Others have pointed out that most of the factors you take into account are (often strongly) correlated with GDP per capita. What I think is more important from an econometric perspective is that many of them are caused by GDP per capita. If you’re trying to measure the effect of (average) income on happiness, and you control for almost all the mediators of income’s effect on happiness, of course you’ll find that there is almost no independent effect of income left over!
In my opinion, this analysis, while certainly interesting and useful for other purposes, says nothing at all about the effect of GDP per capita on life satisfaction or happiness.
I think the biggest danger to that reasoning is the premise that they are caused by GDP, and only by gdp, which I quite flatly dispute. At a minimum, gdp-measurable paths are only one way to achieve these components. For example, you can spend a lot of money on cleaning your water sources—or, you can make the choice not to destroy your clean water supplies in the first place. One looks “productive” only because it failed to account for the destruction. Of course exactly the same thing can be said of carbon into the atmosphere, leaded gasoline into the brains of children, etc, etc, but I choose water because it’s in the model.
Any attempt of a defense of GDP, specifically, needs to take into the account the fact that it’s just a deeply flawed measure of value. That’s why econ nobelists have been arguing against it for over a decade (and likely much longer, given that whole international reports were being published on it in 2012). So even if it were more predictive than the model suggests, that still wouldn’t address the fact it’s known to be misleading, all on its own, and not something I would spend a lot of time defending on the merits.
Separately though, if you replace “gdp” with “money” (since they’re also very definitely not the same thing) it sounds sort of like you’re saying that if people have money, they can just buy anything else they want, thus money is the only thing that matters—which I could respond to by getting into all of the ways that’s just not accurate, such as the fact that a single person can’t pay for a 1⁄1,000,000th fraction of a national clean water system to get clean water for themselves—
But perhaps the most definitive argument against the unique value of gdp is in simple counterexamples. Between 2005 and 2022, Costa Rica had a higher life satisfaction than the United States, with less than a third of the GDPpc. This simply wouldn’t be possible, if gdp just bought you happiness. Ergo, that simply cannot be the answer.
I think the biggest danger to that reasoning is the premise that they are caused by GDP, and only by gdp, which I quite flatly dispute.
Well, this seems like something that is actually worth finding out. Because if it is the case that GDP (/ GDP per capita) does have a significant causal influence on one (or more) of them, then you are conditioning on a mediator, (partially) hiding the causal effect of GDP on the outcome. It seems to me like your model assumes that GDP does not have any casual influence on any of these variables, which seems like a pretty strong assumption. Unless I am misunderstanding something.
(ETA: Similarly, if both GDP and life satisfaction causally influence one of the variables, you are conditioning on a collider. That could introduce a spurious negative correlation masking a real correlation between GDP and life satisfaction, via Berkson’s paradox. For example, suppose both life satisfaction and GDP cause social stability. Then, when you stratify by social stability, it would not be surprising to find a spurious negative correlation between GDP and life satisfaction, because a high-social-stability country, if it happens to have relatively low GDP, must have very high life satisfaction in order to achieve high social stability, and vice versa.)
Any attempt of a defense of GDP, specifically, needs to take into the account the fact that it’s just a deeply flawed measure of value. That’s why econ nobelists have been arguing against it for over a decade (and likely much longer, given that whole international reports were being published on it in 2012). So even if it *were *more predictive than the model suggests, that still wouldn’t address the fact it’s known to be misleading, all on its own, and not something I would spend a lot of time defending on the merits.
My understanding of these critiques is that they say either that (1) GDP is not intrinsically valuable, (2) GDP does not measure perfectly anything that we care about, or fails to measure many things that we care about, and/or (3) GDP focuses too narrowly on quantifiable economical transactions.
But if you were to find empirically that GDP causes something we do care about, e.g., life satisfaction, then I don’t understand how those critiques would be relevant? (1) would not be relevant because we don’t care about increasing GDP for its own sake, only in order to increase life satisfaction. (2) would not be relevant because whatever GDP would or would not succeed in measuring, it does measure something, and it would be desirable to increase whatever it measures (since whatever that is, causes life satisfaction). (3) would not be relevant because whatever does or does not go into the measure, again, it does measure something, and it would be desirable to increase whatever it measures.
