Expanded Summary 

Economist have been interested in the notion of happiness since the creation of the field of economics.  In The “Theory of Moral Sentiments”, Adam Smith wrote: “Man was made for action - to exercise his faculties to promote changes in the external circumstances both of himself and others in ways that seem most favorable to the happiness of all” (Smith, 1759/1761, p. 187). Other renown 19^th century economists often wrote about the relationship between happiness and economics (Malthus 1798/1968; Bentham 1776/2001). The role of happiness slowly lost its significance in the economic theory as the era of consumerism emerged in the 19^th century and economists generally started to believe that increased wealth let to a greater happiness - a claim which, during that period, had almost become axiomatic. Later, in 1974, Richard Easterlin revisited the concept of happiness and was the first modern economist to investigate the relationship between individual happiness and income. When conducting cross-country comparisons, Easterlin found that there was no statistical relationship between the level of self-reported happiness and per capita income – a finding that raised serious questions about whether gross domestic product (GDP) growth is always synonymous with happiness, human well-being or progress.

Numerous studies have found high positive correlation between human happiness and their health (Morris et al, 1984; Angner et al, 2012). Same conclusion can be drawn by looking at the relationship between happiness scores and status of health of the citizens of OECD member countries (see graph 1). Other studies indicate that human happiness is strongly linked to many factors, including quality of education and air pollution (Michalos, 2007; Rehdanza et al,2013). The influence of income inequality on human well-being is also worth mentioning – cross-country analysis show that the more unequal countries are less happy on average (see graph 2).

As stated above, there are several factors that affect human happiness and well-being. However, these factors are partially or completely ignored by GDP. Moreover, increased consumption has a positive effect on GDP, but can have negative ramifications for human health, environment and income inequality. While GDP is a valuable statistic within itself, its use as a measure of well-being has attracted much criticism due to the reasons stated above. Therefore, over the last few years, many alternative measures of well-being have been proposed.

The popularity of the concept of Gross national happiness (GNH), proposed by the Fourth King of Bhutan in 1972, has expanded beyond Bhutan’s borders. Since 1972, the country has rejected GDP as the only way to measure progress and has focused on maximizing GNH, the measure that stands on four pillars of sustainable and equitable socio-economic growth, environment conservation, tradition and culture and good governance.

Created in 1995, the genuine progress indicator (GPI), is one of the first alternatives to GDP. GPI measures well-being by incorporating consumption with important environmental and social factors which are not measured by GDP. This alternative measure of progress is popular within the scientific community and used frequently by governments and NGOs around the world. In 2014, several U.S states have passed state government initiatives to consider GPI in political decisions. Over the last decade, some other alternatives for measuring nation’s well-being, including World Happiness Report and Human Development Index, have been proposed by the United Nations and other international NGOs. These alternative measures of progress differ in substance, but all of them try to address the growing realization that GDP does not measure quality of life, let alone social or environmental well-being.

Although problems with GDP as a measure of well-being have long been identified and many alternative indicators of progress have been proposed, there are still significant obstacles to implementing and using these measures. Many studies indicate that the reasons for this are data and methodology issues and the vagueness of the concept of happiness in itself (Parris and Kates, 2003). Other studies fear that the alternatives to GDP can be easily manipulated, used for the political reasons and/or as a justification of low economic growth (White, 2014).  Another key thing to remember is that the fact that majority of the Bhutanese are happy can simply be caused by their high level of religiosity or by the fact that they do not possess much information on the external world. In addition, cross-country data shows that the countries with higher GDP per capita (PPP) are happier on average, but after certain income levels, rising income does little to increase overall happiness. That said, happiness maximization can be more important in high-income countries than in the poorer nations. 

All things considered, although GDP fails as a measure of well-being, due to the reasons mentioned above, it is highly unlikely that it will be replaced any other measure of progress in the near future. We can only assume that more countries will start incorporating alternative measures of well-being in their decision and policy-making process. It is without a doubt, however, that the happiness research of the past decades has contributed to the development of the field of economics and has sparked global discussion on how to better measure human progress and well-being.