Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation Mike Shedlock | Sep 27, 2014
Here's the question of the day: Does GDP stand for Gross Domestic Product or Grossly Distorted Procedures?
One of the reasons I ask is the latest push by countries to include prostitution and drugs sales in GDP calculations.
Italy: Cocaine Sales to Boost Italian GDP in Boon for Budget.
USA: The Fiscal Times reports How Hookers and Drug Dealers Could Boost US GDP.
Spain: economists estimate that prostitution, illegal drugs, and adjustments will increase GDP since 2010 by 2.42%. That's cumulative, not additive. Methodological changes, such as counting weapons as an "investment" represents 1.55 percentage points of the change.
France: Here's a shocker ... France says No Sex, Please, We’re French. In short, France will not include sex or illegal drugs in its measure of GDP.
UK, Ireland, Italy: The WSJ mentions the UK, Ireland, Italy, and even the United Nations in its report Sex, Drugs and GDP: the Challenge of Measuring the Shadow Economy.
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OK, but that leads to a discussion on imputations.
Imputations
The average person has heard of GDP. The average person has not heard of the imputations that go into calculating GDP.
Q: What are GDP imputations? A: They are an assumed value of goods and services that trade at no price.
The biggest example of imputed GDP is the alleged value derived from living in your own home.
The government figures that if you did not own your own home, you would pay someone rent. It adds the presumed amount of rent you would pay to rent your home from yourself to GDP.
Another US GDP imputation is the "value" of "free" checking accounts. Government assumes that since you do not pay for your free checking account GDP is underestimated by the value of the "free" account.
Never mind that banks take your checking account deposit, lend it out overnight, earn interest on it, and your money really isn't there at all.
Government imputes a value on the practice.
Imputation Totals
Inquiring minds may be wondering how much imputations add to US GDP. The following figures are from 2013. They calculate these things in arrears to allow for any needed GDP smoothing.
GDP: $16.7681 trillion. Imputations: $2.6935 trillion GDP Minus Imputations: $14.0746
Imputation Contribution to GDP = $2.6935 / $16.7681 = 16.06%
Here are a few specifics.
Owner-occupied housing
The imputed valued of people renting houses from themselves is $1.21 trillion.