Cuts to the Internal Revenue Service's enforcement budget led to a decline in audit rates for the rich. (Photo by Andrew Caballero-Reynolds/AFP/Getty Images)
Robert H. Frank is one of America’s leading economists. In addition to reams of textbooks, he has written a number of books looking at the impact of the nation’s widening income gap and the habits of the people who inhabit the economic stratosphere. The most recent is Success and Luck: Good Fortune and the Myth of Meritocracy. Recently, he stopped by the offices of BillMoyers.com for a conversation about the economic challenges facing the nation and the issues that he thinks the next president will have to address. This transcript has been edited lightly for length and clarity.
Kathy Kiely: So tell me a little bit about, Robert Frank, your intellectual history. How did you come to be so interested in income inequality?
Robert Frank: I started writing about competition for rank back in the early 1980s, late 1970s. The standard economic models assume that people care only about their absolute levels of consumption — you know, how big is their house, how fast is their car — in absolute terms. But those kinds of evaluations are almost always heavily context-dependent, so if you ask yourself, “Is my house okay?” the answer to that question would depend really on the context that you’re in.
I was a Peace Corps volunteer before I went to graduate school and I lived in a two-room house with no electricity, no plumbing, in rural Nepal. Never once during the two years I lived in that house did it ever occur to me for an instant that the house was unsatisfactory in any way. It was a really quite nice house actually, in the context where I was living then. If I lived in a house like that in Ithaca, or any US city really, my kids would’ve been ashamed for their friends to see where we lived. It would’ve been shameful for me to have people know that we lived in a house like that. It would be a clear signal that I’d failed in some spectacular way to meet even the minimal expectations of society.
And so, you know, is my house okay? The answer is that depends, and it depends on context and the context is very local.
So if context matters, then the standard economic models that assume it doesn’t matter lead you to many wrong conclusions. So I’ve been writing about that now for 35 years. And the entry point for inequality is that, as I say, context is local, but for technological reasons, which I’ve written about elsewhere too, we’ve seen a move to markets that Phil Cook and I call winner take all markets.
These are — I mean, in your industry it’s very prominent. You don’t need the local newspaper columnist or radio reporter. Everything is available on the internet to everyone at any moment, and so whoever is best at the particular task at hand, that person gets the whole market. It’s not quite that exaggerated, but that’s the trend that we’ve been seeing, and with that have come many benefits. It’s better to consume the best than the third best.
The Winner-Take-All Effect
But at the same time, it’s led to an enormous concentration of economic rewards in the hands of the people who are judged to be best. They’re often best by only a barely perceptible margin. Maybe they’re not even best. Maybe they just got a lucky break and came to people’s attention before the truly best performer did and then the initial success built on itself.
But anyway, the trend has been for income to concentrate at the top of the ladder, and when that happens — you know, people at the top of the ladder are normal. They do what you and I do, what everyone else does when they have more income. They spend it and they build bigger houses, they buy more expensive automobiles, they take more expensive vacations, the diamonds they get for their partners are bigger. All those things are normal, and there’s no indication I’ve ever seen that people in the middle class get angry about that. If anything, they’re interested. They want to see pictures of the mansions and the yachts and read about what the rich people do.
Kiely: Then why are people so angry in this election?
Frank: The translation of what the people at the top do to the people in the middle is indirect. The people in the middle, as I say, don’t seem to care that the people at the top have a lot. You’re right, now there does seem to be some concern that people like Donald Trump, who claims to have billions, also admits to not having paid any federal income tax for a long time. That I think does arouse anger and concern across a pretty broad spectrum of the population. But in terms of the actual things rich people buy, I think most people feel that the people at the top earned their money fair and square—that’s true in some cases, not true in others.
But the people just below the top, they travel in the same social circles as the people at the top. They go to the same weddings, the same parties, the same gatherings, they belong to the same clubs. When they see that the very richest people are now hosting their daughters’ wedding receptions at home rather than in a hotel or country club, they then feel, “We need a ballroom,” so they build a bigger house.
