Re: Fundamental Flaw of National Accounting

["Per Gunnar Berglund" <pgb@xxxxxxxxxxxxxxxxxx>]

In reply to Harry Veeder:

-----

> Per wrote (before, in reply to Bruce McFarling):
>     Since you keep coming back to this basically philosophical question of
> commensurability of aggregates, I will try to state how I perceive your
> view: You say that the aggregates are incommensurate if they don't consist
> of a (virtually) unchanged "internal structure", meaning that they are
> equally composed over time. I say that they are commensurate even if they
> have changed in composition. Let me give three examples:
>     First, by your view, a 20th century house should not be comparable to
a
> 19th century house, since the former consists of concrete and steel and
the
> latter of bricks and mortar. By my view, there is a "houseness" to be
> assessed and compared, regardless of the building materials used.

Harry Veeder wrote:
One needs a physical basis or "internal structure" for making any objective
comparisions between the "houseness" of houses. It is *possible* to compare
house plans and materiality over time because space can be measured and
materials can be analysed chemically and physically.

Per replies:
    From the point of view you suggest here, the fact remains that the
"houseness" of houses is still a multi-dimensional concept. The floor area
of the structure does not say anything about heating facilities, isolation,
warm and cold water availability, sanity equipment, ventilation,
electricity, window size, availability of balconies and/or nearby
recreational garden areas, location, view, carpeting, etc.
    A purely physical assessment of the structure is simply not enough for
the "houseness" to be estimated.

Per:
>     Secondly, by your view, 20th century labour cannot reasonably be
> compared to 19th century labour, because working people have different
tasks
> now than they had then. By my view, there is a "labourness" which can be
> usefully compared over prolonged time periods.

What is the physical basis or "internal structure" for making comparisons
between the "labourness" of labour? (see below)

<snip>
>
> Bruce:
> Interpersonal comparisons of well-being are meaningless under
> an individual utility maximising framework.
>
> Per wrote (before, in reply to Bruce McFarling):
>     This statement is certainly not true. The mere axiom or assumption
that
> people act to maximise their utility does not rule out the possibility of
> interpersonal comparison of well-being. What I have been trying to say, is
> that any utilitarian weighted summation of personal utilities should not
be
> applied in the national accounting procedures, since they would involve
some
> distributive non-neutrality. The fact that volume index summation is built
> on distributive neutrality does of course mean that a volume index in
_not_
> a measurement of "social utility".

Harry:
But Bruce is saying (i think) because you don't provide any physical
measures of your volume index it can only be realistically interpreted as
a measure of "social utility". Personally I feel there is nothing wrong
with your volume index but it needs to have a physical basis to avoid
the social utility interpretation. I'm not sure what constitutes the
physical basis although I think it might have something to do with the
physical/biological basis for storing and sharing and applying knowledge.

Per:
    It is true, and a very good point too, that the volume index is likely
to be closely related to the social utility. But in order to reach the
"welfarist" social utility measure, we must also assess (1) the elasticity
of personal utilities with respect to income, and (2) how social utility
depends on the distribution of income.
    I nourish great hopes for the first of these two addenda to be settled
reasonably in the near future. A priori it does not seem unreasonable that
the utility elasticities are fairly equal over large segments of the
population. Moreover, there seems to be some possibilities to measure these
elasticities laboratory-wise, by testing the attitudes toward risk (indeed
an early paper by Vickrey has some highly interesting suggestions in this
direction). If this should prove possible, we may assess the (percentage)
contribution to social utility by a (percentage) increase in output/income
volume, provided the income distribution remains unchanged.
    The proviso here is the big problem, I think. The income distribution is
subject to continuous change, and there is no method that I know of by which
we can incorporate the social utility impact of these changes into the
overall measurement. I am not saying that such a method cannot be developed
in the future, only that we have none right now.
    Therefore, we must make do with the distribution-neutral volume index
concept, until we have the methods by which we can proceed to measure social
utility proper.

> Per wrote (before, in reply to Bruce McFarling):
> >    This was an issue that occupied my own thinking for quite some time.
> >The outcome was that there is really no need for verification, since the
> >"output--input" link is axiomatic. This is a matter of language, not of
> >empirical verification.

Harry:
Every "axiom" is open to scientific testing since they are conjectures about
the nature of the real (social) world. To the extent that you can
point to existing social realities (eg. the use of money) as
examples of what is assumed to exist within your axioms then your
axioms have past a scientific test. This area of scientific (economic)
testing is as important and necessary as the need to test the
resulting axiomatic *deductions* against reality.

Per:
Well, this seems to be a valid point, but again, axioms are not liable to
empirical proof per se. The proof of the pudding is the usefulness of the
theories built on the axioms, I would say. Generally speaking, I would
prefer axioms that approach a self-evident character, and -- as I pointed
out in my latest post in reply to Bruce -- the notion of economic activity
as a simple transaction, where man's work is exchanged for money, does give
the "Leontief" axiom I suggested a self-evident character.


Best,
Per

Per Gunnar Berglund
Lilla Sallskapets vag 60
127 61  SKARHOLMEN
SWEDEN

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