How does society measure well-being?
There are many economic indicators that attempt to quantify the value of happiness. GDP (a measure of the average level of income per person), health and literacy, and environmental sustainability are measures that attempt to quantify the actual workings of an economy. But what do the indicators mean, and what is an ideal society?
There are many different manifestations of the ideal economy, ranging from communism to free market capitalism. Economists, heads of state and “Joe the Plumber” all have their unique perspective on how society should work, but there is general agreement that the most efficient economies balance markets and corporate power with an “administrative organization” to coordinate, set standards, maintain and distribute public goods. The big debate is not if one extreme is better than the other, but how to effectively combine them.
The neoclassical economic model developed in the 1930’s concentrated on the relationship between “firms” and “households”. Self-interested, optimizing and autonomous individuals have evolved into modern-day Pareto efficient Every-people that are no better or worse off than their counterparts. But what does that mean to you, to me, or even “Joe the Plumber”?
The November 27 to December 3 edition of The Economist reports on a 2006 study conducted by the London School of Economics that measured happiness—or lack of it. The “Depression Report” was revisited this year by British Prime Minister David Cameron, who asked the Office of National Statistics to measure the country’s “well-being.”
One of the original study’s authors, Lord Richard Layard, argued once an economy reaches “purchasing-power parity”, economic growth no longer adds to happiness. However, researchers at the Wharton School at the University of Pennsylvania disagree and can find no statistical study to justify Layard’s claims.
Another doubter of Layard’s claim is Angus Deaton, a researcher at Princeton University. Deaton points to the graph on the left, which measures “Life satisfaction and GDP per person at Purchasing Power Parity”. Deaton explains that the graph shows “an extra dollar is worth less to the rich than the poor.” He plotted the data on a logarithmic scale (graph on the right) to show each increment as a “100% increase in income per head” and shows a continuous relationship of income and happiness regardless of the wealth of the country.
Whether the pursuit of happiness is the right of the individual or should be encouraged by Big Brother is a deeper matter, and is explored in the article.
But why is Denmark an outlier on both graphs?
From a BBC article titled “Denmark ‘happiest place on earth’” dated Friday, 28 July 2006:
“Denmark came top” of an 80,000 person worldwide survey to map out subjective well-being, “followed closely by Switzerland and Austria. The UK ranked 41st. Zimbabwe and Burundi came bottom. A nation’s level of happiness was most closely associated with health levels. Prosperity and education were the next strongest determinants of national happiness.”
More recently, the Danish Institute for International Studies, DIIS, just hosted a seminar called “Gross National Happiness – A Concept Relevant to Danes?” An excerpt from the seminar description:
“The guiding development philosophy of Bhutan is ‘Gross National Happiness’. Pronounced by His Majesty the 4th King in 1972, Bhutan is the only country in the world to measure its well-being by Gross National Happiness (GNH) instead of Gross National Product (GDP).”
The quest for society’s perfect well-being metric continues…