Will a Global “Happiness” Index Ever Beat Out GDP?

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For several decades, economists have been dancing around the idea that economic growth doesn’t equal happiness. And yet, politicians and the media are constantly using growth rates as the way to assess whether a country is really getting ahead. Why? Because GDP is one of the few economic indicators that everybody measures and understands. The OECD is trying to change that with a new measure of well-being called the “Better Life Index.” So what’s the purpose, and will it work?

GDP, which only measures economic output, passes over a lot of stuff that people really care about, like air and water quality, health, education, and leisure. So even if the economy is growing like gangbusters (say, China), which implies more jobs and more wealth, there may be a lot of other things going on that aren’t so rosy, like pollution, deforestation, and corruption (again, China). And even if economic growth is creating more wealth, GDP also doesn’t tell you who in society is getting the lion’s share. 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.

The folks at the OECD have been thinking about this for a while. In fact, the concept of “happiness economics” dates back to the 1970s, when an economist named Richard Easterlin did research concluding that, on the whole, rich countries don’t get happier as they get richer. If that’s true, then using GDP to set policies on things like jobs and public spending can easily lead countries astray. So why has it taken so long to come up with a new measure?

First, because economists like to keep it simple. Steve Landefeld, Director of the Bureau of Economic Research, has said his agency is loathe to create a new economic measure that is “hard to define and quantify” and that political issues like well-being and happiness should be “left to those responsible for guiding social movements and legislative policy. Economists’ contributions must continue to focus on what economists can uniquely provide; the objective impacts of such programs.”

That’s why the OECD came up with this interactive gauge. With the “Your Better Life Index,” people can hop online and determine the weighting of various economic indicators — including housing, income, education, environment, governance, life satisfaction, and work-life balance — according to what’s most important to them. The information gathered from the index may help the OECD figure out how to come up with one indicator that can be compared across countries, while avoiding the political minefield of telling other cultures what makes them happy.

If the OECD manages to clear that hurdle, the next step would be getting countries around the world to sign up for using its indicator, just like they signed up for using GDP. And that’s the hard part, because countries all manage their data differently. Even GDP, which economist chalk up to a universal indicator, is measured differently around the world. Imagine trying to unify how, say, Japan and Greece rank the importance of factors such as “work-life balance” or “life satisfaction.” Adding more indicators to the long list of measures governments already crank out also requires more time and money. And that’s something very few countries have on tap.

Hats off to the OECD for trying, but it’s going to be a while before “happiness” comes anywhere close to challenging the global supremacy of GDP.