Only measure market transactions
Don't discriminate between goods
Don't discriminate between costs, benefits
Don't take account of distribution
Don't include env. depreciation

Only measure market transactions

GNP only includes services that are legally bought and sold-not services such as housework, home gardening and voluntary work that are not paid for. It does not include goods such as home-cooked meals, or components of the environment such as wilderness areas or native birds that are not bought and sold. Keeping a tree in a forest is not counted in GNP, and is not counted as contributing anything towards a nation's well-being; but when it is cut down and sold as timber it adds to GNP and therefore to economic growth. There are also some benefits of economic growth that are not counted in GNP-for example, gains in health and increases in leisure time that may occur.

Marilyn Waring discovered, as a politician in New Zealand, that economic measurements did not count environmental benefits. She says that under this system:

the things I valued about life in my country-its pollution-free environment; its mountain streams with safe drinking water; the accessibility of national parks, walkways, beaches, lakes, kauri and beech forests; the absence of nuclear power and nuclear energy-all counted for nothing. (1988, p.1)

Similarly, Robert Repetto, Director of the Economic Research Program of the World Resources Institute, points out that a nation 'could exhaust its mineral reserves, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife to extinction' (1989, p. 40) without affecting its measured income. Repetto argues that GNP as a measure confuses the using up of valuable assets with the earning of income, and that this is a particular problem for countries dependent on natural resources for employment and revenues, because they are using a system of accounting that ignores their principal assets.

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Do not discriminate between types of goods

The famous economist John Kenneth Galbraith pointed out that an 'increased supply of educational services has a standing in the total not different in kind from an increased output of television receivers' (1969, p. 133). Herman Daly, senior environmental economist with the World Bank, and John Cobb point out that an excessive consumption of tobacco, alcohol, and fatty foods all contribute positively to GNP even if they do not contribute to human welfare. However, most economists refuse to make judgements about the merits of different human desires. Some argue that to do so is elitist. Daly and Cobb (1989: 93) say of economists:

According to economists we really cannot say that food for the hungry yields more utility than a third TV set in a rich family's second house. Nor that a leg amputation hurts Jones more than a pin prick hurts Smith. All we can say is that if no one is made worse off while at least one person is made better off, then social welfare (aggregate welfare) has increased.

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Do not discriminate between costs and benefits

Hospital bills, car repairs and insurance costs add to economic growth because they are services that are provided and paid for. This means that pollution caused by economic activity does not affect GNP; but money which is spent to clean up the pollution is added to GNP. The destruction of environmental resources and the costs of cleaning up after the destruction are labelled 'growth' and 'production.'

If there is a toxic spill which damages water supplies, GNP does not decline; in fact, it goes up if people spend money getting medical treatment for health problems or injuries caused by the spill. If the government spends millions of dollars cleaning up the damage, GNP goes up because the money spent is considered to be a purchase of goods and services. If the firm which spilt the toxic waste cleans it up, it does not add to GNP- because it is considered to be part of the costs of production and the clean-up is not considered to be a 'final' service. In fact, in the year that the ship EXXON Valdez spilt its cargo of oil in Alaska, that state's GNP rose dramatically because of all the money spent trying to clean up the oil.

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Do not take account of how income is distributed

Australia's GNP is a total of all the income received by Australians; and, as mentioned above, GNP per person is derived by averaging this figure over the whole population. In reality, income is unevenly distributed between wealthy and poor people. For this reason, if a country has a high GNP per person it does not mean that there is no poverty in that country. This is also true for Australia, where many people live below the poverty line (that is, they receive what is considered a less-than-sufficient income to live on).

The argument for economic growth is that, because of it, everyone will be better off. But increases in GNP may merely mean that some people - usually the wealthy - are better off, while the poor do not gain at all.

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Do not include depreciation of the environment

Another measure related to GNP is net national product (NNP): this is GNP minus the amount of machines and equipment used up or worn out producing the goods and services that were bought and sold. Natural resources which have been used up or degraded-such as open space, wildlife, scenic landscapes, and the quality of air and water-are not counted, even though it is obvious that these things contribute to a nation's social well-being.

Repetto (1989) gives the example of a farmer who cuts down some timber and sells it to pay for a barn. In the farmer's accounts, she or he has lost the timber but gained the barn. In the national accounts, income and investment would rise when the farmer sold the timber and when the farmer built the barn. No losses would be recorded.

In the past, economists have not thought of the environment as being used up or worn out in the same way as are buildings and equipment. This is because they assumed that natural resources-the resources obtained from the environment-were so abundant that a small loss would not be noticed. Also, they have assumed that natural resources were 'free gifts of nature' because they required no investment to obtain them. However, as economists usually value things according to what price they can be sold for rather than how much it has cost to produce them, this stance is inconsistent. Repetto (1989, p. 40) argues that the true measure of depreciation 'is the amount that future income will decline as an asset decays or becomes obsolete'. Soils depreciate as they are degraded, and become less fertile, in just the same way that machines depreciate as they get older.

Daly and Cobb (1989) say that natural resources or natural capital (as opposed to human-created capital) has traditionally been ignored because neoclassical economists thought that human-created capital was a near-perfect substitute for natural resources. But, as they point out, even if this were true, the total of both sorts of capital would still have had to be maintained to ensure income was not reduced.

Daly and Cobb (1989) and Repetto (1989) argue that income, as defined by economists, implies some notion of sustainability-because income is normally considered to be additional money which is added to existing assets (capital). Economists would not consider the act of taking money out of the bank to be equivalent to earning income. Similarly, they say that economists are being inconsistent if they count, as income, money earned from using up capital resources.

The loss of natural resources and amenities has economic and non-economic consequences. For example, people have to spend more money to go further for recreation if nearby areas are spoilt; on health care because of pollution; and on moving suburbs because of noises and smells. Yet these expenditures do not fully compensate a person for his or her losses. The medical bills for a person with a respiratory disease or a cancer are only a small part of the total suffering of that person, his or her family, and friends.

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