious reason that these illegal activities are not reported”.

The Bank of Italy in 2012 estimated the value of the criminal economy at 10.9 per cent of GDP.

Theoretically, that could mean Italy’s GDP result with the new calculation will come in far higher than the government’s 1.3 per cent growth estimate.

Eurostat earlier estimated the average GDP increase for EU nations due to the new calculation to be at 2.4 per cent.

The highest rises were estimated for Finland and Sweden at 4 to 5 per cent, followed by Austria, Britain and the Netherlands at 3 to 4 per cent.

The increase for Italy would be around 1 to 2 per cent.

The “grey economy” of businesses that do not pay taxes is already calculated in Italy’s GDP and was estimated to be worth between 16.3 per cent and 17.5 per cent of the economy in 2008 – the last year for which the calculation was made.

As the above article notes, the concept of GDP relies on economic players reporting their activity. Criminal activities, in contrast, are by definition not reported. So how do state statisticians come up with a number? The same way the US gets its inflation/GDP/unemployment stats, by running assumptions through a bunch of other assumptions and then making some favorable adjustments to what comes out. In other words, since official numbers are largely guesswork (or conscious manipulation), the idea of adding made-up numbers for drugs and prostitution to GDP is really not that big a stretch.

It might, however, make for some amusing reports down the road: “Italy’s prostitution sector exceeded Wall Street expectations in the Third Quarter while cocaine sales and car thefts were off slightly, noted Goldman Sachs analyst Vito Soprano…” You’d think the investment banks would have a pretty good feel for black-market trends, since they’re such active consumers of hookers and drugs.

And this isn’t just the Italians being Italian. As the above article notes, the new rules apply to all of Europe. One odd stat: “The highest [GDP] rises were estimated for Finland and Sweden at 4 to 5 per cent, followed by Austria, Britain and the Netherlands at 3 to 4 per cent. The increase for Italy would be around 1 to 2 per cent.” Apparently, crime is a much bigger part of the Scandinavian economies. At the risk of being racist (or reverse-racist or whatever), that’s a bit counter-intuitive.

In any event, the implications are consistent with the theme of this series: When a country borrows too much, life gets more complicated, voters get angry and leaders find it harder to get reelected. And ideas that once seemed crazy begin to look like the least problematic of the remaining options. Adding crime to GDP is about as close to perfect an example as we’re likely to find.

The other “Why We’re Ungovernable” posts are here

12 thoughts on "Why We’re Ungovernable, Part 9: Crime Becomes Growth"

  1. Pingback: The Küle Library
  2. Next till they be running these illegal activity assumptions and estimates down to the individual level and assessing back-taxes owed by citizens on their estimates, and if you don’t pay up they will confiscate your accounts, properties, and belongings. You owe it because they estimated you do.

    Then after you cough up the taxes the cops will swoop in and fine or imprison you for engaging in illicit activities because the remittance of the estimated taxes is a tacit admission of guilt.

  3. Well frankly, I applaud the idea. Here in Bellingham, WA, there is a rising economic stimulus of marijuana which was made legal. Craiglist is now flooded with ads for marijuana this and that.
    One of my neighbors goes to Thailand yearly for sex, and Las Vegas quarterly. So there should be reporting of drugs and crime in GDP, if it is to be complete.

  4. Crime “Becomes” Growth – Seriously? It always has been. Ever read ‘War is a Racket’? It’s just a case of how encompassing the ‘Crime’ is or how you interpret the word.

  5. The microbe is going to win this battle. Drugsters and whoring are going to be infected with our ages old enemy the microbe and justice will be rendered.

  6. I think this partially explains why the “Great Recession” hasn’t been that recessionary here in sunny south FLA. Unfortunately, I’m usually paid with checks, but only about two other friends have businesses that get paid that way too. The rest get paid in cash. Most of their customers are “Latin” which seems to be code for borderline-legal, and in more ways than one.

    I hate it. I really do. And it’s one of the reasons that I actually want the whole god-damned system to collapse. I don’t necessarily blame those who skirt the system because I don’t like the system either, so I just want it to implode.

    1. I thought I was the only one who hoped for financial collapse. My hope is such a collapse will force the U.S. government to be drastically reduced in size and scope. Perhaps, this hope is optimistic as such a collapse may give the government the excuse it needs to strip away even more freedoms and operate in the spirit of tyranny. Of course, a worldwide financial collapse may lead to other issues, such as a preemptive thermonuclear strike on a few U.S. cities by Russia/China as the U.S. attempts to hold on to its exorbitant privilege.

      1. I truly pity you my friend. To ‘Hope’ for a collapse is rather academic at this stage of the game. Where have you been for the last fifteen years? The US, as the world new it, has already collapsed. It’s just that your government had done a reasonably good job of covering it up (So far). Allow me to bring you up to speed….Your economy is down the toilet, you owe trillions of fiat unbanked printed dollars, your healthcare costs are exorbitant, you’ve rack up record private debt in order to consume, your dollar is on the verge of worthlessness, your treasuries are toxic shit that the rest of the global markets are playing ‘hot potato’ with, much of your military is becoming obsolete, oil only comes to you guys by way conflict, your ‘politicians’ have sold out to big business (fascism, by any other word), your police have been militarised, Russia/China and many other nations are de-dollarizing, your financial markets are rigged, your banks are bankrupt, your infrastructure is failing, your jobs have been exported, unemployment is unprecedented, wages are in decline, space program is going backwards, education is failing students, your media has become a politicised government propaganda outlet, you’re interfering with too many foreign sovereign states, you have the highest prison population in the world, you have the highest murder rate in the world, you’ve spied on everyone, no-one trusts you or your government anymore, one quarter of your population relies on food stamps to eat, the food that these people actually obtain with these stamps is most likely full of cancer causing/environmentally damaging GMO corn based chemicals, your legal system benefits a select few while administering more draconian laws by the day, etc, etc, etc….In summary, the only thing left to collapse is the world wide use of the US dollar for energy trade agreements. But, guess what……

        1. I believe most here understand and are aware of these points. What we’re referring to is true financial collapse, not the moral decay that precedes it and all this decay encompasses. It seems obvious that the U.S. dollar will lose it’s reserve currency status but this process may take longer than you would expect, as the U.S. will keep it in play as long as the military is able.

      2. I agree. That’s the problem. I wish I knew of a way to take back the country peacefully, but I don’t.

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