52. Leviathan

Note: This post is the fifty-second in a series. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs.

---

The problem with reading Leviathan, by Thomas Hobbes is that, unlike say the works of say, Weber or Nietzsche, its impossible to find an English translation. Nevertheless, I persevered so that I could write this post.

In Leviathan, Hobbes attempts to build a model of how society should be governed from first principles, in the same way that the newly developing (at the time) field of geometry was able to generate interesting conclusions starting from a seemingly self-evident set of axioms and building from there using logical reasoning.

Hobbes starts with the individual human as his basis and then builds from there based on the characteristics shared by all individuals.

Typically, when reading a book adorned by a cute black and white bird from the southern hemisphere, I make a point of skipping any preamble/introduction and going straight to the text. However, it's worth making an exception in this case for the excellent introduction by C.B. Macpherson who has done a fair bit of interesting work in his own right on ethics and economics. Macpherson makes the point that Hobbes defines power such that power consists of power over other people, each person's power offsets the powers of other people, and there are people who desire more power than others would like them to have¹. It is this dynamic which forces a competition for power and which makes that pursuit of power harmful, in a manner that the pursuit of other things (e.g. food and shelter) is not.

We can see that, in modern terms, what Hobbes was getting at is that power is a positional good, and that, given the internalities and externalities imposed by the search for this positional good, the net result of a competitive pursuit of power is negative. He characterized this eloquently in his description of the state of nature (where there is no 'Leviathan' to prevent people from using force on one another) as a state in which life is 'nasty, brutish and short.'

Given the trouble caused by the pursuit of power in a state of nature, this pursuit must be curtailed by placing all the power in a single source that is so strong, nobody will dare to challenge it (the Leviathan of the title). Hobbes sees civil war as the greatest evil, even more so than tyranny or dictatorship.

It seems to me that Hobbes' argument is really an argument for a single world government. After all, as Hobbes acknowledges, the conflicts between states have the same negative sum character that conflict within a state has. However, with his overriding concern for avoiding civil war and less concern for was between states, Hobbes seems to implicitly accept that government must govern a particular territory. It is one thing, for Hobbes, to have two different governments occupying different territory, but a far worse thing to have two (potential) governments competing within a particular territory. As far as I could tell, he never really delves into why there is such a distinction.

Hobbes imagined that a person (who Hobbes refers to as 'the foole') might see their best course of action to be in agreeing to set up Leviathan if that's what everyone wants, but then still using force when it suits them and they feel the risks of being caught or punished by the state are outweighed by the potential gain. This is similar to David Gauthier's concerns that it made sense for people to make promises, but not necessarily to keep them.

Hobbes counter-argument is as follows,

"He therefore that breaketh his Covenant, and consequently declareth that he thinks he may with reason do so, cannot be received into any Society, that unite themselves for Peace and defence, but by the errour of them that receive him; nor when he is received, be retayned in it, without seeing the danger of their errour; which errours a man cannot reasonably reckon upon as the means of his security; and therefore if he be left, or cast out of Society, he perisheth; and if he live in Society, it is by the errours of other men, which he could not foresee, nor reckon upon; and consequently against the reason of his preservation; and so, as all men that contribute not to his destruction, forbear him onely out of ignorance of what is good for themselves."

Basically, Hobbes is invoking the 'shadow of the future' suggesting that anyone who violates the rules will be expelled from society and therefore suffer more than they might gain from their covenant-breaking. This of course, relies on some assumptions about the government's power to catch and punish covenant-breakers, as well as assumptions about the rationality of potential covenant-breakers.

Another potential puzzle for Hobbes view is how the same people can on the one hand have the foresight to institute a sovereign power to have a monopoly on violence, but on the other hand, have the lack of foresight to get stuck into a violent state of nature if that sovereign power is lacking.

There are at least a couple of answers to this problem:

1) Instituting leviathan doesn't require everyone to go along, it just needs a large enough group, whereas in the state of nature, even a few people who prefer power to peace will cause a chain reaction of violence and vengeance.

2) Hyperbolic discounting means that people can see, from the vantage point when they are setting up leviathan, that peace is preferable to the state of nature, even though when they are in the heat of a conflict they may prefer attack or vengeance for an attack to peace.

