Economics Books by Robert H. Frank

New York Times Book Review:By Daniel Gross

In his new book “Falling Behind: How Rising Inequality Harms the Middle Class,” [Cornell Economics] Professor [Robert H.] 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....

Frank urges fellow economists to look at numbers and data in relative terms, not absolute ones. ...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. ...

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. ...

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.”

Frank’s elegant solution? A progressive consumption tax that would discourage those at the top from spending more, thus lowering the bar. ...