An effort is currently being made to take a fresh look at the Gross Domestic Product (GDP) and the various other indexes and methods by which an economy is measured, assessed and compared with another economy. The aim is to work toward the creation of a complete system that will be more reflective of reality because the deficiencies inherent to the approaches now used are becoming increasingly more apparent with the passage of time. Some people have called the system they hope will result from the effort the “Happiness Index” which sounds good to me thus my contribution to the ongoing debate. It is a discussion about what I believe should go into the structure of a happiness index and what should be kept out of it, and not about the construction of the index itself. For this reason, you will find that the bulk of the presentation surrounds the description of the deficiencies that exist in the current system, an approach I take because I believe that a good understanding of what is wrong with the current methods is necessary to construct a new system, one that will rectify the old deficiencies and avoid creating new ones.
The folks that were old enough during the decades of the Seventies and Eighties to follow or participate in the debates that raged at the time will remember that the big themes of the day concerned the growth of the world populations and the growth of the economies. These folks will remember that the discussions went in the opposite direction to where they are going today. That is, instead of seeing growth as being the salvation of nations -- which is how we see things now -- growth was considered to be a time bomb ticking towards an apocalypse. From economists to geneticists to artists of every talent, they came in droves and they lined up to add their voices to the sense of alarm and hysteria that was gripping the planet. And they warned about a concept that is really as old as mathematics but one they had apparently just discovered – a lowly mathematical concept they nevertheless described as the doomsday effect of compounded growth.
Call them counterfeit alarmists or genuine buglers of doom, these people had picked up the discussion from where Thomas Malthus had left it when he postulated that the population of a nation grows geometrically whereas the food supply grows arithmetically. They amplified this point and added their opinion to it which was to the effect that growth in population will force a comparable growth in all sectors of the economy, a happening that will outstrip the planet's ability to supply mankind with adequate resources of all sorts not just food. The consequence, they said, will be that humanity will be hit with a series of epidemics, will live in chronic poverty, breathe polluted air, drink dirty water and drown in garbage. Of course, we know now that this position contrasts sharply with the currently held common wisdom which is that the nations enjoying a high rate of population growth such as those in South Asia, South America, Africa and the Middle East will inherit the Earth and will live in magnificent opulence. The growth in their economies will be one that they can sustain because they will depend on recycled materials and renewable resources. In the meantime, countries like Japan, the Russian Federation and most of those in Western Europe will lag behind because they do not make enough babies now and they are not expected to make them in the future. Thus, the new prediction of doom and gloom is that these countries will see their economies shrink to the point where they will be swallowed by their neighbors or flooded with immigrants who will change their character for ever.
So we ask who is right and who is wrong? To answer the question we first need to develop a solid understanding of the concept of mathematical growth. Working around the Malthus idea, we imagine 100 people shipwrecked and marooned on an island. They are lucky enough to find 10 acres of arable land which they farm; and they find enough water to help them grow the food that will feed them throughout the year because it takes one acre of land to feed 10 people provided the weather is accommodating and there is enough water. Knowing that their population will grow in time, the castaways start to reclaim the adjacent land by leveling it and by constructing basins and canals to capture and store more of the rain water. But if you believe in the correctness of the Malthus theory you will believe that the castaways are doomed anyway because no matter what they do, the effort will not be sufficient in the long run. Generation after generation they will be forced to live on less and less food, and they will suffer the consequences that result from the situation. Why will this happen?
Here is why according to the Malthus theory as stated in the language of mathematics. To make matters simple, I take round figures where I can and so I make the rate of growth in the reclamation of the land as well as the rate of growth in the human population an even 10% per generation. This means that the arable land will grow from 10 acres to 11 acres at the end of the first generation. It will grow to 12 acres at the end of the second generation, 13 acres at the end of the third generation and so on. This is called an arithmetic progression because what you do is add the same number (in this case 1) to each iteration. Now, given that an acre of land can adequately feed 10 people, the castaways will be able (in successive generations) to feed 110 people then 120 people then 130 people and so on. So far, it is all simple mathematics as you can see.
