A thought about national economic accounts

Freidrick Schneider a couple of years ago estimated the average size of the "shadow economy" to be 38.7% of the official GDP in developing nations, 40.1% in transition countries, and 16.3 in OECD countries. One definition of the shadow economy is the market based production and consumption that is not captured in official GDP figures, but the idea is that these are activities that circumvent government monitoring and control.

We know that some of the growth of GDP in the OECD countries has come from people shifting from home production-consumption to market transactions. If mom cooks a meal at home, her work does not show up in the GDP. If she works in McDonalds, and the family comes in a buys a meal, her work does show up.

We also know the old argument that someone who is sick may go to a hospital, may need extensive medical services, and may consume expensive drugs, all of which show up on the GDP. His well neighbor does none of these things, and puts his money in the matress. The sick one adds to the GDP, the well one does not. GDP is not equal to welbeing!

I note that the United States is known for a relatively large civil society, and presumably has a lot of volunteers who work without pay. We believe a vigorous civil society, with lots of clubs and associations helps build social capital and democratic governance. On the other hand, it would seem not to contribute to the measured economic activity of a country.

Similarly, people doing favors for one another don't show up. I rather like the idea of a culture with a lot of reciprocal favors, but the GDP supposes that one in which the same people buy the same services from each other is stronger.