Guest Post: National Accounts and Prostitution

Wendy Lyon writes on the requirement under new national accounting rules to include the value added from illegal activities where transactions are “mutually agreed”:

The Irish Examiner reports today that Ireland is to begin figuring revenue from prostitution into its gross domestic product. According to the Examiner, the Central Statistics Office is liaising with Gardaí to determine “how best to quantify the levels of activity” in this and other underground economies, such as the drugs trade.

This step has been taken because of a new requirement under the European System of Accounts, effective from September of this year, that “Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement”.

Strictly speaking, prostitution does not actually fall into this category. There is no law against trading sex for money in Ireland, although there are laws against some of the activities associated with it. One of these is living on the earnings of another person’s prostitution and so income from pimping is illegal; but those who sell sex independently – an unknown percentage of the Irish sex trade – do not, for that reason alone, commit any crime.

More relevant, and contrary to the assumptions of Davy chief economist Conall MacCoille as quoted in the Examiner, is that some of this revenue is already being reported. Sex workers are not necessarily tax evaders: they can report their income in the same way as any other non-PAYE worker, and many do. (In the UK, where selling sex is also legal but unregulated, there is even an unofficial website providing information on how to go about it.) It may not be explicitly identified as income from prostitution, however, because of the stigma involved.

It is unclear whether the CSO will make any attempt to distinguish between reported and unreported prostitution income. If not, the new rules could lead to double-counting.

Also unclear is how the CSO will implement the ESA criterion that “all units involved enter[ed] the actions by mutual agreement”. Logically, this would require that revenue from voluntary prostitution be counted, while revenue from forced prostitution would not. The latter would fit the category of illegal income but, again, there is very little hard evidence as to the extent of it in Ireland. Again, the question arises as to whether or how the two will be distinguished.

Finally, there is no indication as to how the amount of revenue will be calculated once the “levels of activity” are determined. How is the CSO to get information on the quantity and cost of commercial sex transactions? Gardaí may be able to monitor the number of men entering certain premises known as prostitution sites, but in the absence of a wholly unrealistic degree of surveillance, they’re unlikely to have a clear picture of the amount of money changing hands afterward.

These difficulties can be partially attributed to the dearth of real research into the Irish sex industry – particularly since the advent of the internet, the medium through which most of it is believed to be conducted. Apart from a few unpublished academic dissertations, there is no independent research at all. The most widely quoted study – the Immigrant Council of Ireland’s 2009 report Globalisation, Sex Trafficking and Prostitution – was funded by the Religious Sisters of Charity in furtherance of what would become the Turn Off the Red Light campaign; its methodology consisted of interviews with 12 women and estimates drawn from reading advertisements and client reviews on the Escort Ireland website. This research was never robust enough to serve as a basis for calculating revenue, and in any case is almost six years out of date.

Of course, the lack of concrete evidence has never been a bar to estimations before. Anti-prostitution campaigners have long cited €250 million as the annual value of the Irish sex trade, although the source of this figure is unknown. (It is usually attributed to the Criminal Assets Bureau, but appears nowhere in CAB’s annual reports and CAB did not respond to my request for confirmation of it.) Nonetheless, it has dutifully appeared in newspaper headlines and even the text of a Seanad motion simply on the basis of unsupported NGO assertions of its veracity. There is a danger that those involved in the calculation may feel under pressure to produce estimates in line with the received wisdom.

The interest in the subject generated by the Turn Off the Red Light campaign would have been an ideal opportunity for the government to institute genuine independent research. In fact, this is what has happened north of the border: faced with the conflict between anti-prostitution campaigners’ claims of widespread forced prostitution, and the PSNI’s assertion that most of the northern sex trade is independent in nature, Stormont Justice Minister David Ford has commissioned researchers from Queens University Belfast and NUI Galway to interview sex workers and clients operating in the Six Counties. No such move was deemed necessary by former Minister for Justice Alan Shatter, nor is there any indication that Frances Fitzgerald intends to follow Minister Ford’s lead.

It is unfortunate enough that legislative changes would proceed in the face of such a knowledge gap, but the ESA obligation makes the need for adequate research all the more necessary. Without it, the estimation of “prostitution revenue” will be nothing but an exercise in smoke and mirrors – serving only to further distort our GDP and provide fodder for more lurid, unsubstantiated newspaper headlines.

