GDP is Not a Measure of Happiness

The recent Princeton University Press book by former Harvard president Derek Bok titled “The Politics of Happiness: What Government Can Learn from the New Research on Well-Being” got some reviewers unhappy, as this article in the Atlanticwire.com reports. I have only read that article and the reviews of the book quoted by the publisher, not the book itself. Here I want to focus on the concept of “Gross National Happiness” which crops up in discussions of this nature.

Gross National Happiness, or GNH, was coined by the King of Bhutan in 1972. It was intended to measure the general level of well-being of the population. The idea was that measures such as Gross Domestic Product (GDP) are somehow inadequate and policy makers’ should focus on some more “holistic” indicator. I came to know of GNH in 2005 through a New York Times article, where it noted:

What is happiness? In the United States and in many other industrialized countries, it is often equated with money.

Economists measure consumer confidence on the assumption that the resulting figure says something about progress and public welfare. The gross domestic product, or G.D.P., is routinely used as shorthand for the well-being of a nation.

But the small Himalayan kingdom of Bhutan has been trying out a different idea.

In 1972, concerned about the problems afflicting other developing countries that focused only on economic growth, Bhutan’s newly crowned leader, King Jigme Singye Wangchuck, decided to make his nation’s priority not its G.D.P. but its G.N.H., or gross national happiness.

I am sure that some people do equate happiness with money but it is at all not certain that most people make that fundamental error. Extremely poor people may correctly surmise that if they had a reasonable amount of money, they would be materially better off and to that extent their welfare would improve. But my feeling is most people who are well-off enough already know that more money may translate into more comfort but not necessarily into more happiness.

It is true that advanced industrialized countries which are extremely wealthy relative to poor developing countries, are nevertheless not without their own problems. This is not any more surprising than the fact that no one expects rich people to have perfectly contented lives. In all economies — like in all lives — some rain must fall (or as we say in our semi-arid tropical country, some harsh sunshine must be endured.)

What I am puzzled by is the general contempt some people who are all thrilled about GNH feel about GDP. They are unhappy that the GDP is not a complete indicator of national well-being. Here I explain why dissatisfaction is not really warranted. I quote from a previous post of Oct 2005 on this blog. (It makes me happy to recycle stuff — even posts.)

When thinking about GDP and GNH, one has to be very careful about what one is aggregating. GDP is an accurate measure of what it measures: aggregate annual production of final goods and services in an economy denominated in monetary terms.

GDP does not aggregate cows, or beauty or whatever one may mistakenly think it does. Thus saying that the GDP does not accurately tell me anything about how many cows there are in the economy, or complaining that GDP does not tell me anything about “the total amount of beauty is in an economy,” is as silly as saying that GDP does not tell me whether the people in the country are happy or not.

So those who make that complaint are complaining that the tape measure is flawed because it does not help in figuring out the temperature of a liquid. It is not meant to do so in the first place.

Certainly there is something called happiness or satisfaction. A person can be said to be happy or satisfied. That is a feeling, a subjective experience. I can say that “I am happy” just like I can say “I am rich.” Those two look similar but the statements are qualitatively different. There is an objective validity to the statement “I am rich” because my wealth can be measured and verified externally. But happiness is subjective and does not allow interpersonal comparisons, while richness does. We can definitely say how A’s wealth compares to B’s wealth but cannot say how A’s happiness compares to B’s happiness.

If even interpersonal comparisons of happiness is mostly meaningless, attempting to define a measure which aggregates the “happiness” of millions of people clearly leaps over the bounds of the silly and lands somewhere in idiotic stupidity land.

I have never considered the GDP to be the end-all and be-all of an economy, any more than I consider the monthly income of a person to be the only relevant characteristic of a person. Perhaps some do, but then people believe in all sorts of silly stuff. Some economists do mess around with GDP growth rates and that is important, just like your tax accountant messes around with your income statements and your investments. Just because your income does not fully define you does not mean that your tax accountant is a myopic narrowminded individual or that the job of preparing your financial statement is meaningless.

I think that those who complain that GDP is not all that matters are making a valid but rather trivial complaint. I have yet to meet a single intelligent mature person–and most economists I have met fit that bill–who believes that GDP is anything more than a measure of economic activity and that too narrowly defined economic activity.

What I don’t understand is the attempt by the detractors of a measure at aping a measure which they have perhaps misunderstood. They are in effect saying, “GDP does not measure happiness. So we must come up with an alternate aggregate measure we will call Gross National Happiness which will be more appropriate.”

That is Gross National Silliness.

8 thoughts on “GDP is Not a Measure of Happiness

  1. Now this article will likely be extolled by our Indian Media and turn into another “Indians happier than Americans…We may be a developing country, but happier than the best…bla bla…”

    In Mankiw’s textbook, in the chapter where GDP is introduced, he quotes JFK’s speech where JFK makes an emotional (and appealing) election speech how GDP of America doesn’t necessarily reflect the American strength, culture, conviction, beauty of poetry, health, happiness,etc…(This is not verbatim – am just quoting a summary of what Ive read retrieving from my memory). Its good for an election speech…

    Quoting that, Mankiw also mentions despite the truth in the speech, nations with a high GDP indeed tend to have (or can afford to have) all that JFK says which is not seen in GDP…

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  2. i read about this in a book called – “The Geography of Bliss”.
    it was decent little book. the author goes to different countries(cultures) and finds out what happiness really means in those nations.

    strangely it came out that iceland was one of the happiest nations..!!
    considering that it has extreme weather and darkness for most part of the year, it wasn’t the perfect candidate to lead the happiness index. but so it was.

    i think india shud rank really really low. (as far as i remember reading, it did actually)…
    another myth that was debunked was caribbeans were the happiest lot (atleast that’s how they sell their tourism). turns out, not so much.

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  3. Warning! This article ‘heading’ has a chance of getting misused by our government and its media to retard her people further.

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  4. I think it has got to do with the fact that after a certain limit, happiness depends on social relations rather than on wealth. Subject to basic wants being fulfilled, happiness depends on social relations and contentment.

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  5. I think happiness (as frequently suggested) is overrated.

    Ignorance is bliss. Illiterate people in India can be blissfully happy – is that good? Should we turn back the clock on progress/information access so we can all be blissfully ignorant of developments and be “happy”?

    Ok, I’m stretching the argument but I’m suggesting that happiness on its own is not a good metric.

    I think social achievements – education, freedom to pursue what one wishes, health, infrastructure, equality are better metrics (and goals) than GDP or GNH (happiness). So, if GDP increases in India by 10% but income equality worsens or farmer suicides increase we should have a clear indicator which should be given due imporatance and not be papered over in light of GDP growth.

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  6. Relatively high levels of GDP coupled with low income inequalities could very likely correlate to the hypothetical high happiness index. India is marching towards desired levels of per capita GDP but we probably do not see the corresponding increases in happiness due to the growing income inequalities. Environmental mismanagement and resource scarcity such as land, water, and electricity could be other factors.

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