Winner-take-all markets can end up creating vast wealth differences between the lucky and unlucky. One person—smart, persistent, but unlucky—struggles, while an equally (or even slightly less) talented and hard-working person gets a lucky break that can reap millions, or billions, of dollars.
How to make things fair? Guess
We can’t control our luck, so what else can we do? Frank says the only solution is to invest more in education and infrastructure and all the other things we know help everyone succeed. The more we spend on these public goods, the more people have a chance to get lucky, he says. That, of course, means higher taxes. But Frank, ever diplomatic, assures the wealthy that this won’t hurt nearly as much as they might fear.
Which would you rather drive, he asks, a $150,000 Porsche on a well-maintained highway, or a $333,000 Ferrari on roads with deep potholes? The question scores a couple points. First, Frank is arguing, everyone benefits if we invest more in the general public welfare, including the rich. Second, we need to think more about the difference between a $150,000 car and a $333,000 car.
The increasing concentration of wealth at the top of economic spectrum has created fierce competition for the finer things. “It’s not that people are jealous or want to outdo each other,” Frank says. It’s just that everyone’s expectations have skyrocketed–how fast a car should be, how large a home to build, or how elaborate your wedding can be. It’s hard to throw a $4,000 reception when everyone in your social circle is spending $100,000.
Frank likens us to male elk, who’ve evolved to grow huge antlers only because they provide an extra advantage in winning mates. If every bull elk could shrink their antlers at once, they’d find it easier to walk through the woods and escape predators. Instead, they’re stuck in a “positional arms race.”
For humans at least, tax policy could help de-escalate this wasteful competition, Frank says. He proposes a progressive consumption tax, one that would tax how much people spend by giving tax breaks for money they saved. The wealthy would pay more in taxes, sure, but it wouldn’t hurt as much as they think. If everyone else in your income tax bracket also owes more to the Internal Revenue Service, you still maintain your “relative position” in the hierarchy.
The most successful people will still be able to afford the best stuff–the waterfront homes, the front-row seats, the haute couture—but they’ll feel less pressure to spend and they’ll have less competition for the rarest luxury goods.
Frank knows this argument is a hard sell. But some perspective helps: The political consensus can flip rapidly if good arguments are offered, he contends. And so he wants to spend the rest of his life—the extra years he was given on that tennis court nine years ago—explaining how much better off we’d be if we acknowledged our luck.
“The fact that anyone exists at all is so astronomically improbable,” Frank says. “The fact that you’re here to live and breathe and enjoy a sunset–what an unbelievably unlikely thing.”
This story was provided by Bloomberg News.