Letter to IAOS, RSS, ASA, SFdS and IARIW

To the International Association for Official Statistics (IAOS),
Royal Statistical Society (RSS),
American Statistical Association (ASA),
Société Française de Statistique (SFdS) and
International Association for Research in Income and Wealth (IARIW)

Dear presidents Pullinger (IAOS), Ashby (RSS), Martinez (ASA), Marin (SFdS) and Reinsdorf (IARIW),

Your societies and associations have made public statements in support of Andreas Georgiou, former president of El.Stat Statistics Greece.

I have looked at the case and arrived at the conclusion that Georgiou was guilty as charged for the violation of duty, as was indeed confirmed by the Greek Supreme Court in 2018. It appears that Andreas Georgiou, Hallgrimur Snorrason (representative of Eurostat at El.Stat in 2010) and Walter Radermacher (Eurostat 2008-2016) have provided you with false testimonies about the Greek law of March 9 2010 that created El.Stat and the European Code of Practice of 2005 that was in force in 2010. They knew about the true legal situation and in fact worked to make changes in both the law (December 2010) and the Code (2011).

The documentation is in my new book “Forum Theory & A National Assembly of Science and Learning“. My discussion of the actual figures in national accounting of Greece 2009 is on pages 200-206, and there seem to have been made some arbitrary choices that are not fully clear to me. My discussion identifies many more points where important information is lacking. Overall, I advise that there will be a thorough investigation. I hope that you will indeed apply due diligence.

I already informed ISI and FENStatS via this letter, now online in slightly edited form to make it quotable for others. I regard the now online letter to ISI and FENStatS as an integral part of my letter to you now. I have the same requests for you as stated in that letter. Please inform your membership but please refer to my book instead of trying to rephrase the points in your own words because points might get lost in translation again. This letter to you is online now too.

Reading parts of my book, Richard Gill, emeritus professor in mathematical statistics in Leiden, and former chair of VVSOR (a founding member of FENStatS), informed me that he has revised his view, from an earlier signing of support to a (now disputed) statement by ISI. Klaus Kastner, retired banker who blogs on Greece, also has revised part of his view.

My disclaimer: I would like to see a thorough investigation in Dutch economics.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scheveningen, Holland
http://thomascool.eu/
http://econpapers.repec.org/RAS/pco170.htm
https://zenodo.org/communities/re-engineering-math-ed

PS. At IARIW, Peter van de Ven (formerly CBS now OECD) was IARIW president in 2010-2012, when the issue of El.Stat case arose. Van de Ven proposed to IARIW in 2016 to support Georgiou, apparently with deficient study of the underlying events. At CBS in 2009, Van de Ven removed the Tinbergen & Hueting figure of environmentally Sustainable National Income (eSNI) from the Dutch monitor on sustainability, using fallacies, see THAENAES Chapter 25 p289. I copy to Van de Ven at OECD and Kees Zeelenberg at CBS who is involved in IAOS – OECD.

Letter to ISI and FENStatS

To the President of [the International Statistical Institute (ISI)] and the secretary general of [the Federation of European National Statistical Societies (FENStatS)]

Dear professor Bailer (ISI) and dr Silva (FENStatS),

There is this new (open access) book by me:

“Forum Theory & A National Assembly of Science and Learning”

The idea is that scientists and scholars create an assembly of their own, to improve the quality and impact of science and learning. The book discusses various problems. Some main problems are about national accounting and official statistics. There is the Tinbergen & Hueting approach on environmentally Sustainable National Income (eSNI). There is the El.Stat / Georgiou case.

The book webpage is [here].

The PDF of the book is open access [here].

A short text (discussing 2 of 7 storylines) is [here (pdf)].

Though the Tinbergen & Hueting case is much more important, it so happens that ISI and 80 former chief statisticians around [IAOS and FENStatS] put out statements of support for Georgiou, and it may be that you are alerted on this problem in more accessible manner just now.

Allow me to invite you to look at my deconstruction of “Greek statistics” in Part 6, starting p153.

My diagnosis is that the statistical associations, including you, have been misinformed by Walter Radermacher (Eurostat and current president of FENStatS), Hallgrimur Snorrason (representative of Eurostat and associated with ISI) and Andreas Georgiou (El.Stat). They knew in 2010 that the Greek law was that Georgiou had to seek approval by his board. He is guilty as charged for the conviction of violation of duty. I copy to them but do not have the email address of Georgiou.

