TBR: Falling Behind
I thought about calling this post, "the book that killed my blog." I read Robert Frank’s Falling Behind a couple of weeks ago, and have been wanting to post about it ever since, but I’m not sure I can do it justice, especially when I’m tired and distracted. Although it’s a short book (just over 100 pages, paperback), there’s a lot of ideas packed into it. So let’s see if I can unpack them.
The main idea in the book is that people’s well being is determined by their relative income as well as their absolute income, and by how far behind they are as well as their ordinal ranking. I think this is a relatively non-controversial statement if you’re talking about people at the very bottom of the income distribution — most people recognize that the poor in the U.S. are still very well off compared to much of the world’s population, but suffer from their low relative income and status. But it’s a pretty controversial statement to say that the very high wealth of Bill Gates or Wall Street financiers makes everyone else worse off.
So, probably the first third of the book goes to justify that statement. This leads Frank into some interesting detours — he first has to justify that "happiness" is something meaningful, and that "having more money" is not synonymous with "being better off." He then spends a good chunk of space arguing that the reason that other people’s wealth makes us worse off is not envy, or conscious attempts to "keep up with the Jones’" but rather the result of context affecting our perception of what’s adequate and what’s reasonable.
One example he gives is that the existence of $2,000 grills with all sorts of bells and whistles makes it seem more reasonable for him to spend $300 on a new one, even though his old one that cost $40 had done a perfectly adequate job. I can verify that I could see this happening as we made our choices about our kitchen.
In the second half of the book, Franks argues that positional concerns cause people to spend more and more of their money on things where ranking rather than absolute levels of consumption matter. But this makes everyone worse off, because if everyone doubles their spending, the ranking is left unchanged, only people have less money to spend on other things (or less free time). I thought this made a lot of sense, although I’m still not entirely convinced by his arguments about what is and what is not a positional good.
Frank poses a pair of thought experiments about this, and I’d be interested in reading some responses. He asks, which would you prefer:
1) World A, where you live in a 4,000 square foot house and everyone else lives in a 6,000 square foot house OR World B, where you live in a 3,000 square foot house and everyone else lives in a 2,000 square foot house.
2) World C, where you have 4 weeks of vacation and everyone else has 6 weeks, OR World D where you have 3 weeks of vacation and everyone else has 2 weeks.
I think I’ll stop here, and come back to the discussion after I’ve gotten some responses in the comments.
March 26th, 2008 at 1:39 pm
i would prefer world b and world c. other people having more than me hasn’t ever really bothered me that much. however, i don’t want a big house. i would prefer b to a not because i want a bigger house than everyone else but because i truly do not want a 4000 sf house.
March 26th, 2008 at 6:49 pm
I do think that one “wants” more when the mean of what people have changes, but I’ve always disagreed with the economists arguments that this necessarily means that people are using a “positional ranking” metric. I think people want more when the mean changes because they see what is possible. If you live in a neighborhood where all the houses are 2000 square feet, you don’t know what you’d do w/ 3000. But, once you’ve seen the bigger house, you might decide you like it better. That doesn’t have to mean you want a *bigger* house than your neighbor, but that your neighbor’s bigger house exposed you to the possibilities.
And, there are a variety of things where what Bill Gates (and his minions 🙂 have changes what I am able to get, practically. Since I live in Bill Gate’s backyard, I am painfully aware of this in the form that money from Microsoft influence the cost of housing, of second homes, and the availability of private schooling. Those are all scarce goods whose availability depends on the relative amount of money I have.
March 26th, 2008 at 9:09 pm
bj, Frank totally agrees with you, but still considers that a consequence of inequality. He calls it “the rising cost of adequate.”
March 27th, 2008 at 12:26 pm
Well.
We actually live in World A, more or less. (The ratio is maybe more like 4:5, not 4:6). And I’m fine with that. But if the question was about quality of kitchen building materials (ours are subpar for our square footage, and we just confirmed via county records our long-held suspicion, which is that the builder went bankrupt halfway through the construction — to our benefit, spouse points out, because we might not have been able to afford the house if it had the same finishes as our neighbors’ houses, whose builders stayed solvent) — well, that would be harder.
An embarrassing admission, but there you have it.
And although I’d like to say I’d prefer world C, I suspect the small and petty part of me would be terribly troubled by the imbalance, and that world D would be less upsetting. After all, there are only so many square feet I want to clean, but if I’m hauling myself off to work while my neighbors vacation for two more weeks? Yuck.
I have to laugh at myself, though, because we have the potential for summer-long vacations every year. We’re going to be traveling for parts of five this summer….
March 27th, 2008 at 3:41 pm
I think housing is a positional good, but to me its not just about size, its much more about location. Locations are by definition scarce, so you do have the problem of people bidding up a scarce resource with no benefit. In some ways I have chosen World B, as I live close to the city in a smaller house, to reduce my commute. Most of my peers at work live further out in bigger houses. But houses close to the city are more expensive, so I’ve actually chosen to spend more of my money on housing than my colleagues.
I don’t think leave is a positional good though. Not yet, anyway. Interesting choice of worlds, that one – it’s really contrasting Europe with the US.
April 2nd, 2008 at 12:40 pm
Interesting thought experiment. I found it hard to decide, because there is no place for deciding what is ‘enough’ for me, an option I hope still exists in the real world. I’d personally rather have only 800ft or so of house. And I certainly don’t want to have more space than everyone else (B) perhaps because of peculiar religious beliefs*, but if I choose the more modest house ratio (A), then I end up with more house that I don’t want! On the second experiment, it’s easier. I’ll take more time no matter what other people have (C), unless the price I pay (longer hours? more stress?) isn’t worth it otherwise.
*e.g., believing that having more than a fair share is not sustainable
April 8th, 2008 at 10:45 am
How about World BA, where we live in a house that’s (B) twice as big as those of all our college friends (not even counting the almost-dry basement and bat-friendly attic), but (A) one-half to one-tenth the price, because we live in the middle of nowhere and they don’t? We can afford to live in a house like this only because we’re not on the coasts. So it’s simultaneously bigger and lower price/status.
(But, perhaps the real issue there is that for me the emotionally resonant peer group is not our geographic neighbors, but the people I went to school with.)