The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [39]
So the absence of “true” prices for environmental goods poses a dual problem: they are overconsumed, and we are unable to easily measure their value.
GDP is a good indicator of production, which is what it was designed for, and even, as we’ve seen, a reasonable indicator of happiness, but as a guide to the effectiveness of economic policy and how much growth is enough, it is inadequate. Its key flaw from this perspective is that it doesn’t incorporate the true value or the depreciation of natural (and other) assets. In other words, it makes no allowance for what will ensure the potential for future growth, as opposed to recording past growth. The inclusion of “satellite accounts” for nonmarket issues, such as the environment or indeed household satellite accounts measuring unpaid work in the home, are recent innovations in national accounts statistics. They should remain an important priority for statistical offices. But to avoid being forced by what we do now measure into an excessively short-term focus, we urgently need better statistics on natural and other forms of capital.
Although an economy’s “comprehensive wealth,” as it has been termed, is hardly an easy indicator to build, neither is GDP. The statistics of the national accounts are extremely complicated, with all kinds of ad hoc assumptions and patches. A growing number of economists who study environmental and welfare economics are coalescing around a measure of comprehensive wealth. Economic growth means that GDP must increase; sustainable growth requires also that investment in comprehensive wealth is positive.32
Some early estimates of comprehensive wealth do exist. They add investment in human capital (measured by education spending) to conventional measures of capital and deduct disinvestment in natural capital—for example, reductions in the stock of oil and minerals, increases in the concentration of carbon in the atmosphere. The adjustments made in these early estimates fall short of the ideal—improvements in human capital due to improved health are left out, as are losses of fish stocks—but it is certainly the avenue to pursue. Kirk Hamilton and Michael Clemens (1999) and the World Bank (2006) estimated comprehensive investment in the period 1970–2000 in over 120 countries. Their analysis is inevitably preliminary. Still, it is a start.
Kenneth Arrow and his coauthors (2007) also used estimates of comprehensive wealth and concluded that economic development had gone backward in a large number of developing countries in the years 1970–2000. China was one exception; other countries, including India and Pakistan, had seen total comprehensive wealth rise, but not in per capita terms because of their high rates of population growth. In developing countries, the aim is not to demand less consumption by people who are very poor, but to seek better policies and economic institutions so that their use of resources is more productive. Dasgupta writes: “In poor countries the production and distribution of goods and services are highly inefficient, implying that consumption and comprehensive investment there do not compete for a fixed quantity of funds. Better institutions would enable people in the poor world to both consume more and invest more.”33
The statistics we need do not yet exist. But then neither did GDP before the need arose in the Great Depression of the 1930s to have a reliable measure of what was happening to the economy’s level of production. The need precedes the development of the appropriate measures. Cross-country measures of comprehensive wealth are needed now. The Sen-Stiglitz commission discussed the concept of “extended wealth,” a concept they defined as the relevant economic counterpart of the notion of sustainability. This would include not only