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What Portion of Human Welfare is Comparative Welfare?

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Some portion of human welfare is independent of the welfare of other humans. A person can enjoy food, touch, music, and intoxicating substances regardless of the well-being of anyone else; similarly, a person can suffer from physical pain, hunger, or nausea no matter what other humans are up to—even if no other humans exist.

However, some other portion of human welfare (of unknown magnitude) is directly dependent on the welfare of others. This “comparative welfare” may come in two forms:

  • Empathetic welfare: that portion of human welfare that has a positive or direct correlation with the welfare of others. (Example: I feel bad when I see a homeless person who looks unhappy; I feel happy when I see a puppy wag its tail.)
  • Status welfare: that portion of human welfare that has a negative or inverse relationship with the welfare of others. (Example: I feel happy when I win a contest; I feel sad when I have to wear less expensive clothes than my peers.)

The nice thing about non-comparative welfare (welfare independent of the welfare of others) and empathetic welfare is that they may be positive-sum. Consensual transactions may be possible to make all parties better off in terms of non-comparative and empathetic welfare.

The problem with status welfare is that it is zero-sum. No transaction involving status welfare can possibly make all parties better off.

A great deal of evidence exists to support the unfortunate proposition that status welfare accounts for a large proportion of human welfare. Further, the effects of status on welfare are likely themselves a function of status – marginal status changes may have more of an effect on welfare for those of low status than for those of high status.

Status Welfare is Large

Several bodies of research support the proposition that status welfare is a large part of human welfare. (Many of these are cited in the paper “The Economics of Happiness” by Paul Graham at the Brookings Institution. In addition, Richard Wilkinson’s 2006 book The Impact of Inequality: How to Make Sick Societies Healthier is a book-length treatment of the problem; I have not yet read it.)

  • Easterlin paradox” – happiness and income have a much stronger relationship within-country than between countries, at least beyond the level of abject poverty. Status welfare would be expected to come more from within-country differences (directly perceptible) than between-country differences (less immediately perceptible).
  • Homicide rates are highly correlated with income inequality. As income inequality and absolute poverty tend to go together, it has been difficult to establish whether income inequality or mere poverty is the driving force behind such negative competitive outcomes as homicide. However, a 2001 study found that income inequality is a better predictor of homicide rates than mere poverty.
  • Studies directly measuring the effect of income and/or wealth inequality find that inequality has a negative effect on well-being. The effect is larger for Europe than for the United States, and higher for Latin America than for either of these. These studies capture only within-country status, not status within smaller groups, and therefore must be seen as only part of the picture in terms of status welfare.
  • Welfare is affected more by unemployment than by inflation, dollar for dollar. Unemployment tracks inequality, whereas inflation applies to all equally.
  • Many animals change reproductive strategies depending on relative status. Status, therefore, must have strong effects on fitness.
  • In male humans, winning or losing a competition – even vicariously – is associated with hormonal changes, specifically an increase or decrease in testosterone levels, respectively.
  • Blacks and Hispanics spend a much larger share of income on visible consumption (clothing, jewelry, cars) than do comparable Whites.
  • Health effects of inequality are large, and less than a third of the difference is explained by risky behaviors of the poor.

The key point here is that there is a large component of human suffering that free markets and free choice have no hope of mediating. Merely being in a socially stratified market economy imposes a cost on those of lowest status.

The happy trample on the backs of the unhappy. This is not merely an observed fact of our world that can be changed, but an underlying truth of any human system. The unhappy cannot all be made happy. Human existence necessarily implies a high degree of misery for some part of the population. How does the happiness of the lucky justify the suffering of the unlucky?

Comparative Welfare and the Rational Decision Maker

A further problem is that lumping both types of comparative welfare, as well as non-comparative welfare, together as “utility” complicates the classical economic model of individuals as rational actors maximizing their utility.

In a classical economic transaction, two parties consent to an exchange, and are both made better off. All individuals must do in order to achieve higher and higher society-wide happiness is to pursue their own ends rationally. The simplicity and optimism of this model are challenged by the sad fact that an individual’s welfare correlates (in a complicated manner) with the welfare of various others.

Contract law recognizes this problem, especially with regard to transactions that do NOT take place “at arm’s length”—that is, transactions where the participants explicitly care about the welfare of the other participants. This can be traced back to its origins in Gemora, with its different rules for transactions with different groups (e.g., loyalty/no interest on loans for in-group, charging interest okay for out-group).

Most humans (sociopaths and saints excluded) have some component of welfare that is empathetic welfare, and some component that is status welfare. These components are likely large—and vary within populations. These complicate in a rather extreme manner the computational tasks of economic man; transactional partners must be modeled not just as self-interest-maximizers, but as (a) self-interest maximizers, (b) maximizers of the interests of certain others, and (c) maximizers of the difference between one’s own well-being and the well-being of certain others. That is, humans are—to some unknown degree—inquality maximizers.

Update: An interesting response on Why I Am Not.

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Written by Sister Y

February 15, 2011 at 8:10 pm

9 Responses

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  1. This was a very interesting post.

    One thing I find interesting is what is meant by “others” in terms of empathetic and status welfare. Does it have to be human beings? Your example of empathetic welfare suggests no. But in that case status welfare is not zero-sum, as we can raise people's status relative to “others” who aren't moral agents – arguably this is the function of many computer games.

    This also gives a different perspective on animal welfare. Perhaps little boys picking the wings off flies aren't so bad after all.

