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Why Don’t We Add Up All of the Pieces?

Dan Tortorice

Every three months we are told how much the economy has grown in the last quarter. It was .2% last quarter. But rarely are we told what goes into that number. Rarely are we told that this growth measure doesn’t account for the depletion of mineral resources like coal, or for the depletion of resources like forests. If someone cut down all the trees in Maine, and sold them on the market, that would be pure economic growth. However, the number wouldn’t reflect the fact that all the forests of Maine are gone.

And it doesn’t stop there. Economic growth creates increased pollution, yet our measure of economic growth ignores pollution entirely.

So what should we do? We are faced with a measure of economic growth that, while reasonable, has visible deficiencies. The obvious solution is to research ways to improve the measurement. Congress rejected the obvious solution in 1995 by forbidding the Bureau of Economic Analysis (BEA), the governmental agency responsible for calculating economic growth, from working with appropriated funds to improve these deficiencies. Congress even prohibited basic research into how to improve these deficiencies.

Why did this happen? Well, in a cosmic case of bad luck, the House Appropriations Committee had two influential representatives on it: Republican Representative Harold Rogers of Kentucky and Democratic Representative Alan B. Mollohan of West Virginia. In a demonstration of bipartisan unity, they came together to fight against researching ways to improve the way we measure economic growth. Why would two people be so opposed to this research? The reason is simple: both West Virginia and Kentucky are major coal producers.

The research the BEA desired to do would most likely have shown that coal industries do not contribute as much to economic output as the traditional measure of output claims. The reason is twofold. Firstly, part of producing coal involves depleting mineral resources. Once you take the coal out of the ground, sell it, and burn it, you’ve reduced the amount of coal in the ground. Don’t forget that the coal in the ground has economic value. How much? I don’t know. But it has some value. You can certainly find someone who would be willing to buy land known to contain coal reserves. If you want to measure output correctly, you need to subtract out the economic loss from removing the coal from the ground. There was economic value in the economy that is no longer there. Secondly, coal pollutes. When you burn coal, you reduce the quality of air. It’s hard to put a dollar value on air; I don’t think you would buy a bag of air from me. However, I think if I got all the residents of Cambridge together and said, if you don’t pay me X amount of dollars, I’m going to burn tons of coal from my power plant and pollute the air, I could find a dollar amount they would be willing to pay me to pack up my bags and leave. Air quality is an asset, and has some monetary worth to people. Industries that deplete air quality should have that depletion considered when their contribution to output and economic growth is calculated. This is entirely subjective, you might say. How do you put a dollar value on air? It is free at the gas station. It’s difficult, maybe impossible, to consistently measure the economic impact of changes in air quality, but that does not mean that no research should be done in this field. We should not run and hide from hard problems such as this; we should confront them and try to solve them. That is how our society advanced, and that is how it will continue to advance.

So what do we do, now that the vehicle to better measures of economic output has been hijacked by two congressmen defending coal and their home states? The make-up of the committee has changed in the last five years, and the two coal loving representatives are gone, so there’s still hope. We now have an opportunity to begin anew, to develop estimates of output that are more informative. Only then will we know whether economic output is actually growing or whether it is shrinking due to the depletion of environmental resources. This is a key question to answer if we wish future generations to enjoy the same prosperity that we enjoy. It is a key question that can be answered if Congress appropriates the money and if BEA does the research.