`Good' vs. `bad' spending


Tool: The Gross Domestic Product is a flawed gauge of the nation's true wealth.

July 26, 2002|By Tom Horton | Tom Horton,SUN STAFF

Feeling duped by the illusory bookkeeping of Enrons and WorldComs as you watch your 401(k) shares wither like this drought summer's corn?

Amid the cries for accounting reform, Bob Costanza thinks it's time to focus on a similar, but far greater, federal government schemes that has been depleting our shares in planet Earth for decades.

The accounting tricks of corporations pale, says the University of Maryland professor, compared with how the government carries nature and human welfare "off the books" to falsely boost the economy's value.

Costanza, whose work blends ecology and economics, is talking about the Gross Domestic Product, or GDP -- the government's broadest gauge of how the economy is doing.

The GDP measures total national spending for goods and services, but it makes no distinction between "good" spending and "bad" spending, he notes.

Spending on crime, divorce, pollution, sickness, car wrecks -- it all adds to the GDP just the same as purchases of barbecue grills, new cars and money spent on day care for the kids and elderly.

But the real problem is what the GDP doesn't measure. People who cut back on paid work to care for their kids or elderly parents are not valued at all -- their lower paychecks decrease the GDP.

Marshes and forests and oysters, with their well-documented abilities to filter and absorb massive quantities of air and water pollutants, count for nothing in the GDP.

Why? Because no one pays for their ecological services, they have no value as the GDP sees it, Constanza explains.

But if a marsh were drained and a shopping mall built, or a forest were bulldozed for new housing, that would move the GDP upward.

Similarly, the cleanup spending required by a big oil spill, such as the one caused by the Exxon Valdez in Alaska 13 years ago, gives the GDP a boost.

Maybe if we understood the GDP for what it is and isn't, it wouldn't be so harmful. But Constanza says it has become a widely accepted and simplistic indicator of economic health: GDP up -- good; GDP down -- bad.

Just read the business pages of The Sun or check any other mass media. A typical example: "The Gross Domestic Product grew at an annual rate of 6.1 per cent. ... On Wall Street, the report gave stocks a lift. ... Good news ... "

Conversely, a sustained decline in the GDP is a key factor in declaring that the country has entered a recession.

Some economists, including Herman Daly, a colleague of Costanza's at the University of Maryland, have for years been refining alternatives to GDP -- keeping the nation's accounts as if nature and human well-being mattered.

The latest version is the GPI, or Genuine Progress Indicator, which is maintained by a group called Redefining Progress (check their Web site, www. rprogress.org/projects/gpi).

The GPI shows a more sobering, but more accurate, picture of how we've been doing in preserving ALL our assets -- material, natural and social.

While the GDP has shown a steady upward trend since 1950, the GPI climbed more modestly until about 1975, and has gradually drifted downward since.

In a sense, Costanza says, we've been in a recession for the past 27 years.

We're driving more cars more miles, living in bigger homes on larger lots, enjoying a host of material luxuries undreamed of in 1950.

But we've lost, "off the books," gobs of natural capital, from old-growth forests to oyster reefs.

And survey after survey shows that since the '70s, about when "genuine progress" peaked, there's been little change in the percentage of people who consider themselves "happy" and "satisfied," despite soaring material well being.

For the Chesapeake Bay, the implications of the GDP's accounting would be criminal if the bay were a corporation. We perpetuate and preserve what we value, and we aren't valuing nature in ways that are reflected in the bottom line.

Here are some ways to begin rectifying this, according to Costanza:

Shift national policies from increasing the GDP to increasing the GPI. Tax "bads," such as pollution, as well as activities that deplete wetlands, forests and other natural capital. Stop taxing "goods," such as labor, savings and investment.

Reform international trade to promote environmental protection and labor rights over pure growth in trade. Reform campaign finance laws so the welfare of individuals can compete through the democratic process with the welfare of corporations.

We in the media could begin by not running simplistic stories that treat GDP-up, GDP-down as good or bad -- by explaining to readers that their portfolios contain wetlands and trout streams as well as stocks and bonds.

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