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GDP vs. “Happiness”: Economics Are Getting Smarter

| Friday February 26th, 2010 | 3 Comments

five year anniversary

Five years ago, 3p reported that GDP does not correlate with happiness, and that another, more holisitic metric—GPI, or Gross Progress Indicator—would be more apt. Now, in 2010, some say this is still true. This finding has been repeated and reported almost constantly in the last five years, which begs two points. First, that happiness is not related to income. Second, that GDP is the wrong metric for measuring a country’s value.

Mo’ money mo’ problems

If I recall an undergrad environmental studies lecture on this topic, The Easterlin Paradox predates 3p’s report and is probably the origin of thinking about GNH, or gross national happiness. The Easterlin Paradox, a 70’s era economic theory, refers to the phenomenon that once basic human needs are met (food, shelter, community stability, etc) human happiness does not quantitatively increase through fiscal gains. It was named for USC economist named Richard Easterlin, who first put the idea that spiritual goods cannot be bought into an academic economic paper, although the principle has been the foundation of most of global religions for a while.

3p reported on the Genuine Progress Indicator, a metric created by Redefining Progress, an Oakland based economics mini-think tank. Since 2002, there’s been almost nonstop reporting on “happiness economics”; do a Google News search of that term to see what I mean. The ideas of “subjective economics” and “happiness economics” suggest an interest in seeing economics from an interdisciplinary perspective rather than only quantitatively. This also reflects the increasing move from manufacturing to service economies in the US; we are open to evaluating our economic value in new ways.

While happiness economics reports are often conflicting—the Freakonomics guys claimed to disprove the Easterlin Paradox, a huge array of other reports reinforce it, and Psychology Today claims that therapy creates 32x more happiness than getting a raise at work, etc. Yet all the happiness economics discussions are critical because they point to consumers demand for understanding the function and impact of economics in society. After gauging that impact, the next step is thinking about whether the metrics we use to measure economic success are the right ones. Here’s a hint: GDP isn’t sufficient.

It’s not you, it’s GDP

My high school economics course included a segment on Marilyn Waring, a New Zealand politician who argues that GDP is necessarily incomplete because it doesn’t account for [what is typically] womens’ work (such as domestic work and childcare), which is discounted or externalized by societies.  If GDPs were calculated to account for womens’ currently unpaid contributions, for example by assigning a minimum wage for the creation of theoretical income, country wealth would look much different than it does today. Indeed, this is only one way in which GDP is a reductive means of assessing a country’s assets. Google again offers a nice little chart to illustrate the growing agreement on GDP’s deficiency. A search of “GDP wrong” shows increasing number of stories in starting in 1985, peaking now. Digging into these results produce a bunch of stories on GDP generally, and widespread academic and policy reports indicating a consensus that GDP is not the optimal, or only, way to assess an economy.

3p enterprises change economics and increase happiness

In many ways the rise of triple bottom line and social enterprise organizations embody the widespread rejection of Chicago-school magical, reductive economic assumptions in favor of realistic ones with pragmatic social consequences. 3p orgs also integrate making positive social impacts into business plans, which Dan Pink suggests makes work worth doing.

In total, economics are maturing and money still can’t buy you love.


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