For the most part, Hobbes' viewpoint reflects the movement in his time away from older hierarchical notions of status towards a commercial syndrome minded, 'all humans are created equal' view, with Hobbes justifying this on the basis that every human has the capability to kill another, and thus inflict 'infinite' harm upon them, so based on the fact that infinity is the same in all cases, all people are equal on this basis. Macpherson makes the same point in his introduction although he says that Hobbes employs a 'bourgeois mentality' rather than a commercial mindset, but he means the same thing. The commercial mindset is well reflected in Hobbes' rules for how men should behave with respect to one another (a long list of rules that Hobbes says basically amounts to 'do unto others as you would have them do onto you,' - a good commercial syndrome sentiment).

But even with a commercial mindset, Hobbes still saw the need for a single, all-powerful sovereign power that would take on the role of society's guardian. Once instituted, the sovereign could never be replaced (respect for tradition), it could not be usurped (respect for hierarchy), it must be obeyed, it was just for the sovereign to take vengeance (but unjust for anyone else to take vengeance), the sovereign was expected to exert prowess and it was just for it to employ deceit, force or whatever means were necessary to maintain order. Under Hobbes, the (guardian) rules that apply to the sovereign are completely different than the (commercial) rules that apply to everyone else.

--
¹ It's interesting that Hobbes has a section of the book tiled 'On Man' which is generally written as if all people are the same, but in his discussion of the pursuit of power he allows that there may be variation in that it is only some people who desire so much power that there is inevitably conflict.

Odds and Ends

Just a few links that don't really merit a post of their own...


A somewhat dated paper from the OECD on global housing prices. What's most interesting is that it has a longer set of historical data across a wider range of countries than you usually see.

A few things to note:

As at 2003 mortgage debt as a percentage of disposable income was the same for Canada and the U.S. at 77%. I'm guessing it must be a fair bit higher in Canada by now.

post edited to add: Well maybe not, only because the denominator, disposable income, hasn't been doing so well in the U.S. over the last few years.

Looking at table III.1 you can see that over the period 1970-1995, house price appreciation was greater in Canada than in most of the developed world. Over the period 1970-2005, appreciation in Canada was in the middle of the pack, behind places like Ireland, Spain, the U.K., Holland, Australia and New Zealand which had massive run-ups in housing prices (prices generally tripled or quadrupled in these places even after adjusting for inflation), similar to European countries such as France, Norway and Italy (where prices roughly doubled after inflation) and ahead of the U.S., Sweden, Finland and Denmark (where prices were up 50-75% or so), and a group of countries where house prices peaked in the early 90's and never recovered (in real terms), including Japan, Germany, Switzerland and Korea (little if any increase in real housing prices over the period).

---
As a complement to the previous article, here's a well-written piece from the IMF on the global housing market that is more up-to-date. The article suggests that one of the best metrics of valuation in the housing market is the price-rent ratio and notes that the 2 countries where the price-rent ratio exceeds long run averages the most are Sweden and Canada. The Price-Income ratio is also well above the long run average in Canada, but on this metric we trail the countries which showed the huge price appreciation in the OECD report above (Ireland, U.K., Australia, New Zealand, Holland, Spain).

I'd speculate that the reason Canada ranks higher on price-rent is that the countries with the huge appreciation suffered from both a housing bubble and a housing shortage that drove up rents as well. Unlike Canada where the boom led to many years where housing starts far exceeded estimates of household formation, there was little increase in housing starts in places like Australia and the U.K.

The report concludes, "That leads to an uncomfortable conclusion: house prices in many countries still have room to fall."

---
An article in the telegraph detailing some research supporting Fred Hirsch's contention that as society grows wealthier we are drawn into intensifying zero-sum competition for positional goods which means the greater wealth isn't increasing our happiness.

---
Malcolm Gladwell writes about how civil behaviour in politics has the form of a Prisoner's Dilemma and employs some arguments that will sound quite familiar to anyone who has read through my posts on ethics.

