Adam Smith wrote:

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”

This statement is part of what created economics as we know it in the book “An Inquiry Into The Nature And Causes Of The Wealth Of Nations,” usually just called “The Wealth Of Nations.”  This statement also basically describes gross domestic product, or GDP, one of the most important metrics in economics.

Our GDP is one of the most watched economic figures in the world.  It basically says if we’re in a recession, a recovery, having strong growth, light growth, or anything else about our economy.  The movement of GDP drives policy decisions moreso than just about anything else, except perhaps unemployment.  And when we want to “stimulate the economy” we’re saying we want to make GDP go up.

The idea behind improving GDP is that it’s a good measure of of progress for our society.  More GDP and the better off we are as a people.  Put simply it means that money equals happiness.  But not everything that contributes to GDP makes our lives better.  The common example is a traffic jam.  In a jam we all waste fuel so we must buy more.  That contributes to the economy, but it doesn’t make our lives better.  It makes it worse.  And we know that money doesn’t buy happiness (at least after a certain point).

This is why there’s a growing body of work around measuring gross national happiness.  In other words, who cares what the economy says so long as the people in the nation are happy?  Good question.

There’s a lot of different ways you could measure national happiness.  And the most appropriate method will take a long time to figure out.  But that doesn’t mean we shouldn’t be talking about a switch to national happiness as a way of measuring the well-being of a nation.  To see how nations compare I’ve graphed GDP per capita with a measure called the Happy Planet Index.

gdp per capita and happy planet index

In both cases a larger number is better.  Based on this measure we’re doing pretty well in both GDP and happiness.  That’s not surprising.  We’re a strong nation economically and overall a pretty happy people.  Places like Luxembourg and Qatar are doing extremely well, money may be guying happiness there.  But what about in Belarus or South Africa?  Both have fairly weak economies, and yet they’re quite happy.  Western European countries like Germany and the UK rank quite low in happiness.

So who is to say what the right metric is for an economy?  But happiness certainly deserves a place in the conversation.  And if you want the secret to happiness, just find contentment with your life as is.

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categories: economics, psychology