How to set the market free

To free the market classical liberals need to help break the nexus between income and status. The more strongly the two are connected, the more the left will try to regulate the economy to prevent the growth of income inequality. This is because the left’s concern over income inequality is part of a broader concern with human dignity. As long as bottom-rung income implies bottom-rung status, the left will push for equality.

At Catallaxy, Jason Soon suggests that, for leftists, "the worst thing about being poor is the humiliation of being in a ‘low status’ job rather than spending power". A recent study (pdf) by Rafael Di Tella, John Haisken-De New, and Robert MacCulloch looks at how people 1 adapt to changes in income and status. They report finding "strong evidence that left-wingers adapt to income but not to status, while right-wingers adapt to status but not to income."

The study was conducted in Germany and the results may not hold for other countries. But if we assume that there’s a similar pattern in Australia, there are some interesting implications. For individual leftists, lasting increases in happiness are more likely to come at someone else’s expense. After all, not everyone can increase their status2 at once. If Jason is right then maybe what leftists want to avoid is being looked down on by others. So perhaps the left’s attempts to reduce income inequality are actually attempts to reduce status inequality.

Most free market activists misunderstand the left’s concern with income inequality. In wealthy countries like Australia, it isn’t just about the ability to consume. One of the central ideas of modern leftism is that all human beings are entitled to equal concern and respect. This is why most leftists oppose racism, sexism, ethnocentrism and homophobia. Leftists will oppose any attempt to assert that one group of human beings is superior to another simply because of who they are. The right’s response to attacks on inequality has made things worse.

To justify differences in income, the right has often argued that the rich are more talented and intelligent than the poor. Their arguments often imply that the differences are genetic. Added to this is the argument that natural talent or intelligence is a kind of merit — an individual trait that entitles a person to superior status. These arguments create a link between income and status. Income becomes a signal of merit.

Leftists have a clear conflict with hierarchy obsessed conservatives, but their relationship with libertarians and classical liberals is less clear. Cultural conservatives tend to be uncomfortable with difference. One religion (theirs) is true, others are superstition. One dialect or accent (theirs) represents the correct way to speak, others are wrong. One set of rules about sexual behaviour (theirs) is moral, others are immoral and disgusting. Where conservatives represent the dominant social group in a society, they are more than happy to see income as a signal of their group’s cultural superiority. If only disadvantaged groups would learn to act the right way, they too could be wealthier and happier.

In contrast, leftists don’t automatically see difference as a matter of status. Some groups of people recognise one set of virtues while others recognise another. Leftists want to see a society where everyone can pursue their own ideals of excellence without being judged or looked down on. This is a vision they share with many libertarians. If income were freed of its association with virtue then nobody would be forced to pursue increased wealth just to avoid low status. Money could be about consumption rather than signaling.

If libertarians and classical liberals want to persuade the left to set the market free, they need to distance themselves from conservatives who conflate material success with merit. As Hayek wrote:

…in our society personal esteem and material success are much too closely bound together. We ought to be much more aware that if we regard a man as entitled to a high material reward that in itself does not necessarily entitle him to high esteem (p 234).

For Hayek, the fact that an individual has scarce knowledge or skills which can be used to produce things that others value, does not make them a better person. But to try to reward everyone according to merit would make us all poorer. Surely the most persuasive justification for the market isn’t that it rewards excellence with riches but that it helps everyone pursue the kind of life they value.

Elsewhere

Andrew Norton says "In their endorsement of income redistribution, status-oriented leftists are perhaps trying to disrupt a rival status system to protect the importance of their occupation-based hierarchies."

  1. The study looked at ‘habituation’ to income and to status using individual panel data on the happiness of 7,812 people living in Germany from 1984 to 2000.~The data []
  2. "Prestige measures are generated from the popular evaluation of occupational standing. They reflect the classical sociological hypothesis that occupational status constitutes the single most important dimension in social interaction."~Status []
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Fleeced
14 years ago

So perhaps the lefts attempts to reduce income inequality are actually attempts to reduce status inequality.

