Tag Archives: gdp

Bridging the Gap Between National and Ecosystem Accounting

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This study estimated the value of a forest in Spain at more than five times what is estimated using standard national accounting methods (GDP, I assume). If this is the case, it suggests to me that the idea of just tweaking GDP to include ecosystem services isn’t going to work. The article is open access.

National accounting either ignores or fails to give due values to the ecosystem services, products, incomes and environmental assetsof a country. To overcome these shortcomings, we apply spatially-explicit extended accounts that incorporate a novel environmental income indicator, which we test in the forests of Andalusia (Spain). Extended accounts incorporate nine farmer activities (timber, cork, firewood, nuts, livestock grazing, conservation forestry, hunting, residential services and private amenity) and seven government activities (fire services, free access recreation, free access mushroom, carbon, landscape conservation, threatened biodiversity and water yield). To make sure the valuation remains consistent with standard accounts, we simulate exchange values for non-market final forest product consumption in order to measure individual ecosystem services and environmental income indicators. Manufactured capital and environmental assets are also integrated. When comparing extended to standard accounts, our results are 3.6 times higher for gross value added. These differences are explained primarily by the omission in the standard accounts of carbon activities and undervaluation of private amenity, free access recreation, landscape and threatened biodiversity ecosystem services. Extended accounts measure a value of Andalusian forest ecosystem services 5.4 times higher than that measured using the valuation criteria of standard accounts.

alternatives to GDP

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This article in The Conversation (which is a new publication to me) goes through some of the alternatives and potential augmentations for GDP.

One approach is to have a dashboard of indicators that are assessed on a regular basis. For instance, workers’ earnings, the share of the population with health insurance and life expectancy could be monitored closely, in addition to GDP…

Another approach is to use a composite index that combines data on a variety of aspects of progress into a single summary number. This single number could unfold into a detailed picture of the situation of a country if one zooms into each indicator, by demographic group or region.

One challenge is to select the dimensions that should be covered. Through an international consultative process, the commission led by Sen, Stiglitz and Fitoussi defined eight dimensions of individual well-being and social progress, including health; education; political voice and governance; social connections and relationships; and the environment.

They also mention the Better Life Index from the OECD and the Human Development Index from the UN.

Japan

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According to the Economist, Japan’s economy is officially back in recession. I don’t fully understand these things, but I do find them interesting, so here’s my attempt at an explanation. They’re in a deflationary spiral, which means prices are falling, and people aren’t spending money because they expect prices to keep falling. It makes sense – if you want to buy something, and you expect it to be cheaper next week than it is this week, you will wait. It’s hard for an economy to grow under these circumstances. The government combats this by printing massive amounts of money and loaning it to itself, which it can then spend. Normally that would create massive inflation, but it doesn’t because no matter how much they print, everybody just sits on it and won’t spend it. If you think about it too much, you can’t help wondering whether money actually has any value or meaning under these conditions. It’s best if people don’t sit around wondering about that too much.

World Economies

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According to NPR, the U.S. economy has picked up, which is nice.

In the most recent quarter, this country grew at 3.5 percent — a very robust pace for a mature economy.

In the United States, the stock market is booming, budget deficits are melting away, corporate profits are breaking records and the unemployment rate is falling, down to nearly half the level set five years ago.

U.S. success shows “the resilience and determination of the American people,” Lew said. “It also reflects the ease of starting businesses, our highly competitive product markets, and the ability to reap rewards from entrepreneurship.”

In fact, the U.S. is doing so well that we have resumed wagging our fingers at other countries.

Meanwhile, Japan’s economy is stuck, with its inflation-adjusted growth rate running at less than 1 percent over the past decade. Europe may be on the brink of its third recession in six years.

Lew says that to grow, countries need a “comprehensive policy approach” that involves not only better fiscal and monetary decisions, but “structural” changes. When he talks about “structure,” he’s referring to the policy frameworks that hold back growth.

This sounds pretty good. We should also remind ourselves to have a comprehensive policy approach to not crash the world financial system again.

GDP and child mortality

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In this 2007 TED talk, Hans Rosling compares GDP and child mortality rates between countries over long periods of time. He makes some interesting comparisons – today’s “developing” or “emerging” countries have GDP similar to the U.S. about a hundred years ago (all adjusted for inflation and purchasing power, I assume), but they are much more advanced in terms of health and living standards than the U.S. was then. By animating over time, you can see how the catching up process occurred particularly after World War II. These plots are interesting because they show child mortality and GDP in two dimensions, but then use colors and bubbles to add various third variables like education level or carbon emissions.

I have to critique a little bit, I can’t help it. He mentions that GDP growth statistically explains 80% of the gains in child mortality. I accept the statistics, but I don’t think GDP growth is logically the cause of these gains. I suspect there are a couple key technologies, vaccination and water disinfection, that can probably explain a lot of the trend, and the discovery of these technologies happened to occur at a certain time in history. 100 years ago, when the U.S. was passing a threshold to join the club of truly wealth countries, we were in the early stages of discovering and implementing these trends. Today, when countries in Asia and South America are joining the club, these technologies are well established. So it’s not just about wealth, it’s about where we are at a particular moment of history. Logically, there can be periods where the world makes large gains in quality of life without equally large increases in financial wealth, and also the opposite.

Dashboard for inclusive, sustainable, and multi- dimensional growth

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The World Economic Forum has proposed a “Dashboard for inclusive, sustainable, and multi-dimensional growth.” It includes the World Bank Group’s “adjusted net savings or genuine savings indicator” which sounds to me like GDP with an adjustment for natural capital depletion.

the trophic theory of money

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This is Brian Czech on the “trophic theory of money”:

Due to the fundamental structure of the economy, the size of the economy – as measured by GDP – is a perfectly valid indicator of environmental impact. Agricultural and extractive sectors form the base, which must expand to support the growth of manufacturing and service sectors – yes even the “information economy.” This structure, which is the closest thing in economics to an inescapable law of physics, gives us the “trophic theory of money,” which says that the level of expenditure (GDP, in other words) is proportionate to environmental impact including such tangibles as biodiversity loss, climate change, and pollution in the aggregate.

It makes perfect sense that the overall scale of human activity is proportional to environmental impact, at least for a given level of technological knowledge, which doesn’t change very fast. Where I think he is wrong is the idea that money is a good measure of that impact. If you drew a pyramid showing the environmental impact of various sectors of the economy, starting with the lowest “trophic levels” like agriculture, forestry, and mining, and continuing up to the service and information sectors, it would indeed be a pyramid – agriculture, forestry, and mining would have the biggest ecological footprints, then the footprint of various sectors would decrease as you worked your way up the scale.

However, if you drew the same pyramid based on the contribution of each sector to GDP, it would be inverted, with agriculture, forestry, and mining representing much smaller numbers of dollars changing hands, and higher-tech sectors much more. The reason, I think, is that agriculture and mining have been around forever, and have become very efficient from an economic perspective (although we certainly don’t count their true costs in an environmental sense). The rate of technological change is low in those sectors, and we have turned them over to a small number of firms that know how to operate very efficiently and drive costs down, making small profit margins on a large scale. Relative to historical levels, prices are low enough in these sectors that we can largely take these goods and services for granted, and the majority of us have some money left over to spend on more frivolous goods like electronics.

The high-tech industries are rapidly evolving and have many players competing against each other to come up with novel things that we have just figured out we are willing and able to pay for. The profit margins in these sectors, and the total number of dollars changing hands, are much larger. This allows a larger number of players to compete at smaller scales.

A fun place to look at these statistics yourself is the U.S. Bureau of Economic Analysis’s interactive tables.