The paper - PowerPoint Presentation

Slide1

The paper describes the basics of the national accounts system – market exchanges revealing observable and measurable transaction values. Says that imputations for non-market and non-observed values should be treated very conservatively so as not to undermine the reliability of the accounts

The System of National Accounts –

Staying

on

Track

Robin LynchSlide2

The System of National Accounts – Staying on TrackHighlights loose ends and inconsistencies in the SNA: The treatment of government output

;

I

ntangibles

, particularly

R&D,

R

eal

assets with negative values

N

on-life

insurance

I

nstitutional

units – one definition but treated differently according to whether resident or non-residentSlide3

The System of National Accounts – Staying on TrackLynch uses examples such as non-life insurance,

where he claims that

the

basic national accounts concepts

have been perverted

to

avoid

presenting

negative profits and

value

added that the insurance industry may

experience

from

time to time,

to mount a broader claim that

national

accounts concepts

are at times corrupted

to

provide a cosmetically acceptable solution

.

Surprisingly, he does not seem to entertain the possibility of negative prices.

He asks if we

can

afford

to introduce further non-market non-observable measures of economic phenomena into

the

core accounts

.

He proposes

handling extensions beyond the

fundamentals

through satellite accounts

rather than changing

the core

accounts

.

He puts forward some interesting views on the output of government. This is a confused area of the SNA and deserves further work.Slide4

The System of National Accounts – Staying on TrackFor me, the paper was a roller coaster ride – at times I agreed enthusiastically, at other times I disagreed quite strongly.My recasting of the core question of changing the core accounts versus creating satellite accounts is that we need to make some hard decisions on what changes should be made to the core accounts and what complementary presentations we need to compile as satellite accounts. I cover this in my conclusion.

The core concepts of the SNA need to be clarified and strengthened. Changes to the framework consistent with the core concepts should be made. Where it is considered essential to adopt an alternative concept, we should compile satellite accounts. Slide5

The System of National Accounts – Staying on TrackA couple of random reactions:I am surprised that the discussion of the treatment of non-life insurance and the following discussion of negative asset values did not lead to a mention of the possibility of negative prices.

I think that intangible assets are produced and used just like any other assets. Slide6

The Emperor's New Clothes: The Remaking of an Accounting FrameworkMichael WolfThe paper proposes measurability as the main guiding principle in developing the SNA.Seen as best means of ensuring reliability and comparability.Highlights loose ends and inconsistencies and proposes some solutions (many and detailed – impossible to respond individually in this context):

Definition of income.

Net lending.

Meaning of balancing items.

Recording globalisation.

Classification of institutional units.

In keeping with theme of measurability, proposes close alignment with business accounts.Slide7

The Emperor's New Clothes: The Remaking of an Accounting FrameworkThe strong focus on measurability leads Wolf to be cautious about fancy extensions to the SNA.Highlights the complexity of the existing SNA and the challenge of implementation with limited resources even before fancy extensions.

Supports more focus on NDP to highlight cost of using capital.

Supports inclusion of cost of using natural resources.

Highlights the risks of the increasing use of macroeconomic accounts as "a bureaucratic instrument for the administration of economic development". Identifies treatment of emissions trading as a victim of this.Slide8

The Emperor's New Clothes: The Remaking of an Accounting Framework Loose ends in SNA would benefit from classification as:Challenge to concept

Challenge to recommended methodology.

Difficulty in measurement.

This theme is expanded on in my conclusion.Slide9

The Emperor's New Clothes: The Remaking of an Accounting FrameworkA couple of random reactions:The subordination of the accounts to administrative priorities poses a very big risk to their integrity. Wolf mentions the non-SNA based treatment of emission permits as an example. Another is the reluctance to record pension liabilities. We need to solve this problem.

I agree that the definition of income, particularly in respect to the treatment of holding gains, needs to be clarified as a matter of priority.Slide10

The System of National Accounts and Alternative Economic Perspectives
by
Alice Nakamura and Leonard NakamuraPaper proposes System of Personal Accounts (SPA)Satellite

data for looking at individuals (with household attributes)

•Distributions analyzed across multiple dimensions

•Most crucial dimension: human

capital

Paper

not

about changing

SNA

(but maybe in places it should be?)

Micro

data on individuals to inform three perspectives on wellbeing

•1. Current period outcomes;

•2. risky possibilities;

•3. Resources

.

Viewed

in

three contexts:

•Financial risks; human capital development; pollution impacts

 Slide11

The System of National Accounts and Alternative Economic PerspectivesHighlights the value of unsummarized data: micro data.

Micro

data is increasingly available

and

easily

accessed

.

Micro

data represent the ultimate adjunct to SNA

Micro

data is increasingly being accumulated and made available by statistical agencies, tax authorities, and central

banks

.Slide12

The System of National Accounts and Alternative Economic PerspectivesThree Perspectives on Wellbeing • Current period

outcomes

:

–

This is the perspective of SNA

–

What economic agents actually chose and consume

•

Risky possibilities

:

–

How choices, activities, and wellbeing are affected by risk

–

Clearly reflected in financial and insurance activities

•

Resources

:

–

How resources define individual capabilities and choice

–

Human capital is primary in human

capability

as it a

ffects

ability to make choicesSlide13

The System of National Accounts and Alternative Economic PerspectivesAn SPA can be used to create social accounting matrices or for microsimulation experiments.

SPA

data can be added up along multiple

dimensions

.

An

SPA might reside in a single data base or in

linked

multiple

data

bases

.

Privacy

controls can be built into SPA

access

, but trust in data custodians is essential.Slide14

The System of National Accounts and Alternative Economic PerspectivesN&N propose that national accountants begin adding micro data adjuncts:

These

micro data adjuncts can be viewed

as

steps towards:

A

System

of Personal Accounts and a System of Global Corporations Accounts

T

aking

risk and

capability

into account.Slide15

ConclusionsThere are many inconsistencies and loose ends in the SNA plus many assertions that it does not measure what we should be measuring.Lynch and Wolf detail some of these.The challenge is to work through these systematically and figure out:

Which represent a lack of clarity about the concepts of the SNA, in which case the solution is to clarify the concepts.

W

hich represent breaches of the concepts of the SNA, in which case the solution is to bring them into line with the concepts.

Which represent problems with the methodology proposed, in which case the solution is to refine the methodology in line with the concepts and to decide if it can produce fit for purpose estimates.

Which represent a lack of suitable data, in which case the solution is to review estimation possibilities to see if fit for purpose estimates can be produced, or if we have to leave an explicit gap in the accounts.

Which represent a demand for a concept other than the SNA concept, in which case the solution is to compile a satellite account.Slide16

ConclusionN&N's paper presents a strong case for SPAs but assiduously avoids proposing changes to the SNA.It left me pondering the implications for the SNA.

The inclusion of human capital, including its production and use, seem to be achievable by applying SNA concepts. This needs further work and work such as this paper can inform our discussion.

The paper made me think that, as much as we like to describe the SNA as a value-free collection and aggregation of observed data, there is an implicit welfare model underlying the SNA. National accountants need to engage with the broad welfare debate to make this model more explicit and work through the implications for the future of the SNA.