If GDP misses health, fairness, free time and the planet, the obvious next question is what to use instead. Economists have built several answers. None of them replaces GDP outright — but each one shines a light on something GDP simply cannot see.
📘 What you need to know
Alternative measures exist because national income data on its own is too narrow.
The OECD Better Life Index rates member countries on 11 areas of life.
The Happiness Index surveys people directly across 10 areas of their lives.
The Happy Planet Index asks how efficiently a country turns resources into long, happy lives.
The Easterlin Paradox: income and happiness rise together up to a point, then the link weakens.
Income data is mostly positive (factual); happiness data is more normative (based on opinion).
Every alternative measure has its own weaknesses — usually subjectivity and arbitrary weighting.
Why bother with anything other than income?
Think about what actually makes your own life good. Money is on the list, but so is being healthy, feeling safe walking home, having friends, having time that is genuinely yours, and living somewhere the air is clean. GDP measures production. Well-being is about all of it.
There is also a measurement point worth knowing. National income figures are positive statements — they can be checked against records. Happiness surveys are closer to normative data, because they rest on how people feel and on judgements about what should be included. Both are useful; they are just different kinds of evidence.
The Easterlin Paradox
Richard Easterlin noticed something strange. Within a country at any moment, richer people do report being happier than poorer people. But as a whole country got steadily richer over decades, average reported happiness barely moved.
The usual explanation is that money solves urgent problems first. Once food, housing, safety and health care are covered, extra income starts buying things that matter less, and people begin comparing themselves to their neighbours rather than to their own past.
A useful evaluation point: the same 5% growth is worth far more to a low-income country than to a rich one.
This curve is a gift in evaluation questions. If a question asks whether a government should chase growth above all else, the Easterlin Paradox lets you argue “it depends where the country is starting from” — and that is exactly the kind of thinking that earns top marks.
The OECD Better Life Index
The OECD built an index covering its member countries, rating each on 11 things it treats as essential to a good life. Crucially, it does not force them into one number — users can weight the areas themselves according to what they value.
Area of life
What it looks at
Housing
Living conditions and the share of spending that goes on housing
Income
Net household income and net household wealth
Jobs
Job security, average earnings and the unemployment rate
Community
The strength of social support networks
Education
Educational attainment and the skills people end up with
Environment
Air pollution and water quality
Civic engagement
Voter turnout and involvement in making laws
Health
Life expectancy and self-reported health
Life satisfaction
How satisfied people say they are with their lives overall
Safety
The murder rate and how safe people feel walking alone at night
Work-life balance
Hours worked and time left for leisure and personal care
Strength and weakness in one sentence. Letting users choose the weights makes the index honest about the fact that people value different things — but it also means two people can rank the same countries differently, so it cannot settle an argument the way a single number can.
The Happiness Index
Where the OECD index mostly uses official statistics, the Happiness Index asks people directly. It surveys ten areas of life and builds a picture from the answers.
🧩 The ten areas surveyed
Psychological well-being — optimism and a sense of purpose.
Health — energy levels and being able to do everyday things.
Time balance — leisure, enjoyment, and how often you feel rushed.
Community — belonging, volunteering and feeling safe locally.
Social support — friends, family, feeling loved, loneliness.
Education, arts and culture — access to learning and cultural life.
Environment — access to nature, pollution, conservation.
Governance — trust in government and the level of corruption.
Material well-being — financial security and meeting basic needs.
Work — pay, autonomy and productivity.
Notice that money appears once, as item nine. That is the whole point of the exercise.
The Happy Planet Index
The HPI asks a sharper question than the other two: how efficiently does a country turn the planet’s scarce resources into long, happy lives? A country that delivers good lives while using very little is doing something genuinely impressive. A country that delivers good lives by burning through resources is borrowing from the future.
Because footprint is on the bottom of the fraction, a country can climb the ranking either by living better or by using less.
WORKED EXAMPLE
Reading a Happy Planet Index table
Country P: wellbeing 7.0/10, life expectancy 80 years, footprint 2.6 global hectares per person. Country Q: wellbeing 6.4/10, life expectancy 80 years, footprint 15.0. Explain why P ranks far above Q. [4]
Step 1: Compare the top of the fraction
Life expectancy is identical, and P’s wellbeing is slightly higher, so P is already ahead on outcomes.
Step 2: Compare the bottom of the fractionQ’s footprint is 15.0 ÷ 2.6 ≈ 5.8 times largerStep 3: Put it together
Q delivers no better a life while consuming almost six times the resources.
P is far more efficient, so it scores much higher on the HPIhigh income can buy a long life — the HPI asks at what cost to the planet
WORKED EXAMPLE
Choosing the right measure
A government wants to know whether its citizens’ lives have improved over ten years. Recommend which measures it should use. [4]
Step 1: Start with the income measure
Real GNI per capita at PPP, to see whether material living standards actually rose.
Step 2: Add a distribution check
Poverty rate or Gini, because an average can rise while most households stand still.
Step 3: Add non-income evidence
Life expectancy, education and life satisfaction from an index such as the OECD Better Life Index.
Step 4: Add a sustainability checkHPI or ecological footprint, to see whether the gains can last.
Use a dashboard of measures, not one numberrecommending several measures and saying why each is needed is what “evaluate” really means
Measure
Its strength
Its weakness
Real GNI per capita at PPP
Objective, widely available, easy to compare
An average that ignores health, fairness and the environment
OECD Better Life Index
Covers 11 areas; users set their own weights
Only covers member countries; the weighting is subjective
Happiness Index
Asks people directly about their own lives
Self-reported answers shift with mood, culture and wording
Happy Planet Index
The only one that builds in sustainability
Ignores freedom and human rights entirely
💡 Exam tip
Learn one alternative measure properly rather than three vaguely. Being able to name the components of the HPI is worth more than half-remembering all of them.
Always pair a strength with a weakness. No measure is a clean winner.
Use the words positive and normative when contrasting income data with happiness data.
The Easterlin Paradox is your best evaluation tool for “is growth always desirable?” questions.
Say that measures should be used together. That is the conclusion examiners are looking for.
If a country ranks high on income but low on the HPI, the reason is nearly always its ecological footprint.
⚠️ Common mix-up
Thinking the HPI just measures happiness. It measures happy years per unit of resources used.
Assuming the richest country tops every index. On the HPI it usually does not.
Treating survey data as hard fact. Self-reported happiness is influenced by culture and by how the question is asked.
Saying alternative measures replace GDP. They complement it. Governments still need GDP to plan budgets.
Confusing the Easterlin Paradox with “money does not buy happiness”. It does — up to a point. The paradox is about what happens beyond that point.
Ignoring the weighting problem. Every composite index has to decide how much each part counts, and that decision is a value judgement.
Up next: Aggregate Demand and Its Components — we move from measuring the economy to explaining why it moves, starting with total spending.
Want this explained one-to-one?
Book a free session with an experienced IB Economics tutor and get your trickiest topics made simple.
