ProstCost – Part 3 of 3: The Meaning Of It All

This is my third and final post discussing the recently publicized ProstCost study by Le Mouvement du Nid that claims prostitution costs France 1.6 billion euros per year. In Part 1 I pointed out that the study needed to balance the costs of prostitution against the benefits. In Part2 I reviewed the costs described in the study and argued that many of them weren’t relevant to the question of legalization. Now in this part I’m going to go over a few details and discuss what it all means.

If you actually read both previous posts, you may have noticed that I place a lot of weight on the subjective judgements of the participants in the sex trade. If people are voluntarily paying for sex, I accept their decision and assume they are getting something that is, at least in their eyes, worth the money. And more to the point, if people are voluntarily performing sex acts for money, I accept their choice and assume they are receiving enough money to make it worth whatever costs — financial, physical, or psychological — they may incur.

Not everybody sees things this way. Many people feel that transactional sex inherently exploits sex workers, regardless of how the sex workers say they feel about it, and some people feel that prostitution is also harmful to men, because transactional sex is not as emotionally healthy as sex in the context of a loving relationship. They’re welcome to judge the situation that way, but in an economic benefit-cost analysis we have to accept everyone’s decisions equally.

We especially shouldn’t substitute our own judgement. That would be an error for at least three reasons:

First, that’s just not how economics is done. One of the basic assumptions in economic thinking is that people are rational utility maximizers, which is economist-speak for saying people are always trying to improve the quality of their lives, based on their own personal ideas of happiness. Economists assume that when people choose to do something — buy sex, sell sex, whatever — it’s because doing that thing will provide the greatest benefit in their lives at the lowest cost possible, according to their own evaluation of the benefits and costs.

Strictly speaking, that’s not always true. People make mistakes all the time, and economists are developing more complex models to refine their predictions accordingly. Nevertheless, there’s a difference between observing that people deviate from the rational utility maximizer model and proving that those deviations are large enough, imbalanced enough, and consistent enough to justify discarding people’s revealed preferences. In practice, the assumption that people will rationally pursue their own best interests is very useful, and if we discard it, we’re straying far from well-understood economics.

The second reason for not overriding people’s judgement with our own is that it’s not our life. The people making the decisions probably know a lot more about their lives than you or I do, and they have a much stronger incentive to make the right decision, since they will receive the benefits and suffer the costs.

Unlike most of us, sex workers don’t just read about prostitution, they don’t just study it. They live it. They work strange hours and see oddball clients, they have sex with strange men and do the emotional labor of pretending to enjoy it. They take all the risks everyone worries about, from getting ripped off to getting killed. They take the money, and they risk getting arrested and being labeled a criminal. They know a great deal about being a sex worker, and for us to think we can make better decisions about their lives is the height of arrogance.

That’s not to say that people don’t make mistakes about their own lives, since they certainly do. I think we can all speak from experience about that. And sometimes we can see other people are making a mistake even when they can’t. But to dismiss a whole group’s decisions about their own lives is to assume we are consistently smarter than all of them. That’s an amazing claim that should only be accepted under exceptional circumstances.

Sometimes, granted, circumstances are exceptional. Doctors, for example, often have a really good understanding of medical issues, and in the course of a medical career they must encounter thousands of examples of patients making health decisions that are just flat-out wrong. And yet…one of the core principles of medical ethics is to never do anything without a patient’s consent. If a patient is refusing treatment, doctors can have the results of thousands of dollars in lab tests, decades of medical history, and billions of dollars worth of peer-reviewed reproducible research saying that the patient is wrong, but medical ethics do not permit the doctor to force the treatment on the patient. But somehow the folks at Le Mouvement du Nid think their far less rigorous knowledge entitles them to make decisions for tens of thousands of sex workers they’ve never even met.

The third reason for not substituting our own judgement for the judgements of the people we’re studying is that it would be cheating.

