After reading and thinking about quite a couple of issues that seem to cross morals, philosophy and economics, I thought it would be nice to try and explain, in economic terms, the way our incentive system may have changed (more than ever, by circumstances and training) and thus the forces dictating how happy we are. This is probably the longest academic piece I have written on this blog; I spent about 2 hours getting this essay/article’s argument right, so intellectuals, enjoy.
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In the 23rd December The Economist issue, the featured article was about Happiness and measuring it to replace existing measures of standards of living and thus the way in which we think and perceive ‘advanced economies’. It highlighted the existence of positional goods and explained why people did not stop working (and start slacking) long after they manage to get past the subsistence level. That, directly puts the blame of the post-modern unhappiness on inequality.
Inequality has lingered around eternally, and in most system, it is self-correcting, being perpetuated as cyclical conventions – wind is brought about by unequal pressures within a closed system (thus inequality is eliminated when the wind blows), a hydropower plant is possible because of unequal potential energy in water present on different heights (which is why the water flows down and generate the electricity), and even our economic cycles, can be explained by some unbalanced supply demand interactions that occurs at a macroeconomic scale. In other systems, it does not correct itself but relies on purely artificial mechanisms installed to facilitate the process – without progressive tax, at least theoretically, the rich will remain much richer than they could have been and poor would not enjoy much subsidies, in other words, it seems inevitable that inequality must prevail in many cases. You won’t expect money to flow from the rich to the poor by itself because of the gradient unless the everyone in the world are blessed with the ability only to make wealth but not to retain them.
In human’s case of equality, there’s a huge internal conflict that makes things difficult to solve. There’s 2 basic laws in the idea of equality: (1) All equals are equals and (2) All unequals are unequal. That may sound abstract but a simple analogy provides us sufficient insights into this internal conflict present in the whole idea of equality itself. The first law suggests that we should all pay the same fares for the public bus, but the second law suggests that those with lower income or spending power should enjoy lower fares. It is a problem of identity overlap: When both persons are taking the bus, they should be considered equal in that aspect, but when looking at their financial status reveals otherwise, they are not equal in some other aspects. This forces the first law to contradict the second law in entirely different contexts that simply must be packaged together and this leaves things unsolved – and keeps debates alive.
So we’ll believe, for a moment that equality is impossible. Consider also that equality is not necessarily good – for inequality ensures order. If all are equal, will you have the incentive to rid your boss and grab his properties? Would you be grabbing policemen’s pistols and shooting those you hate? Because of inequality – you are a civilian while he is a policeman (a matter of both status, how you are viewed by the law and perceived by others), that prevents you from really doing what you may have done unless you are indeed a nutcase. More importantly, inequality keeps the economy running. While capitalism allows most people to gain access to better goods as time passes is because it also worsens the gradient between the rich and the poor everytime things get better. That’s to say that as you just realized you can have a shelter over your head and rejoice about the merits of capitalism, the guy originally just 10 times richer than you is now 1000 times richer than you, owning 10 shelters that are 10 times better than yours and in locations with 10 times more accessibility to the vital nodes of the place (wherever it might be) is thinking of throwing a huge party to celebrate capitalism. Technological advances can close such gaps as fast as they increase the capacity for the gaps to expand – the reason you are getting better off is either because someone else is worse off, all those who are already very well off are even better off than ever.
So perhaps, do we rejoice at Inequality that keeps order and shall prevail? Hardly, for as I have demonstrated in the first paragraph, it is inequality that has the highest potential to bring about unhappiness. John Kenneth Galbraith mentioned in ‘The Affluent Society‘ that given the riches that we enjoy at this age relative to the past, we have greater capacity to enjoy life than ever, to put down our hammers and sickle, keyboard and mouse to ‘Stop and Stare’. It is, however, inequality – the perception that you can be even better off since there are those out there better than you that keeps you going on, though you would gladly slack off if everyone else makes a pact to do so. Then again, you may have the incentive to cheat once the pact takes effect and so would the others and the whole collusive behavior collapses. We are all reacting to the whole system such that once our position to shifted, perhaps higher, we are automatically displacing some lower down the list – the others respond by attempting to go back to their position, and the whole order of things disrupted, and it constantly is, because we cannot possibly accept the status quo position. In this scenario, it’s “be contented and you are as good as waiting for your turn to be at the end of the list”.
Someone’s going to point out: ‘Hey, material riches have nothing to do with happiness!’ Perhaps that’s true, but worldwide survey has placed the richest people at a much happier level than the others though the difference is not very much, contrary to our fairytale belief that wealthy people are shrewd and thus lonely, without friends and the segregation between classes makes things worse. In fact, rich people have more friends whether they have lousy personalities or not – people would want to try and get close to you for personal benefits. On the other side of the spectrum, the poorest of the world are often a little happier than those sandwiched because they are ignorant about the riches that are present in the other portions of the globe. In other words, if you are living in the African deserts all your life and seen only people very much like you, though you may encounter some brown mechanical monsters moving across the place sometimes, your perception that equality very much prevails keeps you happy. This would mean that the perception of equality is the key factor and not the whole idea of material comforts when considering the happiness of a person. Because we live in a globalized world, we experience greater unhappiness – we are able to perceive the inequality present and feel quite very powerless against it. But the same process of globalization also gives you the riches others perceive you to have – because the range of positions which you can now be in, you have more spaces to move up, and perhaps there’s more ‘contented people’ around whom you can displace.
The question now, is perhaps where we are heading and where we may reach. We are all trying to attain happiness and if we relate the happiness to the equality that we mentioned earlier, that would mean that we hope for equality, at least the perception of it. Unfortunately, we are all heading for greater ‘perceived inequality’ and that means a higher proportion of us would be unhappy despite the fact that everyone’s getting better off (remember, the scale is moving upwards, the net effect is that everyone are better off). The model can also be derived from the Law of Comparative Advantage (as well as Absolute Advantage) and why people still wants to go against trade. While trading raises the aggregate output and everyone would be better off than if they had not trade, people do not compare their own before and after state, they look at the disproportionate returns that each side get from trading. They will also compare the gap between each other before trading and after trading. The losing end won’t be feeling so happy after trading – the gap between you and the highest possible position you believe you can obtain is directly proportional to the unhappiness you feel. That’s perhaps a simple generalization that’s not worthy of your attention since you draw your emotions for a myraid of circumstances. You might like to note that the happiness here refers to general gladness of life – sorry for not making this clear earlier. Therefore, we are heading towards greater unhappiness if the happiness equation remains the same. If we want to use happiness as a measure of how well the countries are doing, if we want to mirror Gordon Brown’s ideas (and make an advancement in economic measurement), we’ll have to place more emphasis on the Gini coefficient, and stop trying to compare ourselves with those other nations in the region.
We are mere individuals acting within our perception of the totality of the system we are part of – we react to this totality that we perceive. We do not seek to see the nation as an aggregate that we contribute to and use this big picture to compare with other national aggregates. As far as we are concerned, there are others out there who are doing so much better, so much more well off, despite the fact that they merely put in the same efforts as we do. If you were wondering, before reading this long essay, why Singaporeans are not exactly happy, and curious about the reasons behind all the complaining, perhaps you now know why.