One day conference on Economics and Psychology

The seventh annual one day conference on Economics and Psychology, co-organised by researchers from UCD, ESRI and NUIM, will be held on October 31st in the UCD Geary Institute. The purpose of these sessions is to develop the link between Economics, Psychology and cognate disciplines in Ireland. A special theme of these events is the implications of behavioural economics for public policy though we welcome submissions across all areas of intersection of Economics and Psychology. We welcome submissions from PhD students as well as faculty and also welcome suggestions for sessions on policy and industry relevance of behavioural economics. Programmes from the previous six events are here. Abstracts (200-500 words) should be submitted before September 30th. Suggestions or questions please send to Liam.Delaney@stir.ac.uk

Betting Odds and Election Outcomes

My colleague David Bell has a short paper on how opinion polls and gambling odds are predicting the outcome of the Scottish Referendum. He notes there are a number of potential limitations in using odds as unbiased predictors of outcomes particularly if markets are very thin. There is also obviously a good literature on prediction markets more generally and their relation to the Efficient Markets Hypothesis (see, for example, Robin Hanson’s excellent blogposts on this). With all that in mind, it was tempting to see what odds are available for the next general election in Ireland. One prominent alliteratively named firm has odds for the next general election as being (as of 5pm 29th May): FF/FG coalition 5/6; FG/Lab coalition 7/2; FF/SF coalition 6/1 and so on. This seems pretty consistent with other firms. Would be interested in hearing what people make of this.

The possibility of renegotiating Ireland’s approach to fiscal policy in the short term

The country is all a-buzz with speculation that, having listened to the voters for the last few weeks, and having applied Sudocrem to all affected areas from the experience of the election itself, the political class will suddenly be able to reverse the process of austerity begun under the previous government.  (The process obviously continued, in lock step, by the current one).

The Taoiseach’s call for a review of European policies around bank debt, combined with talk of renewal by Labour following the start of their leadership race, is fuelling this speculation.

The latest ESRI quarterly commentary makes the point that the government’s finances are improving at a slightly faster than expected pace, meaning we may hit the Troika-mandated 3% deficit target without serious adjustments required in the forthcoming budget simply by relying on existing forward momentum and the action of automatic stabilisers. Of course they hedge their bets a bit, but given the importance of the issue I thought I’d quote a bit of the commentary:

The public finances are improving more rapidly than envisaged in the government’s plan. If the forecast in this Commentary proves to be correct, government borrowing in 2015 is likely to come in below the target (3 per cent of GDP) once again, even without the substantial further cuts envisaged for the 2015 Budget. However, in formulating fiscal policy it is best to err on the side of caution to ensure that budgetary targets are met in 2015. Nonetheless, these developments suggest that, after a long period of attrition, we are approaching the end of the very painful period of fiscal adjustment. However, there still remains the possibility of new shocks to the economy.

So does that mean the government can run out and renegotiate, renew, de-re-up on their promises to the Troika? I think the ESRI are saying the promises can be met without additional austerity, with a fair wind.

This may not spell the end of the consolidation period, however.

(Updated, thanks to Rossa White for this clarification) The NTMA’s investor presentation has the best graph of what’s supposed to happen in 2015’s budget. In budget 2014 the government agreed about 0.9 billion in revenue cuts and 1.6 billion in expenditure cuts, but the composition of the 2015 adjustment of around 2 billion (as per the recent SPU) hasn’t been outlined yet.

So while it isn’t clear that this last bit of austerity can be avoided just yet, it is pretty clear that (however constituted) the government will try hard not to implement the last few billion of cuts, especially if the 2014 August and September returns are looking good.

I think the question is, given the need to respect the 3% constraint–and please let’s not give any credence to headbangers talking about renegotiating the MoUs, etc., at this stage–what exactly the government will try to do to signal to the public the austerity period is effectively over.

The answer will define the legacy of this government. As Kevin notes this morning, at the last general election, the public voted for change, they got none. They are asking for it again, and much more clearly this time.

Michael Noonan has signalled since the last budget that altering tax bands is on the cards, saying.

If I have the money that is where I will go. I would like to reduce the threshold at which people hit the higher rate.

Fair enough, and this widening of tax bands does make sense as long as funds allow, and perhaps a tweaking of the USC, but the question politicians are asking I’m sure is will this be enough to appease the public?

Just gimme some choice

The Irish Times this morning describes the increased vote for independents as an expression of anti-politics sentiment.

Anti-establishment-politician sentiment, certainly, but anti-politics? That depends on how you define politics.

My definition of “politics” is all about choice over policies: citizens in a democracy can choose to fundamentally change their country’s economic and social policies, if that is what they want to do. In 2011 Irish voters voted for change, and got none: the new government faithfully implemented the Troika programme, just as the previous government had done, and presumably would have continued to do had they been re-elected. (And now that they have been let off the leash they are coming up with bubble-era proposals to increase mortgage lending. Not much change there either. And consequently not much real choice.)

