Freakoutonomics

Submitted by tonyplant on June 3, 2006 - 08:19.

I've just learned a new word from Charles Morris: freakoutonomics. In the New York Times (normally behind a paywall but (Economist's View has helpfully reproduced Freakoutonomics), Morris describes the sort of uneasiness and lack of confidence that Ben Friedman wrote about in The Moral Consequences of Economic Growth.

Friedman argues that economic growth is essential to moral, social, political and cultural progress. He writes that the financial and social anxieties created by living in a stagnant economy lead people to look for explanations and answers in intolerance and fear. Furedi expands a form of this argument to argue for its role in the widespread internalisation of conspiracy theories: "[t]oday, acts of misfortune are frequently associated with intentional malevolent behavior".

Friedman outlines the comparisons that underlie the influence of income on well-being. For the first, we contrast our present and past circumstances: if we are better off financially that we used to be, and we can buy more with that money, then we feel better off. For the second, we use our present circumstances as a yardstick to compare ourselves to our notional peer group: if we are more prosperous then we feel better; if we are worse off, then we feel worse.

Friedman makes a compelling argument that prevailing circumstances can substitute one comparison for the other. In a reliably growing economy, if almost everyone is prospering more than they were previously, then our self-referential satisfaction is enough to slake our need to competitively contrast our prosperity with that of others. However, when an economy stagnates and there is a widespread perception that people are financially no better off than they used to be, or have experienced a drop in their income (in the U.S., there has been a 15 per cent drop in average full-time income since 1975), then there is a greater tendency to compare our conditions to those of others. The latter circumstances have grave political and social consequences.

...when the average income for an economy is stagnant, people who allow others to get ahead of them are not only falling behind in relative terms but also losing ground compared to their own past living standard. They lose out from the perspective of both benchmarks. When an economy is growing, however, and per capita income is rising, those who fall behind compared to others can still be moving ahead-and if growth is sufficient, moving ahead solidly-by the standard of their own experience.

The logic of Marie Antoinette economics asserts that if consumption is linked to happiness, and we believe in the sustainability of a consumer culture as a stimulus for economic growth, then consumption is a moral good and we have never had it so good. However, Friedman is concerned that the benefits of economic growth are disproportionately concentrated in those social groups at or near the top. He argues persuasively that unequally distributed prosperity is not really prosperity. A recent summary of the U.S. economy claims:

Income inequality is now near all-time highs, with over 50 percent of 2004 income going to the top fifth of households, and the biggest gains going to the top 5 percent and 1 percent of households. The average CEO now takes home a paycheck 431 times that of their average worker.

Friedman is apprehensive that the moral consequences of unequally distributed prosperity bear an uncanny resemblance to the those of economic stagnation.

If one counts only the size of houses and cars, and the numbers of electronic gadgets stuffed into rec rooms, Americans are probably better off than ever before. But as the 1870's suggest, economic well-being doesn't come just from piling up toys. An economy has psychological or, if you will, spiritual, dimensions. A conviction of fairness, a feeling of not being totally on one's own, a sense of reasonable stability and predictability are all essential components of good economic performance. When they were missing in the 1870's, in the midst of a boom, the populace was brought to the brink of revolt.

Morris writes about this revolt and the resentments that fuelled it although this was a time of increasing economic growth and consumerism. Morris comments that:

wealth inequality in today's America is roughly the same as in the Gilded Age.

He says that the greater social and geographic mobility of the 1870's isolated people from their traditional sources of support and security in families and communities. He draws a comparison with present times:

the destruction of employer-employee relationships, the erosion of pension protection and employee health insurance may be creating a similar loss of moorings.

It seems as if insecurity can make us vulnerable to FEAR (False Experience Appearing Real or False Experience Accepted as Real. Freakoutonomics seems to be a catchy way of summing up this phenomenon. All we need now is an equally catchy summary of a well reasoned plan to convince us that there is a physical and social solution to freakoutonomics that isn't just placebonics.

Copyright 2006, Tony Plant Happystance Project

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Morris | happiness economics | happiness | friedman | FEAR | economic growth