Here’s something curious about this year’s political rhetoric: The Republican candidates claim that President Obama has made things worse, while he claims he’s made things better.
You might not think that’s a hard thing to explain. If so, I conclude that you are not Robert Frank, who keeps reminding us via his New York Times column (this one for example) that in many circumstances people care less about their absolute economic well-being than about their place in the pecking order. According to Frank, we buy big homes and fast cars not because we like big homes and fast cars, but because we like our homes and cars to be bigger and faster than our neighbors’. This in turn calls for a tax increase to tamp down that wasteful arms race.
But here’s the thing: Each of us has pretty good information on how we ourselves are doing. When politicians say the economy is doing poorly, they’re mostly informing us that other people are doing poorly. If Frank is right, we’ll consider that good news and (if we believe the news to be accurate) reward the incumbent who brought everyone else down. In other words, is Frank is right, then President Obama’s best strategy is to take credit for a disastrous economy, while his Republican opponents should argue that in fact we’re in the midst of a strong recovery.
I haven’t done any careful statistical analysis of this year’s political rhetoric, but as a casual observer I feel fairly confident that for the most part, Republicans have been saying that Obama’s performed poorly and Democrats are saying he’s performed well. It would appear, then, that politicians generally reject Frankian economics out of hand. And that’s a judgment worth respecting. After all, if politicians are experts in anything, it’s in figuring out what people want to hear.
At the risk of ruining a joke by deconstructing it, even if you assume:
income = how the economy is doing + your individual merit
and
happiness = 0.75*(relative wealth) + 0.25*(absolute wealth)
then that means it might come as good news to learn everyone else has been doing badly (because of (2)), but you still want the economy to do well going forward.
Hohoho! Nice :-)
I think that people probably compare themselves to where they and their peers WERE rather than ARE.
Research shows the effects of the crisis are felt (quality-of-life terms) disproportionately at the bottom of the income distribution (by the poor) and therefore they are even further away from their idealistic ideas of where middle-america. Downward mobility doesnt help either.
I know this is loose reasoning but I think valuable nonetheless.
Don’t forget the key phrase “in many circumstances”. In the linked article he is talking about the circumstance of the very rich. Surely you do not believe that there is no positional motivation? Why do the rich buy hugely expensive handbags that do the job of carrying stuff no better than moderately priced ones? It is to show it off. If all the rich have a slightly lower wealth, then a slightly less expensive handbag does the job just as well.
You also seem to assume that people are consistent. It is certain that people want mutually incompatible things – e.g. to eat their cake and have it. It is likely that people sometimes believe they can actually acheive this. Alas, this is only possible with the hypothetical contraceptive cream bun.
Now I see a flaw. We know how well we are doing, but we also know how well those we are comparing ourselves to are doing. The “other people” the politicians are informing us about are not our competitors.
Prof. Landsburg, you’re omitting one potential possibility:
Obama supporters subscribe to the Frank’s theory, while Obama opponents do not. If you are as critical of the political class as I am, then this explanation may actually make the most sense, considering that the facts seem to align to both sides equally.
I guess Richard Serlin’s question to John Cochrane could go to Steve as well
http://richardhserlin.blogspot.com/2012/02/to-john-cochrane-re-positional.html
So, please, show us some evidence.
Morten:
So, please, show us some evidence.
Umm. I thought I just did.
Perhaps we need a United States Handicapper General:
http://www.tnellen.com/cybereng/harrison.html
“THE YEAR WAS 2081, and everybody was finally equal. They weren’t only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General. . . .”
Immigration is much discussed this time too. Now if Frank is right, no low-skilled immigrants would want to come here. They go directly to the lowest tier. And everyone already, especially the poorer Americans, should want more low-skill immigrants, so that they themselves move up comparatively. And yet …
Steve and Ken B, excellent post and comment. Wish I’d thought of both a long time ago.
Ken B:
Immigration is much discussed this time too…..
I wish I’d said this.
Clever points. Perhaps we can resolve the paradox one level higher however: At the national level, “we” want our country to be high in status relative to other countries. Obama wants to take credit raising our status, and Republicans want to deny him credit for this. Thought experiment: Would either party’s politicians gleefully rejoice in lowering the status of, say, China?
SL: “When politicians say the economy is doing poorly, they’re mostly informing us that other people are doing poorly.” That is one possibility. Another is that when politicians tell us the economy is doing poorly, they are reminding us that we are doing poorly and it was the guy in charge who is responsible for that. The casual evidence would support that supposition very well.
