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  The Herman Trend Alert

September 28, 2022

The Economic Value of Happiness

With the inflation rate in the United States over 8 percent and economies throughout the world being affected, I thought it was time to look at this alternative to assessing wellbeing by different considerations. And though Gross Domestic Product (GDP) works for measuring the dollar value of goods and services, looking at the Gross National Happiness (GNH) index is a perspective I believe worth considering.

Measuring Happiness
As a replacement to GDP and with the help of Oxford University researchers, the country of Bhutan pioneered a GNH Index. The GNH Index assesses socioeconomic life, including living standards, health, and education, while it also attempts to measure cultural and psychological well-being.

A Very Smart Monarch
Between 1972 to 2006, King Jigme Singye Wangchuck, the King of Bhutan, set a goal to enhance the overall happiness and well-being of his people. At that time, the King declared that "Gross National Happiness is more important than Gross National Product," and in doing so, coined the phrase "Gross National Happiness.""

The Relationship Between GDP and GHP
Since 1980, Bhutan's Gross Domestic Product (GDP) has shown an impressive average rise of 7.5 percent/year. The country's Impressive economic growth is largely the result of its development of hydropower, which (happily) coincided with a dramatic reduction in poverty. On 18 July 2008, the government of Bhutan enacted the Gross National Happiness Index adding it to the country's Constitution as the goal of the country.

Happiness without Growth
Nobel Laureate economists Esther Duflo and Abhijit Banerjee conducted some seminal research on the relationship between economic growth and happiness. One of their findings concerns Malawi where the GDP has not grown though the quality of life for ordinary people has improved. Duffo believes the cause is what she calls "a policy focus on issues of human welfare."

Growth without Happiness
Sadly, in Angola the opposite is true. There, the GDP is strong because the country produces abundant quantities of oil. Yet, though Angola is the third-largest economy in sub-Saharan Africa, half of Angolans live in extreme poverty. Despite all the oil they pump and all the money they earn, their people do not benefit. On top of that, the environmental costs that come with drilling for oil are not factored into GDP. Though some have argued the social costs of carbon emissions should be subtracted from GDP, that has never been done. It is an illusion to think that we can always offset the exploitation of the earth's resources with money. The ecological economist and author of Prosperity Without Growth, Tim Jackson, writes that if we can "flourish without endlessly accumulating more stuff. Another world is possible."

Why More Countries are Not Pursuing the GHP Index
For some people, this concept is too close to socialism. For others, the idea of slowing down growth is downright heretical. Yet some economists around the world are warming to the concept of "degrowth." In June, the World Economic Forum decided that degrowth might be worth deeper consideration. Meanwhile, the concept is receiving increasing press. Most people would prefer not to think about the fact that the planet is unable to sustain unlimited growth and consumption.

Some Countries are Considering these Alternatives
While no measurement of well-being or happiness is in wide use across the globe, some countries and organizations are strongly pursuing the development of new tools in that direction. Bhutan's GNH is one such tool, while New Zealand has developed a similar Living Standards Framework, and Japan is currently developing a "green GDP," to measure its progress in reducing greenhouse gas emissions. Created by the United Nations, the Human Development Index, focuses on people's access to food, health, and education. The bottom line is that for Bhutan, the happiness of its people is reflected in its GDP as well as its GHP.

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Next Week's Herman Trend Alert: The Importance of Demographics
Next week's Alert looks at why the area of demographics is important to us all. We all remember how the 15 percent fewer number of people in Generation X had a profound effect on employers' ability to recruit and retain workers. Most of all we will look at how the coming population changes will affect the future workforce.

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