Luxury Fever

...The person with the smallest mansion on the block feels poor and dissatisfied...

...In addition, happiness is a matter of relative living standards, not absolute living standards...

...The illness, he believes, calls for steeply progressive taxes...

...Frank offers an intriguing approach to a consumption tax...

...The individual in the largest hut in a small village feels wealthy and content...

...This would address one of the chief criticisms of progressive taxation, that it discourages investment, while leading to a leveling down of spending on luxuries...

...Carl L. Banhston III______ Over the past two decades, the gap between the richest Americans and the poorest has grown and the real income of the average middle-class family has decreased...

...His writing is clear and compelling and he demonstrates how economists can make good use of information from other fields, such as social psychology...

...In an earlier book, The Winner-TakeAll Society (1995), Frank and his co-author Phillip Cook argued that the enormous income gains of America's top earners during the 1980s were the result of the emergence of "winner-takeall" markets—labor markets in which small differences in performance produce huge differences in income...

...Further, wealth in the United States is already far more unequally distributed than income...

...Robert Frank has written an appealing, provocative book that provides a new perspective on luxury spending...

...As the rich grow richer, they display their wealth, setting an example for everyone else, causing expectations to rise...

...Robert H. Frank makes an interesting case for seeing a connection between the growing inequality in distribution of wealth and income and the national spending binge...

...A very wealthy family may use only a tiny portion of its income for a Porsche, while a family of modest means devotes a much larger percentage of its disposable income to educational enrichment...

...This would be the amount needed to maintain each household at a basic level...

...A massive consumption tax might lead people to cut back on their buying, causing businesses to shrink and lay off workers who would lose purchasing power and be forced to cut back even further, leading to a downward spiral...

...Third, even a highly progressive tax on consumption could be regressive in its effects...

...Frank argues that the excessive spending may be wise for individuals, because it improves the chance of winning the top place, but foolish for society as a whole, since it pushes resources into silk suits and diamond watches rather than into more useful commodities and savings...

...He also makes a strong case for a system of taxation that might be preferable in many ways to the current one...

...If we exempted all investment from taxation, wouldn't this lead to an even greater gap between those who own and those who earn...

...Instead of keeping track of each household's expenditures, we should simply exempt a certain portion of income (he recommends $7,500 per person) from taxes...

...Second, while spending on some types of goods may indeed be socially and economically undesirable, discouraging spending in general may be unwise because economies of mass production are driven by demand...

...Still, his argument is not completely convincing for a number of reasons...

...Nevertheless, members of the middle class, as well as the rich, seem to be living in larger houses, taking longer vacations, and spending more at the shopping malls...

...Frank's prescription for luxury fever will sound heretical to many in these antigovernment days...

...Both extravagant cars and children's music lessons are luxuries, involving spending beyond necessity...

...Commonweal 29 April 23,1999...

...First, I think rising spending on consumption may be due to the historical inflation of expectations, rather than to the competitiveness of a winnertake-all economy...

...Beyond that, he would consider all income that is spent rather than invested as consumption...

...Indulgence is not making Americans any happier, Frank argues, because they have to put more time and effort into paying for their high-priced goods...

...Modern economic crises tend to be crises of over-production, of productive capacities outpacing demand...

...Also, the very competitiveness of the winner-take-all market encourages luxurious display...

...Investments would be completely free from taxes and other income would be taxed at rates that would be low for households of modest means but that would rise steeply as household income rises...

...Carl L. Bankston III teaches in the department of sociology and anthropology at the University of Southwestern Louisiana...

...Thus, surveys of subjective happiness do not indicate any notable increase in perceived well-being during the years that our expenditures have grown...

...Each generation expects a higher standard of living than the generation before it, even when ability to pay for it is actually declining...

...Even if we assume the former family pays a much heavier tax on Commonweal 28 April 23,1999 its luxury, who would be harder hit by taxes on spent income...

...The lawyer or executive who wears an expensive watch and an Italian suit, by showing emblems of success, stands a better chance of getting the one high-paying job than the competitor who wears a cheap timepiece and buys clothes off the rack...

...In fact, the expenditures may be making us less happy because they are diverting funds from areas of investment that actually could improve the quality of life...

...A few are getting richer, then, and most are becoming poorer...

...More time for exercise and enjoyment, cleaner air and water, and better-maintained highways could raise the general level of satisfaction, if only we weren't putting so many of our resources into conspicuous and competitive consumption...

...Instead of taxes on all income, though, he argues that we should tax consumption...

...Now, Frank maintains that this inequality promotes conspicuous consumption...