Responding to John Nye, Will Wilkinson:
John [Nye] points out a striking paradox of modern economic growth: decreasing real economic inequality creates the illusion of its opposite. … As access to manufacturable goods becomes increasingly widespread, the status-signaling value of these goods declines relative to essentially scarce positional goods. Meanwhile, as incomes rise, a rising portion of the population finds itself with money to spend on status games. … Our society has become more economically egalitarian, in one profoundly importance sense at least, but it sure doesn’t seem like it.
One question I’ve been asking myself how it is that John’s story can sound so similar to a story Robert Frank tells (in Status Fever, for example), while the lesson each draws from his story seems so different. I think much of the difference is explained by the fact that Frank sees little but waste (too many people competing to be rock stars!) and emotional harm (your BMW makes me feel worse about my Honda!) in positional competition, while John understands status-seeking more along the lines of Adam Smith and David Hume — as an engine of the efforts that drive growth and raise standards of living. …
When our institutions and norms focus the energy of status-seeking into the right kinds of activities, it tends to leave almost all of us economically better off even if it leaves the most status-obsessed feeling wretched.
See also Rob Wiblin on why “the best status games for society … would be enjoyable for the participants, productive for society and as egalitarian as possible.” I don’t know who is right, but I’m pretty sure these are the important questions.
There is a rather curious assumption in this entire discussion, including Nye and Wilkinson's remarks: that economic inequality is decreasing. In the US, real income and wealth inequality have been increasing since the 1970s. Nye makes important arguments, and, yes, status seeking has been argued by a number of people to possibly stimulate real economic growth, but this is not all being driven by some non-existent increase in equality. Get real, folk.
I understand Mr. Nye`s and Mr. Frank`s story to be opposite sides of the same coin.
On one hand, status games create counterproductive and absurd behavior (resulting in emotional harm). Erich Fromm deconstucts this phenomon very nicely ("Psychoanalyse & Ethik" 1946):
"Der Mensch, der von [...] Neid [...] oder anderen Formen der Gier getrieben wird, handelt unter Zwang. Sein Handeln ist weder frei noch vernünftig [...} sein Verhalten wird mehr und mehr starr und stereotyp. Er ist zwar aktiv, aber doch nicht produktiv."
At the same time, this status seeking is essential for growth and the raising of standards.
A new innovative product enters the market, resulting in a high status for those who have it. Mass production eventually picks it up, the good becomes cheaper and more available and the signaling effect decreases. This leads to a vacuum in the status game, creating demands for better and more advanced products to fill that gap. This quasi endless cycle of status seeking creates a lot of our economic growth. Emotional harm is a byproduct and influencal variable in this mechanism.
I am not sure if the problem is solved by the avoidance of games that promote extreme status highs and lows.
In competitive settings, someone always looses. If our emphasis is on being better than everyone else, then it does not matter how equal status is distributed. The availability of a small but significant difference in potential status might have the same negative effects.