Then there’s a group just below them, maybe it’s the custom now to have dinner parties for 24, not 18: “We need a bigger dining room.” They build bigger, and one step at a time, it cascades all the way down the income ladder. And unless you invoke something like that spending cascade is what I call it, you can’t really make sense of the fact that the family in the middle, the median earner, whose real income is essentially the same as it was four decades ago, why is that family buying a house that’s 50 percent bigger than what the median family bought four decades ago? What’s driving that? It’s not that they have more money. That’s not the reason for it.
Kiely: Is it keeping up with the Joneses on steroids?
Frank: I’ve never liked that term. Somebody who’s trying to — but, yes, in a manner of speaking, it is that. The term to me evokes a deep human frailty. Somebody is trying to appear richer that he is. He’s insecure, he’s trying to mimic a standard that he’s not really entitled to on the merits of his own income.
So, yes, that a pejorative term in my experience of how people use it, and the phenomenon I’m trying to call attention to would exist even if there were none of that. So the median family, it’s gone into debt to buy a house that’s at least 50 or 75 percent more expensive than what the median family was spending in 1970.
Why Context Matters
The reason it’s done that is much less because they envy the houses of other people like them. It’s because unless you spend as much as other people like you are spending on a house, your kids will go to bad schools. The link between school quality and neighborhood house prices in the school areas is very strong and direct. The better schools are located in the neighborhoods where the houses are more expensive. So if you’re the family in the middle and it’s your aim to have your kids attend a school of just average quality — you know, we would judge harshly a parent who wasn’t at least that ambitious — then what do you have to do? You have to buy a house that’s roughly near the price of what people like you are spending on houses.
When all the families in that middle of the income distribution do that, what do they achieve? Nothing. You know, they just bid up the prices of the houses in the better school districts. Still half of all kids go to bottom-half schools, the exact same as before. But now families are in debt, they’re not able to meet their bills month by month. Many of them file for bankruptcy. It’s just been an enormous squeeze on the people in the middle, and that’s driven by the spending at the top. And the reason we see more of it now is that the spending on the top is so much greater in relation to spending elsewhere in the income distribution.
That’s happened before. You know, when do you read about luxury? You read about it when the people at the top have been pulling away from everyone else. We read about it in the Gilded Age, the great fortunes of the late 19th century. You notice it when there’s that contrast. But it’s still going on under normal circumstances. Right after World War II, incomes were growing at about the same rate for families up and down the income ladder and it was still true that what the family in the middle spent on a house depended on what the people at the top spent, but it wasn’t — there was growth in balance up and down the line, so we didn’t notice that families were getting squeezed relative to last year. Those stories didn’t break through.
Again, it’s context. If you saw a seventh grader in the third grade, everybody would notice and remark on that. If you see a seven-footer at an NBA game, it’s normal.
Kiely: So is the answer to try to escape context or what’s the answer?
Frank: Well you cannot escape context, that’s just the way we’re wired. “Are we almost there yet?” Well, if there’s five miles to go, “Are we almost there yet?” If it’s a 500–mile trip, yes, we’re almost there. If it’s a six-mile trip, we’re not almost there. It’s just inescapably shaped by context.
So if you can’t change the fact that we’re sensitive to context what can you do? Well, the claim is that people at the top are spending their money in ways that don’t do them any good really but at the same time cause problems for others, the people in the middle who are put under pressure by that spending. Why doesn’t it help the people that are rich? Why do they do it if it doesn’t help them? Well, they think they’ll be happier if they buy a bigger house because when I think about my bigger house, I imagine I’ll a relatively big house. But everybody’s buying a bigger house. And when that happens it just raises the bar that defines big. Forty thousand square feet in Dallas isn’t big anymore. So there’s no evidence whatsoever that the people at the top would be happier if they all had 100,000-square-foot mansions than if they all had 50,000-square-foot mansions.
I think if the truth could be known, it would be clear that they’d be less happy. It’s just such a nuisance to manage a property that’s twice as big. Once you get up to a certain size there’s just no gain. But if everybody else has one and you don’t, then people begin to talk, “His business is slipping. Is he not able to compete any longer?” Or you can’t entertain in the style that’s expected of people in that circle. So yes there’s a sense in which people are a prisoner of what others do. If you want to see well and others stand up, you have to stand up, but if everybody stands up, nobody sees any better than before. So there are lots of situations that have that character and this is one of them.
