DRI-392 for week of 8-12-12: Earth to NBC: Bhutan is No Shangri-La

Earth to NBC: Bhutan is No Shangri-La

During the just-concluded Summer Olympics in London, NBC spiced its coverage with some side profiles of athletes and countries. On Wednesday, August 8, the network featured the tiny kingdom of Bhutan, which lies squeezed between China and India in the shadow of the Himalayan Mountains. NBC’s female reporter was not content with noting the doubling of Bhutan’s competitive contingent this year from one athlete to two. She also dwelt at length on the monarchy’s official policy of measuring the happiness of its subjects.

It seems that, starting from an offhand comment made in 1972, the Bhutanese government has developed a method for quantitatively gauging the subjective well-being of its citizens. This revelation left the reporter quite breathless. Her account mixed solemnity with incredulity.

“Bhutan measures human happiness?” Gross Domestic Happiness (GDH) has supplanted the familiar Gross Domestic Product as the national index of welfare. All other political considerations are subordinate to it. It seems that the secret to happiness lies in abandoning our preoccupation with material wants and in awakening our inner selves to subjective criteria for happiness. Down with material striving and competitive strife! “So – no wars, no beggars in the streets?”

NBC’s brief profile conjured up images straight out of James Hilton’s Lost Horizon, a modern-day Shangri-La located right where Hilton and director Frank Capra situated it. No wonder the spot closed with assurances that governments throughout the world were hastening to study this real-life imitation of art. Wow! Studying happiness – why didn’t anybody ever think of this before? And who wouldn’t want to learn the full story behind this dream come true?

Well, NBC wouldn’t, as it turns out, since they took this fantasy-come-to-life entirely at face value.

Bhutan, the Olympics and Happiness

There is indeed a country called Bhutan. It covers some 14,000+ square miles of mountains, valleys and plateaus lying between China (to the north) and India (surrounding the other three sides) and Nepal (to the west). Long an absolute monarchy closed to foreigners – like its location, this isolation is another legitimate Hiltonian resemblance – the country opened to foreign travel, trade and tourism in 1974. At that time, its population was estimated at 1 million; however, a 2006 census downgraded that substantially to about 670,000, and the current figure is about 700, 000.

The religious loyalties of Bhutan are predominantly Buddhist, giving it another superficial similarity to the storied Shangri-La. Hindus are a minority. The topography is beautiful and awe-inspiring, more so even than the faux terrain supplied by the expert set designers at MGM for Capra’s 1937 classic. Daily life for most Bhutanese is as primitive as implied in the movie – 80% of the economy is given over to subsistence agriculture, with forestry and tourism accounting for the rest until quite recently.

The national sport of Bhutan is archery, which has supplied the country’s lone Olympic representative until this year, when a second athlete competed in 10-meter air rifle competition. No Bhutanese athlete has ever won an Olympic medal.

The fabled official preoccupation with happiness began in 1972 when the king made an offhand comment to the effect that Bhutanese might be poor, but they were happy. Since then, government surveys have been taken to measure the psychological well-being of the Bhutanese. The survey results have been codified to produce an index number denoted Gross Domestic Happiness. The salient feature of this process is its focus on so-called subjective factors, in contrast to the objectification of happiness by Western cultures that emphasize physical output in the form of Gross Domestic Product.

This theme – and NBC’s embrace of it – is shockingly wrongheaded. The claim that Bhutan’s focus on happiness is unprecedented is absurd; the science of economics has studied that condition obsessively almost since its earliest days. The notion that economics concentrates on objective contributors to happiness by valuing material goods to the exclusion of subjective factors is equally absurd, since the theory of economic demand has been a theory of subjective value since roughly 1871. Finally, the implication that happiness can be achieved without material wealth finds no support in modern life in general and especially not in the specific Bhutanese example.

Economics and Happiness

Adam Smith’s precursor to The Wealth of Nations was The Theory of Moral Sentiments, which correctly suggests Smith’s devotion to the objective value theory of classical economics. But beginning in the early 1800s, the Utilitarian school of philosophy developed a theory of human well-being or utility. This concept was nothing more than happiness or satisfaction. It differed only from our modern conception only in being objectively measurable. Men like Jeremy and James Bentham were convinced that an objective index of human happiness existed and could be used as the backbone of economic theory.

