Tax Bill Blowback

Some psychology behind the likely rejection of the new tax bill.

Posted Dec 22, 2017

The new tax cut legislation is likely to be an economic disaster for the United States, and a political Pyrrhic victory for the Republican party, the latter due at least partly to an important psychological phenomenon, evoked by the fact that the tax bill’s ostensible benefits vary wildly in their distribution, dramatically and unconscionably favoring corporations and the super-wealthy. Here is some of that psychology, which, in the avalanche of discussion about the bill’s consequences, has received almost no attention.

There is considerable evidence that people are influenced by their relative situation — that except in cases of severe distress (e.g., if they are homeless, dangerously malnourished or desperately ill), the satisfaction/dissatisfaction, happiness/unhappiness of most individuals depends less on their actual, objective life condition than on how they assess that condition compared to others.

A now-classic book by political scientist Ted Gurr, Why Men Rebel, made a powerful case that “relative deprivation” rather than “absolute deprivation” explained many situations of revolutionary violence. For example, it turns out that the actual income and likely nutritional status of the Parisian peasantry immediately before the French Revolution was considerably better than it had been in the years previously; the difference, and what ultimately led to the revolution, was that by 1789 the French upper class had become intolerably flamboyant in displaying its superior wealth and luxuries.

Comparisons can be psychologically erosive. In an oft-cited research account, social psychologist Douglas Kenrick and colleagues found that men who had been presented with photos of attractive semi-clad models reported significantly less satisfaction with their current romantic partners than did those shown other, randomly chosen photos. Olympic bronze medal winners, interestingly, report greater satisfaction and happiness than do silver medal winners, presumably because the former are happy to have obtained any medal, whereas the latter – having come close to gaining the top prize – are more likely to be frustrated and somewhat saddened at not having obtained it for themselves. Intuiting these findings, H. L. Mencken once noted that a “wealthy man” is someone who earns $100 more than his wife’s sister’s husband!

Research conducted more than a half-century later showed that Mencken was eerily accurate: if a woman’s sister’s husband earns more than the woman’s husband, the latter turns out to be significantly more likely to go to work herself, presumably because she is trying to keep up with the income of her sister’s family. In the U.K., an increase in salary for workers in one’s own area of specialization reduces the average worker’s job satisfaction as much as an increase in his or her own salary raises it.

This phenomenon of comparison-based happiness (or unhappiness), is one of the more consistent findings by researchers in positive psychology and economics: people consistently indicate that they would rather earn less absolute income so long as they earn more than those around them. When graduate students in public health at Harvard – who presumably are not dummies — were asked which condition would they prefer: (1) You earn $50,000 and others earn $25,000, or (2) You earn $100,000 and others earn $250,000, more than half the students chose situation #1. Interestingly, this preference was not found when the same students were asked to choose between two other conditions: (1) You have two weeks’ vacation and others have one week, or (2) You have four weeks’ vacation and others have eight. In this case, only about 20% of the students chose option #1, probably because there is something about conspicuous “goods” that render them especially liable to generate envy.

When it comes to generating envy – and with it, considerable unhappiness – money, not surprisingly, is a prime culprit. It might not buy happiness, as the saying goes. But insofar as people compare their wealth with others – and find themselves poorer – it can certainly generate unhappiness. Consider this striking finding. Increasing one’s income typically increases one’s happiness, at least in Britain and the U.S. However, an increase in the average income within a state actually decreases average happiness within that state by fully one-third as much as raising one’s own income increases it. 

This relates to what has been called the Easterlin Paradox, wherein once certain minimal needs are met, subjective well-being does not increase with income. An especially cogent interpretation of this genuine paradox is that people are strongly disposed to evaluate their situation in relative rather than absolute terms: how wealthy am I compared to others? Economist Richard Easterlin gives a nice analogy showing how natural it is that perceptions are relative rather than absolute: instead of asking people around the world if they are “not very happy,” “moderately happy” or “very happy,” he proposes, what if we asked them whether they were not very tall, moderately tall, or very tall? And what if we compared the results of such a survey in Holland (where people are in fact very tall) with those in Vietnam? The results would clearly be relative: a six-footer in Vietnam would likely consider himself very tall, whereas in Holland, not so much. An important difference between inquiring about tallness rather than happiness is that the former lends itself to an unarguable empirical measurement. But the tendency to “measure” one’s self against others nonetheless remains paramount.

A similar conception has been employed in evolutionary biology, where it is known as the Red Queen effect: Imagine predators such as cheetahs, which are selected to run very fast, because fast-running cheetahs are more successful in catching their prey. Over time, their increasingly evolved speed selects for antelopes that can also run rapidly, because the slower ones get eaten. The result is that although both cheetahs and antelopes become very fast, neither predator nor prey end up being “ahead,” since both have changed together. (In Through the Looking Glass, Alice finds herself in an environment that is rapidly moving, whereupon the Red Queen grabs her hand and demands that they run, explaining that "It takes all the running you can do, just to keep in the same place.")

This seems to go a long way toward explaining why, for example, even as the per capita income of many countries has risen steeply — sevenfold over the past 50 years or so — there has been no corresponding increase in reported average well-being and happiness. This is consistent with the Red Queen effect: as everyone gets richer, most people remain in roughly the same position with respect to their relative wealth.

Interestingly, although this tendency may seem ill-advised, perverse, or downright unseemly – after all, envy is one of the Seven Deadly Sins — there is some biological common sense to it, since natural selection does not work on absolute reproductive success, or fitness, but on the success of individuals and/or their genes relative to that of other individuals and/or other genes.

This psycho-economic “theory of relativity” turns out to be one of the most robust findings in happiness research, although it was presaged much earlier, by a variety of thinkers: “Our wants and pleasures have their origin in society,” wrote Karl Marx. “We therefore measure them in relation to society; we do not measure them in relation to the objects which serve for their gratification. Since they are of a social nature, they are of a relative nature.”

Here is Marx, again: “A house may be large or small; as long as the surrounding houses are equally small it satisfies all social demands for a dwelling. But if a palace rises beside the little house, the little house shrinks into a hut.” For me, as unhappy – indeed, downright angry – that I am about passage of the tax “reform,” which will increase economic inequality in a country that already suffers from a surfeit of it, there may be a silver lining, insofar as a well-established psychological principle suggests that the current palace of Republican political dominance will soon shrink into a hut.

David P. Barash is professor of psychology emeritus, University of Washington and author of Through a Glass Brightly: Using Science to See Our Species as It Really Is, forthcoming in 2018 from Oxford University Press.