Money Does Matter! Evidence from Increasing Real Incomes and Life Satisfaction in East Germany Following Reunification by Paul Frijters, John P. Haisken-DeNew and Michael A. Shields, American Economic Review, Vol. 94, No. 3, June 2004

ABSTRACT. In this paper we investigate how life satisfaction (or happiness) is affected by a substantial increase in real income. Our context is East Germany in the decade following reunification, and we implement a new fixed-effect estimator for ordinal life satisfaction and develop a decomposition approach that accounts for new entrants and panel attrition. Using data from the German Socio-Economic Panel we find that average life satisfaction in East Germany increased by around 20% between 1991 and 2001, leading to a clear convergence with West Germany. Importantly, increased real household incomes in East Germany accounted for around 35-40% of this increase, which corresponds to the economists’ view that money surely matters.

The great thing about this paper is not that it tells us that money matters, but that it is better statistics, doing something to take into account individual fixed effects.

I also highly recommend Frijter’s and Ferrer-Carbonell’s paper comparing various statistical methods for analyzing happiness data. The thing that really sticks out in their comparisons is that methods that take into account individual differences, like personality, produce quite different, but more likely accurate, results. “We call for more research into the determinants of the personality traits making up these fixed effects.” Me too! It’s also fun to note that the various methods disagreed a lot about whether kids were good or bad for self-reported happiness. Almost every method shows that money is good for SWB, by the way, albeit weakly so (better than being married, or having kids, not as good as being healthy.)

I liked the concluding thought in the methodology paper:

Finally, a note on the unimportance of income for happiness. The coefficient of 0.11 of log-income in the OLS individual fixed-effect model, implies that an individual would need an income increase of over 800000% to achieve an increase of one for general satisfaction on a (0,10) scale. This in itself raises the question of why individuals expend so much effort on obtaining more income to the extent that most economists since Jevons (1871) have taken this as the main human motivation. The psychologists Brickman and Cambell (1971) long ago answered this question by proposing that humans can be on an ‘hedonic treadmill’ in which they are constantly chasing objectives that cease to be satisfying once reached. This often repeated argument would fit the finding that average satisfaction hardly increases in countries where incomes increase (Diener and Suh, 1999; Kenny, 1999), but it would seem to need a high degree of imperfect forecasting and self-delusion on the side of individuals to be true. Is there perhaps more to individual choice than happiness?

Now, as you know, I think the self-report data is quite unlikely to accurately track individual or average increases in objective well-being, so I think the correlation between the self-report and income understates the correlation between real well-being and income. That said, I like their concluding thought. Even if folks do have some problems with forecasting how they will feel, surely you’d need to be pretty silly to have the experience of something failing to satisfy you hedonically over and over again and yet keep doing it because you’re looking for hedonic satisfaction. Donald Davidson would not accept this! The best explanation is that people keep doing it because they’re looking for something else.

[Cross-posted from Happiness and Public Policy.]

Today is my birthday!

This is a bleg for my exceedingly well-informed readers.

Are you aware of any works in moral or political philosophy (or normative political theory) that argue that maintaining a relatively high rate of economic growth is morally mandatory for a good government (or is a necessary condition for justice, or legitimacy, or anything like that). I cannnot find anything along those lines at all, which is a scandal.

I am not looking for an economist who argues in passing that (sufficiently equitably distributed) growth is good because growth=higher incomes=concumption of more preferred bundles of goods=good. I consider that an incredibly persuasive argument, properly construed, but I’m looking for something more by a real normative theorist. I am unwilling to believe that there could be thousands upon thousands of pages on liberty, equality, and even stability, but next to nothing on growth as a cardinal social and political value. So please tell me what I’m missing. I’m probably overlooking something obvious. The closest I can find is Sen, who does link economic growth to the development of basic capabilities, but can be pretty disparaging of growth as an aim.

It’s funny; there’s tons of stuff on why governments shouldn’t care about growth. God bless the power of economist folk morality, I guess!

I nominate Andrew Oswald of Warwick University as the new champion of the egregiously bad happiness policy op-ed. In this Financial Times piece (unfortunately behind paywall) Oswald touches on every worn trope of politics-masquerading-as-social-science happiness studies, and in the process reveals himself to be less than honest.

Oswald writes:

The hippies, the Greens, the road protesters, the downshifters, the slow-food movement–all are having their quiet revenge. Routinely derided, the ideas of these down-to-earth philosophers are being confirmed by new statistical work by psychologists and economists.

He is clearly excited by this.

