The economics of happiness

Bhutan recently held general elections (in a planned transition from an autocracy to democracy - quite an interesting process in itself, but that does not concern us). The Royalist Party that won the elections pledged to continue the king's focus on Gross National Happiness (See article).
Needless to say, this is an interesting concept - especially where the mainstream economic and policy thinking revolves around the measurement of material well-being and growth (measured in monetary terms). See the article for how the Bhutanese interpret this concept. While it does sound like an attractive proposition, there are two obvious challenges:
1. How do we measure GNH? Happiness is a devilishly elusive concept - one man's happiness may be the next one's gripe. T
2. The bigger challenge is how do we compare GNH across countries or within a country across states?
3. Third and most importantly, happiness is largely an individual goal - as the hedonist would say, to each his own. In fact, the religions (at least the major non-Semitic ones - Hinduism and Buddhism) have squarely put the responsibility of the definition and subsequently, the pursuit of happiness on the individual. Given that, would it be possible to arrive at a common definition of happiness?
Bhutan, which is largely dominated by a single ethnicity and more importantly, a single religion, may attempt a GNH, but try that in the bewildering diversity (economic, social and religious) that is India. Cannot imagine the argumentative indians agreeing on a common definition.

One of the biggest advantages of the traditional measures of GDP/GNP has been the ability to compare differential growth rates and/or prosperity levels. That serves as an important tool in making policy decisions, especially allocation of resources. Unfortunately, the human race (with its economists, philosophers, godmen et al) has yet to come up with a standard that can improve upon the existing standard measure - money. Since the birth of money, we have come to accept that as a common standard that can be used to assign a value to any TRADEABLE good/service. The assumption here being that anything that is tradeable can be exchanged between two or more individuals and if that be so, it needs to be assigned a value that all the parties could agree upon (that at least is the primary assumption of economics). Conversely, we have also seemed to accept that whatever is not tradeable is not worth measuring in terms of money - which brings us back to the original question - what is the price of happiness, which is clearly not a tradeable commodity?

That said, there is certain merit in taking a more holistic approach to development - something that goes beyond the singular focus on material growth. Such examples abound - selling more cars is good for the economy but that leads to pollution, traffic jams etc which have a definite cost attached to them. So what is the net cost/benefit of putting an additional car on the road?

But then, as the economist would say, it is futile to try and devise a GNH - a worthier goal may be to eliminate all the externalities (positive and negative) so that the 'true' cost can be arrived at, and let the market make the decisions. That of course, is based on the rational choice theory - which, some say, credits the homo economicus with too much intelligence!