Frank’s argument, as I understand it:
1. People value consuming goods/services, both public and private.
2. People value their status relative to their neighbors.
3. Taxing people provide resources to finance public goods/services.
4. All else being equal, taxes reduce people’s ability to consume.
5. Generally things that reduce our ability to consume also reduce our status relative to our neighbors.
6. In contrast, while taxes reduce people’s ability to consume, they impose relatively little distortion on people’s status relative to their neighbors.
Landsburg’s argument, as I understand it:
1. People value private consumption.
2. Taxes reduce people’s ability to consume private goods/services.
3. People sometimes trade status for consumption.
I find no conflict among these propositions.
I don’t think anyone suggests that people only care about their relative position. Only that it does have some importance. Surely no-one can disgree with that. The disagreement only lies in the degree of importance.
The linked post says that for the very rich, much of their “top tier” spending is positional. Therefore, if all the very rich are made a little bit worse off, this will not affect their position, and therefore they can obtain just as much positional value with a bit less money. They will also get the benefits of the tax spending in better roads etc.
There are two important points. You do not compare youyrself to everybody, so the absolute position is not too important. You compare yourself to a small group of near- peers. This group could change over time. Also, the less you have, the lower the “positional” aspects of your spending. Immigrants arrive for (at least) two reasons. They have little so are less concerned about position. They also compare themselves to their peers who remain behind, so they are comparatively doing much better.
Once again you play “gotcha” with the underlying assumption that people have unitary minds.
“Why Everyone (Else) Is a Hypocrite: Evolution and the Modular Mind” by Kurzban was not a great book, but it was interesting that he singled you out for a few examples of simple thinking along these lines.
Fenn: What I’m suggesting is that if your theory declares that people care more about A than B, and if evidence suggests that people care more about B than A, then your theory needs to be reconsidered.
Your objection, if I understand it, is that such reasoning falsely assumes a “unitary mind”, whereas in fact it’s perfectly possible for people to care more about A than B AND to care more about B than A.
Well, of course if that’s your position, then no theory is ever falsifiable. If you present a theory that predicts men will be more wage-sensitive than women, and I present evidence that women are more wage-sensitive than men, you can deny the relevance of my evidence on the grounds that men and women have “non-unitary” minds. You can, for that matter, deny the relevance of any evidence whatsoever that contradicts the things you want to believe. That seems to me to be a poor strategy for learning.
“This in turn calls for a tax increase to tamp down that wasteful arms race.”
That’s of course what my old Professor Frank would say, but if relative status mattered it would seem to me that an equally good policy would be to increase the ranks of low-status folks: I was pondering this very thing coincidentally yesterday … http://theunbrokenwindow.com/2012/02/28/calling-all-behavioralists/
“That seems to me to be a poor strategy for learning.”
Might I cautiously suggest it is not intended as a strategy for learning.
Anyone believe potholes are what’s busted the budget? We can no longer provide that basic (local??) govt function without a major tax increase on the wealthy? C’mon, Frank has to at least find a better iconic example. (Where I live the scare tactic is always cutting things like snow removal.)
I presume most forms of “public consumption” are net transfers from upper-income to lower-income people. In which case Frank’s argument seems to devolve back to the (decidedly un-economic) argument “yeah but they don’t really *need* the money”.
It seems to me immigrants would not always be considered on the lowest rung if society if in their mine they’re comparing themselves to people in their social circle and/or homeland.. Many are on the highest rung compared to those left behind.
It’s one thing to personally step off the hedonistic treadmill. It’s a a different thing entirely to force others to step off the hedonistic treadmill.
If we’re sticking needles in Bob Frank, let me point out a different implication of his views which I was unable, in a long exchange on my blog, to get him to respond to.
By his account, education is mostly a positional good–the main benefit of my sending my kid to Harvard is that he gets the better job that you would have gotten otherwise, not that he can actually produce more of value. If so, on straightforward economic grounds, we should tax education—K-12 and above–instead of subsidizing it.
You might check out the book I mentioned, because you are brought up several times as an example.
A “modular mind” can have modules that value A over B and others that value B over A. Both these propositions might be tested under the right conditions, demonstrating “hypocrisy” on the part of the person who is really a collection of such modules.
My position is not that no proposition is falsifiable, but rather that the human mind is capable of holding contradictory opinions/values/beliefs.
It seems much more serious to me to consider that people can believe both A and B and deal with the ramifications of balancing both priorities than with “falsifying” one or the other through debate and carrying on like something has been proven. That second option seems like a poor strategy for learning to me. :)
1. People know how well they are doing, but they don’t know how much of it is caused by the Prez’s policy. So in some sense they are arguing about the counterfactual.