Oswald goes on unreflectively to accept the quality of the survey data, and then gives badly undersupported interpretations of that data in order to reach his desired conclusion. This is a problem given things Oswald has said elsewhere, as we shall see. For now, let me stress, as I’ve pointed out on this blog, the happiness surveys and the depression data prima facie contradict one another. Either this hasn’t occurred to Oswald, or it doesn’t bother him, for he jumps, in the usual style, straight from the survey data to the depression data:

Using more formal measures of mental health, rates of depression in countries such as the UK have increased.

As I’ve also emphasized, the depression data are so corrupted by the arbitrary boundaries of the diagnostic category with which these “formal measures” are made, and by the structure of perverse incentives encompassing pharmaceutical companies who would like to sell anti-depressant drugs, people who may or may not be depressed who would like to get them, and doctors who would like to be reimbursed by insurance companies for prescribing them. And, again, allegedly rising rates of depression do not show up in the percentages of people who report themselves in the lowest category of happiness on surveys.

Fourth, suicide statistics paint a picture that is often consistent with such patterns.

Check that sentence out. I like the “often consistent.” In the hedge there is a glimmer of conscience. But here we go anyway:

In the US, even though real income levels have risen sixfold, the per-capita suicide rate is the same as in the year 1900.

I was just looking at the suicide rates the other day. First, it is true that they are remarkably stable. The only big spike detectable in the 20th C. US data came at the Great Depression. Speaking of depression, wouldn’t you think that severe depression was a contributing cause of suicide? And so wouldn’t a stable trend in suicide be prima facie evidence against an explosion of depression? Well, you would think. And isn’t the assumption of Oswald’s proposition simply baffling? That increases in real income ought to decrease the suicide rate? Has anyone ever thought that not enough money was the main cause of suicide? Might it not be just as likely that that the stability of the trend has to do with the stability in the trend of jilted lovers, frustrated dreamers, number of people with organic mental disorders, sudden losses of status, etc. The statistic in isolation means exactly nothing. “Often consistent.” And so very often not! Why mention it at all, as if you know something? The data is also “often consistent” with the hypothesis that the suicide rate remains steady at a very low proportion of overall deaths during times of high economic growth, but spikes during times of no growth, or constriction, such as the Great Depression. I don’t know that that’s not true. Does Oswald?

Toward the end Oswald writes:

Economists faith in the value of growth is diminishing. That is a good thing and will slowly make its way down into the minds of tomorrow’s politicians.

And thus it is clear what Oswald’s aim is. I know a number of economists read this blog? Tell me, is your “faith” in the value of growth diminishing? Do you think the world would be a more happy or a less happy place if world GDP growth slowed, such that the incomes of all the billions of people living in abject poverty (for whom the effect of income on happiness appears to be profound) grew at slower rate? I wonder Benjamin Friedman thinks!

The real kicker here is that it is quite clear that Oswald knows that the survey data are too ambiguous to actually sustain the interpretation he puts on them, and therefore too weak to actually support his politics.

In this short, stimulating paper, Oswald makes an excellent point about the self-report surveys:

The key point is that we do not know the shape of the function relating ‘reported happiness’ to actual happiness. This is a serious problem when researchers try to make statements about the curvature of relationships — though not as serious when we talk, as most of the happiness literature does, about the direction of relationships.

To put this in a different way, happiness survey answers tell us which way is up or down. They do not persuasively tell us the speed of the rise or fall.

It seems reasonable — given only mild assumptions — to argue that we have established, say, that greater income buys greater happiness, ceteris paribus. But in my judgment we have not done sufficiently more than this to allow us to be confident about rates of change. [emphasis mine]

What is Oswald saying? He’s saying that the survey data are an incredibly blunt instrument, and may be useful for detecting gross relationships, but otherwise not so useful because we don’t even know if there is a lawlike relationship (the kind necessary to support valid scientific generalizations) between the way people talk about happiness and the way that we actually feel.

(Oh, and it is reasonable to say that we have established that other things equal greater income buys greater happiness. I don’t think the readers of the FT were informed of this.)

Later in the same short paper, Oswald throws out a quite plausible hypothesis about why rates of self-reported happiness might not increase, even if the objective quality of subjective experience was improving. While he doesn’t draw this out, if true, the surveys would under some conditions obscure even the direction of the relationship between talk and fact by obscuring that there is a direction of the relationship.

Imagine, for example, that there is constant marginal utility of income, but that people, as they get happier, mark themselves happier on a questionnaire scale but do so in a way in which they are intrinsically reluctant to approach the upper possible level on the questionnaire form (the 5 on a 1-5 scale, say). Then the reporting function itself is curved, and we will have the illusion that true diminishing marginal utility of income has been shown.

