Should we focus on happiness rather than on GDP?

Two exciting innovations coming from France recently: the introduction of a carbon tax (on which there is substantial agreement among economists) and, following the Stiglitz-Sen-Fitoussi Report on the measurement of economic performance and social progress, the introduction of new economic indicators which will include measures of well-being and environmental degradation (on which there will be less unanimous agreement). Gross Domestic Product (GDP) is, without doubt, a flawed measure of economic activity, But is there a better one? Introducing an environmental consideration into it is perhaps interesting. But it is debatable as to whether happiness should be included into GDP. The Easterlin Paradox is often the basis of the argument for those in favour of inclusion: rich societies tend not much happier than poor societies and as countries get richer, their people do not get happier. Recognizing that this is perhaps a bit of an exaggeration, some have argued that there is a ceiling to happiness: citizens of really poor countries are probably unhappier than those in really rich countries, but above a certain income level, happiness reaches a ceiling. Richard Layard places this income level to $15 000 per head per annum. So, why should a country focus on getting rich if the people do not get any happier? For a start, the results could be flawed, as Wolfers and Stevenson have recently worked out: richer countries are happier than poorer countries and the increase in happiness is still noted for income levels above $15 000. Another argument is the data can be flawed as there can also be considerable cultural variations in the way people report their happiness. But perhaps more importantly, GDP seems to be positively correlated to almost any measure of well-being: health, education, freedom, the quality of institutions, etc. Thus, the argument against using happiness as a measure of well-being runs as follows: why invent indicators which are bound to be subjective (how do we really measure the value of personal activities, social connections, economic insecurity, political voice and governance, etc) when we have an objective measure of economic activity, GDP, which illuminates us on many of these indicators anyway? Nevertheless the Stiglitz-Sen-Fitoussi Report remains an excellent read in the breathe of topics it covers. However, it remains to be seen whether the French initiative will catch on.

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