I think this sort of analysis reads to much into it. All you’re saying is, “it’s not about money – it’s what money can get you” – but whether it gets it for you with purchasing power or status makes no difference.

We’ve all heard the example that if everyone’s (real) wages were to double, then we’d all be better off, even though the gap has increased. I think a good analogy is moving traffic: the faster traffic is moving, the further the distance between cars – and the distance between first and last increases exponentially. Bunch up the traffic, and see how slow they all go. Is this a desirable result? To be equally still?

There seems to be this attitude, as Gore Vidal puts it: “It is not enough to succeed. Others must fail”. Those who would rather have a relative “status” closer to everyone else, at the expense of wealth and standard of living for everybody are misguided and ignorant at best – and at worst (if done without ignorance), morally bankrupt. And yet, it is the Right who are criticised as greedy and selfish!

It is not the “link between income and status” that is the problem, but rather the obsession with status at the expense of all other things.

Don Arthur
Don Arthur
14 years ago

Fleeced – I think Andrew Norton is right when he says that the left tries to “eliminate status differences or moderate their impact.”

Status is a zero sum game but wealth is not… unless, that is, people are using wealth as a status symbol.

You say that “Those who would rather have a relative ‘status’ closer to everyone else, at the expense of wealth and standard of living for everybody are misguided and ignorant at best.”

So why not break the link between wealth and status? Then the struggle over status inequality wouldn’t be at the expense of standard of living.

Sinclair Davidson
Sinclair Davidson
14 years ago

I’m really sorry Don, but I don’t believe this is about any link between wealth and status. Australia is a very status-free society (in my experience). The most status orientated people I have met are academics – who tend to be leftists (not conservatives), and among academics the most status orientated are the higher level academics (the most highly paid). So, my anecdotal experience is exactly opposite to your description.

Rather than break links (if any) between wealth and status, perhaps we need greater understanding of the division of labour and comparitive advantage. Over at Catallaxy I pointed you to Hayek LLL II pg 74, but also have a look at pages 70 – 74.

Don Arthur
Don Arthur
14 years ago

Sinclair — Even if most academics are leftists it doesn’t follow that most leftists are academics.

It may be the case that leftists are more sensitive to status than non-leftists AND that they project their concerns onto other people (who don’t share them). But I think my argument still stands. If you want to convince these leftists to accept income inequality that’s caused by the market then you’d be more successful if you broke the link between wealth and status.

As for Hayek’s Mirage of Social Justice, I think he’s right to say that:

“It is probably a misfortune that, especially in the USA, popular writers like Samuel Smiles and Horatio Alger, and later the sociologist W. G. Sumner, have defended free enterprise on the ground that it regularly rewards the deserving, and it bodes ill for the future of the market order that this seems to have become the only defence of it which is understood by the general public. That it has largely become the basis of the self-esteem of the businessman often gives him an air of self-righteousness which does not make him more popular.”

Sinclair Davidson
Sinclair Davidson
14 years ago

I’m not claiming that most leftists are academics, I’m providing a counter-example to your basic point. I also wouldn’t try to convince leftists to “accept” income inequality – that’s just a waste of everyone’s time (the old joke about teaching a pig to sing comes to mind). In any event why try to break a link that I don’t think is there? To my mind the only people who obsess about wealth and status are the aforementioned lefties.

Don Arthur
Don Arthur
14 years ago

Sinclair – I’m curious. Why do you think leftists are so concerned about income inequality?

Given all the stoic talk about how material consumption doesn’t bring happiness, it must be a mystery to you why leftists care so much about something they say doesn’t matter.

Jc
Jc
14 years ago

Don asks:
“Sinclair – Im curious. Why do you think leftists are so concerned about income inequality?”

Don, are you serious? Please tell me you’re joking. The left is obsessed with money. Who has it. Who doesn’t. It’s all they think about. Take a look at some of the threads at this site and tell me there isn’t obsession with mullah. Please!