"Here’s a suggestion, borrowed from game theory. What is incivility but a species of collective action problem? A collective action problem is generated whenever a situation's rational opportunities at the individual level generate, at the systemic level, outcomes that are bad for everybody. Consider the familiar example of status-seeking via acquisition of a luxury sport utility vehicle. As consumers compete for this particular clump of positional goods — the feelings of safety that come from a ride bigger than the other guy's, plus the bmw or Mercedes logo over the grille — they have to shoulder mounting personal costs. The competition then turns into a 'race to the bottom,' in which every move to advance my position (larger car, fancier logo) creates a new incentive for you to invest more in pursuit of the same combination of size and status. Because these goods function by position, there is no theoretical upper limit to the ratcheted spending of our competition. Ultimately, the mounting opportunity costs mean we all end up poorer, even as the ends of 'safety' are obliterated by the fleet of urban tanks surging through the city streets.

How and when the exercise of rational self-interest generates system-wide defeats has been the subject of much investigation and analysis. Some scholars have suggested, for example, that individual rationality, amped by greed and cleverness, led to the collective self-defeat we know as the economic meltdown of 2008 — though this analysis says little about the uneven distribution of the costs of that meltdown, whereby the greediest somehow ended up losing the least. But relatively little attention has been given to discursive versions of collective action problems, perhaps because we naively assume that transparency will govern political exchanges; we think we know what the other person's interests and actions are. This assumption is false. Discourse, no less than consumption, has positional and hence competitive aspects. Indeed, winning the argument — or, rather, being seen to win it — is the essence of many discursive exchanges, especially political ones. If politics is reduced to elections or debates, it goes from being a shared undertaking of articulating ends and means and becomes a game of status and one-upmanship."

---
David Olive writes about the housing bubble in the Star.

Perhaps oblivious to the fact that almost every metric shows Canadian housing prices and debt levels to be near or higher relative to fundamentals such as incomes and rents than U.S. prices were at the peak of the U.S. bubble, Olive opens by saying that, "Finance Minister Jim Flaherty has headed off any last chance of a housing bubble developing in Canada."

Olive legitimately appears to believe that people who warn about a housing bubble are concerned that housing prices are about to *start* increasing at a rapid rate, seemingly unaware that those warning about a bubble are concerned that prices already *have* risen at a rapid rate and the concern is that they might fall.

So Olive sets forth a number of facts meant to reassure the reader: Ottawa is toughening mortgage rules, taxes on housing are going up, interest rates have nowhere to go but up, etc. and then concludes that we don't have to worry about a bubble because "the fundamentals of our economy don't support another leap in prices."

Aside from his complete obliviousness to the arguments *on both sides* of the housing bubble debate, Olive also puts forth an incredibly weak argument that, "One of the classic characteristics of a bubble is that in the midst of one, no one thinks it's a bubble. If they did, they'd quickly clear their winnings off the table. That fears of an emerging Canadian housing bubble have preoccupied economists, lenders, policymakers and buyers since last fall is a sure indication that the market is not caught up in an irrational buying frenzy."

Obviously the people who matter - those who are buying the houses and driving up prices - don't think it's a bubble. Per Olive's argument, the fact that prices continue to go up should mean that it *is* a bubble. Aside from that, he seems completely unaware how similar the situation is here to what happened in the U.S. In the U.S. a few pundits (e.g. Robert Shiller, Paul Krugman, Dean Baker) raised concerns about a housing bubble, but the vast majority bought into a 'this time is different' argument. Here in Canada, the situation is the same, the government, the Bank of Canada, economists etc. are all on board with the argument that there is no Canadian housing bubble, with a few exceptions (again Robert Shiller, David Rosenberg, Garth Turner).

---
A blog on the Science of Cooperation, and from that blog, a recent paper on 'Costly Punishment.' Costly punishment is one of the roads people go down when they twist themselves into pretzels trying to argue that an economy could work just fine if every person was purely self-interested. Of course if people are purely self-interested, they will rip each other off, but if there are sufficient punishments for bad behaviour, it will be in everyone's self-interest to act nice. But what about the self-interest of the people doing the punishment. Taking the time and effort to mete out justice has a cost of its own (hence costly punishment) so the problem of motivating self-interested people remains. The paper in questions suggests that if people are given a choice of entering or leaving a particular collective undertaking (rather than participation being compulsory), the population is more likely to end up being comprised of people who will punish those who fail to cooperate in a group effort.

I'll probably spend some more time on this sort of research a little ways down the line in the series on ethics.

