The Economics of Envy

Posted by: Michael Mandel on November 27

Lou Uchitelle, in today’s NYT, has a front page article entitled “Very Rich Are Leaving the Merely Rich Behind.” In it he writes

The opportunity to become abundantly rich is a recent phenomenon not only in medicine, but in a growing number of other professions and occupations. In each case, the great majority still earn fairly uniform six-figure incomes, usually less than $400,000 a year, government data show. But starting in the 1990s, a significant number began to earn much more, creating a two-tier income stratum within such occupations.

I’m honestly not sure why I should care. I actually live in the town that he writes about (Short Hills is officially part of Millburn, where my family and I moved in 1991), and I know full well that a lot of the people I see at the local Starbucks earn a lot more money than me. So what?

Envy is not a pretty emotion. No much how much you earn, there is always going to be someone doing financially better than you. Far better to focus on doing your job well, caring about your family, and helping people in need.

Rant over.

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Reader Comments

Lord

November 27, 2006 03:01 PM

There is the political argument. Increased inequality bodes ill for democracy. There is also the equity argument. Some of this can help those unable to help themselves. Finally there is the growth argument. Neither total equality nor total inequality is conducive to growth. Will this shift augment or diminish growth?

Joe Cushing

November 27, 2006 03:04 PM

I found this parragraph in the artical you posted.

“The bigger the prize, the greater the effort that people are making to get it,” said Edward N. Wolff, a New York University economist who studies income and wealth. “That effort is draining people away from more useful work.”

I'd say that the most useful work is the work that pays the most. If a job weren’t more useful it wouldn't pay more. What I mean is, if people are overpaid for doing it, the flocking to the job will eventually even things out. Sure there is a "shortage" of family practice doctors but eventually they will get paid more and the specialties will get paid less. It just takes time because it takes time to create a doctor. The pay will never be the same but it will reflect the amount of effort it takes to get each job, and any risk that is involved in doing it.

Domenico COrtese

November 27, 2006 03:17 PM


Michael you are right about envy but up to a point.
In general I agree with what the young gentleman at the end of the article was saying.....lifestyle security comes from financial independence, surely not from a "good job at a respectable company".
In an economy environment that treats people as disposable tools and your career can be derailed at the drop of a hat (try to find a job if you get laid off from your "socially useful position" over 40...) is understandable that people want to try to "make it" as soon as possible.....I'm trying that too...

I definitely want to do good things in my life but, even more, I want to be financially independent...

Many useful professions and jobs are deserted...well sorry but this is what economic darwinism brought to us....we are reaping what we sow...

Anchoku

November 27, 2006 05:23 PM

When jobs of high economic value such as education, science, engineering, agriculture and, manufacturing pay less than those of low economic value (like owning a Starbucks) or, jobs where an employee's contribution may not be equal to the compenastion (like the former excecutives of Enron), the economic potential of the country is sacrificed for the benefit of those who know where easy money can be made.

How can our government encourage growth in jobs which have strong, positive, long-term effects on GDP and international trade while reducing the attractiveness of less beneficial careers? I'd like to see the large financial institutions do more to pull total executive compensation down.

Alexander V.

November 27, 2006 11:24 PM

I liked your semi-editorial writing about it's okay to be who you are financially compared to the other person next to you banking. It's healthy to not be taken away by the notion that your life is miserable because the guy next door is rich. It's fine, but aren't you striving for more? I sure am. I want it all, the well-distinguished-job, the money, the lifestyle of being rich, and especially the knowledge. It is in the best interest for society that it be achieved through hardship, commitment and autonomous understanding and skills on what to do in order to take on a competible task. I want to work to get real results and not just dash off my education just to get out of college. I think today, especially in this country, we need authenticity and innovation. We are competing against folks around the globe who are very very talented and potentially unfavorable for our economy. We need people coming out from college with concrete knowledge of technicalities in their choice of work. We need to replace the older workforce of whom are performing simple tasks, those who need to retire, get the cycle going smoothly and continue to get the job done. For example, take a nuclear plant pushing buttons all day long...who would want to do that for a career...pay is not great, can't have much of an opportunity to grow within the company and yet it's a critical job that needs to be taken from veterans trying to retire... it requires technical knowledge but not an engineer to do that... but where do you find those guys, out of which school, and who would want to do that? The problem is that the word is not out on how to find access to fulfill these critical jobs, why it is critical and what would the compensation be... There is a need to open institutes that will prepare a younger workforce to do just that and to represent him or her for their best interest throughout those companies out there. We're not talking about temp agencies here, we're talking about a set institution to help our country to be accountable for its long term needs to compete gracefully within global industries...meaning relying on a secure workforce to be comfortable in planning our share to take or invest throughout the world economy. So to come back to the subject of economic envy, I think your view is exemplary because it is a healthy approach for the fulfillment of our critical jobs out there. It brings a sense of fulfillment in one individual and at the same time maintain our economic growth.

