Luxury Fever: Why Money Fails to Satisfy in an Era of Excess.

• Author: Hirshleifer, Jack
• Position: Review

by Robert Frank, New York: The Free Press, 328 pages, $25

Robert Frank believes that what our economy needs is a vast increase of taxation and government expenditure. Why? Because private persons left alone buy the wrong things.

But hey, before you tune out in disgust, listen to what the man has to say. He has a case. Frank's previous works prove him to be an outstanding creative economist. They include two important books representing novel approaches to the explanation for wage and income inequality: Choosing the Right Pond (1985) and, with Philip J. Cook, The Winner-Take-All Society (1995). His Passions Within Reason (1988) helped introduce economists to an issue long overlooked, the biological and cultural underpinnings of human preferences. These earlier works have been well-received on professional grounds and, what is more remarkable for economic writings, they are readily comprehensible by an intelligent general audience. In Luxury Fever, Frank draws out some rather disturbing implications of these earlier studies.

Frank is well aware of the disincentive effects of taxes, of the ways government regulation distorts decision making. So where and why does he veer from the straight and narrow? The answer: Frank might have been a libertarian, had he not been mugged by Thorstein Veblen.

Free markets respond very well to human preferences, Frank believes, but there is a flaw in those preferences themselves. We often desire goods not for the substantive benefits they confer but only for purposes of display and assertions of status - for what Veblen termed "conspicuous consumption." You can buy a serviceable wristwatch for $20, an excellent one for $200. But if you want to impress your friends, there's a Patek Philippe for $17,500. That is, if you're willing to settle for a regular production-run model. Should you really care to make a statement, a Patek Philippe Calibre '89, of which only four were manufactured, might dent your wallet for over $3 million.

Or take houses. Bill Gates' new 45,000-square-foot lodgings may set him back $100 million - over $2,000 per square foot. But Microsoft co-founder Paul Allen has topped him with a 74,000-square-foot palace. And then there are the yachts. Aristotle Onassis' Christina appears to have been surpassed by rival Stavros Niarchos' Atlantis, which is 50 feet longer. On the other hand, Atlantis has nothing comparable to the barstools aboard Christina, covered as they are with a most exceptional...