----
A couple of interesting posts from Rajiv Sethi on the economic theories of Hyman Minsky. Not much comment from me other than to note that I generally agree with Minsky's argument that an economic boom contains the seeds of its own destruction in that, the longer the boom lasts, the more people behave in ways that make sense during a boom but are unsustainable through a full cycle (e.g. subprime mortgage lending).

---
Penultimately, from Economist's View, an article detailing research on the human brain's response to inequality (we appear to be 'hardwired' to dislike inequality - shocking, I know...)

One does feel like banging one's head against the wall reading this part of the article,

"[the result of the experiment] O'Doherty notes, is somewhat contrary to the prevailing views about human nature. "As a psychologist and cognitive neuroscientist who works on reward and motivation, I very much view the brain as a device designed to maximize one's own self interest," says O'Doherty. "The fact that these basic brain structures appear to be so readily modulated in response to rewards obtained by others highlights the idea that even the basic reward structures in the human brain are not purely self-oriented."

Camerer, too, found the results thought provoking. "We economists have a widespread view that most people are basically self-interested, and won't try to help other people," he says. "But if that were true, you wouldn't see these sort of reactions to other people getting money."

Still, he says, it's likely that the reactions of the "rich" participants were at least partly motivated by self-interest—or a reduction of their own discomfort. "We think that, for the people who start out rich, seeing another person get money reduces their guilt over having more than the others."

Here's what David Hume wrote on the topic, in 17 frickin 77 - i.e. 233 years ago.

"the voice of nature and experience seems plainly to oppose the selfish theory.

We frequently bestow praise on virtuous actions, performed in very distant ages and remote countries; where the utmost subtilty of imagination would not discover any appearance of self-interest, or find any connexion of our present happiness and security with events so widely separated from us.

A generous, a brave, a noble deed, performed by an adversary, commands our approbation; while in its consequences it may be acknowledged prejudicial to our particular interest.

Where private advantage concurs with general affection for virtue, we readily perceive and avow the mixture of these distinct sentiments, which have a very different feeling and influence on the mind."

…

"It is but a weak subterfuge, when pressed by these facts and arguments, to say, that we transport ourselves, by the force of imagination, into distant ages and countries, and consider the advantage, which we should have reaped from these characters, had we been contemporaries, and had any commerce with the persons. It is not conceivable, how a REAL sentiment or passion can ever arise from a known IMAGINARY interest; especially when our REAL interest is still kept in view, and is often acknowledged to be entirely distinct from the imaginary, and even sometimes opposite to it."

This really should be, in my opinion, just as obvious now as it was over 200 years ago, and it's sad to see the presumably intelligent and well educated researchers in the article still holding to the absurd belief that people are only motivated by self-interest.

---
And finally, on the same topic (more nails in the empty coffins of zombie ideas) here's a paper which shows that people can distinguish historical price patterns in financial markets from randomly generated patterns. The abstract notes that this refutes, "the widespread belief that financial markets 'look random.'" but don't expect any of the people (economists) who subscribe to this theory to change their mind any time soon, any more than the findings on brain response to inequality will affect those who cling, against all evidence, to the notion that people are only motivated by self-interest.

44. Social Limits to Growth

Note: This post is the forty-fourth in a series. Click here for the full listing of the series.

The book Social Limits to Growth by Fred Hirsch, has two primary themes:

1) As the economy grows over time, more and more of our consumption becomes status oriented / suffers from positional externalities, with the result being that greater economic activity doesn't necessarily make us better off, to the extent that most of that activity is just trying to keep up with (or get ahead of) the Jones.

2) Over time our society is becoming 'commercialized' in that more and more things are treated as a matter of commerce. And this commercialization, resting on an ethical system that promotes self-interest over public service, gradually erodes the ethical basis upon which society and the market based economy itself rest.

I think I've covered the first point fairly well (although Hirsch covers it in the most depth that I have seen in any reading to date), but I think it's worth spending a bit more time on this second point. Says Hirsch,

"The market system, left to itself, tends to fill this vacuum [in social organization] in the same way it fills others [through appeal to individual self-interest]; but here it may sabotage its own foundations. An extreme but pertinent example illustrates the wider point. If judges were regularly to sell their services and decisions to the highest bidder, not only the system of justice but also of property would be completely unstable ... If everything can be privately appropriated, including the judge, then nothing can be - for who will save the system from the first entrepreneur to be able to raise enough credit to buy the judge and everything else through him. As [economist Kenneth] Arrow put it: "Thus the definition of property rights based on the price system depends precisely on the lack of universality of private property and of the price system." Some minimum area of social obligation therefore has to be held. The problem is how to reconcile this social responsibility with the opposing mainstream of the market ethos."

