National income accounts, the information framework that countries use to analyze the performance of their economies and to determine gross and net national product, ought to encompass the concept of sustainability. And, indeed, they do in certain respects. Man-made assets, including plant and equipment, are valued as productive capital, and their depreciation is charged against the value of national production. But this treatment of capital depreciation in national income accounting does not extend to natural resource depletion. The result is what Robert Repetto and his coauthors refer to in this report as a "dangerous asymmetry." As he notes, "A country could exhaust its mineral resources, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife and fisheries to extinction, but measured income would not be affected as these assets disappeared."

When the index by which we try to measure improvements in living standards ignores the

loss of natural resources and the services they provide, policymakers can get very misleading signals, as the results reported here for Indonesia show. Temporary improvements in consumption can be purchased by permanent losses in wealth and productive capacity.

Few people who aren't economists even know what the accounts are, much less how they are calculated. And yet, whenever quarterly GNP figures are released, policymakers invariably find themselves on the line: constituents, reporters, and financial analysts all want to know why the economy's performance is up, down, or unchanged. No economic law says that natural resources and the services they provide can't be included in national income accounts. Indeed, principles of both economics and ecology argue that they should be. But how?

Wasting Assets: Natural Resources in the National Income Accounts demonstrates that natural resources can be treated similarly to capital in national accounts, and it argues convincingly that these accounts should be revised. Repetto and his co-authors don't stop at building a tight theoretical case. Using data from Indonesia, they provide a concrete example of how the revised accounts would work and what signals the new results would give to those who make decisions about economic development.

This report complements several others that WRI has conducted that seek to bring economic