ECONOMIES CAN'T DO MUCH BETTER:

It has, for example, been an extremely nice year on the U.S. stock market. U.S. shares, including dividends, are up 11% so far this year, as measured by MSCI U.S. Stock Index. To put that in context, since the mid-1920s stocks have produced average annual total returns of about 9.5%, according to data tracked by the New York University Stern School of Business.

More importantly, stocks this year have outpaced the official inflation rate by about nine percentage points--an astonishing gain in "real" purchasing-power terms, and far above the historical average.

If income is an imperfect proxy for quality of life, are there any plausible alternatives? In recent years many have instead focused on happiness. The United Nations has been publishing an annual "World Happiness Report" since 2012. The British government measures "personal well-being" across the country on an annual basis. Yet happiness has its own shortcomings, argues Martha Nussbaum of the University of Chicago. While Scrooge found it easy to count his riches, happiness is harder to pin down. People are prone to what philosophers call "adaptive preferences", meaning that they may fail to report their "true" happiness. "Tiny Tim" Cratchit, the annoyingly saintly hero of "A Christmas Carol", should not, by rights, be happy: he is crippled and desperately poor. Scrooge, despite his fabulous wealth and good health (Yuletide hallucinations aside), is miserable. Yet it would seem odd to conclude that Tiny Tim is better off.

If measuring happiness is so difficult, what else could economists look at? Amartya Sen, of Harvard University, argues that "capabilities" are the way to go. The definition of a capability is a bit fuzzy: at its simplest, a capability is something that people have reason to value. The list of potential capabilities is endless: the opportunity to live a long and healthy life, the freedom to take part in political life or to be well nourished. Capabilities, says Mr Sen, are ends that economists should strive to maximise: income is just one of the many means by which we get there.

That begs the question of which capabilities a society should maximise. Some worry that the capability approach is deeply paternalistic, with governments deciding what is best for their citizens. Leading theorists have reinforced that perception: Ms Nussbaum goes so far as to recommend "ten central capabilities" that are essential for a good life. For economists, who tend to be lovers of freedom, this is controversial stuff.

But the capability approach may be less illiberal than it seems. Insisting that GDP is the true measure of economic progress is itself a value-judgment. What is more, according to Mr Sen and Ms Nussbaum, people must have the freedom to select which capabilities they ultimately pursue. Freedom of choice has an impact on well-being; if you give people decent opportunities, what they ultimately decide to do gets less important. Someone who chooses to forgo a Christmas dinner with family and friends (as Scrooge does) is better off than someone who does not have any invitations to turn down, even though both people seem to end up in the same position. Everyone need not go to a Christmas dinner, even though many people get a lot from it.

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