Kiely: Is this a problem that we should be talking about in the presidential campaign?
Frank: In general it’s a problem that we can solve politically. Given that we can solve it and that the gains from solving it would be so enormous, it’s a crime that we’re not talking about it.
Kiely: And how could we solve it?
Frank: Well if the incentive to have a more expensive party is misleadingly large for the individual, and it is, what do parents want? They want the people who attend their daughter’s wedding to go away feeling like they had a good time. If they serve McDonald’s hamburgers, everyone’s going to go away saying, “Oh, didn’t they understand what an important occasion this was?” The cost of admission is to spend roughly what other families like you typically spend on a wedding. In 1980 the average expenditure is the US was about $10,000. Last year it was $31,000.
Nobody thinks the people getting married who are spending $31,000 are happier because of that fact than the people who were getting married at $10,000 in 1980. In fact, there’s some evidence that they’re less happy because the extra debt they take on creates problems for them. And yet the individual incentives are to spend more if others are spending more. So the simplest solution to that is the one we use in other policy domains. If the problem is people put too much CO2 in the air, we have to ask why are they doing it? Because it’s free to do it. It causes harm to others and it’s expensive to filter it out and if it’s free just to dump it and the harm to you of any one person dumping it is negligible, then of course people are going to dump it.
The simple solution, charge them for dumping it. And what we know is that when we have implemented fees for activities that cause harm to others, people clean up their act in short order. It’s a very powerful effect. And so the analogous solution in this case would be to scrap the income tax completely. In its place adopt a much more steeply progressive consumption tax. And what that would mean —
Don’t tax income; tax consumption
Kiely: So you agree with the flat taxers?
Frank: No.
Kiely: A fair tax, is that what they call it?
Frank: The fair tax is anything but fair. It’s a gratuitously regressive tax. It would be an awful burden for low-income families. It would be a huge windfall for the very rich. No, the tax that would address this expenditure cascades is a steeply progressive consumption tax. And the way it would work — it sounds frighteningly complicated, but the way it would work would actually be simple. You’d report your income to the IRS just like you do now; we should simplify that while we’re at it. In addition, people would report how much they’d increased their stock of savings during the year. People do that now for 401(k) plans and other things. The difference between those two numbers, your income minus your savings, that’s how much you spent during the year.
We don’t have to keep track of receipts for every individual item to figure out how much you spend. Your spending can only go into two buckets, your savings and your consumption. If we know your income and we know your savings, then we can back out what your consumption must have been. So income minus savings, that’s your consumption. Then knock off a big standard deduction, let’s say $30,000 for a family of four. That’s your taxable consumption. Rates start low. People in the bottom half and slightly above would pay no more tax than they do under the current system. Once your consumption goes up beyond a certain point though, the rates begin rising and at really high levels of consumption, the rates can be extremely high.
Kiely: How high? What would the highest level be in your dream tax scheme?
Frank: Let me not frighten you but I’ll say, suppose it were 100 percent for people consuming already $5 million a year or more, what would that mean? We could never have a tax that high at the margin on income. People would say, rationally, “Why should I work to get more income, they’re going to take all of it if I do.”
If you have 100 percent rate on consumption beyond $5 million a year, what does that mean? That means the next thing you were thinking about buying — which, let’s be clear, it was not something urgent; it was something special that you were hoping to get. That thing, instead of costing $1 now costs you $2 — the $1 you pay for the thing and the $1 of extra tax that you’re levied because of that purchase. So by making additional purchases for people at the top of the ladder much more expensive, that would steer money out of those purchases and into savings and investment.
Kiely: So what would you say to somebody who’s the florist who supplies the flowers at the $31,000 wedding or paints the $40,000 mansion? There are those people who would say the excess spending helps fuel the economy. What do you say to those folks? The trickle-down effect.
