Happiness and Policymaking in the 21st Century - the Relationship Between Happiness, Development Policy, and Economics

Happiness is a twenty-first century buzzword. Chances are, you’ve seen headlines declaring a Scandinavian nation as the happiest country in the world. Cultural and media focus on happiness has elevated the term from the stuff of self help books to the stuff of international development policy. The Kingdom of Bhutan was an early proponent of using happiness to measure national welfare, and the nation’s King Jigme Singye Wangchuck first alluded to a concept he called ‘Gross National Happiness’ (GNH) in interviews in the 1970s. Thereafter, Bhutanese leaders played a key role in the United Nations’ adoption of a happiness policy.

In 2011, the UN adopted resolution 65/309, titled “Happiness: towards a holistic approach to development.” The document contains ten compact paragraphs that identify happiness as a universal goal of humanity, recognizing that gross domestic product (GDP) “was not designed to and does not adequately reflect the happiness and well-being of people in a country.” The intent of this document was to clarify concepts economists have been discussing since the origins of the discipline – the complicated measurement of what makes a person better or worse off.

There is an inherent challenge in measuring a good or service’s value: different people value aspects of their lives differently. When trying to measure something as intangible as happiness, it can quickly get complicated. Imagine rating your own happiness or satisfaction on a numerical scale; is this year an improvement over last? Are your grades down, but your health up? Maybe you’re making less money, but you’re seeing your family more. Basic consumer theory tells us that a person’s willingness to trade between these factors depends on their individual preferences. The utility of these trade-offs are already difficult to account for on an individual scale, and happiness research not only aims for a much larger target – it advocates using these metrics to decide global policy. The task of quantifying global happiness seems to require deciding what makes a life valuable, and the relative worth of living in one place versus another. These days, the largest project to measure global happiness is the UN’s World Happiness Report, an annual survey of “the state of global happiness” edited by economists John Helliwell, Richard Layard, and Jeffrey Sachs since it launched in 2012. The report has boiled the measurement down to six key variables: income, healthy life expectancy, social support, freedom, trust, and generosity; however this happiness metric is only one of many definitions of holistic well-being.

In 2011, the same year the UN adopted resolution 65/309, the Organization for Economic Co-operation and Development (OECD) launched a happiness project titled the OECD Better Life Initiative. Two years later, they published guidelines to measuring subjective well-being using eleven variables, with the goal of helping national statistical agencies with measuring and improving cross-country comparability. The OECD guidelines grapple with the definition of subjective well-being, stating that it “covers a wider range of concepts than just happiness,” including a person’s life evaluation, affect (or emotional states), and eudaimonia – sense of meaning and purpose.

OECD Better Life Index - countries’ ranking changes according to the importance attributed to the different variables

OECD Better Life Index - countries’ ranking changes according to the importance attributed to the different variables

Subjective individual preferences and utility are central concepts in the study of economics, yet measures of GDP per capita dominate international discussions of development and quality of life. Using happiness as an indicator signals what policymakers deem most important, and can also subvert traditional narratives of development. The happiness metric asks: what if there was another way to describe development in terms of social well-being? However, there is still debate over the usefulness of happiness indexes as a tool for policy.

Some economists suggest it is possible to increase someone’s reported well-being while making them worse off in terms of utility. Because observed choices are not always made in the pursuit of happiness, this demonstrates that people have other objectives than maximizing their happiness – utility does not equate to happiness. Therefore, given scarce resources, a push to improve happiness re-allocates efforts from other goals. Economists Glaeser, Gottlieb and Ziv propose that in light of recent research on happiness and utility, welfare economics “does not justify happiness maximization as a policy goal.”

If you look at the UN’s world happiness rankings, you’ll notice a correlation between per capita wealth and ranking – but it isn’t consistent. Wealthy countries do top the global rankings but at a certain point, increasing wealth no longer implies increased happiness. This suggests what most of us know to be true: money can buy happiness – but with decreasing marginal returns. In an article on GDP and life satisfaction, economists Eugenio Proto and Aldo Rustichini find evidence that the positive relationship between higher national income and higher national life satisfaction flattens out around an average income of $30,000 to $35,000 – and becomes negative beyond that point. This phenomenon has been widely studied, notably by American economist Richard Easterlin in the 1970’s, who showed that average happiness in the United States was failing to keep up with rapidly increasing national income. This is significant because national economic policymaking often presupposes the positive correlation of national income and national happiness.

If measurements like GDP can’t account for the full complexity of societal wellbeing, what can? While happiness measurements were meant to fill this epistemological void, evidence from welfare economists suggests we have yet to find our statistical panacea. Perhaps the problem with happiness lies not in its fundamental worth as a goal of development policy, but in how accurately it reflects the subjective measure of what people want, which might limit the usefulness of happiness levels as a national policy target. One thing is certain: public policy has been, and will continue to be, impacted by rising global interest in the economics of happiness. However, the long-term effectiveness of chasing increases in subjective well-being remains to be seen.