The most obvious aspect of the Bhagwati-Sen debate on Indian economic policy is the question of trade-offs between growth and redistribution. A subtler and deeper issue, central to Amartya Sen’s work, is that of goals. Gross domestic product (GDP, or its cousin, GNI—gross national income) per capita provides a single number, capturing purchasing power, and therefore a sense of the standard of living that people can afford. But this misses many complications, having to do with the imperfections and gaps in the ability of markets to value what we really care about.
The UN Human Development Index (HDI) creates a different numerical measure of well-being, including GDP, but also other dimensions of our lives, such as how healthy and how educated we are. But it is still somewhat arbitrary in its weightings of different outcomes, and it still misses some things that matter to us for our well-being. Can we do better in tracking average well-being?
The World Happiness Report (WHR) is precisely designed to get a better understanding of how well off people are in different countries, and what contributes to their sense of well-being. The data comes from asking people carefully calibrated questions about how they evaluate their own life circumstances, with answers chosen on a numerical scale. “Happiness” may be a fuzzy concept, difficult to pin down, but, on average, people can give an accurate sense of how they view their lives. Different surveys can distinguish between temporary and transitory feelings and emotions on the one hand, and an overall, longer-run evaluation of life conditions.
The latest WHR is the second annual effort in what may be a major step forward in understanding systematically what contributes to our overall well-being. In turn, it may help policymakers do better in setting their priorities and choosing policies. To make this concrete, look at where India stands. First, the facts. In the 2013 WHR, India ranks 111th out of 156 countries surveyed. For comparison, the US is 17th, China is 93rd, Bangladesh is 108th and Pakistan is (a surprising) 81st. The IMF GDP per capita rankings out of 187 countries, on the other hand, are: US (6), China (93), India (133), Pakistan (141) and Bangladesh (154). And the HDI rankings, also for 187 countries, are: US (3), China (101), India (136), Bangladesh (146), Pakistan (146).
Note that, unlike the HDI, the happiness ranking does not directly include GDP/GNI per capita—it is based on asking