The problems with the Happy Planet Index

September 10, 2007 7:13 PM

Informed sources think that something along the lines of the New Economics Foundation’s Happy Planet Index is going to be recommended in the Conservative Quality of Life group report this Thursday.


The purpose of the Happy Planet Index is to create a measure that captures a society’s ability to produce what we really want, long and happy lives, from what we have to work with, natural resources.  To support it you have to accept two key propositions:


First, you have to accept that happiness economics properly captures true human aspirations and needs.  Second, you have to accept that resource efficiency is the proper standard to hold economies by.


Both of these should be an absolute anathema to a conservative and the Conservative Party.


Happiness economics isn’t the reliable policy tool that the New Economics Foundation makes it out to be.  It is based on one key observation, which Lord Layard is most famous for advancing, that average happiness doesn’t increase along with national income.  As Helen Johns and Paul Ormerod pointed out in a book published by the Institute of Economic Affairs it isn’t only national income that happiness doesn’t correlate with, it’s also public spending, longevity, income equality, even levels of depression and almost any other variable you care to name.  As the iea authors point out this implies that either happiness can’t be created through social policy or it isn’t a reliable measure.  Either way it is toxic to the NEF’s view that improving happiness should be the primary goal of social policy.  “State control with a smile”, as Corin Taylor described happiness economics in The Business, cannot be justified empirically.


Another idea that cannot be sustained is that resource efficiency is the standard economies should be held to.  As the NEF suggest we do have a limited stock of natural resources, however, other resources such as human time and ingenuity are also only available in limited quantities.  Both environmental and human resources have the capacity to be used in alternative ways and produce returns both now and in the future.  Deciding how those resources should be used and which it is more important to use efficiently is a job the market does very well.  Let’s think about that in more concrete terms, with a historical example:


At the beginning of the twentieth century Britain was far more resource efficient than the United States.  We used less raw cotton for each yard of cloth produced, less coal and iron ore for each tonne of steel.  However, we used far more skilled labour.  This was the result of us having more skilled labour, as we had been an industrial nation for longer, but less natural resource, as we did not have the big resource endowment of the US.  The market prioritised resource efficiency in Britain but efficient use of skilled labour in the United States.  Resource efficiency is not an unqualified good.


The Happy Planet Index is based upon assumptions that classical liberals, conservatives and the Conservatives should all be opposed to:  An understanding of what people really want and need based upon the opinion of “experts” rather than preferences of those concerned and an ignorance of the capacity of market mechanisms to prioritise the efficient use of different scarce resources.


There is a simpler, more intuitive, rebuttal though.  Leaving aside tiny Pacific Islands the number one ranked country in the NEF’s index is Colombia.  One of the worst ranked is the United States.  Where would you rather live?


The answer is obvious.  Thousands risk death each year attempting to get from 38th placed Mexico to the 150th (out of 178) placed United States.  This is just one way that people clearly reveal their preference for a higher standard of living.  I’m sure the New Economics Foundation can blame this on some kind of false-consciousness.  The reality is that it illustrates that the free-market economies and resulting high living standards that the NEF deride are people’s real priorities.

Informed sources think that something along the lines of the New Economics Foundation’s Happy Planet Index is going to be recommended in the Conservative Quality of Life group report this Thursday.


The purpose of the Happy Planet Index is to create a measure that captures a society’s ability to produce what we really want, long and happy lives, from what we have to work with, natural resources.  To support it you have to accept two key propositions:


First, you have to accept that happiness economics properly captures true human aspirations and needs.  Second, you have to accept that resource efficiency is the proper standard to hold economies by.


Both of these should be an absolute anathema to a conservative and the Conservative Party.


Happiness economics isn’t the reliable policy tool that the New Economics Foundation makes it out to be.  It is based on one key observation, which Lord Layard is most famous for advancing, that average happiness doesn’t increase along with national income.  As Helen Johns and Paul Ormerod pointed out in a book published by the Institute of Economic Affairs it isn’t only national income that happiness doesn’t correlate with, it’s also public spending, longevity, income equality, even levels of depression and almost any other variable you care to name.  As the iea authors point out this implies that either happiness can’t be created through social policy or it isn’t a reliable measure.  Either way it is toxic to the NEF’s view that improving happiness should be the primary goal of social policy.  “State control with a smile”, as Corin Taylor described happiness economics in The Business, cannot be justified empirically.


Another idea that cannot be sustained is that resource efficiency is the standard economies should be held to.  As the NEF suggest we do have a limited stock of natural resources, however, other resources such as human time and ingenuity are also only available in limited quantities.  Both environmental and human resources have the capacity to be used in alternative ways and produce returns both now and in the future.  Deciding how those resources should be used and which it is more important to use efficiently is a job the market does very well.  Let’s think about that in more concrete terms, with a historical example:


At the beginning of the twentieth century Britain was far more resource efficient than the United States.  We used less raw cotton for each yard of cloth produced, less coal and iron ore for each tonne of steel.  However, we used far more skilled labour.  This was the result of us having more skilled labour, as we had been an industrial nation for longer, but less natural resource, as we did not have the big resource endowment of the US.  The market prioritised resource efficiency in Britain but efficient use of skilled labour in the United States.  Resource efficiency is not an unqualified good.


The Happy Planet Index is based upon assumptions that classical liberals, conservatives and the Conservatives should all be opposed to:  An understanding of what people really want and need based upon the opinion of “experts” rather than preferences of those concerned and an ignorance of the capacity of market mechanisms to prioritise the efficient use of different scarce resources.


There is a simpler, more intuitive, rebuttal though.  Leaving aside tiny Pacific Islands the number one ranked country in the NEF’s index is Colombia.  One of the worst ranked is the United States.  Where would you rather live?


The answer is obvious.  Thousands risk death each year attempting to get from 38th placed Mexico to the 150th (out of 178) placed United States.  This is just one way that people clearly reveal their preference for a higher standard of living.  I’m sure the New Economics Foundation can blame this on some kind of false-consciousness.  The reality is that it illustrates that the free-market economies and resulting high living standards that the NEF deride are people’s real priorities.

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