Falling Behind: How Rising Inequality Harms the Middle Class (Volume 4)

Wildavsky Forum Series

by Robert H. Frank

Although middle-income families don't earn much more than they did several decades ago, they are buying bigger cars, houses, and appliances. To pay for them, they spend more than they earn and carry record levels of debt. In a book that explores the very meaning of happiness and prosperity in America today, Robert Frank explains how increased concentrations of income and wealth at the top of the economic pyramid have set off "expenditure cascades" that raise the cost of achieving many basic goals for the middle class. Writing in lively prose for a general audience, Frank employs up-to-date economic data and examples drawn from everyday life to shed light on reigning models of consumer behavior. He also suggests reforms that could mitigate the costs of inequality. Falling Behind compels us to rethink how and why we live our economic lives the way we do.

Russell Sage Foundation

Genres: Economics, Nonfiction, Politics, Sociology, Class, Finance, Psychology

160 pages, Paperback

First published June 9, 2007

About the author

Robert H. Frank is the Henrietta Johnson Louis Professor of Management and a Professor of Economics at Cornell University's S.C. Johnson Graduate School of Management. He contributes to the "Economic View" column, which appears every fifth Sunday in The New York Times.

Reviews

[Pamela · Rating 4 out of 5]

Robert Frank has a strong message, which is we are spending too much of our money in keeping up with our peers and the rich. We do this in order to live in a better neighborhood, and send the kids to a better school, and it sends prices up. The sizes of people’s houses has been increasing as well. When you compare your house to large oversized house suddenly it looks small. But comparing to another poorer country it may seem large. There’s relatively in play.

Frank uses an example of replacing his broken backyard grill. At the store he’s shown a super deluxe do everything grill that costs $5,000. He tells the salesperson there’s no way he’s buying that, so now shown a $1,000 grill that seems like a bargain in comparison. But what he went in to buy he hoped to spend more like a 10th of the cheap one. This is one way people end up spending more than they expect.

When looking at cars, they have become increasingly bigger and heavier. Now a cheaper small car that was more than adequate 20 or 30 years ago is not as safe as it used to be if involved in a car accident. For safety reasons then a family may choose to buy a bigger and heavier car than they need.

Frank also relates research that consistently shows that buying more things, including bigger houses does not make one happier. We need to stop buying bigger houses and heavier cars. We often don’t recognize the trade off, of bigger house to working more hours, which means less time for spending with family and friends. He also goes into some of the research on happiness, or overall satisfaction with one's life.

The voluntary simplicity movement has been talking about reducing buying of stuff for over 20 years and has done little to change the situation. Frank points out that it’s one thing to reduce your spending when you’re a top wage earner, but if you are struggling and already take your lunch to work, have a 15 year old car, there is no room to cut back. Thus the simplicity movement really does not apply to many.

Frank has a policy solution, which is a progressive tax on consumption with no taxes on savings.

It was a short book, I got through it in a day. It felt on occasion somewhat academic as he uses the economist terminology and gives several thought experiments throughout. Since it is a short book, full of information, albeit a little dated, it is worth one’s time to read if interested in this topic.

Book rating: 4 stars.

[Carl · Rating 4 out of 5]

I was initially skeptical that this book wouldn't be more than a polemic about the rich simply having too much, I was pleasantly surprised that it makes a lot of sense. An economist at Cornell, Robert Frank delivers a taught book (123 pages) that's all meat and no fluff, but with plenty of everyday examples to illustrate the ideas behind his economic arguments.

Everyone standing up from their seats at a concert to get a better view leaves no one better off than before (and now everyone has to stand). The middle 3 quintiles' income (income percentiles of 20-80%) has barely kept up with inflation since the mid 1970s with a good deal of these gains coming from more women entering the workforce. Despite this stagnation, home prices have skyrocketed leaving people to devote ever increasing shares of their income to housing. The cause of this, Frank asserts, is a sort of 'consumption cascade' where the almost superrich try to keep up with the superrich and so on down the consumption spiral. We would all be better off limiting the size/cost of our house and using the money for goods we need that aren't so sensitive to what other people have, such as leisure time. I'll let Frank explain the logic but know that he does it clearly, concisely and convincingly. Non-students of economics, this book is not over your head.

