Measuring What Counts

In the early 1970s, the tiny nation of Bhutan stopped focusing on gross domestic product, or GDP. This wasn't because the country was trying to hide its economic progress. It was because King Jigme Singye Wangchuck thought GDP measured the wrong things.

"Why are we so obsessed and focused with gross domestic product?" he asked a journalist inquiring about the country's economy. "Why don't we care more about gross national happiness?"

And so began the birth of Bhutan's Gross National Happiness index, or GNH.

The idea behind GNH is that traditional GDP is flawed in two ways. One, GDP measures parts of the economy that some would say represent the opposite of progress, such as money spent on war, health care for preventable disease, malpractice settlements, or the cleanup after a hurricane. Two, increased wealth doesn't necessarily mean increased happiness.

The first idea echoed a famous 1968 speech by Robert F. Kennedy, in which Kennedy said:

Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product ... counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

The second idea, the correlation between wealth and happiness, has been a fierce topic of debate since the 1970s when professor Richard Easterlin discovered what he called the happiness-income paradox. This challenged conventional wisdom that said more wealth led to more happiness. "Simply stated," Easterlin recently said, "the happiness-income paradox is this: at a point in time both among and within countries, happiness and income are positively correlated. But, over time, happiness does not increase when a country's income increases." 

Here's what this looks like in the United States:

 

Source: World Database of Happiness, Erasmus University Rotterdam, St. Louis Fed.
Happiness data unavailable for years 49-51, 53-55, 58-62, 67-69, 78-79, and 2007 -- hence inconsistency in scale of x-axis.

Part of this, to be sure, is simply that we become accustomed to higher levels of real wealth. But Kennedy's broader point that GDP and well-being are two very different things surely plays a role as well. Think about today's economy: GDP is at an all-time high, yet unemployment is the highest it's been in a generation, and consumer confidence is still incredibly low.

Bhutan now has nine index variables and dozens of different metrics it uses to measure gross national happiness. Here are some questions it asks its citizens when measuring GNH:

  • How well does your total household income meet your family's everyday needs for food, shelter, and clothing?
  • What is your highest level of education?
  • To what extent do you trust media?
  • How many hours per day do you sleep?
  • Rate the performance of central government in fighting corruption.
  • How often do you experience frustration?
  • Have you ever seriously thought of committing suicide?
  • Do the members of your family really care about each other?
  • Do you have any long term disabilities, health/mental problems?
  • How long does it usually take you to walk to the nearest health care center?
  • Is stealing justifiable?
  • Is pollution of rivers/streams an environmental concern in your area?

Fascinating stuff, if you ask me. But I want to ask you. Should the U.S. start measuring and focusing on gross national happiness? And if we did, what metrics would you use?

Drop a thought in the comments section below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own any of the companies mentioned in this article. That should be obvious, because there aren't any. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (15)

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  • Report this Comment On December 31, 2010, at 3:10 PM, kwl1763 wrote:

    Measuring it yes. It would be interesting. The correlation is almost useless though. It's a 1-3 scale. No matter what 2.5 is probably a theoretical max no matter how good we have it. Second think about how your grandparents lived in general. Much much much smaller house. Fine dining? non existent, nice clothes, nope they made their own a lot and new shoes were a serious treat, they largely could not travel to see friends and relatives in other cities, had little to no vacation and worked much harder (as in manual labor) yet they were as happy as us. Why? Because you don't know any different. It was what they had. Same with us. I do think something measuring quality of life should be included but happiness is never going to correlate well with a "better life" on a macro level.

  • Report this Comment On January 01, 2011, at 9:57 AM, FutureMonkey wrote:

    Hey Morgan,

    Great topic. I just watched Hotel CEO Chip Conley discuss the same concepts in a TED talk (my new favorite iPAD app).

    Measuring quality rather than quantity is an important topic of discussion on the macro level. Certainly worthy of focus in our business cultures and our communities.

