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GDP and GNH—Don't Worry, Be Happy

Roy Christman is a retired political science professor and has a farm in Pennsylvania.

Poor people of the world are doing better. They aren't doing as well as the rich, but they really are doing better. Between 1980 and 2016, the average income of the bottom 50% of earners almost doubled. That bottom 50% now takes in about 12% of the world's Gross Domestic Product (GDP). To a middle class American that seems pathetic, but it represents a huge improvement.

The World Bank's definition of "extreme poverty" is a person living on less than $1.90 a day. Since 1990, that number has dropped from nearly 2 billion people to around 700 million people. The maternal and infant mortality rates have been cut in half in the last 30 years. More children are getting at least a primary education. Unfortunately these positive gains are not equal across all countries.

Why do some economies grow while others lag? Taiwan, Japan, and South Korea are economic powerhouses, while Albania, Afghanistan, and Zimbabwe remain near the bottom. The World Bank has an interest in teasing out the reasons for economic growth, and it appointed a commission of experts to study the issue.

The latest issue of Foreign Affairs quotes economist William Easterly on the commission's work: After two years of work by the commission of 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4M, the experts' answer to the question of how to attain high growth was roughly: we do not know....

They should have hired a political scientist. First of all, rapid growth cannot go on forever. It eventually levels off. Businesses can sell only so many smart phones or cars before demand slows.

When growth stagnates, one supposed way to stimulate the economy is to cut taxes for the rich and hope they will invest their money. The poor, in the meantime, must do without.

Experience has shown this plan doesn't work. It increases economic disparities between the rich and the poor and insures a stagnating middle class. If this sounds familiar, it should. It has happened in Britain and in the United States.








People then become angry. They vote for "populists" who promise easy solutions to hard problems. These leaders will pull out of the EU and everything will be wonderful. They will build walls, cut environmental protections, impose tariffs, and make the country great again.

If growth is stagnant, if the populace is angry, and if the gap between the super-wealthy and the rest of us widens, what should governments do?

Glad you asked. Keep in mind that the GDP measures economic activity, not happiness or the well-being of the community. If you buy cigarettes, you are adding to the GDP. If you buy Grey Goose vodka, you are adding more to the GDP than if you buy Sobieski vodka in a plastic bottle.

The King of Bhutan, a small country of about a million people on the northern border of India, decided that Gross National Happiness (GNH) might be a better measure. The GNH is based on four pillars: sustainable and equitable development, environmental conservation, preservation and promotion of culture, and good governance. Bhutan actually set up a commission to raise its GNH.

In a similar vein, the United Nations in 2011 passed a resolution to rank countries on a Happiness index using five variables, including the GDP per capita and life expectancy. In the 2019 index Finland placed first; the U.S. came in 19th.

Bhutan and the U.N. have a point. If you had a small country inhabited by Mark Zuckerberg and a hundred thousand people living in poverty, the average per capita income would be high, though I doubt if many people would be happy. On the other hand, if you had a country where people had access to green parks, clean air and water, adequate health care, decent housing, a good education, and cultural activities, they wouldn't need a pile of money or a constant rise in the GNP to achieve a high degree of happiness. What a concept!

~ Roy Christman































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