Tuesday, August 11, 2009

Undies on, undies off 

I remember we had this discussion when Ed posted on the story of Larry Summers looking at Google Trends to pick up consumer sentiment. I told him off air (but forgot to do on air after his and Mitch's show on NARN) about the old story of Alan Greenspan calling makers of underwear to determine whether or not businessmen were confident or hurting.

I think I have to tip my cap, though, to the Bank of Japan:
The Bank of Japan is counting brothels in Hokkaido to help determine demand for services as the country battles its deepest post-War recession.

The number of sex parlors in the Susukino red-light district in Sapporo more than quadrupled in the past 20 years, according to a central bank report published yesterday. The survey of sex shops and restaurants was designed to better gauge demand for services, an area of the economy that�s becoming more important as exports slump.

�Any study into services is most welcome,� said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. �We�ve got hundreds of studies on exports and manufacturing. What�s needed is creative thinking on services and if that includes brothels, so be it.�

...While the number of restaurants in the district fell 14 percent between 1989 and 2008, the number of brothels climbed to 264 shops from 63, the report showed.
(h/t: Marginal Revolution.) I wonder: If your business is very busy, do you have time to visit a brothel? Is the indicator supposed to be pro-cyclical or counter-cyclical? I don't know. But how would you like your job to be the research assistant on this study?

The trouble with any indirect measure, which is mostly what we do in macro, is just that: it's indirect. And any time you have economic booms or busts, there are those who will write half-page Sunday op-eds declaring the death of GDP or some other nonsense. The point is, what do you replace it with? Before one uses or disposes of any measure, you have to have some theory in your head that says why it's important. I wouldn't count brothels unless I was really sure they were a luxury, or if I was really sure it was an inferior good, or some such. Since I don't know, I don't count that. Greenspan's undies count only works if you buy his story that underwear purchases are more cyclical than suit purchases. Using electricity consumption to measure the shadow economy only works as long as there's a one-to-one relationship between electricity use and production. &c. Buy the premise, buy the stat.