30 years' of economic reforms in China have created an economic miracle. The government has promoted economic growth with a GDP target every year. But paradoxically, although people are wealthier, they are not happier. Facing issues of social injustice, high inflation, and a widening gap between the rich and poor, the government has decided to directly target happiness.

If you ask most working-class people if they are happier than they were a year ago when their incomes were lower, most would probably say no. And if you ask why, the answer would probably be complicated and hard to evaluate. This is unsurprising, since the economics of happiness is quite complicated. Social factors, perceptions of social justice and fairness, and of course personal issues, contribute to individual happiness. Leaving personal issues aside, most Chinese people are extremely unhappy about the current state of affairs regarding social justice and social welfare.

It is well known that Chinese people are diligent, thrifty and hard working. But interestingly, people who were born in the 1960s say they were happier in the past even though they had very low incomes and their families faced hardship. This shows that happiness is not simply a function of income and confirms the Easterlin paradox that people in rich countries are generally no happier than those in poor countries. It is a truism that money cannot buy happiness, but obviously we cannot live without money. The problem China faces is that the economy is growing but people's happiness is actually declining.

In the past, GDP targets were used to measure government performance; but the new happiness index will try to measure the effect of government policies on people's sense of well-being. The purpose is to force policymakers to consider public opinion and not just blindly pursue higher living standards. It is debatable whether the index will reflect exactly how people feel about government policies, but at least it will make local governments consider the social costs of economic growth.