Why the Happy Planet Index is the ultimate measure of economic efficiency

Photo credit: 10b travelling

June 22, 2012 // By:

On the day of the launch of the Happy Planet Index, my colleagues here at nef created an infographic comparing some statistics of Costa Rica and the USA, asking “which economy is more efficient”.

Shortly after I posted the infographic on some social media sites, I started to receive messages from friends and former colleagues telling me that the data presented in the chart had nothing to do with economic efficiency.  I started my training as an economist with some of these individuals, it is really sad to see that even some progressively minded economists seem to have forgotten what the subject is really about.

Anyone who has studied the subject at school or university should have encountered the basic economic problem at the beginning of their course: the world has limited resources, but people have unlimited wants and needs. Economics as a discipline is concerned about the systems used by society to solve this problem: how to take these scarce resources, and organise them (through production, distribution and consumption) in order to best meet human wants and needs.

Classical measures of economic efficiency are useful ways of measuring how efficiently human labour and physical capital can be harnessed used to produce goods and services. But they generally only address one aspect of the economic problem – production. They don’t address how efficiently this production satisfies humans wants and needs. And inputs used don’t really capture scarcity – human capital and physical capital are both inputs which can grow over time.

If you ask people what they most want in life, health and happiness come on top of the list. Income and money are indeed important considerations for many people, but only as an intermediate step towards helping achieve healthy, meaningful and satisfying lives. 

And the ultimate scarce resource upon which humans depend on for all production and consumption is the environment. Everything single thing we produce and consume, be it air, water, food or material goods, ultimately draws itself from the environment in one shape or form. If we destroy the environment, we destroy the resource which underpins human life.

So if you go back to the basic economic problem, the ultimate measure of economic efficiency is one which shows how effectively an economy can turns its scarce environmental resources into what people want and need – happy healthy lives. The Happy Planet does just that.

Some economists may continue to deny that the Happy Planet Index is a measure of economic efficiency. But these are economists who have forgotten about what economics is ultimately about.

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Well-being

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