It doesn't take a degree from Oxford to understand that a nation's average income -- even after adjustments for purchasing power, to make international comparisons more relevant -- is an inadequate measure of comparative well-being. That reality has inspired numerous attempts to create a better measure. The latest, most comprehensive, and arguably most insightful, is the Legatum Institute's Prosperity Index for 2012, released just this week. I can't claim utter objectivity here: I've been a consultant to the Legatum Institute. I suspect, though, that you won't need much convincing to be captured by this ambitious effort.
Back to that pesky measurement problem. For decades, the United Nations has been brewing a straightforward improvement on income rankings on a regular basis, work largely inspired by the passions of Nobel Prize-winning economist Amartya Sen. The UN's Human Development Index blends per capita income, years of schooling, and life expectancy. And in the past few years, it's added an "inequality adjusted" version that discounts each component according to how equally it is distributed in the population before combining them in index form.
Obviously, though, other elements matter to well-being -- among them human rights, economic freedom, socioeconomic mobility, personal security, social insurance, and social cohesion. Other indexes try to capture one or more of these attributes. Thus the Heritage/WSJ Index of Economic Freedom ranks countries according to ten criteria ranging from property rights to entrepreneurship. The World Economic Forum measures national competitiveness, writ large. The Life Satisfaction Index simply cuts to the chase, ranking countries according to surveys of self-reported happiness.
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The Legatum Institute's approach is truly catholic (with a small c). First, countries are rated according to eight sub-indexes (economy, entrepreneurship/opportunity, governance, education, health, safety/security, personal freedom, and social capital), which are derived from 89 variables. Some are objective (e.g. the unemployment rate) and some subjective (the percentage who answered "yes" to the question: "Did you worry yesterday?") The raw data, by the way, can be accessed on the website.
Scores on each of the eight sub-indexes are given equal weight in producing the aggregate rankings. Note that this weighting is inevitably arbitrary -- your opinion about whether economic opportunity is more or less important a component of prosperity than personal freedom, for example, is as good as mine. And one of the neat things about the Prosperity Index website is that it gives readers the tools to reweight the sub-indexes to see how sensitive the rankings are to their choices.