David Rubie
David Rubie
14 years ago

Don Arthur wrote:
If income were freed of its association with virtue then nobody would be forced to pursue increased wealth just to avoid low status. Money could be about consumption rather than signaling.

Hasn’t this already happened to some extent in rich economies where the relative levels of poverty are low?

Jc
Jc
14 years ago

Actually relative levels of poverty aren’t low, David. The bottom 20% will always be with us depsite the fact that the bottom 20% are much better off than they were 20 years ago.

Poverty is relative, as you allude.

Fleeced
14 years ago

The whole “poverty is relative” argument is repeated so often, that it’s accepted as basic fact, but it’s absolute BS for any meaningful definition of poverty.

Absolute poverty is all but eliminated in rich countries. What people refer to as “relative poverty” is just another status label. If you simply define poverty as “the bottom x%”, then by definition, there will always be poverty.

If you “only” have one car, and can only afford to buy your playstation games after they go platinum, then you’re simply not in poverty – even if you are in the bottom 20%.

“If income were freed of its association with virtue then nobody would be forced to pursue increased wealth just to avoid low status. Money could be about consumption rather than signaling.”

There’s no reason income should be separated from virtue. Self-made people should be held in high regard (though we can still make fun of Paris Hilton).

But it’s a silly question anyway. It implies that people only care about money because of the status it confers. Perhaps it’s the other way around? You say if status were unlinked from money that people wouldn’t care about money… but perhaps they would no longer care about status, and would rather whatever else it is that money can buy.

When people are hungry, they want money for food. If they are homeless or live in a dump, they want money for shelter. Then they want an even bigger house, and so on. Once they have all the necessities, they will go after the luxuries.

Perhaps after these, status is simply next on the list. People always want money because of what it can buy – and it can always buy something. If we are at a stage where status is the primary concern, then perhaps we have succeeded in providing all these other things?

Chris Lloyd
Chris Lloyd
14 years ago

Nice post Don.

For rightist to deny that conservatives equate wealth with merit (i.e. deserved status) is to deny several hundred years of presbyterian tradition. Leftists tend to be anti-materialistic. So it follows that they see the association as inappropriate and undeserved.

I do wonder how one could ever break the link though. We spend half our waking lives working, and the success measure of our work in 99% of domains is financial. So rich people are basically successful at their work. How is this ever going to be separated from status? In their own mind, or in the public’s?

Jc
Jc
14 years ago

“Leftists tend to be anti-materialistic.”

Yea, right. Was that a pig I saw flying past my window?

So the communists confiscations were just a joke. They were always intended to give the peasants their property back before they starved to death.

It’s all about money. The right doesn’t think it ought to be taken away from those who have it. The left, on the other hand think redistribution is fine and dandy.

Jeesh. listen to the poster girl for the left- Julia Chavez-Gillard. She was reported as saying that grwoth without “fairness” is not worth having. “Fairness’is a personal preference.

amused
amused
14 years ago

We spend half our waking lives working, and the success measure of our work in 99% of domains is financial. So rich people are basically successful at their work. How is this ever going to be separated from status? In their own mind, or in the publics?

So I guess the hardworking stiff who works at least as hard as the CEO of Macquarie Bank, is simply ‘less successful’, well at earning money certainly. But I haven’t seen anything here about how building a successful company or industry should be its own reward, rather than deserving amounts of annual income that would retire the debt of a small nation. Perhaps when people learn to just love working for its own sake, as the poor are regularly reminded they need to do, in order to earn our esteem and respect, those that work for the collective known as capital won’t demand incomes that bear no possible resemblance to the application of either talent of hard work known this side of the real world. The growth in the differential between the incomes of those that lead businesses, and those who work at various other tasks that are necessary for the creation of wealth and value, seem to suggest that something other than the divine ‘invisible hand’ has been at work over the last 25 years. I wonder what it was?

Jc
Jc
14 years ago

“The growth in the differential between the incomes of those that lead businesses, and those who work at various other tasks that are necessary for the creation of wealth and value, seem to suggest that something other than the divine invisible hand has been at work over the last 25 years. I wonder what it was?”