As the century wore on, a few individuals like the French engineer Jules Dupuit poked holes in this concept and paved the way for the development of modern demand theory. In 1871, three economists independently developed a theory of demand that relied upon subjective human perception and marginal valuation. It retained the concept of utility but jettisoned the idea of objective (or “cardinal”) measurability of utility in favor of a less rigid standard – namely, “ordinal” or comparative ranking of consumption choices without assignment of objective measurement to those choices. That is, the three economists assumed that consumers could choose between any possible combinations of consumer goods but could not give an objective meaning to the happiness or satisfaction they got from any consumption combination. Consequently, they could not compare their happiness with anybody else’s. (The three men, by the way, were William Stanley Jevons of England, Leon Walras of France and Carl Menger of Austria.) Utility remained important in the marginal or relative sense but not in the absolute or objective sense.

Using analytical created by 19th-century economists like F. Y. Edgeworth, 20th century economists John Hicks and Paul Samuelson later advanced demand theory by allowing the concept of utility to be dropped completely. Demand theory thus became utterly subjective. It has remained so for over 70 years. This completely gives the lie to the objective/subjective dichotomy put forward by the Bhutanese and by NBC.

NBC reported that the Bhutanese concern with happiness was unique, unprecedented. In fact, it has been the central focus of a discipline that NBC relies upon every day for a substantial fraction of its news output; namely, economics. NBC reported that the Bhutanese preoccupation with subjective analysis was new, unheard of. In fact, it has been inherent in economic demand theory for over 140 years. In other words, NBC purveyed gross falsehoods to its viewers. What could account for these ghastly errors?

By stretching imagination to the limit, one can dream up diaphanous excuses for NBC’s delinquency. The Bhutanese investigation of happiness has been just the sort of flimsy, New Age, touchy-feely approach Americans are used to associating with their feelings. The Bhutanese have taken surveys and asked people what they thought. Then they have summarized the results in a rather haphazard way. This doesn’t require much work or rigorous thought and can be tailored to accommodate pretty much any philosophy or desired result without creating controversy or discomfort. It accords with the facts of our everyday experience.

In contrast, economists from the beginning used the rigorous tools of logic at their disposal. At first, they included mainly the syllogistic logic employed by philosophy. This expanded to included mathematical tools of continually increasing sophistication. Finally the tools of modern statistical inference came into common usage as well. Theoretical philosophy? Mathematics? Statistics? What do these have to do with a touchy-feeling subject like happiness, which must surely be the domain of psychiatrists and self-help gurus? Such, at least, might be the visceral reaction of the man on the street.

Economists used the tools of formal logic because they wanted to devise a theory that was robust and would stand up at all places and times, regardless of culture and historical context. They wanted it to be clear and devoid of ambiguity. (If there is one thing that New Age thought thrives on, it is ambiguity.) Really, it is not so difficult to see how an NBC reporter, steeped in American culture and lacking formal training in economics, might have completely overlooked everything economics stands for. Of course, this utterly violates the canons of responsible journalism. But those canons evolved and were inculcated during the heyday of print journalism. That day is long gone and few of its expert practitioners remain.

There is somewhat more excuse for the failure to recognize the subjective character of economic theory. Economists have diligently striven to cover Gross Domestic Product under a heavy veil of objectivity, but professionals know all too well the subjective nature of categories like “imputed rental value of owner-occupied housing.” More broadly, the balance of accounting technique is insufficient to cover the checks written by economic theory on its definition of terms in the national income and product accounts. There is an unambiguous economic meaning for the term “depreciation,” for example, but no objective accounting method exists to give practical definition to the term. To the lay public, reported economic figures seem like the height of objective precision. Alas, they are very often little more than what former Missouri Governor Kit Bond called a “scientific wild-assed guess.”

The relevant point is that no subjective criterion adduced by the Bhutanese government is automatically ignored or ruled out by the formal economic theory of demand. It is a subjective theory, for all the objective trappings that the profession affects. Any anybody reporting on a subject like this should realize that.

