Measure for Measure

Macro measurement is a long and arduous process that impinges upon the system of national accounts. The challenge it raises is driven by the demand of economic policy. In present time the need will arise with sustainable growth that mixes environmental concern and development policy. It calls for no less than a sea change in national accounting, from a system of income and expenditure accounts focused on GDP to a system of wealth accounts. The latter emphasizes an extended concept of capital, encompassing all assets that contribute to social welfare and an associated measure of “genuine” saving. The paper goes on analyzing the problems raised by measuring the different types of capital that are either ignored or little treated as such, according to the accepted rules of national accounting. However intangible assets are as large as productive fixed capital in developed countries and are the most important factors of growth in the knowledge economy. Besides, natural capital must be priced according to its scarcity as source of primary resources, absorber of greenhouse gases and conservatory of biodiversity. Because the very nature of those types of capital leads to measuring them as the discounting value of future rents, the choice of discounting rates is critical to the valuing process. The discount rate is as much important for valuing the social commitment of pensions, as it is for estimating the cost of the depletion of non-renewable resources and the damages inflicted by man-made production of carbon dioxide. The paper shows that the process of valuing the different types of capital and estimating their substitutability in producing social welfare is plagued with radical uncertainty. There are multiple paths of growth whose sustainability is open to question, because there are “unknown unknowns” in the interactions between economical and ecological factors that might be beset by disruptive highly non-linear feedbacks. Therefore the choice of discount rates is deeply ethical and must pertain to a generalized precautionary principle, since it involves the fate of future generations. This principle is validated while there are possible situations of unlimited downside risk exposure. Societies facing catastrophic crisis of unknown probability must debate right now how to organize collective decisions for undertaking the right policies.