But perhaps the most definitive argument against the unique value of gdp is in simple counterexamples. Between 2005 and 2022, Costa Rica had a higher life satisfaction than the United States, with less than a third of the GDPpc. This simply wouldn’t be possible, if gdp just bought you happiness. Ergo, that simply cannot be the answer.
Your reductio shows that GDP cannot be the only thing that has a causal influence on life satisfaction (assuming measurements are good, etc.). But I don’t think OP or anyone else in this comment section is saying that GDP/wealth/money is the only thing that influences life satisfaction, only at most that it is one thing that has a comparatively strong influence on it. And your counterexample does not disprove that.
Hi Erich, sorry for the delay, and thank you for the very careful response. In
order:
Wrt: “… It seems to me like your model assumes that GDP does not have any casual influence on any of these variables,…”
I don’t actually make any such assumption about GDP, and in fact am completely agnostic (for now) about causal dependencies within the graph. I only make the tentative assumption that every variable listed has some causal effect, direct or indirect, on national satisfaction (ergo, it’s not *all* GDP, which is what you accurately quote me as disputing), based on 1) a thorough search being more likely to exclude spurious causes, and 2) expert knowledge. Water, Shelter, Freedom, Friends, Being Accepted — most of these seem pretty unimpeachable. Beyond that I’m actually trying to be especially cautious about proposing particular dependencies because based on my experience with causal systems of even moderate size, the pattern of influences is likely to be spectacularly complicated, and unintuitive. This has certainly been borne out by all of my early explorations with causal discovery tools.
(As an aside, I am very interested in these questions, and continuing to work on them, but my first goal is simply to start with the right set of variables. I think progress on this itself could be a huge improvement over what I currently understand to be the globally accepted standard.)
Wrt “But if you were to find empirically that GDP causes something we do care about, …”
That feels like a reasonably fair description of the arguments with which I’m familiar, but I think there are at least two important nuances. The most simple is that GDP can have not just limited utility, but also horrific externalities — most obvious among them, global warming. It’s essentially your point (2), but with the emphasis that what’s left out can actually be more powerful, and worse, than what’s left in. In other words, even if GDP can cause satisfaction *in the short term,* satisfaction itself actually leaves out the very important question of the future. That’s an inherent shortcoming of the model, but an important strike against the concept. I go into this more in the paper.
The other is that I see “GDP” as practically too vague to be applicable for intervention. You might estimate a causal effect for “GDP,” but that might only be because *one* of the thousand things within the concept actually makes a difference. Then when you go to intervene on a different one of the thousand things, because you identify it is part of “GDP,” you just don’t get the same effect — essentially, because your variables weren’t precisely defined enough. So I’m happy to talk about how economic processes might play critical roles, but I don’t feel comfortable talking about “water” and “the entire economy” as if they have equivalent structural validity. At a minimum, one of them is much more vulnerable to bad accounting practices.
Wrt “But I don’t think OP or anyone else in this comment section is saying that GDP/wealth/money is the only thing that influences life satisfaction,…”
I do agree with you, and agree I misread A. de Vries position. Though, while I don’t think anyone has said explicitly that they think GDP is the *only* cause of satisfaction, there have also been almost no explicit proposals of anything that *does* cause satisfaction, *apart* from GDP — so I may have been reading too much between the lines there, but my trying to get some distance from the concept is really driven by a confusion that it’s the only variable we’re talking about. Still, I could have expressed that more cogently.
The factors being only caused by GDP is not at all central to my argument against your analysis, nor is it a claim I would make. The key point is that any causal effect of GDP on happiness must necessarily run through other factors like shelter, clean water, health, etc. Nobody (except economists like me) feels more satisfied with their life as a result of hearing that GDP/cap has gone up by 3% this year.
As such, if you control for all of those mediating factors, it will be literally impossible to find a significant effect of GDP/cap on happiness whether or not such an effect actually exists. If the effect is real, such an analysis would necessarily find a false negative.
