The Age of Envy

A good test of a theory is to ask the simple question: can it more parsimoniously explain the world better than the status quo?

I argue that people are primarily driven by envy as opposed to greed (see here), so they are mindful of their relative, as opposed to absolute, position, and this leads to doing what others are doing as a mechanism of minimizing risk. In contrast, a standard utility optimizer looks at how to generate a maximum return for a given level of portfolio volatility, broadly defined to include human capital. Now consider, investment advisers generate tables of risk and return, and ask their client where they want to be? They do nothing of the sort. Instead, they generate extensive commentary of hot issues, major market sectors that are growing or shrinking, because notify what sectors where investors should shun or increase. This creates the occasional bubble, though that is an unintended consequence.

Understanding the prominence of envy over greed has several other implications. For example, there is a known home bias, where people overinvest in their home country. From a strict mean-variance perspective this makes no sense, because adding Germany and Japan to an American's portfolio would be a first-order diversification tactic. But if you are mainly concerned with keeping up with your neighbors who primarily invest in the US, then the home bias makes perfect sense. Another key implication is that happiness is not a function of aggregate wealth, so even as wealth per capita has risen immensely over the past 100 years, we aren't all that much happier. This is known as the Easterlin Paradox, because it is a paradox to standard asset pricing theory.

Self interest was at first derided as amoral, Machiavellian, but first Adam Smith showed that it could generate socially desirable results through unintended consequences, though to this day many find this fanciful. Evolutionary biologists like David Hamilton and George C. Williams showed that self interest could lead to altruistic instincts towards are families. Game theorist showed that rational, far-sighted self interest produced 'win-win' outcomes, as in the iterated Prisoner's Dilemma. Given the conspicuous failure of socialism in 1989, wealth maximization is intellectually defensible on moral, societal, and libertarian grounds. There is no such bright side to envy, which does not generate any salubrious unintended consequences.

People rarely say what they mean when targeting a goal because the indirect route is usually more efficient in the context of working within a collective where others have competing goals, and so selectively emphasizing process or results to the act or the rule, allows a great deal of rationalization. Efforts at redistribution invariably are framed as win-win or part of a broader altruism, when in fact it is merely taking from the rich just as Stalin expropriated the Kulaks. Christina Romer, an economic advisor to President Obama, notes that we can reduce the cost of health care by basically taxing premium care out of existence, which only makes utility maximizing sense (ie, sense to an economist) if you think those who consume more than others directly hurts those who consume less, intuition given our common envy (see page six, top paragraph here). Paul Krugman baldly states that universal care is the progressive objective for health care, as if distribution were all that mattered. As Greg Mankiw noted, health care reform would lose its impetus if it were revenue neutral; the redistribution isn't a side benefit, its the main point.

We are an envious little species. This is why there is no general risk premium, but has many other footprints, such as the desire for redistribution, why we aren't twice as happy as our great-grandparents, or ten times as happy as those living in Guatamala, why people have a home bias, etc. (my book goes over these in more detail). It is also why the moral superiority of self-rule is self evident to most people, regardless of how incompetent and inefficient the local rulers are (no one is proposing Britain, US, or Italy take over Zimbabwe, Afghanistan, or Ethiopia, regardless of the anarchy in these countries). Envy is why, regardless of how well an immigrant group is doing relative to their home country, or even anywhere else in the entire world, if they are doing below average in America they are presented as dispirited victims--how can you be happy if you have all the creature comforts you can manage, but less than average in America itself?

Egalitarianism is the essence of diversity, which is the primary principle championed by modern universities. The idea that redistribution of money and power--progressive taxation, making wealthy individuals kowtow to elected officials--is suggested as win-win, but there's no data suggesting that affirmative action has ever raised a group out of its inferior socio-economic position, or generated anything but further friction. It remains popular, however, because its short run effects are directly attractive to most people, who have no problem rationalizing taking money and power from those at the top.

John Adams made sure the USA had many republican features because he worried that "There never was a democracy yet that did not commit suicide", an opinion first articulated by Thucydides in the fifth century BC. I think this is because mob rule unleashes the envy of the masses, which brings down the best, and in the process the talented tenth, the elites, that drive anything worth cumulating upon in the realm of ideas (and thus, art, science, and technology). Under the elevation of diversity as an end in itself, envy is almost shameless now.

In sum, envy is a better description of what motivates people in general, and underlies currently popular politics and progressive intellectuals. We can rationalize the desire to take from those with more under various pretexts--reducing health care costs, rectifying racism, improving the financial system--but only because the mind is very good at confabulating (eg, taking money from the top 5% is often presented as an altruistic disposition). People aren't utilitarians, and academics are usually only utilitarian when they presume it is consistent with egalitarianism (eg, Peter Singer arguing that giving everyone positive rights is utilitarian). I don't believe 'ought implies is' anymore than 'is implies ought', so I'm comfortable knowing my pragmatic utilitarianism that emphasizes the the virtue of liberty is not what most other people think is good policy. My only comfort is that I believe most educated egalitarians would admit their beliefs are untenable if they weren't also consistent with utilitarianism, that there is a trade-off between equality and efficiency, and that their instincts are more base than the dismal scientists every imagined.