Markets, Productivity, and Happiness in a Historical Perspective

The Origins of Green Accounting: Nordhaus and Tobin's Measure of Economic Welfare After Fifty Years

Dimand Robert, Brock University

In 1972, William Nordhaus and James Tobin published an 80-page monograph "Is Growth Obsolete?" as part of the proceedings of the 50th anniversary of the NBER. While the limitations of national income and product accounts had often been remarked, Nordhaus and Tobin (1972) became the foundation work of green accounting by acting on these criticisms, developing a Measure of Economic Welfare (MEW) accounting for depletion of environmental capital, value of leisure and non-market activities, and externalities and disamenities. This collaboration by Yale and Cowles economists of different generations (their Nobel prizes were 37 years apart) offered a response from within the economics mainstream to environmental concerns, making a case for the constructive contributions that economics could make that contrasted with approaches from outside economics such as the systems dynamics approach the same year of Meadows et al, The Limits to Growth. This paper examines the Nordhaus-Tobin construction of a Measure of Economic Welfare, the case they made that economics could provide a useful analytical guide to understanding the environmental crisis, and the influence of MEW on subsequent integration of environmental and economic accounting, such as Nordhaus and Kokkelenberg, eds., Nature's Numbers (National Research Council, 1999) and Stiglitz, Sen and Fitoussi, Mismeasuring Our Lives (2010). The MEW is also shown to mark a major reorientation of Tobin's views on growth, his earlier work on neoclassical growth theory (e. g. "A Dynamic Aggregative Model," 1955, and "Money and Economic Growth," 1965) and on economic growth as an objective of government policy having focused only on growth of real GDP per capita.

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Keywords: Green accounting, William Nordhaus, James Tobin, Measure of Economic Welfare

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