Similarly, your counterexample would be valid, if I were claiming that GDP is the only factor in happiness. Again, I do not claim that, nor does anyone I know of. There are plenty of factors which account for national average life satisfaction, one of which is GDP. It is perfectly possible for Costa Rica to be higher in other factors and therefore be happier than the US despite a lower GDP.
There are some economists who oppose GDP as a measure of value, and some who support it. If you’re appealing to expertise, there’s a huge difference between consensus view and “some experts agree with me”.
I think “some experts” is fairly misleading when the experts I’m referring to have multiple econ Nobels, led an international working group on the subject in question, for a study commissioned by the president of a G7 country, and the EU is now continuing that path to construct entirely new national indicator systems based on satisfaction. I’m comfortable saying that’s a pretty substantial consensus on the need for alternatives to GDP.
I think your point that a correctly-specified model would have no effect for GDP makes a good deal of sense—or at best, that GDP could be seen as a sort of residual category for all of the consumption not accounted for by explicit variables. This is also an approach that would unambiguously favor my model over the WHR’s, which reports an enormous effect for GDP. Do you see this as just an error term in their model?
But this idea also seems to conflict pretty directly with your assertion that the model “says nothing at all about the effect of GDP per capita on life satisfaction or happiness.” If I’ve succeed in driving that term to almost zero, then you seem to be suggesting I’ve captured all the relevant effects, and the WHR hasn’t come close.
If you’re saying that GDP only matters to satisfaction via consumption, then there’s still the absolutely enormous question of: consumption of *what*? GDP is about as precise as staying “economic stuff,” so it’s barely a coherent question to even ask how “GDP” affects satisfaction. At the barest minimum, I would say this model clarifies what *parts* of all of the things that are together rolled into the GDP fruitcake are actually counting towards GDP. And this is critical. You shouldn’t be able to build a building, burn it down, and claim you’re helping, because construction counts towards GDP and GDP causes happiness. That’s just a semantic shell game.
But even if you are trying to formulate the model as satisfaction ⇐ consumption ⇐ GDP … you have to deal with the fact that the biggest effect in the model is on social support! That’s just not “economic!” You can look at the chosen variables, and see how much of GDP they actually account for, and see that GDP is outright missing several of the largest measured effects, by its inherent definition. So even if it’s only in the negative, or estimating an upper bound, or pushing the question towards clarifying the relationship between water and GDP, I have a pretty hard time seeing how that says “nothing at all” about the relationship between GDP and satisfaction.
Others have pointed out that most of the factors you take into account are (often strongly) correlated with GDP per capita. What I think is more important from an econometric perspective is that many of them are caused by GDP per capita. If you’re trying to measure the effect of (average) income on happiness, and you control for almost all the mediators of income’s effect on happiness, of course you’ll find that there is almost no independent effect of income left over!
In my opinion, this analysis, while certainly interesting and useful for other purposes, says nothing at all about the effect of GDP per capita on life satisfaction or happiness.
I think the biggest danger to that reasoning is the premise that they are caused by GDP, and only by gdp, which I quite flatly dispute. At a minimum, gdp-measurable paths are only one way to achieve these components. For example, you can spend a lot of money on cleaning your water sources—or, you can make the choice not to destroy your clean water supplies in the first place. One looks “productive” only because it failed to account for the destruction. Of course exactly the same thing can be said of carbon into the atmosphere, leaded gasoline into the brains of children, etc, etc, but I choose water because it’s in the model.
Any attempt of a defense of GDP, specifically, needs to take into the account the fact that it’s just a deeply flawed measure of value. That’s why econ nobelists have been arguing against it for over a decade (and likely much longer, given that whole international reports were being published on it in 2012). So even if it were more predictive than the model suggests, that still wouldn’t address the fact it’s known to be misleading, all on its own, and not something I would spend a lot of time defending on the merits.