Frank: The point’s often made that the spending of the rich does help employ people, to which I say, “Especially since we’re in a situation now where we have not fully recovered from the Great Recession, don’t implement this tax now.” Instead, announce that it’s going to be phased in once the labor market becomes tight, which may happen in the next year or two years or three years from now. If we did that we would see an explosion of new spending right away, not one nickel of it at government expense. People would be, “Oh, if we’re going to build that wing on the mansion we better do it now before they come after us with this progressive consumption tax.
That would put more people to work — florists, all of them. Then once the economy’s back at full employment, phase the tax in gradually. What that would do would be to cause a gradual shift away from consumption toward extra savings and investment. Again, the incomes are growing very rapidly at the top of the income ladder. So what we would see would be a less rapid rate of growth of demand for stuff that the high-end people buy and a more rapid rate of growth of demand for everything else. Public goods — we could use some of the tax revenue generated by this tax to fix the potholes in the roads.
Who’s happier — a guy driving a $300,000 Ferrari on roads riddled with foot-deep potholes or somebody driving a $150,000 Porsche 911 Turbo on well-maintained roads? It’s a choice. We could have either one of those. Right now we have the potholes and the more expensive cars. You don’t give up much when you scale back from the Ferrari to the Porsche, that’s still a pretty good car. It’s got all of the design features that really matter.
Kiely: Have you checked this out personally?
Frank: I’m a car buff, yes, I know these things [laughs]. So that’s the response. But there are many ways to generate employment. Florists and gratuitously expensive weddings aren’t inherently a better form of employment that people planting landscaping in public spaces. There are lots of things we could do that would generate employment that I think in general people would value more highly.
Kiely: So have you run the numbers on this? How would the revenue to the government compare to what it is now under the income tax?
Frank: Well, what we know is that even the rich respond to higher prices. There are in New York many billionaires, they could afford to buy the whole building they live in, so why would a progressive consumption tax get them to choose a smaller dwelling to live in? The reason is, what we know from the evidence is that in cities where real estate prices per square foot are very high, even the billionaires live in much smaller spaces than in other cities where real estate prices are lower. So it’s quite common for a billionaire to live in an apartment that’s under 10,000 square feet in New York City.
Kiely: Poor baby.
Frank: It’s so expensive in New York City, everybody lives in more cramped spaces here so 10,000 space in this context feels like a lot of space. In Dallas that same man would be buying a 40,000-square-foot mansion somewhere in the suburbs. So we know the rich would respond. We don’t know exactly how much they would respond. The proposal that makes the most sense, and it’s due to Larry Seidman at the University of Delaware, is to start off with a progressive consumption surtax, levy it only on consumption above half a million dollars a year.
A gradual changeover
See how people respond and then gradually increase the rates on it while you’re reducing the rates on the income tax so that over a period of time the consumption tax would replace the income tax and we could calibrate the rates in accordance with what we saw in the way of revenue coming in, consumption, adaptations to the new prices and so on.
Kiely: So this is a pretty radical shift, right? It sounds like you’re shifting from an economy that is really — in many ways, our economy is consumer-based. We talk about when we try to evaluate how well or how badly we’re doing as a country economically we talk about consumer confidence. Talk a little bit about what the implications would be for us as a society.
Frank: Well, consumption is about two-thirds of all spending. And people worry that a consumption tax would depress the economy because it would depress consumption spending. What matters for output and employment is not consumption spending but total spending. Total spending is the sum of three or four major categories.
The big three in our economy are consumption, the biggest, next comes investment, spending by private firms on capital investments. Government is another big one. So if we shift spending as a proportion of the national income away from consumption and toward investment or public production, a good life can never be had with just private consumption. You need good schools, you need good roads, you need safety features to keep people from harm. And those expenditures contribute to well-being too. The trick is to find a balance and there’s very good reason to believe that we’ve strayed from the best balance in the US economy.
Kiely: Why do you say that? What are some of the reasons to believe that?
Frank: Just the evidence is very clear that when all the mansions double in size the rich don’t get any happier than before. That’s a lot of money being spent to yield zero measurable result. When all the weddings get twice as expensive, nobody gets any happier. So that’s like pouring money down the toilet. It’s not a productive use of resources. We know that research on diseases that cause premature death yields real benefits for people, the fact that if you kid gets a cancer now there’s a good chance that it could be treated and they’ll survive into adulthood. Those things matter.
