Grantham Embraces “Accounting for Earth”
“The full replacement of our resources is somewhere between very expensive and impossible, so our measurement system simplified the issue by ignoring it completely.”
I couldn’t have said it better myself.
But I came close, in this post three years ago:
“Just consider how GDP now accounts for a horrific environmental tragedy like the Exxon Valdez spill in Alaska’s Prince William Sound.
The untold billions in environmental damage aren’t counted, because “natural capital” is assigned no value in today’s economic world.
Meanwhile, the $1 billion that Exxon spent on remediation efforts shows up as a spike in the “value” of services that go into calculating GDP.
Society’s putative wealth actually increased as a result of the spill.”
–Ross Kaplan, “Is Shiller Right About Trills?”; City Lakes Real Estate Blog (Dec. 27, 2009)
In his most recent quarterly missive, investment maven and GMO founder Jeremy Grantham amplifies on this notion:
“With incredible good fortune we inherited a remarkable but finite stock of resources and an amazing biodiversity. All free. This was our capital account, yet as we run our assets down we are not accounting for the losses. Free clean water becomes expensive recycled water. Free trees become expensive recycled water. Free fish and free trees become expensive fish farms and tree farms. A free mountainous watershed area in China becomes a deforested invitation to a ruinously expensive flood.
True accounting after John Hicks, the great English economist (who graded my final papers in Economic Theory!) defines true growth or income as that amount that can be withdrawn (or paid without affecting the ability to produce the same next year. Yet we deplete copper and anthracite mines and there is no allowance for their replacement. The full replacement of our resources is somewhere between very expensive and impossible so our measurement system simplified the issue by ignoring it completely. And just as we run down our irreplaceable metals, so we have mined our soils, polluted our waters, and started to warm the atmosphere and the ocean.
But the GDP reflects none of this. If it did it might have had negative growth for the last two decades. The sooner we adopt a more complete accounting that comes closer to measuring true utility, the sooner we might start to protect our collective long-term well-being.”
–Jeremy Grantham, “On the Road to Zero Growth“; GMO Quarterly Letter (November, 2012)
I already made one recommendation about what President Obama should focus on during his second term (I’m sure I’m the only one making suggestions).
So, here’s a second one: appoint Jeremy Grantham to lead up an all-star team of business experts (note, I did not say “economists”) to design a new and better accounting blueprint.