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In the 1970s, in the tiny Himalayan kingdom of Bhutan, the country’s economy was coming under major scrutiny. By most measures — gross domestic product, national income, employment and so on, it was growing sluggishly. So the King of Bhutan did something unusual. He decreed that from then on Bhutan’s progress would be measured not against these traditional economic yardsticks but against its Gross National Happiness.

It might have seemed an unconventional response to outside criticism, but the king had struck upon an idea that would grow into an important, increasingly respectable study — that of happiness economics. It is a subject most of us can relate to. As nations and individuals, almost all of us are richer and healthier than ever before. However, this wealth has gone hand in hand with a malaise of discontent. Those in rich nations have been getting less and less happy over the past 50 years.

The Pursuit of Happiness

Traditional economics does not have a satisfactory explanation for this. Since the time of Adam Smith, wealth has been assumed to be the key measure of a country’s progress. It is for this reason — and the fact that money is easy to measure — that economists have tended to concentrate on measures such as gross domestic product, unemployment and a handful of other social measures such as life expectancy and inequality. But not, until recently, happiness, which, given how much importance philosophers have placed on contentedness since the earliest days of humanity, is somewhat surprising.

The idea that a country’s progress should be measured against its happiness did not, in fact, begin in Bhutan twenty or so years ago. In 1776 Thomas Jefferson laid down that Americans should be entitled not just to life and liberty but to ‘the pursuit of happiness’. Jeremy Bentham, the 19th-century inventor of the philosophy of utilitarianism, said that humans should strive for the ‘greatest happiness of the greatest number’.

Pursuing happiness seems to have yielded definite results in Bhutan. Since taking up the gross national happiness index, the country has grown at a remarkable rate by even conventional economic terms. In 2007 it was the second-fastest growing economy in the world, all the while managing to increase its gross national happiness. In an effort to sustain people’s contentedness, there have been decrees that 60 per cent of the country should remain covered in forest, while tourism, which apparently undermines happiness, is capped each year. Money is redistributed from rich to poor so as to help eliminate mass poverty.

Measuring happiness These efforts to make Bhutan happier seem to have borne rich fruit. According to a survey in 2005, only 3 per cent of people reported not being happy, while almost half the population said they were very happy. But such surveys can often be vague, unconvincing and difficult to compare empirically. Happiness is far more difficult to measure than, for instance, levels of wealth or life expectancy, and it is this that has caused its neglect in economics. However, recent advances in brain scans have helped neuroscientists identify which part of the central nervous system is most stimulated by happiness, and the findings have helped add a layer of scientific credibility to measures of happiness.

In recent decades, economists and psychologists have, for the first time, started measuring, in earnest, people’s happiness in long-term studies. The conclusion they have come to is that although one’s happiness increases as one goes from being poor to rich, the level of contentedness starts to drop off as one gets further from the poverty line. According to Richard Layard, a British economist who specializes in happiness economics, once a nation’s average salary goes beyond $20,000, income rises stop making people happier and gradually make them less content. In economic phraseology, there are diminishing returns of happiness beyond that point.

This is what Richard Easterlin, one of the pioneers of the study, calls a ‘hedonic cycle’ (from the ancient Greek word for pleasure): once you get rich you get accustomed to it very quickly, and soon take such a standard of life for granted. Moreover, research from the field of behavioral economics has shown that once one’s basic needs are fulfilled we start to measure our own contentedness based not on our absolute wealth or achievements, but in comparison to others. The old adage that one is happy with one’s salary provided it is higher than one’s wife’s sister’s husband’s has a definite basis in psychology. Such findings indicate that a 24-hour-news-and-celebrity culture, with the lifestyles of the rich, beautiful and famous constantly advertised, is likely to undermine people’s contentedness yet further.

Money isn’t everything Ministers everywhere from the UK, Australia, China and Thailand are engaged on a quest to determine an internationally comparable measure of gross national well-being. While some traditional economists deride such objectives, it would be wrong to assume that the current palette of measures on a country’s progress are definitive. One independent measure, devised by the New Economics Foundation, is the Happy Planet Index, which combines measures of a country’s life satisfaction, life expectancy and ecological footprint per capita. According to this, the best-scoring country in the world in 2006 was the Pacific island of Vanuatu, followed by Colombia and Costa Rica, while Burundi, Swaziland and Zimbabwe were the worst. The majority of the world’s richest countries, including the US and UK, came more than halfway down the list.

Happiness economics is increasingly influencing the way politicians in developed countries create policy. It has been suggested, for example, that higher taxes on big earners will make society as a whole happier, since they will reduce national levels of envy. Another idea is that companies should limit the extent to which workers’ pay is based on merit. Lord Layard has suggested funding mass programs of cognitive behavioral therapy for all members of the population. Although such ideas are controversial, they are rapidly gaining traction in the US, as politicians seek a way to inspire apathetic voters.

The growth of happiness economics has inspired a mild backlash. Some psychologists have argued that discontent and envy can play an important role in driving people to better themselves. And then there’s the question of whether pursuing a nation’s happiness is entirely morally sound. In 1990, Bhutan expelled 100,000 ethnic outsiders from the country. The move reportedly boosted national happiness but at the cost of undermining its human rights record. Wealth is clearly not everything, but then neither is happiness.