Separately though, if you replace “gdp” with “money” (since they’re also very definitely not the same thing) it sounds sort of like you’re saying that if people have money, they can just buy anything else they want, thus money is the only thing that matters—which I could respond to by getting into all of the ways that’s just not accurate, such as the fact that a single person can’t pay for a 1⁄1,000,000th fraction of a national clean water system to get clean water for themselves—
But perhaps the most definitive argument against the unique value of gdp is in simple counterexamples. Between 2005 and 2022, Costa Rica had a higher life satisfaction than the United States, with less than a third of the GDPpc. This simply wouldn’t be possible, if gdp just bought you happiness. Ergo, that simply cannot be the answer.
Well, this seems like something that is actually worth finding out. Because if it is the case that GDP (/ GDP per capita) does have a significant causal influence on one (or more) of them, then you are conditioning on a mediator, (partially) hiding the causal effect of GDP on the outcome. It seems to me like your model assumes that GDP does not have any casual influence on any of these variables, which seems like a pretty strong assumption. Unless I am misunderstanding something.
(ETA: Similarly, if both GDP and life satisfaction causally influence one of the variables, you are conditioning on a collider. That could introduce a spurious negative correlation masking a real correlation between GDP and life satisfaction, via Berkson’s paradox. For example, suppose both life satisfaction and GDP cause social stability. Then, when you stratify by social stability, it would not be surprising to find a spurious negative correlation between GDP and life satisfaction, because a high-social-stability country, if it happens to have relatively low GDP, must have very high life satisfaction in order to achieve high social stability, and vice versa.)
My understanding of these critiques is that they say either that (1) GDP is not intrinsically valuable, (2) GDP does not measure perfectly anything that we care about, or fails to measure many things that we care about, and/or (3) GDP focuses too narrowly on quantifiable economical transactions.
But if you were to find empirically that GDP causes something we do care about, e.g., life satisfaction, then I don’t understand how those critiques would be relevant? (1) would not be relevant because we don’t care about increasing GDP for its own sake, only in order to increase life satisfaction. (2) would not be relevant because whatever GDP would or would not succeed in measuring, it does measure something, and it would be desirable to increase whatever it measures (since whatever that is, causes life satisfaction). (3) would not be relevant because whatever does or does not go into the measure, again, it does measure something, and it would be desirable to increase whatever it measures.
Your reductio shows that GDP cannot be the only thing that has a causal influence on life satisfaction (assuming measurements are good, etc.). But I don’t think OP or anyone else in this comment section is saying that GDP/wealth/money is the only thing that influences life satisfaction, only at most that it is one thing that has a comparatively strong influence on it. And your counterexample does not disprove that.
Hi Erich, sorry for the delay, and thank you for the very careful response. In
order:
Wrt: “… It seems to me like your model assumes that GDP does not have any casual influence on any of these variables,…”
I don’t actually make any such assumption about GDP, and in fact am completely agnostic (for now) about causal dependencies within the graph. I only make the tentative assumption that every variable listed has some causal effect, direct or indirect, on national satisfaction (ergo, it’s not *all* GDP, which is what you accurately quote me as disputing), based on 1) a thorough search being more likely to exclude spurious causes, and 2) expert knowledge. Water, Shelter, Freedom, Friends, Being Accepted — most of these seem pretty unimpeachable. Beyond that I’m actually trying to be especially cautious about proposing particular dependencies because based on my experience with causal systems of even moderate size, the pattern of influences is likely to be spectacularly complicated, and unintuitive. This has certainly been borne out by all of my early explorations with causal discovery tools.
(As an aside, I am very interested in these questions, and continuing to work on them, but my first goal is simply to start with the right set of variables. I think progress on this itself could be a huge improvement over what I currently understand to be the globally accepted standard.)
Wrt “But if you were to find empirically that GDP causes something we do care about, …”
That feels like a reasonably fair description of the arguments with which I’m familiar, but I think there are at least two important nuances. The most simple is that GDP can have not just limited utility, but also horrific externalities — most obvious among them, global warming. It’s essentially your point (2), but with the emphasis that what’s left out can actually be more powerful, and worse, than what’s left in. In other words, even if GDP can cause satisfaction *in the short term,* satisfaction itself actually leaves out the very important question of the future. That’s an inherent shortcoming of the model, but an important strike against the concept. I go into this more in the paper.
