The Theory of Economic Relativity

Over at Asymmetrical Information, Winterspeak looks at a New Yorker article that asks the question: How poor is poor? As he points out, the problem is "deeply political" with both the Left and the Right having their own definitions of what constitutes actual poverty. The New Yorker article introduces another method of defining levels of poverty, one that I might describe as "Economic Relativity Envy". Apparently, how much money we earn is less important than how it relates to how much our co-workers or neighbors earn.

More recently, three economists at the University of Warwick published the results of a survey of sixteen thousand workers in a range of industries, in which they found that the workers’ reported levels of job satisfaction had less to do with their salaries than with how their salaries compared with those of co-workers. Human beings are also competitive with their neighbors. Erzo Luttmer, an economist at the John F. Kennedy School of Government, recently found that people with rich neighbors tend to be less happy than people whose neighbors earn about as much money as they do. It appears that, while money matters to people, their relative ranking matters more.

Now, call me stupid but I've always defined wealth and poverty in fairly loose terms: wealth means having more money than you know how to spend and poverty means not having enough money to spend on things you need. The relative wealth (or poverty) of my neighbors and co-workers has never been a part of the equation. I can't imagine a sillier or more non-productive exercise than to become unhappy about your life because someone else - even someone you know - is better off than you are.

I don't care who you are, someone will always be better off than you are - at least financially. Even if your name is Bill Gates. And if your idea of happiness is tied to how other people in the world are doing, guess what? You're always going to be unhappy. To paraphrase Bill Goldman, life isn't fair - anyone who tells you differently is selling something.

Luckily, as Winterspeak points out, there are ways to make income disparity less of a problem, or at least less noticeable. These are my favorites:

Moreover, TV is a powerful channel of conveying the lives of the rich to the poor. The average TV character is much better looking, richer, and more educated than the average person, which creates horrible stress according to the New Yorker, so it would be better to restrict who folks can watch on TV based on their income.
Moreover, role models, many of whom are wealthier than the people who are supposed to emulate them, would have to end. Role models are harmful by throwing income disparity into sharper contrast than it would be otherwise.

Or perhaps kill two birds with one stone by letting people role model reality TV stars. Oh, wait...