Bob Frank was a professor of mine in graduate school at Cornell. He is perhaps most well known for his argument in favor of a progressive consumption and income tax. Why? He argues that much of the consumption of goods by the rich (and perhaps middle class too) takes place over status competition and “positional” goods. In other words, some people buy a fancy car just to have a fancier car than the other guy. Then the other guy buys an even fancier car. And so on ad infinitum (I suppose). Forget the fact that prices and incomes even matter for these people. The point Frank makes is that each of them expended a huge amount of resources, at the end of the day only one of them could still have the nicest car, and that the whole thing does not lead to any measure of happiness being larger for the two of them as compared to a world where they stopped their arms race with the first purchase of a new Mazda 6 or Toyota Camry. This is an idea we’ve touched on here and several other places.
His solution? Higher consumption taxes and income taxes to “nudge” people into not making huge arms-racy purchases that do not make them better off, and perhaps use the proceeds to help others with more “worthy” endeavors, or to encourage the rich to engage in more worthy charitable giving and the like. These arguments seem bizarre to most classical economists and for a variety of reasons.
Who says my passion for hiking is not a similar pursuit of status, and not “wasteful”? If I cannot purchase a larger car, perhaps I try to spend all of my time scaling the 46 highest peaks in the Adirondacks. I might even put a sticker on my car, or have a patch on my jacket to celebrate this achievement. In fact, what is different about that is that my pursuit of bagging the high peaks very likely does not benefit anyone else, whereas my consumption of a super-duper hedonic treadmill actually does – the investors, owners and employees in the treadmill factory and its suppliers.
I cannot keep thinking anything but that the only common theme in all of these sorts of discussions is an implicit (explicit?) contempt for the rich. Before I spend any more time discussing this issue, or the importance of materialism, I’d like to have someone demonstrate to me that this is not about envy, double standards, and incredible nanny-state interventionist preferences. I just cannot see the efficiency argument, that’s all.
I think you hit on the best argument when you pointed out that my neighgbor’s new gadget inspires me. I want one! And it is inspiriation, that leads to innovation, right? Perhaps instead we should subsidize conscpicuous consumption. Materialism, greed, envy, those things drive me to produce. How else can I obtain glitzy, useless, shiny new stuff unless I produce something for somebody else that they are willing to pay me for?
It has nothing to do with efficiency, so you can abandon that angle. Rather, it’s axiomatic that progressives/liberals/commies/Democrats/et al. revert to a (false) heuristic of wanting to dictate to others how those folks should live life. You can see it from the smallest partnerships, to neighborhood HOAs, villages, cities, counties, states, and on up to our own federal government and the UN. Every power-grubbing politician fervently believes that s/he has the magical elixir to improve humanity, if only the proles would knuckle under and submit to the power of higher intelligence. Thus, the condescension of Democrats and their minions that forever ridicule and denigrate others–especially conservatives–that they deem insufficiently enlightened to be cowed by their grand plans.
These supposedly well-intentioned would-be tyrants obsessively craft a self-image of moral, ethical, and intellectual superiority. Encompassing all worthy human endeavors from food and energy production, conservation, health care, voluntary contracts, manufacturing, relationships, whatever, progressive liberals “know” what’s best for everybody, all of the time. I’ve had a few short-lived relationships with leftarded women, and each of them had the potential to be tyrannical: “We’re going to go for walks every other day.” Or, “We’re going to start eating salads on Wednesdays.” Screw that. “We’re” going to do whatever I want.
Some “rich” Americans like Buffett, Allen, and Gates (and Bob Frank, apparently) think that other “rich” people should be taxed at higher effective and marginal rates. These carbuncles on the ass-end of freedom became wealthy in spite of their progressive credos, not because of them. Now that they’ve “arrived,” they’ve switched into rent-seeking mode and wish to squelch opportunities for everybody else.
The receipts of these “conspicuous consumption taxes” would then be directed by public choice to the construction of ever grander municipal infrastructure, imposing public buildings such as the recently completed $578 million Los Angeles school complex, dedicated bicycle bridges over highways, and mass transit projects with dubious economic benefits. Let’s not forget taxpayer contributions to luxurious professional sports facilities. It seems rather odd to have a critical attitude toward the motives of private spending while ignoring the state’s use of confiscated private funds for profligate spending.