Democracy without choice is not democracy. Politics without choice is not politics.

A lot of people in this country, and right across Europe, want real change. Some in Ireland voted for Sinn Féin, the big winner in the election. Some voted Independent. This isn’t anti-politics. It’s anti-anti-politics.

Long-run perspectives on crime and conflict

More news from Queens – their Centre for Economic History (QUCEH) is hosting an interdisciplinary workshop on the economics and history of crime and conflict. The workshop will take place in Belfast on Friday 12 September 2014 and they are currently inviting submissions (with a deadline of Friday 18 July 2014). A key motivation of the workshop is to encourage economists and social science historians of crime and conflict to network and collaborate on future research.

Full details here.

The 75% of the world’s population not covered by Piketty

In between grading exam papers I have been wading through the Piketty book.  Its a bit like walking through a muddy field.  The going is sometimes a bit stodgy, but you eventually get there.  There have been many reviews and commentaries on the book – one of the best I think is by Debraj Ray (http://debrajray.blogspot.co.uk/2014/05/nit-piketty.html ), who also wrote what I believe to be the best textbook on Development Economics in 1998, which, alas, I don’t think was ever updated.

Ray is sceptical about Piketty’s “Fundamental Laws of Capitalism”, but believes that the book makes a major contribution in highlighting the concentration of top incomes, arising from both an increasing share of income accruing to capital and also the phenomenon of very high returns to human capital at the top of the wage distribution.

All of this I am sure is very familiar to readers of this blog – Piketty’s must be one of the most reviewed economics books of the last 30 years.  But what seems to get less coverage is what has been happening to the approximately 75% of the world population not covered by the Piketty book.  A recent World Bank study by Lakner and Milanovic (covered here in Vox http://www.voxeu.org/article/global-income-distribution-1988 ) shows that over the 1988-2008 period, growth for the bottom 75% of the world (with the exception of the very bottom 7% or so) has been well above average, thus contributing to an overall compression of the world income distribution.  There have basically been three broad changes in world income distribution over the last 30 years.  Yes, the top 1% have seen high growth, while those between about the 75th and 99th percentiles have done relatively poorly – these are the phenomena covered in Piketty.  But the vast majority of the bottom 75% have also done relatively well, particularly those just above the median – effectively the Chinese and Indian middle classes are catching up with lower income groups in the OECD countries.  The net effect of these three changes is a fall in overall world income inequality.  The data stops at 2008 but my guess is that developments since then have probably only accentuated these trends.  And further globalisation is likely to have the same effect.

The piece finishes off with some speculation about the political implications of all this, which I am not quite so convinced by.  But overall, given that inequality seems to be flavour of the moth these days, it is interesting to get a more global view.

The FT is on a roll

In an otherwise unremarkable editorial about the upshot of the elections, the FT comes up with this quite remarkable statement:

The only viable path for France is to press ahead with tax cuts and spending reductions that can sustain growth.

Is the FT really saying that in a Keynesian short run, such as we find ourselves in just now, the balanced budget multiplier is negative? Really? Or that the spending multiplier is negative? Or is it perhaps denying that the Eurozone currently finds itself in such a Keynesian short run, in which a lack of demand is the key constraint on growth? (Let’s not even get into the debate about the long run relationship between growth and the size of the state in Europe, although I can’t help writing down one word: Scandinavia.)

And is the FT really claiming that continuing with this programme would make all those FN voters switch to the socialists and UMP?

Really?

Canaries in the coal mine

The European election results are coming in, and in France they are catastrophic.

There are two obvious points to be made which work in opposite directions.

First, the vote for the FN and similar parties is an under-estimate of eurosceptic opinion, since these parties come with so much baggage that many voters who hate what Europe has become would never, ever dream of voting for them. And quite right too.

Second, it may well be that these parties would have done less well if there had been national elections last weekend: voting for the EP is one thing, voting for national governments another. (But who really knows.)

Expect many mainstream commentators to point out that the centre has held, that the EPP have won, that Juncker is the people’s choice for EC President, and all the rest of it. This strikes me as exactly the wrong response.

My big worry this Monday morning is that Hollande and others (but I am mainly thinking of Hollande) will continue with their current economic strategy, which as far as I can see consists of crossing their fingers and hoping that something will turn up. Yes, some day this recession will end, since all recessions do, but the timing of this will depend (probabilistically, since life is uncertain) on policies: monetary and fiscal policies, obviously, but also policies to fix the European banking sector. Right now, given Europe’s policy choices, there is no good reason for the French government, or any other government, to expect that the real Eurozone economic crisis (which has to do with growth and unemployment, not yields on government paper) is going to end any time soon. And certainly not by 2017.

