UN report comes up with a better way to size up nations' wealth | Hacker News Reader

UN report comes up with a better way to size up nations' wealth

economist.com

I'm skeptical about this catching on, but I hope something replaces GDP. It's used everywhere, and treated as gospel by the media and politicians, but it's absolutely terrible.

Consider the broken window fallacy. It's Econ 101 that you don't gain anything by breaking a window just to create work for the glazer, window installer, etc. Yet, if I went around breaking all the windows in my neighborhood, GDP would increase! This is actually a pervasive problem with the measure. Consider polluting activities. A coal plant that creates tremendous air pollution contributes doubly to GDP. First, the activity itself contributes to GDP. Second, the health damage created by the pollution creates work for doctors, etc, which also contributes to GDP! If you replaced the coal plant with a wind power plant that cost the same, but didn't create any health damage, GDP would actually go down, even though it's quite obvious that the economy is better served by the latter.

The degree of reverence with which the media and political system treats GDP is completely ridiculous given how stupid the measure really is.

This is a very important step in the right direction. Russia, for example, shouldn't be exporting its wealth and replacing it with bad investments. But it is. Discovering these problems will lead to actual policy improvements.

One wishes that the measure of human capital were not so crude, however.

I propose that the title be amended to "...comes up with yet another way to size up nations' wealth" and am willing to bet that this report will be all but forgotten in ten years time.

"... A country can lose $100 billion-worth of pastureland, gain $100 billion-worth of skills and be no worse off than before. The framework turns economic policymaking into an “asset-management problem”, says Sir Partha. ..."

Only in economics can you get away with statements like this.

The author says "no worse off than before", as if the human suffering created by such a massive transition has no impact on the overall wellbeing of the nation.

It'd be funny if the implications didn't make me so sad.

How do you quantify human suffering?

You can't. What you should do is acknowledge that fact.

However you quantify it, you can't ignore it because then you implicitly quantify it as 0.

Meaning that it can't be done to it has no value.

I can think of lots of ways to capture it's essence quantitatively. Life expectancy, social mobility, marriages. savings rate....

The EPA and many other agencies try to quantify the value of life (cost of death). Without that estimate, they would be unable to decide the appropriate level of pollution to allow.

And I think the number they use usually ends up pretty low -- something like $2-10mm.

The report used 6.3 million USD for a US life (the EPA's VSL, value of a statistical life, p. 287). They want to learn more about the feedback between natural resources and health, so that they can price natural resources that economists are normally unable to value.

What's wrong with that statement?

To compare policies that affect natural assets and human assets, we need to be able to measure those assets with the same index. If not dollars, then what? "Utils"?

Once you pick the units, then we can argue about the methodology for measuring.

"... What's wrong with that statement? ..."

It depends what you mean by loss. I consider loss as inability to use an asset, in this case the use of pasture. The pasture might have a value of $1B but is that it's true worth? Could you re-build that particular non-renewable pasture again to it's previous worth at this cost?

Lets use a concrete example. It's quite possible pasture in Fukushima, Japan has sustained a $1B loss. How would a $1B gain in skills ever replace lost pasture in this case? This is a real loss. No asset management shuffling can replace that loss of pasture.

The dollar value given to some assets, in this case natural assets do not reflect the true value, just what the market finds valuable at that time.

How do you know the "true value" of natural assets in your non-economic framework? Is it automatically infinite? That would seem impractical - we would never want to exploit any natural asset.

Here's the UN report: http://www.ihdp.unu.edu/file/download/9927.pdf (11MB, 370pp, low-res). Other versions are at http://www.ihdp.unu.edu/article/iwr/

I was amazed that Australia had only increased its inclusive wealth by 0.1% in the 1990-2008 period. Whatever we're doing, it has problems.

That's per year.

I swear, I read that title as "sieze nations' wealth" :-)

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