Epidemic of Extravagance
Economist Robert H. Frank has written a painstakingly researched new book offering a cure to our destructive love of luxury, but will anybody listen?
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LUXURY FEVER : WHY MONEY FAILS TO SATISFY IN AN ERA
OF EXCESS | BY ROBERT H. FRANK | FREE PRESS | 336 PAGES
SALON | Feb. 19, 1999
BY HEATHER CHAPLIN

Should we be concerned about the existence of a waiting list for a watch that costs $44,500? Scandalized that more than 20 boats marked $18 million each sold out in five days at a recent Fort Lauderdale, Fla., boat show? Upset about the fact that total household debt grew to 81 percent of disposable income in 1995?

Considering $44,000 is more than the average full-time worker earns in a year, $18 million is far more than most families will earn in a lifetime and the personal bankruptcy rate is at an all-time high, I'm comfortable being worried about all those things without any further discussion. But let's suppose none of the above strike you as problematic. Well, then, what if someone convinced you that all those expensive playthings and all that debt don't make us happier?

That's the premise of "Luxury Fever: Why Money Fails to Satisfy in an Era of Excess," a new book by Cornell University economist Robert H. Frank, coauthor of "The Winner-Take-All Society." Despite the sound of the title and the look of the cover, Frank's book is not some New-Agey prescription for how to find meaning in a materialistic world. Nor is it an ideologically driven diatribe on how bad we all are for being such piggies. Rather, it's an in-depth, study-driven exploration of why we've gone luxury wild and a pragmatic examination of the dangers in not reigning in our extravagant ways. Ultimately, it's a proposal for a remedy in the form of a progressive consumption tax.

The linchpin of the book is wrought from numerous studies indicating that despite our growing wealth as a nation, individually we're no happier than we were a generation ago. U.S. per-capita income went up 39 percent between 1972 and 1991, but the proportion of people who described themselves as happy declined over the same period, Frank says. There are similar figures for Japan, another country that has (until recently) reaped the benefits of a booming economy and a lavish culture of consumption.

There's nothing new about the idea that money doesn't buy happiness, but that's not quite the conclusion Frank draws. Rather, he reasons that a certain amount of material wealth does increase individual satisfaction -- say, moving from third world to middle-class status -- but after a certain point the correlation between riches and happiness dwindles.

"Behavioral scientist have found persuasive evidence that once a threshold level of affluence is achieved," Frank writes, "the average life-satisfaction level in any country is essentially independent of its per-capita income."

The unbearable sameness of lottery winners

He points to numerous studies that show how humans have an amazing ability to adapt even to the best of circumstances. Lottery winners, for example, don't report being happier several years after claiming their prizes. Likewise, there's no data to suggest that hypothetical society A, where everyone lives in 4,000-square-foot homes, is any happier than hypothetical society B, where everyone has a 3,000-square-foot house, Frank says. Adding 1,000 square feet to your home would probably make you happy temporarily, but as time went by, you'd get used to it, and any residual positive effects would fade.

On the other hand, these studies suggest that people don't ever acclimate themselves to certain environmental factors, such as high noise levels -- in fact, people living next to highways complained about the noise more after living with it for one year then when they first moved in -- or driving through congested traffic. The latter, in particular, seems to cause increasingly high levels of stress and even disease.

The average home built in the United States today is twice as big as in the 1950s, and, as has certainly been pointed out before "Luxury Fever," we work longer hours, commute greater distances and spend less time with our loved ones to pay for the increase. Considering the evidence in Frank's book, this trade-off begins to seem incredibly self-defeating. High levels of personal wealth are good for a healthy nation, Frank concludes, but the real benefits come from spending those riches in ways that "appear to create significant and lasting improvements in well-being." If gold hubcapped Rolls Royces did that, then fine, Frank seems to be saying -- but they don't. His studies show we derive little long-term happiness from fancy cars and big houses, and a significant amount of lasting pleasure from leisure time and an active family life. It's hard, therefore, not to conclude we'd be better off reversing our priorities -- using our resources to, say, build a high-speed public transportation system rather than gigantic homes.

So why don't we?

