A Slate column from twelve years ago probably doesn’t warrant a second response post (even if it is by Vox Nova’s favorite Nobel laureate), but I’m going to do it anyway. In his article, The CPI and the Rat Race, Paul Krugman claims that increases in the material standard of living in the U.S. over the last few decades are not all they are cracked up to be, as what matters to people is not so much their absolute condition as their condition relative to others:
I know quite a few academics who have nice houses, two cars, and enviable working conditions, yet are disappointed and bitter men–because they have never received an offer from Harvard and will probably not get a Nobel Prize. They live very well in material terms, but they judge themselves relative to their reference group, and so they feel deprived.
What matters to people, says Krugman, is not so much material possessions as status, and status, unlike economic resources, really is a zero sum game. Krugman ends by saying that:
If one follows this line of thought one might well be led to some extremely radical ideas about economic policy, ideas that are completely at odds with all current orthodoxies. But I won’t try to come to grips with such ideas in this column. Frankly, I don’t have the time. I have to get back to my research–otherwise, somebody else might get that Nobel.
Now that Krugman has won his Nobel, perhaps he will return to the subject.* If he does, he might want to start by revisiting an assumption that is implicit in his analysis, namely that the best way to decrease status inequality is by redistributing income. While status and income are likely to be correlated to some extent, status is hardly a simple function of wealth or income, and it is easy to imagine a country that is highly egalitarian in terms of material conditions, yet highly unequal in status terms.While I don’t have the data in front of me, my hunch (perhaps I should call it my sneaking suspicion) is that in terms of status, the United States may actually be a lot more egalitarian than many of our more redistributist neighbors (in fact, it may be the heightened “class consciousness” brought about by this status inequality that makes the people of those countries more supportive of redistribution). Unlike most places in the world, the United States has never had a titled nobility, nor much of a landed aristocracy to speak of, and has always been felt to be a place where anyone can make it to the top. It is this Land of Opportunity mythos that makes things like the estate tax so unpopular, and even if one takes the mythos to be largely imaginary the mere fact that it is so widespread helps to blunt the sting of whatever material inequality exists in America.
The irony is that those on the left often try to increase support for redistribution by highlighting inequality, and by “raising consciousness” among those who are less well off materially about the nature of their plight. But if Krugman is right, however, and material condition matters much less than status, then such efforts are almost surely perverse (the equivalent of trying to starve peasants to make them turn against the Monarchy). So while Krugman may be right that the implications of his line of thinking are quite radical, they may turn out to be radical in a way quite different from what he had in mind.
*Even if he doesn’t, there are already a number of works attempting to examine the implications of status and happiness on policy which would repay further study, including by Arthur Brooks and others.