Does Happiness Have Economic Value?

Around the globe, leaders are eager to see the return of economic growth after the devastating pandemic. But some economists are now casting doubt on the idea that perpetual growth of gross domestic product (GDP) is even possible — or desirable. University of Cape Town economics professor Murray Leibbrandt has spent his academic life studying inequality and says the problem with GDP is that “the story it tells is one that is often grossly distorting.”

In fact, says Leibbrandt, GDP growth is a weak measure of a society’s progress. Fifteen years ago in South Africa, the country’s GDP was expanding at a robust annual rate of 5%. But, said Leibbrandt, improvements in reducing poverty and unemployment during the same time period were “disappointing.” The economy grew, he explained, but the benefits did not reach 50% of the population.

Liebbrandt says that governments around the world today are “getting sweaty palmed over growth.” But such single-minded focus on a single statistic can be damaging.

“Governments have to have a vision,” he told OZY. An effective blueprint for the future must encompass more than just an expanding GDP; it must factor in the overall well-being of the people, as well as stewardship — or destruction — of natural resources and the environment.

Nobel Prize-winning economists Esther Duflo and Abhijit Banerjee authored the book “Good Economics for Hard Times,” in which they caution leaders about pursuing “business-friendly” policies to achieve economic growth at the expense of low-income citizens. Growth is useful, they say, only if it raises “the quality of life of the average person, and especially the worst-off person.”

What does GDP actually measure? In broad strokes, gross domestic product is the monetary value of the goods and services produced in an economy in a given time period.

Columbia University economist Joseph Stiglitz has written that GDP “does not measure health, education, equality of opportunity, the state of the environment and many other indicators of the quality of life.” Even the original pioneer of GDP measurement, Simon Kuznets, warned that GDP is not a measurement of well-being and happiness.

In the U.S. between 2020 and 2021, GDP increased by 9.08% while, at the same time, life expectancy decreased by 0.39 years. Indeed, the economy was booming even as the country was experiencing its sharpest two-year decline in life expectancy in nearly 100 years. Drug overdoses, in addition to COVID-19, were among the causes of rising mortality. To Leibbrandt, these statistics show that GDP simply fails to reflect “what you want to achieve in a society.”

So what’s the alternative?

David Bridgman, a former development expert at the World Bank, summed up the challenge of developing an alternative to GDP when, in a recent interview with OZY, he pointed out that “measurements of well-being are difficult because they are so subjective.” Indeed, GDP is an attractive yardstick because measuring the dollar value of goods and services is straightforward. How, after all, do you measure happiness?

One country is trying: Bhutan has pioneered a Gross National Happiness Index that was developed with the help of Oxford University researchers as a replacement to GDP. The GNH Index measures socioeconomic life, including living standards, health and education. It also attempts to measure cultural and psychological well-being.

Interestingly, Bhutan’s GDP has also shown impressive growth, averaging an annual rise of 7.5% since the 1980s, even as leaders have focused on happiness. The country’s economic growth is largely the result of its efforts to develop hydropower, which coincided with a dramatic decrease in poverty.

According to economist Esther Duflo, Malawi is a good example of a country where GDP has not grown but the quality of life for ordinary people has improved because of what she calls “a policy focus on issues of human welfare.” Meanwhile, the opposite is true in Angola, where GDP is robust because the country produces abundant quantities of oil. Despite having the third-largest economy in sub-Saharan Africa, half of Angolans live in extreme poverty. Says Liebbrandt, “for all the oil they pump and money they earn, the society itself might well be going backwards at a precipitous rate.”

What’s more, the environmental costs associated with drilling oil are not factored into GDP. The French economist Thomas Piketty has advanced the idea that the social costs of carbon emissions should be subtracted from GDP for a truer accounting. But even then — as Piketty argues in his book “A Brief History of Equality” — the widespread use of GDP as a yardstick is fundamentally flawed, because it perpetuates “the illusion that we can always counterbalance damage with money.” Extraordinary economic growth over the past two centuries, says Piketty, has come at the cost of exploiting the Earth’s natural resources — which cannot be easily replenished, even with a lot of cash.

Ecological economist Tim Jackson is the author of “Prosperity Without Growth,” in which he writes that people can “flourish without endlessly accumulating more stuff. Another world is possible.” But if another world is possible, how do we get there? And why aren’t more countries pursuing a Gross National Happiness Index?