Now, wait a minute...

November 28, 2006 08:46 AM

Not all of us -- very few, in fact -- can afford to be like Mahatma Gandhi, Mother Theresa, Nelson Mandela, President Carter, and so on.

The rest of us are, and will always be, human and envy is a human emotion -- one that we might not consider "pretty," but one that is quintessentially human.

While it is true that some decisions underpinned and attributable to envy have led to disasters such as those we have seen recently at Enron, etc., we should also remember that it is envy that had led to enormous increases in output, productivity and wealth in the capitalist world (since it broke out of the "Malthusian trap," circa 1800-1850, or so).

The Soviet Union with its more supposedly envy-free, "egalitarian" set up could have hardly challenged the West in economic terms even if it had survived (it went bankrupt just trying to do so in military terms), but the market economies in the CIS countries could do so, given enough time. Moscow already has more billionaires than Tokyo, for instance. It is "capitalist" China, rather than "communist" China, that is now the global economic bell-wether.

It is envy, abstracted away from the usual "my-you-know-what"-is-bigger-than-"your-you-know-what"-type school yard squabbles, that has led to the "my airline/railroad/steel mill/computer chip/... is bigger, faster, cheaper, better, and more innovative, ..., than yours" type competitive rivalry we see between firms in the marketplace, and this has made life better, longer, richer, ..., for most of humanity.

So why envy envy, or even deny it its pivotal role in our lives? Greed may not be good (only Gecko would say it was), but envy can't be all that bad, can it?

Brandon W

November 28, 2006 09:06 AM

I would like to address several comments. Joe suggests that "more useful work pays more." To this I would disagree wholeheartedly. Except where disrupted, pay level is a direct reaction to supply and demand. I add "disrupted" because unions - or contracted payment policies of insurance companies - will shift the equation. Nonetheless, the more people who want to do something for a living, the lower the pay is pushed. A good example is TV/Film production where very few positions exist and large numbers want to do it. Except where a union comes in to play (disruption), pay for these positions is quite low because of oversupply. Wages for engineers rise as supply falls short of demand. But if the number of domestic engineers doubled their pay would drop; alleged "usefulness" of their profession notwithstanding.

Domenico mentions "financial independence", and Anchoku implies that owning a Starbucks is "low economic value." Both of these comments speak to the advantage of the investment/ownership class. Being an employee automatically places you at the mercy of the laws of supply and demand regardless of how useful your skills are. The investment class are not personally subject to these laws. Their business is; e.g. if that Starbucks were not useful to consumers in a particular location it would not succeed. But the investor/owner benefits from control of a productive asset and profits off the difference between the supply-and-demand-based price of labour and the actual, useful productivity they provide (materials and other factors play into the full picture, but we're talking about employment here). The investor/owner needs to make only two smart decisions: "where can I place my business to best serve demand for it?" and "who can manage it the best?" Warren Buffett is a strong example. He owns businesses that are positioned to meet a strong demand (often via some sort of "monopoly") and have strong management. And then he sits back and gets richer. If you want to be financially independent then save your nickels, invest in a business you understand, place it well, and hire good managers.

If I may make a reading suggestion, put down your Rich Dad books, skip the thousands of books written in the past decade, save yourself hours upon hours of reading, save even more money, and buy one $7 book: "The Richest Man in Babylon" by George S. Clason. You can read it in a day. It's a fun read. And you'll never need to read another personal investment book again.

Mike Mandel

November 28, 2006 09:10 AM

Alexander,

Thanks. I have nothing against striving for more. I certainly work darn hard to be successful. But what I hate is the idea that someone else's success should diminish mine.

torill

November 29, 2006 06:42 AM

Michael, I agree with you that others making more money does not make your effort any less. Rant away along those lines all you like!

But I also agree with the arguments of Brandon, even if I haven't read the book he recommends. I want to point out that things other than supply and demand may apply, such as culture, tradition, family connections and inheritance. How much does inheritance contribute to the large fortunes of the very rich, either through direct transfer of resources, or for instance easy acces to education and start-up capital? How many of them are truly "selfmade"?

Mike Mandel

November 29, 2006 11:36 AM

Torrill,

I think most of the "super-rich" referred to in the article come out of middle-class families. No inheritance, but certainly a better starting point than poor. Is this unfair? I don't think so, but others might disagree

Frank

April 1, 2007 11:37 AM

C'mon, what you are really saying is, "My economic Engine is better than yours and my job doesn’t measure up." And that's true. If you can't bring customers, buyers, or sellers to your place of business, then all you have left is "Envy." If you want security, take a job; if you want prosperity, be in the top 10% in your field.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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