Economists start to consider that money can't buy happiness

guardian.co.uk home Sunday 10 January 2010
Economists start to consider that money can't buy happiness

Obsession with GDP as a measure of how good people feel is losing its grip against concerns for welfare and sustainability

Britain has got the shopping habit back: we may only now be clambering out of the worst recession in living memory, but John Lewis has scored its best Christmas ever, Next clocked up a healthy festive season, and Boxing Day kicked off with jostling queues of bargain-hunters outside shopping centres determined not to miss a moment of the sales.

For long-suffering retailers, and the gleeful shoppers themselves, that feels like good news, but should we welcome the return of the spendthrift habits that plunged us into crisis in the first place, or is it time to ask if traditional metrics of economic success – retail sales, house prices, even GDP growth – really point us in the right direction?

As far as the politicians are concerned, the obsession with economic growth continues unabated. Gordon Brown used to take...


guardian.co.uk home Sunday 10 January 2010
Economists start to consider that money can't buy happiness

Obsession with GDP as a measure of how good people feel is losing its grip against concerns for welfare and sustainability

Britain has got the shopping habit back: we may only now be clambering out of the worst recession in living memory, but John Lewis has scored its best Christmas ever, Next clocked up a healthy festive season, and Boxing Day kicked off with jostling queues of bargain-hunters outside shopping centres determined not to miss a moment of the sales.

For long-suffering retailers, and the gleeful shoppers themselves, that feels like good news, but should we welcome the return of the spendthrift habits that plunged us into crisis in the first place, or is it time to ask if traditional metrics of economic success – retail sales, house prices, even GDP growth – really point us in the right direction?

As far as the politicians are concerned, the obsession with economic growth continues unabated. Gordon Brown used to take great glee in reminding parliament at each budget how many quarters of consistent expansion had been achieved under his chancellorship.

Now, with that record cruelly shattered, Labour hopes that 26 January and 23 April (assuming the election is held in May) will be key in producing a feelgood – or at least, feel-less-bad – factor, as voters prepare to go to the polls. These are the dates when GDP figures will be reported for the fourth quarter of 2009 and first quarter of 2010 respectively, and which are both likely to show positive growth after six consecutive quarters of contraction.

But with unemployment still rising, taxes going up and personal debt still high, the public may decide they do not feel any better just because of a couple of abstract numbers that don't correspond to their own experiences. And Britain is far from the only country to have discovered in the past two years that a record of rapid GDP growth does not guarantee long-term prosperity, let alone fairness or environmental sustainability.

Indeed, with the issue of climate change becoming ever more urgent and a growing recognition that economic growth does not make people any happier, there are growing calls for growth and the endless consumption of ever more material goods to be downgraded as political goals.

The pursuit of growth and endless rises in consumption every year have become part of the national psyche, since Harold Macmillan told the electorate they had "never had it so good". The idea that more, bigger and cheaper is better is a powerful one, and it will be hard to dislodge. It affects the way we think, the things politicians aim for and how journalists report events.

Rises in economic output, a company's sales or house prices are invariably considered good, rises in petrol prices bad. But debate is growing. Just as he sparked a furore last year about whether the activities of the City were good for society, Financial Services Authority chief Adair Turner last week questioned whether economic growth was a "false god". He said that not only did growth harm the climate by increasing emissions of greenhouse gases, but "all the evidence shows that beyond the sort of standard of living which Britain has now achieved, extra growth does not automatically translate into human welfare and happiness".

This is an area some economists have tried to deal with for several decades, by attempting to subtract from GDP figures the social or environmental consequences of growth. Cleaning up an oil spill counts towards GDP, but the environmental damage it causes does not; pumping the oil out of the ground counts as economic activity, but the resource depletion it implies is not accounted for.

For years, the economists trying to come up with alternative measures of welfare or sustainability were treated by the mainstream of the dismal science as tree-huggers who were trying to value things that were impossible to count, and therefore best ignored. This was partly because economics was going through an intensely mathematical phase, in which the goal was to prove everything with models and fancy equations. But the limitations of conventional economics were brutally exposed by the recession – and critics say the time has finally come for a long-overdue paradigm shift.

One of the oldest advocates of an alternative approach is Herman Daly, an American ecological economist who decades ago developed a measure called the "index of sustainable economic welfare" and the idea of a "steady state economy", which argues that the world has to develop a way to live within its means and the limitations of its resources. Another is Chilean economist Manfred Max-Neef, who works on development and poverty issues, and argues that conventional models of development increase poverty and ecological disaster.

Professor David Blanchflower of Dartmouth College, New Hampshire – better known in Britain for being the only member of the Bank of England's monetary policy committee to see the recession coming – has spent decades working on measures of happiness and wellbeing which, he says, offer politicians much more useful ways to think about what policy they should aim for, rather than merely expanding GDP.

Blanchflower rejects the idea that happiness is difficult to measure. Not only are there huge amounts of survey data over decades asking people about how they feel, he says, but cross-checks with other disciplines such as psychology or medicine and their data on metrics such as blood pressure work very well. And the fundamental truth the data reveal is that, despite decades of economic growth in the western world, people have not got happier.

Sensing that GDP measures might have outlived their usefulness, last September French president Nicolas Sarkozy commissioned a report by a panel of experts headed by Nobel prize-winning economist Joseph Stiglitz, to look at how to ensure governments take full account of their citizens' happiness and wellbeing, not just the country's economic growth.

In Britain the torch is being carried by the New Economics Foundation which, among other things, produces what it calls the "Happy Planet Index". Nef's policy director, Andrew Simms, says this brings together both the wellbeing and environmental aspects of human activity as well as the growth to measure whether economies achieve sustainable, happy lives for their citizens, rather than simply growing strongly. Under the HPI, Costa Rica is the world's happiest, greenest country. Many other Latin American countries feature high up in the table but Britain and the United States are down at 74th and 114th respectively. The HPI shows, for example, that fast-growing economies such as the US, China and India were all greener and happier 20 years ago than they are today. "Growth has failed on its own terms. You can't have infinite growth in a world of finite resources. Redistribution of the existing wealth is a far better way to go," says Simms. "It is now a case of paradigm shift or bust."

Nef recently published a report outlining how this can be achieved called "The Great Transition" and will this month release a new report entitled "Growth isn't possible". The simple measure of GDP may soon have had its day.

* guardian.co.uk © Guardian News and Media Limited 2010