Kiely: What do you think are the chances of this proposal being seriously considered in a country where after 9/11 our president told us, “Let’s go shopping”?
Frank: You know, this is not a natural way for people to think about things. If you think about how a tax increase would affect you, it’s a completely natural way to think about that is that it’s going to make it more difficult for me to buy what I want. Why is that? Well, if I have a tax increase that means I’ll have less money.
The natural thing to would be to think back to the last time there was a big tax increase and see how it affected you. Well, the problem with that is that there hasn’t been a tax increase that anyone can remember — not one of a significant magnitude. So the next best thing is just to think back to the times when by circumstance you have had less money.
That might be when you got divorced, might be when you lost your job or your business had a bad year or you have a home fire — who knows? All those things are things that caused you to have less money but didn’t affect the money incomes of anyone else around you. So those things, those things that caused you to have less money really did make you less able to buy what you want. If everybody like you had less money, the effect would be completely different.
But I don’t expect people to come upon that realization of their own accord overnight. That’s kind of a subtle one. If somebody naturally thought about that, I would think that was a weird person in a way. What we know though is that progress can still happen over time.
When for the example the economists were first proposing that we ought to have tradable pollution permits as a way to reduce sulfur dioxide emissions from the coal plants in the Midwest, the environmental groups were livid, they said, “Oh, the economists are so immoral they’re proposing that we let polluters pollute to their heart’s content just by paying a fee.” What a strange way to conceptualize what firms do. They’re not saying, “Oh, they’re going to let me buy permits now.” Firms don’t want to pollute, they just pollute because it’s cheaper to pollute than not to pollute. If you have to pay to pollute, then you figure out ways to filter the smoke out.
Don’t tax income; tax consumption
How did that change get adopted? It didn’t get adopted because the public demanded it; it got adopted because freshmen took Economics 101, they learned about the logic of effluent charges from their professors in those courses. Then they went to work on the Hill in Washington, some of them, and they painstakingly educated their congressmen that pollution charges actually makes good sense.
And 25 years after the idea was first proposed, it was adopted as an amendment to the Clean Air Act in 1995. And overnight the pollution targets started getting hit faster than they expected; the cost of hitting them fell precipitously. It was a huge stampede to do it once the idea demonstrated that it made sense. And I think that’s the route along which this will happen if it happens.
Kiely: So do you see any interest in the policymaking community and your proposal?
Frank: Oh absolutely. I mean, the progressive consumption tax has been proposed at various junctures in history. Irving Fisher proposed it in the early 20th century. It was proposed in 1995 in the Senate by Sam Nunn and Pete Domenici — a Democrat and Republican bipartisan bill. It never came up for a vote. People moved on, there were other battles.
But two years ago, two economists at the American Enterprise Institute published a book advocating the progressive consumption tax. It’s a policy that could win support across both sides of the aisle. It has a long history of bipartisan advocacy.
And so when we ever find ourselves in a political climate in which we could ask what’s the right thing to do to make progress, I think that will be one of the first things at the top of the discussion list. We’re not in a climate like that yet but that doesn’t mean that we couldn’t soon find ourselves in one. The same-sex marriage transformation of public opinion caught everybody off guard, but once people start thinking in a different way about a subject and talking with one another, things can flip surprisingly quickly.
Kiely: And how would you assess Hillary Clinton’s economic policies?
Frank: They’re quite pragmatic. I think they come from a deep policy wonk tradition. You know, the recent proposal she made for a refundable tax credit to help alleviate deep poverty is in line with what serious public policy students on both sides of the aisle have been writing for decades. There’s nothing radical in her proposal. It’s a more progressive agenda than we’ve seen from any candidate in the past, but I think it’s not outside the mainstream by any stretch.
Kiely: Does the next president need to get outside the mainstream?
Frank: You know, things happen incrementally until they don’t. I don’t sense that the American public is ripe for revolution. There are other environments where inequality has provoked much more anger and resentment than it seems to have done so far here. But revolutions, when they come, are never widely predicted.