The other is that I see “GDP” as practically too vague to be applicable for intervention. You might estimate a causal effect for “GDP,” but that might only be because *one* of the thousand things within the concept actually makes a difference. Then when you go to intervene on a different one of the thousand things, because you identify it is part of “GDP,” you just don’t get the same effect — essentially, because your variables weren’t precisely defined enough. So I’m happy to talk about how economic processes might play critical roles, but I don’t feel comfortable talking about “water” and “the entire economy” as if they have equivalent structural validity. At a minimum, one of them is much more vulnerable to bad accounting practices.
Wrt “But I don’t think OP or anyone else in this comment section is saying that GDP/wealth/money is the only thing that influences life satisfaction,…”
I do agree with you, and agree I misread A. de Vries position. Though, while I don’t think anyone has said explicitly that they think GDP is the *only* cause of satisfaction, there have also been almost no explicit proposals of anything that *does* cause satisfaction, *apart* from GDP — so I may have been reading too much between the lines there, but my trying to get some distance from the concept is really driven by a confusion that it’s the only variable we’re talking about. Still, I could have expressed that more cogently.
The factors being only caused by GDP is not at all central to my argument against your analysis, nor is it a claim I would make. The key point is that any causal effect of GDP on happiness must necessarily run through other factors like shelter, clean water, health, etc. Nobody (except economists like me) feels more satisfied with their life as a result of hearing that GDP/cap has gone up by 3% this year.
As such, if you control for all of those mediating factors, it will be literally impossible to find a significant effect of GDP/cap on happiness whether or not such an effect actually exists. If the effect is real, such an analysis would necessarily find a false negative.
Similarly, your counterexample would be valid, if I were claiming that GDP is the only factor in happiness. Again, I do not claim that, nor does anyone I know of. There are plenty of factors which account for national average life satisfaction, one of which is GDP. It is perfectly possible for Costa Rica to be higher in other factors and therefore be happier than the US despite a lower GDP.
There are some economists who oppose GDP as a measure of value, and some who support it. If you’re appealing to expertise, there’s a huge difference between consensus view and “some experts agree with me”.
I think “some experts” is fairly misleading when the experts I’m referring to have multiple econ Nobels, led an international working group on the subject in question, for a study commissioned by the president of a G7 country, and the EU is now continuing that path to construct entirely new national indicator systems based on satisfaction. I’m comfortable saying that’s a pretty substantial consensus on the need for alternatives to GDP.
I think your point that a correctly-specified model would have no effect for GDP makes a good deal of sense—or at best, that GDP could be seen as a sort of residual category for all of the consumption not accounted for by explicit variables. This is also an approach that would unambiguously favor my model over the WHR’s, which reports an enormous effect for GDP. Do you see this as just an error term in their model?
But this idea also seems to conflict pretty directly with your assertion that the model “says nothing at all about the effect of GDP per capita on life satisfaction or happiness.” If I’ve succeed in driving that term to almost zero, then you seem to be suggesting I’ve captured all the relevant effects, and the WHR hasn’t come close.
If you’re saying that GDP only matters to satisfaction via consumption, then there’s still the absolutely enormous question of: consumption of *what*? GDP is about as precise as staying “economic stuff,” so it’s barely a coherent question to even ask how “GDP” affects satisfaction. At the barest minimum, I would say this model clarifies what *parts* of all of the things that are together rolled into the GDP fruitcake are actually counting towards GDP. And this is critical. You shouldn’t be able to build a building, burn it down, and claim you’re helping, because construction counts towards GDP and GDP causes happiness. That’s just a semantic shell game.
But even if you are trying to formulate the model as satisfaction ⇐ consumption ⇐ GDP … you have to deal with the fact that the biggest effect in the model is on social support! That’s just not “economic!” You can look at the chosen variables, and see how much of GDP they actually account for, and see that GDP is outright missing several of the largest measured effects, by its inherent definition. So even if it’s only in the negative, or estimating an upper bound, or pushing the question towards clarifying the relationship between water and GDP, I have a pretty hard time seeing how that says “nothing at all” about the relationship between GDP and satisfaction.