2. One outcome of the happiness literature is that people have a hard time predicting what will make them happy/unhappy. It’s possible people think they want their income to increase and everyone else’s to increase, but are happier when (with the same absolute gain) they have a larger relative gain. What if we looked at people whose relative income had risen compared to their cohort controlling for everything else (political beliefs, income…)? If those with larger status gains were more likely to vote for incumbents, then it might lend evidence to Frank’s position.
I have no vested interest in Frank’s position, and I am not sure what that sort of study would show. I am curious is Steve has a strong prior about what that sort of study would show.
Thomas Bayes, it’s a rare thing when a movie is better than the book/story that inspired it, but in this case;
http://www.imdb.com/title/tt0113264/
it is.
Also timely, it stars Christopher Plummer who just won an Academy Award.
People who are in the same tax bracket should be taxed in approximately the same proportion, and therefore their relative positioning wouldn’t change. If A and B have the same income, and both have an effective tax rate of 25%, their relative ability to consume is unaffected.
However, this highlights a question regarding graduated tax rates. If I am in a higher tax bracket than you, and I have a higher effective tax rate, then my ability to consume is reduced more than yours, and the difference between our consumption capabilities is less than is warrented by our relative incomes.
So, are graduated tax rates a Frank-ian effort to level the playng field?
I’ll believe the relative income nonesense when someone shows me evidence that people leave high wage jobs to take equivalent jobs that pay 10% less in firms where average wages are 20% less.
“When politicians say the economy is doing poorly, they’re mostly informing us that other people are doing poorly. If Frank is right, we’ll consider that good news and (if we believe the news to be accurate) reward the incumbent who brought everyone else down. In other words, is Frank is right, then President Obama’s best strategy is to take credit for a disastrous economy, while his Republican opponents should argue that in fact we’re in the midst of a strong recovery.”
This is not my favorite piece of reasoning. If what most people see is a small percentage of people at the very top rising much faster than everyone else, pulling away from the pack,and a bad economy only hinders the opportunity to improve one’s personal condition, then Obama’s best strategy to garner a larger number of votes is to argue that we are in the midst of a strong recovery and most people will be seeing improved opportunities soon.
In other words, if the top is pulling away in good times and in bad as the data indicates, most people only see diminished opportunities to change their relative position in a bad economy. So speaking to an improving ecomony is speaking to improving opportunities and seems like the right thing to do if getting the most votes is the goal.
I also agree with Harold’s points. Frank was speaking about positional goods being important after incomes rise beyond a certain threshold.
I can buy into some of Frank’s arguments about a tendency to look at relative wealth over absolute. I’ve watched people go from happy to angry when they discover others’ pay at the same employer. I can’t buy into much of it (and, certainly, not his kind offer to help us by making us poorer). The obvious problem is the third-world doctor who happily comes to the US and sweeps floors (happy in the sense that he stays here).
I think Neil’s assessment (“I’ll believe the relative income nonesense [sic] when someone shows me evidence that people leave high wage jobs to take equivalent jobs that pay 10% less in firms where average wages are 20% less.”) is not to point. Yes, I would not leave my current job to be the highest paid person in a competing local business. I suggest Frank would argue I’d still compare myself to my neighbors (the same ones I had before). I do believe we can find people in NYC, LA, SF, etc. who move to other places where they make less, but are relatively better off than their new neighbors and happier for it. (Though there are certainly other implications of the move on lifestyle.)
One way to find the point of an article is to look at the last paragraph:
So when the anti-tax wealthy make campaign contributions, they are buying only the deeper potholes and dirtier air that inevitably result when tax revenue is low.
It’s possible that potholes are more a result of weather than tax policy. E.g. Arizona might have less potholes per capita than Illinois and Arizona tax revenues might be less than Illinois.
California might have worse air quality than Idaho even though Idaho’s tax revenue is much less than California.
This is an “Economic View” article so data or economic theory behind this assertion would have been useful.
This just gets to what seems to be intellectual dishonesty.
It seems more likely to me that there is a correlation between tax revenues and economic disparity. And that there is a correlation between economic disparity and social mobility.
So instead of the question:
Why are so many of them vehemently opposed to the higher taxes needed for improved infrastructure?
The more appropriate question might be:
Why are so many of them fervently in favor of policies will increase the chance of their posterity being wealthy?
