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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

Avoiding Instant-Status Traps and the Bernie Madoffs Who Set Them

by Laura Rowley

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Posted on Wednesday, December 17, 2008, 12:00AM

In his book of the same name, status anxiety is defined by author Alain de Botton as a worry "that we are in danger of failing to conform to the ideals of success laid down by our society and that we may as a result be stripped of dignity and respect."

Status anxiety loomed large in the housing boom for people who did sensible things. They looked askance at their used Hondas, humble dwellings, conservative fixed-rate mortgages, and budget hotels at Disneyworld, and, finding them deficient amid the neighbors' BMWs, McMansions, and forays to France, tried in vain to suppress a creeping apprehension that they had gotten something terribly wrong.

(Now they realize the neighbors did it by surfing a tsunami of debt, but it brings them little comfort, since their jobs and home values are in jeopardy thanks to the follies of the foolish and greedy.)

Beware of Schemers

In addition, it was status anxiety that propelled smart people to hand over enormous sums of money to Bernard Madoff without paying adequate attention to what he was doing with it.

"What strikes one about the investors in the Ponzi scheme is desperation -- and not necessarily desperation to become rich, but to earn status, honor, and esteem," Botton wrote me in an email. "If our position on the ladder is a matter of such concern, it is because how we feel about ourselves depends to an unfortunate degree on what others think of us.

"Except in societies where status is fixed at birth, our position on the ladder hangs upon what we achieve -- and success is uncertain," he continues. "And from failure will flow humiliation: a corroding awareness that we have failed to convince the world of our value and are henceforth condemned to consider the successful with bitterness and ourselves with shame. That's where Madoff came in: he promised an instant and painless release from these status anxieties."

Wired for Stature

Our appetite for status derives from a physiological drive that played a useful role in survival, according to evolutionary biologists. The higher the status, the larger the share of pie an animal got in competitive situations. Thus it survived better, lived longer, and left more living offspring, preserving its genes in the population. Our biology evolved to make us keenly attuned to status.

"Animals higher up in the hierarchy have less stress -- lower cortisol and adrenaline levels -- and higher levels of hormones associated with feeling good, like serotonin," says Denise Cummins, an author who studies the evolution of cognition and teaches psychology at the University of Illinois in Urbana-Champaign. "This has been shown among humans as well. You're wired for status -- your whole neurology and endocrine system are tuned to what your relative status is.

"Even small changes in status -- someone snubs you -- will cause a response in the endocrine system," she adds. "High-status individuals have priority of access to resources, and in a market-based economy that means money. You have a lot of money, you have power."

Bad for Your Health

Thus when one experiences a sudden, Madoffian-sized loss of status, the upshot is neurological and hormonal fireworks.

"Large, precipitous changes in status can have massive effects," says Cummins, including cardiovascular stress, immune system dysfunction, and a shift in the way the body metabolizes sugar and stores fat. "What your body is saying, ‘My God, I'm never going to reproduce, I'm not going to be alive and leave living offspring' -- because that's what status means in a truly Darwinian world."

But that primal sense of alarm lingers in the modern world -- exacerbated by our belief in meritocracy, suggests Botton.

Meritocracies Have Their Downside

Since the mid-18th century, Western governments have sought "to create a hierarchy based on actual ability, replacing posh, chinless halfwits with the meritorious," Botton wrote in an email. "This meritocratic ideal has brought opportunity to millions. Gifted and intelligent individuals who for centuries were held down within an immobile, caste-like hierarchy are now free to express their talents on a more or less level playing field."

Alas, the dark side of meritocracy is that if we believe individuals are exclusively responsible for their triumphs (and we hold financial success at the pinnacle of esteem), then individuals are ineluctably accountable for their failures -- and economic collapse (with its corresponding plummet in status) is equally deserved.

"Financial failure has become associated with a sense of shame that the peasant of old, denied all chances in life, had also thankfully been spared," Botton notes.

The Company You Keep

Is there any hope of defeating status anxiety in a species biologically primed to chase rank?

Start by changing your reference group, advises Cummins: "It's relative status that hits you the hardest. If you are the hedge fund manager and your business went under and all the buddies you meet at cocktail parties are doing OK, that's going to hit you a lot harder than if go to a cocktail party and everyone is in the same boat."

Another possibility: Unemployed hedge fund managers and investment bankers, among others, are turning to evangelical churches for relief. Botton thinks that's not such a bad idea.

"Christian moralists have long understood that to reassure the anxious it may be best to emphasize we will die, everyone we love will vanish, and all our achievements and even our names will be stamped into the ground," he wrote in an email. "To consider our petty status-worries from the perspective of a thousand years hence is to be granted a rare, tranquillizing glimpse of our own insignificance."