Bhutan and the Culture of Competition

Much is made of the fact that, in the words of Bhutan’s Olympic archer, Ms. Sherab Zam, the country is “small but happy.” Yet in interviews given in London, Ms. Zam also expressed hope that exposure to Olympic competition would motivate Bhutan’s population toward greater heights of achievement – “especially our young people, troubled by unemployment and despair.” This does not square with the picture of a country untouched by the ills of modern life.

In London, archer Zam finished 61 out of 64 competitors. Her fellow competitor finished 56th (last) in air-rifle competition. This is ascribed to their lower priority placed on competition and their greater attention paid to sociability and camaraderie. (Olympic official Bruce Bunting: “I think it’s because they enjoy the spirit so much.”) Yet Zam also admitted that in local archery competitions, villagers gather to jeer and distract the archers of competing villagers, calling them names and urging them to fail. It would seem that Bhutanis strive to win, all right – but by harming the performances of their opponents instead of by elevating the level of their own achievements. When denied the effect of this competitive tactic, their performance standard suffers.

Bhutan as Shangri-La: GDH as Substitute for GDP

Outrageous as NBC’s reportorial misconduct was up to this point, it pales in comparison with the erection of Bhutan as a real-life Shangri-La. The contention that Bhutan has conquered the age-old problem of human happiness by trading off material welfare for psychological security should earn the creators of the Bhutan profile a Pulitzer Prize for malfeasance.

It is pertinent to recall that in the movie version of Lost Horizon, two of the stranded travelers taken to the utopian Shangri-La rebel against the authoritarian life in paradise and defiantly escape from Utopia. Bhutan has been a monarchy for centuries. Although it transitioned from “absolute” to “constitutional” in 2008, its authoritarian tradition sticks out like a Himalayan peak above the clouds. Foreigners have been allowed into the country only since 1974. Television and the Internet were banned until 1999 in order to preserve traditional folkways. Bhutan ranks only 111th (of 179 countries) in the Heritage Foundation’s 2012 Index of Economic Freedom.

The Fraser Institute, Canada’s version of the Heritage or Cato Institute, has its own index of the Economic Freedom of the World. Fraser has organized its list into quartiles and calculated extensive tables of economic date for each quartile, the purpose of which is to link the degree of freedom with the measure of economic performance. The Heritage ranking of 111 out of 179 would put Bhutan in the third of four quartiles in the Fraser ranking. Comparing the first and third quartiles may shed light on the general proposition that material wealth and economic freedom go hand in hand. Average per-capita GDP in the first (freest) quartile is #31,501; in the third quartile, it is $6,464.

In Bhutan, it is $2,299. This jibes fairly well with its ranking of 162nd in the world in terms of aggregate GDP. (One can usually discover about 184 countries with recorded GDP figures, although there were 204 countries represented in London.) It must be noted that international comparisons are difficult to translate into meaningful terms because of price-level differences between countries. The accepted procedure for doing this uses the principle of Purchasing Power Parity, which tries to equalize purchasing power across countries. (Using a PPP technique would yield a Bhutanese per-capita GDP of $6,112, but of course, the other magnitudes would need to be similarly adjusted as well.)

Up and down the line, economic comparisons yield similar results. First-quartile growth averages 3.07, third-quartile growth 2.27. Literacy rates average 92.21% for first-quartile countries, 79.4% for third-quartile countries. Life expectancy averages 79.4% in first-quartile countries, 67.9% in third-quartile countries. Incomes held by the lowest 10% of the population, both in absolute amount and percentage, are markedly higher in first-quartile countries than in third-quartile countries. (This flies in the fact of claims by dictators the world over that their seizure of power was necessary to attain social justice or fairness in income distribution for the poorest citizens.)

It is one thing for Bhutan to claim that a larger GDP, or larger material wealth, is unnecessary or even counterproductive to greater happiness. But can it be credibly maintained that all of the above variables – literacy, income distribution, even life expectancy itself – are similarly unimportant to happiness?

We may safely doubt whether even the government of Bhutan believes that. For it seems that they tell one story to the world at large and another one to the International Monetary Fund. In a recent IMF report, Bhutanese representatives brag about the fact that their GDP growth rate in 2011 exceeded 10% and unemployment was only 3.3%. How do we square this with the poverty-level incomes there? It seems that in mid-decade, the government of India loaned Bhutan the money, with the IMF as broker, for a vast hydroelectric project, whose electric power output was then exported back to India. It is this project, according to observers, that accounts for recent gains in income and employment in the country. This is rather piquant in view of the Bhutanese government’s public profession of distaste for GDP and material wealth and its portrait of its poor, but happy, citizens.

