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The Poison Beer of GDP

 

By Herman Daly, CASSE Economist Emeritus – October 3, 2018

Disaggregating reported GDP growth to reveal the differences in growth by income class, as per the Schumer-Heinrich Bill, is a good idea. After all, telling us, say, that average income grew by 4% is not nearly as informative as telling us that the richest ten percent received the entire growth increment while the bottom ten percent suffered a decline in income. Average income and growth rates are like the famous recipe for “50% rabbit stew”—one rabbit, one horse. We already know the extreme inequality in the distribution of wealth, of income, and of the growth increment, even without the Schumer-Heinrich Bill. However, if that information is incorporated every time new GDP figures are reported it will be much harder to ignore. Of course, that is exactly why the bill will be opposed by those who want us to believe that we are all getting 4% better off every year or that “a rising tide lifts all boats”, when in fact a rising tide in one place means an ebbing tide somewhere else.

Once we correct GDP for ignoring distribution, then perhaps we can go on to correct other defects, such as the fact that it adds defensive expenditures made to protect ourselves from the unwanted costs of growth (pollution, depletion, congestion, crime, etc.) while failing to subtract as a cost the damages that made the defensive expenditures necessary in the first place. For example, damages caused by an oil spill are not deducted, but expenditures to clean up the spill are added; depletion of soil fertility is not deducted, but expenditure on fertilizer is added, etc.

In addition, the very concept of income in economics is defined as the maximum amount that a community can consume this year and still produce and consume the same amount again next year, and the years after. The income from a fishery is its sustainable catch; the income from a forest is its sustainable cut. Consuming more than that is capital consumption, not income. Yet, as far as GDP is concerned, we can cut the entire forest and catch every fish this year and count it all as income—there is no rule against counting consumption of natural capital as income in GDP accounting.

If our main goal is to increase GDP rapidly, then we will not want to slow it down for concern about equity of distribution, or by correcting the asymmetric accounting of defensive expenditures, or by correcting the fundamental economic error of counting capital drawdown as income.  Maximizing GDP growth will lead to less concern for distributional equity, more depletion and pollution, and more consumption of natural capital.

I am reminded of a story told by G. K. Chesterton. A pub was serving poison beer and customers were dying. Alert citizens petitioned the local magistrate to close down the offending establishment. The cautious magistrate said, “You have made a convincing case against the pub. But before we  can do something so drastic as closing it down, you must consider the question of what you propose to put in its place…”.  Contrary to the magistrate you don’t need to put anything in the pub’s place. Nor is it really necessary to put anything in the place of the poison beer of GDP. As it happens, however, there are in fact better things to put in its place, such as the Index of Sustainable Economic Welfare, National Welfare Index, and Genuine Progress Indicator.


Herman DalyHerman Daly is an emeritus professor at the University of Maryland School of Public Affairs and a member of the CASSE executive board. He is co-founder and associate editor of the journal Ecological Economics, and he was a senior economist with the World Bank from 1988 to 1994. His interests in economic development, population, resources and environment have resulted in more than 100 articles in professional journals and anthologies, as well as numerous books.


Elect More Women: Prerequisite for a Sustainable Economy

by Brent Blackwelder

In 1990 there were only two women in the U.S. Senate, but in 2013, twenty women will be serving in the Senate, and another 81 women will take office in the House of Representatives. With this record number of Congressional seats held by women, the U.S. is closing in on the global average (20%) for lawmaking bodies. This is good news because evidence suggests that governmental bodies with more women are more likely to tackle issues of social justice and environmental health (and they’ll be more likely to pass budgets that reflect these concerns).

Especially noteworthy in the U.S. election were the defeats in the Missouri and Indiana Senate races where Todd Akin and Richard Mourdock gained notoriety when they expounded their views on rape. Akin announced that in cases of “legitimate” rape a woman’s body had defenses to avoid pregnancy, and Mourdock asserted that a pregnancy from rape was something that “God willed.”

It’s worth celebrating U.S. electoral gains for women, but there is a long, long way to go. Iceland, for example, has a majority of women filling its university professor positions, and women comprise almost half the members of parliament.

Why is it so important to elect more women to positions of power? And is having 20% of seats enough to make a difference? Researchers Tali Mendelberg and Christopher Karpowitz found that when women make up 20% of a decision-making body that operates by majority rule, the average woman used only 60% of the floor time as the average man. But once women comprise 60 to 80% of such a group, “they spoke as much as men, raised the needs of the vulnerable and argued for redistribution.”

Mendelberg and Karpowitz conclude: “…when there are more women in legislatures, city councils and school boards, they speak more and voice the needs of the poor, the vulnerable, children and families — and men listen. At a time of soaring inequality, electing vastly more women might be the best hope for addressing the needs of the 99 percent.”

Empowerment of women is the centerpiece of the strategy to achieve a sustainable, ecologically sound economy. Here are two of the many reasons for this claim: first is the overarching problem of a growing population. The inexorable momentum of the global population has led to over 7 billion human beings on the earth today and more to come every day.

At dinner tonight on this planet there will be 220,000 mouths to feed that were not present yesterday. Such a figure should cause alarm because the quality of farmland on the planet is being significantly impaired by erosion, by overpumping of ground water, and by the flood/drought cycles being exacerbated by global climate disruption.

Most experts on population growth observe that when women achieve a higher degree of status, respect, and power, they tend to have fewer children. Thus, empowerment of women is a key progressive strategy to stabilize population. In addition, slowing population growth could help reduce future climate-destabilizing emissions.

A second area is government budget priorities. Lawmaking bodies dominated by men spend too much money on war and too little on conservation, protection, and restoration of vital ecosystems. If the majority of members of legislative bodies were women, budget priorities would be influenced by more discussion and debate of sound economic policy.

In contrast to most policy discussions, which spend 90% of the time on the problem and 10% on solutions, I will conclude with two suggestions for continuing the trend of empowering women. First, enact a law that mandates a gender analysis before deploying U.S. foreign assistance in the form of projects, loans, or grants.

It surprises some people to hear that U.S. foreign assistance may be making women worse off. Most aid worldwide is not accompanied by any gender analysis that would answer the basic question: will women be better or worse off as a result of this grant, loan, or matching fund? The nonprofit organization Gender Action offers information and resources for tracking the effects of international financial flows on women.

Second, conduct more robust campaigns to fund family planning services worldwide. Population Action International points out that 215 million women who want to avoid pregnancy lack access to contraception and family planning.

The difference between a world reaching a population of 8 billion people in 2050 as opposed to 9.2 billion is huge. A world of 8 billion would emit roughly two billion fewer tons of carbon – an amount that is equivalent to what would be saved by eliminating all deforestation.