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August 12, 2007

FDL Book Salon: “Falling Behind: How Rising Inequality Harms the Middle Class”

Posted in: Economy,FDL Book Salon

51xtkw72xxl_aa240_.jpg(Today we welcome Robert Frank, author of “Falling Behind: How Rising Inequality Harms the Middle Class.” Please join us in the comments — jh)

We hear a lot about income inequality these days and if you’re like me, you probably wonder, other than the fundamental unfairness of it all, why this matters. After all, life isn’t fair — get back to work and stop lallygagging.

As it turns out it matters a great deal, and that sense of dissatisfaction and anxiety so many of us feel is a direct result of the conspicuous consumption of the fabulously wealthy overclass trickling down through society and making it necessary for people to constantly buy more, even as they are earning the same. According to Frank, it’s not just keeping up with the Joneses or class envy or any of the other things that people usually attribute to those who live beyond their means. It’s a natural, human response to the context in which they live. Frank makes a compelling case that measuring yourself against your neighbors, co-workers or whatever, isn’t just a matter of “keeping score.” It’s the way we make sense of the world. And that measure is affected every day by what the super-rich are buying.

In a delightfully droll passage, Frank describes going shopping to replace the battered $89.00 bar-b-q he’d used quite happily for years, until all his repairs finally failed and it fell apart. He sees this amazing Viking grill extravaganza with burners for stir frying and rotisseries that practically cook the food itself and deliver it to your table. It costs $5,000. But, boy is it awesome. He reluctantly turns away and contemplates a different model with some of the same features, but now that he’s seen the top of the line, it just isn’t as impressive. But being a responsible consumer he realizes that he can’t be that extravagant and he considers buying this more basic model — for $1,160. It’s so improved from the banged up old $89.00 model on which he’d happily grilled for years they might as well not even be called a bar-b-q, but in spite of that, he feels a vague sense of disappointment at what it doesn’t have compared to the fancy Lamborghini level grill. Buying it would feel positively frugal, even though it’s ridiculously expensive on its own terms. I’m sure you’ve all been there. You have no idea what’s out there, but once you see something with all the bells and whistles you subconsciously compare everything else you see to it. And something that you would have found to be an amazing improvement over what you once had, suddenly becomes a compromise.

For the record, Frank settles on a $250.00 Weber and felt extremely frugal buying it — though it cost three times what his other grill had cost. But you can also tell by the loving detail with which he describes those more expensive models, that they made a lasting impression. He went back a year later to look at them again and the top of the line model was now $13,000.00 — and that $1100.00 model now looks like a worthless piece of junk by comparison.

This is the mechanism by which the extremely wealthy change the context of our everyday lives in ways we aren’t even aware. And in a society that ties such fundamental community functions such as schools and public safety to property values and perceptions of power, it is almost a matter of necessity that the middle class keep reaching for the bigger house and the bigger car in order to maintain a stake in their community. It is perfectly understandable that people want to have their kids educated in good schools and live in safe neighborhoods.

Neither is it counter-intuitive that if you need to be taken seriously by people who have money, you have to appear that you have money too. I remember being confused when I first started working in a business where there were always a lot of recent college grads in entry level grunt positions driving very fancy cars and dressing in designer clothes. It took me a while to realize that they were all children of wealth. As a result of their ability to give the properly successful appearance, those of us who didn’t have money spent far more on such things than we had any right to, merely to even be in the running. I suspect this gets worse every year as America continues to shed the last vestiges of Puritan social restraint against the flaunting of extreme wealth.

The problem is that middle class American incomes are not even close keeping up with what they need to spend in this kind of environment and haven’t been for more than two decades, while income gains for these super-rich have been stratospheric. That’s what’s making everyone feel the squeeze: the middle class are working themselves into an early grave and taking on more debt than they can manage not because they are foolishly trying to keep up with Paris Hilton but because they have to in order to hang onto the place in society they already have.

Frank discusses in some detail the costs of this striving and I think we all can imagine what they are in terms of health and satisfaction. This is a sick little merry-go-round we’re on. Fortunately, he has a novel solution that I would hope the powers that be would consider: a progressive consumption tax that would give an incentive for the rich to think twice about this reckless extravagance that’s dragging everyone else down. It would encourage saving among the rest of us, which virtually all economists agree is sorely needed, and if nothing else would force the super-wealthy to at least kick in something for the public good while they’re running themselves ragged shopping for expensive gew gaws.

This is a very accessible little book, written in easy to understand language that gets to the heart of the problem for average people who are just trying to make a living and raise their kids and find some way to leave this world a little better than they found it. It gives us some real insight into how we actually find our place in the world around us and well, pursue happiness. That important knowledge leads to how we might change policies to actively encourage that fundamental American value.

Please welcome Dr Robert Frank to the FDL book salon.

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