The Biggest Monkey Doesn't Always Win

Another escape from status anxiety might be found in taking bold risks based on your passions, rather than continue to pursue a job in which you display expertise but no joy.

"The paradox of success is that all those who have done well have tended to ignore questions of status for many years in order to pursue a passion," Botton argues. "In other words, seeking status directly is as futile as seeking happiness directly. Status should be the byproduct of a job well done rather than a goal in itself."

Or rather than avoid status anxiety, one might simply pursue new routes to the top of the hierarchy. One proven strategy: Network like crazy. "In a lot species, neither size nor aggression correlates with status -- it's more about social intelligence," Cummins says.

When two primates fight, each side will call for help, and the monkey with the biggest posse wins, she explains. "The literature shows quite clearly the individuals who come to help in situations like that are individuals that you groomed in the past, shared food with in the past, or engaged in some kind of helping behavior with in the past," Cummins says. "This forms strong coalitions, then reciprocation happens. If you do that enough, what happens is you can secure a nice, strong, stable position in the hierarchy."

Comfort in the Dark

Finally, if someone calls you, wretched with status anxiety, don't try to cheer them up with rosy bromides.

"One of the most consoling things one can hear anyone say is that everything is absolutely dreadful," explains Botton. "Something like this sentence from the Roman philosopher Seneca: ‘What need is there to weep over parts of life? The whole of it calls for tears.' Or else this from the 19th century German Arthur Schopenhauer: ‘Today it is bad and daily it will get worse -- until the worst of all happens.' Or this from the French 18th century thinker Chamfort: ‘A man must swallow a toad every morning if he's to be sure of not meeting with anything more disgusting in the day ahead.'

"These thoughts make us feel better because they perform that most valuable of all services: they tell us we're not alone with our darkest feelings."

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  • Yahoo! Finance User - Wednesday, December 24, 2008, 11:26AM ET  Report Abuse

    • Overall: 3/5

    As a cancer survivor one learns that you cannot control the world around you or even what happens within you but you can control your reaction, your attitude. The measure of a person is not the cards life deals you, but how you play your hand.

  • khosrow - Wednesday, December 24, 2008, 9:06AM ET  Report Abuse

    • Overall: 4/5

    It is true. I worked 30 years and the status trap was always present for me and those around me. Such is our nature.

  • JerryB - Wednesday, December 24, 2008, 1:39AM ET  Report Abuse

    • Overall: 5/5

    What's new. WE have our good years and our bad years. If you have some money, spend it quick. Before you lose it in business or stocks or loans or get cheated. I always say that the way it goes first your money and then your clothes Then your wife. And then your life. Don;t kick anybody in the butt. like my Dad did me.

  • Yahoo! Finance User - Tuesday, December 23, 2008, 8:42PM ET  Report Abuse

    • Overall: 4/5

    Good story. These are the changes that are coming. We won't be as dumb and superificial as has been definitive of American culture and learn some humility and subtlety. We will no longer swing our d--k at the rest of the world and force "democracy" on them while giving our buddies no bid contracts for 3000$ hammers and coffee makers, nor will we have military contractors shooting innocent people while making 100K a year. We will learn some humility. Our hubris led us to this. The oracles and pundits turned out to be blind greedy children. And this house cards of card toppling will create a peaceful empty space. And to hell with it.

  • Yahoo! Finance User - Tuesday, December 23, 2008, 6:21PM ET  Report Abuse

    • Overall: 1/5

    Soon the Overlords from outer space will come to rescue us...watch out for that book of their's.... "To Serve Man"

  • Yahoo! Finance User - Tuesday, December 23, 2008, 1:21PM ET  Report Abuse

    • Overall: 3/5

    Good article but as long as there are Madoffs (and there are plenty more) the people that seek contentment in what they truly need and not what their neighbor has will be devoured either by the Madoff types or their followers or but the rampent inflation caused by those keeping up. The answer is to channel greed into aspiring for something better but in controlled moderation and to restrict those that would abuse this for unnecessarily excess gain gotten not be doing something constructive better but by sucking off the good capital of others. We need to control the excess of society -both the greed of the ultra rich and the laziness of the poor that won't do for themselves (as compared to those that mentally or physically can't do). The hard working middle class and those that have worked the good life and seek a just reward in retirement cannot and should not afford to pay for either extreme and should not be burdened by the rightist plunderers or the leftists socialist both reaching in their pockets. It is right and correct to want to get ahead based on your own merit but you can't afford to get consumed by it. It is incorrect and needs to be controlled for those that think they derserve to get ahead simply by manipulating others. A uniform society is communism; a society with differences based on ability and effort is what capitism was meant to be but a bailout society in which undo risk takers or those that will not exert themselves expect it is their right to sponge off those who do the right thing and work hard and smart within the rules is what we have become and we seem to be pointed to an ever worst fate over the next few years. The evil and corruptness of the past 8 years is only different from the evil and corruptness of the 8 before in the way it was perpetrated and the evil and corruptness of the next 4 or 8 years is the only thing we can positively affect but we are being sold down a road to the same place (whichever path that will take) by a different and even slicker talking snake oil salesman. God save us if we don't wake up, think for ourselves and the courage and correctness in ourselves and the resolve and take back the option to choose to be governed adn elect better leaders and control those in corporate America and the world who seek to destroy us.

