Money Is The Key To Happiness

News: Per capita GDP, not GDP itself, is the real measure of national progress

GDP does not reflect a society’s well-being. GDP captures neither population decline nor welfare. Moreover, it doesn’t measure social indicators of wellbeing such as the health, education, and welfare of children.

In this context, many alternatives have been proposed such as

– Gross National Happiness to the Well-Being Index,

– The Malaysian Fuzzy Quality of Life Index,

– India’s Green GDP.

– The Genuine Progress Indicator being promoted by the U.S

– The Better Life Index proposed by the OECD

Until the world settles on a new standard, per capita GDP can replace GDP as the key measure of progress.

Why per capita GDP should be used as a measure to reflect society’s well-being?

Firstly, per capita GDP reflects progress on many social welfare indicators and also captures threats which the new alternatives ignore i.e. population decline.

For example: Consider a country whose population is decreasing rapidly and its economy is going through a recession. Now, its GDP will decrease, and this might suggest that the average income might also be decreasing as well. But, this is not the case.

Due to a rapidly shrinking population, a slowdown in GDP has no effect on the average income of the people. And this specific trend is captured by ‘per capita GDP’, not the traditional indicator of GDP.

Here, GDP has failed to capture both welfare and the declining population trend in the country.

Secondly, Nations with higher per capita GDP tend to have higher life expectancy and levels of social support, lower infant mortality and poverty levels, less air pollution, and corruption.

Many of these measures are strong predictors of life satisfaction, which helps explain why richer countries tend to be happier. For instance: The latest World Happiness Report ranks just one country with per capita GDP under $15,000 (Costa Rica) in the top 25 and none with per capita GDP over $15,000 in the bottom 70.

Among emerging countries, those with higher per capita income also typically score better on the UN’s multidimensional poverty index.

Thirdly, unlike the new alternatives, per capita GDP is available now in real-time for most countries.

Should India adopt per capita GDP?

Over time, India’s gains on welfare indicators like life expectancy and infant mortality have been accompanied by rising per capita GDP. India was one of the countries that made the largest strides in reducing the number of people living in severe multidimensional poverty, according to the UN.

But, India has been sliding down the happiness rankings and now stands 139th out of 149 countries.

That is well below what one would expect for a country with a per capita GDP of around $2,000 and may owe to rising concern over inequality and corruption.

What are the advantages of adopting per capita GDP as a measure of growth?

Adopting per capita GDP as the new standard would indicate a less alarming picture of the global growth slowdown. This is because as the population declines, even with a GDP slowdown the per capita GDP (average income) might still not decrease.

It would ease pressure on politicians to generate growth faster than what shrinking labour forces will allow.

Indirectly, it would promote the aims of those who want slower growth to limit climate change. And it would be a step towards the broad measure of human happiness.

Source: This post is based on the article “Money Is The Key To Happiness” published in the TOI on 11th November 2021.