Hirsch argues that those who theorize that politics runs along commercial lines of self-interest are mistaken,

"Economic theories of bureaucracy and of political action, which have been extensively developed in Virginia and in Chicago during recent years, are built exclusively in the individualistic norm. Political and bureaucratic activity are seen, in the same way as market activity, as means to private ends. As such, they tend to be inherently inefficient. The inference drawn by exponents of this approach is that the sphere of political action should be minimized.

An alternative inference flowing from the same analysis is that where individual preferences can be satisfied in sum only or most efficiently through collective action, privately directed behaviour may lose its inherent advantages over collectively oriented behaviour even as a means to satisfying individual preferences themselves, however self-interested."

Finally, Hirsch links his two main points by arguing that it the increased competition for status that results from positional goods taking up more and more of the economy (competition to get into the best schools, to get the best jobs, to own the best land, etc.) drives people away from concern for the public interest and towards self-interest by increasing the personal costs to giving a little ground in the battle for status by putting the social interest ahead of the personal interest.

There's a lot more in 'Limits to Growth' than I've covered here, I'd certainly recommend it to anyone interested in the topics I've covered in this series. It's a bit depressing that it came out in 1976 and yet so little progress had been made since then in even recognizing, let alone reacting to the social limits that he describes.

37. Envy

Note: This post is the thirty-seventh in a series. Click here for the full listing of the series.

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.

Heath concludes,

"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."

36. Positional Externalities

Note: This post is the thirty-sixth in a series. Click here for the full listing of the series.

Today's topic is a particular type of negative externality known as positional externalities. They're called 'positional' because they relate to areas where what matters is one's position relative to how others are doing, as opposed to some absolute measure. i.e. Trying to win the gold medal rather than trying to set a world record.

Wikipedia describes positional externalities as follows:

Positional externalities refer to a special type of externality that depends on the relative rankings of actors in a situation. Because every actor is attempting to "one up" other actors, the consequences are unintended and economically inefficient.

One example is the phenomenon of "over-education" (referring to post-secondary education) in the North American labour market. In the 1960s, many young middle-class North Americans prepared for their careers by completing a bachelor's degree. However, by the 1990s, many people from the same social milieu were completing master's degrees, hoping to "one up" the other competitors in the job market by signalling their higher quality as potential employees. By the 2000s, some jobs which had previously only demanded bachelor's degrees, such as policy analysis posts, were requiring master's degrees. Some economists argue that this increase in educational requirements was above that which was efficient, and that it was a misuse of the societal and personal resources that go into the completion of these master's degrees.

Another example is the buying of jewelry as a gift for another person, e.g. a spouse. For Husband A to show that he values Wife A more than Husband B values Wife B, Husband A must buy more expensive jewelry than Husband B. As in the first example, the cycle continues to get worse, because every actor positions him or herself in relation to the other actors. This is sometimes called keeping up with the Joneses.

One solution to such externalities is regulations imposed by an outside authority. For the first example, the government might pass a law against firms requiring master's degrees unless the job actually required these advanced skills.

Competition for positional goods is a zero sum game, in that any gain made by one person is exactly offset by losses to another. If I move up from having the third nicest house on the block to having the second nicest, someone else has moved down from second to third. Therefore, whether competition in these areas is beneficial to society or not depends on whether any positive side effects from the act of competition outweigh the resources devoted to an area in which no gains can be made.

In 'The Efficient Society' Joseph Heath recounted a story of native leaders who competed with each other on the basis of who could afford to destroy more of their own possessions. This is an extreme case of competition for status with negative side effects.

Generally, there will be a greater gain to society if people focus on achieving absolute improvements rather than relative ones. For example, innovation that allows every house on the street to have indoor plumbing is more valuable than everybody on the street competing to see who can have the biggest house. To the extent that people concern themselves with status rather than looking for improvements to their lives that don't involve comparison/competition with others, greater gains will be made, because this approach will reduce the presence of negative positional externalities.