But because the growth in population is compounded, it will follow what Malthus called a geometric progression. Alternatively, some people call it a logarithmic progression but don't worry about the nomenclature because one way or the other, a compounding effect results which is the important thing here. In this example, the population will go from 100 people to the following:
100 + 10 = 110 people at the end of the first generation;
110 + 11 = 121 people at the end of the second generation;
121 + 12 = 133 people at the end of the third generation and so on.
That is, while the supply of food will grow for sure, the population will grow even faster because new growth is piled on top of old growth which is what compounded growth means. The net result is that less food will be available per person with each generation as predicted by the Malthus theory.
The numbers do not look alarming after 3 generations because we can see that 133 people can still live well on the amount of food deemed adequate for 130 people. But if you project the trend into the future for up to 10 generations, the numbers begin to look dire. That is, after 10 generations the arable land will have gone from 10 acres to 20 acres which means that the production of food will have doubled. But the population will have grown from 100 people to 260 people. This means that each acre of land will now be feeding 13 people instead of the 10 people it used to feed at the start. And each person will have available to him or her only 77% the amount of food that is considered adequate. Where the people used to consume 3,000 calories a day, they will be forced to live on 2,313 calories. And the trend will continue to go from bad to worse with each generation, subjecting the population to the dire consequences that the alarmists have predicted.
But like they say, it is now time for a reality check. Did we see a trend like this take hold since the time when those predictions were made? No, we did not. Instead, what happened was that an agricultural revolution, dubbed green revolution, was launched in India where hunger used to be chronic and mass starvation was anticipated. And the apocalypse was avoided despite the rapid growth in population that has accompanied the green revolution in that country. Elsewhere in the world, the yield of food that is produced per acre of land more than doubled as a result of breakthroughs achieved in agronomy. This is called vertical growth; a development that Malthus had not foreseen. At the same time, the use of water per acre of land was reduced with the deployment of new technologies and new irrigation techniques. When added to the mechanization of agriculture and the use of fertilizers, those developments made it possible to achieve a growth in agriculture that surpassed in magnitude the compounded growth of the population. Thomas Malthus was proven wrong but the worried man that he was about the fate of humanity, he must be smiling in his grave knowing that things turned out well after all for the human race.
And we're not yet finished with the good news. The net result of the vertical and the horizontal growths in the food supply has been that there is now enough food to feed a world population that is nearly double what it was when the dire predictions started to be made. Yes, there are still pockets of hunger on Earth but this has nothing to do with the lack of supplies and everything to do with the bad distribution of food, a deficiency that is being corrected. As to the predictions for the future, they are that the supply of food will surpass the growth in population by a wide margin; so much so that some countries have embarked on a program to convert food into fuel to run their cars. Perhaps a foolish idea but one that tells how much our attitude has changed with regard to the concerns we had about feeding the world. And this is a shift that has also caused a reversal in the attitude toward economic growth in general, a point that will be discussed in more detail in a moment.
In addition to all that good news, projects are being implemented by which the Amazon Basin in South America is being transformed into a major food producing region comparable to that of North America. And the same thing is envisaged for the Nile Basin where it is estimated that this region alone which occupies a small swath of East Africa has the potential to feed a billion and a half people, a number that surpasses the entire population of Africa today. And yet, there is so much more land and so much more water in the rest of Africa to grow so much more food and feed so many more people.
This is growth in the food supply that Malthus could not have foreseen because no one can tell how science and technology will develop or what impact the development will have on everything else. Futurists try to make predictions and they are often entertaining but almost always wrong. This said, what about the growth in the rest of the economy? Can we foretell what will happen there? Well, The first thing we do to attempt answering this question is recognize that an economy consists of the production of goods and services on the one hand and the consumption thereof on the other hand. The more we produce and consume, the larger the economy in which we live. And the more of that we do year after year, the higher the growth rate that the economy enjoys. But as we shall see in a moment, not everything that is produced should be considered fit for consumption as far as the Happiness Index is concerned.
