People Barely Care About Relative Income
A simple proof.
Do people want to be rich? Or just richer than their neighbors?
Self-styled “realists” have long defended the latter position: What human beings really savor is not material wealth, but feeling superior to others.
The idea that human beings care primarily about relative income is the standard resolution of the famed “Easterlin paradox.” If richer people are happier at any point in time, why doesn’t economic growth raise overall happiness? Because what really brings joy is not being a “have,” but being a “have-more.”
One response to the Easterlin paradox has been to carefully re-examine the data to see if economic growth raises overall happiness after all. (Spoiler: It does). A fine approach, but there’s a much less laborious way to resolve the claim that “People just want to be richer than their neighbors.”
The resolution begins with the observation that each of us possesses a nearly fool-proof short-cut to relative riches. Namely: Move to a poorer area.
If you want to feel superior to your immediate neighbors, move to a poor neighborhood.
If you want to feel superior to people in your state, move to a poor state.
If you want to feel superior to people in your country, move to a poor country.
When we look at human migration, all three of these choices are rare. And when people do voluntarily move to poorer neighborhoods, states, and countries, there’s almost always an obvious motive that has nothing to do with boosting the mover’s relative income. People relocate to get a better job, to be closer to family, for a lower cost of a living, or for love. Almost no one relocates to feel relatively rich. (In fact, isn’t this essay the first time you’ve heard anyone point out that this is even an option?!)
Moving to poorer neighborhoods, states, and countries? It is far more common for people to deliberately move to richer neighborhoods, states, and countries. Part of the motivation for such moves is to raise the migrant’s absolute income. But especially at the neighborhood level, “being around a better class of person” is a common goal. Holding housing price constant, the richer your neighborhood, the better. I’ve heard plenty of griping against homeowner associations, yet I’ve never heard anyone lament, “HOAs are trying to make our neighborhood look poor.”
A world where people commonly moved to raise their relative income would have surreal dynamics. Developers would voluntarily intersperse “affordable housing” next to mansions, knowing they could charge rich customers a premium for the privilege of living next to destitute neighbors. “Gentrification” would be a never-ending cycle: Rich people would move to poor neighborhoods to feel superior; the poor would flee to avoid feeling inferior; once the gentrification process was complete, the rich would sigh in extreme aggravation and move on to poorer pastures.
I’ve said it before, and I’ll say it again: Actions speak louder than words. Since you can easily get a sky-high relative income by moving, yet almost no one uses this easy strategy, we can safely conclude that people barely care about relative income. “Realists” who think otherwise have an unrealistically negative view of human motivation.
This only works if you can change your reference class at will just by moving. If you move, but you still care about what your old neighbours think, the move doesn't help. Worse, in an age of internet and celebrity gossip magazines, your reference class includes all the celebrities who moved into better neighborhoods than you can afford
A simple explanation is that people can't enjoy feeling superior if they know they intentionally sought out some inferiors to surround themselves with.
Suppose you are conscious about your weight/height, so you go out of your way to surround yourself with obese people/dwarves. I predict that anyone without an impressive capacity for self-delusion would probably feel more self-conscious about their weight/height, as a result of their strategy.