  • Report this Comment On January 01, 2011, at 10:22 AM, FutureMonkey wrote:

    Additional comment,

    Struck by one of the comments Conley makes in his talk. He mentions that GDP is a 19th century measure of production from a time when economy was largely industrial and agricultural - very measurable product items. In 2010, 64% of GDP comes from service industry and only 36% from industrial and agricultural products.

    As business leaders, can our CEO's leverage quality into better performance? I think yes for both service and industrial and agricultural products. Can we compete in a global market by racing to the bottom in cheap, low quality products. There is always somebody willing to produce lower quality products for less. Why not choose to manufacture and marketing higher quality products. There are plenty of consumers that willingly pay more for better service, better food, better quality products.

    As an investor we choose were we invest our dollars. Why not favor quality over quantity and I suspect that if we choose carefully, a corporate culture that focuses on quality of their product, employee happiness, and customer satisfaction will outperform the market, if not in dollars, in intangible contributions to our lives (but hopefully dollars also).

    Perhaps, TMF newsletters and CAPS data can also include some of the metrics available on corporate culture - like ranking on "best company to work for" reports. Given two companies in the same industry with comparable traditional investor metrics, wouldn't you rather invest in which consistently ranks very high on employee satisfaction.

    FM

  • Report this Comment On January 01, 2011, at 10:49 AM, FutureMonkey wrote:

    Another TED talk to check out is Nic Marks

    Nic is a statistician that produced an intriguing metric that charts well-being metrics over "per capita resources used" to determine which countries get the most bang for the buck. Turns out Costa Rica leverages the highest well-being from the resources. Sub-Sahara Africa ranks very low in well-being due to scarcity of resources resulting in short, brutal lives. While USA and much of western Europe uses a lot of resources without as much return in well-being above the global average. Challenges us to think about how we use our resources more efficiently to focus on quality of life. Afterall we are running up against the limits of increasing quantity of life (life expectancy) to how do we increase the quality of our ultimate finite resource - time we have on earth.

    FM

  • Report this Comment On January 01, 2011, at 2:13 PM, benthalus wrote:

    @kwl1763

    I think a different interpretation of the data is that, regardless of the technological and economic advances made in the past half century, overall happiness hasn't changed, meaning that the two are not related. Those bigger homes, fine dining, efficient appliances: none of them actually contribute significantly to what makes us happy as people.

    A corollary to your "happiness is never going to correlate well with a "better life" on a macro level." would be that sadness does not correlate well with a worse life. There are innumerable studies demonstrating that depression significantly and severely degrades quality of life, and shortens it was well. While that being true doesn't mean happiness correlates with a better life, it certainly lends substantial support to the idea.

  • Report this Comment On January 05, 2011, at 8:28 PM, TMFKopp wrote:

    Great work Morgan. Oddly something nobody pays attention to. Will the Dow break 20,000? Will anybody be an iota happier if it does?

    Interesting thought on what they do in Bhutan is that studies on happiness often highlight the fact that when you focus on what's good in your life, you become happier and more content. So the fact that the folks in Bhutan are forced to consider simple, important things like "How well does your total household income meet your family's everyday needs for food, shelter, and clothing?" brings a measurement variable to the government but may in itself increase the happiness of the people of Bhutan.

    @benthalus

    Well put, was about to say something very similar.

    @kwl1763

    "No matter what 2.5 is probably a theoretical max no matter how good we have it. "

    There has been a lot of research on "happiness setpoints" so that may be true to some extent. And particularly when you frame it as "no matter how good we have it." I think what Morgan shows above, and other research has shown as well is that above a certain level the "stuff" that you have isn't going to impact your happiness.

    However, the new field of positive psychology has done a lot of research into ways in which we can go above our happiness setpoints, so to get back to Morgan's article above, perhaps the answer is that we've reached a point where we should care far less about GDP (and large houses and fine dining) and more about what we're doing to increase happiness.

    I had the pleasure of studying under Martin Seligman (one of the pioneers of positive psych) and he gives a great overview of the field here -- http://www.ted.com/talks/lang/eng/martin_seligman_on_the_sta...

    Matt

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