Should the United States’ GDP Include Profit From Illegal Activities?

It’s a less controversial position than you might think

A new article makes the case for changing the way the country calculates its GDP.
Maklay62/Creative Commons

When evaluating a nation’s economy, the gross domestic product is one of the most relied-upon metrics used by economists and politicians. But a new column by Jo Craven McGinty at The Wall Street Journal asks a provocative question: where do the proceeds of illegal activities factor into a nation’s GDP? And should that be included when tallying up the United States’ GDP for a given year?

While that might look like an unambiguous question, this practice is more common than you might think. Doing so, McGinty writes, “would also align our national accounts more closely with those of the European Union, whose members already incorporate some illegal activities in their tallies.” The EU has done so for the last five years, according to McGinty’s report.

Factoring in illegal activities would also increase the nation’s GDP by over 1%. 

McGinty’s exploration of the connection between illegal activities and GDP isn’t the only deep dive into the relationship between the two. In 2014, an article at the Santa Barbara Independent observed that illegal activities are one of three sources of income that aren’t represented in GDP — and thus, contribute in their absence to a misleading picture of a nation’s economy. (The other two: barter transactions and unpaid labor, such as work for one’s family and volunteering.) 

An article in The New York Times from the same year took things a step further, arguing that the different ways that different nations calculated their GDP made it less reliable as a statistic than many might believe. 

McGinty makes a solid case for why the United States’ definition of GDP could be broadened — though her article also notes that it’s unlikely to happen in the near future. 

Subscribe here for our free daily newsletter.

The InsideHook Newsletter.

News, advice and insights for the most interesting person in the room.