[gaby · Rating 3 out of 5]

I almost didn't review this book. I could tell pretty early on that I wasn't going to have much to say about it, despite having had an extensive conversation about its substantive points well in advance of having actually read it. So I thought perhaps it might be best to forgo the sort of acerbic, non-plussed review I expected from myself. But when have I been known to leave well enough alone? So here we are.

I live in a bit of a self-chosen world of intellectual binaries. The things about which I spend almost all of my time thinking (music/fiction and The Law) are extremely dissimilar. Music and fiction set up little worlds, but they are worlds in which no answers are expected or even possible. The Law also provides an identifiable framework but supplies, in surprising measure, many answers (which I am expected, in surprising measure, to find).

There is a whole universe of murky area in between these two polar extremes - the seedy side of the Social Sciences. Disciplines that set up frameworks and provide the pretense of answers, but really they're just contextual minefields. And, while I don't claim to know much of anything about economics, I had always supposed that it was more in the Real Science camp than the Social Science camp. Maybe this is a misconception on my part - maybe my general Fear of Math has led me to overstate the objectivity of disciplines in which it is integral. In any case, Falling Behind seemed to me much more an exercise in subjective posturing than in Real Science Rooted in Numbers. The book is largely told in anecdote form - literally, Frank illustrates a cornerstone of his thesis by recounting the time his two sons, ages 7 and 10, fought over who had more orange juice in their glasses. Frank extrapolates from this anecdote a whole series of serious 'truths' about human nature and American economics, sprinkling his personal experiences with 'Darwinian' theory in what comes across as an attempt to siphon off some scientific legitimacy.

At another touching juncture, Frank recounts the cruel impact that 'going part-time' wrought on the psyche of his divorced male colleague at Cornell, who found that "instantly, women no longer wanted to date him". In a happy turn, Frank concludes that the negative social connotation associated with working part-time did not impact the quality of assignments he was given at work. This touched a particular nerve to me, since I've seen how 'going part-time' impacts professional women, and stunts the quality of their work assignments. Frank may have been trying to prove some deep economic theory, but this anecdote, along with many others, rang hollow, out of touch, and provided an extremely narrow account of a really huge issue.

In short, I expected a whole lot more facts and figures to back up the trends Frank purports to be tracking. His general theses make a certain amount of sense, but don't seem adequately rooted in proof. I'm not a Cornell professor to be sure, but I certainly wouldn't have dared turn in a paper with that few citations in law school.

A quick glance on goodreads shows that no one that has read this book has given it less than 4 stars. I can totally accept that I just didn't "get it". And now I'm going back to fiction.

[Alex · Rating 4 out of 5]

Excellent book. An economist goes into the problems of our current economic outlook on America's 'wealth' to wit while we are all doing better than in years past, the large income disparity between the very rich and middle class has a startling effect of raising the basic standards of living to a point where in order to maintain the things most people desire, the middle class has to pay disportionately more than in years past.

I'm not an economist and it's difficult for me to explain the whole thing but if you are interested in America's saving and spending habits, how we live, etc., I strongly recommend this short dry book for a fascinating read.

[Mark · Rating 3 out of 5]

This was an interesting book to read right next to The Trap: Selling Out to Stay Afloat in Winner-Take-All America. Both deal with the shrinking of the middle class, and the rise in costs of housing, education, and healthcare, among other things. It's short, but dense in information, disspiriting as that info may be.

[Sam Brunson · Rating 4 out of 5]

An interesting look at inequality and its consequences through the window of behavioral economics.

[L · Rating 4 out of 5]

very good. I appreciated reading this directly after Perfectly Legal - they complement each other well.

