The happiness index Measuring what matters may be a better way to gauge economic well-being

With bated breath, the world’s markets recently waited for the announcement of the U.S. fourth-quarter gross domestic product (GDP) growth rate – a potential bellwether for the global economy. It turned out to be 2.8 percent.

What does that really mean? Is our economy up? Or down? The pundits are still arguing about it.

The GDP is the conventional economic term for total market value of all the goods and services produced in the U.S. in one year. That appears to be a crisp definition, but there’s more to it. The GDP does not measure the physical production of goods or services, just the money spent on them. And it doesn’t actually matter if the purchases are for “goods” like wheat or “bads” like spilled oil or cancer.

An illustration may help explain why economics Nobel laureates and conservative French presidents are heaping scorn on our most hallowed economic measure. If you really want to help the economy, as measured by the GDP, you could:

Drive into the nearest traffic jam, burn gas, pull into the highest-priced gas station and fill the tank. Ka-ching, GDP!

Better yet, get in a wreck, total your car and raise your insurance premiums. Ka-ching, GDP! If you’re injured, go to the emergency room and then spend a month in the hospital; kudos. If, while you’re in the hospital, your spouse files for divorce and your house burns down, congratulations – you’ve made a stellar contribution to our nation’s GDP.

You might be worse off. The real economy might shrink. But the GDP won’t show it.

For decades the supreme measure of a “healthy” economy, the GDP counts as positive a lot of things that make our lives worse, and it counts as zero many things that make our lives worth living and contribute vast value to the economy.

The sale of toxic mortgages that sank the banks and picked taxpayers’ pockets was counted as a big boon to our pre-bust economy. The financial services sector’s “innovative financial products” were the fastest-growing part of the economy, according to the GDP.

But when the housing bubble burst, Americans lost $9 trillion in value. Virtually every American took hits in asset value from retirement accounts to housing values. Here are other things the GDP counts positively:

 • Pollution. Massive cleanup, and legal costs count every barrel of oil spilled by the BP Deep Horizon well in the Gulf of Mexico as worth more than had it been refined into products such as gasoline.

 • Crime. GDP increases when property loss claims arrive and stolen goods are replaced. It increases as alarms and bars are installed, guards hired, jails filled.

 • Bad health. Cigarette sales increase the GDP, and so do the billions spent every year to treat lung cancer.

 • Family breakdown. Divorce may not be good for families, but the lawyers’ fees, the establishment of separate households and the cost of therapy are good for the GDP.

 • Debt, foreclosure and bankruptcy. When people or the government borrow too much, the GDP climbs. Bankruptcies and foreclosures increase the GDP with legal costs, moving expenses and replacement of lost houses and possessions.

Now consider things the GDP does not count.

 • Nature. Building a levee to protect New Orleans from hurricanes counts, but the far greater protection provided by coastal wetlands does not. Taking a hike in a national park improves your health and peace of mind but adds nothing to GDP.

 • Exercise. It only counts if you pay to go to the gym, rent a tennis court or buy a yoga mat. A daily walk is good for your health, but it’s a waste of time as far as the GDP is concerned.

 • Family and friends. Studies show that spending time with those you love is the most important factor in health and happiness. Yet replacing them with consumption builds a larger GDP.

 • Volunteering. It’s the glue that holds communities together, and it will be increasingly important as budgets for social services tighten. But if it’s unpaid, it counts for nothing as far as the GDP is concerned.

 • Quality. Consider two cellphones. The phone that costs more at the store, does less and charges you more for each call adds more to the GDP than a cellphone that does more and costs less.

It’s time to think differently about economic well-being.

There are other measures. What we call the Genuine Progress Indicator (GPI) corrects GDP errors in more than 25 categories, subtracting costs such as cancer and oil spills.

The state of Maryland has adopted the GPI. Rather than relying only on the Gross State Product for modeling the state economy (as Washington state does), Maryland’s GPI shows that increased investment in green jobs, smart growth and clean energy produces greater economic benefits. The GPI enables Maryland to invest public dollars for greater real economic returns.

The small country of Bhutan has gone further and developed a startlingly sophisticated “Gross National Happiness” (GNH) measure. It includes measures of psychological well-being, health, work/life balance, community vitality, education, environmental sustainability, culture, material well-being and good governance.

The government locates schools and health clinics based on GNH. That includes subjective elements, such as people stating they need a school or clinic, objective elements such as the literacy rate and the proximity of existing facilities.

Bhutan’s King Jigme Dorji Wangchuck called for the GNH to replace GNP in 1982. In 1995 he announced that in 10 years he would peacefully abdicate in favor of a democratic system to better meet the GNH good-governance standard for the country.

True to his word, he did so in 2005. Bhutan became a democracy without a gunshot or even a protest.

Measures are our tools, not our masters. It is time for Americans to ask: What’s the economy for, anyway? And how can we better measure it? Our answers may reveal that it is time to stop chasing growth as the be-all and end-all of our economic goals and start pursuing happiness.

David Batker is executive director of Earth Economics, a Tacoma-based environmental nonprofit. John de Graaf is a Seattle-based filmmaker and executive director of the Happiness Project. They are co-authors of the recently released book, “What’s the Economy for Anyway? Why It’s Time to Stop Chasing Growth and Start Pursuing Happiness” (Bloomsbury Press).