Why Less Is Often More

Conventional economics assumes that we’re happier when we get more of the things we like — particularly money. It’s not always so.

In a 1998 paper, Sara Solnick and David Hemenway surveyed some Harvard students and found that half of them would sooner earn $50,000 if their peers took home half that, than earn $100,000 if everyone else earned twice that. In other words, even if they ended up absolutely worse off, they preferred being rich in a poor society to being poor in a rich society. They didn’t want more stuff. They wanted more status.

This finding gelled with other results from their survey. For instance, respondents attached even more importance to relative position when it came to physical attractiveness and the approval of their supervisors. It seems we’d sooner be plain in a world of ugly people than good-looking in a world of drop-dead-gorgeous specimens. Sociologists have understood the concept of ‘relative deprivation’ for at least half a century, but philosophers grasped the idea millennia ago. In the Analects, Confucius advised the ruler to maintain a ‘well-apportioned’ society if he hoped to keep his kingdom orderly.

Back in the 1990s, when it first became apparent that globalisation was leading to a more unequal distribution of wealth and income, most pundits and politicians dismissed the concern by saying that since incomes were rising across the board, everyone was going to be happy. I had my doubts, and spent the next few years digging into the subject, ultimately producing a book on the topic in 2004. In it, I argued that rising incomes were obscuring growing tensions, and that the halcyon days would prove short-lived. At a time when then-Federal Reserve Chairman was saying that house prices were going to remain endlessly high while Americans got richer and richer, I predicted recurrent financial crises, economic sluggishness in the West, a rise in right-wing populism in rich countries and of ‘fundamentalist’ politics — radical Islam in Arab countries, Hindu nationalism in India — in poor ones. I daresay my prediction turned out better than his. Wish I got paid like him.

But this isn’t rocket-science. The really surprising thing isn’t that humans prefer fairness to riches, but the fact that anyone should be surprised by this. But surprise, or simply outright denial, is how most economists have responded to this discovery. To begin with, few economists paid the subject much attention, taking the basic premise of neo-classical theory — that we are all rational utility-maximisers — as a given. Few of them read outside the journals of their discipline, so it awaited the work of a prominent economist, Richard Easterlin, to throw the cat among the pigeons. Easterlin found that even though average per capita incomes had increased fourfold in Western countries since 1950, average contentment hadn’t budged. The problem, he surmised, was that becoming richer didn’t make people happier. It was pulling ahead of their peers that did.

But keeping up with the Joneses doesn’t mean we’re doomed to a life of endless competition. The good news is that this effect can occur in a life-cycle. For instance, it’s well-established that lottery winners report no significant improvement in contentment six months after their ticket delivers, whereas people who earn the same amount of wealth after a life of toil do end up feeling more satisfied. A happy society thus seems to be one that allows people to advance themselves in the course of their lifetime, but doesn’t encourage excess.

So why are we so hell-bent on excess? One of the things uncovered in the ‘Easterlin paradox’ is that the higher you rise up the income scale, the larger the added increments must be in order to keep feeling happy. In other words, the richer you get, the richer you need to get. This ‘hedonic treadmill’ requires your investments to continue growing, which means the economy sustaining them must also continue growing. So if you’re sitting atop the pyramid, you need everyone else to keep shopping and growing the economy if you are going to continue enjoying life.

The way to have them do that is to get them preoccupied with keeping up with the Joneses — or in this case, the Kardashians. Feminists can decry the images of skinny models and the gendered images the fashion industry keeps feeding its victims, just as critics of marketing like Adbusters can decry the self-loathing propagated to men that persuades them to boost their masculinity with a bigger truck.

However, these messages keep the malls full, which permits those fortunate enough to be at the top to maintain their relative contentment. And while the cost is high, it is one that is socialised: everyone pays the price of global warming or the hedonic treadmill equally, but all the gains go to the lucky few.

It’s not a bad idea to periodically ask ourselves if this is really working for us.

 

 

Image: The sunrise over Kingston, Canada from Room 304 of the Hotel Belvedere. I’ve come here to do some lecturing at one of my alma mater, and while I can’t say I like the Canadian winter (which I abandoned decades ago), its morning skies can be breath-taking.

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2 comments

  1. Margaret Mair · January 10, 2016

    Welcome to Canada (from Toronto). I remember my father, George Cumper, saying much the same things about the dangers of the growth of income inequality. Hopefully more economists (and those who use their arguments to validate what they do) will take a fresh look at the topic. Enjoyed reading your thoughts.

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  2. John Rapley · January 16, 2016

    Thanks Margaret.I think the message is getting through. I look at the rise of Bernie Sanders in the US presidential primaries, a candidacy which a few years ago wouldn’t have been taken seriously, but which is now posing a serious challenge to the Democratic establishment, as an example of this. Whether or not he gets the nomination, he has certainly shaken up the public debate in a way it has sorely needed.

    Like

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