GDP sensitivities

Sex-trade spat exposes defect in morality-free GDP

France has just made a feminist statement. At the same time it has exposed an important truth about economic statistics. The decision to exclude involuntary prostitution in the calculation of GDP runs contrary to both new European Union standards and the conviction of economists that a measure of output can be free from ethical judgments.

INSEE, the French national statistics office, argues that it is not actually breaking the new standard. Eurostat, the EU's official statistics agency, says "illegal economic actions" should be included in GDP as long as "all units involved enter the actions by mutual agreement." INSEE says that much of the sex trade is coerced, so it doesn't qualify.

That's a matter of debate, of course. Some people consider prostitution a service trade that has been unjustly maligned. Others agree with the French minister for the rights of women and the Belgian minister of the interior, Najat Vallaud-Belkacem and Joëlle Milquet, who wrote to the European Commission: "Prostitution is not a freely agreed upon commercial activity."

This argument is well worth having. That is partly in order to avoid causing offence to "the millions of victims of sexual exploitation around the world," as the ministers put it. It also demonstrates clearly that many choices about how to measure GDP inevitably have a moral edge.

For example, the output measure takes no account of the costs of environmental damage. The stated reasons might be technical, but the effect is ethical. It is a decision that greater output is worth more than clean air and water. The same principle applies to childcare. The work of stay-at-home mothers and fathers is excluded while paid childcare contributes to measured GDP. That constitutes a judgment of relative value.

The French might be especially sensitive to these issues, after a 2009 study of alternatives to GDP. Typically, these alternatives give greater weight to basic goods like health and education, and less to fripperies like second homes. Many economists are queasy about making the explicit value judgments that these other indices require. They prefer to soldier on with GDP. The argument about the inclusion of prostitution helps demonstrate that ethical neutrality is incompatible with economic analysis.