Perfectly Legal makes the argument that in recent American history (since Reagan at least) our taxes have been structured so that wealth trickles up. (cue: our political processes assure that the wealthiest of our society have disproportionate access to policy makers via political fundraisers and campaign contributions, thus their concerns are heard most often.)
Falling Behind ties in a lot of threads of contemporary discussions - we work longer hours, our houses get bigger, our commutes get longer, we experience more stress and anxiety, we eat worse and have less leisure time, communities disintegrate. The explanation he offers is that consumption patterns trickle down - and for perfectly rational economic reasons. In order to attain economic success, or even hold onto your seat in the middle class, you have to emulate the rich through the wardrobe, the car, the gifts you exchange - but without the economic resources to maintain the lifestyle we go into debt/pick up another job/more hours/move further away from our job.

p. 48 "Looking good is an inherently relative concept... If others begin wearing suits of higher quality, you become less likely to make a favorable impression on interviewers. Your best response might be to spend more on clothing as well, to preserve your chances of landing the job you want. From the collective vantage point, there is an obvious inefficiency here, since when everyone spends more on clothing, each candidate's probability of success remains the same as before. But from the perspective of the individual buyer, such expenditures are anything but inefficient."

I want to work for tax policy that halts the redistribution of wealth upward and preserves our investments in public resources - transit, water treatment, libraries, public schools.
The best thing to come out of the recession is captured in those phrases from department store commercials, "frugalista." The sense that extravagance and gaudiness is not in step with the moment, offensive to those who struggle, and rather unhip.

I love this: (p.89)
"Everyone lives in 4,000 square-foot houses and has one week of vacation each year.
vs.
Everyone lives in 3,000 square-foot houses and has four weeks of vacation each year."

The market and individual rationality have landed us in the former, and, in fact, we are accelerating further in that direction. As an individual, to choose the latter lifestyle is choosing to send your kids to a lesser quality school system, and what kind of parent would choose a vacation over ensuring a better life for their progeny? It's a trap! When we all choose the 4,000 house your child goes to the same school, you work more, and the money goes to real estate developers (and I doubt any more of them are employed, it's just the same lot who are working twice as hard as they used to, no job creation here). The rate of your property tax will go up anyway because sprawling developments strain the infrastructure (who pays to extend the grid, install plumbing and pave the road? It costs a lot more to do that than to cover the maintenance costs that were budgeted for).

The only mechanism to allow us to get what we want, (and which one do we want? the results of Landers, Rebitzer and Taylor, 1996, suggest the former picture) is strong progressive tax policy, ie a totally unprecedented move for the legislative process. we gotta lay down the law. I'm trying to figure out if we can attain that through a direct campaign for tax reform or if no rational tax reform will ever come out of our electoral structures.

Chilling: (Daly, Wilson and Vasdev 2001) "the degree to which resources are unequally distributed is a stronger determinant of lethal violence in modern nation states than is the average level of material welfare."

If we can't do it motivated by fairness and equity, then can we do it for material self-interest? If not that, then fear?

[AC · Rating 3 out of 5]

An interesting study of how the middle class can either put themselves at financial risk by trying to keep up appearances or maintain middle class life styles when prices go up, or be squeezed out of the consumer market by the bloating of prices caused by the rich trying to out-do each other. It was a little soft on providing anything more than a quick fly-by of these concepts. The main goal of the book seems to emerge near the end when the author begins his spin for tax reform (apparently the first 100 pages of the book were an attempt to set up the need for this). Not that I necessarily disagree with the need for some such reform, but when it appears here and is the most detailed part of the book it feels like the first 100 pages were just a hasty set up to get to the main course.

At one point the author suggests that a belief that the rich have "captured" Washington and are trying to use it to further advance their own interests with the tax breaks targeting the rich would require that the rich have a naive view of their own self-interest (because, the author argues, many of the supposed advantages they've set up for themselves have not gained them as much as they think). It seems reasonable, as the author has not anywhere previously pegged the ultra rich as being geniuses, that they could very well have a naive view of what they should be doing to promote their own interest and have made the blunders in their politics that he tries to argue they couldn't be making unless they were naive. To argue that something isn't happening because it wouldn't be the best way for it to happen is absurd (I'm reminded of the scene in Erik the Viking when the island is sinking because someone has spilled blood on the island, in defiance to the gods rules, and the island inhabitants, while the water rises around them, steadfastly argue that it isn't happening because something unacceptable would have had to occur for the island to sink). We see evidence every day that the rich can turn into idiots when the chance to get even more money presents itself (consider the investments with Madoff by people already loaded--evidence suggests now that even moderate investigating would have sent up red flags years ago--but none of these millionaires researched anything except what Madoff told them he could get them and they went all-in).

