(Laura’s note: my column ran in yesterday’s USA TODAY under the headline “Does Income Inequality Matter?” online and “Does Income Gap Matter?” in print.)
Income inequality has long been with us, but it has seldom been talked about as much as in this election cycle. Last fall’s Occupy Wall Street movement introduced us to the 99% vs. the 1% paradigm, and in his State of the Union address, President Obama warned of settling “for a country where a shrinking number of people do really well, while a growing number of Americans barely get by.”
Does inequality matter?
Polls find that few consider it a top issue. Asked by Gallup what worries them the most about the economy, people list jobs and the national debt far above the gap between rich and poor.
Of course, people might be fooling themselves — a position some pundits and economists have taken. Plenty of research finds that humans view life according to where we land in the heap.
But if you think about it, this suggests a path to boosting happiness that perhaps seemingly oblivious Americans have already walked down. If happiness stems, in part, from where we stand in our reference group, why not change reference groups? Choose the right reference group, and you can have any status you want — and coming out on top is easier than you might think.
Can money buy happiness?
As often as we remind ourselves that money can’t buy happiness, science is fairly clear that the human brain has evolved to seek and defer to status. Perceptions of wealth play a key role in that. Some Dutch researchers once set up an experiment in a shopping mall where a woman asked passersby to answer survey questions. Shoppers were four times more likely to stop when she wore a conspicuous designer label than when she didn’t. In a now famous study by economists Sara Solnick and David Hemenway, people were asked whether they’d prefer to earn $50,000 in a situation where others were earning $25,000, or earn $100,000 when others earned $200,000. Half of people chose the first situation, even though $100,000 is — objectively — more than $50,000. You could do a lot of ego-soothing for that extra cash. But humans are social creatures. It is not enough to be well off. We want to be better off than other people.
One can argue whether that’s rational. But if it’s true, then it’s critically important to choose the right reference group. And here is where things get tricky. Because who, really, is my neighbor? I can compare myself with Mitt Romney and feel poor. But I don’t know Romney. So why would he, and people like him, be the right reference group?
It’s a good question. It might be human nature to compare ourselves with those who have more, and thus feel as if we’re somehow behind — that if we’re comfortable we should be millionaires and if we’re millionaires we should be billionaires — but it’s just as easy to compare ourselves with those who have less. Indeed, it’s easier, because there are a lot more of them.
As of October, there are now 7 billion people on this planet. In a globalized world, that’s as reasonable a reference group as 300 million Americans. After all, we keep hearing that we’re competing for the same jobs. With that as a reference group, a quick calculation would find that anyone reading this is most likely among the world’s wealthiest 10% (700 million). The median net worth of the world, according to 2011 statistics from the Credit Suisse Global Wealth Report, was about $4,200 per adult. The median net worth for adults in the USA was almost $53,000.
Put things in context
Of course, if that makes you feel rich, why just limit the reference group to people living now? Centuries ago, King Louis XIV, with all his riches, didn’t have access to the antibiotics, vaccines or modern dentistry that we take for granted. The Population Reference Bureau estimates that in the 50,000-plus year course of human history, about 108 billion people have walked on this planet. During much of this time, people died of illnesses we now shrug off. Childbirth was perilous. If we worry about obesity rather than starvation, and worry about it in the comfort of our heated houses, we have it pretty good. Good enough to be among the 1.08 billion most comfortable people ever to have lived? Perhaps. Being born in the past 80 years or so, knowing how to read a newspaper, and living in a society that allows it amounts to winning the lottery of human history.
To be sure, that doesn’t mean life is perfect. A rich country like ours can certainly do better than an 8.3% unemployment rate. But perhaps the reason Americans don’t express more concern about the gap between rich and poor is that people know, though times are tight, they could be tighter — and are, in much of the world. With the right reference group, we can all be in the 1%. It’s a choice. Look at a few people and feel poor, or look at most of humanity and feel rich. If we want to feel blessed, rather than unhappy, the right answer is pretty clear.
Laura Vanderkam, author ofAll the Money in the World, out on March 1, is a member of USA TODAY’s Board of Contributors.