NCPA - National Center for Policy Analysis


October 20, 2009

The desire for greater equality is partly an outgrowth of the worldwide spread of democracy and democratizing tendencies over the last two centuries.  But ironically, the very economic growth that has fostered greater material equality of consumption in the industrial era, and the expectations of continued improvements in both absolute welfare and relative equality that have accompanied this growth are likely to make the perception of inequality worse no matter what the data can be made to demonstrate, says economist John V. C. Nye.

And this is because of the problem of positional or status goods.  To understand the core idea, it is best to think of the different classes of goods and services that humans consume, says Nye: 

  • Assume for the sake of argument that many, perhaps most goods are theoretically reproducible with improved technology and greater efficiency; food, clothing, cars, equipment, toys all fall in this category.
  • Expensive as an MRI machine or luxury sports car are today, we can easily imagine worlds in which those goods (or their close substitutes) become cheap enough so that almost anyone could afford them.
  • In contrast there are some goods -- let us say, the most desirable housing spot, the best view of a lake or a painting by Picasso -- which cannot be readily multiplied simply by changing technology and improving economy.
  • Then by definition, any changes that improve global availability of the former category of goods, even to the point of absolute equality, will mean that the remaining category of goods that cannot be easily reproduced will loom larger in people's consciousness.

When salt and spices were expensive, access to these were part of the measures by which people differentiated themselves materially.  Today, salt is so trivially cheap that it's not worth considering in a comparative budget.  As more items and services -- whether TV sets or MP3 players or computers or even triple bypasses -- become widely available, then by definition, the goods and services that remain objects of envy and inequality will be those that are most insensitive to improved efficiencies.  Hence our sense of perceived inequality might actually increase as material inequality decreases, says Nye.

The upshot of all this is that the better off we are, the more we spend and focus attention on consuming items which are less amenable to economic and technological fixes, says Nye.

Source: John V. C. Nye, "Why Things Will Feel Worse As They Get Better: The Downside of Growing Consumption Equality," Cato Unbound, October 16, 2009.

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