Saturday, September 08, 2007

Why Americans don't vacation like the French

Hat tip to Matt Stone for sending me this article in the American Prospect.
Being concerned with one's relative position rather than one's absolute position is not irrational or merely motivated by envy. In order to retain your relative standard of living, you need to keep up with the purchases of others in your income bracket. Housing works as an example here, too: Part of the use of an expensive home is the nice neighborhood, which gets your child into good schools – what matters, again, is not your square footage, but your relative affluence. Good schools, of course, are also a positional good – your education largely matters in terms of how much better it is than everyone else's. Retaining your relative position also ensures that you don't send the wrong signals when a client comes over for dinner. Houses, cars, clothing -- they all help send those signals. And because the rich in this country keep getting richer, we're caught in what Frank calls "expenditure cascades" in an effort to keep up with them. Their purchases raise the bar for the group right below them, which in turn increases the needs of the next income set, and so on. To retain our position, we're constantly needing to increase our incomes and affluence.
I am well aware of, and in some ways a fan of, Robert Frank's theories and ideas on positional goods. He came to the UA for the Fathauer lecture (Stone, you might have been in Russia when he came, but I can't remember) and I got lucky and was invited to lunch with him (Gentle Ben's). The basic idea is that Americans work longer than they need to just to maintain a certain social status. He promotes, among other ideas, taxes on positional goods (examples: fancy handbags, bimmers, McMansions). I think this would be a very interesting policy to experiment with to see the real effects. The part about mandating fewer work hours, not a fan, but the positional goods idea is a very interesting policy avenue nonetheless. Would love to see some data afterwards.


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