The relative income problem

I probably shouldn't say so in these censorious times, but I have a little sympathy for Sir Malcolm Rifkind's desire "to have the standard of living that my professional background would normally entitle me to have."

Of course, an MP's salary of £67,060pa is high from most perspectives; it's more than 94% of us earn. But put yourself in his shoes. He's surrounded by senior journalists, lobbyists, businessmen and lawyers many of whom get six-figure salaries, sometimes on the basis of less than astonishing ability. Mightn't an experienced MP feel underpaid relative to them?

In making such comparisons, Sir Malcolm is conforming to a widespread and longstanding pattern - of judging his income relative to his peers, and judging himself accordingly. This is what Adam Smith meant when he said that our desire for wealth arises not so much from a desire for goods but from vanity: the rich man enjoys the attention and sympathy of the world, whilst the poor one feels shame. It's what H.L.Mencken meant when he defined a rich man as one with an income "that is at least one hundred dollars more a year than the income of one's wife's sister's husband." It's what bankers feel when their bonus, however big in itself, is smaller than their peers'. And it's what the (perhaps apocryphal) worker meant when, on being refused a pay rise, asked his boss: "can't you instead give everyone else a pay cut?"

It's widely agreed that relative (pdf) income matters for our well-being - at least among older people. In one of my favorite books on happynomics, Bruno Frey writes:

People are concerned about their position on the income ladder. It is not the absolute level of income that matters most, but rather one's position relative to other individuals (Happiness, p31).

However, there are some things we can do to mitigate the unhappiness we feel about others' high incomes, for example:

1. Remember that what we don't see can be as important as what we do. The businessman's and barrister's high income is visible. What's not so visible, though, is their stress and long hours. But on these dimensions, Sir Malcolm has the advantage; as he said, he has time on his hands.

2. Realize that higher income has only modest effects upon happiness. As Smith said of the ambitious man:

It is in the last dregs of life, his body wasted with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments which he imagines he has met with from the injustice of his enemies, or from the perfidy and ingratitude of his friends, that he begins at last to find that wealth and greatness are mere trinkets of frivolous utility.

3. Change your reference group. Dan Ariely writes: "we can sometimes control the 'circles' around us, moving toward smaller circles that boost our relative happiness (Predictably Irrational, p19). We don't need to physically move to do this. We can do it in our minds. Here's Smith again:

The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were perhaps,very much alike.

Why, then, not compare your income to the porter's?

4. Remember that income is not a measure of merit, and so a low income, relative to others, is not a sign of low personal worth. In saying this, I'm not making a leftist point.It was Hayek who said that, in a market economy, "the return to people’s efforts do not correspond to recognizable merit." (Law, Legislation & Liberty vol II p72)

Sir Malcolm, however, seems not to have adopted these coping strategies. Instead, he tried to solve the problem by scrabbling about for a few quid and in doing so has lost dignity and esteem. For this reason, he deserves a little sympathy.

Comments

[Andrew]

Many companies hire former or current politicians as advisors on policy and regulatory issues. This is not necessarily or even usually a sinister attempt to but influence, it is because they need to understand how policy issues affecting their business may play out. And the payments for this advice would be of the same order as they pay for legal or accounting advice, so most likely well above an MPs payscale. It seems to me that Sir Malcolm and most others in his position would regard this as a legitimate way of monetising their experience. So, yes, I agree that the kneejerk reaction of condemnation is a bit out of place here.

[Ralph Musgrave]

Given Chris's sympathy for Rifkind, I'm forced to ask whether Chris really is the Marxist he claims to be...:-)

[Chris Purnell]

Rifkind was also 'earning' £180,000 from three directorships (Newsnight: 24 Feb 2015). So his package is c. £250,000. QED Rifkind is just another greedy bourgeois nose in the trough.

[Luke]

Chris P
"QED Rifkind is just another greedy bourgeois nose in the trough"

Not sure what precisely the definition of bourgeois is, but I reckon most would be pretty grateful for £250k pa.

[aragon]

The Spectator thinks your sympathy is misplaced.

"You do not have to be on the left to be concerned about this warping of public life. The justification for free markets is that they bring wealth to the whole of society, not a few at the top."

http://blogs.spectator.co.uk/the-spectator/2015/02/the-justification-for-free-markets-is-that-they-bring-wealth-to-the-whole-of-society-not-a-few-at-the-top/

[Abdullah]

That's 67k for a part-time job with lots of reading. He once represented Edinburgh Pentland and is a prize potato.

[Luke]

Slightly off topic, but I do like the way Chris scours the writings of Smith and Hayek to find things that will make (some) right wingers' heads explode.

[Icarus Green]

Its not just income we benchmark ourselves against other people on. But this incident does bring to mind the McKinsey CEO Gupta, looking at the Galleon Hedge Fund Manager and thinking he needed to get in on the action. Cue sketchy behaviour.

I had a good discussion about this recently. It seems on one end theres the hyper sensitive, envious person who sees well to do peers and decides to improve until he gets to that level. Thats healthy if ones goals are realistic.

On the other end are the people that are so ignorant, stupid and blind that they can't see they're losing the race. They would rather make themselves feel better about being obese, being on the dole, being loveless by ignoring the problem or rationalising it away by comparing themselves to farm animals or something and hoping miracles will happen.

Ideally you'd be somewhere in between. Wanting to improve. But happy at a core level with certain aspects of your person that can't be changed.

As a matter of specifics, I do think MPs should be paid a lot more to prevent this type of soft corruption and private business worship.

[Cawstein]

Montaigne remarked that Fortuna, so often blamed for unfairness, seldom gets blamed for an unequal distributiion of common-sense; high and low, poor and rich, all think they have a good allocation of 'common-sense'. Cawstein

[An Alien Visitor]

"The justification for free markets is that they bring wealth to the whole of society, not a few at the top"

Well then free markets should be abolished immediately because they couldn't have failed more in this regard and we have centuries of history to show this.