Envy pollution

by on September 2, 2006 at 5:03 pm in Economics | Permalink

Greg Mankiw considers Brad DeLong’s view that the presence of the rich makes the poor worse off.  Jane Galt discusses Cindy Crawford.  I will add the following:

1. Often the rich make us feel we are worse off when we fill out questionnaires, but the quality of experienced life doesn’t go down much from their existence.

2. Consider food.  If I hear of other people visiting El Bulli, I might downgrade the quality of my own eating life on a survey.  But I don’t enjoy my Sichuan Chili Chicken or my Silpancho any less.

3. "…its a great testament to economic progess that, walking round the city
center these days, say, it’s very hard to differentiate the rich and the
poor in the first instance. In this sense, things have indeed become a
lot more egalitarian."  That is from one of Greg’s commentators.

4. Envy tends to be local.  Few Americans resent Bill Gates or Warren Buffett.  The real definition of a wealthy man is one who earns more than his wife’s sister’s husband.

5. Greg Mankiw suggests that perhaps we segregate the rich into places like Nantucket and Aspen, so as to minimize the envy of the poor.  That won’t get at the root of the problem, as expressed in #4. 

What we need to do is tax gatherings of extended family and other like-minded people.

Mike Huben September 2, 2006 at 6:04 pm

The rich coerce the rest of us through their control of the political system. They stack the deck to promote transfer of wealth to the rich. Perhaps if they were not so rich, the rest of us might be able to regain the levers of power and fashion more egalitarian rules for society.

Uncle Lumpy September 2, 2006 at 6:30 pm

I resent W. Wayne Huizenga and his show-offy helicopter.

tom s. September 2, 2006 at 7:32 pm

There seems to be an implicit suggestin here that the wealth of the wealthy has nothing to do with the rest of us — that they earned it or won it in a way that doesn’t involve us. But if you work, as many people (myself included) do, for middling-performing companies where the CEO and a couple of others have seen 50% compensation increases and the rest of us precious little, then that picture seems rather remote.

joan September 2, 2006 at 8:52 pm

I do not envy the rich but I do think they do set a harmful example, if they have gotten rich by taking advantage of people. Pimps, drug dealers, and over paid bank CEO’s fall into last group. If you include as rich a larger group who consume enough to bid up prices on limited resources, such as housing in cities, then we would be better off if they had less money.

Michael F September 2, 2006 at 9:16 pm

I would argue that people don’t resent Bill Gates or Warren Buffett, not because of lack of proximity, but because both people are pretty understated with their consumption. People seem to resent Paris Hilton, even though she is no more local than either Gates or Buffett.

Resentment theory. Why do people resent some of the rich but not others who are much more wealthy? 1. People have a problem with different lifestyles not wealth, they don’t care if someone is rich so long as that persons lifestyle is not totally alien from their own. 2. People have no problem with wealth as long as they feel it is well deserved. 3. People have a problem with ostentation not with wealth. People don’t resent people for having more wealth, but consider it impolite to remind others of the fact either through purchases or actions. 4. Wealth in exchange for value. Fewer people seem to resent wealthy doctors than wealthy lawyers. Both may work similarly hard but it is more obvious to people (myself included here) the value created by a doctors efforts. Because people can easily understand how doctors generate value they are resented less (usually actively respected).

I don’t think the location effects are very important, I mean in order to resent someone you must be aware of them, and people are more aware of those that live near them, but I don’t think the fact proximity has any impact beyond information effects.

Richard Phillips September 2, 2006 at 10:17 pm

I find this discussion hard to reconcile with the fact that people generally don’t move/migrate from wealthier areas or avoid being exposed to more affluent lifestyles (e.g., TV) for this reason. Are they irrational? This is not to deny the effect, but it must be (i) very local (ii) outweighted by the positive externality. For instance, if all my neighboors buy cheap cars, my neighboorhood will not cause a great impression on _my_ visitors as well.

asg September 2, 2006 at 11:07 pm

Good for Mike Huben to be briefer than usual when posting his whimsy of the day. How long after the French Revolution did it take for France to get a king again? Less than a generation? Those “more egalitarian rules for society” didn’t seem to hold up too well. His religious faith in “the rest of us” not to abuse the political system once the nefarious rich people are disappeared is touching, if a little unsettling, though.

If one goes and reads the comments at Fly Bottle, Dirk’s misrepresentation is clear — the posters there are not confused about the notion that people feel envy and that this makes them feel upset, but rather that the policy implications of this are far from clear (unless, of course, it is the role of the state to minimize how much people feel upset, a notion almost as charming as Huben’s).

Brian September 3, 2006 at 12:18 am

The most important thing we consume in life is usually a spouse. Competition from those who are richer and more handsome directly reduces the quality of spouse we can attract and reduces the likelyhood that that spouse will remain faithful.

Goods where quality varies widely and supply is strongly limited and consumption of most buyers is severely limited by alternative bidders are often called competitive goods.

Access to competitive goods is affected more by differences in wealth than other kinds of goods, so if competitive goods are a large portion of our consumption, then large imbalances in wealth are harmful to most citizens. It is not possible to make interpersonal comparisons of utility, but inequality is likely to hurt many many people if competitive goods are important in a society.

The most expensive and most rewarding (outside your kids, a closely related subject) thing you will buy in your life is the love and attention of your spouse. The love and attention of your spouse is a competitive good.

The most expansive and one of the most rewarding material goods you will buy in your life is your home. Real estate is a competitive good.

Slice them poppies.

A Tykhyy September 3, 2006 at 1:38 am

What we need to do is tax gatherings of extended family and other like-minded people.

Tyler, have pity! The society is atomized enough without a tax on family gatherings. Better give tax credits when people gather together for non-business reasons.

joan September 3, 2006 at 5:58 am

Poor people, especially poor teenagers spend a much larger percentage of their income on clothes than do middle income people. The $100 Nikes, that the right is so scornful of, are important enough to sacrifice for. They do this to avoid being identified as being poor. It is not a sign of an egalitarian society that it is not always possible to differentiate, but show that being poor is something to be hidden. As you move up the income scale people over spend on cars, then houses, and for the very rich the arts and vacations.

eweininger September 3, 2006 at 9:30 am

I believe that Delong’s argument asserts the existence of a change over time, so it’s not clear to me how the “measurement-instrument-induces-measurement-error” claim is supposed to work.

My armchair speculation would concern perceptions of long-term mobility prospects: it’s one thing to have Sichuan Chili Chicken for dinner tonight, another to think that you might not _ever_ dine at El Bulli, and yet another to think that your kids might not either. That may be new.

yasth September 3, 2006 at 3:19 pm

I thought the tax among family/social groups was taken care of with Christmas (or whatever the gift exchangey holiday of choice is). People actually do get rather upset when someone with much more money gets the same level of gift someone with much less money got them.

Also in social gatherings having everyone over at your pool, or large airy house could be seen as a form of tax. So people entertain because they have to equalize the cost that they inflict on their less fortunate friends (and so to keep the relationship strong). It is kind of a form of self taxing backe up by very strong social norms (which one would expect since it is impossible for government to enforce). Of course to an extent the showing of the house/pool/etc inflicts additional damage, so to avoid seeming like one is rubbing ones nose in wealth it needs to be (often/grand/flexible) enough to overcome the harm.

So by this understanding the worse sort of rich person is the rich person you know who shows pictures of their many houses, and drives a nice car, but never offers a ride. In fact the social cost of that is sufficient to terminate the relationship in most cases.

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leute November 15, 2006 at 9:39 am

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