Which is just to say, Oswald knows perfectly well that happiness surveys may systematically fail to track increases in well-being. And so we must conclude that he is pretending in public to know things that he does not know; that he is representing to the public mere conjecture as “scientifically proven” fact in order to serve his already settled political convictions. It is no doubt inconvenient to be fully honest about your own methodological objections to data you would like to use to foist the politics of “the hippies, the Greens,” etc. upon the unwilling. But, in the end, it is also inconvenient to sully your reputation by torturing data to fit your dogmas.

[Cross-posted from Happiness and Public Policy.]

While reading Randall Holcombe and Russ Sobel’s excellent paper “Consumption Externalities and Economic Welfare” (thanks to Michael Dennis, and about which more later), I ran across a cite to Rawls on interdependent preferences. It turns out that I’ve read this very important passage a bunch of times, but not since becoming obsessed with positional races, interdependent preferences, and suchlike. Here is what Rawls said:

[According to utilitarianism], [w]e arrange institutions so as to obtain the greatest sum of satisfactions; we ask no questions about their source or quality but only how their satisfaction would affect the total of well-being. Social welfare depends directly and solely upon the levels of satisfaction or dissatisfaction of individuals. Thus if men take a certain pleasure in discriminating against one another, in subjecting others to a lesser liberty as a means of enhancing their self-respect, then the satisfaction of these desires must be weighed in deliberations according to their intensity, or whatever, alnong with other desires. If society decides to deny them fulfillment, or to supress them, it is because they tend to be socially destructive and a greater welfare can be achieved in other ways.

In justice as fairness, on the other hand, persons accept in advance a principle of equal liberty and they do this without a knowledge of their more particular ends. They implicitly agree, therefore, to conform their conceptions of the good to what the principles of justice require, or at least not to press claims that directly violate them. An individual who finds that he enjoys seeing others in positions of lesser liberty understands that he has no claim whatever to this enjoyment. The pleasure he takes in others’ deprivations is wrong in itself: it is a satisfaction which requires the violation of a principles to which he would agree in the original position. The principles of right, and so of justice, put limits on which satisfactions have value; they impose restrictions on what are reasonable conceptions of one’s good. In drawing up plans and in deciding on aspirations men are to take these constraints into account. Hence in justice as fairness one does not take men’s propensities and inclinations as given, whatever they are, and then seek the best way to fulfill them . . . The priority of justice is accounted for, in part, by holding that the interests reqiring the violation of justice have no value. Having no merit in the first place, they cannot override its claims. [ToJ, 2nd ed., p. 28.]

Although I didn’t have this passage explicitly in mind, if you subscribe to Reason, you can see how deep in my system Rawls’s sensibility is in my review of Layard’s Happiness. There I said:

Layard’s account of economic success as “pollution” is a striking illustration of what philosopher John Rawls had in mind when he argued that utilitarianism fails to take seriously the separateness of persons. If it is legitimate to use the coercive arm of the state to discourage work simply because it makes other people feel bad, then our liberty to pursue our own ends, for our own reasons, is hostage to the way the brains of strangers happen to light up. The aims and beliefs that make us distinct persons are reduced to nothing, except as they count in the summing.

And my implied point is: if the happiness center of your envious brain happens to light up when I do less well, or the unhappiness center of your bigoted brain lights up when a minority family moves in next door, then, when deliberating about policy, we ought graciously to ignore your brain and its preferences in these matters.

There simply is no way to do policy analysis without making some normative ruling about permissible and impermissible preferences at the outset. The virtue of Rawls is that he tries to draw the distinction in a principled way, and at a high level of generality, without leaning too heavily on any one comprehensive conception of the good.

Evidence for Lakoff’s hypothesis from Liberia:

“I voted for George Weah, but I accept Ellen because she is our Ma and is going take care of us,” said Benedict Newon, 19, a former child soldier. He first hoisted a weapon for the warlord Charles Taylor when he was 10, though he later switched allegiance to another rebel group.

“I never carry gun again,” Mr. Newon said, gesturing at his 8-month-old son and his pregnant wife, Fatou. “I have a future now. I got to protect it. I got to be patient with Ma Ellen.”

That notion of president as mater familias may seem new, but in Liberia politics has always been paternalistic - fighters for Mr. Taylor called him their “Papay.”

Here’s a dissertation topic for an enterprising political scientist. I conjecture there is a connection between the strength of the “state as parent” structuring metaphor, strong executives, tryanny, and war.

Take it further: Part of civilizing (quite literally) our minds is weakening the strength of this metaphor. The fact that classical liberalism—based on the metaphor of the merchant/consumer relationship—cannot be fitted into the Lakovian schema is evidence of its of its psychological foreignness, but moral superiority.

