[Marxism] Two new books by Robert H. Frank

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times Book Review, August 5, 2007
Thy Neighbor’s Stash
By DANIEL GROSS

FALLING BEHIND
How Rising Inequality Harms the Middle Class.
By Robert H. Frank.
Illustrated. 148 pp. University of California Press. Cloth, $50; paper, 
$19.95.

THE ECONOMIC NATURALIST
In Search of Explanations for Everyday Enigmas.
By Robert H. Frank.
Illustrated. 226 pp. Basic Books. $26.

Robert H. Frank, a professor of economics at Cornell University, is an 
anthropologist of the ultra-rich. His prior books “Luxury Fever” and 
“The Winner-Take-All Society” have explored how the earning and 
consuming patterns of the very wealthy affect society at large. (He’s no 
relation to fellow pluto-anthropologist Robert Frank of The Wall Street 
Journal, author of the recent book “Richistan.”)

In his new book “Falling Behind: How Rising Inequality Harms the Middle 
Class,” Professor Frank deftly updates the argument for our current 
gilded age. The rise of an overclass, he convincingly argues, is 
indirectly affecting the quality of life of the rest of the population — 
and not in a good way.

Knowing that Steve Schwarzman of the Blackstone Group made almost $400 
million last year, or that he spent $3 million last February on his 
60th-birthday party (entertainment: Rod Stewart, Marvin Hamlisch, Martin 
Short, Patti LaBelle), doesn’t simply make the typical American green 
with envy, and hence unhappy. Rather, Frank argues, the problem is that 
extreme consumption — at which Schwarzman excels — helps shape norms for 
the whole society, not just his fellow plutocrats. “The mere presence of 
... larger mansions, for example, may shift some people’s perceptions 
about how big a house one can build without seeming overly 
ostentatious,” Frank writes.

That shifting perception combines with the powerful driving force of 
“relative deprivation.” When asked whether they’d rather have a 
4,000-square-foot house in a neighborhood of 6,000-square-foot 
McMansions, or a 3,000-square-foot home in a zone of 2,000-square-foot 
bungalows, most people opt to lord it over their neighbors. Indirectly, 
then, Bill Gates’s construction of a 40,000-square-foot house has caused 
the middle manager in Tacoma to take out a no-money-down mortgage for 
his 3,500-square-foot faux colonial.

Frank urges fellow economists to look at numbers and data in relative 
terms, not absolute ones. A Web surfer with a 56K modem today knows, 
intuitively, that he is better off than he was 20 years ago, when he had 
to rely on a 1,200-baud modem. But when everybody else has broadband, 
that 56K makes you feel like a cyberloser. The desire to avoid such 
relative deprivation drives consumption in a range of goods, especially 
those that Frank calls “positional goods” — things like housing and 
cars, in which differences in quality and size are readily visible. In 
buying bigger homes, faster computers and more powerful backyard grills, 
people are driven by the desire to be a part of a community and to keep 
up with the Joneses. If you happen to live on Park Avenue, it means 
buying a Monet and a 10,000-square-foot co-op to keep up with the 
Schwarzmans. Like politics, all relative deprivation is local.

What does this societywide arms race for goods have to do with income 
inequality? Frank trots out sobering data. Between 1949 and 1979, the 
rising tide of the American economy lifted all boats more or less 
equally. In fact, the incomes of the bottom 80 percent grew more rapidly 
than the incomes of the top 1 percent, and those of the bottom 20 
percent grew most rapidly of all. But since 1979, gains have flowed 
disproportionately to top earners. In an economy where the wealthy set 
the norms for consumption and people at every rung strain to maintain 
the consumption of those just above them, that spells trouble. In 
today’s arms race, the top 1 percent are armed to the teeth and 
everybody else is scavenging for ammunition. Between 1980 and 2001, 
Frank notes, the median size of new homes in the United States rose from 
1,600 to 2,100 square feet, “despite the fact that the median family’s 
real income had changed little in the intervening years.” The end 
result? Frank methodically presents data showing that the typical 
American now works more, saves less, commutes longer and borrows more to 
maintain what he or she views as an appropriate standard of living.

Oh, and it’s getting worse. Frank notes that “many of the forces that 
have been causing inequality to grow seem to be gathering steam.” 
Because the gains have been so lopsided — the richest 1 percent have 
seen their share of national income rise from 8.2 percent in 1980 to 
17.4 percent in 2005 — even the merely rich are having to overextend 
themselves just to keep up. “As incomes continue to grow at the top and 
stagnate elsewhere, we will see even more of our national income devoted 
to luxury goods, the main effect of which will be to raise the bar that 
defines what counts as luxury.” One can already imagine the enormous 
mounds of

osetra caviar being harvested for Steve Schwarzman’s 65th-birthday 
party. Frank’s elegant solution? A progressive consumption tax that 
would discourage those at the top from spending more, thus lowering the bar.

Frank is the rare economist with a gift for irony. And economic ironies 
abound in “The Economic Naturalist,” a collection of nuggets culled from 
an assignment Frank gives to introductory economics students at Cornell: 
in 500 words or less, “pose and answer an interesting question about 
some pattern of events or behavior that you personally have observed.” 
Frank sees this homework as part of an effort to bring more narrative 
into the teaching of economics and to make intimidated students realize 
they may already possess a rudimentary grasp of the dismal science.

Of course, it’s also a brilliant economic model. Kids pay tuition to 
take his courses, he’s paid to teach them, and then they provide 
material for a charming book. In “The Economic Naturalist,” Frank’s 
students, with a writing assist from their professor, explain why a 
$20,000 car rents for $40 a day but a $500 tuxedo rents for $90 a day. 
(Among other things, it has to do with the need for tuxedo shops to 
maintain a large inventory of different sizes.) Or why fast-food 
restaurants promise a free meal if customers don’t get a receipt. (It’s 
to deter theft by cashiers.)

By design, the answers are more intuitive than empirical. And the 
reasoning often strays beyond economics. Why do women’s clothes button 
from the left and men’s button from the right? Because when buttons 
first appeared on clothes for the rich in the 17th century, men dressed 
themselves while women were dressed by servants. There are dozens more 
examples in this book, which can be returned to again and again like one 
of those all-you-can-eat buffets. (I looked in vain for an answer as to 
why restaurants charge less for all-you-can-eat buffets than for à la 
carte meals served at the same time.) Occasionally, however, Frank 
succumbs to excessive calculation. You don’t need a degree in economics 
to know that bars give away peanuts and sell water because peanuts are 
very salty and make people thirsty.

The consumption arms race that Frank plumbs in “Falling Behind” 
reappears in “The Economic Naturalist.” “If women could decide 
collectively what kind of shoes to wear, all might agree to forgo high 
heels,” he writes. “But because any individual can gain advantage by 
wearing them, such an agreement might be hard to maintain.” And why do 
Frank’s humanities colleagues across Cornell’s idyllic quad, who are 
supposed to be good at writing, use so much jargon? It’s an arms race of 
erudition.

Taken together, these books, which richly deserve a broad audience, show 
how an academic economist with wide interests, a gift for anecdote and 
an open mind can be a highly effective teacher and citizen. “Falling 
Behind” is a compact example of a professional economist brilliantly 
deploying the tools of social science to illuminate the human condition. 
“The Economic Naturalist” leaves the reader impressed with the insights 
of amateurs.

Daniel Gross writes the Contrary Indicator column for Newsweek and the 
Moneybox column for Slate.

First Chapter: ‘Falling Behind: How Rising Inequality Harms the Middle 
Class’ (August 5, 2007)

http://www.nytimes.com/2007/08/05/books/chapters/0805-1st-frank.html

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