Counting in Real Numbers - General
Counting in real numbers means counting in the physical units in which the major components of an issue are best expressed. If we are examining carbon emissions, tonnes is used rather than intensity (carbon emitted per dollar of GDP). The dollar is not a unit of measure in the physical world and the environment recognises only the physical amount of carbon. It has no interest in its relationship to the commercial economy.
GDP (Gross Domestic Product) is used to measure the commercial economy and GDP growth is often mistakenly used to represent the health of society. A much better indicator of social and fiscal health is GDP per capita which offers a least a small insight into the economic well-being of individuals and therefore of the economy as a whole.
The size of GDP and its rate of growth are irrelevant to the economic well-being or fiscal health of a nation.
Measuring a nation's health is best done with social indicators which would include:
- well-being quality of jobs
GDP was designed to total measure commercial activity and nothing else. It is only of interest to larger corporations, traders and government revenue agencies.
Measuring the number of jobs created gives no indication of social health or fiscal balance because as we have seen, many of the jobs being created are:
- part time
- low wage
- no benefit / low hours jobs
- sometimes even filled by foreign workers
These jobs are tax negative and lead to structural deficits. The simple expansion of the workforce and GDP is a false indicator of real progress.
Measuring in real numbers, by using issue specific parameters revealing the structure and dynamics of those specific issues, is the only way to make progress towards the clear national goals of environmental, social and fiscal sustainability.
Counting in Real Numbers - Advanced
Several Premises First
The prosperity of our society is wholly based on the access to natural resources and the health of those natural resources. The technology we can bring to bear on those resources dictates the standard of living we can achieve. The object is to develop a learning society and a nation of peers which will allow each citizen to develop their capabilities to the fullest and live in safe, clean communities while preserving the nation’s natural assets for future generations.
Dollars Don’t Do It
To this end, we need to base our national policies on the size and health of our assets now and into the future, rather than on the size of the commercial economy today. We need to understand what the real sustainable capability of the land and measure natural stocks in barrels of oil, tonnes of fish, cubic metres of wood not in dollars. Dollars are used for commercial enterprises and exchange whereas real physical units should be used for setting national policy on the environment and resources.
On the social policy front, we should be measuring in the metrics of the targets we want to hit. Well-being? Measure in per capita incomes, living wage jobs and equality levels. Employment? Don’t measure in jobs created but in high wage, stable jobs created and in real unemployment which includes underemployment, partial employment, marginally self-employed and those who have given up looking for work.
Most of the leading indicators used in the media today are cash flow, short term snapshots which serve only to focus on the parts of the economy delivering profits to a very small number of individuals. A constantly growing economy serves the growth lobby but very few others. Yet these interest group indicators drive national policy. Housing starts, GDP growth, employment growth, revenue growth, asset inflation of all kinds are all just churn indicators which deliver no improvement for the vast majority of the population.
Canadians are not doing better if their net worth has gone up because the market value of their houses has gone up faster than their debt level. Debt vs income is the relevant measure because these factors don’t change quickly. Asset values change quickly, particularly in bubble markets. After the housing prices collapse, debt will still remain. Why represent massive economic instability as economic health?
Canada has had the fastest growing economy in the OECD for the past 40 years but our level of per capita income has stagnated over that period and has been surpassed by many other countries. We have made national policy on the basis of commercial metrics. National interest and individual interest extend well beyond these commercial metrics.
Instead of setting the parameters of the economy in physical units and defining the limits of environmental assets we can use sustainably, we measure everything in printed currency which has no relation to physical output. Instead of setting our goals as high per capita incomes with low unemployment rates which assures fiscal balance and social safety net sustainability, we chose a commercial measure of maximum cash flow dependent on creating large numbers of cheap labour and this makes fiscal balance impossible.
Only the growth lobby has profited immensely. But as the following article from the Globe and Mail illustrates, growth and GDP are misleading indicators.
Growth is not prosperity
WORKING more and enjoying it less? Take heart, the economy is doing great! Over the past three decades, Canada's economy has had one of the highest rates of growth in the OECD. The economic numbers are doing just fine.
