Hueting on the piano and on eSNI

Blackboards have mostly been removed from classrooms but they are still used in cafés and on terrasses.

Blackboard at The Lantern cafe

Blackboard at The Lantern cafe

Roefie Hueting (1929) is performing this Summer with also his own repertoire of jazz on the piano, on Friday evenings at The Lantern, The Hague. You can listen to “Blues for Bessie“. In the past he played with his Down Town Jazz Band in the big halls in Holland.

Hueting at the piano

Roefie Hueting at the piano in The Lantern, The Hague, July 25 2014

Hueting is also an economist, and as he has developed at least two talents, Peter van Bergeijk takes him into consideration as a “double talent”, though still has to report what he thinks about the music.

As an economist, Hueting first worked on employment and then switched to nature and the environment. At CBS Statistics Netherlands he developed the statistics on the latter. The Dutch NAMEA and UNstat SEEA are based to a large extent upon the work by Hueting, and he received the UN Global 500 Award in 1994. Hueting developed the notion of environmentally Sustainable National Income (eSNI), see his website.

In the economic theory of social welfare, it is accepted that it is rather impossible to find the (Bergson-Samuelson) Social Welfare Function (SWF) but, assuming optimality, society will choose the optimal point on the Production Possibility Curve (PPC), and the tangent of both functions at that spot will give an income measure, called “national income” (NI). A statistical observation of actual incomes and expenditures and market prices should allow, under assumption of optimality, an estimate of that tangent, and thereby provide an estimate of social welfare. Comparison over time would provide an indication of progress or regress. The relative change of real national income is generally called “economic growth”.

At least, that was the theory around 1934. Since then population growth has generated the new scarcity of the environment. While clean water was free before, it now must be produced at a cost. While CO2 was no worry before, we now have to raise the dikes and build stronger houses to withstand the storms. Curiously, all these costs are included in NI as higher income from more work, instead of being deducted as costs. For this, Hueting proposes a measure of NI exclusive of such asymmetrical bookings, NI-ex-asyms.

Subsequently, there is the notion of environmental sustainability. The present generation has the choice of consuming present resources in the manner of expletion, or, to save present resources so that future generations can also use them at a similar sustainable rate. It is the preference of the current generation that counts. The preferences of the future generations do not enter the discussion since those do not exist yet. Curiously, the preferences of our current generation cannot really be measured, because of all kinds of prisoners’ dilemma’s, lack of communication, failures in democratic processes (check voting theory for example), and so on. There are political statements about environmental sustainability, but those are seldomly implemented. But, given those pious statements and the widespread real worry about the future for our children and grandchildren, statisticians can make an assumption about a social preference for environmental sustainability. Making this assumption compares to making the assumption above on optimality. Both NI and eSNI are based upon assumptions, either on optimality w.r.t. NI or on sustainability w.r.t. eSNI. Finally, given the condition of sustainability, standards can be determined, and a model can be run on which the condition of sustainability is imposed on the current economy. The economy would adapt to a different mode, and the generated national income would be the measure of eSNI.

The relation between NI and eSNI can be clarified with a diagram and a table. Let us start with the table. One of the crucial elements in this discussion is uncertainty and how to deal with it. The current measures of NI and “economic growth” might be regarded as first approaches to measuring social welfare in 1934, but nowadays we would like to include more elements, like the disutility of unemployment, the stress of mortgages, economic inequality, and such. NI is a highly uncertain measure for economic welfare if the true preference is for sustainability. You could supplement NI with environmental indicators only, but those provide only data and no information, since you would also need sustainability standards and some form of aggregation to relate the indicators to NI itself. Overall, the publication of both NI and eSNI would be the best approach.

