As I mentioned earlier in the week, I've been reading The Winner-Take-All Society by Robert Frank and Philip Cook. The book focuses on what Frank and Cook refer to as 'positional arms races' - the tendency for winner-take-all markets to lead to a prisoners' dilemma, where people engage in costly, but ultimately fruitless, investment in order to win the arms race. These winner-take-all markets (and the positional arms races they incentivise) have led to a number of negative consequences, as they summarise in the introduction:
Winner-take-all markets have increased the disparity between rich and poor. They have lured some of our most talented citizens into socially unproductive, sometimes even destructive, tasks. In an economy that already invests too little for the future, they have fostered wasteful patterns of investment and consumption. They have led indirectly to greater concentration of our most talented college students in a small set of elite institutions. They have made it more difficult for "late bloomers" to find a productive niche in life. And winner-take-all markets have molded our culture and discourse in ways many of us find deeply troubling.
That paragraph neatly summarises several chapters of the book, which look at the effects of winner-take-all markets in all of those areas. And far from simply looking at the 'superstar and tournament effects' that exist at the very top of the income distribution, Frank and Cook devote an entire chapter to 'minor-league superstars' such as doctors, administrators, and accountants (no mention of economists, though!).
For someone like myself, who has read a lot of Robert Frank books, there is little that is new. That isn't surprising, because this book was published in 1995, and I have read a lot of more recent work by Frank. The examples, while dated, still do a good job of illustrating the points that are being made (although I wonder how many younger readers would know about the Lorena Bobbitt story, without looking it up. The book has some very quotable bits, such as this:
Social critics have long identified advertising as perhaps the largest and most conspicuous example of pure social waste in a market economy.
And this critique of the free market:
...although Adam Smith's invisible hand assures that markets do a speedy and efficient job of delivering the goods and services people desire, it tells us nothing about where people's desires come from in the first place. If tastes were fixed at birth, this would pose no problem. But if culture shapes tastes, and if market forces shape culture, then the invisible hand is untethered. Free marketeers have little to cheer about if all they can claim is that the market is efficient at filling desires that the market itself creates.
The latter sections of the book discuss ways that society has adapted to curtail positional arms races, including through rules, social norms, contracts, and public policy. However, clearly those attempts have not been entirely successful, or there would be no need for the book!
The most disappointing aspect of the book may be the proposed solutions to the problems, where Frank and Cook focus on progressive consumption taxes. To me, they ignore the obvious problems of such a tax. It isn't as simple as taking a person's (or household's income) and subtracting savings in order to work out their consumption, because people (or households) could consume from past accumulated savings (in which case, the tax authority has to be able to determine how much savings the person (or household) had at the start and the end of the year), or from capital gains (in which case, the tax authority needs to be able to assess all realised capital gains). While they make their proposal seem very simple in theory, it would turn out to be anything but simple in practice.
Nevertheless, this is a good book that covers one of the sources of higher inequality over the last couple of decades, and is important source material for understanding more recent books by Robert Frank, such as the excellent Falling Behind: How Rising Inequality Harms the Middle Class.
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