> > i think there is a at least partial contradiction between the hypothesis > > of diminishing marginal return of income and the hypothesis that people > > care about consuming more than their neighbors or about earning more than > > their neighbors (Frank: Luxury Fever). If the latter is true than the > > first hypothesis is weak. What do you think about this? > > Steffen > > If the latter is true, it too can be subject to diminishing marginal > returns. So where is the contradiction? > Fred Foldvasry
I think Steffen is onto something very important, and Fred (& Alpius) are acting dense. After food, clothing, etc., diminishing marginal return says the next dollar of income has a lower (or perhaps often only equal?) marginal return. A desire to earn more than the neighbors seems to say that at a level equal to the neighbor, the next dollar has a (much?) greater return than the prior few dollars--obviously contradicting the "diminishing". (Prolly non-linearly; but so what if reality is difficult to model?) And I think this very important, under studied issue is behind the "rat race", as well as America's high consumption & high productivity. I often talk, here in Slovakia, about the Russian and American dreams: An American farmer lives next door to another farmer with a prize cow. A Russian farmer's nearest neighbor has a prize cow. The American farmer dreams that he has a better cow than his neighbor. The Russian farmer dreams that his neighbor's cow, dies. American Admiration Envy violates the assumption of diminishing marginal returns. (I often often think of these envy differences, but hadn't related them to marginal returns.) I'm not so sure about Russian Destructive Envy -- but I AM sure that this is the envy which is sinful, and terrible. Tom Grey P.S. If, as in both Slovak and Russian privatization, only the very corrupt were greatly benefiting, the admirable desire for punishing justice is indistinguishable from destructive envy.
