Robert Frank
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Economist and prior EconTalk guest
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Claims by Robert Frank (20 of 83)
The left's argument that employers would force dangerous conditions without regulation fails the 'no cash on the table' test: if a safety device worth $100/week to a worker costs only $50/week, the employer profits by installing it and cutting wages, or a rival employer could cherry-pick workers by offering it—so market forces install all cost-justified safety devices.
The housing bubble unfolded as a positional arms race: relaxed credit terms let people bid more for houses, and because good schools are concentrated in expensive neighborhoods, parents had to borrow imprudently just to hold their relative position in the school-quality hierarchy, not because of greed for granite countertops.
Demand for government intervention arises chiefly when people 'bump up against each other' and harm one another; America's historical western frontier let people escape such conflicts by moving away, but having run out of frontier, the U.S. must now confront these conflicts directly like Europe.
Gazelle speed is a Darwinian trait that mimics the invisible hand: a mutation making an individual gazelle faster benefits both that gazelle and the population as it spreads—analogous to a cost-saving market innovation that diffuses and ultimately benefits consumers as competition drives prices down.
Workers value extra income not only for absolute consumption but for relative (positional) consumption; since any worker can take a riskier, higher-paying job to bid up in the school-district hierarchy, the equilibrium has everyone selling more safety than they would in isolation, only to bid up house prices—leaving them with less safety and no positional gain, which justifies considering safety regulation.
The income tax should be scrapped entirely and replaced with a steeply progressive consumption tax (income minus documented savings), which would stop penalizing savings and, by taxing high-end consumption heavily, reduce wasteful positional spending arms races without making people less happy because the social standard shifts accordingly.
Milton Friedman endorsed an expenditure (consumption) tax as the ideal way to raise revenue when government needs it, having proposed it in a 1943 American Economic Review article as the best way to fund the World War II effort—indicating common ground between left and right on using consumption taxation.
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