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Source link: http://archive.mises.org/19485/this-i-believe-status-seeking-and-social-fabric/

This I Believe: Status-Seeking and Social Fabric

November 26, 2011 by

With every passing day I believe more and more that status-seeking drives a lot of human action. Contrary to popular wisdom, I think this is weighs in favor of free markets rather than against them. A complete discussion requires a lot more space than I have here, but I don’t think status-seeking based arguments against free markets stand up to to closer inspection.

Intervention changes the margins on which people can seek status, and while this remains untested empirically–to the best of my knowledge–I think it is at least plausible that the cure will be worse than the disease. There is more to this than the well-worn law of unintended consequences. Yes, [insert policy here] will likely worsen the problem it is enacted to address. At a different level, the moral calculus changes when we substitute the political arena for the free market. Some people support policies in spite of their consequences in order to signal their status: they vote for protectionism because they care about American workers, they vote for welfare, minimum wages, and rent control because they care about the poor, and they vote for various environmental policies because they care about the planet.

As Bryan Caplan points out in The Myth of the Rational Voter and as Thomas Sowell has discussed in a variety of books and articles, people are usually insulated from the consequences of the policies they support and therefore have weak incentives to change their beliefs when the policies fail. Briefly, if we take seriously the claim that modern pathologies are the products of social constructs, power relations, false consciousness, and other things, moving social decision-making out of the ambit of voluntary interaction and into the political sphere will most likely reinforce the very social forces and factors that produced all that is wrong with the world today.

Relative to market exchange and other forms of voluntary interaction, political decision-making in a status-seeking society frays the social fabric. Yes, there are probably people who will spend themselves into frenzies over the next few weeks in elaborate displays of conspicuous comfort and joy. Christmas probably isn’t the best example because it is a religious holiday that does lend itself to moral elitism, but keeping up with or ahead of the Joneses generally confines itself to a material status race and doesn’t go far beyond that. If I have a nicer car than Jones, I can content myself with the conviction that Jones is just a loser and nod off peacefully in my $2000 recliner, secure in the conviction that I have better stuff than he has. The harm isn’t really that great compared to status-seeking in the political arena.

The implications of status-seeking change when you place moral weight on the issues over which people are competing for status. Take charity, for example: if the possibility of a transfer changes people’s incentives sufficiently, then the entire value of the transfer might be dissipated by people waiting in line for $0 food, clothing, shelter, etc. and by others devoting their productive energies to attempts at persuading others to give.* A digression is in order lest I be misunderstood: charity is great, but not all charitable endeavors are created equal. There is an opportunity cost associated with using resources for one charitable purpose and not another, and careful economics can help us maximize the bang we get from our charitable bucks. I explain further here.

Status-seeking over moral goods and in a political environment encourages people to view one another with outright moral suspicion. If I recycle and Jones doesn’t, or if I give to the Salvation Army but Jones doesn’t, or if I drive a Prius but Jones doesn’t, then our relationship changes relative to a world in which we are seeking status over mere material goods. In these cases, the implicit message is not that I am more successful than Jones but that I am virtuous and Jones is morally suspect. This is doubly true if we are talking about voting to make recycling, charity, and high gas mileage mandatory. When status-seeking occurs on these margins, the social fabric tears because the signal is no longer simply that I’m a better breadwinner than Jones. The signal is that I’m a good human being while Jones is…something else. Jones isn’t just a lousy breadwinner. Jones is dehumanized.

There is a lot of truth in the claim that people are motivated by the search for status, but I don’t think it works as a criticism of free markets. There’s a lot of important research to be done here, and a lot of important contributions to be made to the public debate. Here, for example, is Robert Frank’s recent New York Times article on Black Friday, and here is Tyler Cowen’s response. Here’s Don Boudreaux on the market opportunity that the critics of Black Friday are missing. If you’re shaking your head because your neighbor just spent a ton of money on fancy new toys, take heart. It could be much worse.

*-Project idea for someone looking for a paper: estimate the rate of return on the Salvation Army holiday bell-ringing campaign.

{ 12 comments }

Inquisitor November 26, 2011 at 1:50 pm

Envy is something that is purely at the discretion of the person experiencing it to mute, and trying to quash it via redistribution schemes is no guarantee that it will fade away, or even worse, simply intensify (Nozick’s brilliant argument.)

Bent November 26, 2011 at 2:06 pm

The Tyler Cowen response link gives us Robert Frank anew, here’s Cowen: http://marginalrevolution.com/marginalrevolution/2011/11/the-economics-of-black-friday.html

Art Carden November 26, 2011 at 6:00 pm

Thanks. Fixing it now.

