Who’s Freaking Out?

In Friday's New York Times, Charles R. Morris concludes his op-ed, "Freakoutonomics," with the following thought:

If one counts only the size of houses and cars, and the numbers of electronic gadgets stuffed into rec rooms, Americans are probably better off than ever before. But as the 1870's suggest, economic well-being doesn't come just from piling up toys. An economy has psychological or, if you will, spiritual, dimensions. A conviction of fairness, a feeling of not being totally on one's own, a sense of reasonable stability and predictability are all essential components of good economic performance. When they were missing in the 1870's, in the midst of a boom, the populace was brought to the brink of revolt.

Well, all right. How about if we count lifespan? Number of people suffering from near-constant bacterial infections? Portion of the population with adequate nutrition? Average height? This is all of a piece with big cars, big houses, and shiny geegaws in the rec rooms. Yeah, if one counts all this stuff---all the women that didn't die in childbirth, all the people not crippled from polio, etc.---we're probably better off. Just maybe.

Morris is right that there is a psychological or spiritual dimension to the economy. But its rather absurd to imply that the populace is now a slow-burning fuse ready to explode if we don't suddenly veer toward Morris's politics.

Pundits seizing upon the happiness data often make try to make hay of the fact that average happiness hasn't risen with income over the last half-century. The trend in average happiness is flat as Kansas. But then the point cuts both ways: judging from that data, we're exactly as happy as our grandparents in the communitarian, "Leave It to Beaver," bowling league, 1950s Golden Age.

Earlier in his column, Morris writes that in the days of the rapacious "Robber Barons," "the yawning gap between the very rich and everybody else fanned resentments." Morris then mentions that our present gap is just about as yawning, and so, it is implied, we had better brace ourselves for the inevitable resentment, and a populace "at the brink of revolt." The proletariat may yet rise!

It's a thought, isn't it? Maybe someone has even tried to find out whether it is true!

In their fascinating paper, "Inequality and Happiness: Are Americans and Europeans Different?" Alberto Alesina and Rafael Di Tella of Harvard and Robert McCulloch of Imperial College London measured the effect of income inequality on average self-reported happiness. (Here is the downloadable full paper [pdf].) Does inequality breed ill-feelings? It depends. It turns out that inequality has no significant effect on average reported happiness in the U.S., but it does in Europe. Why?

First, Americans believe that our system affords a high degree of income mobility, so people at the bottom see themselves as having the chance to rise. Therefore income gaps, even yawning ones, breed little resentment. (Indeed, a bigger gap implies a bigger payoff for making it big time.) In Europe, on the other hand, folks see it as harder to move up and down the income ladder, so inequality chafes among the poor. Additionally, ideology matters. The authors write, "There is evidence of inequality generated unhappiness in the US only for a sub-group of rich leftists." That's it: rich leftists.

Now, I have no idea whether Charles Morris is a "rich leftist," or what, but Alesina, Di Tella, and Maculloch's finding is wonderfully illuminating. NYT editorials generally are not written by people at the bottom of the income distribution, but by people ranging from the middle to the top. Rich leftists, aggravated for ideological reasons by inequality, might assume that the aggravation can only be so much worse for those deprived of condos with a Park view. However, they'd be wrong; there is no detectable aggravation further down the distribution. Whatever you think the opiate of the proletariat is, well, it's working. So the idea that inequality is breeding widespread discontent--driving Americans toward the brink of revolt, even--is probably little more than a grossly fallacious generalization from an unrepresentative sample.

Freakoutonomics, indeed.