Is GDP An Accurate Measure of Our Happiness? Buddhist Economics Gives An Answer!

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Why do we care: Humans like to push complicated, subjective ideas into precise, quantifiable, and rankable measurements, and measuring well-being is no exception. With a growing focus on alternative metrics to GDP, economists and scientists have designed many different methods for measuring and quantifying happiness and well-being, including Gross National Happiness (GNH), the Better Life Index, and the Genuine Progress Indicator. While there is no ideal way to measure overall well-being, we will discuss some of the factors that we think are most important to incorporate.

What is GDP missing: One crucial economic sector left out of GDP is the informal economy. This can include illegal activities, such as informal trade within communities or unofficial laborers, as well as non-market activities, such as at-home childcare, volunteer work, and producing goods for at-home use. In some countries, especially developing countries, the informal economy makes up a significant chunk of GDP. In sub-Saharan Africa, the informal economy makes up 34% of GDP but is left out of these crucial estimates of the countries’ economies (weforum.com). Parents caring for children or sick family members and doing housework require many hours and make a major contribution to the family’s well-being, yet this economic contribution isn’t recorded by the GDP. Another factor that is important for understanding the well-being of an economy is its inequality, or how resources are distributed among households. GDP ignores the distribution of wealth or income within a country, and countries are compared only by the average for the whole country. Countries like the United States, with a high average GDP, can have high levels of inequality, with many people living below the poverty line. According to a recent report from the US Census Bureau, the top 5% of households held 23% of all US income in 2018, rising from 16% in 1968 (pewresearch.org). According to the US Census, in 2020 there were an estimated 37.2 million people below the poverty line. Clearly, looking at a country’s level of inequality is important for understanding the well-being of individuals. One method of measuring inequality is the Gini index, “a summary statistic that measures the dispersion of incomes on a scale of zero” (pewresearch.org). Using this scale, if everyone in the country earned the same income, the Gini Coefficient would be zero, and if one person earned everything and the rest earned zero, the coefficient would be one. The United States has a Gini Coefficient of 41.1 (worldpopulationreview.com). In the countries with the lowest Gini coefficient (least inequality), Nordic and Central Eastern European countries make up 7 out of the top 10 countries on the list.

What factors are non-quantifiable: Furthermore, some factors are not necessarily quantifiable but do have an impact on people’s quality of life and should serve as adjustments to GDP in order to measure well-being. One such factor would be life expectancy. As the tremendous annual spending on healthcare demonstrates, people prefer to live as long as possible and are willing to spend money on prolonging lives. This seems to imply two value assumptions. One, the longevity of life is directly related to people’s happiness, and if GDP were to measure people’s happiness or satisfaction with life, then life expectancy has to be included. Secondly, we believe that the money spent on healthcare should be counted more than its actual numerical value when calculating its impact. Because this money not only gets paid to hospitals and is counted as part of the national output but also helps to prolong people’s lives, which increases people’s happiness with lives and is a portion that can not be quantified but should be added to the whole GDP calculation.

What about the environment: Following up on GDP’s impact, another factor that has a significant impact on people’s quality of life would be the value of the environment in which people live. Simply put, people generally prefer to breathe in the fresh air, eat food free of pollution, and enjoy being in Nature, which are all directly related to the quality of the environment. These should be counted as part of GDP. According to Morgan Stanley, different climate disasters that took place between 2016 to 2018 had cost countries worldwide an economic loss of 650 billion dollars (~216 billion dollars per year). This economic loss is ignored by the GDP, although the costs for repairing areas devastated by extreme weather are included in GDP. Looking ahead into the future, climate change is estimated to create a worldwide economic loss of as much as 500 billion dollars per year by 2050. The calculation of such loss includes the loss of human lives, the deconstruction of biodiversity, and the diminishing of biodiversity, which are all non-quantifiable but should be taken into account in the GDP calculation.

Summary: while GDP does provide some credibility in measuring people’s satisfaction with life, we believe that the measure could be dramatically improved by including factors such as informal market activities, life expectancy, and the cost of environmental destruction.