Economic Measurements or Gross National Happiness?

In chapter 30 of “Life on the Mississippi”, Mark Twain describes a town on the banks of the river –

Helena is the second town in Arkansas, in point of population- which is placed at five thousand. The country about it is exceptionally productive. Helena has a good cotton trade; handles from forty to sixty thousand bales annually; she has a large lumber and grain commerce; has a foundry, oil mills, machine shops and wagon factories--in brief has $1,000,000 invested in manufacturing industries. She has two railways, and is the commercial center of a broad and prosperous region. Her gross receipts of money, annually, from all sources, are placed by the New Orleans 'Times-Democrat' at $4,000,000.

It got me thinking about our current methods of economic measurement with Gross Domestic Product (GDP) leading the pack. Back in Twain’s day (1882), I’d argue that economic measurements would be good indicators of the prosperity and happiness of the population. However, today many people are making a cogent argument that GDP is not the number we should all be watching to track prosperity and that GDP has nothing to do with the happiness of a population in western societies.

Bill McKibben’s book “Deep Economy” first clued me in to this idea – apparently, once people rise above the poverty level, economic improvements have little to do with the happiness of a population. (My recent personal experience – now that I’m again earning a paycheck and just can’t stop smiling - would corroborate that data.) The argument is that once a person has the basics taken care of – food, shelter, health, companionship, family, security, justice, etc. – every additional dollar of income contributes little to personal happiness. Donald Trump may be able to fly off to Paris or Hong Kong whenever he wants (though I bet he doesn’t), but statistically he’s no happier than a potato farmer in a small village in Bhutan.

Bhutan is an interesting country because they’ve been measuring and reporting “Gross National Happiness” for some years now and using it to guide all their economic developments. http://www.time.com/time/health/article/0,8599,1016266,00.html
My buddy Nic Sarkozy recently had a couple nobel laureates perform a study on happiness for France, http://www.economist.com/blogs/freeexchange/2008/01/happiness_is_a_warm_baguette (despite the Economist magazine’s disdain for the effort – ever since I thought I was a neo-con and then went to India to see how well democracy works in developing countries, I think the Economist magazine frankly doesn’t know shit about the real world) and now the UK is following suit http://www.guardian.co.uk/lifeandstyle/2010/nov/14/happiness-index-britain-national-mood
The core question behind these movements is the effort to address this question – "does the economy serve the population, or does the population serve the economy?". Do we go to work, produce and purchase simply to help the economy (as George W. told us in 2006 “I encourage you all to go shopping more”) or is the economy just another thing to measure that has little correlation to our happiness?

GDP has recently shown little correlation to the general happiness of the American population. While officially almost 10% of us are out of work (and the Europeans suspect the number is much higher http://www.bbc.co.uk/news/business-12364507), the GDP today, at $13 Trillion is roughly at the same level it was in 2005. http://www.data360.org/graph_group.aspx?Graph_Group_Id=149 Interestingly, because GDP measures all economic transactions, events like national disasters, wars, outbreaks of disease – anything which requires the production and/or purchase of more goods whether they be guns, sand bags, rebuilding of destroyed buildings, medications, etc, adds to the GDP.

In light of that fact, it seems a little naive to have our elected officials looking so closely at GDP as a measure of the health of the country. As so many managers know, people watch (and try to impact) what is measured. Incent a CEO to raise the company’s stock price and guess what he’ll spend most of his time and effort doing (whether his actions to bring about that stock increase eventually help or hurt the company in the long run). I think the American people have unwittingly let our elected officials focus too long on just the economy.

This is a hot subject for me. More later.