Posted by: Dirk | December 7, 2009

Growth and climate change

The Commission on the Measurement of Economic Performance and Social Progress, which is chaired by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, makes an important point:

Recommendation 11: Sustainability assessment requires a well-identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying “stocks”. A monetary index of sustainability has its place in such a dashboard but, under the current state of the art, it should remain essentially focused on economic aspects of sustainability.

Why is this relevant? Well, the discussion of growth versus green is mainly caused by misleading accounting. It really should be growth and green. The reason is that not accounting for external effects improves growth today while worsening it tomorrow. Thus the idea that going green will hurt growth is at least to an important part based on wrong measuring of growth. Also, growth for one nation causing decline of another is not a thing to aim at. So when growth of, say, India, today causes other countries, like Pacific Island or Bangladesh, to submerge in the future, this should not count towards growth in the sense of better quality of life. Probably India would have to take a lot of Bangladeshi refugees in case that the place gets even wetter. This will put strain on Indian infrastructure and lead to less well-being of Indians (apart from the suffering of the Bangladeshi people, of course).

There are two dimensions where accounting for external effects should be made more explicit: nations and time. So, economists have been thinking about external effects for a long time. It shouldn’t be that hard to come up with indicators that take into account these two dimensions. Actually, a lot of work has been done in this field, leading to the Human Development Index among other things. It’s time to put those things into the policy sphere. Why not start at Copenhagen?

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