Glancing at the Gul & Pesendorfer paper, “The Case for Mindless Economics,” my first thought was that these guys good really use a good philosophy of science seminar. (Tyler discusses it, as does Bryan Caplan.) Now, I don’t really understand the drive to secure the autonomy of formal economics. Either economics seeks to decribe actual human behavior or it doesn’t. It is fine to create any kind of formal model you like, and to call predicates in your model anything you like. You can, say, create a model that speaks of ‘kittens’, ‘meowing’, and ‘estrus,’ and as long as your model hangs together in the way models should, then that’s nice. Maybe it will even be interesting. But if it has nothing much to do with actual purring furry pets, don’t get upset when a zoologist comes along says that you don’t really have a theory of cats at all, but a theory of ‘cats.’

My sense is that the formal neoclassical theory of economics is a theory of ‘behavior’ not behavior. Models don’t need to be models of the actual world in order to be worthwhile. But you just can’t get away with too much model/world three card monte, maintaining that your model both does apply to the behavior of real people, but cannot be touched by investigations into the sources of the behavior of real people.

Right on page 1, Gul and Pesendorfer say “Neuroscientific evidence cannot refute economic models because the latter make no assumptions and draw no conclusions about the physiology of the brain,” but this just has to be false if economic models are actually supposed to be models of human behavior. Because, see, human beings have brains. And brains are actual phsyical systems that have physical constraints that limit, say, the amount of information that can be processed within a period of time. If an economic model of the agent assumes instantaneous, zero-error updating, or the all-at-once representation of an ordering including the uncountably large number of options in the feasible set, or knowledge of the entire set of all other agents uncountably large preference orderings, then the model is in fact making a large number of assumptions about the information-processing capacities of agents. And if it turns out that human information processing capacities fall far short of these assumptions (and, oh, do they ever) then you have a choice when it comes to the economic model. You can either admit that it is not a model of actual human behavior, but just of some imaginary agent not subject to the laws of physics, such that they can complete all this computation before the heat death of the sun, or the implosion of the Universe. Or you can admit that it is bad model—false, due to non-correspondence—but, perhaps, of some heuristic value in hypothesis formation, or some such thing.

What you can’t do is say you’ve got a model of something that is in fact a biological system, and then argue that real information about the nature of the biological system is irrelevant to the truth of your model. I may be crazy, but that seems to me exactly what Gul and Pesendorfer are trying to argue. If it is, I am completely sure that it won’t work.

Please allow me to think aloud. Just don’t be disappointed if I don’t get anywhere . . .

A few posts ago I coined a term: Neutral Institutional Monism (NIM). NIM is the thesis that there are institutions and there are institutions. The primary explanatory distinction is not coercive vs. non-coercive, or state vs. market, but between stable patterns of mutually advantageous interdependent action vs. unstable or mutually harmful patterns. This cuts across the coercive/non-coervice distinction.

Undergirding NIM is what I’ve called the principle of behavioral uniformity, but which I’ll call instead the principle of uniform behavior (PUB), for the sake of a mnemonyic acronym, since PUB is the hard nugget of wisdom at the core of Public Choice theory. PUB says that there is human psychology and then there is human psychology. Whether a person is embedded in a market institution or a state institution will not affect how she will tend to represent her prospects, represent their relative costs, or act on these representations. Psychology is everywhere the same. When behavior differs, it is not due to underlying differences in cognitive or motivational structure, but due to the way alternatives and their prices are represented. People are smart and good when it pays to be smart and good. People are dumb and corrupt when it pays to be dumb and corrupt.

Now, whether “it pays” is a function and consequence of the structure of institutions. Not all institutions are formal. If your community has accepted a norm according to which women who show their ankles will be treated as if they are not there—will be denied any acknowledgement or human contact—then, other things equal, it will not pay for women to show their ankles. This norm is a kind of institution. If we want to go a level deeper, many norms lead to stable patterns of action because they have been fully “internalized,” leading people to impose negative sanctions upon themselves through shame and guilt, even when their norm violations are undetected. Norm enforcement is cheapest when people can’t help but punish themselves.*

Anyway, the point I want to get to from NIM and PUB concerns the justification of paternalistic intervention on the basis of the fact that actual human psychology diverges from some ideal or other of rationality. Many of these paternalist arguments suffer from violations of both NIM and PUB.

First, the Fallacy of Asymmetric Idealization. The cognitive paternalist (that’s what I call them) is very good about getting into the nitty gritty of actual cognition, its foibles and imperfections, and how the real deal differs from idealizations of rationality. Great! And, then they fail completely to get into the nitty gritty of actual political institutions, their foibles and imperfections, and how they differ from idealizations of collective action. In effect they say this:

In the real world, the mind works like this, and this can lead to all kinds of problems. And in an extremely unrealistic abstract model of government action, its agents can easily and objectively identify problems and act to effectively solve them. So, let’s have the ideal government solve the problems of nonideal cognition.

