A 50,000 Dollar Car And You're Still Not Happy


Why Money Fails To Satisfy in an Era of Excess

By Robert H. Frank

Free Press 326pp $25

Are Americans in the grip of a luxury fever? Yes, says Robert H. Frank, an economics professor at Cornell University. His thesis: Two decades of income gains for those at the top have fueled lavish spending on baubles that wastes national income and doesn't even make the affluent buyers any happier.

In Luxury Fever: Why Money Fails To Satisfy in an Era of Excess, Frank cites a host of examples to make his case about lavish consumption. The $5,000-a-night suites at Aspen's Little Nell hotel are booked up months in advance, as are all 84 spots on Tavoca World Tours' $38,000-a-head round-the-world excursions. Yacht makers are so backlogged that used boats sell for close to their original prices. Overall, luxury spending in the U.S. jumped by 21% in 1996, while total merchandise sales climbed by just 5%. Luxury travel--defined as average spending of at least $350 a day--soared by 130% between 1990 and 1995. Luxury cars--those that cost more than $30,000--account for 12% of all vehicles sold today, up from 7% in 1986. Vacation houses are booming, as is everything from cosmetic surgery to expensive cigars and wines.

Frank has strong opinions on this subject. In 1995, the left-leaning academic co-authored an insightful book called The Winner-Take-All Society. It described how a few star performers are taking the lion's share of income in occupations such as sports, movies, and even banking and finance. In Luxury Fever, Frank describes another effect of inequality. And he follows up with a sweeping--but unconvincing--recommendation for what to do about it.

The author seeks to establish that Americans' taste for luxury isn't really paying off in higher consumer satisfaction. As evidence, he cites numerous surveys taken through the decades that show that the share of people who say they're "very happy," or express some other measure of subjective satisfaction, doesn't rise with a society's income. This has been true for Americans in surveys taken between 1972 and today--while per-capita income jumped by 39%. And it was true for the Japanese between 1958 and 1986, when their incomes quintupled. The surveys show that money buys more happiness, says Frank, only when a country moves from Third World-type poverty to middle-income status. After that, average life satisfaction doesn't seem to correlate with further accumulations of material goods.

The surveys, however, don't get at the entire issue, says Frank. Money does make people feel better off, he says, if it's spent on the right things, such as less-stressful lives, more time to exercise, and such public expenditures as cleaner air and water and roads that are less crowded. Again, he cites surveys to show that people consistently say they're happier when they have more of these benefits. All of the surveys that show no gain in overall satisfaction, he argues, reflect that Americans with their spending spree have gone off course.

Frank's argument so far is at least plausible, although it's not clear that happiness surveys really capture the subjective benefits that people derive from material goods. Someone may feel perfectly happy at a range of income levels but still appreciate the extras more money can buy. But Frank's solutions are sure to strike many as even less convincing. In sum, they consist of taxing the rich. The U.S. should install a sharply progressive tax on consumption, he says--an approach that wouldn't discourage savings. The result: The frivolous luxury-spending boom would be curtailed. And any extra revenue could be devoted to collectively purchased quality-of-life improvements.

There are several major problems here, even if you agree with the broad concept. Preferring to talk about how a consumption tax would discourage all Americans from excessive spending, Frank isn't honest enough about who would pay the price. Essentially, he wants the top 10% or 20% to consume less so that all of us can live better lives. Maybe some affluent Americans would be willing to make that trade-off, depending on how much their personal spending had to fall. But without an honest debate, his proposals aren't likely to be given serious consideration.

Another problem lies in some of the same satisfaction surveys that Frank cites. People may not report higher levels of happiness as their incomes rise, but they certainly do say they're unhappy when their incomes fall. Perhaps the rich really would be better off if they swapped extra material possessions for a higher quality of life. But many would resent the government's forcing them to do so.

There's also a timing issue. The reduction in consumption would begin immediately, when a tax was levied. The cleaner environment and improvements in infrastructure could take years to bring about. Many affluent households might not like to pay up now in hopes that they might be better off down the road. Besides, if they really felt strongly enough about reducing stress and enjoying, say, cleaner air, they could simply quit their high-powered jobs and move to small, uncrowded communities.

Still, a progressive consumption tax may merit serious consideration. For one thing, he says, it "could be made far simpler than our current income tax." That alone makes it a worthy idea, no matter what you think about Americans' buying spree.

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