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There's No Accounting: The Economy's Apples and Oranges
New York Times
by Neela Banerjee
May 6, 2001

DICK CHENEY laid down the framework of the Bush administration's energy policy last week, saying the nation needs 1,000 new electricity-generating plants and relegating conservation to the realm of "personal virtue."

But while debates will rage over the vice president's approach - and over the increasing reliance on nuclear power, domestic drilling and other elements it would entail - what the energy policy is really meant to protect and preserve will probably go unquestioned : growth.

A nation is by definition thriving if its major indices say people are making more things and spending more money on them, as reflected in the sweeping economic measure of the gross domestic product and the detailed portraits provided by housing starts, are sales and retail sales. The Clinton administration saw to it that the economy's health became a bipartisan priority. And energy is one of the economy's most essential ingredients.

Environmentalists have repeatedly pointed out that what Americans really consume, in a staggering variety of ways, shapes and paint jobs, is a diminishing store of natural resources. But that message has been obscured by a simple problem, one that is increasingly on the minds of economists: the absence of a common, objective measure of the cost of growth.

"Growth is one index of our society," said Dean Baker, co-director of the Center for Economic and Policy Research, a research group in Washington. "But if the cost is air we can't breathe or that we've paved over the whole country, it's a rather dubious accomplishment."

Traditional indices make it easy to see economic problems, just by looking at which direction the Nasdaq, the Dow and the unemployment rate are heading. Numbers can be attached to how much we spend and how many cars roll off a production line. But those are not the whole of a nation's health. Despite the efficiencies technology has delivered, the push towards more building, buying driving and Web-surfing leaves nicks and scars on the body of a nation whose vastness hides their ubiquity.

Occasionally, the limits of the logic of economic growth become obvious. Take the Exxon Valdez spill: the cleanup of 240,000 barrels of crude oil spurred all sorts of business activity, even as it blackened pristine island beaches. But other situations that economists refer to as "the anomalies of gross domestic product" often go without comment, as when companies and governments gain jobs and income from shearing old-growth forests.

"When developing countries cut down old growth forest, G.D.P. goes up," said Charles D. Kolstad, Bren professor of environmental economics and policy at Santa Barbara. "Conceptually, of course, it's wrong. It's like taking furniture and burning it for fuel."

In his new book, "You Can't Eat G.N.P." (Perseus Books, 2001), Eric A. Davidson, a senior scientists at the Woods Hole Research Center, writes: "We had better not lose sight of the fact that our wealth and our comfort are derived from a combination of natural resources - soil, water, air, forests, oceans, mineral deposits, climate - and the skill and ingenuity with which we utilize and manage those resources. If we neglect or abuse those natural resources, we undermine our own prosperity.

But how can, say, the loss of a wetland be quantified?

"We are to a certain extent prisoners of the indices we use," said Nancy Kete, director of the climate, energy and pollution program at the World Resources Institute in Washington. "G.D.P. is a flowed instrument of how well we're doing, but we're stuck not having an index of well-being."

The United States almost had one. In 1937, Simon Kuznets, then creating many of the techniques for measuring economic activist now in use (and who won a Nobel Prize in 1971), suggested that the government should also measure environmental degradation, and his first assessments of the economy at the Bureau of Economic Analysis did just that. They proved, not surprisingly, politically controversial and were discarded.

THERE have been attempts to develop a more nuanced national measure. In 1999, the National Academy of Sciences at the behest of the Bureau of Economic Analysis, issued a study on "asymmetry" in the accounting of economic growth. A Washington economist involved in the project said: "The idea was that if you cut down trees and don't replace them, then you're exaggerating the standard of living. It's like if you're living off your savings. It's not sustainable."

The report suggested that the government look at side effects to economic growth to which a market valuation could be attached, like the costs of health care or early death from environmental pollution. But Congress blocked the bureau's attempts because, economists involved in the process say, the bureau chose to examine the impact of developing mineral resources, which troubled several key congressmen from resource-rich states.

Some independent research groups have tried to devise a kind of "green accounting" or "general progress indicator," but most economists say that so far, attempts to merge G.D.P. and environmental damage are seriously flawed. Green indices often rely on surveys that ask people what they value in a particular place, or how much extra they might be willing to pay for a commodity to protect an area. It is even more difficult for people to say how much they value an entire ecosystem. Loss and damage are only readily measured in discrete areas.

AS the economy slows, any questioning of price of growth may be drowned out in the effort to raise again the tide that lifts all boats. It may have happened already: President Bush dropped his support of regulating emissions of carbon dioxide because that could increase energy prices. Mr. Bush may forego plans to open up the Alaska National Wildlife Refuge to oil drilling, but only because the political cost is too high, not the environmental toll.

Omer Yonel, the chief executive of North Coast Energy, a small Ohio natural gas company owned by the Dutch utility NUON, would welcome new areas in the United States where his company could drill. A European, Mr. Yonel notes that America has so far avoided the difficult choices European has made abut consumption, including, for example, paying higher taxes on gasoline.

Without objective instruments to mark the toll of economic growth, people rely on the subjective: the stifling heat of successive summers, the forests and fields turned over to homes and shopping malls, the thickening air above cities, their sympathy toward various environmental protests. But unlike many Western Europeans, Americans have moved farther from conversation and restraint in the last 20 years.

"When you pollute here, the sky still stays blue, " Mr. Yonel said. "The pollution just goes somewhere else, your country is so huge."