Luxury Fever: Why Money Fails to Satisfy In An Era of Excess (Hardcover)

by Robert H. Frank (Author) "The propane grill I bought during the 1980s has been on a downhill slide for several years..." (more)
Key Phrases: charm premium, progressive consumption tax, community consumption standards, United States, New York, Patek Philippe (more...)

Editorial Reviews

Amazon.com Review
Luxury Fever: Why Money Fails to Satisfy in an Era of Excess is a serious examination of the long-term costs associated with our society's ever-accelerating spiral of conspicuous consumption, followed by a far-reaching remedy that will intrigue anyone concerned with related fiscal issues. Robert Frank, a Cornell University professor of economics, ethics, and public policy, who previously coauthored The Winner-Take-All Society, believes neither foolishness nor greed is really responsible for our relentless desire to own flashier household appliances, bigger sport-utility vehicles, and fancier suburban houses; rather, he contends, it is the ongoing behavior of our peers which ultimately determines how much we spend and how we spend it. Frank goes on to claim, however, that this knowledge alone may actually point us toward an alternative that is both acceptable and practical. "By a simple and easily achieved rearrangement of our current consumption incentives," he writes, "we can effectively enrich ourselves by literally trillions of dollars a year." He then goes on to discuss the recent boom in luxury spending, its potential implications for those at all income levels, his suggestions for altering current consumption patterns, and the reasons that redirecting these funds could benefit everyone. --Howard Rothman

From Publishers Weekly
Frank, a professor of economics at Cornell and the author of The Winner-Take-All Society, castigates Americans for wasteful spending and offers reasonable, if unexciting, policy proposals to remedy the problem. Our homes, cars and even our watches are flashier than ever. But although the rich have the money to indulge their whims, the rest of us finance our spending sprees either by decreased personal savings or by increased debt: Frank reports that total household debt grew from 56% of disposable income in 1983 to an astonishing 81% by the beginning of 1995. Most economists accept that conspicuous consumption merely reflects Adam Smith's dictum that the sum of individuals seeking their own interest adds up to the greatest good for all. But Frank argues that our notions of self-interest are skewed, that all this getting and spending doesn't even make us happy (if your neighbor didn't buy the new Lexus, you wouldn't feel the need for the newer Beemer, and you'd both work less and spend more time with the kids). The problem, Frank believes, is that American society has a glut of individual incentives and a dearth of group incentives. To protect us from our greedier selves, Frank lobbies for a tax exemption for savings and a progressive consumption tax. If Americans spent less on luxury items, he writes, there would be more money available "to restore our long neglected public infrastructure and repair our tattered social safety net." Frank's diagnosis of American luxury fever is hard to dispute, but his remedies, sensible in the abstract, take insufficient account of the political and cultural obstacles that need to be overcome to implement them.
Copyright 1998 Reed Business Information, Inc.

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Product Details

• Hardcover: 336 pages
• Publisher: Free Press (January 15, 1999)
• Language: English
• ISBN-10: 0684842343
• ISBN-13: 978-0684842349
• Product Dimensions: 9.6 x 6.6 x 1.3 inches
• Shipping Weight: 1.4 pounds
• Average Customer Review: 3.5 out of 5 stars See all reviews (33 customer reviews)
• Amazon.com Sales Rank: #97,081 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

24 of 25 people found the following review helpful:

5.0 out of 5 stars Smart for One, Dumb for All, May 23, 2001

By	Robert Costanza (University of Maryland) - See all my reviews

This review is from: Luxury Fever (Paperback)

Economist Robert H. Frank has written a stimulating book that integrates research from psychology, evolutionary biology, and economics to address the raging "luxury fever" that is needlessly consuming precious resources in "overdeveloped" economies. Frank documents how luxury consumption in western industrialized countries has been rising at an astronomical rate, even though the latest psychological research shows that there is scant correlation between this consumption and levels of stated life satisfaction. Why, then, are wrist watches costing $20,000, huge houses of 10,000 sq. ft. and more, and myriad other forms of conspicuous individual consumption rapidly increasing, even as social spending on education, infrastructure, the environment, and other things that would raise the average level of life satisfaction in society decreasing? Frank describes how this perverse "luxury fever" occurs when individuals pursue their strong individual incentives to increase their relative position in society by consuming more than their peers. But when everyone does this, relative consumption (and perceived life satisfaction) remain constant, while absolute consumption (and related negative impacts on natural resource use, the environment, education spending, etc.) soars. Luxury fever is one of a class of phenomena known by various names in different disciplines, including: negative externalities, social traps, social dilemmas, the prisoner's dilemma, and the tragedy of the commons. Frank cleverly labels these phenomena as situations that are "smart for one, but dumb for all." Once one begins to look, there are clear examples of these situations everywhere, ranging from drug addiction to pesticide overuse to arms races to environmental pollution and even women's fashions. While economists have recognized these phenomena, they have largely been relegated to the status of interesting but relatively minor anomalies. But Frank clearly points out just how pervasive, important, and wasteful they are, and how eliminating them can save literally billions of dollars while actually improving welfare. The "invisible hand" of the market cannot be relied upon to solve these problems, because, as Frank notes: "Far from being a principle that applies in most circumstances, the invisible hand is valid only in the special case in which each individual's rewards are completely independent of the choices made by others. In the rivalrous world we live in, precious few examples spring to mind." (pp 271) Frank's solution to luxury fever is a strongly progressive consumption tax. This could be done in the US with a simple one-line amendment in the tax code to exempt all savings from income taxation. With this modification, the income tax would tax only consumption, without having to specify which consumption was "luxury consumption" and (because of its steep progressivity) without adversely affecting the poor. This consumption tax would have the effect of increasing the costs to individuals of conspicuous consumption (and thus reducing it), while freeing up significant resources to pursue increased "inconspicuous consumption" - things like education, infrastructure, environmental protection, and family time. Given the psychology of relative consumption and satisfaction noted above, this could occur with absolutely no decrease in welfare. In fact, average life satisfaction would increase because relative individual consumption would not change and the neglected forms of social consumption could be increased with the resources from the tax. Why has so obvious a "win-win" move not already occurred, and what are its chances in the future? Frank answers the first part of this question with the famous joke about the economist who sees a ten dollar bill lying in the street and concludes that it couldn't really be a ten dollar bill because if it were someone would have already picked it up. The first step is to clearly and convincingly lay out the problem and the solution as Frank has done - in effect to point out the existence of the $10 bill just lying on the ground. But the idea of a broad consumption tax (and the reasons for it) has been around for many years. It was first proposed by Thomas Hobbes in 1651 and has surfaced many times during the last 300 years. Frank concludes that it will just be a matter of time before the obvious benefits of such a tax are recognized and the plan is implemented - after all, most political changes have a significant gestation period. But there are also obvious impediments to implementing such a tax in the current political climate. In political systems run more and more by special interests it is difficult to implement any policy that might hurt even one of those interests - even if only in the short run. Overcoming the political impediments to any form of meaningful tax reform will require "government by discussion" rather than by interest groups and media manipulation. If social issues of the importance of those in Frank's book can be discussed rationally by the society at large then such obvious social "win-win" solutions as ecological tax reform and a progressive consumption tax can be appreciated and implemented. In a few countries this kind of social discussion occurs reasonably well, but in most it is a far cry from the current political reality. Just as it is very difficult for an animal caught in a trap to free itself, it is also very difficult for a society caught in a social trap to free itself, even when the nature of the trap and the way out has been clearly identified. Lets hope we don't have to bite off our social foot to escape the invisible hand.

