COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1101 How Should We Measure Sustainable Income? William D. Nordhaus May 1995 Growing concerns about long-run economic growth have led to calls for measures of "sustainable income." Traditional analyses rely on Hicksian income, which is consumption plus net investment. The present paper shows that Hicksian income corresponds to sustainable income only under implausibly limited circumstances. We define sustainable income and estimate its magnitude for the United States. The analysis and empirical estimates indicate, first, that consumption has historically been far below sustainable income; second, that conventional Hicksian measures of national income are poor proxies for sustainable income; and, third, that the true savings rate has declined significantly in the last two decades. |
