The System of National Accounts is seriously flawed.

Basing public policy on the growth of GDP is mismanagement
of our tax money and public lands!


A) The present system of accounts is flawed.


Accounts of Gross Production GNP or GDP have only been used to measure well-being since the 1950's. The convention is seriously flawed! We will not be able to regain the civility being cut away until a more accurate measurement is adopted.

Two fatal flaws

The official measure of society's well-being, GDP, has at least two fatal flaws:
The First Fatal Flaw: GDP counts things as a gain which are in fact losses.

I have a short news item from the "Money and Markets" section of the Globe and Mail, August 3, 1996. "Taipei shares rose," it reads, "led by makers of building materials and electronics, on expectations that economic growth will get a boost as the island rebuilds from the worst typhoon is 30 years." Does this suggest we should wish for natural disasters at times of economic down turn? The word 'pathological' comes to mind.

This hypothetical situation clarifies the point.

If a truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added to the GDP. If near by residence can no longer use their wells for water, their expenditures on bottled water is added to GDP. If they become sick from exposure to the substance, their medical costs are also added to the official measure of well-being.

By lumping all expenditures together, good and ill, the GDP is disqualified as a measure of well-being. Policies aiming to make the GDP rise are not necessarily good. Indeed, sometimes, even when they cause the GDP to rise, such policies actively depreciate the quality of life.

The Second Fatal Flaw is what the GDP fails to count.

Who would dispute the value in a young persons life of a full time care giver who really cares? Yet child care given for free by a parent contributes nothing to the well-being of society according to official measurements. The same mistaken assumption is made for families caring for their elders, for voluntary community work, meals prepared at home, household fix it, and food grown for family consumption. They are all omitted from the GDP measure of our well-being, in spite of the vital role they play in the well-being of our societies.

Besides adding to the inaccuracy of the GDP measure, the lack of value given to voluntary activity contributes substantially to their atrophy as values in people's lives. The consequent degradation of family and community life is abundantly evident and the problems will get worse as long as policy makers see everything through the GDP lens. There is no incentive to develop policies which benefit things that are not counted in the measure of well-being.

The National Film Board of Canada video: "Who's Counting: Sex, Lies and the Global Economy" provides an excellent introduction to the mistaken measure of the system of national accounts. I highly recommend borrowing it for viewing and discussion. It's a great introduction for a public or group meeting.

The Genuine Progress Indicator; a better way to measure well-being
The Genuine Progress Indicator (GPI) provides a more accurate measure. GPI adds reasonable amounts to the measure of well-being for activities of social benefit for which no charges are made, and it subtracts from the accounts the costs of crime, defense against crime, avoidable medical costs, loss of leisure, degradation of habitat, loss of soil fertility and the depletion of other natural resources. This process provides a more accurate picture of how we are doing. According to GPI accounting, our quality of life increased until the early 1970's. Since then the figures show an accelerating decline.

B) Reduced revenue due to following advice based on the mistaken measures.

Without a system to replace the one presently in place, protest over cut backs will be effectively deflected by the excuse that "We don't have enough money." But why are revenues diminishing while the economy expands? There are at least three reasons:
1) Corporations pay less tax than they used to.
2) The 'new economy' of financial trading is largely un-taxed.
3) Governments pays interest to private banks when they could pay interest to themselves through national banks.

1) Reduced tax from corporations.
In this age of market dominance, governments are supposed to act as pseudo-businesses; they are only supposed to be interested in maximizing profits. Education, health care and environmental protection produce no financial returns of interest to the short-term focus of money lenders.

It takes money to make money. Government incentives to small businesses and non-business activities are shrinking. However, there are millions, even billions of dollars available from government for the expansion of moneyed enterprises. The rational is that money given to profitable enterprises will result in the growth of that money. New jobs will result, and with them an expansion of government revenues from income tax. Unfortunately, expanding production no longer means more taxable jobs.

Meanwhile, the big corporations empowered by the increasing mobility of electronic communications and diminishing national trade barriers are black mailing governments around the world. Charge less taxes or we won't locate in/will leave your jurisdiction. The same advantage is being used to bargain for lower environmental and labour standards.
In Canada, corporate taxes have fallen from 14.9% of tax revenue in 1965 to 5.7% in 1993. By 1994, over 80,000 profitable corporations with combined profits of $17 billion +, were paying no tax at all.

2) Taxes not paid by the New Economy.
More money is flowing in society today that has ever been the case, but our governments are unwilling (they say unable) to tax it.

In financial markets, 50 to 100 times more money is spent on stocks, bonds, currencies, futures options and others financial instruments than is spent in all goods and service markets combined. This is 98 -99% of all money spent! Because this money is continually reinvested to make more money, it does not appear as income and consequently is not taxed.

By watching the fluctuating values of different currencies a financial speculator on the job can make money selling and buying as the figures go up and down. Someone might buy 10 million US dollars in the morning, sells them for Japanese Yen at noon and reinvests the Yen in German Marks an hour later. In the process they might make a few thousand dollars. A good business if you are into it and have some millions of dollars to play with. Where does the profit come from? It is not really from the expenditure of the traders energy at the keyboard nor has the computer program that suggests when & what to buy and sell done much for society. The process is a bit mysterious, but in its wake, fortunes are made and national governments are finding that they don't have enough money to care for their people.

The Tobin Tax proposes a 1/4 of 1% tax on currency transactions.

The primary obstacle to taxes on financial trading is the ability of large institutions to move away from jurisdictions where taxes are imposed. The challenge of reining in this international piracy is an excellent issue around which to develop international cooperation.

3) Borrowing from national banks rather than from private institutions:
Over 90% of Canada's federal deficit is attributable to interest payments. The same is likely true in many other countries. If the money needed by the Canadian government, were borrowed from the Bank of Canada, the interest would be paid back to Canada.
Presently vast private fortunes are made at public expense because we don't do this. There is a limitation to a country financing its own debt; if money is distributed in quantities greater than that of the goods and services produced by the country, inflation can get out of hand. However, over the last 20 years, if the Bank of Canada had financed activities, Canada would have saved hundreds of billions of dollars in interest payments. There would be little or no national debt today.

There are precedents for nations creating their own money. On June 4, 1963, the year of his assassination, John F. Kennedy issued executive order #11,100 for the treasury to produce United States notes (as compared to those issued by the Federal Reserve which is a private institution presided over by leading US business families). The fact that Lyndon Johnson revoked this executive order on his first day in office added fuel to conspiracy theories.

A Tricky Move Almost Everyone Missed

GNP (Gross National Product) and GDP (Gross Domestic Product) both measure the total money value of goods and services paid for within the territory being measured. The difference is well explained by the folks at Redefining Progress:

". . . in 1991 the GNP was turned into the GDP - a quiet change that had very large implications.

Under the old measure, the Gross National Product, the earnings of a multinational firm were attributed to the country where the firm was owned and where the profits would eventually return. Under the Gross Domestic Product, however, the profits are attributed to the country where the factory or mine is located, even though they won't stay there. This accounting shift has turned many struggling nations into statistical boomtowns, while aiding the push for a global economy. Conveniently, it has hidden a basic fact: the nations of the North are walking off with the South's resources and calling it a gain for the South."