Serious pressure. The last 25 years has seen shareholder revolt against complacement managments. These days the average lifespan of a CEO is about 4 years: less so if they fail. There is a huge demand for good CEOS because they’re capable of making enormous returns for shareholders. If they don’t perform they get booted.

The socialisation of pensions has made this possible.

Compare Chaney who created enormous wealth for his shareholders and Fletcher over at Coles who turned out to be a total failure. Everyone focuses on Fletchers payout because as a failure people rightly think he shouldn’t be paid anything.

However there are a few problems with that view.

1. Outsiders have no business worrying what Fletcher ought to be paid on his exist as it is beteen the board and the shareholders.

2. CEo’s know that on balance there is a good chance of failure and if they do fail they won’t find another job. So before signing on the dotted line they will negotiate a good exit package. If a firm isn’t prepared to accept that, good CEO’s won’t move. Good CEO’s are in demand all over the world.

Calpers started the ball rolling in the US in the 80’s, demanding that managements perform or get booted. Funnily enough Calpers is the Californian teachers and state workers pension fund.

Brendan Halfweeg
14 years ago

Is it a serious contention that people respect wealth? Very few wealthy people are respected for their wealth, most either generate neutral feelings or they are mildly despised for it, especially if they revel in it publicly. If people earned money to garner status, they’d be better off chasing arts grants where status really does mean something.

Fleeced
14 years ago

“Is it a serious contention that people respect wealth? Very few wealthy people are respected for their wealth, most either generate neutral feelings or they are mildly despised for it, especially if they revel in it publicly.”

I think you’re onto something there, Brendan. The Left’s definition of status isn’t an issue of respect, but envy.

David Rubie
David Rubie
14 years ago

Fleeced said:
I think youre onto something there, Brendan. The Lefts definition of status isnt an issue of respect, but envy.
———-

More of dignity I think.

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[…] more influenced by status than those of a rightist disposition.

Brendan Halfweeg
14 years ago

Dignity is taking whatever work you can and accepting charity as a last resort, not sitting in your state housing commission flat on the welfare moaning about how much working people get paid and dialing into Big Brother to vote for your favourite loser.

David Rubie
David Rubie
14 years ago

Well, I’m sorry about your lack of dignity Brendan, however I am interested in your lifestyle. Do you have something I can subscribe to so I can learn about the dole bludging and big brother thing?

Brendan Halfweeg
14 years ago

So you see more dignity in taking unemployment benefits than in working for a living? Is that your take on things?

At the end of the day there is dignity in hard work, no matter what the status of job. Taking responsibility for yourself and your dependents is the ultimate source of human dignity, I have no time for snobs that look down on shelf stackers and garbage collectors, not do I have time for middle class socialists living in McMansions blaming society for the unemployability of the non-working class. Someone who slaves at 2 or 3 jobs to improve their lot in life have more dignity than both of them, and a bucket load more than those that would be kept by the state and can’t see past their own needs and rights.

David Rubie
David Rubie
14 years ago

You go Brendan. An entire political philosophy based on hatred. That must be fun.

Bannerman
14 years ago

My challenge to Andrew Norton is simply this….define “status-oriented leftists”. I’ll wager he can’t.

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[…] still). I didn’t follow the comments up because it was all too daunting, but John and Don have both returned to the topic, so they’ve spurred me to […]

Brendan Halfweeg
14 years ago

I don’t have time for this Dave, come up with something a bit more challenging than disrespect for working people.

Vee
Vee
14 years ago

Andrew Norton is probably the closest to the mark but I think this entire discussion is wrong. If you want to go down that narrow road of left and right division both believe in status. I also believe both measure it the same way.

That measurement is Influence. To influence an outcome or achieve a desired outcome. It does not matter whether you move in wealthy circles or not. You may only desire to influence something small. So a large income is often not necessary.

However, in politics you often desire to influence something big and to have an influence you often need a larger than median income.