Of course, at the heart of Frank's book is that he is playing with two scales of satisfaction that more and more have been relegated to two distinct spheres. Individual happiness is the job of the individual and driven by the engine of free market happiness. If we want to become happier, the presiding assumption is that we probably need a little more buying power and a little more financial security. Societal happiness is the job of the government, and that's why we're willing to pay taxes and obey laws to contribute to the collective good. But what makes Frank's argument so persuasive is that he focuses on studies about individual happiness, showing how our own biological and social assumptions about wealth lead us away from the obvious solution.

This is where the book really starts to get interesting. Frank discusses at length the competitive nature of our longing for wealth and its accompanying accouterments. According to one of the many studies he cites, the majority of us would choose to earn $50,000 while others made $25,000, rather than earn $100,000 while others made $250,000. Nimbly jumping between academic disciplines, Frank dives into evolutionary psychology to postulate that part of this is a result of our biological hard wiring -- the drive to survive has mutated in civilized society into the drive to succeed. Instead of deriding us as petty and mean-spirited, he effectively argues that the citizen born without an interest in relative position would be like a male elk without antlers.

Consider the job applicant. Should he refrain from buying an expensive suit because ultimately it's a waste of resources, even though looking affluent and sharp may help his chances of landing a job? Or house-hunting parents. Should they choose a more modest home, although it could mean sacrificing a good school district, which is important to their children's future?

Short-antlered elk always finish last

The irony is that a group of elk with short antlers would actually be better off in the long run, Frank shows, because they could run with greater ease and better escape predators. But any single mutant elk born with stubby antlers would be at a tremendous disadvantage because he wouldn't have a chance of getting near the lady elk.

"The important message of this story," Frank writes, "is that even though all elks would clearly do better if every animal's rack of antlers were trimmed by half, it would not be advantageous for any single animal to trim his antlers."

And so it is with our job seeker or house hunter. "Smart for one, dumb for all," as Frank puts it.

Compounding the trouble is that what starts as an advantage becomes meaningless as others catch up. The job applicant has an advantage in a $1,000 suit as long as everyone else spent less than that. As soon as everyone shows up for the interview in a $1,000 suit, the ante goes up, and the applicant who wants a competitive advantage has to buy a $2,000 suit, and so on. Frank calls it a "fruitless mine-is-bigger consumption arms race."

What's the solution? How do we curb our vociferous appetite for luxury -- which, Frank argues, leads both to wasted resources and unhappiness -- without also curbing our freedom to decide our own priorities? Frank's proposal is a progressive consumption tax. Under the plan, taxable consumption is calculated by subtracting a standard deduction -- $7,500 per person, for example, that would not be taxed -- from your income, minus savings and other taxes. The difference would be the amount spent on extras, which would be taxed at rates determined by your income. If there were no difference, you would pay no tax under the proposal.

The thinking behind the plan is not only to encourage savings -- it's tax-free here -- and to discourage the rising tide of debt, but also to allow people to decide what are necessities and what are luxuries for themselves. If you so desired, you could buy hundreds of bottles of Chanel No. 5 tax-free instead of food or toilet paper. Those who were only wearing the expensive fragrance because of status or because it was too easy to buy with a credit card, however, would perhaps think twice, choosing to purchase traditional necessities and knowing a tax would be levied against the extra purchase.

Frank is going for a snowball effect with this. The idea is that each time someone holds off on the Porsche or the diamond-encrusted watch, a little bit of the competitive pressure is taken off the rest of us. The theory is that with our resources rechanneled, there'd be money available for schools, clean air, food inspection, better roads and the like. We'd find ourselves working fewer hours, spending more time with our families and maybe even feeling happier. If his tax plan is a rainbow, that's the pot of gold at the other end. Unfortunately, I think I have as much chance of seeing Franks' proposal taken seriously as finding myself dancing with the leprechaun who guards the pot.

The wealthier among us, or those who derive great pleasure from the luxuries their wealth affords them, will undoubtedly be irritated by the thought of losing some of their purchasing power. In fact, even among the middle classes, attempts to curb purchasing power tend to be considered an egregious violation of personal freedom. Frank told me, though, that he thought even the rich -- who currently enjoy tax rates 25 percent below what they were in 1985 -- would approve of his idea if they properly understood them. As far as he's concerned, his proposal is akin to a multilateral disarmament agreement, easing the burdens of our luxury-mad culture for the rich as much as for the poor. If only someone could figure out how to explain that in a 10-second sound bite.
SALON | Feb. 19, 1999