New Directions in National Economic Accounting

Abstract

The national income and product accounts (NIPA) are the most important measures of overall economic activity for a nation. Much as a satellite in space can survey the weather across an entire continent, so can the GDP give an overall picture of the state of the economy. Nevertheless, since their inception, there have been concerns that the accounts are incomplete and misleading because they omit vast continents of nonmarket activity such as unpaid work, the value of leisure time, investment in human capital, and most recently, the environment. The threshold question is: why should we devote scarce intellectual resources to studying nonmarket sectors? The basic insight behind nonmarket accounts is that economic and social welfare does not stop at the market’s border, but extends to many nonmarket activities. Three particular areas are worth emphasizing. One important reason why we need better measures of nonmarket activity is because we spend increasingly fewer of our lifetime hours in market activities. A second and more speculative reason concerns the growing importance (or at least the great importance) of nonmarket assets or mispriced market assets such as the environment and technology. A third point is that current measures of national saving and investment are highly defective. The examples later in this paper address each of these issues. Many of these issues were reviewed in a recent report on augmented accounting by the National Academy of Sciences (see Nordhaus and Edward Kokkelenberg, 1999).