M. Hollande and his like may believe that sticking to the programme is their only option, and that any other course of action would be far too risky. They should ask themselves what the political landscape will look like if the Eurozone crisis continues for another 3, 5 or 10 years. It’s not impossible. Perhaps something will turn up, and perhaps the status quo merchants will get away with it. But perhaps it won’t, and perhaps they won’t.

People who argue that there is no alternative presumably see themselves as prudent and responsible. But you could just as easily regard them as drunken gamblers on a losing streak, forever doubling up.

Fully-funded Economics PhDs at QUB

Fellow economic historian Chris Colvin has brought my attention to the fact that the Management School at Queen’s University Belfast has three fully-funded scholarships for full-time PhD students in Economics, starting October 2014. In terms of thesis topics, they will consider all areas of economics, finance or management but they are particularly keen to recruit  students in the following areas:

  • game theory and mechanism design with some emphasis on the economics of networks and institutions;
  • economic history, including business and financial history; anthropometrics and demography; health, wealth and inequality over the long run; politics, democracy and growth; the economic history of partition in Ireland;
  • health economics, labour economics, and the economics of education;
  • long-term development and the economics of crime;
  • behavioural/experimental economics with some emphasis on social learning.

(As someone working on wealth and inequality over the long run and increasingly interested in the economics of partition, I’d particularly encourage applications in those two areas!)

The good news for successful applicants is that the studentships, which each last for 3 years, include both university fees and annual stipend of £13,863 per annum. The closing date for applications is Friday 20 June 2014 – full details are here.

Austerity: Economic, Political, and Social Perspectives

Austerity is not simply an economic phenomenon—societies experience it in different ways, socially, politically, and geographically. The aim of this event is to bring leading thinkers to probe the complex effects of austerity on the European economies forced to experience it by the global economic crisis.

The event will be live-streamed through the INET and YSI network, shown at the Festival of Economics at the University of Trento, as well as various blogs and community sites like Irisheconomy.ie, and we encourage submissions to the panel, which can come in the form of email questions, tweets, and via facebook.

Austerity: Economic, Political, and Social Perspectives

Friday, May 30 Kemmy Business School, UL KBG-16 (map)

Livestream from YSI event in the Univeristy of Limerick, All times are CET

10.00 -10.30 Opening by Dean of the Kemmy Business School, Dr. Philip O’Regan

10.30-12.00 Panel 1: Beyond the theory: Austerity as an economic, and political, reality

Mary Regan, Political Editor of the Irish Examiner, Chair

Mark Blyth, Brown University

Johnathan Hopkin, London School of Economics

Niamh Hardiman, University College, Dublin

John McHale, NUI, Galway & Irish Fiscal Advisory Council

12.00-12.30 Break

12.30-2.00 Panel 2: The wider consequences of austerity on society

Stephen Kinsella, University of Limerick, Chair

Niamh Hourigan, University Collge, Cork

Carmel Hannon, University of Limerick

Seamus Coffey, University College, Cork

Julien Mercille, University College, Dublin

Symposium at NUI Maynooth: “Can Social Investment Save Social Europe?”

On Thurs., 29th of May, a special seminar on Social Investment in Europe will be hosted by the Department of Sociology/ NIRSA, Political Economy and Work Cluster and the New Deals in the New Economy project. The seminar will run from 9.30 to 1.30 and will be followed by the launch of a new MA in Sociology (Work, Labour Markets and Employment) by Minister Joan Burton.

‘Social Investment’ focuses on investing in people’s skills and capacities and supporting them to participate fully in employment and social life (EU Commission). Does ‘social investment’ lead to a renewal or an erosion of the welfare state? Will ‘social investment’ support economic and social recovery?

The event will start at 9.30 with registration and coffee followed by the seminar at 10.00 in the Phoenix building on the North Campus in NUIM keynoted by Prof Anton Hemerijck, VU University Amsterdam and Prof Brian Nolan, UCD, and chaired by Prof. Seán Ó Riain.

Following a break for coffee there will be a roundtable discussion with: Rossella Ciccia (NUIM), Tom Healy (NERI) and Rory O’Donnell (NESC), chaired by Mary Murphy (NUIM).