18 of 19 people found the following review helpful:

4.0 out of 5 stars Let Them Be Lemmings, February 3, 2003

By	K. Johnson (US/Asia) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

This review is from: Luxury Fever (Paperback)

Let Them Be Lemmings

Some factual common trends are noted by Frank: in general, wages in the U.S. have been static and even in decline for most Americans in recent decades. Yet, proportional per capita spending on luxury goods has increased significantly. The results according to this author and others who've conducted numerous studies and research is a weaker economy, high personal debt, longer working hours, less sleep, and having to work until death, in debt of course.

We're all aware of the American "gotta have this or that" bug. Many have it, but many don't. Some don't want it. Why do certain luxury goods and "gadgets" become oh-so-popular in American society? Frank notes, and correctly, that the desire for many to purchase certain material things is by no-doubt influenced by what others are buying or want to buy.

The concept of "social status" is a concept where human beings in mass-consumption cultures judge each other in this context in RELATION to our peers. These "peers" may be the strangers we live next to in suburban anonymity, our co-workers, friends, or the strangers we see driving next to us in our daily suburban traffic jams. (Note my use of the word "stranger").

The commonly known terms such as "keeping up with the Joneses," the status treadmill" the "arms race of consumerism, Consumer Feticism," and Velben's "Conspicuous Consumption" are presented. But not from a moralistic standpoint but a behaviorist, biological, psychological, and an economic standpoint.

The first part of the book informs us about many things we already aware of but expands upon it through the various academic fields already noted above. The second part of the book is the "solution part." What the author thinks can be done to change the current pattern. Here's where it can get sticky for some. The solution Frank offers from his research is a thesis on Human Behaviour, and he proposes a "political-economic" solution: taxing consumption. The solution is the part of this work that leads to the economic analysis of the "hypothetical" once again, and there's nothing wrong with that. Although theoretical, the first part is interesting, and the second part may be for some.

18 of 20 people found the following review helpful:

4.0 out of 5 stars An Interesting Diagnosis, July 4, 2005

By	Paula L. Craig (Falls Church, VA United States) - See all my reviews (REAL NAME)

This review is from: Luxury Fever (Paperback)

Frank's point is essentially that Americans spend too much on luxury goods that don't bring them satisfaction, and too little on things they really could make them happier. He makes a good case for using a consumption tax to remedy the situation. I really enjoyed the analysis of homo economicus versus homo realisticus. Frank argues that homo economicus (as used in mainstream economics) is concerned with rational betterment of his situation, while real people are concerned as much or even more with doing better than those around them. When I studied economics I realized that something was wrong with the standard homo economicus model, but Frank lays out the differences very clearly, in ways I hadn't thought of.
Frank has some great commentary on the human condition here, too. My favorite is his analysis of why it helps to get up in the morning if you put your alarm clock out of reach of the bed. If you don't see what this has to do with economics--read the book!
Frank makes some proposals that I think are bluntly naive. For example, he proposes curing unemployment by a program of public works. This simply cannot work. It has, of course, been tried, including the attempt by the Washington DC municipal government in recent decades. Inevitably it leads to dependency and corruption, and a multiplication of the number of people needing public jobs. Frank needs to think more about where the incentives are in such a situation. In my opinion, if the streets are littered with garbage that isn't being picked up, you have to look at where the garbage is coming from and who is benefitting from creating it. It should be sellers of plastic bottles, paper cups, and the like who should be paying for picking up litter from the streets, not general tax funds. Frank also needs to pay more attention to population issues. No public works program can support a continually increasing number of people. I think Frank also overlooks the large role in overconsumption of having no limits on the interest rates which credit card and mortgage companies are allowed to charge. Unlimited rates means that such companies have a vested interest in keeping the maximum possible number of Americans on the edge of bankruptcy, and not much of an interest in making sure they lend money only to people who are likely to be able to pay it back.
Overall, though, this is a book with some useful and interesting ideas.