Sunday, November 05, 2006

Dr. Ron Colman - "A Sobering Place to Begin"

The following is one post in a series: "Reporting Back: Green Party of Canada Policy Conference, Halifax"

Dr. Ron Colman, founder and Executive Director of GPI Atlantic, began by placing Environmental Tax Shifting (ETS) in context. ETS, he explained, is a second step. The first step must be to assign real value to things like our environment and volunteerism, for example, that are currently not valued by our economic indicators at all. That's a sobering place to begin, he said, because of course we should already be valuing these things. But we're not.

On the flight to Halifax, I flipped through an issue of The Economist. The good news is that a large amount of the magazine was dedicated to the dangers of climate change (including, but not limited to economic dangers) and the need for action. Yet, there, at the back of the magazine, was the standard two-page spread of the GDP of countries around the world.

The GDP isn't a problem in itself; the problem is how we use it. Increasingly, the GDP is assumed to be a measure of wellbeing (generally, how well things are going). That, despite warnings over sixty years ago by GDP architect Simon Kuznets, who said that's exactly the sort of thing the GDP shouldn't be used for.

In Economics 101, the economy is described as a perpetual motion machine, completely separate from other systems. Of course, the reality is that the economy is a sub-system of the biosphere, with both inputs and outputs. Conventional economics still ignores that, and, in the words of Colman, is therefore "being taught all wrong."

There are some fun examples that demonstrate why we live in what Colman called a "distorted market economy." The extreme example that I've used before is that if we cut down every tree in Canada, our GDP would skyrocket, yet of course that wouldn't actually be good for the economy or anything else. A real-life example is the Exxon Valdez, which contributed more to the GDP of Alaska by spilling its oil (because of all the money spent on the clean-up) than if it had delivered its cargo.

Colman gave another example to illustrate the absurdity of not including volunteer work when measuring the size and value of an economy. If you hire a housekeeper, he explained, the GDP goes up. Marry your housekeeper, and the GDP goes down. That's entirely false, since no actual expansion or contraction of the economy has taken place, just a transfer of work between the paid sector to the unpaid sector.

So, that's the problem. The solution is a Genuine Progress Indicator, or GPI. The GPI tracks genuine progress by creating a set of new accounts that value human, social, and environmental resources. Only within the context of genuine progress, Colman argued, can we make any subsequent tax shifts "systemic" instead of "episodic." In other words, once triple-bottom-line resources are accounted for, externalities are internalized, and prices reflect the true costs of production, the market will be more efficient, less wasteful, and require less government intervention.

"This room should be full of right-wingers," observed Colman. "Market economists should love this stuff!"


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