Happiness is the new GDP

Global policymakers are starting to take happiness seriously.

In March, the United Nations released its fourth World Happiness Report, ranking 156 nations on how close residents say they are to living the best life possible. The UN report features endless interesting tidbits: Scandinavians are consistently the happiest people on earth. India’s happiness has declined significantly since around 2006. Citizens of wealthy Qatar are much less happy than people in relatively impoverished Costa Rica.

To a growing number of economists and policymakers, statistics like these are much more than fun facts. They’re a source of guidance that, in some respects, can be more useful than our standard measure of economic success—GDP.

 GDP assigns no value to work that’s not done for a paycheck, and extracts no penalty for destruction of natural resources. Gross domestic product—the total price of all goods and services produced in a country—has always had obvious flaws as a broad measurement of an economy. It generally assigns no value to work that’s not done for a paycheck, so hiring someone to fix your roof counts as a contribution to GDP, but doing the exact same work yourself doesn’t. It counts expensive heart surgery as much more valuable than cheap preventative care. And it exacts no penalty for the destruction of natural resources or the emission of greenhouse gasses. Even Simon Kuznets, the economist whose work in the 1930s helped lead to the popularization of GDP, acknowledged that “the welfare of a nation… can scarcely be inferred from a measure of national income.”

Meanwhile, a happiness survey might sound like hopelessly squishy ground to base economic policy on. But with a decent sample size, researchers have found they can get results that are reproducible and that point to similar factors that contribute to happiness all over the world. The UN report, for example, found that three-quarters of the differences in happiness among countries were accounted for by six factors: per capita GDP, healthy years of life expectancy, social support, trust in government and business, perceived freedom in life decisions, and generosity.

Richard Easterlin, an economist at the University of Southern California who was a pioneer in wellbeing research in the 1970s, argues that happiness measures ought to replace GDP in informing policy. That’s partly because they let individuals pass judgement on their own situations rather than relying on experts, and partly because they’re more expansive than a purely economic measure.

“The aphorism, money isn’t everything in life, applies here,” Easterlin wrote in a recent unpublished paper. “If happiness were to supplant GDP as a leading measure of societal wellbeing, public policy might perhaps be moved in a direction more meaningful to people’s lives.”

 “If happiness were to supplant GDP as a leading measure of societal wellbeing, public policy might be more meaningful to people’s lives.”  The notion of measuring “Gross National Happiness” comes from the kingdom of Bhutan, which coined the term in 1972 to help define its development goals on a basis outside the expansion of material wealth. Since then, particularly within the past decade, dozens of countries have adopted some sort of system to keep track of residents’ subjective wellbeing.

To some, the idea of relying on happiness as a serious economic indicator is wrongheaded, partly because people’s answers to questions about their subjective wellbeing vary by individual temperament and by their mood when you ask them.

“Measuring ‘happiness’ or well-being directly has real drawbacks, not least figuring out what people intend when they reply to the surveys,” Diane Coyle, a former advisor to the UK Treasury who has written extensively about GDP, wrote in an email. “I don’t believe a ‘happiness’ indicator will ever be useful for policy purposes.”

Coyle said there are definitely flaws in GDP, and she expects the measure to eventually be replaced by an index that incorporates issues like inequality and environmental damage. But, for now, she said, it’s a worthwhile measure.

“For all its flaws, one of the compelling things about GDP is that it is calculated according to a standard international definition,” she wrote. “The purpose of gathering statistics is to influence policies and give citizens a way of holding their governments to account.”

Even many advocates for some kind of happiness measure don’t favor dropping GDP. Carol Graham, a Brookings Institute scholar who has worked with government agencies to develop tools for measuring wellbeing, said happiness can add to the picture provided by other measurements.

“Your traditional income-based metrics are telling you A, but the wellbeing measures are telling you B,” she said. “As a policymaker, you can make tradeoffs—at least know they’re there.”

Graham said there’s always the danger that governments can misuse happiness data for their own purposes, and that the public may misunderstand what the measures mean. Even when they’re well intentioned, she said, it’s crucial that happiness surveys be written with an understanding of psychological research that’s been done. For example, very poor people may answer a simpler question about how happy they are with great positivity.

“They’re emphasizing ‘I’m alive today, I have friends and family,’” Graham said. “Which is a good psychological adaptation.” But, she added, “If you just took those answers at face value, you would be dismissing an incredible amount of human misery.”

To get at questions of material hardship and life opportunity, Graham said, it’s better to ask respondents to place their lives on a scale from the worst to best possible situation—as in the question used in the UN rankings.

So, what would it look like, on the level of practical policy decisions, to use measures of happiness to help guide policy? Here are a few possibilities:

  1. Governments would prioritize mental health care. A report commissioned by the UK’s Legatum Institute notes that emotional health problems—depression and anxiety—are powerful contributors to unhappiness. Early intervention to prevent and treat mental illness could contribute powerfully to human wellbeing.
  2. Politicians would see part of their job as building communities. The Legatum report also points to volunteering and other community engagement as a key to happiness. Creating and expanding youth volunteer programs like Americorps or the UK’s National Citizen Service could help set young people up for a life of greater social participation.
  3. The US Federal Reserve and other central banks would make employment a higher priority. “Happiness findings indicate that a one-point increase in unemployment has a considerably more adverse effect on happiness than a one-point increase in inflation,” Easterlin wrote in an email. “So monetary policy would be oriented more toward relieving unemployment than preventing inflation.”
  4. Policymakers would worry more about instability. Graham and other researchers found that US residents’ wellbeing plummeted along with the Dow Jones Industrial Average at the start of the Great Recession. When the Dow stabilized, Americans’ happiness quickly rebounded, even though their standard of living did not. “People seem to be better at adapting to unpleasant certainty than they are to uncertainty,” Graham wrote.
  5. In fact, we would be cautious even about “positive” instability. One of the most striking findings of recent happiness research concerns China. Since the early 1990s, the country’s economy grew tremendously, and extreme poverty and malnutrition plummeted. Yet wellbeing also dropped, and suicide and mental illness became much more common. As the country became more urban and reduced its traditional social safety net, people found greater economic opportunities—along with more stress and less time for rest or leisure. While this could be seen as a bump in the road to greater overall prosperity, it has had serious psychological consequences for a generation of Chinese people.

If countries do move toward making real policy changes based on the happiness statistics they’re beginning to collect, that will generate even more data to create more ideas for the future. The science of happiness has come a long way in recent years, and, while it’s still early days, Graham said the body of research is expanding all the time.

“It’s crazy,” she said. “I mean, I can’t keep up with it.”

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