Is Inequality Bad in Itself?


As the AMT debate heats up, there are a lot of efforts to justify the trend in income distribution represented in the chart above (which appears to only be getting more pronounced). But few economists have chronicled the rise of inequality in America as insightfully as Robert Frank.

Twenty years ago, Frank’s groundbreaking Choosing the Right Pond focused on the importance of status in everyday life, eloquently documenting the hidden injuries of class. Ten years later, in The Winner Take All Society, Frank questioned the myths of merit so often used to justify high levels of inequality. He showed how technology could exponentially increase returns to “superstars” who were marginally (or perhaps not at all) better performers than “also-rans.” Frank’s Luxury Fever chronicled the disastrous effects of “spending cascades” unleashed by the new inequality: as the near-rich strived to emulate the ever-wealthier rich, so the middle class strived to emulate the near-rich, leading to extraordinary levels of indebtedness. Each book developed the theme of “positional competition“–the wasteful race for goods that are valued to the extent others are denied them.

Between these books, Frank has also published fascinating works on moral psychology (such as Passions Within Reason and What Price the Moral High Ground), and has formalized his insights in leading economics journals. In the tradition of Albert O. Hirschman and Jon Elster, Frank is one of few leading social scientists capable of enriching economic thought with philosophical, psychological, and sociological insight.

But Frank’s work has also attracted an array of critics. . . .

–In The Substance of Style, Virginia Postrel argued that Frank deeply misunderstood the meaning of luxury spending. To Postrel, luxury spending reflected less Veblenesque conspicuous consumption than deep appreciation of style and aesthetic pleasure.

–Many libertarian critics saw Frank’s concerns about status as an unduly subjective way of assessing social outcomes. If people at the bottom resent those at the top, isn’t that their problem? Why don’t they just snap out of it?

–Tyler Cowen has claimed (in What Price Fame) that Frank has overstated the “superstar effect” in sports and entertainment. He sees a world of “proliferating fame,” and proliferating status competitions generally, where virtually everyone has the chance to achieve high status in something.

–Finally, some believe that there is no such thing as a purely “positional good”-only goods with positional aspects. While Frank deems competitions ranging from litigation spending to test preparation as positional, society as a whole may benefit from the striving that goes into them. For example, the South Korean Supreme Court held legislation against “cram schools” there unconstitutional, in part because it felt the frenzy for top rank in exams helped the country advance economically.

Frank has responded to some of these criticisms, and I have earlier tried to take on Postrel’s views on fashion and glamour. But Frank’s most recent work, Falling Behind, has led me to believe that Frank relies too much on subjective self-reports of well-being in crafting his case against inequality. In the next post in this series (How Not to Argue Against Inequality), I’ll look at some of the weak points of Frank’s work. I’ll then focus on Frank’s genuine contributions to philosophical and economic debates over inequality.

A sneak preview of my take: power differentials are the fundamental issue raised by inequality, as Thomas Scanlon’s discussion of procedural fairness suggests. As commodification advances, inequality becomes increasingly important.

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