Correcting National Income for Environmental Losses: A Practical Solution for a Theoretical Dilemma
Author(s)
Hueting, Roefie
Abstract
With some exceptions, economists and policy makers the world over regard the expansion of physical output – i.e., production growth – as the measure of economic progress and success, and as an indicator of increasing welfare as well. Growth is therefore at the top of economic policy makers’ agendas. However, growth is accompanied by the destruction of the most fundamental, scarce and valuable resource at man’s disposal, and the very resource upon which growth depends: the environment. Yet the role of scarce environmental resources is virtually ignored in economics, and the systems of national accounts (SNAs) focus on growth alone, failing to account for the often irretrievable use of these resources in production processes. Three conclusions can be drawn from these observations: 1) society is sailing by the wrong compass at the expense of the environment; 2) this error is covered up by using terms incorrectly; and 3) the belief in continuous exponential growth, as measured in national income, is a the heart of the environmental problem. This paper examines the sorts of information that ought to be incorporated into SNAs to properly account for environmental losses due to damage or use, and discusses the practical problems associated with efforts aimed at valuation of environmental functions.
