Robert H. Frank spoke at New America last Thursday about the guiding principles of his book, The Darwin Economy, and the policy proposals that stem from his model of economic thought. Reid Cramer started the event off connecting Frank’s ideas to recent trends: tax policy is at the forefront of recent political debates and the Occupy Wall Street movement is focusing attention on rampant economic inequality. Frank began his remarks by expressing frustration with the state of political discussion about important issues like infrastructure investment. He feels that the public policy debate over government spending has become so warped that badly needed expenditures such as road repair are passed over to the detriment of safety and our long-tern needs. An increase in revenue, he claims, is critical to addressing our fiscal challenges, but the current political climate is not conducive to that line of thinking. He worries we are headed toward a crisis greater than the one we find ourselves in now.
While Frank admires Adam Smith and his key contributions to the economics field, he uses Charles Darwin’s theory of evolution to develop a more nuanced understanding of the role competition plays in the economy. On the one hand, competition has been an incredible driver of wealth for the U.S. However, he notes, economic competition frequently pits the needs of the group against the needs of the individual – much as it does in nature. He cites the example of male elk who boast heavy and unwieldy antlers to fight each other with in mating season but that make the elk easy targets for wolves if they are caught in the woods (the antlers being so wide they are easily tangled up). The needs of the herd are incompatible with the needs of individual elk. Animals, Frank reminds us, cannot address these dilemmas or vote to make changes (all the elk cannot decide, for example, to voluntarily saw down their antlers to a more manageable size and level the playing field).
People, however, can address the dissonance between group and individual needs through policy. Frank suggests a progressive consumption tax can help us do just that. This tax would represent a fundamental departure from our current system, taking the place of our current income tax. Instead, we would report our spending to the IRS (greatly simplifying the reporting process) and, minus a standard deduction, pay a rising tax rate on any additional spending. Importantly, this proposal stands to raise a great deal of revenue from those who consume the most – that is, the wealthy. Because Frank is more concerned with the impact of relative consumption than absolute consumption, a progressive consumption tax would also help curb the “luxury arms race” that exists among higher-income people that drives spending trends all the way down the income ladder in what he depicts as a “fruitless bidding war.” Frank cites the environmental movement as an example of how this could work. By introducing a permit system with the 1990 amendments to the Clean Air Act, the government successfully brought SO₂ emissions down. Frank characterizes this approach in his book as "the most efficient" and "least intrusive" way to address this type of problem. While it may translate into a price increase, Frank argues that “the price of any product that generates harmful side effects should reflect their cost.”
After Frank’s remarks, the questions from the audience spanned a range of issues. Some audience members were skeptical about the particulars of his progressive consumption tax. During his answers, Frank discussed the challenges of engaging with ideologically-rigid Libertarians on government spending and drew a distinction between inequality of consumption and income inequality. Additionally, he expressed his support for a robust estate tax. Ultimately, Frank is concerned with growing economic inequality and feels his ideas offer promising opportunities to address this divide in a way that raises revenue for important societal-level issues in a way that does not curb personal liberty.