Envy is considered one of the seven deadly sins, the ten commandments came out strongly against it and if Wikipedia is to be believed, it doesn't go over well in Islam or Buddhism either.
So what's so bad about envy?
Joseph Heath has an excellent essay on the topic of envy which can be read here.
Heath explains how envy can interfere with pareto-efficiency:
"The Pareto principle states that if a proposed change in the condition of society makes at least one person happier, and does not make anyone else unhappy, then that change should be regarded as an improvement. This principle forms the conceptual core of modern welfare economics, and exercises enormous influence in contemporary discussions of justice and equality. It does, however, have an Achilles’ heel. When an individual experiences envy, it means that the happiness of others itself becomes a source of unhappiness. As a result, envy has the potential to block any and all Pareto improvements. Making one person better off will automatically make someone else worse off, so there will be no point talking about efficiency gains."
Envy translates your gain automatically into my loss much in the same manner that a positional externality does. However, whereas nothing much can be done about a pure positional externality, envy can be reduced by the virtue of a people who will not allow themselves to feel worse simply because someone else has made a gain.
Heath notes that because of the problems that envy causes for economic theories of pareto-efficiency, theorists generally treat envy as an 'illegitimate' preference and exclude it from their model,
"Thus John Rawls assumes that rational agents behind the veil of ignorance 'do not take an interest in one another's interests.' Similarly, David Gauthier excludes any 'tuistic' preferences from consideration in his bargaining theory."
The problem is that, no man is an island and people may have good reason to be concerned about their relative position, which would imply that they need to be concerned about the position of everybody else. If a Canucks fan is upset that the Flames win a game against some other team, it may be that he hates the Flames and hates to see them do well, but it may also be that a Flames victory has a negative affect on the Canucks chances to make the playoffs, or win the division, or get home ice advantage. The question is where to draw the line between an illegitimate feeling of envy and a legitimate cause for concern. Heath provides an example:
"Imagine in a situation in which my neighbour acquires an air conditioner. This is a purely private transaction between himself and the merchant. Unfortunately, as a consequence of this purchase, I may find myself, on sweltering days, glaring enviously across the yard, resenting the comfort enjoyed by my neighbour and his family. Does this undermine the win-win character of the transaction between the neighbour and the merchant? There is a very strong moral intuition which suggests that, in this sort of case, the loss of welfare that I experience from my neighbour's new acquisition should not count as a consideration that speaks against the transaction.
On the other hand, the air-conditioner might also make a lot of noise, which keeps me awake at night. Then we might not want to regard the purchase as purely a private matter between the neighbour and the merchant. I become an unwilling participant, and my loss of welfare, it seems, should count for something. Economists would say that in this case the transaction creates a 'negative externality.' Thus when we talk about markets, the 'laundering' of preferences normally occurs in the decision that we make about which external effects of a transaction to treat as 'externalites' – and thus as part of the 'social cost' of an action."
The problem as Heath notes, is that "Despite the intuitive attractiveness of these distinctions, it is difficult to formulate a precise articulation of the underlying logic."
Heath spends the bulk of his paper working through the subtleties of trying to make that formulation and how to form policies that might recognize the value of people's legitimate concerns about their relative standing, while at the same time not providing legitimacy to simple envy. It's well worth reading, but too complex to summarize in detail here.
"The reasons for wanting to launder out envy from our social welfare judgements are for the most part sound. It is very important that we be able to identify win-win transformations in social outcomes, without being held back by people who get upset at the mere fact that somebody else is winning. The problem is that our preferences cannot be separated cleanly from one another, simply because our judgments – the very concepts that we use to articulate our needs and desires – have a deeply relative character.
If all of our desires were of this type, and everything were relative, then there would be no problem. The human race would have been locked into a state of hedonic homeostasis since its inception. The problem is that the relativity of our desires admits of degrees. As a result, it is possible to achieve Pareto improvements by shifting resources out of areas that have the structure of a zero-sum game, and into areas where improvements in absolute welfare level are still possible."
The more general point I want to make is that the commercial, trade based system functions best when people and their preferences are independent of one another. This post was an example where people's welfare was negatively correlated (your gain is my loss or your loss is my gain (i.e. schadenfreude)). There can be other issues when people's welfare is positively correlated which I might get into in a later post.
To some extent, this is just re-covering earlier ground on the problems caused in markets by negative and positive externalities, but I though it was worthwhile showing how these externalities can have a basis in human emotion as well as in the physical world and that, where human emotion triggers negative externalities, it has been suppressed using moral means as far back as the Book of Exodus when God told his people, "You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, or male or female slave, or ox, or donkey, or anything that belongs to your neighbor."