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If all payments in the economy were electronic, this would mean a significant boost in GDP.

A fascinating roundtable at my favourite financial services think-tank, the Centre for the Study of Financial Innovation (CSFI), which had been selected by Diane Coyle for the launch of her new book “GDP: A Brief but Affectionate History: A Brief Affectionate History”. The essence of the discussion was that GDP may still be useful in some circumstances, but it is too often for used for purposes that it was never designed for and is manifestly not suited to. It wasn’t until I was reading Diane’s book on the train home that I realised just how arbitrary the concept and definition of GDP is, something reinforced in this week’s excellent Planet Money podcast on “The Invention of the Economy” (which also includes comment from Diane).

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Sitting to Diane’s left is Joe Grice, who is Director and Chief Economist at the Office of National Statistics (ONS). I got to ask Joe whether it was true that government statistics on the UK economy do not measure computer games design (at which the UK does rather well) while keeping accurate count of whale oil production as alleged by NESTA…

But existing data is pretty bad when it comes to new, fast-moving businesses. There’s a SIC code for whale oil production, but good luck finding one for video games development or graphene.

[From Big Data for better innovation policy | Nesta]

If you’re wondering what an SIC code is, it’s the Standard Industrial Classification code used to collect statistics for the ONS. Joe didn’t get to answer because I asked a supplementary question about sustainability, relating to another of Diane’s key points about innovation, and we went down another route.

Some of the questions were about measurement, and some of these were about money. One of the questions was about money and measurement. Someone asked, essentially, why the government doesn’t just measure all of the money flows in the economy and use that actual data instead of yonks old statistical estimates that often need revised (most famously, as Diane noted, when Dennis Healey went cap in the hand to the IMF because Britain was in recession, only to discover when the figures were later updated that it wasn’t). This reminded me of the old Robert Heinlein science fiction novel “Beyond This Horizon”, in which cash is extinct and all payments run through computers and all the computers are connected to the government computer so the government can twiddle the nobs and dials to keep the economy on course. One might imagine certain other benefits to this electronic economy as well.

“The current collection model brings with it a VAT Gap due to e.g. VAT fraud, insolvencies, mistakes by the taxable persons in the VAT return and VAT avoidance schemes. Desk research shows that the VAT Gap for 2009 can be cautiously estimated at 6,9% of GDP and 12% of total VAT liability in the EU-27. This means that, in the EU-27, a total of EUR 118,8 billion has according to those estimates not been collected by the tax authorities in 2009.”

[From 118,8bn euros lost in 2009]

No wonder the taxes I pay as middle England wage slave are so high when half the population are on the fiddle. Not only would electronic money cut my tax bill, it would stop the ridiculous cross-subsidy from the lawful to the lawless that plagues our moral fibre. But my point is that if the black economy were turned white, UK GDP would grow by 20% or so. And if you think I’m joking, let me observe that Joe said that there is work underway to look at estimating the illegal drugs trade and prostitution as components of GDP in compliance with EU rules.

The Office for National Statistics is expected to comply with new EU rules by revealing its first estimates for the size of the illegal industries and how it has reached these calculations as soon as March or April. Prostitution in Britain is set to be valued at around £3 billion a year while the drug dealing sector is set to be valued at £7 billion…

[From Prostitutes And Drug Dealers ‘Add £10 Billion To UK National Wealth’]

How much better it would be for the Chancellor of the Exchequer to have accurate figures in his dashboard each morning rather than estimates. As a complete aside, by the way, Heinlein was a bit of a visionary in more ways than one. In 1939, he wrote that:

“There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary to public interest. This strange doctrine is not supported by statute or common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped, or turned back.”

[From Copyright wars are damaging the health of the internet]

What Heinlein means is this. You used to make money out of farming, you don’t any more: tough. You used to make money out of recorded music, you don’t any more: tough. You used to make money out of transaction fees, you don’t any more: tough.

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