  • theshawn - Tuesday, December 23, 2008, 11:41AM ET  Report Abuse

    • Overall: 1/5

    Uh huh, melt down peoples actions to evolutionary biology if it makes you feel better about your mistakes. You're not responsible for your actions right! Biology is! Whatever....emotional pacifiers isle 6....

  • Yahoo! Finance User - Tuesday, December 23, 2008, 11:01AM ET  Report Abuse

    • Overall: 5/5

    The United Autoworkers (UAW) and the BAILOUT they seek to EXPLOIT are an INSULT to every SOLDIER, TEACHER, POLICE OFFICER, FIRE FIGHTER, etc who does not get nearly as much monetary compensation but makes a greater sacrifice daily for his community and country. SHAME on the AUTO UNIONS.

  • monkeyfurball - Monday, December 22, 2008, 5:54PM ET  Report Abuse

    • Overall: 2/5

    Ok, this story has complicated a simple subject. Some people lost money in a ponzi scheme. Not all of them were greedy. Some just wanted a conservative investment. It can happen to anyone. It even happened to me once when I lost $100,000 in a ponzi scheme 7 years ago. For me, it was an investment and it went bad. It wasn't greed, or anxiety about keeping up with the neighbors--LOL. I don't have any debt, I take trips to Europe when I want to, I save a couple hundred thousand dollars a year. It was just a bad mistake I made and it cost me. Not too different from losing 40% in the stock market this year imo.

  • Yahoo! Finance User - Monday, December 22, 2008, 3:01PM ET  Report Abuse

    • Overall: 2/5

    Don't confuse Madoff's ponzi with low class Americans that found it easy to go into debt (McMansion, driveway with Hummer). I know Madoff's scheme. He would show a potential mark a copy of a client statement that would show a large sum of money with interest accrual and compounding over many years. This caused the mark to become greedy. On the other hand, you had Americans knowing they couldn't afford the high life, but went along for the ride when lenders approved them, borrowing money like crazy. Americans are kind of like criminals, they borrowed knowingly defrauding the banks. For one, I know it must have been quite a year, living in a large house with new cars and having all the new furniture and things. But now those folks are on the street, but it was fun while it lasted. The rich that lost in the ponzi are not broke, dented yes, broke no way. They still have the status. Americans can go back to renting. Renting isn't so bad. Just don't hang out with the snobby homeowners to make you feel inferior. A lot of rich people rent. Renting is not for losers. The govt should end giving the tax breaks for owning real estate. It isn't fair to renters.

  • Yahoo! Finance User - Monday, December 22, 2008, 2:36PM ET  Report Abuse

    • Overall: 1/5

    nice book report.......hang out with losers and shoot for the ground instead of the stars.

  • Yahoo! Finance User - Monday, December 22, 2008, 2:08PM ET  Report Abuse

    • Overall: 4/5

    Sadly, the perception of high socioeconomic status, gained by whatever means necessary, becomes an end unto itself. Unfortunatey, many folks have borrowed their way into creating a facade that creates the appearance of wealth. It is this propensity of human nature that provides the smokescreen for the salesman's pitch of greater rewards than are justified by the investment. A smokescreen that is readily apparent to the prudent observer. http://dumpyourbroker.blogspot.com/

  • BRUCE LB - Monday, December 22, 2008, 1:22PM ET  Report Abuse

    • Overall: 1/5

    Laura, How did you get your job? Your words of wisdom are always belated, and pretty simple. Do you think readers are not already aware of what you speak?

  • Lee - Monday, December 22, 2008, 11:59AM ET  Report Abuse

    • Overall: 1/5

    Ha Ha Ha....I love these self-appointed gurus like Laura who tell readers to avoid schemers AFTER WE'VE ALL BEEN SCAMMED! Little late Laura Baby - but nice try for an amateur.

