Sonja Lyubomirsky And The Joneses
It's hard if your life sucks. It seems it's less hard if everybody else's life sucks, too.
UC Riverside prof, Sonja Lyubomirsky, whose terrific, data-based book, The How of Happiness, comes out in paperback today, has a piece in The New York Times about why we aren't all in as much of a panic as we might be over the tanking economy:
Research in psychology and economics suggests that when only your salary is cut, or when only you make a foolish investment, or when only you lose your job, you become considerably less satisfied with your life. But when everyone from autoworkers to Wall Street financiers becomes worse off, your life satisfaction remains pretty much the same.Indeed, humans are remarkably attuned to relative position and status. As the economists David Hemenway and Sara Solnick demonstrated in a study at Harvard, many people would prefer to receive an annual salary of $50,000 when others are making $25,000 than to earn $100,000 a year when others are making $200,000.
Similarly, Daniel Zizzo and Andrew Oswald, economists in Britain, conducted a study that showed that people would give up money if doing so would cause someone else to give up a slightly larger sum. That is, we will make ourselves poorer in order to make someone else poorer, too.
Findings like these reveal an all-too-human truth. We care more about social comparison, status and rank than about the absolute value of our bank accounts or reputations.
...So in a world in which just about all of us have seen our retirement savings and home values plummet, it's no wonder that we all feel surprisingly O.K.
I wouldn't say I feel "surprisingly O.K.," but it's nice to know I probably don't feel as bad as I would if people were all still getting ridiculous ARMs and flipping houses while I rent and live frugally.
"Indeed, humans are remarkably attuned to relative position and status. As the economists David Hemenway and Sara Solnick demonstrated in a study at Harvard, many people would prefer to receive an annual salary of $50,000 when others are making $25,000 than to earn $100,000 a year when others are making $200,000."
Rather than an innate "keeping up with the Joneses" mentality, I think that these findings actually display an innate sense of basic economics. For example, if everyone else is making $200,000 a year, it makes sense that the cost of living would go up accordingly, making it difficult to subsist on $100,000/yr. Once upon a time, (in living memory for many people, even,) nice houses could be purchased for $40,000, and $25,000/yr was considered a really good salary. Inflation crept in, and those numbers no longer mean quite the same thing. So yes, for purely practical reasons, I'd rather not be making $25,000/yr when everyone else is making $35,000, nor would I want to be making $100,000/yr when the prevailing wage is twice that. Not saying that some people aren't way too obsessed w/the Joneses, but I think there's more than meets the eye in this study's findings.
Kim at December 30, 2008 5:13 AM
My economist pal Robert H. Frank writes about this sort of thing in Luxury Fever. As for "more to this study than meets the eye," Sonja is a friend, too (which is not why I'm recommending her book - we became friends through her work), and I suspect that the NYT gave her very little space, or she would've said more.
Amy Alkon at December 30, 2008 6:16 AM
I never felt bad about living on a little less than I make and saving the rest. Nor do I fault others for living the "mortgaged to the hilt' lifestyle.
Do you remember back to the dot com bubble, when the media were running articles about how unfair it was that those of us who had saved money in a 401K were becoming rich, and how unfair that was? Well, my 401K has taken a big hit, and I'm waiting for my bailout...
I don't envy the good fortunes of others. I prefer to dwell on my own. I've still got a job and my health. My kids and wife are all doing well. The rest isn't important. I'd like to travel more, but if I don't, I've seen more of the world than most.
Home prices around here never appreciated like they did elsewhere, so whatever drop we had is relatively inconsequential. Even if it were not, and my equity was wiped out, it wouldn't be that big of a deal. I'm not planning on moving anytime soon, and I didn't buy this house for an investment.
MarkD at December 30, 2008 7:15 AM
MarkD, I agree with your view that your home is not an "investment." I don't know who came up with such a silly idea, but a home is not an investment, it's a place to live. If you sold a house and made a huge profit on it, you'd probably just be overpaying for the next one, since you'd still need a place to live.
Everybody seems used to the idea of a 30-year mortgage, but has anyone stopped to think about whether it really makes sense to spend 30 years of your life paying for a place to live? Or spending 5 years paying for a way to get back and forth to work?
Pirate Jo at December 30, 2008 7:34 AM
Go Highlanders!
