Last week I read a book I wish I'd written. Not just in the way I wish I'd written Hamlet - this argument has been in my head for a while and I don't understand why it doesn't get more airtime. The book is Falling Behind, Robert Frank. The argument runs as follows:
1. People care about relative consumption more in some domains than others (call goods where it matters a lot 'positional goods')
2. Concerns about relative arms races lead to 'arms races' focused on positional goods
3. These arms races divert resources from nonpositional goods, causing large welfare losses.
4. For middle class families, the losses from positional arms races have been made worse by rising inequality.
Frank uses thought experiments to help to express this argument, in each case asking the reader to which of two worlds they would rather live in. Firstly, choose between 'World A, in a 4,000-square-foot house and 6,000-square-foot houses and and World B, in which you will live in a 3,000 square-foot house and 2,000-square-foot houses'. Most people, Frank reports, choose World B. 'In the second thought experiment, your choice s between World C, in which you have four weeks a year of vacation time and others have six weeks; and World D, in which you have two weeks of vacation time and others have one week'. This time, Frank reports, most people choose World C. So, houses are a much more positional good than leisure. As a result, as wealth and inequality rises, to avoid the growing pain of living in comparatively small home, people rest less, save less and take less care of their health as they engage in a 'positional arms race' for the positional good of housing.
Frank's analogy here is with the elk. The key to attractiveness for the male elk is to have big antlers. So, while fossil records show that in the past antlers were tiny, through natural selection they have become enormous. They are unwieldy and uncomfortable for the elks and get caught in trees, etc, but because evolutionary competition is based around breeding, they continue to grow. Here again, positional benefits between individuals cause big welfare losses for society.
This is a different argument to Offer's about why we seem more imprudent than ever with money, time, sex and health. Offer focuses on wealth effects - "Affluence breeds impatience, and impatience undrmines well-being" - while Frank focuses on inequality effects. I wonder how their accounts might be integrated.
So what does this mean for government?
Stop chasing educational positional goods (league tables and grades)?
Dampen down the housing market? Stop saying we want more young people on the ladder (a positional metaphor if ever there was one)
Is this how we explain multiple exclusion - for the sick, isolated, unable to work?
Posted by: Matthew HORNE | May 02, 2008 at 08:45 AM