Up to this point in its history, what had the government of Bhutan actually done to promote the happiness of its citizens, other than (claim to) measure it? If rapid growth in 2010 and 2011 still left Bhutan with one of the world’s lowest per-capita incomes, it would seem that the de facto official position was that poverty was conducive to happiness while modernity and material wealth were corrosive to it.

Apart from this one large industrial project, however, the economic development picture in Bhutan is dismal. The government itself is funded by grants supplied by India and loans from several sources. In effect, these offset a sizable current-account trade deficit (over 20% of Bhutan’s GDP). It is against this backdrop that the NBC reporter’s golly-gee-whiz chronicle should be judged. It is certainly no trick to abolish war when the government lacks even the wherewithal to fund an army. Bhutan has “no beggars in the street” because it is a nation of beggars. Beggardom is relative; beggars in the U.S. would be “the rich” in Bhutan, where the beggars live in the farms, the forests and the mountains.

The “Field” of Happiness Economics

As it happens, sociologists and psychologists have done extensive research into happiness, using rather more sophisticated statistical and research techniques than those originally used in Bhutan. A few economists have entered this field, carrying with them the apparatus of left-wing theory (or ideology, depending on how one views it). In particular, the Relative Income Hypothesis of the late James Duesenberry posited that people’s well-being depends not only on their own real income but also on their standing relative to the incomes of others. An increase in their real income might leave them worse off if others enjoyed larger increases.

Economist Richard Easterlin has claimed that the larger real incomes produced by Western industrial nations have not markedly increased happiness in those countries. Specifically, he cited an average real per-capita income of around $15,000 as the point at which further increases in real income show a diminishing return in additional happiness. British economist Richard Layard has broadened Easterlin’s insights into a field of “happiness economics,” which purports to show that, left to their own devices, people will work more than is good for them. When the resulting gains in real income are offset by the gains enjoyed by others – leaving their relative standing unchanged or reduced – the result is a reduction in personal well-being. Naturally, Layard claims that only government intervention via taxation and other means will cure this “external diseconomy” of modern industrial life.

Without probing the shortcomings of these views, it is sufficient to note that the case of Bhutan does not fit within their boundaries. Bhutan’s real income is miles below the $15,000 threshold. Its government cites a claim that the country is the world’s eighth happiest, but of the 20 happiest countries identified by proponents of happiness economics, only Bhutan suffers brutal poverty. All the others are among the leading developed nations. The notion of Bhutan’s subsistence farmers, herders and loggers worriedly comparing incomes in an effort to “keep up with the Joneses” is a grim joke.

What’s Going On?

A sober and skeptical analysis would explain the Bhutan story as follows. In the mid-1970s, the Bhutanese monarchy found it convenient or necessary to finally allow entry into the country. But with access came scrutiny, and the government had to justify the fact that most of its budget came from grants, aid and loans by India and the IMF – yet its people were living in the direst poverty. So it invented what economic theorists call a “convenient fiction” – that its people may have been poor, but they were happy, among the happiest in the world. Actually, this was due to the efforts of the government itself, which had (roll of drums) discovered a brand new technique of governance, known only to the mysterious East and anathema to the materialistic West. Thus was born the measurement of Gross Domestic Happiness.

When Bhutan’s youth began to get restless and the truth about the prosperity of the outside world could no longer be kept from them, the government had to do something to drum up some real income. Hence the gestation of the hydroelectric project, which has held the wolves of revolution temporarily at bay. But mass electric generation for export does not comport with the picture of Shangri-La that the government has sold the outside world, so – for Olympic-publicity purposes – the old Lost Horizon model was trotted out.

Sure enough, along comes a reporter from NBC who falls for this cover story like the proverbial egg from a tall chicken (with apologies to Peter Stone). She (or whoever is responsible for writing the story) omits to perform even the tiniest bit of due diligence. And that is how viewers of the London Olympics were treated to some of the most outrageous propaganda since the fall of the Soviet Union.