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Stinking rich & richer than you

Brian Caplin reviews an interesting new work on happiness by Nick Powdthavee “The Happiness Equation”.

He is intrigued by the argument that unhappiness caused by income inequality should be remedied by moving towards more equal incomes.

“Finally, even if Mr. Powdthavee is right about the unhappy effects of income comparison, you shouldn’t conclude that redistribution is the solution. Yes, you could fight inequality of income. But you could just as easily fight comparison of income. Instead of praising those who “raise awareness” about inequality, perhaps we should shame them, like the office gossip, for spreading envy and discontent. In the end, happiness research and history teach the same lesson: If you live in the First World, you should be very grateful for what you have. So cheer up!”

Tyler Cowen picks up the point over at Marginal Revolution.

As a teacher of economics I have a different take on this issue.  You don’t want to shame people who point out the fact of inequality but rather to persuade people that ‘other regarding’ behavior – coveting thy neighbor’s wealth, home or wife  – makes little sense if you are doing pretty well yourself.  It is irrational thinking and one function of economics is to encourage rational thinking,

There is, of course a real case for addressing inequality in so far as it reflects real poverty concerns but not for fetishizing concern over inequality per se.

The more basic concern is of course the mistaken view that – irrespective of ‘other regarding’ behavior – accumulating great wealth provides happiness.  As Powdthavee points out the main determinants of happiness are marriage and friends as well as the massive effect of personality. Money has a minor role beyond some minimum level. Adam Smith saw this myth as sustaining economic growth. It deceives the rich by not bringing them welfare gains, but by generating overall economic economic development by an ‘invisible hand’ advantages the poor.

In short stupid happiness myths drive good social outcomes. According to Smith:

‘It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for’. (Theory of Moral Sentiments, p.184).

No one before or since has ever said it better! (670)

2 comments to Stinking rich & richer than you

  • Mel

    Harry,

    I think one of the problems with excessive inequality is that you end up with a “democracy with plutocratic characteristics”. As an example, Rupert Murdoch may not be a citizen of Britain but we now know that his wealth gives him enormous influence. Arguably, Rupert’s influence is equivalent to a few million votes.

  • [...] I am attending a conference on The Economics of Happiness in a couple of weeks.  It will be held in Byron Bay NSW where I spent some time in my surfing youth. Given the location, I should at least emerge from the conference very happy indeed. I posted once before on this topic when I examined the argument that those who identify inequality are anti-social trouble makers rather like office-gossips who create dissension.   A more sensible view is that if you understand how “other regarding” behaviour can reduc… [...]

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