Our troubles with accuracy stem from the fact that when it comes to measuring the changes that occur as the economy goes through the successive incarnations, we do not have a reliable measuring stick by which to compare the numbers over a long period of time. This is because the only stick we have now is the currency. The fact is that an economy operates on the basis of products being exchanged for money. Yet, the reality is that the products slowly change over time and the value of money changes over time also. Thus, in the end, what we do is compare apples with oranges when the apples are not even apples anymore but have morphed into something else, and the oranges are not oranges anymore but have morphed into something else as well. By way of example, to compare the price of a digital color plasma TV today with the price of a black and white cathode ray analogue TV of previous decades when the wage scales have changed by so much is a game of double jeopardy that will tell absolutely nothing useful about the performance of the economy during that time. The best that we can do is adjust for the value of the currency which we know depreciates over time but this alleviates the deficiency just a little and does not solve the problem. Therefore, we must accept the fact that the existing methods can only compare the economic numbers from quarter to quarter and from year to year but not from decade to decade or beyond that. It is just that with the passage of time the errors become too large for the figures to mean anything at all.
Also, when it comes to comparing two economies that use different currencies, we obtain results that are too strange to take seriously except by the clowns in the media who never cease to repeat them with a sense of weird relish that is incomprehensible. A notorious example of this sort is when they say that someone who lives on 100 dollars a day and spends 25 of them on food with which to buy and consume 2,800 calories is 50 times better off than someone living on 2 dollars a day who spends 1 dollar to consume 3,000 calories. The deformed picture that results from this approach is so horrendous, it is like looking at the body of an elephant standing on the legs of a lion, adorned with the neck of a giraffe, the head of a monkey and the tail of a crocodile. It is more than absurd; it is comical in a grotesque sort of way. And this sort of thing happens because some people convert the numbers into the same currency -- usually the American dollar – and compare the various economies when, in fact, people on this planet do not convert their currency into dollars to buy a loaf of bread or a bowl of rice. The truth is that people have their own currencies which they use to buy food. To ignore this reality and say that someone who has never seen the color of an American dollar lives on 2 dollars a day is simply idiotic. But the reason why this approach exists at all is that a system was created by the World Bank for use by those who engage in specific studies and know what they are doing -- not to be used by journalists who wouldn't know the head of a monkey from the tail of a crocodile yet abuse every piece of information that comes their way like a child abuses every toy handed to him.
All of which tells us why we need to develop a Happiness Index. To construct one, we must not ignore the fact that priorities change from one era to another and from one culture to another. This means we must recognize that what is luxury today may become amenity tomorrow, and what is necessity in one culture may be amenity in another culture. Consequently, I suggest that an index meant to measure and compare economies over time and across the cultures be structured with parts that have weights which can be varied from era to era and from culture to culture. To do this, we need to acknowledge the differences that exist between a necessity, an amenity and a luxury as it applies to the goods and the services that people prefer to consume in the different eras and the different cultures.
When we do this, another reality is brought to the fore. It is that everything produced in the economy is not directly consumed by the public. For example, a packaging machine is a necessity in the modern economy but it cannot be eaten -- to use the old cliché. Yet, a packaging machine and all other machines are considered wealth created by the economy, the value of which goes into the GDP. And this is why people are paid 100 dollars a day yet cannot at times afford to consume more than 2,800 calories of food. And what this tells us is that only the value of the goods and services purchased directly by the public and consumed by it should go into the Happiness Index not everything that is now entered into the GDP. Simply put, what counts here is the consumption of 2,800 calories not the payment of 100 dollars because the first is what constitutes happiness, the second is what reflects the complexity of the economy that delivers that happiness.
Thus, we can see that someone living bare feet and half-naked on the beaches of the South Seas on 750 dollars a year will be shown by the Happiness Index to be as happy if not happier than the technician who repairs packaging machines and earns 36,000 dollars a year. The reality is that the latter will work like a dog in an urban jungle for 50 weeks a year to go on a vacation where he or she will spend 2 weeks bare feet and half-naked on the beaches of the South Seas. Some people will go as far as to swear that the only happiness they feel during the year is when the time comes to start preparing for their vacation.
I know the feeling because I spent the best seven years of my tween and teenage years in a place like this near the Equator. I can tell you it was like living in paradise not because we had all the amenities of what was considered modern living at the time but because we lived by the sea, and the weather throughout the year was Spring-like or Summer-like with little rain and no winter. Nothing I see today or do for myself can take me close to the happiness I felt in those days.
On the scale of happiness from zero to 100, the index registered near 100 every day of the year. And don't ask me what it is now even though I have all these wonderful memories to enjoy.