One might regard this as an old case, but Eurostat also arranged that the National Statistical Offices of the EU are now under a single head, while CBS Statistics Netherlands since 1892 was under supervision by a multiperson board. This change in governance has risks for the future. My book indicates that CBS likely did not protest strongly enough because the Dutch government managed to appoint a leadership that had no background in official statistics itself.

Since the Part on “Greek statistics” is lengthy, let me also point to p200-206 for some formulas en tables on the calculation of the 2009 debt and deficit.

[…] Richard Gill, former chair of [VVSOR] (a founding association of FENStatS), already informed me that he revised his opinion now (from signing an earlier ISI statement), see below under (1). (PM. I copy to Fred van Eeuwijk, current [chair] of [VVSOR].) Klaus Kastner, a retired banker who blogs on Greece, also has revised part of his view, see under (2). They may not have digested my book fully since it is just in print.

I already informed Walter Radermacher about my finding, since his background is in environmental statistics, and around 1990 he had friendly contacts with Roefie Hueting. Unfortunately, Radermacher did not comprehend the Tinbergen & Hueting approach, and has misrepresented it too. My criticism on the work by Radermacher is restricted to these two issues that I have looked at. I [expect him] to correct when errors are clarified to him. While I informed Radermacher earlier this week, he indicated that he had no time for this, and this is a complication.

Another complication is that Radermacher currently is the President of FENStatS. The Vice-President of FENStats is professor Maurizio Vichi, who also happens to be the thesis supervisor for the Radermacher thesis of 2019. I checked the thesis on the two issues of eSNI and the Georgiou affair. In my judgement, the thesis is biased and misrepresenting on these two issues. It should be retracted. Radermacher knew in 2010 that Georgiou was in violation of the Greek law, and as director of Eurostat assisted him in breaking the law of an EU Member State. He should have insisted that Georgiou would come clean with his board instead of helping him to bypass them. Subsequently, see my discussion of the actual debt and deficit calculations.

Thus, my request to Radermacher and Vichi and FENStatS is that Radermacher and Vichi step down from their positions at FENStatS, to that there is no conflict of interests between FENStatS and their positions on the thesis and Radermacher’s position in this case ueberhaupt. Hopefully Radermacher might reorganise his priorities and consider the criticism in my book.

After sending this email to you, I will relay it to some journalists, so please do not be surprised if they would contact you and know about this email. It also seems best that I include this email on my website, and check there for the upcoming link.

Earlier, see under (3), I already informed the DG CBS dr. Tjark Tjin-A-Tsoi about my book, and the finding that the erroneous ISI declaration had also been signed by some CBS researchers who had failed to check upon the Greek law, European Code of Practice 2005 [in force in 2010], and the particular data, and the false testimonies by Georgiou, Snorrason and Radermacher. I have been supplying the DG CBS with drafts of my book in the last month[s], and I offered CBS a final week to consider the argument, and provide for a more structured approach in informing the world of statistics about my book and finding. Alas, CBS did not indicate to me that they would take this opportunity. Thus, I am left with no other option than inform the world of statistics myself. The most efficient way to do so, at least for me, likely is to inform the media, though generally the media can be quite chaotic overall.

Let me also express that I am very annoyed concerning ISI. In 2012 I wrote to ISI with a request of an investigation, in which there was also attention for the views of the (other) board members. Instead, ISI apparently listened only to Snorrason at ISI. It strikes me as very unprofessional to allow someone to be judge in his or her own case. In BCC I will copy to some former El.Stat board members. My 2012 letter to ISI is [here].

Let me also express my [appreciation] to CBS for inviting Hueting and De Boer in 2019 to present their new book on national accounting and eSNI, which lecture was attended by some sixty statisticians at CBS. CBS also made a video (in Dutch) available, and since De Boer was late I myself had to step in for a moment. We must clearly distinguish the open and unencumbered discussion of issues on content at the “statistics work floor” and the issues of governance and management which gain more attention in my book. The link to the Hueting & De Boer lecture in 2019 is [here].

