One politically-charged topic that has gained national prominence in recent years is income inequality: the fact that there is an ever-widening wealth gap between the rich and the poor.
Libertarians have traditionally questioned whether wealth inequality warrants any concern at all — to say nothing of whether government intervention is justified to correct it. Indeed, classical liberals are usually much more concerned with the alleviation of poverty, rather than hand-wringing about who might have a larger slice of an ever-widening pie.

Inequality and relative deprivation

There is, however, another way of looking at inequality: specifically, though the lens of relative deprivation: the extent to which people believe that they (or a group to which they belong) are getting less than they deserve or should expect, relative to others. While absolute deprivation refers to the extent to which a person’s basic needs (food, clothing shelter) are met, relative deprivation refers to the extent to which a person “keeps up with the Joneses.” If my car is older than my neighbor’s car, my house smaller than my neighbor’s house, and my computer is slower than my neighbor’s computer, I might suffer from relative deprivation because I am in a comparatively disadvantaged position,  — even if, in absolute terms, I am quite well off.
If the impact of relative deprivation on human wellbeing is significant, one might make the argument that growing inequality should be taken seriously, and possibly be addressed by government through redistribution. However, as I will argue, no psychological topic – including relative deprivation – lends itself to an easy policy fix.

A history of relative deprivation

The concept of relative deprivation goes back at least as far as Karl Marx, who observed that “our desires and pleasures spring from society; we measure them, therefore, by society and not by the objects which serve for their satisfaction. Because they are of a social nature, they are of a relative nature.” Elsewhere, Marx noted that “a house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut.”
More recently, relative deprivation has become a topic of interest to social psychologists. As early as the 1950s, social theorists were interested in how people evaluate their well-being relative to that of their neighbors. In one early publication, Faye Crosby proposed one of the first formal models of relative deprivation, which specified the various conditions under which a person might feel deprived of something (e.g., they must “lack a sense of personal responsibility for not having [it]”), as well as the emotional and behavioral consequences of that perception. Crosby argued that such consequences could range from personal stress to acts of violence against society (for example, rioting and looting).

Does relative deprivation matter?

Despite much theorizing and speculation, there is actually little empirical evidence that perceptions of one’s relative position in society have a palpable impact on overall well-being. For example, within the United States, the General Social Survey (GSS) contains data on both these questions from 1972 to 2014. While the two variables are correlated, the relationship is small; in fact, perceptions of one’s income relative to other Americans explains just 4% of the variance in overall happiness.
There are numerous reasons why the relationship between relative deprivation and well-being is so tenuous. First, relative deprivation intersects with another important theory in social psychology: social comparison.  People do not only compare themselves with people who are better off (known as upward social comparison). In fact, there is evidence that, most of the time, we compare ourselves with those who are worse off (downward social comparison). Evaluating ourselves in light of those who are doing poorly serves an important psychological function: it makes us feel better about ourselves, even if we are not as well off as we would like. That is, it puts our problems in perspective.
Moreover, people are not apt to compare themselves to individuals they believe are not like them in critical ways. Our social comparison targets are usually accessible: when engaging in upward social comparison, we must believe that it is (or ought to be) possible for us achieve as much as the individuals to whom we are comparing ourselves. Those who are extremely wealthy whom we have never met, such as rock stars, celebrities, and Fortune 500 CEOs, are probably not good candidates for social comparison, at least for most of us. As such, the sort of inequality so heavily criticized by the populist left is less likely to trigger feelings of resentment than more attenuated levels of inequality between ourselves and people we know.

The value of upward social comparison

There is also a benefit to upward social comparison: by comparing our circumstances to those who are slightly better off, we can create an attainable set of goals for ourselves. In this sense, what is one person’s relative deprivation is another person’s motivation to succeed. If a salesperson sees that his coworkers are earning more commissions than he is, he would do well to seek their counsel. If I see that my colleagues have outperformed me in terms of publishing, teaching, and contributing to our field, a productive response is not resentment but imitation. Competition is healthy, and upward social comparison has (often under-recognized) benefits.
From a pragmatic perspective, we should also note that combatting human misery by reducing feelings of relative deprivation is a difficult task with a small payoff. For example, Thomas Piketty has argued in his book Capital in the 21^st Century for a (probably impossible to implement) global wealth tax for the express purpose of making the very wealthy less so. An alternative approach with a much more favorable cost-benefit ratio would be to combat poverty by expanding economic liberty and creating prosperity for all. After all, there is abundant evidence that economic prosperity is strongly associated with happiness.