Tag Archives: Happiness Index

Consider The Metric

One thing about living in tumultuous times….

Questions that are rarely asked when things are calm and going well– about the purpose of government, the proper operation of the economy, and the nature of citizens’ obligations to each other– get revisited.

Take the economy. Ever since Milton Friedman preached that the bottom line consists only of the bottom line–that success is measured by profit and shareholder return–businesses have adopted the measure as dogma. But as David Brooks has reminded readers, keeping shareholders happy at the expense of other stakeholders is a relatively recent phenomenon (not to mention shortsighted).

In a healthy society, people try to balance a whole bunch of different priorities: economic, social, moral, familial. Somehow over the past 40 years economic priorities took the top spot and obliterated everything else. As a matter of policy, we privileged economics and then eventually no longer could even see that there could be other priorities.

For example, there’s been a striking shift in how corporations see themselves. In normal times, corporations serve a lot of stakeholders — customers, employees, the towns in which they are located. But these days corporations see themselves as serving one purpose and one stakeholder — maximizing shareholder value. Activist investors demand that every company ruthlessly cut the cost of its employees and ruthlessly screw its hometown if it will raise the short-term stock price.

We turned off the moral lens.

I know that reaction to Brooks is mixed, but in this column, he makes some good points. The most important is his closing:

The crucial question is not: How can we have a good economy? It’s: How can we have a good society? How can we have a society in which it’s easier to be a good person?

America seems to have lost sight of the fact that economic systems should be judged on whether they enable what Aristotle called human flourishing. Citizens don’t exist for the economy; the economy exists to support a healthy society. The single-minded pursuit of shareholder profit elevates the wrong goals and creates perverse incentives.

And that brings me to another article.

Scientists and social scientists can confirm that what and how you measure something matters. We all know that school teachers spend more time on subjects that are tested, and that employers who reward employees on the basis of speed rather than quality will get more speed and less quality. When the metric for evaluating economic performance is GDP, which measures the dollar value of goods produced, the result tells us little or nothing about the well-being of citizens or the health of the society.

As the Sarasota Institute points out in the referenced article,

GDP growth says nothing about how the benefits of higher growth are distributed. We can imagine high GDP growth with the poor becoming poorer and the rich becoming richer. Only if GDP growth produces income growth for everyone could we say that the general welfare has been increased.

GDP growth does not say anything about the composition or quality of the output. GDP will grow with higher cigarette and alcohol consumption and more guns sold but this says little about well-being growth. In addition, GDP would grow even if the average quality of goods declined.

GDP growth ignores the costs that have been incurred in achieving that growth. Consider that more GDP probably increases air and water pollution and more traffic congestion. Consider that GDP growth could be the result of more people working longer hours and having less leisure time.

The article references Bhutan’s approach: the Gross Happiness Index.

My husband and I were intrigued by that metric when we visited that small country several years ago. (Evidently others were equally intrigued; several countries are experimenting with a similar approach.) The four pillars of GNH were:  sustainable development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance.

The index rests on the assumption that a person is likely to be happier if the economy grows, if cultural values are satisfying, if the natural environment is pleasurable, and if the government operates in the interests of the citizens.

There are other proposed indexes as well: the Human Development Indicator would shift the focus from national income to people centered policy. (This index started to gain momentum when– between 2002 and 2006–personal income in United States fell but GDP continued to increase); a Social Progress Index focused on social and environmental needs; and recently, a Happy Planet Index, measuring whether people are happier, if they live longer lives, if the income distribution is only moderately skewed, and if people have a low carbon footprint.

All of these proposed indexes recognize that you get what you measure.

Metrics matter.