There was the Arab Spring that occurred — nobody was predicting that to happen. The Soviet Union countries all dropped off the Soviet Bloc one after another in the late 1980s; nobody was predicting that except for a handful of people who’d been predicting it every year for 30 years. You know, the dynamics of public opinion are very difficult to forecast.
What you believe depends on what others you talk to believe. That’s true for me, that’s true for everyone. And when one belief changes, that means everybody who talks to that person is exposed to a different belief and if it’s a reasonable new belief, they can change their minds and then they’ll talk to people. So we do see prairie fires.
Kiely: If you were advising the next president of the United States, what would you tell that person to think about? What are the economic issues on the horizon as you see them that we as a country should be talking about and thinking about?
Frank: I think one of our main problems going forward is to redress the long neglected maintenance of our stock of infrastructure. There’s a report card put out by the American Society of Civil Engineers periodically and it gives American infrastructure a D+ rating. And the figure they estimate is $3.6 trillion of overdue maintenance, never mind building a high-speed train.
That’s off the table. Just patching stuff that’s broken, dams that could collapse at any moment, roads that are substandard — this is one of the most desperately needed things to attend to and now’s a good time to do it because interest rates are at historical lows and there are still unemployed people who know how to do the tasks that need to be done.
Then I think longer term there’s concern that the new advances in AI, artificial intelligence, are putting people out of work who never thought they’d be automated out of their jobs.
Kiely: Such as?
Frank: The radiologists, for example, used to sit there in front of their screens and stare intently at the X-rays and try to spot anomalies. Now algorithms can spot anomalies better than they can and one machine that’s got an algorithm like that embedded in it can replace a thousand radiologists.
Those people are educated, they’ll find something useful to do without question, but there are lots of things like that where — you know, we’ve heard predictions that there’d be a shortage of things for people to do for a long time. Historically, that’s not proved accurate. Every time technology has wiped out a certain group of jobs — tollbooth collectors, things like that — other jobs have emerged to take their place. That could still happen, but I think the concern that it won’t happen is greater now.
You know, the labor market has been the primary source of income for people. Going forward we may not be able to rely on that as a primary source of income. It’s not that we’ll be too poor to support people. There’ll be more income as a result of these technologies, but how do we get it into the hands of people? And so we’ve started to hear now even conservatives calling cautiously for a basic income guarantee.
The case for a basic income
Kiely: Do you think that’s a good idea?
Frank: It’s not going to work in the form that it’s traditionally proposed. There are many ways in which it is a good idea. Milton Friedman proposed it in the form of a negative income tax back in the 1950s. The idea would be everybody gets a payment every year, no matter whether you’re rich or poor, and then other forms of income get taxed, so if you’re Bill Gates, this payment you get gets wiped out by all the tax you paid, but the payment in his scheme would be big enough to lift an urban family from poverty. So today that would be about $25,000 a year.
If you gave people a payment large enough to lift an urban family from poverty, the effect of that would be that a group of, let’s say, 10 families could form, pool their payments — so we’ve got 10 families, $250,000 a year. They would buy some acreage in Oregon, they would start a commune, they would raise chickens and goats, they would grow vegetables. They could practice their guitars in the morning, they could debate politics and the arts in the afternoon and they could go skinny dipping in the pond, all completely at taxpayer expense.
And so if you imagine what would happen in that — and it might not be very many who did that, but some would. Then there would soon be an eager audience for video footage of them on the nightly news. You know, you’re going to work every day, paying taxes, doing a hard job, these people are having fun all day at your expense. That would not be politically sustainable, in my opinion.
What we could do is give a much smaller basic income grant, much too small to form a group that could live wholly at taxpayer expense like that, and then offer to supplement that by extending an opportunity to perform useful tasks in the public realm for a small wage, smaller than the private sector wage, which in combination with the basic income grant, would lift you from poverty.
Kiely: So what kind of tasks do you have in mind?