    Salem

    February 16, 2011 at 9:33 pm

  2. Ahhhh – that is interesting. Would it be possible to engineer a system that provides imaginary status welfare? And would this kind of illusion be morally appropriate?

    I also think those who are not moral agents are still morally relevant (e.g., animals). This is what I'm getting at with my “Judge Nature” spiel. The fact that there is utility out there with no agents to maximize it is another problem with classical economics.

    Sister Y

    February 16, 2011 at 10:21 pm

  3. “Some portion of human welfare is independent of the welfare of other humans.”

    Disagree, for the most part. This might be possible, but even if it is, it must be rare. Eating some kind of food, for example, means that the resources put into creating the food were not used to enrich the life of someone else. Opportunity cost directly interferes with, and probably prevents, true isolation.

    “In a classical economic transaction, two parties consent to an exchange, and are both made better off.”

    I agree that this model is problematic. Even where the statement is true of the two (or more) actors involved in the exchange, it ignores all other variables, including potential actors who will never be involved as a result of it being a one-time occurrence, or opportunity. As soon as you declare human welfare and human utility to be synonymous, you're effectively complicating the model in a manner which contradicts its intentions — namely, to illustrate how the classical conception of a free market is “fair.”

    But really, when you consider the absurdity of our culture at large, both socially and economically (the two realms are interwoven, of course), this becomes even sillier. The owner of Coca-Cola gets a yacht, but because a homeless man isn't as good at overseeing the process of producing soft drinks, he's starving in the streets. Oh, but what would we do without Coca-Cola?! It's crucial that we give the owners of that corporation their due for contributing so graciously to our civilization with their mutually beneficial product.

    Since when was soda so important that it could determine whether someone either owned a yacht or struggled to find food?

    Leaving Society

    February 17, 2011 at 12:34 am

  4. This is intriguing!

    One thing that comes to mind is that this means that there is an empirical justification for finding radical egalitarianism attractive under at least one point of view. Because true equality of opportunities is impossible, perhaps even meaningless, there will still be an irreducible status welfare problem with the classical maximin systems. Of course, if you look only at non-status welfare, maximin is obviously superior and strict egalitarianism looks irrational. But once you take into account status welfare, the issue seems undecidable, for how do you evaluate status welfare vis-à-vis other kinds of welfare?

    Sadly, this fuels my feeling that fundamental ethical debate is really futile because there are just too few agreed premises to draw conclusions from.

    PS: Just to make sure, Sister Y, has my e-mail to you perhaps fallen victim to a spam filter, or did it make its way to your attention?

    Constant

    February 17, 2011 at 12:34 am

  5. Disagree, for the most part. This might be possible, but even if it is, it must be rare. Eating some kind of food, for example, means that the resources put into creating the food were not used to enrich the life of someone else. Opportunity cost directly interferes with, and probably prevents, true isolation.

    I think there is a misunderstanding here. The kind of dependency that you refer to is not what it meant in the article. A piece of food affects your welfare because it helps you quench your hunger, and how well it does that doesn't depend on other people.

    As soon as you declare human welfare and human utility to be synonymous, you're effectively complicating the model in a manner which contradicts its intentions — namely, to illustrate how the classical conception of a free market is “fair.”

    It's just that there's a huge problem with how this relates to reality, and many people seem to have forgotten about it. I think it can be viewed in several ways:
    1) The narrow conception of “fairness” that is involved here is very irrelevant. Or
    2) The classical conception of a free market has little to do with reality. Or
    3) People might mistakenly believe that the purpose of the model is not so modest after all.

    Constant

    February 17, 2011 at 12:44 am

  6. Tracking back to Salem's comment, it seems that some substantial chunk of status welfare may already manifest relative to “others” who are non-participatory or indifferent moral agents, and who thus might as well be imaginary. Think of fan culture, or tech culture, where subjective status of inside-participants is measured, to some extent, relative to others who are largely — blissfully? — unaware of the game. If trivial inequalities that nevertheless satisfy discrete human desires for status welfare can be distinguished from consequential inequalities that satisfy the same end, then maybe there is a net benefit in the former. I'm sure market forces promote both.

    Chip

    February 17, 2011 at 2:05 am

  7. A classic example of status welfare is the fact that spending a little time in the same room with a disabled person inflates people's assessments of how happy their lives are overall, as shown in this study. But, as we all know, most disabled people, including quadriplegics, think their lives are going swimmingly and even above average. At least after they've got used to their disabilities. So, in a way, the advantage in status welfare really is largely imaginary because happiness is such a vague and elusive concept, plus humans are notorious for interpreting things in an idiosyncratic and self-serving manner. Plus, what Chip said about subcultures. I also strongly suspect that the whole concept of overall happiness is meaningless, otherwise why would self-assessments be so easily manipulated?

    I think having a happy life is kind of like free will: it seems comforting to think we have it, but when no evidence for its existence presents itself, people just take their current situation in life and label it a happy one.

    CM

    February 17, 2011 at 6:05 am

  8. I have received forwards saying things like “if you have a bank account with a positive balance you are richer than half the world,” etc., which are actually supposed to [i]cheer[/i] you up and make you feel [i]grateful[/i]. Some of them also contain statements like “life is a gift”, ironically!

    How air-headed could people get!

    Srikant

    February 21, 2011 at 9:21 am

  9. Very interesting response:

    Why Status Is Not Zero-Sum

    Sister Y

    February 22, 2011 at 7:31 pm


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