Thursday, March 01, 2012

I care about rich people, but not about their riches.

An incredibly interesting article in Bloomberg this week reveals the devastating power of the economic phenomenon known as "habit formation." Basically, if you have enjoyed a high-consumption lifestyle in the past, it is extremely painful to switch to a lifestyle of moderate consumption. This is why so many finance-sector workers are unhappy right now, despite being so much richer than the vast majority of Americans - they are doing great relative to others, but not so good relative to the astronomical heights they reached in the early 2000s.

Conservatives sometimes use habit formation to try to get sympathy for the rich. When we redistribute income, they say, we have to realize that the rich are actually hurt, since they have gotten used to consuming a certain amount, and raising their taxes will bump them down to a less lavish lifestyle. We should care about the rich people too, they say. But most conservatives don't say this too loudly, because the instincts of the public are more Rawlsian than Benthamite; people are likely to respond by saying "Oh boo hoo hoo, no vacation in Aspen this year! Cry me a river!"

In other words, I think most people don't really care that much about the happiness of the rich. 

But I do.

I do care about the happiness of the rich. Why? Because most people I know are rich. Not in the vacation-in-Aspen sense, but compared to the vast majority of people on planet Earth. My family and friends are all in the top 50% of household income in the U.S., which makes them some of the richest people in the world. And I care about my family and friends. So I care about rich people. And because I realize this, when I see the vacation-in-Aspen crowd feeling bad, I have sympathy for them. I don't like to see those people sad.

Now, this doesn't mean I'm worried about raising taxes on the rich. Yes, habit formation will make higher taxes more of a blow, but let's face it - there is just not enough wealth in the world to keep the consumption habits of America's rich people growing at the rate they grew in the 2000s. A correction will be painful, but one way or another it is inevitable.

And to be honest, all this discussion of income and wealth seems to me to be a bit beside the point. We live in a world of incomplete markets, where the things that rich people really care about - the things upon which most of their happiness hinges - are not things that can be bought with money (or else they would have bought them). These are things like good friends, a feeling of accomplishment, a positive outlook, personal interests, individual expression, and the feeling of being a good person.

One especially important area, I should point out, is family. Research indicates that divorce, for example, results in a huge and long-lasting decline in happiness. Rich people can buy vacations in Aspen, but as things stand, no amount of money will keep their families together. In fact, higher divorce rates in rich countries may explain a large part of the Easterlin Paradox (the finding that people in rich countries aren't much happier than people in poor countries).

I am somewhat of a believer in Maslow's Hierarchy of Needs. Money can buy you security, and it can get you respect, but as things stand it still can't buy you love. And so when I worry about the problems of rich people, I worry much more about their personal emotional issues than their consumption habits.

Rich folks, you don't need a giant bonus. You don't need lower taxes. You don't need another vacation in Aspen. What you need is a hug.


  1. "Money can ... get you respect"

    In my experience money can buy deference but respect is a whole other ball game.

  2. Anonymous12:07 AM

    Money can't buy me love.

  3. "In fact, higher divorce rates in rich countries may explain a large part of the Easterlin Paradox (the finding that people in rich countries aren't much happier than people in poor countries)."

    Except that Nordic people come top of the happiness indices and have the highest divorce rates.

  4. Jonathon, the first rule of Economics is that we don't mention Scandinavia, because it violates our BS.

    Noah, you're being dishonest here - the article (and Megan's drivel) aren't talking about people who are rich by world standards, but about people who are rich by First World standards.

  5. Anonymous8:09 AM

    What you need is a south-american party weekend, lebensqualität mein freund!.

  6. "Money can't buy me love."

    au contraire, mon frere. Depending on the type and amount of love you want, it's generally easily available, if not necessarily easily affordable.

    I like the idea of free hugs, although as in most things, there are hugs and hugs. Hugs from pretty young women are considerably more huggish than other sorts. On the other hand, there are some hugs that would be wiser left alone. From Dick Cheney, to think of one example off the top of my head.

  7. Empathy is always a better place to start a conversation than scorn.

    I am sorry for the pain these people are feeling, but I also know that that pain is of their own making and only they can address it by shifting their perceptions ("Be the Hero" is a book targeted at such people, and I like to "accidentally" forget a copy here and there when visiting). If they hadn't isolated themselves in the first place, they would have the perspective to understand how little of their consumption is necessary for happiness.

    I can't force them to have empathy for the people around them without first forming a connection to the pain they are feeling right now. If I can do that, though, I have a chance of using this moment of crisis as a way to build a new, better, larger community of people who care about each other. If I care about them and they know it, the principle of repricrosity applies.

    Of course, to do so without lying is a challenge, but generally I manage it by reframing their original consumption. "You were really blessed there," I'll say, "I've never been to Aspen. I hear it's lovely."

  8. o. nate4:00 PM

    Good point. Average Americans complaining about their money problems probably look just as odious to most of the world as 1%-ers complaining about their problems look to average Americans.

  9. Laura S.6:08 PM

    As from the point of view of an immigrant Canadian I have to say that rich people don´t deserve any compassion. Of course I´m speaking about the REALLY rich, not the ordinary middle class people. I used to work in few houses around Rosedale, which is one of the richest neighbourhoods in Canada.
    They despised with money, with food and with ordinary people so badly. I felt like a complete piece of crap working for them. I know that there are many exceptions.
    But from my point of view and from my experience, I hope they suffer more than the poor ordinary people. Because as Henry Chinaski said, poor people always suffer the most.

  10. Difficult to sympathise when a lot of these people are partly responsible for the mess in the first place.

  11. Anonymous2:29 PM

    Well, I don't believe much of what you have written here. Firstly, I think that reason why people in the West are not happier then people in poor Third world countries is that we are programmed by evolution to neglect our past accomplishments. So we keep looking for the next mammoth instead of sitting all day long doing nothing. Also I recall reading that happiness is not correlated with the wealth a person has as much as with serotonin hormone levels. Which are mostly hereditary.

    Also, money can buy you love. Probably not directly, but they can buy you services to make you more attractive and make you more attractive by possesing them in itself.

    Well, to conclude I think most of your blog posts are well thought out, but this one is not. Seems to me more like incoherent ramblings.