An extraordinary thing happened this week. Ben Bernacke, the Federal Reserve Chairman made a compelling case for the quality of life we live over the quantity of life we consume. This is critical because this fundamental – and some no doubt will argue simplistic – approach to measuring economic success sits at the heart of any substantive change in the practice of capitalism. Citizens and consumers, armed with social media, can only do so much against selfish corporate behavior when the underlying beliefs remain unchanged. But when the market started to recognize and reward new metrics for sustainable success, the essential partnership between people and institutions can evolve – with difficulty and resistance – to a place that better serves the well-being of the majority and the planet. With that in mind, I wanted to share Bernacke’s words which are important in and of themselves, and also because he spoke them.

Although the field is still young, there have been interesting developments in the measurement of economic well-being. In a commencement address two years ago titled “The Economics of Happiness,” I spoke about the concepts of happiness and life satisfaction from the perspective of economics and other social science research.1 Following the growing literature, I define “happiness” as a short-term state of awareness that depends on a person’s perceptions of one’s immediate reality, as well as on immediate external circumstances and outcomes. By “life satisfaction” I mean a longer-term state of contentment and well-being that results from a person’s experiences over time. Surveys and experimental studies have made progress in identifying the determinants of happiness and life satisfaction. Interestingly, income and wealth do contribute to self-reported happiness, but the relationship is more complex and context-dependent than standard utility theory would suggest.2 Other important contributors to individuals’ life satisfaction are a strong sense of support from belonging to a family or core group and a broader community, a sense of control over one’s life, a feeling of confidence or optimism about the future, and an ability to adapt to changing circumstances. Indeed, an interesting finding in the literature is that the overwhelming majority of people in the United States and in many other countries report being very happy or pretty happy on a daily basis–a finding that researchers link to people’s intrinsic abilities to adapt and find satisfaction in their lives even in very difficult circumstances.3

This line of research has generated alternative measures of well-being that are frequently survey-based and incorporate elements such as psychological wellness, the level of education, physical health and safety, community vitality and the strength of family and social ties, and time spent in leisure activities. These measures have begun to inform official statistics and have started to be discussed in policy debates. An interesting and unique case is the Kingdom of Bhutan, which abandoned tracking gross national product in 1972 in favor of its Gross National Happiness index based on a survey that incorporates these types of indicators. Taking the measurement of well-being in a cross-country framework, the Organisation for Economic Co-operation and Development (OECD), as part of its OECD Better Life Initiative, has created a “better life index” that allows a side-by-side comparison of countries according to various quality-of-life indicators that could, at least in principle, be followed over time.4 Other somewhat-more-conventional economic indicators that bear on quality of life, and that accordingly might be developed and followed in more detail, include changes in the distribution of income, wealth, or consumption; the degree of upward mobility in material measures of well-being; indications of job security and confidence about future employment prospects; and households’ liquidity buffers or other measures of their ability to absorb financial shocks. All of these indicators could be useful in measuring economic progress or setbacks as well as in explaining economic decision making or projecting future economic outcomes.

Do you believe Bernacke is genuinely committed to a new measure of economic progress? Do you think the economic vision that Bernacke describes is possible in our lifetimes? And, if it’s not, what will that cost generations to come?