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In much the
same way if the negative externalities (and social costs of all sorts) were
factored into our GDP we would find that our economy is much less robust than it
presently seems.
arthur
This
is reminding of Hernando de Soto's remarkable book and theses, that 3rd world
countries have large grey market economies, not measured by GNP/GDP. He argues
that if these grey market transactions were legalized or recognized legally,
that the economies of these countries would be seen as much more robust that
they presently seem.
Cheers,
Lawry
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
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