Responding to Bryan Caplan on Relative Status vs. Absolute Welfare

Bryan Caplan recently wrote that if people primarily cared about relative income—simply being richer than those around them—they would frequently choose to move to poorer neighborhoods or even poorer countries, instantly improving their relative status. Yet, people overwhelmingly choose to move toward richer areas, often lowering their relative income in exchange for better absolute living conditions.

I have two gripes with Caplan. One is that his example fails to prove that relative income is unimportant. But more importantly, I believe Caplan’s jihad against socialism—which I fully support—is better served by fully acknowledging that people care deeply about relative status (of which relative income can be one part). Why? Because it happens to be both true and deeply damaging to the moral imperative of socialism.

First, are immigrants from poorer countries genuinely forced to choose between relative income/status and absolute welfare improvements? We routinely observe individuals with relatively high incomes and status moving from the developing to the developed world, willingly accepting lower occupational status in exchange for higher real wages. In the late 1990s, we personally knew upper-middle-class Indians who left their white-collar jobs in India to arrive in Canada and drive trucks or work in grocery stores (since most degrees and qualifications obtained in India weren’t recognized by Canadian employers).

But this isn't truly a choice between absolute welfare and relative status. As this family packs its bags and sets off for Canada, do you think their status has been elevated or diminished among friends and family? It’s obvious to anyone who has spent significant time in the developing world that an opportunity to move to the first world almost always elevates one’s status. These migrants don’t immediately re-adjust their reference class to white Canadians and decide against moving. In fact, even after moving overseas, their reference class often remains other immigrants who've made similar trades.

My intuition is that people care deeply about relative status, and income is just one way to achieve it. Let’s flip Bryan’s example around. How many people complaining about the rat race in San Francisco or New York City have already earned enough money to move to a smaller city tomorrow, double their purchasing power, and perhaps gain several more hours of leisure each week? Such a move is likely to boost living standards while simultaneously reducing their relative status. Indeed, you might lose status with your Manhattan book club just by moving twenty minutes away to Jersey City for an extra bedroom. The critical point is that status is context-dependent. If your immediate reference group is the cultural elite of Manhattan, losing status with them hurts, and the possibility of eventually gaining status among people you currently consider lower-status offers no consolation.

As the previous example suggests, status correlates with income, wealth, and just about all good things in life—but it’s multidimensional and complex. Within some wealthy circles, the top of the status hierarchy isn't necessarily occupied by the individual with a few extra million dollars, but rather by someone who's "well-connected," "well-read," or simply "more interesting." Other communities prioritize artistic achievement, cultural capital, intellectual prestige, or moral purity.

This complexity of status makes a strong argument against redistributing wealth solely to alleviate status anxiety. Status is exceptionally malleable, so compressing the income distribution merely shifts the competition into other dimensions. Certain human competitions—such as for attention or mate selection—are fundamentally zero-sum, meaning people will always compete over them and create new forms of anxiety. Given this, why not choose a system that is both more likely to deliver absolute welfare improvements and create a multitude of hierarchies for people to climb? In the freest, most cosmopolitan Western cities, you can achieve high status by being a tattoo artist, investment banker, musician, writer, or entrepreneur. Each of these groups is largely indifferent to the other's hierarchy. That’s about as close to "equity" as we’re likely to get.