Does Ben Bernanke want to replace GDP with a happiness index?

October 8, 2012
October 8, 2012

As chairman of the Federal Reserve, it is Ben Bernanke’s job to devour data like the latest report on how more Americans have found jobs.  But he wants even more data. In a prerecorded talk for a conference this past summer, Bernanke said, “…we should seek better and more-direct measurements of economic well-being, the ultimate objective of our policy decisions.”  He’s not talking about more accurate versions of regular economic indicators, though.

Rather, Bernanke suggests that survey measures of happiness and life satisfaction should take their place alongside GDP as measures of how a nation is doing. In doing so, he joined current British Prime Minister David Cameron, who said “it’s time we focused not just on GDP but on GWB—general wellbeing” and former French Prime Minister Nicolas Sarkozy, who said he would “fight to make all international organisations change their statistical systems by following the recommendations” of the Stiglitz report. He refers to Nobel Prize winning economist Joseph Stiglitz’s committee’s work proclaiming “the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well-being.” The emphasis is in the original.

In Sarkozy’s case, historian Brian Domitrovic opines that Sarkozy was just trying to divert attention from poor GDP statistics, saying “France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth.” He went on: “The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the US, Britain and East Asia. Mr. Sarkozy’s gambit to paper over this real difference will be lucky to find any takers.” Domitrovic is pointing out the very real danger of the manipulation and politicization of national statistics when the right way to measure something like “well-being” is unclear.

How can we avoid the dangers of manipulation and politicization of new indicators of national well-being? Here is a simple answer: if we are going to use survey measures of well-being such as happiness and life satisfaction alongside well-seasoned measures such as GDP as ways to assess how well a nation is doing, we need to proceed in a careful, scientific way that can stand the test of time. For example, in my research with Dan Benjamin, Ori Heffetz and Alex Rees-Jones in the August American Economic Review, people say they are willing to sacrifice happiness for money if the price is right. Without understanding how much people want money and how much they want happiness, no one should pretend to know whether GDP or happiness is a better measure of a nation’s performance.

But it isn’t just happiness vs. money. Should we be measuring anxiety or measuring stress? How much weight should we put on being satisfied with life as opposed to happiness? Without good answers to these questions, it will all degenerate into political posturing and dueling statistics. But if we do it right, the ultimate prize will be a new way to judge whether the government is doing its job. And to me there is no question what the government’s job is. It is to smooth the way so people can get what they want and lead the kind of lives they want to lead—without deciding for them what they should want.

This is Part 1 of a two-part series on measures of national well-being. Part 2 will discuss  a specific proposal for national well-being measures.

We welcome your comments at ideas@qz.com.  Follow Miles on Twitter at@mileskimball. His blog is supplysideliberal.com.

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