  • David - Monday, December 22, 2008, 11:45AM ET  Report Abuse

    • Overall: 5/5

    I am glad to see a well thought out article such as this made it to Yahoo.

  • Vinny - Monday, December 22, 2008, 9:58AM ET  Report Abuse

    • Overall: 1/5

    The entire economy was an instant status trap. The Federal Reserve expanded the monetary base (monetary inflation) and caused the credit expansion (low rates and fractional reserve banking) and caused a credit and debt boom. This was obvious and predictable for everyone who understands fiat money. Central economic planning ALWAYS fails, this is why empires fall. All non-backed paper money eventually returns to it's intrinsic value (the value of paper). In a environment of credit and debt, we become creatures of credit and debt, all artificially wealthy. Now the tide has pulled back from the shore and will continue to move back to it's natural state. The is why the Constitutional requires that only gold and silver be legal tender. Everything happening today is a result of mindnumbingly dumb Americans and politicians filled with hubris. We think the Constitution is old and outdated because we drink latte and type on laptops. The Constitution is the most modern idea ever applied to governments, it is a statement of human nature and was meant to be interpreted literally. The ideal situation would be free markets in money and banking as intended giving a level playing field for all. There can be no free market or competition when the money itself is manipulated and the basic indicator of risk (interest rates) is manipulated at a central point. Many people blame the free market for what has happened today, they have the minds of children and are not intelligent enough to see even the most simple of facts.

  • Howard - Monday, December 22, 2008, 1:08AM ET  Report Abuse

    • Overall: 1/5

    "The biggest monkey doesn't always win." How do you explain George Bush?

  • Yahoo! Finance User - Sunday, December 21, 2008, 8:13PM ET  Report Abuse

    • Overall: 1/5

    Ladies and Gentlemen, may I introduce the world's second greatest Cut 'n' Paste artist, Useless Mick's sister Laura. The story everyone in this column should be writing is why the F Madoff isn't in jail but allowed to spend his holidays at home while we spend a lot more to keep him out of jail. Maybe we could send Laura and Mick to jail with Madoff for ripping off readers with the utter crap they both paste into this space.

  • looneytarian - Sunday, December 21, 2008, 8:06PM ET  Report Abuse

    • Overall: 3/5

    At first, I was rather ticked at Christopher and his 'idiotic Americans' comment. But then I started seeing comments from Love2flyagain and others backing her and began to wonder if he wasn't right. It does not matter whether the president is Repub or Democrat, both parties are on the take. Not to mention that the president can only do what what the House and Senate let him do. Maybe the rest of you will realize that after 4 years of Obama and a Democrat led admin. The article is right on, this country has become too materialistic. People are too easily lured by the words 'easy money'. It is not only the CEOs and the wealthy who are greedy but all too many citizens from the top down. Not only greedy, but ignorant which is how so many have gotten so far into debt. Overall, our education system is failing us. It needs to be restructured to teach people not only how to think for themselves, but to recognize how they react to certain things. Most people think they are immune to advertising, but marketing in this country goes far beyond commercials on TV. Most people have no clue how often their buttons are being constantly pushed by someone else. Until the majority of us learn that, things in this country (or world, for that matter) are never going to get appreciably better for any significant amount of time.

  • Yahoo! Finance User - Sunday, December 21, 2008, 2:44PM ET  Report Abuse

    • Overall: 1/5

    This girl is useless. She has no original insight. All she does is read newspapers and rehash the same crap. Laura what are your qualifications? Like allof these other authors on Yahoo, YOU HAVE NONE. You are simply trying to market yourself to become another Suze Orman, another marketing clown. You people need to wake up.

  • sportsfan - Sunday, December 21, 2008, 12:32PM ET  Report Abuse

    • Overall: 5/5

    A lot of people won't like this article, and few will listen... I remember a guy telling me a story. Two houses didn't take care of their lawn. My friend bought one house, and made the lawn decent. Next week, the house next to him began and spent thousands on the lawn.... Simply to beat the neighbor apparently. Dude probably couldnt afford the lawn, but had to keep up with the Jones.....

  • Lizzie - Sunday, December 21, 2008, 12:28PM ET  Report Abuse

    • Overall: 4/5

    As usual, interesting article. However, while you provide evidence and instances supporting the existence of "status anxiety," I have trouble believing it's more than voyeurism, greed, and/or egoism. (BTW, I believe this is my first four-star rating for you; they've all been five in the past.)

