By now, everyone’s heard of The Spirit Level, and everyone who’s willing to listen has heard why it’s wrong. Briefly: the argument is that absolute increases in wealth don’t matter so much, because people’s well-being is strongly affected by their relative status. It doesn’t matter if you’re medically immortal and have everything you could possibly wish for, the hypothesis (when taken to a logical edge case) goes; if your neighbour makes more money than you do you’ll still be miserable and die an early and senseless death from a heroin overdose.
Reading the comments on Robin Hanson’s blog, I came across this gem of insight from commenter Rob:
“The rank-income hypothesis may explain why increasing the incomes of all may not raise the happiness of all… [I]ncome rank may act as a proxy for more general social rank, with the analyses then showing that social rank is key to well-being.”
(He’s quoting someone, but copied the above into the link target.)
So suppose that Puff the Magic Socialist waves his wand and brings everyone’s incomes to within noise of each other. Everyone’s on the level, right? No more envy?
As Rob notes, income rank is a proxy for social rank. If income rank goes away, we’ll find some other way to make ourselves miserable over petty status games. (See also: high school.)
I suspect that the people agitating for “less income inequality” have convinced themselves that the new social-rank proxy metric will be something that favours them.