Second, monetary income, while important, is only one aspect of a person’s, or a household’s, economic condition. Always to some degree – and frequently to a large degree – monetary income is an offset to some significant non-monetary aspect of a person’s or a household’s economic condition. High income might reflect unusually dangerous or unpleasant work conditions, or unusually risky financial decisions. Low income might reflect a conscious decision to avoid such conditions and decisions.
A personal story is a lone data point, but in this case it’s one that plausibly conveys a general truth. As I neared graduation from the University of Virginia School of Law in May 1992 I received two offers of full-time employment. The first was for a tenure-track position as associate professor in Clemson University’s Department of Economics. The second was as a junior attorney at the prestigious Washington, DC, law firm for which I worked the previous summer. The annual monetary pay offered by the law firm was nearly three times higher than was the annual monetary pay offered by Clemson University. And also, I knew, the difference in lifetime monetary income earned as a lawyer, over the pay of a college professor, was even higher.
I remember talking on the telephone to the law-firm hiring partner who called with the job offer. After thanking her profusely, I turned the offer down without hesitation. It’s a decision that I’ve never regretted. The value to me of the leisure and task-flexibility enjoyed by a college professor was much higher than the additional monetary income of working as a lawyer. Or alternatively, the cost to me of the pressure and long hours of working at a big-city law firm is higher than is the value to me of the additional monetary income that I’d have been paid by working as a practicing attorney.
Therefore, a comparison of my monetary income to that of a practicing attorney reveals a distorted reality. Superficially, this comparison reveals that my economic welfare is lower than that of the attorney. But the deeper reality is otherwise. If the impossible were possible – specifically here, to observe and quantify subjectively experienced economic welfare – my welfare would be ranked as equivalent to, and perhaps even higher than, that of the attorney. Yet because monetary incomes are observable and quantifiable, they are what is seen and reported, while the many complex trade-offs that give rise to them remain hidden. The seemingly objective and straightforward reality is, in fact, a distorted reality. Government policy based upon such a distorted understanding of reality is likely to worsen the true reality.