Today’s (Sunday’s) Washington Post Outlook section featured a very personal story by Judith Levine called “Don’t Buy It.” (Judith is the author of the book “Not Buying It: My Year Without Shopping.”) Judith observes that with the poor state of the economy, when it comes to consumer spending, households everywhere are behaving as if they’re poor, even if they’re not. You see, whether you are personally already living beyond your means or not, all the problems in the economy that we’re hearing about day after day serve as a constant reminder that America as a whole has been living beyond our means. It’s a wake-up call for everyone, and even if you’re one of the lucky ones that isn’t being forced to live with less, let’s face it–overindulgence just isn’t a “hip” thing to do right now. So most economists are (I think correctly) anticipating a very bleak holiday shopping season–even on (this coming) “Black Friday”, the day after Thanksgiving which is traditionally the biggest retail day of the year.
So, is consumption an uncool thing to do now? Is it even a bit sinful? Economist Robert Frank, mentioned in Judith’s article, suggests so. In a “small world” moment, I happened to meet Bob Frank just yesterday morning in Philly at the National Tax Association conference, where I was the discussant on his paper on “The Progressive Consumption Tax as a Positional Arms Control Agreement” (aka, in my mind at least, “What To Do About Sinful Shopping”). Bob has suggested that the consumption of Americans, particularly rich Americans, has a “keep up with the Joneses” quality to it: that people engage in competitive, conspicuous consumption that leads to excessive spending beyond what is justified in terms of the true even-private benefits received from such consumption. And such excessive, extravagant consumption leads to too many of society’s resources being spent on things like headliner rock bands playing at daughters’ sweet sixteen parties, and too little of our resources being devoted to public goods and services (such as education, roads and bridges, and a clean environment).
Bob’s solution? A “steeply progressive” consumption tax. It’s actually both just plain “steep” as well as “steeply progressive.” I discovered that Bob would tax my family’s consumption at something like a 50% rate. Multi-millionnaire households would face a consumption tax rate of 200% or more though. My reaction to Bob’s suggestion that my household income made me “rich” and therefore deserving of such a high consumption tax rate? That “rich” is a relative concept, and that $250,000+ might be “rich” for average-sized families, but for my family with four kids living in the DC area, it didn’t feel “rich” at all, but just “middle class” (despite President-elect Obama’s categorization of us). I also noted that just because we consume most of our high income doesn’t mean that our consumption is frivolous or overindulgent. I guess I was effectively arguing to Bob: don’t you label me a sinner with that crudely-defined “sin tax” of yours! Bob sensed my defensiveness and offered that the rate structure could be adjusted. I was also thinking that the tax could be adjusted for geographic cost of living and family size. Of course, these are all things that make the tax much more complicated–a simple illustration of the common tradeoffs between fairness and simplicity or efficiency when it comes to tax reform.
I would love to be in the position to live through the same experiment Judith did, who spent the whole year “not shopping”–meaning buying nothing but “necessities.” But Judith doesn’t have kids. Kids are expensive, and I find that having kids, the lines between “necessities” and “luxuries” are often very blurred. I mentioned in my comments on Bob Frank’s paper that more than the structure of the tax system, it’s the current crisis and the reminder that our economic security is being threatened as a result of our past “living beyond our means” that is getting all of us to think more frugally. But I also offered the rather lame kind of belt-tightening I’m doing, such as no longer buying organic milk. The truth is that almost everything I buy for the family seems “necessary” to me, even when I splurge on something like organic milk (which is a lot more expensive than non-organic milk). So even with that lame bit of belt-tightening, I still feel guilty for trying to avoid such “sinful” consumption. Of course! Where would a working mom be without all that guilt we carry around, constantly?!!