Well, it’s not for want of trying. Economists would love to be able to measure things such as wellbeing or happiness; things which our intuition tells us should have no measure. But to measure something we have to have a standard to measure it against. Money provides the most ready measuring rod, because most things can, once we’ve got over our initial distaste at having to do so, be reduced to a monetary value. Just ask any tort lawyer. But money itself is subject to fluctuations in value, subject to the momentary agreement by the markets at any given time. And therein lies the economist’s conundrum – the measuring rod is itself subject to the same whimsical subjectivity as that which it purports to be able to measure. This is one reason why economics is never an exact science; it cannot be likened in this respect to mathematics, physics or chemistry. Anyone who declares that an economic ideal (usually their personal favourite one) is “Economics 101” (as though their view should be as self-evident as 1+1=2) has probably never been anywhere near an actual economics class – if they had they would know better than to make that type of statement.
We may never find a way to reliably measure the contribution which economic activity makes to the goal of human happiness. Indeed the caIculation of such a summary measure has been described as being a job for a “philosopher king”.
But I think we can come close. This is because economists are not, thank heaven, accountants, who would never in a zillion years be able to measure happiness. But we have, among other things in our toolbox, a very sneaky thing called opportunity cost. This is the value of the thing foregone in order to achieve something else. Here’s how it works: Let’s say you have a friend who owns a shop. She asks both you and her accountant to analyse her business. The accountant looks at her revenue and out-of-pocket costs and concludes she makes a profit of €30000.00 per year. But in the process of talking to your friend you discover that she has been offered a €40000.00 per year job with a major retail chain. As an economist, you include this cost as an opportunity cost, which is the value of the closest alternative use of your friend’s resources. Her economic profit is actually a loss of €10000.00.
Opportunity cost provides us with another dimension to costing, much like the alternative universe much beloved by science fiction. That’s because if we can’t directly value the things that make us happy, we can often place a cost on the things that don’t. You may, for example, find it hard to place a value on clean air and water until you consider the opportunity cost of not having it – medical bills and bottled water are much easier to value. The economic value of happiness would take all these costs into account. Spending time with your kids as a busy executive may seem priceless, but this too can be valued by looking at what it is that prevents you from spending time with them. If it’s work, then you know what it will cost to give that work up and take a less demanding job.
I do believe that every country on earth could do this as an economic experiment. You could survey people, whatever proportion the statisticians tell us we need, on what would make them happy, and then use an opportunity costing model to value this, gaining a mean value. Comparisons of this value to GNP would be interesting, to say the least. Is there a point at which further economic growth (assuming a constant level of technology) could only be achieved at the cost of happiness? Is there such a maximum value of GNP? I believe there has to be.