Money and Happiness in an Era of Excess
Robert H. Frank 

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A couple interesting things in Luxury Fever. He believes that Americans are over-consuming in general (not saving enough), and that in particular they are over-consuming conspicuous consumption items. He follows the voluntary simplicity people in thinking that this is not the best use of resources happiness/$, because at the society level, piling money into status displays is a zero-sum game, so the society-wide increase in absolute wealth is wasted, whereas if it had been put into other things that can directly benefit everyone like short commutes, quiet neighborhoods, longer vacations, shorter work weeks, then there would have been a benefit. Conspicuous consumption is fairly analogous to pollution, because if one person splashes out for a custom tailored interview suit, then everyone who wants a job also has to spend that money. It's also similar to the redwoods, or to what happens when people start standing up at a concert to get a better view. To the individual, improving their position at the cost of others provides a short-term benefit, but then everyone matches this (everyone stands up, all trees grow giant, etc.), so in the end the population is worse off because resources have been wasted just to restore the approximate balance that was in place before the escalation. No individual can opt out without greatly harming themselves. As with pollution, this is a form of market failure, since utility (happiness) is not globally maximized.

He feels that the individual action (voluntary simplicity) can't work because status striving is truly beneficial to individual happiness, and the only answer is government policy, a very progressive consumption tax (equivalently, income tax with total savings exemption.) Frank and also the “Predictably Irrational” author make the point that pretty much all human judgments are relative, so it wouldn't be surprising if the judgment “How much effort do I need to put in in order to do o.k.” is made by comparing our situation to others. So it is natural that we are concerned about our relative position. But this effect doesn't go far to explain status striving, because in particular it doesn't explain why we want conspicuous consumption, why we make fraudulent status displays (if we can), why it is almost as satisfactory for others to be pushed down as for us to be raised up.

Frank believes that high relative status actually is still today substantially beneficial, in particular it makes you somewhat happier, so it is rational to seek status. He doesn't believe that simple comparison is an adequate explanation, and he does invoke evolutionary psychology, and has a nice chapter on many possible contributors:

1. Though he doesn't clearly articulate the connection, he notes there seems to be some connection between concerns about fairness and relative position (a concern that another has benefited more than you), and repeats the idea of “commitment problems” and the value of feeling irrationally compelled to punish. [Hmmn, it can also work the other way. If relative position is important, then punishing exploiters becomes more rational even in a single transaction. Dictator game behavior is not so mysterious. If, as Wright speculates, cooperation for status advancement is the main driver of friendship/alliance, then it makes a lot of sense that we are highly conscious of the relative status advancement resulting from our cooperation.]
2. There are scarce goods [even today] such as “house with a view.” Access to scarce goods is determined by relative position.
3. “Relative income would be important […] even in a world in which people really cared only about absolute income.” The cost of living may be genuinely higher, eg., a car is virtually mandatory in LA. Also a weak claim about the need to be “presentably dressed”, and a transition to
4. Differential reproductive success in preindustrial societies. “[…] there is no longer a strong link between relative income and the number of grandchildren […] Even so, there is evidence that relative earning power continues to be an important factor in mate selection.”
5. Allocation and regulation of effort. He splits this off from the “all judgments are relative”. “Evolutionary psychologists stress, however, the purpose of human motivation is not to make us happy, but to make us more likely to succeed against the competition.” Comparative advantage (finding your talents.) Don't burn yourself out when you're doing o.k. But don't expect bliss even when you're top dog. Top achievers may be on top because they are temperamentally dissatisfied. Also, happiness is the derivative of rank. We are affected temporarily by changes in rank, but then accommodate [if accommodation is total, then rank wouldn't (as he claims) increase happiness, unless perhaps the ongoing experience of upward mobility is enough to explain the evidently rather weak connection.] Rank also doesn't help that much because comparison is “local” with our peers or immediate competitors. As we move up, we move up our comparison point. [I note the tie-in with my observation of the delocalizing effect of global media.]
6. Bargaining & commitment, back to 1, “By virtue of your concern about relative income, you have become, in effect, a much more effective bargainer.”
7. Ability signaling. Making a good first impression. Actual value for that $15,000 watch.
8. Concern about relative status “proved real” by hormone level/status correlation.
9. Health and longevity seem to correlate better with relative status than absolute wealth. Is it due to stress from low status itself, or from the reductions in autonomy and control? Whitehall studies.

He beings and ends by noting that culture (Christianity, parents, etc.) urge disregard for relative status, but we seek it anyway. He says he has shown that concern for relative status is “more than envy”, and is still necessary for survival in the modern world.

Chapter 11, arms race, etc. Working long hours is also an arms race, for lawyers trying to make partner, etc. All would prefer hours to be shorter, but none can do this unilaterally. [Note that this directly opposes the happiness value of shorter hours.] By the idea of “context dependence” he argues that we over-value precisely those forms of consumption that do not benefit society as a whole. International arms race and guns vs. butter. You've gotta be pretty hungry to rank butter over guns if there's any credible military threat. Evolution urges us to strive for resources rather than to take time off, because it is trying to increase our success, not make us happy. We are biased to exert all reasonable effort to material and reproductive striving, so it is natural that we work long hours to get a house in a good school district. [But this may still be a Big Mistake in the modern context. Quite possibly we can unilaterally increase our happiness and even our fitness by taking long vacations, meditating, home schooling, etc. His repeated reference to the importance of a good school irks me somewhat. He correctly says that “a good school” is positional. Only 10% of students can be in the top 10% school. The aim of this thought process is to get into an ivy league college, but how advantageous is this? Is the education actually that much better than a middling school? Ivy league education is itself conspicuous consumption, and can't be regarded as an end in itself. It is valuable if your goal is for your children to have top status, as they will network with future movers and shakers, and will have a hot credential. This will entitle them to work 80 hour weeks so that their kids can get into an ivy league school. All very circular. The difference in achievement across schools is almost entirely explained by sorting of students and not by the quality of the education itself. As with houses with a view, the question is whether people strive to be in the top 10% so that they can get this intrinsically valuable good, or whether they strive for it primarily because it is scarce, and thus a status display.]

He also makes the interesting observation that many regulations make sense when understood as ways to avoid competitive escalations with harmful overall effect, even though (as with overtime regulations), they may not have been conceived as such. This includes limits on store sign size in zoning regulations, campaign spending limits, mandatory school start dates (avoiding redshirting), health and safety regulations (in sports and the workplace.) Economic arguments suggest that the Social norms can also have similar effects (Volvo for academics, not Porsche.)

At some point he has an interesting discussion of the value of a house with a view. This reminded me of hearing how a view is a crucial status symbol in Seattle. He does plausibly suggest that a view may be a greater good than (say) a piece of art, and that we may not accommodate to it so much, but he also notes that in higher end neighborhoods, there is often a larger view premium, which smells like conspicuous consumption.