Some countries, such as European Union members, include illegal activity in their GDP calculations. Why doesn't the United States?
- Published On December 19, 2019
In 2017, the Gross Domestic Product (GDP) of the United States was more than $19 trillion. This figure only includes the income garnered from legal activities in the US. If income from illegal activities were also calculated, economists estimate that the total GDP would increase by about 1%.
The gross domestic product or GDP is the total value of goods and services created or conducted in a country within a given time period (usually quarterly or yearly). These goods and services typically include things like food, clothing, and shelter.
The GDP is helpful in estimating a country's economy and rate of growth. Other countries, including those that are members of the European Union, include income from illegal activities—which gives a sizeable boost to their respective economies.
Some of the illegal activities in question are prostitution, drugs, gambling, and theft – all of which are thriving industries in the US.
How Much Would Illegal Activities Add to the GDP?
If economists were to include the sale of illegal drugs as part of the country's goods and services, it would result in a $111 billion boost to the GDP. Business theft would add a whopping $109 billion. Prostitution would increase it by $10 billion and illegal gambling would tack on another $4 billion.
To give further context to this massive increase, the aforementioned illicit streams of income would represent a larger share of the US GDP than would the legal goods and services that are part of the agriculture, forestry, fishing, and hunting industries.
What Do Economists Have to Say?
Criminologists and economists are at odds as to how crime rates and economic growth affect each other.
Criminologists argue that uncertain economic times result in higher rates of property crime. This makes sense on the surface, as criminals would be more likely to steal items they are unable to afford. Economists, on the other hand, say that a stronger economy leads to more crime. When people are able to afford and flash about big-ticket items like jewelry, smartphones, and luxury cars, would-be thieves cannot resist. Furthermore, a strong economy also increases the demand for alcohol and drugs, which in turn results in an increase in violent crimes committed by those who consume or use them.
Should Illegal Activities Be Included in the GDP?
The System of National Accounts (SNA) is a set of international standards published by the United Nations. These standards are the basis for how countries report their economic growth and structure. The SNA actually recommends countries to include illegal activities in their GDP calculations so that there is a more accurate picture of each country’s economy.
It also allows for a clearer comparison between countries. When some countries include illegal activity as part of their GDP and others do not, it skews comparison, making some countries appear to have a strong economy than others who only include legal income.
So in a sense, crime does pay—although the GDP of the US does not reflect it at this time.