Opinion

Chrystia Freeland

Trickle-down consumption

Chrystia Freeland
Mar 22, 2012 23:29 UTC

We know now that trickle-down economics doesn’t really work – the past decade in the United States has seen incomes at the very top soar, while the earnings of the middle class stagnated or declined. But a growing body of academic research is suggesting that this benign force’s wicked stepsister, a phenomenon two economists have dubbed ‘‘trickle-down consumption,’’ is having a powerful impact on the economy and politics of the United States.

The idea is that income inequality has a significant impact on the 99 percent: It drives the rest of us to consume more, whether we can afford to or not.

Robert H. Frank, an economist at Cornell University, is a pioneering student of this behavior who has been writing about the subject for nearly two decades, long before it became fashionable. Frank, who is the co-author of two economics textbooks with the Federal Reserve chairman, Ben Bernanke, believes that rising income inequality affects the rest of us through what he calls ‘‘expenditure cascades.’’

Rising income inequality, he notes, isn’t just about the gap between the 99 percent and the 1 percent; it is also about growing differences across the income distribution, including at the very top. The result is that all of us see people we think of as our peers earning – and spending – a lot more. As a consequence, we find ourselves spending more, too.

‘‘The main idea is that frames of reference are very local,’’ Frank said. ‘‘Bertrand Russell said beggars don’t envy millionaires, they envy other beggars who have a few more coins than they do. Expenditure cascades aren’t because the poor want to emulate the rich.’’

The curse of the bull elk antlers

Chrystia Freeland
Sep 8, 2011 21:34 UTC

As the United States prepares to commemorate the tenth anniversary of the 9/11 attacks this weekend, one of the most striking contrasts is between a country that was united in the face of a foreign enemy a decade ago, and that same nation today, which is so bitterly divided as it confronts domestic challenges of equal, if not greater, magnitude.

Most Americans do agree on one thing — the polarization and paralysis are the fault of failed politicians and a flawed political system. As a unifying rallying cry, this pox-on-all-their-houses approach has much to recommend it.

But what if the problem goes deeper than politics and politicos? Maybe America’s national discord is rooted in structural factors that even the most talented leader and effective political system would struggle to fix.

The winner-take-all economy

Peter Rudegeair
Jul 8, 2011 20:10 UTC

Cornell University economist Robert H. Frank sat down with Chrystia at the Aspen Ideas Festival to chat about the earnings potential of superstar dentists and world-class sopranos, the unlikelihood of an Atlas Shrugged-esque strike of the elites and Charles Darwin’s contributions to economic thought. Here’s a transcript of some of the highlights of their conversation.

On the upsides and downsides of the winner-take-all phenomenon

CHRYSTIA FREELAND: If the super-talented are getting super rewards, maybe in the past they were not getting the appropriate rewards. I mean, maybe this is really American capitalism working the way most Americans want it to work.

ROBERT H. FRANK: Well there are two things in your question. One is the upside of the whole phenomenon is that we now get to listen to the best soprano rather than the hundredth best.  In 1890 there were 1,300 opera houses in the state of Iowa alone. You had to listen to music live and in-person. You couldn’t hear the best soprano because she couldn’t be everywhere at once. Now there’s a contest to see who the best soprano is.  That winner then records the master disc and get’s stamped out onto CD’s at virtually no cost so we could all listen to the best soprano.

  •