There are some really good aspects to this book--the "smart for one, dumb for all" concept is well stated. Some of his most powerful work could stem from bringing in facts like in the 1980s the average CEO made about 40 times as much as the average worker and now they make over 500 times as much (while income has stayed relatively stagnant, in terms of real purchasing power, for most everyone else), or that even after 9/11 more and more containers come into our ports uninspected due to cuts in staffing for port authorities while tax breaks centered on the excessively wealthy continue to be passed.
Being able to point out where the balances have been heavily skewed by what goes on in Washington D.C. and how that has trickled down (unlike income which has never done that) helps to solidify some of the ideas the author is presenting.

[Mal Warwick · Rating 4 out of 5]

The subject of income inequality took center stage in the public mind only in 2010 with the advent of Occupy Wall Street, but the widening gap between the top 1% and the rest of us had been the subject of fierce debate in economic circles for many years previously. Robert H. Frank made a notable — and eminently readable — contribution to the public discussion with his widely read 1995 book, co-authored with Philip J. Cook, The Winner-Take-All Society. A decade later, Frank delivered the Aaron Wildavsky Lecture at UC Berkeley’s Goldman School of Public Policy on the same broad topic. Frank expanded the lecture into a book under the title Falling Behind in 2007, published by UC Berkeley Press. Last year the Press reissued the book with a new preface by the author.

In Falling Behind, Frank goes far beyond the superficial coverage of income inequality in much of the media, which is largely limited to dramatizing just how far and fast the gap has grown between the haves and have-nots. That’s old hat now (though it wasn’t in 2007).

Making use of homey thought experiments and references to behavioral psychology, Frank explains how income inequality forces people of lower or middle income to spend more than they can afford on housing, clothing, and sometimes even food — and how the policies that foster inequality worsen the “tragedy of the commons,” saddling society with inadequate public transportation, polluted air and water, crumbling infrastructure, and other frequently neglected problems.

Frank challenges conventional economic thought by introducing such concepts as “the rising cost of adequate,” “expenditure cascades” (tantamount to an arms race between the economic classes), “relative deprivation,” and “positional” versus “nonpositional” goods (broadly speaking, personal consumption as opposed to socially desirable goods). The discussion is eye-opening and well worth the few hours needed to read this short but powerful book.

Frank closes Falling Behind with a discussion of progressive consumption taxation as the way to lessen income inequality and generate additional revenue to pay for such long-neglected public goods as maintenance of bridges and roads. A policy of this sort, Frank asserts, “could be achieved by a simple one-line amendment to the federal tax code — namely, by making savings exempt from tax.” Since the difference between income and savings (or investments) is the amount spent on consumption, a sharply rising tax on this amount — climbing to as much as 200% above $4 million — would provide disincentives for the superrich to spend ever rising sums on mansions, yachts, and jewels. At the same time, a progressive consumption tax could insulate the working poor from federal tax with a standard deduction of $7,500 or more per person. Meanwhile, tax revenues would jump sharply.

Given the current political environment, any policy of this sort is a non-starter, as Frank freely concedes. But political conditions change; the pendulum swings. Perhaps next year, or the next decade, will allow an intelligent public discourse on the remedies for our society’s mounting ills.

[Stephen Wong · Rating 4 out of 5]

Work more, buy more, borrow more, keep up, work more to keep up, buy more to keep up, borrow more to keep up, keep up more to keep up.



Whether on one or two incomes, the middle class family apparently relentlessly pursues aspirational and positional goods in what the author refers to as "smart for one, dumb for all" stratagems of escalation. The eccentric might survive being eaten up in the game by getting off the hedonic treadmill, not by playing at it better nor by gaming the rules.



The book's policy proposal for a progressive consumption tax possibly lacks a few features: it should be revenue-neutral and redistributive. Revenue-neutral in that it must not in itself raise the tax take of government, and redistributive in that the progressive characteristic must be reckoned either as useful consumption or saving and investment for the recipients of the redistribution.



The author makes the observation that the use of leisure time is non-positional. One will dispense with leisure time to work more in order to acquire positional goods. To a great extent this is true. On the other hand, certain time away from work and home can become positional, such as exotic vacations, for example. Positionality certainly is relative and amenable to framing.



