All Commentary
Wednesday, December 1, 1999

Other People’s Business

Government's Role Is Not to Shield People from Themselves

Social engineers never tire of conjuring up proofs for their own indispensability. These days those who subscribe to the “let me tell you how to live” ethic are disturbed by the explosion in consumption at all levels of society. So they have some proposals. There is nothing new, of course, in the spectacle of affluent intellectuals’ sneering at the common people’s enjoyment of wealth. It goes back to the very beginning of capitalism and the consumer society, when the upper crust complained that mass production made it difficult to ascertain to which class any particular person belonged. Later Thorstein Veblen condemned “conspicuous consumption.” And in The Affluent Society, John Kenneth Galbraith launched his career as a public intellectual by grousing that private consumption was crowding out “public investment,” which is a euphemism for political consumption, which in turn is a diplomatic way of saying legalized plunder.

Now Cornell University economist Robert Frank is gaining celebrity, and not insignificant royalties, lamenting the culture of consumption, which he has dubbed “luxury fever.”

Frank’s jeremiad is a variation of the old “keeping up with the Joneses” theme. He worries that the crass bourgeoisie aims to emulate not the Joneses but the Cabots and Lodges. We in the middle class buy fancy things beyond our means not because we need or even really want them, but rather because we are on a desperate treadmill to obtain the increasingly expensive products that the wealthy have. Thus government needs to save us from ourselves and to stop the rich from being a bad influence on us. If they were forced to buy fewer or less-expensive goods, the consumption standards they set would be more manageable.

Frank’s theme is also a variation of the “prisoner’s dilemma,” which purports to prove that in some circumstances what is good for each may not be good for all. A favorite example is a rock concert. If the people in the front row stand, the rest of the audience will be encouraged to stand. In the end, no one can see any better than when everyone was sitting, but now everyone must be on their feet. That one can’t dance while sitting is never taken into account by those who see rock concerts as a kind of market failure. (This doesn’t happen at the symphony.)

Frank’s own example describes a job applicant who spends a thousand dollars for a suit in order to look sharp at his interview. If the applicant’s rivals spend less than a grand, he’s in good shape. But when they start springing for thousand-dollar suits, the first poor sap has to spend two thousand dollars. Frank compares this process to an arms race.

This has the distinguishing mark of a typical academic economist’s example: it bears scant resemblance to the real world. I daresay few job applicants feel they need to outspend their competition on wardrobe.

Another Tax

But social engineers never need much to hang their hats on. Once he’s identified the “problem,” Frank is ready with a solution. The government–it’s always the government–should enact a graduated consumption tax, which would be applied to each person’s consumed income minus a $7,500 standard deduction. This is intended to reduce frivolous consumption and induce saving. It’s all in his book Luxury Fever: Why Money Fails to Satisfy in an Era of Excess.

Frank sounds more like an over-reaching psychologist than an economist. We consume more and more, he says, because we easily get used to and dissatisfied with what we have. A house that seemed big when we bought it seems small a few years later. We want more—more not just of what we have but more than others have. He touts a survey which found that a majority of those polled would rather make a lower absolute salary that was more than other people earned than a higher absolute salary that was less than others earned.

Frank also laments that people are driven to buy homes they cannot afford in order to send their children to better schools. That is regrettable. It’s also regrettable that Frank doesn’t see that governments create this problem by running schools and financing them with property taxes. In a free education market, children wouldn’t be assigned to schools by bureaucrats on any basis, including residence.

While we can identify reasons that impel people to buy higher-priced homes than they might otherwise buy (the income-tax deduction for mortgage interest is another reason), Frank is on thin ice when he generalizes. We simply do not know why any particular person buys any particular product. When Frank utters a “tsk tsk” and says “there oughta be a law,” I’m reminded of the neighborhood gossip who can’t mind his own business. Frank is free to make all the baseless moral judgments he wants about others. He should not be free to call the cops, or the taxman.

But let’s grant Frank this: surely in a population of 260 million Americans, some people are buying things in unthinking imitation of someone else. Maybe that is in part why a record 1.4 million Americans went bankrupt last year.

Resist Temptation

What do we do about it? A new tax is surely not a good answer. In a free society, people have a natural right to try keeping up with the Joneses if that’s what they want to do; and the rich have a right to spend their incomes as they like. If their consumption tempts moderate-income people to spend unwisely, it is a strange notion of justice that calls for the rich to be punished. Shouldn’t grown-ups be expected to resist temptations that do not serve their rational interests? Is it the government’s role to shield people from themselves?

Frank and anyone else who suffers insomnia over how other people spend their money could put their time to more productive use by promoting individualism. An individualist is someone who thinks for himself. He is ready to learn from others. But he draws his own conclusions and charts his own course. He doesn’t keep up with the Joneses or base his self-worth on whether he makes more money than his neighbors. Can you imagine Howard Roark buying a particular car because it’s the kind Ted Turner drives?

In the realm of public policy, individualism is best promoted by radically scaling back the power of government. If from the time a person enters “public” school he learns to regard the government as his master, it is small wonder he never learns to think for himself. People who are free to live and make mistakes will be taught individualism by that most potent teacher: reality.

FEE’s founder Leonard Read long counseled that setting an example by personal conduct is many times more powerful than giving a lecture. To the extent Frank has identified an actual problem, he can best address it by practicing individualism. That would be better than lobbying the government to tell other people how to live.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.