Beyond GDP – Can You Measure Happiness? (Part 2)

Beyond GDP – Can You Measure Happiness? (Part 2)

Ask any economist how their economy’s doing, and they’ll probably fire back something like:

“Well, real GDP per capita grew by 2.3% adjusted for inflation and seasonal fluctuations...”

Great. But that tells us how much we're producing - not whether people are healthy, happy, or sleeping properly.

So today, we’re taking a step beyond the spreadsheets and ask:

Can you actually measure quality of life with numbers?

Well, the answer is sort of. But it’s complicated.

Why GDP Isn’t Enough

As economists we love GDP - it’s clear, it's quantifiable, and it’s everywhere in IB exams. But it has some glaring blind spots:

1. It ignores income distribution

A country could have rising GDP while its poorest citizens live in poverty. GDP per capita is an average, and averages lie.

2. It overlooks unpaid work

Raising kids, caring for relatives, volunteering - none of this shows up in GDP, but it holds society together.

3. It ignores the environment

You can cut down all your forests, pollute your rivers, and GDP still goes up. Long-term well-being? Not so much.

4. It doesn’t account for happiness

You might be rich and miserable, it is perfectly possible. GDP can’t tell.

So, economists have started asking bigger, better questions. And that’s where we get...

The Better Life Index (OECD)

Launched in 2011 by the OECD, the Better Life Index (BLI) goes well beyond output and into what actually matters in people’s lives.

It measures 11 key dimensions, including:

• Jobs and earnings

• Housing

• Community

• Education

• Work-life balance

• Life satisfaction

• Environmental quality

• Civic engagement

• Income as in household disposable income and net financial wealth.

• Health quality of healthcare

There’s no “overall score” - countries are compared across each dimension. That makes it flexible but also harder to rank.

Example: A country might score high in income but low in work-life balance (hello, USA), while another might be more equal but have lower overall income (hello, Scandinavia).

The Happiness Index (World Happiness Report)

In 2012, the UN decided to go full feel-good with the Happiness Index, part of the annual World Happiness Report.

In the end, everyone knows that happiness leads to greater productivity, prosperity and profits as well as peace, progress and purpose in life.

It asks people to rate their lives from 0 (worst) to 10 (best), and includes data on:

• Business and economic

• Citizen engagement

• Communications and technology

• Diversity (social issues)

• Education and families

• Emotional well-being

• Environment and energy

• Food and shelter

• Government and politics

• Law and order (safety)

• Health

• Religion and ethics

• Transportation

• Work (employment)

Scandinavian countries (again) tend to dominate the top, but that’s not the full story.

Critics point out that:

• Happiness is subjective

• Cultural bias can affect self-reporting

• It’s harder to compare happiness over time

Still, it’s a major shift in how we view national success - not just wealth, but well-being.

The Happy Planet Index (HPI)

Now it is really getting interesting.

The Happy Planet Index, launched in 2006 by the New Economics Foundation, tries to balance:

• Human well-being

• Life expectancy

• Inequality of outcomes

• Ecological footprint

Its formula looks like this:

HPI = (Well-being × Life expectancy × Equality) ÷ Ecological footprint

So if your country’s pumping out carbon to chase GDP gains, the HPI punishes that.

The result? Many high-GDP countries rank lower on the HPI than expected, while some Latin American countries score surprisingly well.

It’s a bold statement: What if we focused less on producing more, and more on living better while using less?

Evaluating Alternative Indicators

Let’s be fair - these indicators aren’t perfect.

Advantages:

• Focus on quality of life, not just quantity

• Account for environment, inequality, and social wellbeing

• Push policymakers to think bigger

Limitations:

• Harder to measure consistently

• Subjective elements (happiness, satisfaction)

• Hard to use for policy comparisons or historical data

• Different weightings and criteria = less standardisation

But together? They paint a fuller picture of what it means to thrive in life.

IB Tip: Evaluating GDP vs Alternatives

If you get a 10-marker or 15-marker asking whether GDP is a good measure of economic well-being, structure it like this:

1. Define GDP and its uses

2. Explain its strengths (standardised, measurable, widely used)

3. Explain limitations (distribution, sustainability, well-being)

4. Introduce alternative indicators (BLI, Happiness Index, HPI)

5. Evaluate – Which is more useful and why? For whom?

Top students go beyond simply listing - they compare, analyse, critique, and conclude.

What Makes a Country Successful?

GDP will always be in the headlines - and yes, it matters. But it’s like checking your bank balance to decide if you’re happy.

In the end, what does really count?

• Feeling secure

• Having time for your family

• Trusting your government

• Breathing clean air

• Living a life you enjoy

Maybe it’s time we stopped obsessing over how much we produce - and started asking what we’re producing it for.

Coming soon: Aggregate demand and aggregate supply. But for now… go live a happy, planet-conscious, better-balanced life. Or at least revise it for your exam!

Stay well