Kid Salami November 26, 2011 at 2:20 pm

charity is great, but not all charitable endeavors are created equal. There is an opportunity cost associated with using resources for one charitable purpose and not another, and careful economics can help us maximize the bang we get from our charitable bucks. I explain further here.

Your article you link to makes good points, ones wasted on the people who I think give most of the charity money.

The money we are giving to charity has to come from somewhere, and it isn’t always clear that it will do more good, socially, if it is given to someone than it would if it were left in a bank account and lent to an entrepreneur….If you just want to give people stuff, though, then your charity is most effective when it is given in secret.

I do in fact think that the kind of charity which dominates – where you give to a central organisation that is large rather than local and small – is actively counter-productive. They cater for the incentive of most givers ie. social status – they are buying a pass card to the conversations at dinner parties they go to and the more public and self-designated do-gooding the organisation is, the more value the status seeker gets.

The charities who don’t have time to be public because they spend their money and time on helping people instead of marketing and collecting expenses receipts don’t usually provide the same bang for the buck for the Guardian readers. Imagine a charity lobbying for the repeal of the minimum wage for example?

And those who are genuine but just don’t know anything about economics end up giving to these large organisations too, because they’re there and convenient.

Unless you’re explicitly trying to change people’s incentives, you do the most good when your charity is kept quiet.

Indeed – the celebrities are always “raising awareness”. How much awareness raising do we need – what is the economic calculation that says to someone weighing up some possible awareness raising “it’s ok, we have a enough awareness raising, please pick up a shovel?”.

I think none – I think large charity organisations are frauds and that all money would be better in the bank (not the banks we have now ideally but you get my drift) providing capital to allow people in general to have cheaper stuff and have more free money to help people they want to more directly and locally.

I think this idea should be promoted and the givers who are not just phoneys might wake up and change their ways. Might – I’m not holding my breath. If I ever get invited to one of the Guardian readers social events again, I think I’ll go and suffer the wonder-government stuff just to make this argument to see what response I get.

Bruce Koerber November 26, 2011 at 6:47 pm

It is certain that when people no longer want government to serve as a corrupt intermediary, syphoning off efficacy, then envy will moderate and that moderation will accomodate charity. This is the process of ethics formation that occurs in an unhampered economy.

Rory Carmichael November 26, 2011 at 7:25 pm

It’s not clear to me how charitable giving is any more or less distortionary than government spending or any other sort of largely non-markety behavior. I mean, I guess you could look at charities as a sort of entertainment service, which sells social status and good feelings to wealthy patrons, and is forced as a business expense to spend much or most of the remaining money on building infrastructure, making investments, and providing food to people in poverty, but fundamentally they aren’t profit maximizing competitive enterprises and therefore aren’t really driven by the markets the way private firms are. If charity (even some kinds of charity) can be good than government (or at least some kinds of government) can also be good. I guess since government isn’t voluntarily funded it’s even less “markety” than a charity is, but it still seems like charitable giving can be extremely distortionary.

boniek November 27, 2011 at 10:15 am

You are onto something. Dark side of charity is that it creates dependant and entitled people.

Horst Muhlmann November 28, 2011 at 11:23 am

It’s not clear to me how charitable giving is any more or less distortionary than government spending or any other sort of largely non-markety behavior.

For one thing, the Salvation Army guy in the Santa suit doesn’t point a gun at my head.

DixieFlatline November 27, 2011 at 3:04 pm

Project idea for someone looking for a paper: estimate the rate of return on the Salvation Army holiday bell-ringing campaign.

Only an academic would recommend such a complete waste of time.

Most of us are not Koch funded. We have to do stuff that other people are willing to pay for.

CrisisMaven November 27, 2011 at 7:29 pm

Ah status! Is it four wheel, how much horse-power and can I stick it onto my credit card?

VoCo November 28, 2011 at 1:33 am

The problem with charity is the difficulty in determining the “return on investment.” In a for-profit enterprise it’s simple, the business is profitable or it isn’t. Without a profit and loss statement, how can you determine whether you are helping people? It’s possible, but more difficult.

Nile BP November 28, 2011 at 7:22 am

Excellent point. Status seeking is morally reprehensible behavior because it invites one to focus on appearance over substance, short term facelifts over long term solutions, talk over action. As long as a person does that with his own resources, it’s no one else’s problem.

But those are characteristics that we commonly associate with government, and it’s no coincidence. Politics is status seeking leveraged by a society’s institutionalized network. A “perfect libertarian” society where such behavior is tolerated and even encouraged is more vulnerable to becoming a political society than one where showing off is viewed with suspicion. One more interesting way in which morals and political economy are intertwined.

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