Response to "Income, sustainability and the 'microfoundations' of the GPI"

Abstract

The Genuine Progress Indicator (GPI) is an experiential welfare indicator based on an extended version of Fisher's distinction between income and capital. The primary aim of the GPI is to measure the difference between the net psychic income generated by economic activity (uncancelled benefit) and the natural capital services lost as a consequence of fuelling the economic process (uncancelled cost). Provided this is achieved with some degree of accuracy, the GPI is able to: (a) represent the value added to nature by the economic process; (b) determine whether growth of the economy, if it is presently occurring, is 'economic' or 'uneconomic'; and (c) signal when an economy has exceeded its optimal macroeconomic scale. Nevertheless, there is little doubt that the GPI fails to strictly satisfy the central criterion embodied in the Hicksian concept of income. As such, the GPI is incapable of signalling when an economy has surpassed its maximum sustainable scale. But neither can so-called measures of Hicksian income (e.g., Net National Product (NNP)) since they, too, violate Hicks' central criterion. For this reason, indicators of sustainability are best left to measures of wealth/capital or, better still, comparisons between a nation's ecological footprint and biocapacity. Copyright © 2008, Inderscience Publishers.