It sounds stupid when you put it that way, doesn’t it? The trick is figuring out how to work with real minds, using real governments!

NIM asks, so how are you going to do it? Most real government institutions are at least as kludgey and means-ends inconsistent as real minds are. “Silly, your sock won’t open that can of spinach! So try your pillow instead, because a model exists in which pillows are can-openers.”

The NIM “what is this wonderful institution of which you speak” question is heightened by PUB. Psychology is general. So if we’ve got nonideal psychology, then we’ve got nonideal psychology, including every single agent of the government. So the cognitive paternalist proposal really depends on a supressed premise that there is some possible institution of government that can solve problems of nonideal psychology, but which is itself unaffected (or only mildy affected) by problems of nonideal psychology.

NIM also suggests that we just slow the hell down before deciding we need a government institution to solve some kind of perceived problem. We might. But we might not. NIM asks us to compare all our possible institutional options.

Consider these combinations with nonideal cognition fixed:

(1) nonideal cognition + ideal markets = no paternalism

(2) nonideal cognition + nonideal markets + ideal goverment = paternalism

(3) nonideal cognition + nonideal markets + nonideal government = ???

Our world, the world of NIM, is (3). Whether nonideal cognition could justify paternalism depends on what our market and government institutions can in fact accomplish.

Let’s call an institution that corrects for some nonideal aspect of cognition an ameloriative institution. An ameliorative market is structured so as to raise the prices of nonideal cognition, resulting in less of it. An ameliorative policy is one the government implements to change the prices of nonideal cognition, through coercion, resulting in less of it.

OK. Suppose there is the possibility for an ameliorative market, but the market needs some changes in regulation, legal code, etc., in order to function, and this is something the government has to do. (For example, a Hanson-style futures market in ideas might be ameliorative in some ways, but it cannot exist the US’s present regulatory climate.) Now, if the government is of sufficient quality to implement an ameliorative market, then coercive ameliorative policies will be unecessary, or at least less necessary. But if the government is not of sufficient quality to implement ameliorative markets, then it is probably not in a position to apply effectively ameliorative coercion, either.

And . . . that’s all I’ve got for now.

The January issue of Cato Unbound launches Monday. Jaron Lanier’s lead essay is a trip. Here’s the scoop:

As the Internet burgeoned and blossomed through the early to mid-nineties, visionary manifestos about its transformative social, political, and economic potential clogged VAX accounts the world over. After a solid decade of intense commercial development, much go-go nineties prophesying now seems a triumph of Utopian hope over hard reality. Does hope of Internet liberation yet remain? Or has the bright promise of the Internet been dimmed by corporate influence and government regulation? Are ideas like virtual citizenship beyond the nation-state, untraceable electronic currency, and the consciousness expanding powers of radical interconnectivity defunct? Is there untapped revolutionary power waiting to be unleashed?

Virtual reality visionary Jaron Lanier will kick off the discussion with a mind-bending lead essay. Commentators John Perry Barlow of the Electronic Frontier Foundation, open source software guru Eric S. Raymond, Glenn “Instapundit” Reynolds, and Yale computer scientist David Gelernter will grapple with Lanier’s vision, and offer their own wisdom on what the Internet still has to offer for the future of freedom.

Should be fun! Tell your friends.

Princeton philosopher Kwame Anthony Appiah’s lovely essay on cosmopolitanism in the NYT Magazine is mandatory reading. It was very heartening, even a little exciting, to find that there was almost no point on which I disagreed with Appiah. He has lucidly articulated what I think grown-ups ought think about the complex pluralism of a globalized world.

Some highlights:

When people talk of the homogeneity produced by globalization, what they are talking about is this [small, traditional African village]: Even here, the villagers will have radios (though the language will be local); you will be able to get a discussion going about Ronaldo, Mike Tyson or Tupac; and you will probably be able to find a bottle of Guinness or Coca-Cola (as well as of Star or Club, Ghana’s own fine lagers). But has access to these things made the place more homogeneous or less? And what can you tell about people’s souls from the fact that they drink Coca-Cola?

. . .

Human variety matters, cosmopolitans think, because people are entitled to options . . . [quotes Mill's On Liberty re: the need for a plurality of "moral climates"] . . . If we want to preserve a wide range of human conditions because it allows free people the best chance to make their own lives, we can’t enforce diversity by trapping people within differences they long to escape.

