The possibility that GNP may be overstated, as in my previous posting,
is only one of its alleged sins. Many people wondered what else it may be hiding
and what it reall tells you. A strong condemnation of using GNP or
GDP as an indicator of societal progress appeared in Atlantic Magazine in
October 1995 under the title "If the GDP is Up, Why is America Down?". It
was authored by Clifford Cobb, Ted Halstead, and Jonathan Rowe. Here
is a sample paragraph:
The GDP is simply a gross measure of market activity, of money changing
hands. It makes no distinction whatsoever between the desirable and the
undesirable, or costs and gain. On top of that, it looks only at the portion
of reality that economists choose to acknowledge--the part involved in
monetary transactions. The crucial economic functions performed in the
household and volunteer sectors go entirely unreckoned. As a result the GDP
not only masks the breakdown of the social structure and the natural habitat
upon which the economy--and life itself--ultimately depend; worse, it actually
portrays such breakdown as economic gain. I've had to refresh myself on the meaningfulness of national accounting
measures recently in connection with a project I'm working on. Here's what
I wrote on the idea, espoused by many people, that GNP should be extended into
"full cost accounting". It's based on Herman Daly. So if it's wrong,
blame him.
"The usual measure for national product (GNP) consists of two
elements. One is product that must be used to replace or replenish
machines and equipment that have been used to produce the national product, or
“depreciation”. When the latter is subtracted from national product one
is left with the other element, the product that is available for the current
purposes of investment and consumption. This is termed “Net National
Product (NNP)”. The problem, however, according to proponents of
full-cost accounting, is that depreciation estimates and other “costs”, as
conventionally measured by national accountants, are understated and hence NNP
is overstated, giving a false impression of available product.
To move to a full-cost accounting system, two adjustments would have
to be made. One is simply to extend the principle of depreciation to cover
consumption of natural capital stocks depleted through production. The other
is to subtract expenditures necessary to defend society from the unwanted side
effects of production and consumption.
The concept of consuming natural capital is easily understood,
especially in an economy dependent on non-renewable resources, but even in one
dependent on renewable resources that are over-exploited, such as cod in
Newfoundland. Once the resources are gone, they are gone. They
cannot be replaced, and if enough of them are used too quickly, an economic
decline is unavoidable. Defensive expenditures, on the other hand, are
essentially unwanted by-products of the production and use of national
product. They can include the over-exploitation of envi-ronmental
resources in the general course of economic growth, the costs associated with
urbanization (pollution, crowding, commuting etc.), and the costs of unhealthy
consumption and behavioral patterns.
Instances of putting full cost accounting into practice are
rare. Statistics Canada has worked on the development of a new component
of the national accounts that will integrate environmental factors into the
traditional Canadian System of National Accounts. These new accounts
would provide data on the physical quantities and monetary values of Canada's
natural resource stocks; on the depletion and uses of these resources; on
waste emissions to the environment; and on environmental protection
expenditures."
Ed
Ed Weick
577 Melbourne Ave.
Ottawa, ON, K2A
1W7
Canada
Phone (613) 728 4630
Fax (613)
728 9382
|