Unfortunately, many people have reason to feel left out of the numbers. Why? Because the main economic indicators used for policy development have nothing to do with the prosperity of individuals. Gross domestic product, our main economic indicator, represents paid activity, not wealth or per capita wellbeing.
In Communist Poland, targets for production of furniture were set in tons. The result: Poles have the heaviest furniture on the planet. The lesson: We have to measure what we are trying to produce, but the measure rapidly becomes the goal.
By using GDP as our measure, GDP growth has become the fundamental goal and the system has delivered it by the ton. But just what are we measuring? First of all, GDP is not a financial statement. It is not netted out for changes in man-made or environmental assets, or net external debt. GDP is not a measure of real product. It is not a costing system describing the wealth-creation process.
So what is GDP? It is a tabulation of paid activity. It describes the flows and size of the commercial marketplace. As a social or economic development indicator, however, GDP is extremely limited and, the way policy makers are using it, it is fatally flawed.
Economics should be the description of the entire wealth-creation process. The commercial marketplace is merely a portion of the whole economy. A few specifics. Since GDP is not netted out for net external debt, the more we, as a nation, borrow, the higher GDP becomes. Ditto for the destruction of environmental assets.
One can imagine the types of decisions if a corporation were run off cash register tapes. Welcome to the realm of public policy.
Another misleading aspect of GDP is that it counts only paid activity. A great deal of GDP growth has come from including previously unpaid activity into the paid category. An example is women leaving the home to work for pay cheques. The domestic work women did in the "old days" accounted for about 40 per cent of all productive effort. As women transferred into the paid work force. The paid activities of day care, restaurant meals, cleaning services, extended care homes and a wide variety of social, medical and educational programs moved to fill the void. GDP growth rates soared, but real output did not.
Again, when natural disaster strikes, repair activity boosts GDP. Neither the economy nor individuals are better off, since the work merely replaces destroyed assets. Clearly, we need to move beyond a prime indicator that represents activities contributing to the destruction of the environment as productive activity and its consequences as economic stimuli.
To truly progress, we need to measure the entire productive economic process, not just the commercial marketplace. We need integrated measures that reflect the well-being of individuals, families, our society and the environment.
Fortunately, those indexes are well under development. The World Bank's new index (Wealth Accounting System) includes four kinds of assets expressed on a per capita basis to better determine the real wealth and prosperity of nations. These are environmental assets; human-made assets (including net external debt); human resources; and social capital — families, communities, institutions. The current weighting is 60 per cent human and social, 20 per cent natural and 20 per cent in human-made assets, which were previously the only assets represented.
Using this measure, Australia and Canada jump to the top in per capita wealth, but, given Canada's high population growth and rapid environmental asset depletion, our rate of per capita wealth decline is the steepest in the Western world.
Like any good costing or financial system, our next generation of indicators must illustrate real productive activity and steer us toward sustainable balance while flagging problems at the same time.
More comprehensive indicators will not preclude bad decisions, but it is hard to imagine national debt growing or environmental assets being destroyed to the extent they have if the system clearly represented the costs incurred as well as the benefits. Had well-being been our goal, our policy decisions would not have resulted in the per capita income declines we have experienced over the past three decades.
Most commercial economists recognize the shortcomings of our current measures. With the environmental movement and social activists now joined by a questioning middle class, the OECD working towards integrated indicators and the World Bank implementing them, prosperity may well make it back into the economic forecast.
A sustainable society, or any sustainable financial or physical entity for that matter, measures assets well and has clear goals which allow it to endure for the long term. Our current goal is maximum short term consumption and this defines unsustainability.
Counting in Real Numbers - Reference
Yes, the Sunbelt is growing, and the Frostbelt declining. But are those states that are adding people also growing economically? Not so much, actually.
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Now regardless of whether even GDP per capita is an appropriate measurement of human wellbeing, with a stable population it would immediately be clear whether GDP growth was actually real economic growth.
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