On cultural authenticity:

[T]rying to find some primordially authentic culture can be like peeling an onion. The textiles most people think of as traditional West African cloths are known as Java prints; they arrived in the 19th century with the Javanese batiks sold, and often milled, by the Dutch. The traditional garb of Herero women in Namibia derives from the attire of 19th-century German missionaries, though it is still unmistakably Herero, not least because the fabrics used have a distinctly un-Lutheran range of colors. And so with our kente cloth: the silk was always imported, traded by Europeans, produced in Asia. This tradition was once an innovation. Should we reject it for that reason as untraditional? How far back must one go? Should we condemn the young men and women of the University of Science and Technology, a few miles outside Kumasi, who wear European-style gowns for graduation, lined with kente strips (as they do now at Howard and Morehouse, too)? Cultures are made of continuities and changes, and the identity of a society can survive through these changes. Societies without change aren’t authentic; they’re just dead.

Earlier, on the same note:

Talk of authenticity now just amounts to telling other people what they ought to value in their own traditions.

Appiah’s discussion of the interpretive power of cultural consumers could have come straight our of Reason:

Dutch viewers of “Dallas” saw not the pleasures of conspicuous consumption among the superrich - the message that theorists of “cultural imperialism” find in every episode - but a reminder that money and power don’t protect you from tragedy. Israeli Arabs saw a program that confirmed that women abused by their husbands should return to their fathers. Mexican telenovelas remind Ghanaian women that, where sex is at issue, men are not to be trusted. If the telenovelas tried to tell them otherwise, they wouldn’t believe it.

Talk of cultural imperialism “structuring the consciousnesses” of those in the periphery treats people like Sipho as blank slates on which global capitalism’s moving finger writes its message, leaving behind another cultural automaton as it moves on. It is deeply condescending. And it isn’t true.

I can’t quote the whole thing, but it deserves your attention. Appiah’s account of tolerance not as “understanding” but simply as “getting used to” differences is also illuminating.

Appiah’s essay led me to reflect on the relationship between my libertarianism and my cosmopolitan liberalism. I became a cosmopolitan liberal because I was a libertarian first. I believe that if you lay enough weight on the natural human liberty to exchange, the moral significance of national boundaries dissipates, and cultural mixing will be seen as an inevitable consequence of people jointly satsifying their preferences through conversation and trade. But I have since met some puzzlingly anti-cosmopolitan libertarians. If I had to choose between pushing a button that would make the U.S. government 75% smaller, or pushing a button that would end the oppression of women the world over, for example, I’d choose the latter without a millisecond’s hesitation. I was astonished when I first discovered that there are strangely nationalistic “libertarians” who would push the smaller-US-government button instead. That is, I think, a regrettable sign of moral immaturity or brokenness.

In some sense, my cosmolitan liberalism, though initially motivated by my libertarianism, has taken precedence in my own philosophy. However, I stick to my libertarian guns largely because I believe that cosmopolitan liberalism demands it. My “Understanding Political Libertarianism” essay I think makes that case pretty well.

This article from the Christian Science Monitor explores new census data that shows that the poor in America own computers, dishwashers, and other appliances of convenience and amusement at historic rates. Naturally, the happiness question arises, and shows how journalists have been effectively propagandized into repeating a misleading, ideological happpiness talking point whenever good economic news arrives…

. . . by almost all measures, the data show rising well-being for all of society. And while the wealth gap may not be narrowing, the rich-poor gap in lifestyles has narrowed substantially since 1992 when measured in many of these tangible items.

“In terms of the items people have … it amazes me the number of people who are at or near the poverty line that have color TVs, cable, washer, dryer, microwave,” says Michael Cosgrove, an economist at the University of Dallas in Irving, Texas. That’s not to ignore the hardships of poverty, he adds, “but the conveniences they have are in fact pretty good.”

Poor, but more comfortable
The study doesn’t explore the happiness factor — whether the growing material prosperity is actually making people feel more satisfied with their lives. While economists tend to focus on things that can be measured in dollars and cents, the spiritual side of the economy has begun to garner more attention. That’s partly because some research has found that once people gain a modest sufficiency in goods, further increases in income don’t result in rising happiness.

This happiness talking point is extremely misleading. First, “don’t result in rising happiness” obscures the fact that a large majority of poor Americans already report themselves as being pretty or very happy. I think many readers would interpet this as “doesn’t do anything to pull people up from misery or unhappiness.” It would be less misleading to say “further increases in income don’t result in happy people becoming even happier.”

