Lots of people (including Kevin Drum, Brad DeLong and Tyler Cowen have jumped in on this post by Will Wilkinson about this NBER study of habituation to changes in income and status. Wilkinson and most commentators focus on the findings regarding the subgroups on the right and left of the political spectrum, which I’ll come to, but it’s worth mentioning the general findings first.
Most people (in the German sample population) initially react more, as regards self-reported happiness, to a change in income than to a change in occupational status, but gradually get habituated to changes in income. This is consistent with the standard view of the happiness literature, that income changes don’t have a big effect on happiness, so that people in rich countries aren’t on average much happier than those in poor countries. Moreover, by looking at the same people over relatively short periods of time the analysis overcomes, to a significant extent, the objection I’ve made previously, that the scale on which happiness is measured is inherently relative to some notion of what is reasonable to expect.
The point picked up by Wilkinson and others is that, while those on the left of the political spectrum follow the general pattern (as do employees, taken as a group) those on the right (and the self-employed) habituate to changes in occupational status, but not to changes in money income. This seems to correlate pretty well with the fact that people on the left tend to worry about relative notions like inequality, authority relations and so forth, while people on the right dismiss these concerns and favour policies that create opportunities for making money. As quite a few commentators point out, the direction of causation is unclear here.
Rather than duplicate all the excellent discussion, I’ll offer the possibility that those on the right may not be so different from the rest of us as they seem at first sight. Money is valued because it provides access to goods and services, but it can also be used to keep score in a competition. It doesn’t seem likely, for example, that the late Kerry Packer’s lifestyle would have been much different if he had been say, Australia’s tenth-richest man instead of the richest, but it’s hard to believe that this shift would have been a matter of indifference to him. On the other hand, in this kind of competition, the way in which the money is made (occupational status) may be of secondary importance.