Friday, 13 May 2011

National Wildlife Federation GDP resolution

In its 75th annual meeting in April, the National Wildlife Federation adopted a resolution to urge "the President,  the Congress, and state Governors and legislatures to take immediate steps to redesign the use of the Gross Domestic Product as an indicator of economic well-being, and to take all necessary action to develop and implement in its place a system of economic accounting that gives a more accurate measure of overall economic and ecological well-being..." This is actually not all that radical, nor is it the "game-changer" that Center for the Advancement of a Steady State Economy says that it is. It is a recognition that non-market values are not a part of GDP, and should be, somehow. 

Now, the preamble and the staff analysis National Wildlife Federation fall into the trap that I contend environmental organizations often fall into, that of equating economic growth with environmental degradation. The preambles claim that "GDP misleads [in] ... that it systematically counts costs of ecosystem damage as economically beneficial..." (my emphasis) and that "[some] GDP measures consists of defensive and remedial expenditures that do not contribute to well-being, but instead are directed to repairing or preventing losses caused by economic development...   [as] vividly illustrated in the expense of cleaning up and otherwise remediating the damage from the Deepwater Horizon blowout, explosion and spill, with British Petroleum alone spending $11.2 billion for that purpose, all of which counts as a positive contribution to GDP..." 

Pooh pooh, cleanup costs. This illustrates a profound misunderstanding of very basic economics, even one that this inexpert macroeconomist recognizes: spending money on cleanups does contribute to the economy, even if it is not the way we would like to spend it. The right way to think about Deepwater Horizon is that yes, we spent $11.2 billion on cleanup, but we would really liked to have spent it somewhere else. You don't subtract the $11.2 billion because it is prevention or remediation -- by that reasoning, we should also subtract policing and incarceration costs -- but you can try to count the real costs, including the damage to natural capital. And I think NWF is mistaken in thinking that if this $11.2 billion weren't spent on cleanup, it would not be spent elsewhere. Besides, GDP will not completely devoid of accounting for this tragedy: future incomes from many activities in the Gulf will be diminished. It is just that GDP will not account for all of the losses.

On this score, NWF has actually been quite consistent in its position. It has supported the use of contingent valuation methodology, a way of valuing non-market goods using surveys. It is never easy to describe CVM in a way that is both understandable and yet also does justice to the hundreds of CVM researchers and thousands of research papers that have been done on CVM. Polemicists in environmental law decry the use of CVM, mocking the idea of asking random people on the street what they would be willing to pay to save whales. But it is easier to make fun of things that are hard to do, and easier still to peddle this disinformation to other environmental lawyers that don't understand it at all. It is a lot harder to appreciate that markets work to reveal prices, and harder still to make CVM work like markets. The upshot of CVM is this: it is an imperfect but still developing way of accounting for non-market environmental goods that we still don't know how to count. And if the NWF resolution helps us get there, then all the better.

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