If you were to write on this, then my advice to you is to inform me with a draft text, to allow me to comment on possible errors. Please revise your (online) texts that contain erroneous statements, by heading them with clearly visible “Retracted, see link…” while keeping the remainder “as is” so that others can check the history of your errors. Please send your apologies to the Greek government, with copies to the press, for trying to infringe upon the separation of powers. Please inform your membership about this email and my book. Please do not try to restate my book in your own words, thereby taking attention away from my book, but simply correct and refer to the book for the details. Please respect my analysis that the Greek case is only an example, while the real issue is the creation of said assemblies, that also are intended for a better anchor for future governance of official statistics.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scheveningen, Holland
http://thomascool.eu/
http://econpapers.repec.org/RAS/pco170.htm
https://zenodo.org/communities/re-engineering-math-ed

(1) ================================

From: Richard Gill
To: Thomas Cool / Thomas Colignatus
Cc: […]
Subject: Re: N.a.v. uw ondertekening van de ISI verklaring uit 2013 over Andreas Georgiou
Date: Sun, 26 Jan 2020

Ik wil best zeggen dat mijn mening veranderd is. Ik heb het gezegd. Je mag me citeren.

(2) ================================

https://klauskastner.blogspot.com/2020/02/andreas-georgiou-was-it-breach-of-trust.html

(3) ================================

Date: Sun, 09 Feb 2020
To: DG CBS dr. T. Tjin-A-Tsoi, Kees Zeelenberg, […]
From: Thomas Cool / Thomas Colignatus
Subject: Published “Forum Theory & A National Assembly of Science and Learning”

Dear dr Tjin-A-Tsoi and dr. Zeelenberg and […],

My book is now online for all:

Forum Theory & A National Assembly of Science and Learning

[pdf relocated]

The printshop will take some more days.

You might enjoy the national accounting on page 200-206. I just included this this weekend, while finishing the book, and it appears that finishing touches can be quite important.

If you would have comments, feel welcome to send them. I can include additions and corrections in a file with “Reading Notes”, and eventually there might be a 2nd edition.

Let me call your attention to some CBS employees mentioned on p292 who did not properly check the Georgiou case and who signed the erroneous ISI declaration. Allow me to request the DG to forward this email to them. […] is an appreciated contact of mine from the student days in Groningen, and I send him my regards.

I also wonder whether you would have some advice as to how to approach the world of official statistics on this book and its findings. It is easy for me to dispatch some emails to some of the associations and persons involved. It might be less effective and needlessly chaotic. If there would be scope that the CBS would take a week to digest the book and formulate a statement, and be willing to discuss the draft of the statemnet with me (with me only giving advice), then this would seem to be advisable. Please let me know in the coming days whether you would be willing to do so.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scheveningen, Holland
http://thomascool.eu/
http://econpapers.repec.org/RAS/pco170.htm
https://zenodo.org/communities/re-engineering-math-ed

Let scientists and scholars create their National Assembly of Science and Learning

Science and scholarship are much appreciated in our societies when we consider the lavish funding by tax payers and private donors. In contrast there is also a structurally weak position in the very functioning of our democracy. Our best research minds are allowed to discover the wonders at the frontier of knowledge but their findings might not be actually used. In examples like climate change, overpopulation, miseducation, inequality, political science of electoral systems, and the revolutions in computing, biology and medicine, and so on, and even in the issue of Greek statistics of the national debt and deficit of Greece around 2009, we see that science and learning are hardly listened to, and that policy makers and opinion leaders follow their own illusions, leading the world towards foreseeable disasters. Humanity as a whole acts mindless, drunk or crazy.

Trias Politica versus Tessares Politica

There is a system to the madness. Our democracy has the Trias Politica separation of powers between de Executive, Legislative, and Judiciary branches of government. What is lacking is the Epistemic branch. This means that the Trias Politica model allows too much room for manipulation of information. The alternative is a High Definition Democracy that has this Epistemic branch to protect information. This would give a Tessares Politica – from the ancient Greek “foursome”.

Epistemic branch

The Epistemic branch has two elements.

• The first aspect concerns economic planning and the management of the State. The national budget is crucial for policy making. The Legislative branch or Parliament votes on the national budget to authorise the Executive to tax and spend funds. The economic planning agency resides currently under the Executive. However, planning is systematically abused. We better create an Economic Supreme Court at the same constitutional level, with the task to control the quality of information, and the power to veto the budget if it contains misleading information according to the court. This leaves all freedom for politicians to determine policy but they will lose the room they have now for manipulating information.
• The second aspect concerns all fields of research. Parliament currently has the Senate and the House of Commons. In the French Revolution of 1789 the Chamber of the Clergy was abolished. In an alternative path of history, the clergy could have developed into scientists and scholars, and the revolution avoided, and then nowadays we would have a Chamber for Science and Learning.

If we want to improve the world and democracy then these are the two structural positions to consider.