Second, the talking point makes it sound as if there is some general finding that implies that a doubling of my salary would have no effect on my happiness. Which, of course, is total rubbish. We’re talking about wealth within the United States, here. So, while the correlation between average income and average happiness is weak (though positive) over time or between countries–meaning that the average happiness at any given point in the distribution over the critical absolute threshold is likely to hold pretty steady over generations or between societies–the correlation within a given country at a given time is strong, and that’s the relevant measure. Since everyone lives in a particular country at a particular time, what the research has found is that if your income increases, you are likely to get an increase in self-reported happiness. At any time and place, wealthier individuals will tend to be happier than less wealthy individuals.

Now, a rise in income sufficient only to maintain your position in the distribution will be unlikely make you much happier than you already are (unless your aspirations were low). However, through their prime working years, individual’s incomes generally rise much faster than the economy grows (my income, to take a very typical example, has increased well more than 200% since I first entered the labor market). And so you can expect your rising income to have a very positive effect on your happiness through your working years, and throughout your life, if you have invested well. And this is just what the life-cycle happiness breakdown shows. It’s our growing wealth that keeps our total satisfaction with life more or less steady as our satisfaction with health and family starts to declines in our our middle age.

Journalists need to understand that the “more money won’t make you happier” talking point is, in fact, a piece of propaganda designed to weaken public support for wealth-enhancing policies. Once the data is framed correctly, there is really no reason to use the talking points. It does nothing to “balance” the story. Even if it is true that the microwaves and dishwashers of those beneath the poverty line aren’t making them happier than they already were, they are freeing up time that would otherwise be spent on cooking and doing dishes. And that’s just good.

[Cross-posted from Happiness and Public Policy. Please leave your comments there.]

This is just too flattering to resist sharing. R.J. Lehmann, listing “the top five new persons, places or things I was introduced to in the last 12 months that combined to make 2005, all in all, a very good year,” puts Joanna & I, as a unit, at #2.

2. Willana — Or, if you prefer, Robkinson. Individually, they’re Wilko and J-Ro. Together, they’re the ultimate D.C. libertarian power couple, the Brangelina of the A.F.F. set. But as if being Triple-Bs (that’s “brilliant beautiful bloggers”) weren’t enough, prophecy foretells they shall one day conceive the annointed one, and unto him shall the gathering of radical individualists be. And he shalt smite the state, and there shall come water out of it, that the people may drink. And he shall be really, really ridiculously good-looking. And men shall call him…the Anti-Marx!

Of course, “the Brangelina of the AFF set” is sort of like “the Stephen Hawking of the Appalachians,” but we really like the idea anyway. Also, this reminds me that I’ve been meaning to write about the demographic strategy for libertarians. And Ray I think just won himself a dinner invitation to casa Willana.

I’ve always been a bit baffled by the common assumption in economic and social theory that the quantity of social status is fixed, such that games over the distribution of status are always zero-sum. The title of Frank’s Choosing the Right Pond seems to assume that it isn’t. Middling status in one pond can be high status in another. And how many ponds are there? But he almost always writes as if status is fixed. Becker and Murphy, in an exemplary discussion of status and inequality in Social Economics also assume a fixed amount of status. It’s obviously useful to model it this way for certain purposes. But I also think it fundamentally distorts the phenomenon of status and status seeking.

We all know what status is, but, then again, we don’t, really. Who has higher status: The Mayor of Des Moines or the quarterback for Notre Dame? The question has the sour flavor of a category mistake. As Frank’s title suggests, status can be pond-relative. But, at the same time, it can seem like we know that the Chief Justice of the Supreme Court has higher status than the quarterback for the Fightin’ Irish, although the incommensurability of domains creates some static in the judgment. It just might be that the CJ is higher status in his domain than # 12, Biff O’Malley is in his. So when we set the rankings by domain side by side, the right answer seems pretty obvious. One guy is at the top of his list, the other guy in the middle of his. So, easy!

But how about Peyton Manning vs. John Roberts. Here I don’t think we can say. We’d need to know which status domain has higher status. And that sort of sounds like a category mistake, too. Anyway, is it a bigger deal to be one of the world’s most gifted and celebrated athletes, idolized by children around the globe, watched by millions of fans each weak . . . or the head judge on the world’s most powerful and exclusive legal body? In any case, it seems pretty clear that if Peyton Manning and John Roberts are both somehow competing for status, they’re not competing with each other. When John Roberts was elevated, it might have stuck in the craw of some of his law school friends, or appeals court colleagues. But I don’t imagine Mr. Manning took much notice, or felt himself diminished in any way.

The obvious point to make about status, then, is that it is domain relative, and that the number of domains does not seem to be fixed. (My example may tempt you you to confuse status for fame. Don’t.) One of my favorite documentaries, Word Wars, goes inside the fascinating world of competitive Scrabble players. Naturally, this being a human endeavor, there is a ladder of status among Scrabble players, and for the people who devote their live and energy to the game, this is the kind of status that matters. Now, it may seem to you that Peyton Manning is a bigger deal than Joe Edley, but it doesn’t seem that way to Joe Edley.

