I’m reading a very interesting article about how Darwin better informs economics than Adam Smith. It goes heavily into “keeping up with the Joneses” or relative economic position and why it matters. For one, you can not get your kids into the best schools unless you live in the best neighborhoods. That costs a lot more than living in the ‘hood. So relative position matters.
The current environment is of course very different from the ones in which our ancestors evolved. But relative position still matters, often for purely instrumental reasons. When you go for a job interview, for example, you want to dress presentably, but the standards for looking good are almost purely relative. An interviewer may have no conscious awareness of how different candidates are dressed, but if you show up in a $500 suit, you would be more likely to get a callback if other candidates were wearing $200 suits as opposed to ones costing $2,000. Similarly, parents who want to send their children to good schools must outbid other parents for houses in good school districts. Their ability to do so depends almost entirely on relative income. Here, too, we see the logic of musical chairs: No matter how much money people earn, only half of all children can attend schools ranked in the top half.
Except in so far as schools are concerned everyone can be in the top half of Internet Schools. In fact if you are motivated enough you don’t need a school of any kind. A computer, a broadband connection, and an ability to use a search engine is all that is required.
The above linked article makes a very good companion to something I did a while back: A thermodynamic explanation of politics.