There is no reference to macroeconomic factors that contribute substantially to the phenomenon. Of course I am referring to loose monetary policy, loose consumer credit, globalisation of consumption, escalating government net borrowing requirements, etc. and the panoply of effects they bring in tow. It is not yet clear if "falling behind" in international terms, whether perceived or real, will cause to bring about bad political decisions or a kind of cultural atavism or even a different kind of escalation in America.

[Mark · Rating 5 out of 5]

This slim volume, based on lectures that economist Frank delivered at Berkeley, concisely sums up what has happened to the middle of the middle class as the rich have gotten richer, particularly over the last 15 years.

Frank is an expert on how our spending is influenced by those who are around us, and how the greatly increased consumption at the upper end of the income scale has filtered down to affect everything from the size of our houses to what makes for an acceptable car, TV or school district.

While he doesn't absolve people from their own role in not saving enough money or going too deeply into debt, he also shows how these choices aren't just a matter of selfish materialist greed. And in the end of the book, he advocates a simple tax reform that could go a long way toward ending the "spending race" and would cut the federal deficit and free up money for public investment -- namely, that all savings would be exempt from federal taxes.

This is a provocative book, and the only rough going is in a chapter about "positional goods," which is economist jargon for things we purchase that improve our relative rank.

[Derek · Rating 3 out of 5]

A nice little summation of the problem of relative inequality. Some might be bothered by the fact that it is drawing upon some psychological concepts, but it is important that we recognize the role which our minds play in our economic decisions; we as humans tend not to be particularly rational (or, as the title says in the rather popular book, we are "predictably irrational"). Frank makes a very sensible case that relative inequality leads to a consumption "arms race," which takes resources away from the "goods" which are more important to the public well being (health care, family/leisure time, etc). Frank outlines some basic policy solutions to help reduce the relative wealth inequality, based primarily on the idea of a progressive consumption tax--an idea which had, for different reasons, been proposed during WWII by Milton Friedman, ironically enough.

Frank tries to keep the arguments short and basic so they are accessible to the common reader. Seems sensible, though I wish he expanded a little more on several points rather than directing readers to other books and articles.

[Daniel · Rating 4 out of 5]

Less broad than the title suggests, this short work specifically explores how inequality and "status anxiety" negatively impact the purchasing habits of the lower and middle classes and even the very wealthy. Frank shows that "keeping up with the Joneses" actually makes all worse off by further distorting the imperfect information which consumers use to make purchasing decisions. The rich purchase even larger houses, bigger boats, etc. to keep up with their slightly wealthier counterparts, and everyone (except maybe the 1 richest person in the world) is lulled into wasting resources on meaningless consumption of products without any real utility. All consumption is based on consumption of others, he argues. Thus, extreme income inequality simply exacerbates this problem, and we end up with poor people consuming low-utility goods instead of high-utility goods (in a micro level), and lots of wasteful purchasing in the overall economic (in a macro level). Also, Frank mentions CMU/Heinz College's Lowell Taylor for helping with some of this research, which is awesome.

[Wordwizard · Rating 3 out of 5]

An interesting analysis of how context affects what people choose to spend time and money on. It's about half economic and half sociological. I thought the idea that expectations trickle down was interesting and makes sense. Basically, he says that people try to stand out from their peers, but then the rest catch up, so the bar is constantly rising. Increases in house sizes among the rich can affect what the near-rich see as normal, which can affect what those in the next-lowest income bracket think is adequate, and so on down the line. Similarly, we defensively buy bigger cars because everyone else has huge cars that will crush ours if they hit us. He likens this to an arms race and suggests a progressive consumption tax to correct the problem: if everyone drops, relative rank will be preserved, but we'll have an incentive to save, etc. as well.

[Gloria · Rating 3 out of 5]

A short, concise book; I found it helpful in terms of learning some of the terminology that economists employ (e.g. positional versus non positional). Highly accessible in general.

I thought it was interesting that he believed (and I think he is right if he is speaking of rapid adjustments) that the voluntary simplicity movement will only go so far (and generally addresses a specific economic class that has the "luxury" of simplicity---note that those are my words, not his); and disappointed (but not surprised) that he hadn't any insights into our general inability to comprehend and address the tragedy of the commons.

