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.

Author: Atanu Dey

Economist. View all posts by Atanu Dey