Sympathy For the Rich
Ross Douthat writes on the working class millionaires:
Hyper-inequality is part of the story here, no doubt; on the other hand, I’m pretty sure there have always been people who are rich by any normal standard, but want to live the lifestyle of the super-rich and find themselves scrambling to keep up. And my interest in/sympathy for their plight is … limited.
It’s all too obvious that we shouldn’t feel a huge amount of sympathy for people who are absolutely much better off than (nearly) everyone else. Or maybe we should feel sorry for them. From a happiness perspective, these people are the most likely to feel positional anxiety, and to suffer the most from it. In the Silicon Valley especially there are people who have the same educational, social and cultural background. They have the same oppurtunities, and some end up being the 8th employee at eBay and others are the 4th employee at Pets.com, in other words, there’s social equality, but the potential for massive income inequality. So sure, your 2.5 million dollar house in Palo Alto is nice, but when the same person you went to Stanford with has a 5 million dollar spread in Atherton, your pad isn’t looking as nice.
To generalize, this is the major trend in income distribution. As I’ve written before, for those in 90th percentile, income has gone up 58 percent from 1966 to 2001, in the 99th percentile it’s gone up 121 percent, in the 99.9th percentile it’s 236 percent and in the 99.99th percentile, the increase has been a whomping 617 percent. This creates the most intense form of localized inequality and positional differences that Robert Frank so laments. If we think that relative evaluation is important and happiness is important, we have to lament those poor souls in 99th percentile, or at least in the top decile.
Those who lament inequality the most, however, will surely scoff at my call for pitying the rich for their positional plight. But if you reject those relative valuations, positional differences and instances of localized inequality, you can easily fall into “Cowenism“
The broader philosophical question is why we should worry about inequality — of any kind — much at all. Life is not a race against fellow human beings, and we should discourage people from treating it as such. Many of the rich have made the mistake of viewing their lives as a game of relative status. So why should economists promote this same zero-sum worldview? Yes, there are corporate scandals, but it remains the case that most American wealth today is produced rather than taken from other people.
What matters most is how well people are doing in absolute terms. We should continue to improve opportunities for lower-income people, but inequality as a major and chronic American problem has been overstated.
Now, surely the economic populists will say that at a certain point we should only care about absolute valuations because those people are rich enough. But the troubles Robert Frank describes for the middle class in a world of growing income concentration at the tippity top aren’t dire troubles. The desire for a larger house and nicer cars – driven by localized inequality allowing the richest to effectively change how we evaluate our own goods aren’t all that different than the pressure faced by the working class millionaires. In fact, in the case of the houses, the pressures and stresses are exactly the same.
So is it true that people like Ross and Matt Yglesias, by denigrating the positional plight of the working class millionaires, effectively lay the groundwork for going all Wilkinson, Mankiw and Lindsey on us – and just not care about inequality at all? As Will points out we are becoming more materially equal, i.e. those towards the bottom are able to buy the same types of things:
I think part of the problem is that nominal inequality is confused with material inequality—differences in material living conditions. But while nominal inequality is increasing, material inequality continues to decrease. As market competition pushes prices down, goods at the bottom of the price range more and more closely approximate goods at the top of the price range. (Which is why efficiency and equality are complements.) Food is probably the most striking example of material equalization. If you compare the diets of the top and bottom quintiles 100 years ago with the diets of the top and bottom quintiles now, you’ll see that we have become immensely more equal, not less. My favorite pair of jeans, which I bought at Wal-Mart for $16, is a close substitute for jeans that cost 5 times more.
Add on Lindsey’s observation – that Americans have material wealth that, speaking in historical terms, absolutely dwarfs wealth achieved by any society in the history of the planet. In absolute historical terms, nearly everyone in America is that much beleaguered 99th percentile. If you can just bracket off the status anxiety of the working class millionaires because they’re absolute wealth is so high, you can easily Sorites Paradox(1 less dollar than the 90th percentile, 1 dollar less than that and so on and so on) you way so that besides those in abject poverty, everyone’s wealth is so high as to not care about their status anxiety. Egalitarians, mock these people’s relative deprivation at your peril!
