Sunday, October 02, 2011

Learning to Accept Envy

Economists are pretty comfortable with simple self-interest, where individuals maximize their own wealth. It's part of what makes them flint-eyed realists as opposed to naive social philosophers who think the world can be made better by convincing men to be selfless. That is, after being beaten up by utopians who envisaged a society ruled by thinking about society instead of themselves, most now see how selfishness is consistent with a growing economy (the invisible hand, Adam Smith), being nice (reciprocal altruism, see Robert Axelrod or Robert Trivers), and is an efficient way to incent people with relevant information to get them to do the right thing (Friedrich Hayek's work). Just consider that ants, who sacrifice themselves without pause for the group and work tirelessly for the tribe, are also genocidal maniacs. Our selfishness, paradoxically, makes us wealthy and nice.

Unfortunately, after having reconciled with greed, envy seems still outside acceptable behavior. Envy is one of the Seven Deadly Sins, and is rather prominent in the Ten Commandments (coveting neighbor's goods, God's envy of other gods). So, compared to simple greed, it has a similar pedigree, even if we think it worse than greed.

Several econ bloggers commented on Brad DeLong's remark that the rich gain utility from their relative consumption, and so the optimality of more progressive taxation. Alex Tabarrok remarked that we should not encourage envy by the lower-income people; Greg Mankiw sees envy as economically destructive, and arbitrary (stopping at our borders); Megan McArdle sees inequality in much more than income, which leads to absurdities if we tried to apply this to looks. All seem pretty intent on keeping envy out of their assumptions about human behavior, a vice more like pettiness than greed.

It's hard to avoid envy when a colleague gets a great new job, but that's not society's problem, just mine. Luck is a big part of life, and it's actually not pretty to envisage a world where payoffs are not so random. Consider that in competitive chess players have much less random outcomes than in other sports, and they are rather depressive bunch (see Tyler Cowen on this here, and he was a good young chess player). Randomness in life allows us all a little excessive optimism, and such optimism makes us happier and more successful.

Rober Frank's book on Social Darwinism, reviewed here in Slate, argues that because of conspicuous consumption driven by attempts to increase our relative status, we engage in lots of wasteful consumption analogous to elks with large antlers: we'd all be better off with smaller antlers (houses), but individually we all benefit from larger antlers (houses). He then thinks, why not tax consumption progressively, to the benefit of all? No fancy watches, cars, and grills, for anyone, will benefit everyone.

It's heartening to see so many taking up the envy paradigm--even if to say it's all wrong--because as I've argued, if we are primarily envious as opposed to greedy, that would explain the lack of a risk premium. I'm also OK with envy, in that we just started trying to figure out its implications, and it may turn out to be as innocuous, even beneficial, as with greed. For example, envy allows us to empathize with others who still don't need our money to survive, which describes virtually all of the poor in America; it's nice that we are charitable towards the poor today even though they are wealthy beyond anyone's dreams prior to the 20th century. As envy is rather hard-wired it would be odd if it were completely dysfunctional to our species, and so I suspect it is essential in moderate doses because every instinct we have has some base benefit (greed, lust, pride). In any case, it can still be important even if it makes us all worse off.

As to discouraging antler growth, the size of elephant seals, or Patek Phillipe watches, this seems to ignore the fact that almost all of the amenities of modern life are unanticipated benefits from someone who was probably partially driven by his desire to have the best car among his social circle. The great technology, art, and philosophy we enjoy is a by-product of selfish, and envious, individuals. Were we to prevent conspicuous consumption, how much less would we have? That's a hypothetical, but consider that many technologies started as baubles for the idle rich, and then became extremely useful for more mundane uses (no one anticipated computers or cars becoming essential household products).

Envy is ubiquitous, one of the Human Universals found in every culture at every time. It's not a societal problem, but a personal one, one that deserves moderation like so many of our instincts. Economists would do well to start taking seriously the implications of envy over greed, its effects show up in all sorts of unexpected, important places (eg, asset pricing theory).


albert25 said...

I used to envy people in the unhealthy kinds of ways, but now most of my envy is coupled with admiration (like when I speak to people who are more intelligent then I am, I obv. envy them and wanted to be higher IQ myself, but at the same time admire and respect the person). The "bad" kind of envy is the one where it comes isolated of these other nobler feelings.

B. A. said...

when "envy" is in the small benign dose that you mention, I think it is commonly called other names with less negative connotations. the typical "envious" guy is a sore loser, and nobody wants to be friends with sore losers. being looked down upon can't be that much of a survival advantage. maybe it's nature's way to make people who's genes' survival is getting in a desperate situation try desperate things. volatility is the only hope for the weak. in chess, the safest thing to do against a weaker opponent is to play a closed game. against a stronger one, try to open it up and then hope to get lucky. chances are very slim anyway, but that's the best you can do.

J said...

