Decoupling GDP and Happiness

Relationship between GDP and Happiness Index, Source: NEF report

Can GDP and happines be decoupled? Does economic growth equal happiness?

These are the questions that economists have been toying around with for quite some time now. GDP as measured today is used as the sole indicator of growth rates as theway to assess a country’s performance on the global scale.

It measures economic output but overlooks areas of air & water quality, health, education, leisure and happiness.

The OECD countries are trying to change that with a new measure of well-being called the “Better Life Index”. As the governments emerge from the worst economic crisis in decades, they are looking at measuring health and happiness along with GDP. But how can well-being and happiness align with economic goals?

Shortcomings of GDP

Even if the economy like China which is growing rapidly does imply more jobs and more wealth, issues of pollution, deforestation, and corruption are also high. And even if economic growth is creating more wealth, GDP also doesn’t show who in society is getting the most benefit. Because GDP measures an average of per capita output, it doesn’t reflect changes in specific segments of a population. So poorer populations within a single economy can be getting poorer, even though GDP is going up.

Proponents of the Happiness Index

The Happiness Planet Index (HPI) was launched in July 2006 by the NEF, an independent think tank founded by the leaders of The Other Economic Summit (TOES), based in the UK, as a radical departure from our current obsession with GDP.

Andrew Oswald, an Economics professor at University of Warwick in the UK says that GDP is “crumbling as a target and is already out of date”. Oswald was one of the first economists in the UK to research what he labels “emotional prosperity”.

The concept of “happiness economics” dates back to the 1970s, when an economist named Richard Easterlin did research concluding that largely, rich countries don’t get any happier as they get richer. This can have policy implications on job creation and public spending.

British PM David Cameron has announced plans to measure happiness as an indicator of national progress, instead of relying on GDP. The first happiness index of the British people is expected to be published in 2012. Happiness economics is slipping into the mainstream as France and Canada pursue on the same path.

Although on average richer nations tend to be happier than poorer nations, some studies have indicated that beyond an average GDP per capita of about $15,000 (most of the world’s nations have less than this), the average income in a nation makes little difference to the average self-reported happiness.

The Happiness Planet Index or HPI provides that compass by measuring what truly matters to people in the countries – well-being in terms of long, happy and meaningful lives. HPI confirms that the countries that enjoy the happiest and healthiest lives generally have higher GDP’s but that comes at an ecological cost. The NEF report also reveals that “less wealthy countries, with significantly smaller ecological footprints per head have high levels of life expectancy and life satisfaction“.

In other words, the GDP and happiness can be decoupled and happiness doesn’t necessarily follow GDP.

What do you think? Please share your comments below

For more:

  1. ”Will a Global Happiness Index ever beat out GDP” by Roya Wolverson: http://curiouscapitalist.blogs.time.com/2011/05/24/is-a-global-happiness-index-on-the-horizon/#ixzz1PfJ9Bmdd
  2. “The Happiness Effect” by Alice Ghent at WHO: http://www.who.int/bulletin/volumes/89/4/11-020411/en/index.html
  3. Report “The Unhappy Planet Index 2.0” by NEF at http://www.happyplanetindex.org/public-data/files/happy-planet-index-2-0.pdf
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Comments

  1. An important issue and necessary discussion that I’ve been blogging on over at the sustainable futures blog. The German parliament, for instance, has been pondering upon the very same thing for quite a while now:

    http://blog.floriankaefer.com/2011/01/24/german-parliament-redefining-happiness/

    However, economists still seem to be stubbornly tied to the old paradigm (it’s what they learned and got good grades for at university, after all). Much of the news media doesn’t help either to get us away from the endless growth myth.

    • Thanks for your comment, Florian.
      There’s an economists joke: There can’t be a $20 bill lying on the road – if it really was a $20 bill, then it would’ve been picked up by now.
      That’s what happiness is to GDP. Happiness is needed and economists now are thinking about it, but they had believed all the while that happiness had already been picked up as part of GDP -when in fact it’s still lying somewhere on the strret.

  2. On a personal level, we all seem to be pressured to work more: longer hours for longer years. My wife and I have discussed the idea that the progress of a society should be to allow its people to work less. What I mean by that is we should hope that our citizens can (if they wish) retire earlier. And while they are in the work place, work less hours per week. Progress should be about allowing everyone to enjoy life more. Not about working more.

  3. I ditto your thoughts 🙂

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