How status-seeking drives capitalism

With every passing day I believe more and more that status-seeking drives a lot of human action. Contrary to popular wisdom, I think this is weighs in favor of free markets rather than against them. A complete discussion requires a lot more space than I have here, but I don’t think status-seeking based arguments against free markets stand up to to closer inspection.

Intervention changes the margins on which people can seek status, and while this remains untested empirically–to the best of my knowledge–I think it is at least plausible that the cure will be worse than the disease. There is more to this than the well-worn law of unintended consequences. Yes, [insert policy here] will likely worsen the problem it is enacted to address. At a different level, the moral calculus changes when we substitute the political arena for the free market. Some people support policies in spite of their consequences in order to signal their status: they vote for protectionism because they care about American workers, they vote for welfare, minimum wages, and rent control because they care about the poor, and they vote for various environmental policies because they care about the planet.

As Bryan Caplan points out in The Myth of the Rational Voter and as Thomas Sowell has discussed in a variety of books and articles, people are usually insulated from the consequences of the policies they support and therefore have weak incentives to change their beliefs when the policies fail. Briefly, if we take seriously the claim that modern pathologies are the products of social constructs, power relations, false consciousness, and other things, moving social decision-making out of the ambit of voluntary interaction and into the political sphere will most likely reinforce the very social forces and factors that produced all that is wrong with the world today.

Relative to market exchange and other forms of voluntary interaction, political decision-making in a status-seeking society frays the social fabric. Yes, there are probably people who will spend themselves into frenzies over the next few weeks in elaborate displays of conspicuous comfort and joy. Christmas probably isn’t the best example because it is a religious holiday that does lend itself to moral elitism, but keeping up with or ahead of the Joneses generally confines itself to a material status race and doesn’t go far beyond that. If I have a nicer car than Jones, I can content myself with the conviction that Jones is just a loser and nod off peacefully in my $2000 recliner, secure in the conviction that I have better stuff than he has. The harm isn’t really that great compared to status-seeking in the political arena.

The implications of status-seeking change when you place moral weight on the issues over which people are competing for status. Take charity, for example: if the possibility of a transfer changes people’s incentives sufficiently, then the entire value of the transfer might be dissipated by people waiting in line for $0 food, clothing, shelter, etc. and by others devoting their productive energies to attempts at persuading others to give.* A digression is in order lest I be misunderstood: charity is great, but not all charitable endeavors are created equal. There is an opportunity cost associated with using resources for one charitable purpose and not another, and careful economics can help us maximize the bang we get from our charitable bucks. I explain further here.

Status-seeking over moral goods and in a political environment encourages people to view one another with outright moral suspicion. If I recycle and Jones doesn’t, or if I give to the Salvation Army but Jones doesn’t, or if I drive a Prius but Jones doesn’t, then our relationship changes relative to a world in which we are seeking status over mere material goods. In these cases, the implicit message is not that I am more successful than Jones but that I am virtuous and Jones is morally suspect. This is doubly true if we are talking about voting to make recycling, charity, and high gas mileage mandatory. When status-seeking occurs on these margins, the social fabric tears because the signal is no longer simply that I’m a better breadwinner than Jones. The signal is that I’m a good human being while Jones is…something else. Jones isn’t just a lousy breadwinner. Jones is dehumanized.

There is a lot of truth in the claim that people are motivated by the search for status, but I don’t think it works as a criticism of free markets. There’s a lot of important research to be done here, and a lot of important contributions to be made to the public debate. Here, for example, is Robert Frank’s recent New York Times article on Black Friday, and here is Tyler Cowen’s response. Here’s Don Boudreaux on the market opportunity that the critics of Black Friday are missing. If you’re shaking your head because your neighbor just spent a ton of money on fancy new toys, take heart. It could be much worse.

*-Project idea for someone looking for a paper: estimate the rate of return on the Salvation Army holiday bell-ringing campaign