I’ve just written a review (for the next issue of The Business Economist) of Robert Frank’s new book, The Darwin Economy: Liberty, Competition and the Common Good. Much of its argument concerns the role of government in managing markets when positional goods play an important part in the economy. These are goods whose utility to the individual depends on their relative, rather than their absolute, scarcity. I want a fancy house in Mayfair, or a designer handbag, mainly because to have them will display my high status. So their consumption imposes an externality – you are worse off if I buy such an item, because you will want one too even if your own preferences would lead you to spend your money on other things, or even not make so much money in the first place.
The term positional goods is from Fred Hirsch’s Social Limits to Growth, although the concept dates back at least as far as Veblen’s ‘conspicuous consumption’ in The Theory of the Leisure Class, and beyond. There are more of them that you’d first imagine. For example, a degree has some intrinsic value for people who love to learn, and who are made more productive by their studies, but part of the value also lies in the fact that a degree is a signal to distinguish its holder from other people competing for jobs.
Professor Frank has wanted to stop conspicuous consumption for a while – his earlier book Luxury Fever was on the same topic. The new book sets the issues in the context of the Tea Party movement and rampant libertarianism in the US – he hopes to win the argument for having a government that taxes and spends, and sets out the case eloquently. You’d have thought the Tea Party’s supporters would like the idea of nature red in tooth and claw, at least in its Social Darwinist guise. Hard, though – given their bizarre issue with natural selection (but why not plate tectonics, as someone asked this weekend) – to see many Tea Party-ites picking up, still less being persuaded, by any book that has ‘Darwin’ in the title.
The Darwin Economy: Liberty, Competition, and the Common Good