[Henry · Rating 4 out of 5]

Very interesting and highly persuasive. His comments about classic economic models ignoring contaxt completely staggered me and the early part of his theory appeared to me so obviously right that it's a wonder that its in dispute. It makes you wonder what else our economic models are missing. His theory becomes a little extruded by the end as if he's putting too much weight behind his earlier ideas that they cant really bear.

[Jim · Rating 5 out of 5]

frank cleanly lays out his reasons why 30-years of marked increases in income inequality harm the middle class. a brief, but well-reasoned and well-documented argument that points primarily to factors not addressed by the mass of the neoclassical economics community - chiefly, the consequences of consumption behavior being driven by the relative ranking of goods as opposed to their absolute value. an important set of observations with significant explanatory force.

[Daniel Frank · Rating 5 out of 5]

I've read every Robert Frank book and this is my favourite. Falling Behind is a succinct summary of the revolutionary ideas Robert Frank has published throughout his career (with the exception of luck-randomness, which he started writing about after this was published), in one quick, easy to digest place.

I strongly disagree with the prescriptions of this book (expansive progressive consumption taxation), but the ideas presented are strong enough to change the world, and I wish they would.

[Marks54 · Rating 3 out of 5]

This was a short summary of some of the author's economic research combining income inequality, relational goods, and "winner take all" markets. It is very accessible, compared with the Econ journal articles and suggestive of some important policy areas where markets have not worked efficiently in recent years. It is very useful for policy discussions, such as on debt reduction policies.

[Jonathan · Rating 5 out of 5]

This short, easy to read book provides a highly compelling argument for why income inequality is harmful to society. It quite simply is the best piece of writing on income inequality I've seen. It is targeted to an audience with some basic understanding of economics, but can be easily read even if you do not have any economic background.

[Miranda · Rating 3 out of 5]

i couldn't really finish this because it's all stuff i've seen updated on blogs and national newspaper sites lately. glad he laid the foundation here (or you know, in semi-popular press), but it seemed superfluous reading.

[Archie · Rating 3 out of 5]

An average read. The ideas of a consumption tax, as presented, are quite interesting. Will definitely give me something to think about.

[Steve Stegman · Rating 1 out of 5]

interesting concept. But could it be written any more dryly? I feel as if I reading a peer reviewed journal with the footnotes.

[Chuck · Rating 3 out of 5]

A well made, and well written argument for taking proactive action against gross income inequality. Not easy to make such a subject interesting!

[Kaya Fletcher · Rating 5 out of 5]

AN excellent commentary on the spending in America.

[Leonardo]

Citado en Desigualdad Pág.246

[Jack King]

"It's fascinating how economic dynamics play a role in our everyday choices, impacting everything from our homes to our leisure activities. Just as this insightful analysis delves into the intricacies of economic behavior, Barcelona's club scene also reflects a unique interplay of choices, preferences, and aspirations. Amidst the vibrant nightlife, there's an interesting parallel to the 'expenditure cascades' discussed here – where people seek memorable experiences, often transcending the traditional boundaries. Just as the book suggests reforms for economic balance, Barcelona clubs offer diverse avenues for enjoyment, catering to various tastes. A thought-provoking read and your analysis hold a mirror to the dynamic city's ever-evolving entertainment landscape."

[Steve Nolan · Rating 3 out of 5]

Pretty good! It had some weird ideas that I was pretty skeptical about - the consumption tax vs savings tax seems like it could get real bad, given people don't have enough to live on as it is - but overall a pretty good summation of some of the reasons the middle class has squeezed itself. (I think it's maybe 10% of the reason inequality is so out-of-whack, though. Not gonna blame the people being crushed for the majority of their predicament.)

[Nate · Rating 3 out of 5]

Quick read and informative on the evolution of income inequality in the US over the past several decades.

[Bridget · Rating 4 out of 5]

Reading this book, I realised how much I had absorbed on 'The Spirit Level', of which this reads like a simpler, US-centric version. I think we are doomed: the things we need to change for more equal societies are so broad, it'll never happen. People are selfish.