Consider the conversation where a free enterprise zealot goes on about the miraculous efficiency of the private sector compared to the hapless public sector. You have to wonder where he was during the last ten years. Enron, as I recall, was in the private sector. So were WorldCom, all the telecom start-ups, and the countless Internet companies that no longer exist.
Evidence that the private sector is a wonderful device for the efficient allocation of capital is, well, scarce.
The picture gets worse when we look at our private behavior as spenders. Luxury spending has tested new limits year after year. Skeptics should visit a Great Indoors or Home Expo. Scan the range of luxury in, say, refrigerators, stoves, or faucets. Personally, I find it hard to believe our economy is efficient when luxury car sales boom even as city air becomes less breathable.
No, I'm not about to suggest a left turn. Two books, one new, one from 1999, suggest another direction altogether. We need to examine our fundamental biology because it drives all of our behavior, including our status seeking economic behavior. Think of it as the Unified Theory of Sex, Death, and Taxes.
In "The Natural History of the Rich: A Field Guide" (Norton hardbound, $26.95) Richard Conniff notes that 'conspicuous consumption' was practiced long before economist Thorstein Veblen invented the phrase. He regales us for 297 pages with how the very rich have behaved for centuries, including competitive castle building and some rather amazing mating habits. He relates all of it to similar behavior in other mammals, fish, and insects. However we dress it, he shows that men and women are driven by a quest for reproduction rights and improved odds for genetic survival.
Small wonder we're less than rational.
In "Luxury Fever: Money and Happiness In An Era of Excess" (Princeton University Press, paperback, $18.95) economist Robert H. Frank starts with a personal shock. He learns that it will cost more than $89.95 to replace his aging gas grill. More important, rampant luxury competition had transformed the humble grill almost beyond recognition. He discovered the $5,000 Viking-Frontgate Professional Grill.
In spite of incredible increases in luxury spending, he points out, our sense of subjective well-being has not improved for years. We're spending more but enjoying it less.
His conclusion? Using research from the behavioral economists, he shows it is virtually impossible for us to make rational economic decisions. We will continue working more, upgrading our consumption, and not feeling any better until we drop.
A progressive consumption tax.
It would work like this: After a standard deduction of $7,500 per person, all income spent on consumption would be subject to tax. All income saved--- like contributions to current 401(k) accounts--- would not be taxed. In addition, the tax rate on consumption would rise from 20 percent at the lowest level to 70 percent for taxable consumption of $500,000 or more. (The actual tax rates and exclusions could be changed to raise the same amount of revenue as the current tax.)
Needless to say, the new tax would change our collective spending dramatically. On the one hand it would tie our tax revenues directly to our most inescapable biological drive. On the other, it would offer major incentives for different consumption behavior. Compensation packages, he points out, would shift from cash to untaxed quality of life benefits--- such as more vacation or more company parking spots. Workers could reduce their taxes simply by saving more and consuming less. Fewer resources would be diverted to Extreme Luxury production.
"In the United States alone," Frank concludes, "we leave several trillion dollars on the table each year as a result of the waste inherent in our current consumption patterns. Much of this waste can be curbed by a disarmingly simple policy change--- in essence, a one-line amendment that exempts savings from the federal income tax."
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