When my rich uncle bought me a multigear bycicle (for my good grades), all the boys in my street gang united in destroying it. Envy is 100% destructive, they didnt want it for themselves, they wanted me to lose it. Lets generalize...

zby said...

I am sure I've linked to it previously, but in case that it somehow slipped into the spam folder: the whole work of the famous anthropologist Rene Girard revolves around the idea of envy. I really recommend his books (for example 'Violence and the Sacred').

Ben said...

G-d is not envious, he is jealous.

Envy is wanting what others have, jealousy is wanting to deny others. Envy makes you build yourself up, jealousy makes you tear others down.

Anonymous said...

greed and envy are both sin and they both lead to loss and, ultimately, death.

being against the gov't taking your money is not greed, by the way.

Blixa said...

Isn't the whole greed/envy dichotomy a fallacy? Greed doesn't make sense without envy, at least from an economics viewpoint where property and wealth are relational (owning something is about denying other individuals access to said thing, it is always and entirely about ranking).

It does follow that attributing different moral values to greed and envy doesn't make sense, indeed. Perhaps envy is a more complete explanation of the very same instinct usually understood as greed, that people have more trouble to accept.

As for explaining the risk premium anomaly, what about simply human intuition being crap at probabilities? If you reformulated the "pricing risky assets" problem as a problem that present the same probabilities but as a problem or game that doesn't involve the personal well-being of the player, most people would probably still get it wrong in the very same way.

Human ineptitude at probabilities is well documented, and makes sense from an evolutionary perspective as the sort of problems exemplified in asset pricing or gambling were not a problem we had to solve in the pre-industrial era while evolution was at work. Neanderthals with no skill for pricing derivatives could still breed as well as those who might have been good at it.

Anonymous said...

The real point is in the bicycle story above. Envy exists, and is probably pretty important in explaining behavior, but that doesn't mean we have to elevate it to the status of an acceptable way to redistribute (steal). Having Brad DeLong and the government "break your bike" because envy is real, is every bit as disgusting as the gang of thugs in the former posters story.

And of coures envy is different from greed. You can create a multitude of though experiments. If I give you two more of something you want than you'd ever have thought you'd obtain, but your friend four more, are you happy (greed) or sad (envy)?

Saying envy matters, and saying we should use it to form policy like DeLong the thief says, thereby validating it, is very different.

Eric Falkenstein said...

I think envy is more base, and destructive, than greed. Indeed, I try to correct myself when envious asap, as opposed to greed, which I'm more OK with, personally. But what if envy describes people more generally? That may be depressing, but who said reality has non-depressing assumptions?

Anonymous said...

He then thinks, why not tax consumption progressively, to the benefit of all? No fancy watches, cars, and grills, for anyone, will benefit everyone.

The problem is conflation of the function (net in-place liquidation value of assets) with the derivative (income, capital gains, value added, sales, etc.).

The result of this conflation is a brain-dead discourse in political economy.

OF COURSE people who have vast property rights should pay more for the existence of the entity that upholds those property rights — just as they should pay more for property insurance.

OF COURSE people who make X dollars a year should have zero tax burden as a result of those CHANGES in their net in-place liquidation value of assets.

Anonymous said...

I have three basic questions for all would be political economists:

1) If physicists conflated velocity with position the way you conflate income with wealth, where do you think technology would be today? Why do you think economic technology would be any better?

2) If the primary function of government is to uphold property rights, then why is government funded by taxing economic activity rather than taxing property rights?

3) Why don’t you ever answer the first 2 questions?

Anonymous said...

Confusing people about the distinction between “wealth” and “income” and then progressively taxing income while claiming to be taxing the “wealthy” is probably the worst single political economic crime possible to commit in public discourse.

“Wealth” is not “income”. “Wealth” is property rights – net assets – the net in-place liquidation value of assets, etc.

Since the primary function of government is the protection of non-subsistence property rights, it is sensible to charge a use fee for those rights. Note, I said “non-subsistence” property rights. The point here is that house and tools of the trade are protected from confiscation under bankruptcy law precisely because they are subsistence assets. Where government does not exist, subsistence properties are typically defended by the occupant, whose life is sustained by those assets. Government brings precisely the property rights we associate with civilization — assets beyond home and tools of the trade.

Failing to charge a use fee or tax for property rights allows the truly wealthy, whose property rights would disappear in an instant in the absence of government protections, to continue to accumulate net assets without limit and without paying the costs of protection of those property rights—shifting them onto the heavily taxed producers.

Roy said...

Evolution mostly works on genes, not on species. It should never be considered surprising or odd to find attributes that, like envy may be, are adaptive on an individual level but maladaptive on a species level. It's especially unsurprising to find envy in a species like ours with strong dimorphic sexual selection in our prehistory; for millions of years the genes that reproduced were preferentially the ones in men who were *relatively* better off than their competition.

bruja said...

thought you might appreciate this: "He understood envy as well as anybody on the planet and carried it around with him, triple parking his car because he could, said Niehaus, adding that part of what he sold was envy."