I think Bryan convincingly argued people do not care much about how their wealth compares with that of their neighbours. However, they could still care about how their wealth compares with their peers, which will remain the same to a significant extent even if people move to lower income areas.
In any case, I still think the absolute level of wealth significantly matters for welfare. Otherwise, I would not expect self-reported happiness to increase with real gross domestic product (real GDP) per capita within the vast majority of countries.
Caplan says that Schooling is Mostly SignalingāEconlib If I told him āsince education in US is just about signaling, an American should move to a place where their degree + alma mater would be regarded as more valuableāe.g., a developing country, or a poorly educated area, etc.ā, dāyou think heād agree?
I do not think Bryan would agree with that. Studying in the United States (US) means a higher chance of being employed relative to studying in a random country, but the US has higher salaries, which plays against leaving.
Donāt you think a similar objection would apply to Caplanās āproofā that people donāt move to poorer neighborhoods because something something externalities?
(Moreover, I just realized thata ārealists say that people only care about relative wealthā is a remarkable strawman, and itās refutation does not entail that people barely care about relative incomeāand this is the first time I see an Economics professor mixing claims about wealth and income in the same argument)
Yes, I think a similar objection applies. However, I would still expect more people to move to neighbourhoods with a lower mean income if people cared a lot about their income relative to their neighbours. I believe peopleās behaviour is better explained by people caring much more about their income than their income relative to their neighbours.
Or: people care about relative income because: a) it entails more wealth (as capital gains accumulate faster than returns on work) which entails more power, like the possibility of funding intellectuals to say that inequality doesnāt matter; and b) it signals status, or it is used to buy status-goods, such as buying a nice house in a rich neighborhood without fearing your neighbors wanting to sack it (since they might care about relative income, even if you donāt)
Btw I just realized I can totally bite this bullet: I have lived in 4 cities in the last decade, and I prefer to live in the cheap one not only because of the low cost of living (like many online workers have been doing), but also because I never feel poor in relation to others...Which results in mixed feelings, though, as I donāt want to feel much wealthier than the surroundingsāit makes me wonder of I should be paying more for services and taxes etc.
Thanks for the good points, David!
I think Bryan convincingly argued people do not care much about how their wealth compares with that of their neighbours. However, they could still care about how their wealth compares with their peers, which will remain the same to a significant extent even if people move to lower income areas.
In any case, I still think the absolute level of wealth significantly matters for welfare. Otherwise, I would not expect self-reported happiness to increase with real gross domestic product (real GDP) per capita within the vast majority of countries.
Caplan says that Schooling is Mostly SignalingāEconlib
If I told him āsince education in US is just about signaling, an American should move to a place where their degree + alma mater would be regarded as more valuableāe.g., a developing country, or a poorly educated area, etc.ā, dāyou think heād agree?
Hi Ramiro,
I do not think Bryan would agree with that. Studying in the United States (US) means a higher chance of being employed relative to studying in a random country, but the US has higher salaries, which plays against leaving.
Donāt you think a similar objection would apply to Caplanās āproofā that people donāt move to poorer neighborhoods because something something externalities?
(Moreover, I just realized thata ārealists say that people only care about relative wealthā is a remarkable strawman, and itās refutation does not entail that people barely care about relative incomeāand this is the first time I see an Economics professor mixing claims about wealth and income in the same argument)
Yes, I think a similar objection applies. However, I would still expect more people to move to neighbourhoods with a lower mean income if people cared a lot about their income relative to their neighbours. I believe peopleās behaviour is better explained by people caring much more about their income than their income relative to their neighbours.
Or: people care about relative income because: a) it entails more wealth (as capital gains accumulate faster than returns on work) which entails more power, like the possibility of funding intellectuals to say that inequality doesnāt matter; and b) it signals status, or it is used to buy status-goods, such as buying a nice house in a rich neighborhood without fearing your neighbors wanting to sack it (since they might care about relative income, even if you donāt)
Btw I just realized I can totally bite this bullet: I have lived in 4 cities in the last decade, and I prefer to live in the cheap one not only because of the low cost of living (like many online workers have been doing), but also because I never feel poor in relation to others...Which results in mixed feelings, though, as I donāt want to feel much wealthier than the surroundingsāit makes me wonder of I should be paying more for services and taxes etc.