Let’s say you hate the taste of brussels sprouts so much that you’d like the USDA to ban them for human consumption, and to support your effort you commission a survey to prove that the taste of brussels sprouts is so awful that no one would eat them, and therefore that farming them is a waste of agricultural resources.

When you get the survey results back, however, most of the participants say that brussels sprouts taste like week-old armpit, but a significant fraction of the population — a fraction large enough to account for all brussels sprout consumption in America — says they find brussels sprouts to be a tasty alternative to more traditional vegetables.

Obviously, no matter how wrong you think those people are about the taste of brussels sprouts (and they are very, very wrong), it would be unethical for you to simply discard their responses and present the remaining data in your study as if it were unbiased. If you discard the opinions of people who disagree with you, then of course the study will support your opinion.

That’s what you do if you try to perform an economic study but you substitute your own preferences for the preferences of the subjects of your study. That’s what the ProstCost study does when it counts the costs of prostitution but it ignores the benefits — benefits that must be present to explain why tens of thousands of people engage in sex work and hundreds of thousands more hire them.

Getting back to the study itself, I explained earlier that we know prostitutes produce their services for a cost of at most € 3.2 billion and consumers receive at least € 3.2 billion in benefits — together these are the producer and consumer surpluses from trade. The benefits almost have to be greater than the costs, but is the resulting gain greater than the € 202 million external cost that I calculated in the previous post?

I have no way to know without more economic data. However, € 202 million is only about 6.3% of the prostitution trade, so the surpluses wouldn’t have to be very big to overcome it.

We can, perhaps, make some headway by looking at the taxes. Even if the people making money from prostitution are able to evade € 853 million in income taxes by hiding their earnings as the study indicates, there are lots of other taxes which they can’t avoid.

They have to live somewhere, so they can’t avoid paying residence and land taxes, and everything they buy is subject to value-added taxes (similar to sales taxes), and there are also some industrial taxes that are passed along to consumers. The sex workers may not report their income, but they still have to spend money, and some of that money eventually gets paid as taxes.

We can make a rough estimate of how much sex workers still still pay in taxes because we know that the tax burden in France is about 45%, which means that the expected tax burden on € 3.2 billion in prostitution earnings is about € 1440 million. Even if they manage to evade € 853 million of it, that still leaves an expected € 587 million in paid taxes, or about 2.9 times the € 202 million external social cost.

So based on the data in the study, plus a few other statistics and some economic thinking, prostitution provides a net benefit to France.

At the beginning of this post, I speculated that one of the reasons Le Mouvement du Nid conducted this study was that they objected to the recent decision to include prostitution in European Union GDP calculations. However, as far as I can tell, most of the costs discussed in the ProstCost study have nothing to do with GDP.

Taking money from taxpayers and giving it to poor people may be the compassionate thing to do, but it’s not a productive activity. Therefore these transfer payments do not go into the GDP calculation. So if I’m right that “Cost implications direct social” refers to anti-poverty welfare transfers, then these items have no effect on GDP and neither do taxes or, more importantly for our purposes, evasion of taxes.

“Direct costs Medical (Cost of health)” is healthcare workers producing healthcare, so it actually adds € 85 million to French GDP. And “Direct costs non-medical” is the cost of government employees doing something presumably productive, so that’s another € 35 million, for a total of about € 120 million contributed to GDP.

(If it strikes you as odd that poor health can lead to expenditures that show up as increased GDP, you’re not alone. It’s one of the reasons why economists warn that GDP is only a very rough proxy for national well-being. Neither pro- nor anti-sex work advocates should really be arguing GDP. It’s the wrong economic measure for this kind of thing.)

“Human costs for people Prostitutes” — rape and murder — are not traded in the marketplace, so they are left out of GDP calculations, as are “Homicides/Suicides.”

“Losses production due to incarcerations” is a direct hit on GDP that reduces it by € 19 million, but that loss is due to criminalization of prostitution, not to prostitution itself, so the effect on GDP is still around € 120 million.