Forum Theory

Forum theory is the approach by the Dutch cognitive psychologist, student-achievement tester, methodologist and philosopher of science Adriaan de Groot (1914-2006), also famous for his study of chess grandmasters. Forum theory provides us with the diagnosis that science and learning operate as a forum, i.e. a market subject to particular conditions. The approach investigates processes that enhance quality of science and learning, and formulates ways to protect and encourage those. Forum theory suggests that science and learning will be improved by a National Assembly. This contrasts with the current dominance by the National Academies of Science and Scholarship.

Such Academies tend to consists of mainly elderly researchers who have made their mark years ago and who are selected by co-optation. This leaves the mass of researchers out of the picture, currently at the front of research and making their mark. The common researchers on the work floor, e.g. in the laboratory or at the computer terminal, are locked up between a stone wall and a firy pit, and tend to be quite frustrated that the existing knowledge is neglected or misrepresented by politics, while the elevated colleagues at the Academy tend to focus on their next conference. Jonathan Swift (1667-1745) in his Gulliver’s Travels already made fun of the Royal Society.

This situation can be changed by the creation of a National Assembly of Science and Learning, with a Floor for the mass of researchers, while the National Academy forms the Senate of the Assembly. The Assembly improves governance of the forum, the forum itself, and research integrity. Researchers in science and learning can create their National Assembly actually quite simply. They can set up a foundation, give rules of operation, recruit members, organise elections and have a constitutional meeting. With sufficiently large membership the operating costs can be covered. The next step is to show results.

The difference between the current Academy and the sketched Assembly is that the latter has the full weight of the collected research body in a country, with the legitimacy of having been elected by them. The Assembly can do investigations and support conclusions, and speak for science and learning with an authority that now is lacking for the Academy. Over time Parliament could accept the National Assembly of Science and Learning as its third chamber, e.g. called The Study.

Greek national accounting and statistics in 2010

My book with above analysis and proposal also looks at the example of 2010, when Statistics Greece (El.Stat) director Andreas Georgiou sent figures on the 2009 Greek national debt and budget deficit to Eurostat without first seeking approval by his board. The Greek court system judged that he was in violation of duty, irrevocably by the Greek Supreme Court in 2018. Today there is an international uproar in national accounting and statistics that Georgiou’s conviction is a miscarriage of justice and an attack on the independence of Official Statistics.

However, these protesting statistical societies and associations have failed to check the Greek law of March 2010 that created El.Stat, and they also refer to the European Statistics Code of Practice of 2011 or 2017 while the code in force in 2010 was from 2005. Georgiou is guilty as charged.

By all looks of it, he also – advised by Eurostat – added the Simitis swaps of 2001 to the deficits, thus increasing the deficit of 2009 by about 2% points, instead of using the proper stock-flow adjustment. The deficit figure has the purpose to show the operating difference between income and expenditure, and is not the place to record hidden debts that fall from the closet. It is remarkable that these sobering points have not been recognised in all comments and protests. Also the Financial Times and the Wall Street Journal supported Georgiou while overlooking these facts.

People can bet their reputation on false information though. Georgiou and the leadership of Eurostat knew about the Greek law of March 2010 and the Code of Practice of 2005, because it was their job to know this at the time. In 2010 they even undertook a change of those very regulations. They however did not say so to the courts and their international colleagues.

Instead, board member and professor of econometrics Zoe Georganta, while lacking full information because of Georgiou’s obstruction, still pointed to crucial questions on content, and those were considered by the Greek courts but inadequately treated by those protesting statisticians and media.

Impact on the EU statistical system

Cause for worry is that the European Union has now restructured its statistical system so that each national statistical office has a single head with full authority, while we know that a single person is much more sensitive to political or commercial pressure or own illusions than a multiperson board.

Warranting the quality of scientific and learned information

This is one of more information scandals that my book deconstructs. The Greek case is peanuts compared to the discussion about climate change. Overall, the world is served not only by a better position of science and learning in our system of democracy, but also by a better internal functioning of the forum of science and learning itself. There is a clear need for a National Assembly of Science and Learning that can investigate such issues without interference by political interests and mistaken hierarchies that exist now.

