Thursday, November 22, 2012

191. What would you rather have?

I am reading a book about the declining wealth of the middle class, entitled, "Falling Behind: How Rising Inequality Harms the Middle Class," by Robert H. Frank and I was intrigued by a couple of sociological ideas about comparative and absolute wealth. I have often considered the difference, but had not succeeded in developing a definitive perspective.

The author asks in regards to absolute wealth versus comparative wealth whether you would rather have a 3000 square foot house when others in your community have a 4000 square foot house, or a 2000 square foot house when in others in your community have a 1000 square foot house?

I immediately thought, as probably most would, that I do not care what other people have, I will take the house with 3000 square feet. It is nicer for me, and considerably bigger than the 2000 square foot house. And, I thought, I do not find any satisfaction in being "better" than anyone else.

However, that seemed too easy, and I knew there was more to consider.

Sure enough, I discovered how this hypothetical fails when I considered a simple experiment that the author informally conducted about comparative "wealth" with his sons. It is an experiment that we know to be inherently true and one we have probably indirectly experienced on many occasions, but never so simply stated.

The author has two sons and one morning gave them both a full glass of orange juice-which of course they enjoyed without complaint. The second day, he gave both of them a half glass of orange juice. Again, despite being only half full, neither son complained. The third day, he gave one son a nearly full glass of orange juice, but gave the other son a glass only three-quarters full. Now we have a problem and the one son asked, "Why did he get more than me?"

No fair, right?

Thus, it was not more or less orange juice that created emotion; it was comparative amounts that raised a complaint. The one son felt there was no reason that he did not deserve the same amount as his brother.

This is what we experience in reality, isn't it? If you work harder than the person doing the same job as you, don't you think you deserve more than him or her-regardless of how much you are being paid. After all, we see football players making millions of dollars willing to holdout rather than be paid less than someone who is less talented. Many of us sigh with envy and disgust--don't they realize how well they have it, we ask?

So our comparative value is as important, even if most of us would say we would gladly choose the 3000 foot square house over the 2000 square foot house. Because, at some point it's inevitable we'd reference ourselves to a neighborhood "slacker" and feel that we "deserve" a bigger house than him or her. In the end, isn't that capitalism defined-rewarding hard work?

Of course, the real world does not work like that. Hard work is important, but there are many other factors that determine wealth-the largest being opportunity through one's family socioeconomic status. Some people have a head start on the path to success, while others are destined to fail. There is also luck and good fortune. Thus, some people are going to get a stellar education, take over the family business, receive a sizeable inheritance or win the lottery. It's the socioeconomic lottery.

While I think most people accept these advantages in life, what should bother people, and is dangerous to our country from an economic standpoint, is when comparative wealth reaches exponential levels. Few argue that that those at the top, with the most responsibility, should not be well paid. The question is how well? Do they deserve to be paid $15 million dollars per year when the average salary of the other employees is $15 per hour?

My argument from a comparative standpoint is that it is impossible to "deserve" that much more than one person. It seems philosophically ridiculous that our society pays our president less than $500,000 per year, but pays 24 year-old quarterbacks upwards of 15 million per season (in fact, Michael Vick, a convicted felon, just signed a six-year $100 million dollar contract). And we have not even mentioned the wealth of the super rich-the four hundred billionaires among us.

Exponential differences in wealth are dangerous to a country--it skews power and influence, and it affects the quality of life for the middle class. It also confuses priorities, creates disconnect and rewards greed-prompting overextension in trying to "keep up with the Joneses." Few are really talking about socialism; we are talking about the difference between an orange orchard and orange peels.

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