Agriculture and Forestry Top the List of Gross External Damages

A new paper by Nicholas Muller, Robert Mendelsohn and William Nordhaus looks to be a really important one.  Where others have tried to incorporate flows of natural resources into national accounts, I expect this paper is the first among many that will try to incorporate externalities into national accounting.

I've got some work to do to study this article in depth.  But one striking result, if not altogether surprising, is that the agriculture and forestry sector tops the list in terms of gross external damages per unit of value-added output.  It is number two, behind utilities, in absolute quantity and about 50% greater in absolute quantity than transportation.  I think that's fairly striking given ag/forest is such a small percent of GDP (as currently measured). The whole list is reproduced below.

 

Two quick thoughts:

(1) What are the flows of of positive externalities and shouldn't we try to measure those too?

(2) While I worry a whole lot about climate change--and that particular externality is not included here--I'd guess it wouldn't have much influence on the national accounts.  The issue here, to my mind, is that we need to feed the world.  Since those who may need feeding have tiny incomes, it would probably show up as a tiny number in national accounts even if it were counted.  So while counting externalities is a great improvement, there are many aspects of value the national accounts still wouldn't cover.  (I'm not even remotely suggesting that we shouldn't have them.)

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