Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Last summer, the World Health Organization published a shocking statistic: Nearly one out of every five Americans experience a significant bout of depression during their life. It should come as no surprise, then, that antidepressants were the most prescribed medicine in America over the last decade.
Some think that these are clear signals that our economic system is broken. I have news for them: You're wrong. It's a sign that our system is producing exactly what we've designed it to produce.
As any Econ 101 professor will tell you, the definition of economics is the study of the (optimal) use of limited resources, and not just the study of money, production, and consumption. But the way we've set things up, it'd be easy to think it's the latter.
The perils of gross domestic product
Every year, we push to make the GDP of our country edge ever higher, often in the misguided hope that there is no limit to growth. If you don't think GDP matters, don't fool yourself: What's measured matters.
British economist John Maynard Keynes believed that by the late 20th century, productivity would boom due to technological advances. Two-day workweeks would be standard, with the rest of our time devoted to family and friends. What Keynes failed to see is that our standard economic metric -- GDP -- doesn't take the human factor into account.
As a result, our economic priorities are at odds with what makes people happy and healthy. For instance, the expenses associated with wars, building of prisons, and even legal fees for divorce attorneys all have a positive impact on GDP. Yet these very same factors often keep us from enjoying all life has to offer.
Faced with this conundrum, several organizations have attempted to devise alternative methods to measuring economic progress. This is most demonstrably evident in the country of Bhutan, which uses gross domestic happiness as its metric of choice.
But I want to focus today on a metric devised by the New Economics Foundation called the Happy Planet Index, and show why it would be worth our while to start actively measuring it.
Perhaps the most appealing aspect of the HPI is its ability to take three very complex factors -- subjective well being, health, and resource consumption -- and simplify them into one meaningful number.
The Index's authors agree that the metric isn't perfect (what metric is?), but it does a good job of getting us to begin focusing on what really matters to most people -- namely, leading a happy and healthy life without impinging on the ability of future generations to do the same. Here's the very basic equation used to find the final metric:
Happy life years
The numerator -- which has two components -- represents the number of happy years one can expect to live.
The number is derived by multiplying the average life expectancy by reported levels of happiness on a scale of one to 10. For instance, if the average life expectancy in Atlantis is 100, and the average happiness rating is a nine, then the number of happy life years would be 90.
The first variable here, life expectancy, is relatively easy for the NEF to measure.
Source: New Economics Foundation. Green = over 75 years, yellow = 60 to 75 years, and red = less than 60 years.
North America, Australia, Western Europe, and some Latin American countries enjoy the highest life expectancy, while most of sub-Saharan Africa has a bleak outlook. It should be noted, however, that the countries of Malta, Costa Rica, Cuba, and Chile are able to accomplish relatively high life expectancies with a per capita GDP of less than $20,000.
The next part of the equation is evaluating the subjective quality of those years. This is measured by questionnaire on a scale of one to 10.
Source: New Economics Foundation. Green = above 7.0, yellow = between 5.5 and 7.0, and red = less than 5.5.
As the authors point out, when we have to determine if being wealthy and being happy are related, answer is "Yes, but..." Making money matters to the point where basic needs are met, but after that, the correlation weakens significantly.
The countries with the highest happy life years are Costa Rica (66.7), Norway (64.6), and Canada (64.0). Perhaps of most significance, Costa Rica is able to achieve higher life satisfaction (8.5 versus 7.9) and higher life expectancy (78.5 versus 77.9) than the United States on just one-quarter of the GDP.
But the number of happy years we spend on earth is only half the equation. Now we have to move to the denominator -- environmental consumption. This lets us know what kind of world we'll be leaving our children.
It is here that many high-GDP countries run into problems. To determine how much a country consumes, NEF measures how many planets would be needed if everyone consumed the same amount of resources as the people of any given country.
Source: New Economics Foundation. Green = less than one planet, yellow = one to two planets, red = two to four planets, and dark red = more than four planets.
Though Western Europe, Australia, Japan, and Canada all do poorly, the United States ranks abysmally low when it comes to consumption. We behave as if there were resources equivalent to more than four planets out there for our use.
Before throwing your hands up and disregarding such findings as eco-psychobabble, consider the crucial point -- our planet has a limited number of resources and a rapidly growing population. If we continue on the path we're on, we'll suffer the consequences.
Our most efficient economies
There are some key takeaways from the HPI:
- The regions of the world ranking highest in HPI are Central and South America, as well as Southeast Asia.
- Three factors that correlate strongly with high HPI countries: aspirations that are not materialistic, strong familial and communal ties, and strong social capital (having a voice that's heard and appreciated in society).
Right now, our system is producing exactly what we measure it to produce -- outsized production and consumption. If we think there's more to life (and our economy) than simply production and consumption, we don't need to need to do away with GDP altogether. Rather, we need to supplement it with metrics that measure what we're truly looking for.
To be honest, this article could go on and on, and this topic deserves far more coverage than I'm able to give it now. If you wish to read NEF's latest report in full, simply click here. Otherwise, sound off in the comment section below, and let me know what you think about how we measure economic progress in our country.