Eric at December 30, 2008 8:09 AM
"...the New York Times about why we aren't all in as much of a panic as we might be over the tanking economy:"
Hmm. Does somebody want to explain "tanking economy", when gasoline, an international commodity, is cheap w/r/t the dollar now - and parking lots were packed with holiday shoppers?
Just what evidence do you have of "tanked" other than self-fueling hysteria in the news? Stock values? Retirement fund values?
Just what indicates a "robust" economy? It definitely is NOT inflated home prices and "easy" credit. It isn't, when one looks at the history books, low taxes or interest rates either. And one has to keep a wary eye on any measurement offered today - witness the adjustments made over the years in unemployment figures, as such surveys started shucking vast numbers of people because they stopped looking for work.
The dollar isn't that grey/green/orange thing in your wallet or purse. It's an idea - the idea that someone will be interested in possessing it as a marker that they have done something of value. Don't mistake it for the markers used in other market trading, where a warehouse may change hands without any movement of the goods inside it, or for the obscure measurement of something "lost" due to inefficiency or natural disaster, or a "cut" in benefits not actually received.
Pay close attention to the shell game.
Radwaste at December 30, 2008 9:53 AM
Well, lets see Radwaste. More than one hundred thousand stores went out of business in the fourth quarter. Manufacturers were selling products fresh off the line to discount retailers (as apposed to such products sitting in a warehouse or two, before they finally head to the dollar tree). Parking lots were packed in some places, but the folks driving those cars spent a whole lot less than last year. And plenty more parking lots were empty or nearly empty, because retailers couldn't keep their doors open.
Simply because things look a little better in some locations than others, is not an indicator that the economy isn't in bad shape. Likewise, the fact that you and a few of your friends are doing quite well, doesn't mean that the majority of the population isn't in serious trouble.
A good illustration is the property management industry. My landlord back in Portland is loving this economy. They have had an increase in rents, because of the influx of new renters who recently lost their houses to foreclosure. These folks have more money to spend on rent, even though they couldn't make their mortgage payments. As such, the rents, trickling down to the bottom, have gone up by about seven percent in the greater Portland area. The flip side of this is that those on the bottom, who could hardly make the bottom end rent they were being charged, can no longer afford to keep a roof over their heads. Or they cut out things like health insurance or a steady diet to compensate.
A few people at the higher end may see some benefit. Many who are somewhere in the middle (and even quite a few at the high end) are having to adjust to a lower cost lifestyle, a lower standard of living. Those at the bottom are no longer able to make ends meet without making sacrifices they cannot afford. And a great many people from the upper tiers are knocked down to the very bottom or worse.
So I would say that yes, the economy has pretty much tanked.
DuWayne at December 30, 2008 11:01 AM
Hey, DuWayne, so how is gas magically cheap now? It's a third of the price just months ago.
Starbucks overextended itself before it decided to chop stores, illustrating that simply saying that "stores closed" isn't the whole story. The Big Three spent years ignoring the pension issue, while selling a commodity the public flatly doesn't have to have right away. That story's not simple either.
That's all. Not simple. Neither is the idea of a "good" economy.
Radwaste at December 30, 2008 7:27 PM
In your face, RCC!
Paul Hrissikopoulos at December 30, 2008 8:40 PM
From what I hear, I tend to agree with Radwaste - the question is what the media says about it. I read the headline "worst Christmas sales in history". Curious, a tiny amount of digging, and apparently Christmas sales were down somewhere between 4% and 8% year-over-year.
I suppose it is possible that this is the biggest year-over-year drop, but it is hardly catastrophic. Given the thin margins in many areas, it is likely to eliminate profits for the season. But it shouldn't lead to losses in any healthy business, especially since it was not unexpected.
Of course, any shift in purchasing patterns will be blamed on the economy, whether correct or not. Amazon's sales were up 44%, largely at the expense of brick-and-mortar retailers. That would have happened anyway, but the affected retailers won't see it that way...
Anyway, back to the point: the economy is largely a matter of perception. The press is largely a unified chorus, with very few dissenting voices. If this chorus were to point to the positive signs, the crisis would be transient and would blow over. If the press insists on writing about the coming depression, this prophecy too can become self-fulfilling...
bradley13 at December 31, 2008 12:37 AM
Money has no intrinsic value. It's a symbol of purchasing power. The guy making $100K in a society where mean income is $200K is much worse off -in both relative and absolute terms- than the 50K guy in a 25K mean economy. I see Kim's already covered this....
Frank at December 31, 2008 6:24 AM
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