Of course this line of questioning might make a person come to the realization that they (filthy, rich, poor hating, inhumanly callous, money-grabbers) are acting as rationally.
“In other words, is Frank is right…”
Sorry to be a nit picker, but I think it’s supposed to be “if Frank is right.”
Nice article.
A “modular mind” can have modules that value A over B and others that value B over A. Both these propositions might be tested under the right conditions
What this means then is that a person can value (A and C1) over B, as well as (B and C2) over A, where C1 and C2 are additional conditionals. For example, when I am sleepy I prefer sleep over food. However, when I am hungry I prefer food over sleep.
In other words what your statement is not saying is that a mind can choose A over B, as well as B over A.
But additionally, you’re ignoring what Steve is saying. He’s saying that if you are claiming that person P prefers A over B, then observe his behavior and see that in fact P prefers B over A, then the claim P prefers A over B is wrong. In the example Steve is talking about, Frank makes the claim that people prefer higher relative status to higher absolute status. However, upon examination, this is shown to be false because people prefer to make more money even if that means other people make ever more money.
To get to the point, which scenario would you prefer:
A. You take a 10% cut in pay and your neighbor takes a 15% cut in pay.
B. You take a 10% increase in pay and your neighbor takes a 15% increase in pay.
Which scenario do you think most people prefer?
This post is a very strange oversimplification. Why do you base your reasoning on the assumption that the *only* thing people care about when hearing the economy is bad, is that it means other people are doing poorly?
Some counterexamples so blindingly obvious, IMO, that it’s really weird you didn’t address them:
– People who are doing well but fear that position is precarious when they hear about the economy doing poorly.
– People who suspect that their opportunity to climb higher up, and compete with those who are ahead of them, depends on the economy doing well, so are frustrated to hear that their opportunity currently is lower.
– People who know they’re doing very poorly, and interpret the economic news to mean that situation will continue for a longer time.
I just read the article by Robert Frank. It’s obvious he began with his conclusion, and then sought out his reasoning — an exercise in stupidity and bad taste.
@ Ken:
There is at least fork lore evidence to support that people would prefer A.
Here is a Russian joke:
There is a peasant with one cow who hates his neighbor because he has two. A sorcerer offers to grant the envious farmer a single wish. “Kill one of my neighbor’s cows!” he demands.
A similar joke with God appearing before a man:
God: “You have been a faithful servant and I will give whatever you wish on one condition: That your next-door neighbour will get just the double of what you will receive from me. Mind you, there is no limit to what you can ask for as rewards from me. You may now ask for anything of any quantity.”
Man: “God, Please gouge one of my eyes out I would be content with only one eye.”
Ken: “In other words what your statement is not saying is that a mind can choose A over B, as well as B over A.”
It is clearly saying that one person’s mind can do exactly that, but perhaps not at the same time. The existence of the other conditionals is something that cannot be removed as our minds operate as a whole.
There is no contradiction. Prof. Frank’s treadmill effect clearly exists (someone above linked to some good articles), but as Prof. Landsburg shows, it must be dwarfed by the good-old-fashioned more-wealth-is-better effect. Prof. Frank would do better to abandon his claim that the treadmill effect is always dominant (clearly it is not) and instead should focus on instances where demonstrably it is, e.g., so-called burden-free taxes (diamond goods).
@Prof. Friedman: Your education argument seems right on the money. But did Prof. Frank claim K-12 ed to be a positional good? That strikes me as absurd (with the exception of those notorious 30K Manhattan daycares). On the other hand, I agree much of higher ed is a positional good.
I think WillA the point of the joke — and it’s a joke, people laugh — is the petty foolishness of the Russian peasant. It is laughing at a presumed cretinous other and his foolishness. That obviates your implication that we see it as a truth about ourselves.
Here is a fuller explanation of why I think the post is wrong, which repeats some of what I have already said.
The post effectively says that there is a contradiction between two things:
A) people generally care more about relative position than absolute position.
B) people generally prefer it when the economy is doing well.
We can take it that B is true (according to voting etc.).
There is no contradiction so far, because the economy does not alter your relative position, therefore we should generally prefer the economy to do well. Then comes the key link in the chain -since you already know about your own state, knowledge that the economy has done well only adds information about the others to whom you compare yourself. If the economy has done well, your relative position must have declined compared to the economy not doing so well. Then A and B cannot both be true.
Since B is true, then A must be false.
There are some problems with the logic chain. Principally, you care about your position relative to who? The contradiction arises only if the comparitors are everyone affected by the economy, and only them.
