GDP and the myth of natural capital

GDP is far from perfect as a measure of economic output but the suggestions for replacements are generally worse. The recent attack on GDP by Eric Zencey, a professor of historical and political studies at Empire State College, in the New York Times, is certainly flawed.

One of Zencey’s points is that GDP does not include volunteer work or unpaid domestic work, both of which contribute to economic output. While this is true it should be remembered that such quantities are, by their nature, difficult to measure. It is far easier to quantify transactions for which money is paid.

Apparently more substantial, but also more mistaken, is his argument that GDP should include “natural capital” or “eco systems services”. For example, he argues:

“If you let the sun dry your clothes, the service is free and doesn’t show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable — and give G.D.P. a bit of a bump.”

But the characterisation of “free” drying by the sun is misleading. A clothes line has to be manufactured by someone, probably along with clothes pegs, and erected. Then the clothes have to be hung by someone before being collected afterwards. The sun can only help dry clothes with the application of human labour.

The notion of natural capital also creates bizarre results. It means that a barren unusued land could be classified as wealthy whereas one with a lot of development could be seen as poor. Antartica, for instance, could be seen as rich because it has natural resources buried in the ground rather than poor because it has virtually no development.