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You can’t judge happiness by GDP

Rory Sutherland says that it is wrong to equate the cost of something with how valuable we find it. New technology, for instance, is cheap but transforms our lives

14 December 2009

12:00 AM

14 December 2009

12:00 AM

One of David Cameron’s ideas which may have fallen victim to the recession is the proposal to measure Britain’s success by some means other than GDP. When first proposed, the idea was linked to the famous remark of the king of Bhutan, Jigme Singye Wangchuck, who had observed in the 1980s that ‘Gross National Happiness is more important than Gross National Product’. Cameron’s suggestion was that some more holistic measure of ‘Gross National Wellbeing’ should replace the purely economic measure of GDP.

At a time of financial crisis, it would be easy to ridicule the suggestion that we all become less materialistic, especially when it comes from an Etonian — the kind of person who, in Harry Hills’s joke, ‘already had a castle so, for his birthday, his parents hired a bouncy council estate’. The idea isn’t helped by its Buddhist associations either: if you have just lost your job in Teesside, it can’t be much consolation to hear that you suddenly have a lot more spare time for sitting around saying ‘om’ or dyeing everything saffron.

However, some recent findings suggest we should not abandon this line of enquiry quite yet — for, rather than killing it, the downturn may have proved the idea’s importance. Against all expectations, the latest findings from the United States seem to suggest that this latest recession has made people happier. Measures of happiness in the US hit previous lows in 1973, 1982, 1992 and 2001, all recession years, so you might assume that 2009 would be worse. In fact Time (tinyurl.com/yak6pyl) reports that the latest findings of the Gallup-Healthways Well-Being Index show that, after an initial dip at the time of the crash, American happiness has now hit a record high.

Surprised? The author of the Time article, Nancy Gibbs, has a simple explanation for these findings. She calls it the end of ‘Expectations Inflation’. During a protracted period of economic growth, our expectations for the future grow at an even faster rate than our spending power. This inflation of our ambitions eats away at our happiness in exactly the same way as financial inflation erodes our savings. Her explanation, similar to Michael Eysenck’s concept of the Hedonic Treadmill, rings true. It may even suggest that the aim of ‘No more boom and bust’ may have been a disaster for human happiness, since without the Damoclean threat of periodic downturns there is nothing to dampen our expectations or to encourage restraint. When every barely literate idiot operating a buy-to-let scheme seems to have made a fortune from it, everyone around them can feel a mug for not overextending themselves. Perhaps we need the occasional recession to reassure ourselves that nemesis is still at work. As Warren Buffett unforgettably put it, ‘It’s only when the tide goes out that you learn who’s been swimming naked.’

Of course questioning the metrics of economics is not new. In one of his sermons, Samuel Johnson can’t resist this swipe at Adam Smith: ‘There is a kind of mercantile speculation, which ascribes every action to interest, and considers interest as only another name for pecuniary advantage. But the boundless variety of human affections is not to be thus easily circumscribed.’

More recently psychologists and behavioural economists such as Princeton’s Daniel Kahneman have also questioned the extent to which economic growth translates into greater human happiness once a certain level of material wealth has been attained. Kahneman recently sat on the immodestly named Commission on the Measurement of Economic Performance and Social Progress, a body convened by Nicolas Sarkozy with the aim of questioning the stranglehold that conventional measures such as GDP have over economic policymaking. The full report is available for download here: www.stiglitz-sen-fitoussi.fr/en/index.htm.


But to anyone familiar with the digital world, there is no need to commission a 200-page report to realise that GDP is an increasingly wonky measure for our wealth and wellbeing. Because in the world of post-scarcity economics, where more and more of the goods we enjoy are consumed non-rivalrously, any logical connection between what things are worth and what we have to pay for them has long since disappeared.

To understand this, try this simple exercise — I call it the Louis XIVth test. Have a look around your house and imagine what Louis XIVth would pay for everything you own. Your house? He wouldn’t keep a horse in it. Your furniture? Complete rubbish. Your car? He’d like your car. But he’d give you half of Burgundy in exchange for the small telly in your bedroom.

Or take the value of Wikipedia. The creation of this is more or less akin to installing a Bodleian library in every house in Britain. Does this massive new wealth register on GDP figures? Not a blip. Or the new availability of blogs and podcasts. Tremendous writers who, just a decade ago, would have been lecturing to half-empty theatres are now read by hundreds of thousands. Again, almost no money changes hands, so not a wiggle in the GDP figures.

To put a value on the digital world by only tallying the money that changes hands is a little like trying to place a value on sex by simply measuring the amount spent on prostitution.

What about the introduction of BBC iPlayer or the SkyPlayer. One day you wake up and find you can now choose from ten times more television than the day before. How much does this cost? Maybe a few pence on the licence fee. There is a cute little game you can download for your iPhone, called Harbor Master. It costs 69p to download. And yet it has given me more fun and distraction than things for which I have paid hundreds of pounds. Again, the digital economy is different.

There is a train information service where you text, say ‘Paddington to Reading 1500’ to 84950 and it texts you back the train times and whether any are running late. It’s saved me hours of wasted time. Each use costs 25p.

Footballers, who may earn a few hundred thousand pounds a week, come home to their eager WAGs and a stable full of Bentleys and find the most enjoyable thing they can do is play Grand Theft Auto — something you can buy for £20.

You may sneer at a few of these examples. Fine. But, as well as providing low-cost entertainment, the digital world has ushered in a massive and largely unmentioned reawakening of cultural and intellectual interest. One colleague of mine calls this trend ‘dumbing up’. Radio 4 now has over ten million unique listeners each month. Events such as the Intelligence Squared debates sell out. More people go to public libraries in the course of a month than go to football matches. Suddenly reading groups are everywhere. Apple iTunes even contains a whole area called iTunesU — the U stands for University — where ordinary members of the public can download lectures and educational content, again for free.

Some experts attribute this change to a fundamental shift in human behaviour — where in displays of status, intelligence is supplanting wealth as the principal currency. Perhaps this is because, in a networked world, it is far easier to demonstrate intelligence than before. And also because the idea of wealth as a measure of deserving talent has taken rather a knock in the last two years.

If people choose to shift their status-seeking efforts from the acquisition of goods to the acquisition of knowledge and culture, would this be a tragedy, even if it caused GDP to fall? Would it necessarily be a disaster if people chose to trade wealth for leisure?

Let’s put the question another way: it would be perfectly possible for Europe to grow its GDP by 4 per cent or so
next year simply by adopting the North American habit of taking only two weeks’ holiday, yet is there anyone in Europe who would willingly make this trade?

Here’s hoping a Cameronian government will visit this vital question just as Sarkozy has done.


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