In a speech to Cambridge economists and statisticians on Monday, Federal Reserve Chairman Ben Bernanke suggested that we radically alter the way we evaluate economic recovery. Instead of focusing on traditional indicators like the unemployment rate, consumer spending, and inflation, Bernanke argued that we need to expand our definitions and measure people's happiness.
Bernanke stated that by looking only to financial and other traditional metrics, we take a myopic view on “economy,” which really should be a measure of well-being amongst a society. Money, especially on an aggregate level, does not accurately reflect people’s satisfaction in life. And a decreasing unemployment rate does not automatically correspond with an increase in quality-of-life.
Consequently, Bernanke insisted, policy-makers need to expand their scope and make decisions with the end goal of increasing people’s happiness, rather than just their pocketbooks.
This is a radical idea, which, frankly, I am shocked to hear from anyone inside the political establishment. The ethos of capitalism-- for better and worse-- is so inextricably wrapped up in every fiber of our government, that it is rare to hear someone question the adage that “more money” automatically means “better.”
Yet, it is not a new idea. Theorists and political scientists in the field of economic development have been grappling with this question for years. What should be the end goal of “development?” Is development only concerned with GDP? The poverty level? Is development inherently a capitalist concept? Should we concern ourselves with health-care? The Environment? Education? Political freedoms?
For many years, the idea of “economic development” was synonymous with “economic growth,” the measures for which were GDP, GNP, and National Income. In more recent years, it has been acknowledged that these numbers often mask essential information-- for instance, income distribution, participation in informal economies, and the calculation relative poverty---which all affect people’s quality of life and should, therefore, be included in the measure of economic development.
To remedy this, new metrics have been put into place with the goal of capturing a more comprehensive view of economic progress across the world. One is the Gini index, which depicts inequality (usually in income, but also used to measure other disparities), as opposed to absolute wealth. Another is the Human Development Index (HDI), which draws on the “capabilities” approach of Nobel-Prize winner, Amartya Sen. Developed in 1990, the HDI measures life expectancy, education levels, and standard of living, defined as GDP per capita at purchasing power parity (PPP takes into account the relative value of money amongst different countries).
There are a host of other indices that measure gender parity, education levels, ecological impact, among other variables. All of these measures demonstrate a monumental paradigm shift in the goals of economic development, from national wealth to individual human well-being--- or, happiness, if you will.
It is time, then, to apply these international lessons to our domestic economy. As the international community has asked “What is development,” we must ask “What is economic progress?” Can we see beyond dollar signs and look to measures of human happiness?
Our country, unfortunately, has witnessed the consequence of the dollar-signs-approach. For decades, we have considered financial growth the holy grail of economic progress. The logical consequence of this is that the entire country-- from policy makers, to big business, to individuals-- operates with the end goal of making money, no matter what the social cost. This is how we lapsed into financial distress in the first place-- a financial industry predicated on speculation, predatory lending, dangerously high profit margins, and bought-and-paid-for politicians who facilitate the whole process. You can call it greed, but it is simply the consequence adhering to the assumptions and goals of an economic system that views money not only as inherently good, but the only thing of value in society.
We need to shake up our values and take a more comprehensive view of economic progress if we ever want to truly achieve a fair and just society. Bernake has started such a conversation this week by suggesting we measure people’s levels of happiness.
Of course, the question remains how to measure such an elusive and vague quality as “happiness” (some argue that this is why we use financial indicators in the first place-- as a proxy for the immeasurable). Is happiness knowledge, wealth, equality, opportunity, freedom, luxury, health, or some combination of above? Is it possible to agree on a common definition? What are our metrics for those things independently and aggregated?
We may not have answers for these questions yet, but as we dig ourselves out of recession, it is essential that we decide towards what end our society will grow and how we will determine its economic success.