GDP remains indispensable even as happiness metrics gain traction

GDP remains the most widely used gauge of a nation's economic progress, even as critics push alternative measures of well-being. The debate centers on whether the market-centric figure captures what people actually experience. In 1972, Bhutan's king declared that Gross National Happiness mattered more than Gross Domestic Product, a line that captured imaginations worldwide. Today, Bhutan is still among the poorer countries by per-capita GDP, and politicians warn of unprecedented levels of people leaving in search of opportunities abroad. Life expectancy has risen to 73 years from 51 in 1972, but it sits near the world average, and the country has not seen the broad living-standard improvements many associate with development. Bhutan's own happiness surveys show rising happiness since data collection began in 2010, while internationally comparable surveys often show a fall in self-reported happiness in the country.

By contrast, South Korea embarked on a different path in 1961 after General Park Chung-hee seized power with the aim of rapid modernization. Five-year development plans set explicit targets measured by economic growth, and the country transformed from a war-torn, aid-dependent economy into a global manufacturing powerhouse. Life expectancy climbed from the mid-50s in 1960 to the mid-80s today, infant mortality fell dramatically, and GDP per capita rose to above $30,000. Korea's progress was tracked through GDP, and the country achieved a broadly higher standard of living. Self-reported happiness in Korea has tended to outpace Bhutan in surveys, even if happiness data were not the explicit object of policy in the same way as in Bhutan.

To understand why GDP remains central to policy, it helps to know what the measure actually captures. GDP is a 'national account' that records the total market value of all final goods and services produced within a country during a period. It aggregates thousands of transactions into a single number and is designed to reflect market production rather than welfare. The concept originated in the 1930s, when economist Simon Kuznets was asked by Congress to create a measure to judge the economy's recovery from the Great Depression. GDP counts the sale price of final goods and services produced domestically, using actual market prices, and by design avoids counting intermediate inputs to prevent double counting. It also groups activity into categories such as consumption, investment, government spending, and net exports. That structure lets policymakers compare economies and track short-term changes.

GDP, however, leaves out unpaid work, environmental costs, income distribution, and activities that people may value but do not monetize. For instance, chores at home do not show up in GDP, while rebuilding after a hurricane adds to GDP even as wealth has declined. Critics argue this incompleteness matters for understanding well-being, but supporters note that GDP's scope is defined by its intent: market production, not a universal measure of welfare.

High-profile critiques have argued that GDP's concentration on growth can distort policy. In 2009, the Stiglitz-led Commission on the Measurement of Economic Performance and Social Progress argued that 'what we measure affects what we do' and that adding other indicators may help. Kuznets himself warned that 'the welfare of a nation can scarcely be inferred from a measurement of national income.' Yet advocates insist GDP remains a practical gauge because there is empirical linkage: higher GDP per capita correlates with longer life, lower infant mortality, higher educational attainment, reduced poverty, and even higher self-reported happiness in many contexts. Some researchers note a polyhedral relationship with environmental quality, often showing a U- or H-shaped link with GDP.

Despite critiques, GDP's practical advantages are substantial. Quarterly GDP estimates in the United States are released shortly after a quarter ends, allowing policymakers to spot recessions and adjust policy quickly. By contrast, Bhutan's latest Gross National Happiness data dates to 2022, and data timeliness remains a hurdle for many smaller economies. Proponents argue that timely data are crucial for policy and that GDP's conductor role in policy is not easily replaced by happiness indexes.

Beyond timeliness, GDP offers cross-national comparability, historical context, and a consistent framework for tracking growth over decades and even centuries. However, some countries' statistics are less reliable, with China often cited as one example; nonetheless, the ability to compare across borders and over time remains a key advantage of GDP as a metric for productive capacity. Critics who call for a dashboard argue for a broader set of measures, but most governments still rely on GDP as a central anchor because it captures the scale of an economy's capacity to generate goods, fund public services, and pursue long-run transformations.

Economists acknowledge flaws in GDP as a proxy for well-being, but they contend that the metric remains indispensable because most outcomes that matter to people—health care, education, infrastructure, and income—are predicated on the economy's size and strength. The debate over happiness versus GDP is unlikely to disappear, but the world continues to use GDP as a practical measure of whether an economy is developing and capable of supporting broader social goals.

This story was supported by a grant from Arnold Ventures. Vox had full discretion over the content of this reporting.