Chacha and Linda commented on an earlier post that they didn’t like the way that success of a country is measured by GNP (gross national product) or GDP (gross domestic product), basically how many goods and services are sold in an economy. Having more goods and services doesn’t mean a country is doing better and focuses on materialism as a sign of success. [They also talk about the lump of labor fallacy, but that's the subject of someone else's post.]
Believe it or not, in economics we don’t assume that GDP is directly a measure of success. We really care about happiness, or, as economists like to jargon it up, “utility.” GDP does measure stuff, and stuff is something that we put into our utility functions. Assuming free-disposal (which, admittedly, is a pretty big assumption), that is, that if you don’t want something you can get rid of it at no cost to yourself, then more stuff is better (or at least not worse). We’re all about maximizing happiness, and stuff is just one thing that goes into that equation.
We would love to measure actual happiness. But… it’s hard to measure happiness. Even if we ask people, we’re not really sure if they’re telling us about relative happiness or absolute happiness, or if there are cultural differences in how to answer the happiness question that make differences in happiness not comparable across countries.
But we can measure stuff, so that’s what we measure.
We do also use other measures besides GDP: things like poverty rate, infant mortality rate, income inequality, literacy, etc. These tend to give a measure of how a nation’s poorest citizens are doing. Each of these captures a measure of a country’s success, but alone each cannot give a full picture.
What do you think? How should we be measuring success of a country? Is GDP a valid measurement? Is happiness our end goal? What would you measure instead? (And should we even be comparing countries? Why or why not?)