  • Mary - Sunday, December 21, 2008, 10:45AM ET  Report Abuse

    • Overall: 5/5

    Anyone who invested with Madoff, I have a bridge I want to sell them. My broker wanted me to earn 13% so he asked me to invest, as soon as I heard the return my red flag went up. Many years ago I was offered a chance to earn 22% investing in Mexican Bonds and I said no. You did get the 22% interest each year but your principle went down 28% each year so it was a slow death. This at least was a quick kill. One day you had $10,000,000.00 the next day you had ZERO.

  • ishopp - Sunday, December 21, 2008, 4:26AM ET  Report Abuse

    • Overall: 3/5

    pointing out one human weaknesses is sometimes interesting, but rarely useful, since we as humans do not change so easily. Fan clubs of one sort or another always exist, no matter how irrational the behavior is.

  • gert - Sunday, December 21, 2008, 3:41AM ET  Report Abuse

    • Overall: 3/5

    good article the last 25-30 years all people believe in is getting what they want even if they cannot afford it so to keep up with the jones. what happened to how our parents lived buy what you can afford when you have the money. dont worry america is kaput.

  • Yahoo! Finance User - Saturday, December 20, 2008, 11:02PM ET  Report Abuse

    • Overall: 5/5

    Astonishly good article. I knew all this but thought everyone else was unawares. Laura is the best! How's that for status! and she never even groomed or fed me once. Hey, beyond the status thing, isnt there any such thing....love .....anymore?

  • Yahoo! Finance User - Saturday, December 20, 2008, 2:28PM ET  Report Abuse

    • Overall: 4/5

    Very good article. Has anyone considered the fact that this desire for status is promoted from media, advertising, and television shows about the rich and famous with their life styles. While it was more subtle before, now it is being heavily promoted. Young children watch shows about celebrities and think what is the quickest way to become rich and famous. Or, in the least, they would want to have a piece of it by buying something that represents status to them. As adults, they will continue to yearn for that status by buying something else, regardless if they can afford it or not. This cycle feeds itself into illogical behavior. Something that was considered irrelevant to a person's well-being suddenly has intrinsic value. This hunger for status is not evident only when comparing oneself to neighbors, it is constantly bombarded at us in the media.

  • JamesM - Saturday, December 20, 2008, 10:24AM ET  Report Abuse

    • Overall: 4/5

    Comparing oneself to anyone else is the BIG mistake. I enjoyed the quotes and article. Thank You

  • Yahoo! Finance User - Saturday, December 20, 2008, 4:14AM ET  Report Abuse

    • Overall: 1/5

    Heres the problem with idiotic Americans: Sprewel puts 20k spinner rims on his escalade and then every wanna be sprewel does the same. Problem is that sprewel purchased his escalade and aftermarket spinners for cash and it basically cost him 0.0001% of his assets. Then Joe Shmo does the same trying to imitate sprewel but mortgages the car, has a $600 a month car payment when hes making only 50k a year, and those rims he bought were put on a credit card because he didnt have the cash so it basically cost him over 100% of his assets. Little does he know that after he puts the sprewel rims on his car, sprewel doesnt like those rims anymore and hes onto better more interesting products. Case #2. Donald trump buys a luxurious oceanfront house that costs him over 50 million. He mortgages it to use the banks money but he can also buy it for cash if he wanted to. He lets a camera crew into his new residence and shows off all the exquisite granite countertops in the kitchen, the plasma tv's in the bathroom, and the stainless steel appliances. Trump being worth about 4 billion, and purchasing this property for 50 million, cost trump a total of 0.0125 percent of his assets. Along comes Joe Shmo and wife Mary Shmo who took one real estate seminar and have a combined income of 80k. Mary just finished her course to get her real estate license but in reality has no clue about real estate or investing. They then want to be like trump so they sell their small affordable house and overleverage themselves on a new house, putting themselves in massive debt, and then rack up the credit card for stainless steel appliances, granite countertops, and flatscreen tv's. Then instead of a camera crew to come in, they invite the neighbors to show off to. Combined income of 80k, and a 600k house, basically costs them over 600% of assets. You people starting to get the point. The main point to get at is that Americans are so dumb and easily fooled by supersmart marketers. They want everything that all these celebrities and rich people have but they fail to understand that these rich people can afford it because it barely dents their bankrolls and the average joe cant afford it. I know some college kids that spend 60% of their monthly payment on an iphone bill!!! Take what you want from this article but the bottom line is that most Americans cant afford the stuff they already own, and then they go out and buy more useless stuff. And useless is what it is. In the end, all this junk never needs to be obtained.

  • Octopus - Saturday, December 20, 2008, 3:09AM ET  Report Abuse

    • Overall: 5/5

    A sheep once responded to my comments that there's safety in numbers. Now that his stock account numbers are probably 10% I wonder if he still believes it.

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