Thomas Colignatus is the scientific name of Thomas Cool (1954), econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008). See the book “Forum Theory & A National Assembly of Science and Learning” (2020) at https://mpra.ub.uni-muenchen.de/98568 and on his website http://thomascool.eu

GDP or NDP on the depletion of national resources

Salah el Serafy (1927-2016) stated the following about GDP and NDP (Gross and Net Domestic Product):

• “Selling natural assets and including the proceeds in the gross domestic product, GDP, is wrong on both economic and accounting grounds.”
• Even though NDP is rarely estimated, depreciation of produced assets is fairly small and predictable. Declines in natural assets, on the other hand, may be large and volatile, and are not reflected at all in the estimates of GDP commonly used for macroeconomic analysis.”
• “For economic purposes, a better approach would be to calculate the user cost component of resource declines, and either subtract this from GDP as capital consumption or (much better) exclude it from the gross product altogether.”

The term “user cost” merely indicates the investments that are required to maintain the resource level and quality.

Two flows

In the RES Newsletter El Serafy (2014) recalled:

“Exploiting finite natural resources without replenishment is akin to mining and Marshall had taken pains to explain that the surplus realized in mining, often miscalled rent, should be split into proper ‘rent’ which is income and ‘royalty’ which is capital.”

George Santopietro (1998) summarized El Serafy’s position as:

“El-Serafy (1989) argued that the surplus for a depletable resource represents two values: (1) a true income component which can be consumed; and (2) a separate depletion cost. The depletion cost is the amount that needs to be reinvested in order to sustain the economy’s ability to provide future generations with the ability to enjoy a non-declining level of consumption. In this line of thinking, the net price method overstates the true depletion cost. Von Amsberg took El-Serafy’s method and applied the strong sustainability criterion to it by calling for a depletion cost sufficiently large that when invested in the production of a substitute, future generations will be able to enjoy a non-declining flow of similar services.”

It was actually John Hicks who distinguished fundist and materialist capital in accounting. In both cases there is Hicks’s accounting principle of keeping capital intact for income estimation purposes. El Serafy puts emphasis on fundist capital, thus with monetary value. A depletion of a natural asset can be compensated by a gain in other capital. The alternative is to look at the physical stock of goods. El Serafy: “damaged or depleted natural capital cannot easily be replaced with manufactured capital.”

A small model

Wondering what to make of this, I came upon the following small model. When you sell your house then the proceeds are not your income, so much is obvious. You might rent out a room to pay for the maintenance costs. Farmers sell the proceeds from their crop but keep some seeds for next year.

Since Keynes, macro-economics has tended to link consumption to income but let us now relate it to the capital stock that might be depleted.

Assume that the price of a depletable resource is p = 1, and that the resource stock K is capital too: K ~ p K. The first is in physical units and the second would be in money, but let us take the resource as the numeraire, so that K = p K.

• For investment: Let physical investment J = b K. Let g be the physical return factor on physical investment. Then economic (gross) investment I = r K = (i + d) K with d depreciation and i a rate of interest. We also have I = g J = g b K so that r = g b.
• For consumption: Let w L be services without use of capital. For consumption of the depletable resource we distinguish a fraction s that is sustainable and a fraction u that is unsustainable. Total consumption is C = (s + u) K + w L, and we have sustainability when u = 0. Below relations allow us to deduce that s = (g – 1) b, so that sustainable consumption is determined by the physical return factor of physical investments.
• From these two: u K are the user costs or investment that are required to keep the resource intact. When consumption is sustainable u = 0 then such costs are not incurred.

In accounting of expenditure flows, it may happen that u currently is not even included in D, so that also NDP is off-track.

If u is in D then we find: NDP gives substainable consumption s K + w L, while the figure of GDP will be polluted by unsustainable depletion u.

Physical, sustainable if u = 0	Nominal, with p = 1
C = (s + u) K + w L	C = (s + u) K + w L
J = b K	I = r K = (i + d) K       (gross investment)
K[t+1] = (1 – s – u – b) K + g J	K[t+1] = (1 + r) K – D
K[t+1] = (1 – u) K	D = d K = (s + u + b) K = (r + u) K
s = (g – 1) b	r = s + b = g b,     1 – u = 1 + i
d = s + u + b	GDP = Y = C + S = C + I = (s + u + r) K + w L
0 ≤ s + u + b ≤ 1	NDP = Y – D = s K + w L = (g – 1) b K + w L

El Serafy rather wants to see that also GDP is income, which can be achieved by a separate deduction from the stock:

Physical, sustainable if u = 0	Nominal, with p = 1
C = (s + u) K + w L	C = (s + u) K + w L
J = b K	I = r K                                  (gross investment)
K[t+1] = (1 – s – u – b) K + g J	K[t+1] = (1 + r) K – D* – Δ   with Δ = u K  as user cost
K[t+1] = (1 – u) K	D* = d* K = (s + b) K = r K     (without user cost)
s = (g – 1) b	r = s + b = g b,   and r = i* + d* means i* = 0
d = s + u + b	GDP* = Y* = C + S = C + I – Δ = (s + r) K + w L
0 ≤ s + u + b ≤ 1	NDP = Y* – D* = s K + w L = (g – 1) b K + w L

An example is selling the natural resource, putting the proceeds into a bank, and live from the perpetuity. With i the money rate of interest, then sustainable income is s K = i K, so that s = i. Then b = 1 because all money is in the bank, and g = 1 + i = r. It follows that GDP = (1 + 2 i) K + w L and NDP = i K + w L. Normally we do not regard the whole capital as the investment but for money it makes sense. In practice money in the bank is only a financial arrangement and the true return must still come from productive investments.

Environmental sustainability

Above model can be extended with environmental sustainability by replacing s + u with es + eu, with es ≤ s and eu ≥ u. For example, the home owner must put aside additional investments for an extension to the house to make room for solar panels or heat pumps, or to relocate it because of flooding. Sustainability and environmental sustainability have the same model here, and only different data. However, practical modeling can be different. Mere sustainability might rely on actually observed values of the going rate of depleting, while environmental sustainability with es and eu would require more involved modeling to come to grips with the current (conservative) expectations on future development.

Intermediate conclusion based upon this small model

I tended to favour GDP as based upon expenditure flows, since depreciation of produced capital tends to use accounting schemes that seem rather arbitrary. Now, however, it is clearer to me that depletion of natural resources may pollute these GDP data. Now I am starting to think that NDP would tend to be a better yardstick, provided that statisticians find adequate estimates of depletion of course. If those estimates are deficient then the use of NDP provides only the illusion of improvement though.

PM. This simple model seems quite tricky. A one time deviation from sustainability causes a one time GDP growth, but also forces to continue to deviate from sustainability for ever more, with K[t] = (1 – u)^t K[0] merely to maintain the income level without any growth. It is only a simple model to clarify a basic idea. Salah el Serafy has more sophistication with the user cost.

Salah el Serafy again

El Serafy (2014) however advises that resource depletion is removed from income altogether (with my comments):

“Any presumption that removing ‘royalty’ (the capital element) from GDP entries relating to natural resources might be taken care of at the level of estimating NDP cannot be accepted for more than one reason.
First, NDP is not often reckoned at all, and if reckoned there is no unanimity over the amount to be used for the capital consumption involved. (TC: But would there be unanimity for correction at the level of GDP ?)
Second, natural resource deterioration due to commercial exploitation is not ‘depreciation’ in the accepted sense; it does not conform to standard wear-and-tear allowances applied at year-end to asset categories, and may in fact amount to as much as 100 per cent of the asset. In the latter case proceeds of the asset sale will all be a User Cost and must be exiled altogether from GDP. (TC: This is a matter of definitions. If Gross is taken as expenditure flows, then Net can be taken as depletion and standard depreciation. However, expenditure flows are not income indeed.)
Third, if stock erosion is viewed correctly as Marshall advised as emanating from ‘Nature’s store’, accounting conventions dictate that using-up stocks must be dealt with at the gross income estimation stage. Clearly natural resources are not ‘fixed capital’ but inventories, and the User Cost implicit in using them up should be recognized for correct accounting. (TC: But the situation becomes blurred, when the stocks can be used for investments to maintain the stocks, see above small model. In that case it makes some sense to define Gross as the expenditure flows, and deduct depletion with depreciation. However, expenditure flows are not income indeed.)
Such economic reasoning appears to escape the concerns of the estimators who have taken charge of the accounts resisting the economic logic behind the ‘greening’ quest.”

Conclusion

El Serafy did his doctorate in economics at Oxford in 1957, supervised by John Hicks, one of the giants in economics, and also famous for his insistence on proper accounting. El Serafy laments that this heritage has gotten lost:

“However, as the economists’ interest in studying social accounting faded the accountants and statisticians have taken over, often disregarding the concerns of economics, and disclaiming any hint that the national accounts should be estimating income.”

“Their message in brief is that no adjustment for environmental losses can be expected within the mainframe of the national accounts. This in effect is a death sentence on ‘green accounting’.”

Salah el Serafy has a point. The point has also been made by Tinbergen & Hueting.