Frank: Oh, there’s been a lot of research on this. You know, transporting elderly and infirm people around, there’s not nearly enough of that done by the private sector. Planting seedlings on hillsides that are eroding, graffiti removal and staffing daycare centers. There’s all sorts of things that people without a lot of skill could do with proper supervision. You could contract the management of tasks like that out to the private sector if you’re worried about government bureaucracy expanding too much.
There’s sort of an old tradition of public service employment. The WPA projects produced some wonderful additions to the nation’s stock of capital, and I think at a time when there aren’t enough jobs to keep people busy in the private sector, attending to obviously useful tasks in the public sector would be something we would want to do anyway, quite apart from the need to get income into people’s hands.
Kiely: If I had to ask you for a shorthand — maybe a word or a couple of words to describe the type of economic philosophy you’re proposing — what would it be? Have you thought about that?
Frank: I was once thinking to title a book Radical Pragmatism. The publisher didn’t like the title so I didn’t use it, but it always seemed like it was kind of a pair of words that captured the essence of the thinking behind proposals like these. They’re at one level radical. They’re outside the mainstream, certainly. But at another level, they’re deeply pragmatic and they’re rooted in what we know about human psychology and political reality as it exists.
Kiely: Let me just ask you one last question, and that’s about your latest book, which is kind of about the conflation of luck and skill, or the notion that a lucky person is skillful. Why did you write that book and does it fit into what you’ve been talking about, and how?
Frank: Yeah, I think the tendency — what we know from the social science is that chance events matter much more in life outcomes than most people imagine. We have a kind of hindsight bias. We see a successful outcome, we look at the usual explanations for outcomes like that — hard work, talent and those are almost always important. But what we don’t see when we think about those things that way is that there are lots and lots of people who were just as talented and hardworking who didn’t succeed. Why didn’t they succeed?
Well, maybe the promotion that they would’ve gotten had it not been for a slightly more qualified candidate didn’t come at the right time and so they missed some train, or there was a teacher that kept them out of trouble in the 11th grade. That teacher wasn’t there. Those kinds of things don’t really enter into people’s narratives about why they’re successful and I think the evidence is pretty clear that if you think you did it all yourself, you’re way more determined to keep every nickel that comes your way. And so I think it’s that and much more of the income is going to people who, if not for luck, would never have succeeded in these winner-take-all markets.
They’re talented and hardworking, to be sure, but they needed luck too. And the fact that they think they did it all on their own makes them determined to hold onto every nickel, and because they have so much, they’re able to hire the political system to give them tax cuts —
Kiely: So it’s an entitlement mentality that you’re trying to combat.
Frank: Yeah. And the irony is that that doesn’t serve them well. So they can build bigger mansions — so what? Have more expensive parties? That just raises the bar when they all do it. And if they were a little bit more willing to embrace the fact that they were lucky, they would actually be happier. You know, people would like them better. You know, who would you rather have dinner with, the guy who says, “We worked hard, but yeah, we had some lucky breaks along the way” or the person who stubbornly insists he did it all himself? You know, that’s an easy call.
Kiely: So it sounds like some of this revenue might have to be used to put extremely wealthy people on the couch so they can get their head shrunk down a little bit and understand that they can be happier with a smaller house —
Frank: Well, all you have to do is talk to them. It doesn’t work to remind them that they’ve been lucky. That’s what Obama tried to do in his “you didn’t build that” speech: “Well, look, if it hadn’t been for the system we all built, you couldn’t have succeeded in that way.” Oh, they got so angry when they heard that. Elizabeth Warren, the same thing. There was vitriol all over the internet about those speeches.
But what I’ve discovered is that if you don’t remind a successful person that she’s been lucky, if you instead say, “Can you think of any examples of lucky breaks you enjoyed along the way to the top?” they seem to find the question interesting. They don’t get angry that you posed it. They think of examples. Their eyes light up. They want to tell you about them. When they tell you about one, that kindles the memory of another and then pretty soon they’re asking, “Why aren’t we supporting these public investments we were talking about?” So how you frame it really does matter. But we’re learning more about that now, I think.
Kiely: All right. Robert Frank, soon-to-be psychiatrist-in-chief for the nation. [laughter] Thank you so much for your time.
(Contributing: John Light)