See more at: http://www.nuim.ie/sociology/news/can-social-investment-save-social-europe

Please register for seminar by emailing newdeals@nuim.ie before May 26th, 2014

Profiling the indebtedness of Irish SMES

This is exactly the kind of responsive research the Irish Central Bank should be doing. The Central Bank’s Fergal McCann takes a look at Irish SME indebtedness in the wake, presumably, of Morgan’s latest Irish Times op-ed on the subject. Fergal solves the data problem the ICB has for SME indebtedness levels using Red-C data.

There’s no doubt, I think, that there is a serious debt problem within Irish SMEs. But 34% lot of them have no debt at all, with others with very little debt relative to turnover.

McCann’s work is not of the ‘it’s grand lads, nothing to look at here’ variety, either, and it does put a shape on the problem for us.

The seriously indebted medium-sized enterprises are in trouble, though, and we now have a good measure of the likely extent of how many of these firms there are.

The eurozone recovery: still just around the corner

Paul Krugman is quite right: the most recent Eurozone GDP numbers are really disappointing. But hardly surprising, given current policies, unless you’re the sort of person who thinks that peripheral yields are the only thing that matters. (Not a great metric of success you would think, if they have been falling in Greece, but there you go.)

I recently read someone (can’t remember where, perhaps you can) saying — based on the yields —  that the eurozone crisis was now over economically speaking, and that the only thing that might derail things now was the politics. Which made me think two things:

1. It is surely unacceptable intellectually to regard the predictable political consequences of lousy economic policy as being somehow ‘exogenous’ and none of our business as economists.

2 If the politics of the eurozone crisis eventually turns sour, won’t this show up in various financial spreads , and wasn’t this the whole point of the ‘second generation’ crisis models we all starting teaching our students in the early 1990s?

Even if it’s cancer that kills you, death coincides with cardiac arrest.

Housing supply and demand

There is quite a bit of momentum currently – and thankfully, given the severity of the housing crisis – in the whole area of housing, rising prices and rents, and the lack of supply in Ireland’s urban centres. I had thought pretty much everyone involved was agreed that a lack of supply was indeed the root cause of rapidly rising rents and prices.

Hence my despair at reading this article in today’s Irish independent: Easy mortgages for first-time buyers are on the way. Shifting out demand to encourage supply seems to me to be like adding fuel to the fire in the hope that the fire brigade are more likely to turn up. The losers will be the very people the policy aims to help, first-time buyers who will be given more credit to bid against each other.

What is particularly disheartening is that it comes so soon after Ireland tried this before and it went so spectacularly wrong – while house price growth from 1995-2001 was driven by a combination of factors (including incomes growing faster than supply), house price growth 2001-2007 was driven almost exclusively by easy credit and that was where the damage was done.

As per last night’s Prime Time, if you want housing to be affordable, increase supply – it’s no more complicated than that. If supply is not forthcoming, we need to understand why, rather than push the price of housing further up. My suspicion is the current lack of supply is down to a complicated and overly prescriptive system of planning and building controls, coupled with an array of developer contributions and levies which shift the burden from existing to new residents. This could be replaced with a unified land use policy and a simple land value tax.

As for policy in relation to loan-to-value, pick a number (like 80%) as the maximum loan-to-value for anyone and stick with it. That way at least, policy won’t be responsible for turning a house price upswing into another bubble.

An intellectual winter

TheJournal.ie reports on a speech given by President Higgins at the University of Chicago this evening.

PRESIDENT MICHAEL D Higgins has told students at the University of Chicago that the teaching of economics is going through “an intellectual winter” because it doesn’t take account of the social impacts of policy.

“The recent economic and financial upheavals have thrown a glaring light on the shortcomings of the intellectual tools provided by mainstream economics and its key assumption regarding the sustainability of self-regulating markets (and, more particularly, of largely unregulated global financial markets),” he told the assembly.

The prepared text for the speech is available on the President’s website.  A recording of the actual delivery and subsequent Q&A session is available here.

Call for Abstracts: The 11th Irish Society of New Economists Conference 2014

The J.E. Cairnes School of Business and Economics, National University of Ireland, Galway  (NUIG) is delighted to host the 11th Irish Society of New Economists (ISNE) Conference from the 4th to 5th of September, 2014. The deadline for online submission of abstracts (not exceeding 300 words) is 30th May, 2014. There will be two Plenary Sessions featuring distinguished academics: Professor Ciaran O’ Neill (NUIG) and Professor John FitzGerald (ESRI).    
  
See here for further details.
We look forward to meeting you in NUI Galway.

 

The Local Organising Committee:  
Ms. Michelle Queally, NUIG
Ms. Aine Roddy, NUIG
Ms. Patricia Carney, NUIG
Dr.  Aoife Callan, NUIG