Or here's another way of putting it, from Roefie Hueting, "Why environmental sustainability can most probably not be attained with growing production"
3. The phenomenon of asymmetric entering (asyms) "According to standard economic theory, producing is adding value. National income (NI) equals the sum of the values added. So NI measures - the fluctuations in the level of - production. It does so according to its definition and according to the intention of the founders of its concept to get an indicator for one of the factors influencing welfare - and a tool for quite a few other purposes. See Tinbergen and Hueting [12]. (Nobelist Jan Tinbergen was one of the founders of the concept of NI and its quantification). "This value is added to the non-human-made physical surroundings. Consequently, environmental functions remain outside the measurement of standard NI. This is logical and easy to understand, because water, air, soil, plant and animal species and the life support systems of our planet are not produced by humans. So losses of functions, caused by production and consumption, are correctly not entered as costs. However, expenditures on measures for their restoration and compensation are entered as value added. This is asymmetric. These expenditures should be entered as intermediate, as they are costs. "This asymmetry is often defended by the remark that these expenditures contribute to welfare and generate income; see De Haan [18] and Heertje [19]. This is of course self-evident, counting from the moment at which the loss of environmental functions and the consequential adverse effects have already occurred. However, the production factors, used for the measures, do not add any value counting from the moment that the functions were stillavailable. With respect to that situation there is consequently no increase in (1) the quantity of final goods produced and (2) the availability of environmental functions. Opposite to the income earned with carrying into effect the measures there stays consequently no increase in production volume (= final goods produced) with respect to that situation. By entering these expenditures as final instead of intermediate, the growth of production is overestimated, thus obscuring what is happening with both environment and production. "Asyms (asymmetric entries into NI) can relate to events in the past, to events in the current financial year (e.g. oil spills) and, as prevention, to events expected in the future due to loss of function; that does not make any theoretical difference. It always boils down to undo or counteract the effects of production growth that should not contribute to the same growth. Asyms are clearly in conflict with the original intention of the founders of NI as a measure of fluctuations in the level of production; see Tinbergen and Hueting [12]. "Hueting [5] comprehensively enumerates the shortcomings of NI (or GDP, gross domestic product). The term ‘double counting’ is used in imitation of Kuznets. However, because actual items are not entered twice, the present author later uses the term ’asymmetric entering’." On Mon, Nov 8, 2010 at 11:55 AM, Ray Harrell <[email protected]> wrote: > We have this in patrons of the arts as well. It's called Strategic Giving > and the person who wins is the one who can get someone else to charitably > fund what the original person wants and therefore can free ride. Therein > lies the fudging of such things as you point out. Someone's winning and > someone's losing but all are playing the game and who are you to point out > the cheaters? The fudging is like moving the ball after you've fallen on > it and taken it out of play. > > I would suggest that the patronage games of the wealthy are a part of what > you are categorizing as simple facts. Facts are not simple truths but > mutual agreements as to how the game will be played. That's why scientific > "facts" like climate change are OK topics for legislating the weather. The > weather is a political reality since it is so chaotic and defies > computation. The story goes because climate change is an agreed upon "fact" > it has no "reality" except in the minds of the scientists therefore you are > free to create counterfacts out of the air, whole cloth, whatever. > > Patronage games are played all over. The past election for example. With > all of the fact check folks going nuts, the tit for tat gaming became so > bizarre that you had idiots being seriously considered as legislators who > would fund wars and build nuclear reactors. I would suggest a new name for > this. Neo-conservative, neo-liberal and neo-classic make no sense anymore. > What has really emerged here is neo-feudalism with an aristocratic upper > class of game players and winners and all of the rest of we serfs who are > merely "reality TV games" for their amusement. > > REH > > > > -----Original Message----- > From: [email protected] > [mailto:[email protected]] On Behalf Of Sandwichman > Sent: Monday, November 08, 2010 1:41 PM > To: RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION > Subject: [Futurework] Economic growth, intermediate goods, externalities and > the double counting problem > > In 1871, engineers in Newcastle went on strike for a nine-hour day. > Toward the end of that strike, the main spokesman for the employers, > Sir William Armstrong sent a letter to the editor of the Times of > London in which he outlined his estimate of financial loss that would > be incurred by the employers if they granted the strikers' request for > a 54-hour week. > > Sir William's calculation was based on the naive assumption that > output would decline in proportion to the reduction in working time. > But it also contained an error that doubled the estimated loss. > Armstrong projected a drop in net revenues of 17%. Using comparable > productivity estimates from 1880, a more reasonable estimate would > have been 2%. So Armstrong's estimate was off by roughly an order of > magnitude. So much for the financial accounting prowess of management. > > In 1997, I wrote a piece on contract costing for collective > bargaining. I studied how labor unions did their cost estimates and > discovered a significant instance of double counting in the unions' > standard costing model. This time the error was to the unions' > disadvantage. Unions flocked to my door to learn about the mistake and > to seek my advice on how to remedy it. Oh wait... Come to think of it, > they actually didn't. Which reminds me of an economist joke. Two > economists were walking along together when one of them spotted a $20 > bill lying on the sidewalk. "Look, a $20 bill!" he cried out. > "Impossible," replied his colleague, "incentives matter. If there was > a $20 bill on the sidewalk, somebody would have already picked it up > by now." > > Back to my story. The double-counting problem is a persistent and > elusive one in social accounting. A supplement to my accounting > textbook from 1977 has a half-page reference to the problem, with > regard to national income accounting, somewhere in the back of the > book. It explains that the "GNP accounting system must take care that > the prices of _intermediate goods_ (i.e., goods and services for > further processing, manufacturing, or resale) are not included over > and over among the transactions accounted for. Why? Because the value > of final goods _includes_ the values of prior or component > intermediate goods." > > So how good are GDP accountants at excluding intermediate goods? > Lousy. Not just lousy, but systematically lousy. There is a way around > discounting the prices of intermediate goods and it is called > "externalities." If a company can get somebody else to pick up the tab > for their "intermediate goods", then they magically become final > consumption goods and the whole lot can be counted in GDP. Hey, > presto! Here we have an idiot-proof recipe for perpetual economic > growth. Promote the proliferation of "externalities" and GDP can > gallop ahead year after year, lifting all boats and putting a chicken > (or at least an oil-soaked pelican) in every pot! Happy days are here > again. > > The thing to keep in mind is that the national income accounting > system and the treasury department have built in incentives for > goosing the GDP through the inclusion of unacknowledged intermediate > goods and incentives for not noticing that the GDP is being goosed. > Probably more than a few low-level analysts ended up out on the street > after scribbling an alarmist memo or two about the problem. > > Here's what I see as the crux of the problem: both critics and > promoters of economic growth see pollution and resource exhaustion as > undesirable side effects of economic growth. Critics view the > side-effects as inherent and irreducible. Promoters insist that the > problems are remediable and even more growth is needed to fund > solutions to those problems. But what if both sides have put the cart > before the horse? What if it is the "economic growth" itself that is > the side effect? Furthermore what if that presumed growth is actually > just a accounting artifact of the improper handling of intermediate > goods, disguised as externalities? > > That is what my encounters with double counting suggest to me. Double > counting occurs on the boundaries between discrete accounting units. > It also takes place at the boundaries between monetized and > non-monetized values. In a dynamic economy, those boundaries are ever > shifting but national income accounts have no capability of handling > the most significant changes. Furthermore, there is an overt financial > incentive to gerrymander those boundaries to boost economic growth. > Military Keynsianism and supply-side economics are two instances that > can be clearly demonstrated (in the testimony of their proponents) to > be deliberate efforts at boundary shifting so that intermediate goods > can be counted as final goods and thus count as growth and, in the > process, enhance government revenues. > > > -- > Sandwichman > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework > -- Sandwichman _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
