The dawn must come.

The dawn must come.

Thursday, 11 September 2014

Sex & Drugs and Rock & Roll.. Pumping up the GDP.

In 2010, in a drastic move to overcome a crushing economic/financial crisis, the EU has reviewed the established criterion by which to calculate its members’ GDP. Consequently, the book-keepers were able to signal a positive increase of 3.7%!!
But what that really means? It means that while ‘Numbers’ are not an opinion, ‘Balance Sheets’ are! Let me explain.. If a good slice of the 2013 seemingly positive improvement comes from a solid 1.6% of Methodological Innovations, and a significant 1.3% from the Capitalisation of Research & Development Expenses; the best contribution derives from a sound 11.5% of the so called “Submerged Economy” (previously included under Illegal Economy and labelled as Parallel Economy) which includes mainly: Drug Commercialisation, Prostitution Activities, Smuggling, Racketeering, and Tax Evasion. Once added to other introits from those activities properly classified as Illegal Economy,  we’ll have a good 12.4% of the overall GDP.
In other words, this practice would definitely meliorate the Deficit/GDP Ratio, but it will do absolutely nothing with regard to Growth. It may apparently absorb the ‘Annual Inflation’ but it shall never have an input related to ‘Real Economy’ in terms of New Jobs, Industrial Production, Exports, and Services.
So, if the new international parameters say that “the calculations that are expressing the revenue of a nation must be exhaustive” then they should also consider into account the activities banned by law. It is no longer considered as “Criminal Economy” what could be simply defined as “activities with characteristics of Voluntarily Exchange between Economic Subjects”!
A clever accountant’s balance maneuvering that may hide some symptoms, but will never be able to cure the root cause. The viral disease will continue its life cycle and mature to an extent that no treating remedy will help.. Other than amputation.

A.                  ELNAHAS – Montopoli, September 11th 2014.

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