Uncertainty in the measurement National welfare Environmental sustainability
1934 National Income (NI) acceptable as a first approach, assumes optimality
2014 National Income (NI) unacceptable, requires amendment for unemployment and so on uncertainty so large that it fails
2014 Environmental indicators data but no information: incomplete standards and no aggregation
2014 environmentally Sustainable National Income (eSNI) comparable to NI, subject to the condition of a societal preference for sustainability the uncertainty is described, there are more complete standards, aggregation allows comparison to NI

The diagram gives a conventional graph with convex Production Possibility Curves (PPC) and concave Social Welfare Functions (SWF). There are two sets of these, one with unsustainable reality (U) with illusionary high income (NI), and another with sustainable target (S) with realistic income (eSNI). The axes are two environmental indicators: (1) the environmental function that allows the use of CO2, (2) the environmental function that allows the use of fresh water. Note that the axes thus must be read somewhat inversely. The production of more fresh water causes an increase in the output of CO2 and thus reduces the function value for its availability.

Comparison of NI (high) and eSNI (low)

Comparison of NI (high) and eSNI (low). The axes give availability of environmental functions. Red arrows: sustainable standards. Black arrows: current unsustainable use.

The diagram comes with these observations: (a) SWF-S is the social welfare function under the condition of a social preference for environmental sustainability. Hence the PPC is selected that satisfies the standards of sustainability (the red arrows). The tangent provides the eSNI measure. (b) SWF-? indicates some kind of implied SWF when we consider only the observed uses of the functions (the black arrows). If the indicators are given only by themselves then they provide relatively little information, but in this present setup we assume that they are aggregated into the NI measure. Still, it is not clear what this SWF-? and its NI mean. The assumption of optimality is only an assumption, and quite unrealistic. But given its conventional use, it seems best to have both NI and eSNI available. Of course, eSNI is work in progress. Here is a discussion of what can be done for new research. But if we want to deal with the uncertainties then we need more and not less research.

Calculating eSNI would cost only 1/4 % of the budget of CBS Statistics Netherlands (see here). The reason is that the ground material already is available so that only a model must be run. This is cheap for an important figure that could dramatically affect economic policy.

CBS Statistics Netherlands has a leading world position in the statistics on economics and the environment. They got that position because of the work by Hueting. In the past, Hueting had full support from Nobel Prize winner Jan Tinbergen (1903-1994). The last 20 years have shown a gradual reduction of attention so that it is close to zero now. See Hueting’s website and my paper The Old Man and the SNI. For further readeing, see my (draft) book on economics and ecological survival.

National accounting was started by economists and supported by the government because it was applied economics, embedded in theory. In the past national accounting was guided by economic theorists like Keynes, Hicks, Frisch, Tinbergen, Meade, Stone, Kuznets, Samuelson. Obviously, Hueting belongs in that list of distinguished authors. But CBS apparently doesn’t know what it is doing anymore. It has turned the project into accounting without theory. It is no longer applied economics but accounting for multiple purposes such as legal reasons and tax collection. CBS Statistics Netherlands prefers to publish only NI and various environmental indicators. The table and diagram above show that this produces data and not information, while the 1934 idea of NI is increasingly disinformative for our current policy objectives and possibilities. Sic transit gloria.

NB. Frits Bos (formerly CBS and now CPB) wrote a thesis and an ongoing series of articles on national accounting, calling for a greater awareness on theory, but his exception rather proves the rule, while he apparently still doesn’t delve into Hueting’s seminal contribution.) Importantly, Henk van Tuinen (vice-director at CBS till 2003) has this important article in the open access Journal of Official Statistics (JOS), Vol.25, No.4, 2009. pp. 431–465, in which he agrees with the reduced relevance of NI, and in which he explicitly mentions eSNI as a scope for the future, see sections 3.5, 6.3 and 7.2. The key stumbling block for Van Tuinen is the uncertainty in the assumptions attached to it (page 451). This essentially reduces to the question whether eSNI is a proper “statistical measure” or not. My suggestion is that statistics also deals with uncertainty, and that eSNI clarifies the uncertainty that remains a mystery in the other measures.

But Hueting can be happy that he still has one other talent, and a good one too: music.

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