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. ...

The Sum of Some Fears: Economic Prospects and Denial

The Sum of Some Fears - New York Times: By Paul Krugman

So why did people seem so shocked by a few more bad housing and oil numbers? What I guess I didn’t realize was how deep the denial still runs.

Over the last couple of years a peculiar conviction emerged among some analysts — mainly, for some reason, among those with right-wing political leanings — that the housing bubble was a myth and that the real bubble was in oil prices....

I didn’t think many people believed this stuff, but the market’s sudden freakout over housing and oil suggests that I was wrong.

Anyway, now reality is settling in. And there’s one more thing worth mentioning: the economic expansion that began in 2001, while it has been great for corporate profits, has yet to produce any significant gains for ordinary working Americans. And now it looks as if it never will.

That is, perhaps, Krugman's oblique response to David Brooks' prior column. I was hoping for a more comprehensive response.

In Economics Departments, a Growing Will to Debate Fundamental Assumptions

New York Times: By Patricia Cohen

“There is much too much ideology,” said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is “often a triumph of theory over fact.” Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.

“What I’ve learned is anyone who says anything even obliquely that sounds hostile to free trade is treated as an apostate,” Mr. Blinder said. ...

But as issues like income inequality, free trade and protectionism have become part of the presidential candidates’ stump speeches, more thinkers have joined the debate. In addition to Mr. Blinder, other eminent economists like Lawrence H. Summers and the Nobel Prize-winner George A. Akerlof have pointed out what they see as the failings of laissez-faire economics.

“Economists can’t pretend that the consensus for free markets and free trade that existed 30 years ago is still here,” said Robert B. Reich, a public policy professor at Berkeley who served in President Bill Clinton’s cabinet.

Part of the reason is the growing income inequality and dislocation that global markets and a revolution in communications have helped create. Economists who question the free-market theories “want to speak to the reality of our time,” Mr. Reich said.

Meanwhile, critics have also pointed out the limits of standard cost-benefit accounting to measure items like the cost of inequality or damage to the ecosystem. ...

Mr. Reny and others point out that the increasing popularity in the mainstream of behavioral economics, which looks at people’s complex psychological reactions to events, has offered a fuller picture of how consumers operate in the marketplace. Still, Mr. Lee criticizes neoclassical economics for maintaining that the market, if left alone, would ultimately find a happy balance. He also takes the discipline to task for relying on abstract theories and mathematical modeling instead of observation and sociological analysis. ...
Although he acknowledged that inflexible rules about how one makes an argument and what counts as evidence can create blind spots, but insisted that once those rules were accepted, there was tremendous openness inside the academy.

The problem is outside, where economists are expected to “regurgitate ideas” about the glories of the free market. Most mainstream economists think that voicing any skepticism or doubt provides “ammunition to the barbarians,” he said, and allows narrow-minded people to “hijack any argument to suit their purpose.”

Mr. Rodrik said he used to worry about this until he realized that “on any issue, there are barbarians on both sides,” so there was no point in shading an argument to “suit one set of barbarians over the other.”

“And I’ve slept a lot better since.”

Ah, does this bring back memories. I started out in Economics, and left when I realized I was not cut out to be a true believer in anything, and particularly not the true faith of (purportedly value free) neoclassical economics. I've never looked back, although I've taken some interesting side-glances at Tversky-Kahneman style "behavioral economics," which I find intriguing.