Your morning lesson:
The problem with growth
http://www.feasta.org/growth.htm
"...while growth seems desirable, not all growth is good. Just as the wrong form of uncontrolled human growth, cancer, can be damaging and even fatal, so can the wrong sort of economic growth. Unfortunately, the wrong sort of economic growth is the type we've largely been getting for at least twenty years. Why? Simply because if a largely unregulated market is left to decide which sectors of the economy are to expand and how they will do so, it's impossible to ensure that good growth comes about.
Let me explain. Economic growth is considered to have taken place if the total value of the goods and services purchased in an economy increases over the course of a year. It makes no difference whether the extra goods and services are good goods and services or ones that it would have been better if we'd managed without. "Who are we to judge?" the economists ask. "If people want them enough to pay good money for them that should be sufficient."
Unfortunately, however, it's not. This failure to discriminate means that the Gross Domestic Product - the monetary value of a nation's annual output - is a mixture of goods and bads, of costs and benefits. For example, GDP includes the value of the work generated by dealing with traffic accidents and cleaning up oil spills, and by other similar mishaps produced by the way the economic system operates. As a result, a rise in GDP these days gives very little indication whether the welfare of the population which produced it is rising as well. Indeed, researchers who have corrected GDP figures to eliminate the bads they contain have shown that on a sustainable basis, the growth process in some industrialised countries is actually making the majority of their populations worse off.
One correction these researchers make involves deducting the value of all those things which are purchased because they are needed to ameliorate damage done by the growth process itself and which leave people with no net benefit. Sound-proofing required to keep out increased traffic noise would fall into this category. So would the cost of dealing with asthma brought about by fumes.
Another removes the cost of activities which are necessary for a modern economy to function but which do not themselves give anyone any pleasure or satisfaction. Packaging materials, TV commercials, commuting to work, accountancy services, tax collectors, policemen, prison officers, all fall into this category of 'regrettable necessities'. So too, when you think about it, do the jobs most of us perform. True, earlier economic systems had equivalents of most of them - they needed transport, packaging and policing too. But what seems to be happening is that a rising percentage of all the growth in a modern economy is swallowed up by the regrettable necessities which enable the system to carry on.
A third correction allows for changes in the value of activities people carry out for themselves. For example, if I repair my own car, only the spares I buy will contribute to GDP. On the other hand, if I get a garage to do it, the total bill will. Similarly, if I eat all my meals at home, only the cost of the food and fuel is added to the national statistics. But if my hectic job prevents that and I have to snatch a burger in McDonald's instead, I might be worse fed but the economy seems better.
A fourth corrects for the natural capital the growth process uses up. Thus if changes in agriculture increase output but cause a more rapid rate of soil erosion, the value of the additional soil lost needs to be deducted from GDP. A similar deduction is required to allow for the reduction in the natural capital stock caused by burning fossil fuel and also the damage expected from its contribution to global warming. And if forests are felled more quickly than they grow, deductions should be made for this too as otherwise, in the words of The Economist in 1989, "a country that cut down all its trees, sold them as wood chips and then gambled the money away playing tiddly-winks would appear from its national accounts to have got richer". But capital corrections are not all the one way. If people acquire more domestic capital - things like cars, washing machines and video players - the researchers add to GDP the value of the services they get from them.
Finally, the researchers allow for the fact that not all GDP ends up in national hands because interest and dividends have to be paid to investors overseas. (Some of this loss is cancelled out by equivalent payments coming the other way.) They then divide their residual by the population of the country concerned to produce what they call the Index of Sustainable Economic Welfare (ISEW), one of the best guides available to deciding whether the growth process is actually beneficial. It is certainly much, much better than raw GDP.
In 1972 James Tobin, who went on to win the Nobel Prize, and William Nordhaus, became the first economists to make corrections of this kind. Their goal was to show..."
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