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Measuring What Counts

By Morgan Housel – Updated Apr 6, 2017 at 9:37AM

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The insignificance of GDP.

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.

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