So if you only compare yourself to people you already know about because you see them regularly, then information about the economy does not give you much more information, and is irrelevent to your position. You should want the economy to do well.
If you compare yourself to a small sub-set of the economy, say people in roughly the same socio-economic group as yourself, then you could well believe that general economic performance does not provide that much more information than you know yourself. If you are doing well, then probably others with similar jobs are doing well also. You own position gives you more information than the general economy, so the economic performance is again irrelevent and you should want the economy to do well.
If however, your comparitors are everyone else, then it should be global. If the USA does badly compared to Europe or China, then your relative position declines. Since there are more people in the rest of the world than the USA, caring about your relative position requires you to want the economy to do well.
So the contradiction disappears whether the comparitors are a small, well-known group, a sub-set of the economy similar to yourself, or everyone else. There is not necessarily a contradiction between A and B.
@ Ken B:
It was a typo on my part. I meant to say “that some people would prefer A”. Meaning fools and idiot would prefer A.
I felt I took up too much space already on this blog so I left it. Now that you pointed it out, I think I can legitimately take up space with my correction.
WillA: ” I took up too much space”
Ahh, reminisicing about your school days. Always fun.
@Cos: Double standard? Frank made a pretty general argument (for “see it’s actually *good* for them if we take their money”), so why can’t it be rebutted in kind without having to address every nuanced hypothetical? Again Frank’s main example of potholes seems like a particularly weak case for a large *federal* tax increase. (And the fact that Romney paid another 14-15% to charity would seem to weaken the symbolism there as well.)
@Harold: “If the USA does badly compared to Europe or China, then your relative position declines.”
This also seems like the type of ‘cognitive error’ that causes people to favor protectionism — that is, precisely the type of issue economists should feel duty-bound to educate people against, rather than ‘enshrine’ by designing policies around.
@Will A,
I have no doubt that some people are like this, but not most people.
@Harold,
It is clearly saying that one person’s mind can do exactly that, but perhaps not at the same time. The existence of the other conditionals is something that cannot be removed as our minds operate as a whole.
Then you agree with me.
If conditionals cannot be removed, then they must be made explicit.
To say that
S. P prefers A over B under condition C1
T. P prefers B over A under condition C2
is absolutely not the same as
U. P prefers A over B
V. P prefers B over A
In fact, as soon as condition C1 occurs, the statement V is false. Additionally, as soon as C2 occurs U is false. Because U and V cannot be considered to always be logically true, they are false.
iceman: I am not saying that these positions are necessarily correct, just that they could be honestly held. I applaud efforts to educate us about these issues, and I have learned a lot from this blog.
Usually, when I find an “error”, it is pointed out to me where I have misunderstood something.
Extending the hypothesis, the person in question should feel better if the global economy does badly, and I doubt that would actually be the case. However, the president cannot be held accountable for this, so it makes sense for him to play up the economic performance of the USA, even if we did care for our relative position more than our absolute position.
Ken: I agree in principle, but the conditionals are not just A B and C, but an almost infinite combination of states. I might prefer A over B if I just saw a picture of a pretty woman, and B over A if I just fed my cat. It will always be better to elucidate these if possible, but sometimes it will be beyond us. There is a well known illusion where a figure of a cube appears to alternate between two states, or an old woman becomes a young girl. There must be some alteration of mind that causes these switches in perception, but we cannot elucidate exactly what. The mind cannot concieve of the old woman (A) and the young girl (B) simultaneously, but we cannot make explicit the conditional “C” either.
@Harold:
I understood you not to be actually endorsing the ‘global relative standard’ (for which your logic might make sense). But on a more relevant level, to me a parallel to protectionism is when Frank tries to buttress his case by saying the average person has gained no ground over the past two decades. At that point I consider it a valuable service for someone else to remind us how much more / new even the same income is in fact worth due to the marvels of innovation. Which implies Frank’s claim does a disservice.
Perhaps.
Then again, I know a guy who denies that he can understand his own motivations, yet claims the capacity to know other people’s motivations to a 99% certitude.
So I’m coming to suspect that consistency is a much scarcer phenomenon that we’d like to believe.
Could this be an example of our tendency to be rationally irrational voters? I don’t think many people want to admit to themselves that they want others to be worse off. By voting for the candidate whom they think helps others, they get to indulge their desire to feel like a good person and to signal that they’re a good person. Since their vote has essentially a zero percent chance of deciding who is elected, they don’t need to worry about the fact that they might be less happy if the candidate they voted for won.