The ISEW -- not an Index of Sustainable Economic Welfare

The Index of Sustainable Economic Welfare (ISEW) is supposed to provide a more reliable indictor for both sustainability and welfare than gross national product (GNP). In this article, I argue first that the ISEWs lack a sound theoretical foundation. I show second that their conclusions are highly dependent on certain key and rather arbitrary assumptions about the weighting of income distribution, the valuing of the depletion of non-renewable resources and long-term environmental damage and the neglect of technical progress and increases in human capital. Third, I argue that the ISEWs and their authors in criticising GNP for its deficiencies as an indicator of welfare miss the point since GNP was never thought of as providing this function by its founders. Finally I show that the ISEWs rest on a methodological inconsistency. The ISEW meshes together the measurement of two entities, current welfare and sustainability, that should be kept separate. This is because an indicator of current welfare ideally consists of items that are not relevant for questions of sustainability.

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