Good reads from around the Web.
A short article in The Economist this week entitled Keeping Up With The Karumes [1] (search result) provided an interesting look at happiness and inequality.
If you’ve been reading the personal finance blogs for a while, you’ll already know that after a certain point more money supposedly no longer makes you happier.
Moreover, it’s impossible to determine from existing studies whether already happy people get richer – rather than people being made happier because they get richer.
Maybe if you’re happy you have more successful friends who are happier to introduce you to their own friends or employers who have access to the better paid jobs, for example?
Or maybe happier people make their own luck in other ways?
Heaven knows I’m miserable now
The new study cited by The Economist tried to disentangle all this by randomly distributing money to some households in Kenyan villagers but not to others, like some mercurial minor god with a clipboard.
It found that people who got the money were indeed made happier – and less stressed – by it.
Those who got nothing felt worse.
So far, so “they get paid for this?”
But the interesting part for soppy-minded fools like me who worry about rising inequality [2] is that the unhappiness downside apparently outweighed the happiness upside.
…the satisfaction of those who did not receive anything fell sharply as their neighbours’ fortunes improved.
The decline in satisfaction prompted by seeing one’s peers get $100 richer was bigger than the increase of satisfaction from getting a handout of the same size.
And pertinently, it wasn’t inequality itself that seems to have bothered the villagers, so much as the notion that they were suffering from it:
Participants in the experiment shrugged off changes in the Gini coefficient of their village, which measures overall inequality.
Take the example of a village in which one person gets richer, and another gets poorer. The village is less equal, but the mean income is unchanged.
In the Kenyan experiment this did not matter to the rest of the village.
Instead, participants compared how well everyone else was doing (the village mean) to themselves.
In other words, inequality is alright as long as somebody else is suffering from it.
We hate it when our friends become successful
Of course, as an ardent capitalist [3] I’d point out this experiment is an imperfect reflection of the real Western world, which tends to inequality for a variety of different reasons – some good, some random, and some undesirable.
For example, capitalists play a big role in innovating and improving everyone’s lot through their risk taking (no, not every last capitalist, but in general that’s what the system does).
So in a real-life society, feeling unhappy that some capitalists are millionaires and the rest of us are relatively poorer might be outweighed by the improvement to our standard of living from having running water or electricity from local capitalists if you’re growing up in Africa – or by getting iPhones and Amazon Prime from Silicon Valley from the perspective of suburban Britain.
The ‘regular windfall’ experiment didn’t reflect that at all. It just made some people richer for doing nothing other than being lucky – as opposed to being seen to have made at least some sort of contribution or difference to justify their greater wealth.
The experiment if anything was a bit more like the ovarian lottery of inherited wealth that I’m so against…
…but we’ve just done that debate recently, so let’s put it to one side this week!
Stop me if you think that you’ve heard this one before
We might also wonder about the ethics of distorting the social politics of a bunch of Kenyan villagers to research whether comfy Westerners should be more laid back about oligarchs.
Good news, then, that the impact of extra money doesn’t last…
A year later the happiness of both the recipients and those who did without had returned close to its initial level.
…which is why the rat race is run on a treadmill, rather than to the victory line.
As the article concludes:
…when our own lot improves, we shift our reference group to those who are still better off.
In other words, we are never satisfied, since we quickly become accustomed to our own achievements.
Permanent striving might be good for economic growth as a whole – but it’s not likely to be good for your mental health.
From the blogs
Making good use of the things that we find…
Passive investing
- Playing the probabilities – A Wealth of Common Sense [4]
- The trouble with bashing bond indexes – Canadian Couch Potato [5]
- Diversifying UK equity exposure – Retirement Investing Today [6]
- If one fund manager wins, another loses – Evidence-Based Investor [7]
Active investing
- Buffett’s Berkshire Hathaway is cheap [Slide deck] – Whitney Tilson [8]
- Primark? Good value, but its shares are expensive – UK Value Investor [9]
- Generating investment ideas from data – Richard Beddard [10]
- Don’t hold your breath for a US recession – Capital Spectator [11]
Other articles
- Don’t risk it in retirement – The Retirement Cafe [12]
- Why cutting spending won’t harm your love life – The Escape Artist [13]
- A plethora of pensions – SexHealthMoneyDeath [14]
- The state of the financial blogosphere – Abnormal Returns [15]
Product of the week: The chef of the fleetingly trendy Chiltern Firehouse in London is looking to raise £1.75m through crowdfunding site Seedrs [16], reports ThisIsMoney [17]. Fair enough, I have no problem with such investments for highly risk tolerant individuals who invest what they can truly afford to lose – because lose it is what many-to-most early-stage investments will do – and who can lock their capital away for years before finding out its fate. However only high-rollers need be guided by the perks here. Dinner for four if you invest £25,000? I’d say forget it unless you’re worth at least £5m… or you’re the chef’s mother.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [18]
Passive investing
- Play the odds when investing – AARP [19]
- Felix Salmon: Penny stocks are never worth it – Fusion [20]
- Swedroe: Highest returns aren’t always the best – ETF.com [21]
- Is the ‘value premium’ disappearing? – Bloomberg [22]
- Six strange outcomes from distorted markets – Bloomberg [23]
- US ETF fees are tending towards zero – Reuters [24]
Active investing
- 4 long-term market-beating UK fund managers – Telegraph [25]
- It’s unlikely the US stock market is in a bubble – MarketWatch [26]
- Cor, what a commodity rout! – Bloomberg [27]
- Beware of unicorns – Deal Book [28]
- All about hedge funds, venture capital, private equity [Podcast] – Slate [29]
Other stuff worth reading
- Stock market valuation matters… eventually – ETF.com [30]
- Be cautious about the latest buy-to-let boom – ThisIsMoney [31]
- How to invest in a profitable holiday home – ThisIsMoney [32]
- Rare tax reliefs: The last of the loopholes [Search result] – FT [33]
- [Insiders…] campaign for pension freedom age to rise [Search result] – FT [34]
- The robots are coming, warns Bank of England insider – Telegraph [35]
- Let’s move to Denmark! – Guardian [36]
- How economists stole central banking from the bankers [Graphic] – WSJ [37]
Book of the week: The financial literati are raving about John Kay’s new book Other People’s Money [38]
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [44]]