Am I “hostile”? Megan McCardle writes:
Now, I am not as hostile to happiness research as, say, Will Wilkinson. I am willing to posit that status-seeking expenditure, on things like houses too big for a normal family to regularly use all the rooms, or expensive cars when the owners are not the kind of people who particularly care for driving or auto mechanics, does indeed strike me as a collective action problem. (A collective action problem is one where all the individuals in a group would be better off, say, striking to get more wages, but because they are only better off if everyone does it, they generally take another course of action acting alone.) Everyone buys expensive goods in order to signal their status to the community, but because status is a zero-sum game–one person must lose status in order for another to gain it–these are wasted activity from the point of view of the group; there is no net gain in happiness from all that expenditure.
I am also willing to posit that there are status races! I'm hostile to the misuse of happiness research. Here I was thinking that I'm doing my part in advancing a genuine understanding of human well-being and the way it relates to economic and political institutions by criticizing an under-theorized, methodologically shaky, but still useful, body of research, and I get called “hostile”! But I'm trying to help!
My hostility regarding the status question is to the ideas that (1) collective action problems generally imply the need for a government solution, and (2) that upward or downward moves in status are generally relevant to a sound standard of “social welfare.” Let's talk about this. In a wholly inappropriate over-theoretical way.
(1) is perhaps the most notorious fallacy of social thought. Or, it ought to be. If it isn't, I nominate it. The fallacy is transparent once you abandon the incoherently manichean market vs. state worldview. I think Doug North, more than anyone, has helped me toward what I'll call neutral institutional monism (after Bertrand Russell's idea—neutral monism—that the fundamental stuff is neither mind nor matter, but has tendencies toward both.) According to neutral institutional monism (NIM), there are stable structures of interdependent interaction, that is, institutions. Different institutions have different properties. It is crucial to recognize that these properties are not determined some kind of metric of resemblance to an ideal type, but by messy details about the real rules of the game, which are generally a melange of assurances and threats (some paradigmaticlly coercive, some reputational, some internally generated by conscience) impossible to locate in a simplistic taxonomy. Let's see how quickly, and how far, we can travel from our original topic.
Economics textbooks provide a theory of ideal types. MARKETS are filled with strange omniscient creatures who have preferences over every conceivable combination of goods, who can trade instantaneously with zero transactions cost, etc. STATES are, more or less, that which can do anything MARKETS can't—mainly, fix “suboptimal” patterns of interaction by changing relative prices by taxing, subsidising, regulating, credibly committing to punish defectors from contracts, and otherwise wielding coercive power with amazing laser precision.
Additionally, ADAMANTIUM is the hardest material in the world, which raises the profound question: Can Captain America's shield shatter Wolverine's bones?
However, once we step outside the Marvel Universe, the question is ill-formed, for ADAMANTIUM is, in fact, an empty category. Nothing fits the description. Likewise, once we step out of the enchanting Neo-classical Universe, it doesn't even make sense to posit the STATE as the answer to MARKET failure, for STATE and MARKET, as laid out in the model, are empty categories.
NIM is interested in this market and this state. Don't worry. We can draw lots of generalizations about institutions. For example! Markets need well-defined property rights, reliable mechanisms of enforcement, enough social trust, etc. In order for states to work, the state agents need a structure of incentives compatible with the goals of the paper, de jure, institution. Otherwise the effective, de facto, institutions will simply be something else. (“But it's called the Ministry for Health and Welfare!”) There's lots more we can say in general. But NIM demands that we resist thinking we've illuminated much of anything by tagging something a “state” or a “market.”
Now, sometimes states effectively fix a collective action problem. To learn something worth knowing we need to ask, “Why was there a collective action problem?” and “What was the state like such that it was able to fix it?” Suppose the collective action problem is that everyone is dumping their pisspots in the pond, because nobody owns the pond. Is this a problem of MARKET or STATE? Bleep! Ill-formed question!
The problem is that there are no well-defined property rights over the resource, so there is no “market” in which the price of dumping is non-zero. Could the local state step in and define property rights? Yes it could! But if there is no uptake by the folk, no compliance with the new paper institution, then we haven't got anywhere. Or suppose the state doesn't actually enforce the new rights. As soon as everyone knows it, the effective price of dumping reverts to zero. Could the folk have simply “evolved” a property norm over their common pool resource without any involvement from the state. They could have! But it looks like they didn't. See how hard NIM is?
NIM shows us that even where there are coordination problems galore, some places have states so bad that they can do nothing but cause even bigger problems. So if we see a coordination problem, what should we do? It depends! It hurts to say it, but sometimes the correct answer is nothing. Sometimes the best thing to do is shake your fist at people and hope to change the informal norms. If the state is such that it can effectively do something about it, then we can start considering the pros and cons of the state stepping in to help out. But the cons may still win the day.
So, here we go, back to the status race. Megan mentions an important point: that if you think the state could do something about the status race by redistributing money, you're wrong, because government checks don't usually have enhanced status attached to them. (Note: Government checks aren't usually NEA or NSF checks.) And there is the ever-present knowledge problem that haunt most statist proposals. Real state institutions can't change relative prices with the laser precision necessary to fix things because they don't, and usually can't, know enough.
I think, however, that we must jump to hostility (2), above. The state just shouldn't care about people's status anxiety. It is impossible, I take it, to come up with a practicable standard for social welfare that doesn't pick and choose among preferences. We've got to ignore meddlesome preferences, like the preferences of cranks who genuinely want everyone else to have frustrated wants. The preferences of slaveholders, child molestors, and insufferable prigs are properly left out of our assessment of what does and does not count as a social improvement. I posit that we ought to likewise ignore people who are upset about the fact that their neighbor has a wardrobe of Burberry and a plasma screen wide as a barn door. Status preferences are meddlesome, have little to do with how well-off people really are, and are at least vulgar, if not plain immoral.
Suppose your “collective action problem” is that everyone would like to slaughter the people in the next society over, and each would join up for the slaughtering squad if all did, but can't get the necessary assurances to effectively coordinate. This is, in fact, a collective action problem. And we would have every reason to hope that it is never “solved.” And if people caught up in the status race are made miserable by it (there is, by the way, no evidence that people are made miserable by the status race—rich allegedly status crazed Americans are some of the happiest people in the world), then it's really just their problem to work out for themselves. We might suggest that they get a grip and stop caring so much about what other people have. Keep a gratitude journal. Learn to eradicate the ego through meditation. If you're really intent on the state doing something, then maybe vouchers for journaling and meditation classes? I do posit it that there is a collective action problem here in which people are involved in a zero-sum dumbness. And I posit that the state morally ought to officially ignore it.