Testing the predictive power of genuine savings as a long-run indicator of future well-being

This paper reports the first long-run test of how Genuine Savings (also called comprehensive investment or adjusted net savings) predicts future well-being. The theory of weak sustainability suggests that a country with a positive level of Genuine Savings (GS) should experience non-declining future utility. Despite the widespread uptake of GS, previous tests of its predictive power are for short time intervals. We assemble data for British capital back to 1750, and construct several net investment measures which are used to predict two alternative measures of future well-being: future consumption per capita and real wages. An allowance for a “value of time” due to technological progress is also included. Our results show that GS-type measures can predict changes in future well-being reasonably well over 50 or 100 years into the future.