Nature's Numbers: Expanding the National Economic
Accounts to Include the Environment
When a majestic, 300-year-old red-wood is cut down and turned into picnic tables, the logging and picnic table-building activities add to the gross domestic product (GDP), while no deduction is made for the loss of that tree and all the nonmarket services it provides. When a paper mill dumps dioxin-laden wastes into a river, the paper-making boosts the GDP, but no deduction is made for the costs associated with the water pollution. Conversely, no addition is made to the GDP for the air and water cleaned by wetlands or old-growth forests. Such perversities and omissions are deeply embedded in the way the United States measures economic activity, and form part of the intellectual foundation for anti-environmental economic policies. But if the recommendations of the economists who wrote Nature's Numbers are followed, such flaws in the national accounting system will be corrected.
The national income and product accounts (NIPA), which undergirds the measurement of GDP, was originally constructed to tabulate only market activities. When it comes to the environment, there are three problems with the NIPA. It counts the unsustainable overharvesting of fisheries and forests and the activities of pollution-causing factories as economic activity with no offsetting deductions; it depreciates man-made capital, but largely ignores the depletion of natural capital such as oil, forests, and underground aquifers; and it fails to count the numerous goods and services provided by air, water, wetlands, and complex ecosystems--or even the value of visits to Yellowstone National Park.
Nature's Numbers comes down solidly in favor of green accounting. It calls for extending the NIPA "to include assets and production activities associated with natural resources and the environment." And it argues against the Commerce Department's earlier "phased approach" of gradually adding "satellite accounts" to test the inclusion of new concepts. Instead, it advocates a comprehensive approach of developing a series of nonmarket accounts parallel with the near-market accounts. That means that air and water quality (nonmarket accounts) would be included along with near-market activities like cooking hamburgers at home and the services of consumer capital like automobiles and washing machines.
The book was originally produced as a report by the Panel on Integrated Environmental and Economic Accounting, which was established by the National Academy of Sciences, at the request of the Commerce Department, reportedly after a couple of congressmen from coal-mining states forced the cessation of Commerce's modest attempts at green accounting in the early 1990s. The panel was packed with high-level economists and technocrats, and chaired by William D. Nordhaus, a former member of the President's Council of Economic Advisers and provost at Yale, who has published extensively on environmental economics. His role indicates the importance of this project and how mainstream green accounting is becoming.
This is a careful, intelligent, and weighty book about an often complex subject. (It is also quite well-written, for its genre.) As such, it will provide an important boost to the efforts for green accounting in the NIPA and may be difficult for Congress to resist. It should help move us to the point where protecting the environment no longer shows up as a drag on GDP.
Yet some would argue that environmental accounting doesn't go far enough. Redefining Progress, a San Francisco-based progressive think tank, maintains that we also need to incorporate activities such as crime and divorce as negatives and community life and volunteer activity as positives in a true measure of well-being--a "genuine progress indicator." Maybe so. After all, we tend to treasure what we measure.
Native Forest Council
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