Global warming and tax structure: Robert Frank’s proposal

In his books (“Luxury Fever” and “Darwin Economy”), Robert Frank argues (based on compelling data) that the great and inescapable villain of overconsumption is the ever growing demand for positional goods. According to him, this is such a powerful and inescaple force inasmuch as we human beings are driven to signal status. The process neatly resembles darwinian processes in Nature, such as the size of peacock tails and the size of trees in a forest – collectively there is a great waste of resources but individually the more an individual gets prominence the better for it/him. So over the last decades we have been paying astoundingly and increasingly more for weddings, bigger houses, domestic appliances and so on (the more visible the status mark of the good the more pronounced the phenomena). This trickles down from upper classes to middle classes and the net result is an enormous waste of resources, a shrinking portion of savings in families budgets and the spreading of this consumption patterns to aspiring upper and middle classes throughout the World (think about China). Individual efforts to resist this trend are thought to be doomed in the same sense as if a peacock had a shorter tail (it would never passes its genes). Frank asks: who would be chosen by a prospective client, given similar rates and the typical absence of knowledge about their effective competences: a lawyer driving a used Hyundai or a lawyer driving a Ferrari? That is, the incentive to seek positional goods is practically irresistible: they signal status and competence, they are a ticket to better schools (houses in good neighborhoods in the US) and they are perceived as the dominant social norm (expensive weddings, birthday parties etc.).
The solution proposed by Frank is to tax progressively consumption instead of income, of course exempting a given range of consumption to avoid taxing the poor. It is a radical idea but apart from demarketing and a change in social trends (i.e. a change in Zeitgeist) I have not seen any other way to curb the overconsumption that is contributing to global warming and risking the future of our planet. The way to operationalize it would be relatively simple (as people file their incomes data annualy… they would have only to inform income and savings; the difference would be their consumption). In the Brazilian incredibly complicated tax system, we tax income and consumption but in the later case with an evil twist: the taxes are “invisible” – they are hidden in each product retail price. From my perspective, Frank’s solution makes great sense. His idea makes sense to curb overconsumtion, to increase savings and investments and to optimize societal use of resources (desincentivizing current levels of conspicuous consumption – a trend that has taken root even in Brazil) while maintaining individuals rights to use their money as they please. But his idea demands also a radical shift in the mental models we citizens share.
I think Frank’s account on the mechanism fueling overconsumption is partial, however. A memetics approach would complement his account. Keith Stanovich and Daniel Gilbert have discussed properly this aspect. In a later post I intend to return to their ideas.