Robert H Frank is a journalist and academic who writes a regular column for The New York Times. This book is up to the minute having been published in 2009 and including some of his articles up to November 2008. It is very accessible stuff and even includes alternative explanations of American terms for the Anglophile reader. The material is all the more interesting because it deals with much of the Bush years from an economic perspective and which we can now view with the benefit of hindsight and in the midst of the results of Bush type free-market neo-liberal thinking.
The basic premise behind much of his thinking is that a consequence of trickle down economics is the debt incurred by middle income earners as they aspire to match the consumption of their higher earning neighbours. Frank sets the context with his own experience.
As a young man, I served for two years as a Peace Corps volunteer in Nepal. The one room house I lived in had no plumbing or electricity, and its thatched roof leaked during heavy rains. At no time, however, did I feel it was unsatisfactory in any way. Yet I could not live in that same house in the United States, even in the poorest neighbourhood, without experiencing a profound sense of humiliation. If I had to go into debt to escape that experience, I certainly would.
And I understand what he means. Today, once again my car has had to be towed to the garage and it had to be towed home last Friday evening. If I could get it fixed I would but it has an electrical fault that no one can find never mind fix. Every so often the on-board computer looses the key security code and just stops the engine. Is it a source of humiliation for me? Yes, it is. No matter how much I tell myself that this is not my fault I feel a sense of inadequacy at my inability to resolve the situation and that inability is paraded publically each time the car has to be towed.
The problem is that having taken out a five year loan on the car I am in a negative equity situation as it is not saleable in its present state. Mind you it’s scary how many people have no problem foisting the car on some poor sucker willing to buy it, faults and all. But am I willing to take on additional debt, scrap the car and get a different one? Going into further debt to offset the sense of public humiliation would work but would result in a profound sense of failure internally. Maybe I could live with the less public version. In any case I need to do the sums and compare the ongoing maintenance costs with the cost of the additional debt (assuming I can secure additional finance). Mind you the question may become academic as my NCT is due in August.
Another theme threaded through this book is the attention we need to pay to behavioural economics in the future. Frank suggests that
[Republican Senator] Gramm and Greenspan were like many other traditional economists in their uncritical enthusiasm for Adam Smith’s theory of the invisible hand – the idea that unfettered market forces will guide self-interested individuals to produce the greatest good for the greatest number. Had they taken an active interest in the behavioural economics revolution, a lot of misery could have been averted.
Basically, behavioural economics tells us that people respond to the context of their financial lives emotionally and very often irrationally. What our mammies and daddies, brothers and sisters, friends and neighbours think of us plays a much larger part in our financial decisions then any cost-benefit analysis we might attempt to do. Our perceived status within our social group weighs heavily on us. As Frank says
The problem is that many people have difficulty weighing the trade-off between immediate benefits and future costs. when confronted with easy credit access, some inevitably borrow more than they can reasonably expect to repay. Once they get in over their heads, they borrow more, if the law permits. It was thus all but certain that million’s of society’s most economically vulnerable members would borrow them selves into bankruptcy if confronted with easy credit access. If we are unhappy about that, our only recourse is to change the rules.
The reality is that those who voted FF in the last general election were perfectly happy with the rules as they were. One hundred percent mortgages and deposits borrowed from other lenders. Sowing and reaping come to mind.
Frank does make many interesting suggestions regarding taxation in this book so there are ideas as to how best to balance the burden/services books. He describes the Americans as being tax adverse which I think could also be applied to the Irish. We have not quite got the connection between the quality of services and infrastructure available to a people and the amount of taxes they pay. That connection was lost way back in the seventies when local rates were abolished in pursuit of one party government. Yes, another FF idea. History may well show that the advent of the PD’s did even greater damage then would have been done had FF being able to keep this more extreme economic element within its ranks. We support extremism of any sort at our peril.
In any event The Return of the Economic Naturalist is a good and informative read. I’ll certainly be looking out for more of this authors thinking in the future.
