GDP and Happiness

GDP was developed in the 1930s to help measure economic output. It is certainly one of the most useful economic statistics. But, it has often been criticised for showing only a limited snapshot of economic welfare and happiness.

Because GDP is international comparable, it has become something of a holy grail to measure economic performance. Yet, as is easily forgotten GDP has many limitations such as:

  • It doesn’t measure environmental factors like pollution and air quality.
  • It doesn’t evaluate  the quality of health care and life expectancy.
  • It doesn’t measure education standards and literacy
  • It ignores Crime Rates
  • GDP per capita doesn’t measure the equality of distribution of income.
  • How hard do people have to work? How much leisure time do people have?

The Republic of Bhutan has developed a happiness index which looks at 72 factors to determine overall economic welfare.

Recently, the French President, Nicholas Sarkozy supported a report by two Nobel economists, Joseph E. Stiglitz of Columbia University and Amartya Sen of Harvard University that G.D.P. was insufficient and that measures of sustainability and human well-being should be included in a measure of national economic well being. (link)

Certainly GDP is an important statistic. In particular, it is by far the best guide to economic cycles. But, in the longer term, it would be beneficial to develop an internationally recognised measure of economic happiness (Human Development Index HDI) would provide a good starting point. It would also be beneficial for these other indicators to take greater weighting in the public’s impression and policy making decision.
A failing of economics is that the classical structure tends to look at issues from the narrow prism of profit maximising, GDP maximising as if economic welfare was intricately linked to having more money and more output. Economic welfare is much more complex than that, and efforts need to be made to combine these factors.


By on September 15th, 2009

2 thoughts on “GDP and Happiness

  1. Excellent post.

    I am almost against the happiness policy because it has been advocated by the Coalition government, but this is indeed a very poor reason.

    What I feel we must avoid at all costs is an improving GDP in Britain, but people are miserable. In other words, we have 2 million unemployed, but because of -0.2% GDP we consider it a triumph.

    and I recently like you posted on happiness, but not nearly with any of the authoritative evidence. I hope you enjoy it nonetheless.

    Here is my professional profile anyway, to demonstrate that I am happy, despite being a Company Director in England.

    Best wishes

    Dr Shibley Rahman

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