Think about the fragmentation of music genres, and how each genre has its own scene. Before there was ska, say, there was no ska scene. But now, a position of status in the ska scene is a cherished part of someones life. But scenes break down by geography, too. Take the DC punk scene. Whatever he might say to the contrary, Ian McKaye takes his exalted status to heart. Now, suppose a new speed metal scene blossoms in Milwaukee. The advent of the scene implies the opening of some positions of status. Chances are that the don of the Milwaukee speed metal scene will find his status gratifying. But this is status created, not taken. Tony Hawk’s giant status in the relatively newly evolved skateboarding scene did not come out of Michael Jordan’s hide.

It is not even clear to me that status within a domain, scene, or group is fixed. Take a group of three friends, Cindy, Marcy, and Julie. Cindy is clearly the leader, and so has status. But Marcy is the brains of the operation, for which she is also accorded a certain status. Julie is seen as a dutiful follower, worth having along because she is pretty and laughs at everyone’s jokes. However, one day, Julie performs an act of amazing courage and fidelity, saving both Cindy and Marcy from grave danger. Julie gains new status for her mettle and faithfulness. But this is not status redistributed from Cindy and Marcy’s accounts, but is rather newly created out of Cindy and Marcy’s new and unanimous admiration.

People in a group of friends may compete for status as the funniest one, or the smartest one. But even then, status can get distributed pretty subtly, and what may seem like a single dimension of status may end up finely divided, one person generally admired for his mordant, cutting wit, another for her hilarious jocularity. Status-seeking, even at the micro-level, is not really zero-sum war of all against all. In my opinion, a really healthy group of friends is one which the dimensions of status are so many that everybody is high status on some dimension or other, and the calculation of absolute or total status across all the relevant dimensions is more or less impossible.

That said, other things equal, I think people prefer to have status in a broader or more general domain. And I think this is where things gets complicated, and where status and fame, which are quite different, are complexly intertwined. Generally, you get high status in some domain of wide interest. This brings you to the attention of the media, and therefore the public. If everyone is suitably impressed or interested, you capture a portion of the public’s attention, and become famous (at least somewhat). You then gain additional status simply in virtue of your fame. You become known for being known. (Kato Kaelin has a kind of status, just because lots of people know who he is, and not because he’s worth a damn in any noticaeble way.) But the amount of fame is limited by the amount of attention within a society. (Here’s where I find myself wishing I’d read Tyler’s book on the economics of fame.) And so fame-dependent status is also limited by attention. Therefore, those whose status is heavily fame-dependent will be jealous of attention. Glenn Reynolds does not directly compete for status with Tom Brokaw. However, he does compete for attention. If more people get their news from blogs, and less from Brokaw, then Brokaw gets less attention, and takes a sort of hit in fame, and therefore status.

Because status is not fixed, and new status domains or niches can be opened, there is a possibility for status entrepreneurs who seek to discover, expand, and occupy new status niches. Visionary artists, who become deeply involved with creating something totally new, might be good examples. Sometimes, when you insist on doing something no one understands, others will interpret it as a willful resistance to playing the status game. But perhaps a better interpretation is that it is an entrepreneurial gamble on opening a new status niche. If audio/olfactory immersive ambient concept assemblage really catches on, then the first-mover has a big advantage. When the Museum of Soulwarping Newness buys your great work, “The Elusive Fatuity of Near-Death in C Major, with Notes of Jasmine and Pork Rinds,” for seven figures, and you start getting invited to fancy parties, you’ll be, for a time, a status monopolist in your domain, and forever a pioneer.

Naturally, people who already occupy positions of wide status and semi-fame will attempt to denigrate the importance of new status domains in order to prevent a defection of attention. Indeed, the classic move is to try to characterize new domains of status as ipso facto low status. When some American Croesus slaps down 15 billion and opens Eisenhower University and buys up all the world’s greatest scholars, Harvard grads the world over will promptly thrust their noses skyward in disdain for all those brilliant kids at the tacky new school who are getting the best education money can buy under the guidance of professors the Ivy League used to have. But it won’t work.

So what to we do about the fact that people are status-seeking? What we do is encourage a decentralized entrepreneurial culture where status domains without number may bloom. Where the president of the Tuscon YMCA, the world’s Scrabble champion, Tony Hawk, the best fusion jazz guitarist in Miami, and the first and only audio/olfactory immersive ambient concept assemeblagist can sleep sweet dreams, secure in their well-deserved status.