I don’t know what goes into “Placing children.” If we treat that € 59 million as the cost of caring for children, that’s a productive activity that goes into GDP. If it’s a transfer payment, then it doesn’t. Let’s assume the latter, and keep our total at around € 120 million.

The remaining costs amount to € 1547 million, but they don’t affect GDP.

The net effect so far is that the “costs” of prostitution seems to be producing a total of € 120 million in additional GDP because of spending on healthcare and government services.

To be honest, that could be completely illusory. We don’t know what would happen to all those healthcare and government workers if they weren’t getting paid to provide services to sex workers. Maybe they would would be unemployed, in which case the € 120 million is a real gain to GDP, or maybe they would just be doing some other work, in which case they’d still get about € 120 million, implying that prostitution contributed nothing. The real answer is probably somewhere in the middle.

(As I said, counting medical expenditures for health problems probably isn’t the best idea for measuring social welfare — if doctors didn’t have to take care of sick sex workers, French society could presumably spend the money some other way. This is why I counted them as costs in my analysis in part 2.)

Of course, even if that GDP gain from healthcare and government spending is illusory, there’s another huge GDP gain that is not: The € 3.2 billion that prostitution adds directly to the GDP. Unless you’re able to make a convincing argument that prostitution — unlike all other work — doesn’t belong in the GDP, that’s a hard number to beat.

(And remember, you can’t argue that the € 3.2 billion should be excluded from GDP because prostitution is a crime and then argue against decriminalization of prostitution because it doesn’t help GDP. That’s cheating again.)

The study concludes with an odd note:

“It is important to note that while prostitution customers spent their money in any other activity, the French company would save each year several hundred million euros expenses related to the consequences of prostitution and parallel increase its tax revenues of at least EUR 853 million.”

I’m having trouble getting my head around what that even means. Counterfactual propositions are always tricky to think about, but that one is really broad and open ended. I’m not even going to attempt a full analysis. But I’ve got to ask a few questions.

What if prostitution consumers quit hiring sex workers and decided instead to spend their € 3.2 billion on high-end iPads and Ford F-150 pickup trucks? Those are imported, so France would still lose € 853 million in taxes. And without that € 3.2 billion flowing to sex workers, they would be unemployed, which would certainly cause social welfare spending to skyrocket. Even if they did find jobs, they would probably pay less or have other less desirable features. After all, if there were easily available jobs that were better than sex work, why would there be sex workers?

That last point is actually pretty important. Sex workers do sex work for the same reason all of us do our jobs: Because it is the best job they can find that meets their requirements. If their customers went away, it would reduce the quality of their lives. We know this because if having no customers raised the quality of their lives, they could simply quit the business.

However, the real problem with the quoted observation is that even if we assume that everything I’ve written in these three posts is dead wrong, and even if we accept the premise that if prostitution customers spent their money on any other activity, the French economy really would save € 1.6 billion, it’s still just a fantasy.

Sure, if hundreds of thousands of French men all voluntarily decided to give up a bit of their personal happiness out of an altruistic desire to improve the welfare of others, that would make other French people’s lives a little better. But that’s never going to happen.

Or to put it another way, why is Le Mouvement du Nid thinking so small? Why limit their fantasies to having Frenchmen give up only prostitution? As long as they’re looking for imaginary solutions, why not imagine how much better France would be if everyone also gave up burglaries, car thefts, robberies, rapes, murders, scams, riots, and public corruption? I’m sure that would save a lot of money too.

In the real world, if Le Mouvement du Nid wants to get French men to give up hiring sex workers, they’re going to have to do it with some kind of law enforcement “end demand” policy that will force them to stop. That might be possible, but the effort would be an enormously expensive War On Prostitution, for which we haven’t even begun to estimate the cost.

In the end, what I’ve seen so far of this study doesn’t prove much of anything. I may change my mind if I ever see a better translation or more data from the actual study, but until then I think this whole thing is better viewed as a publicity stunt.