Professor Robert Frank’s Talk on Reviving the Economy Draws a Large Audience at Reunion 2012

6/13/2012 9:17:00 AM

Widely-cited economist and author shares economic vision with alumni


More than 120 Johnson alumni took time to explore new perspectives and potential solutions for today’s stalling U.S. economy with Robert H. Frank, Henrietta Johnson Louis Professor of Management and professor of economics, at Sage Hall on June 8. The lecture and discussion was one of several professional education sessions held during Reunion 2012.

Frank’s talk, “The Myth of Difficult Economic Choices,” encouraged Johnson alumni in attendance to rethink the national tax structure, government spending, and how the government may be the best vehicle for equalizing resources among rich and poor. Frank also explained why the general economic rule of having to give up something in return for gaining something else does not hold when the economy is operating well below its potential.

Frank offered several considerations for ways the economic pie could be enlarged in the current environment and why his proposals would not threaten anyone’s liberties.

“We have $2 trillion dollars in infrastructure maintenance that needs to happen,” he said. “If you postpone these tasks they only become more expensive.”

In the state of Pennsylvania, he added, the governor's office reports there are nearly 6,000 structurally deficient bridges. “Why shouldn't we fix them now?” he asked the audience.

Drawing comparisons to conducting home repairs and improving inefficiencies by engaging in productive investments, Frank said the U.S. government should be thinking about infrastructure improvement in this manner.

“We can hire people who are sitting idle and use equipment [that is] sitting idle,” Frank said.

In this election year, he also encouraged audience members to become active participants in debates and to get informed about whether candidates are in support of infrastructure improvements.

“You don’t have to be a liberal or a conservative,” he said. “It’s common sense to support this.”

Additionally, Frank explained a change that could be made in the national tax structure that would discourage reckless consumption and help reduce the national debt: taxing consumption instead of income.

Justifying his reasoning, Frank noted that some people’s decisions impinge upon others, even when individuals believe they act only in their own self-interest. When individuals strive to achieve goals that focus on consumption, people’s efforts to outcompete others propel an unnecessary, unfavorable race, according to Frank. This can drive an entire community to change for the worse, spurring a futile chase for heightened status, larger homes, and excessive spending.

Frank contended that the race for status and the “cascade that started at the top” is detrimental to society as a whole. Improving one’s overall status is not possible, in the long run, because as soon as one individual attempts to out-pace another and “rise to the top,” many others follow suit. The end result? Their relative status remains the same.

“If everyone stands to see better, no one sees any better than before,” he explained.

Yet today, the median house size is 50 percent bigger than it was in 1970, and Americans’ frame of reference continues to shift between what is considered “necessary” vs. “special.”

When individuals strive to outbid others, they succeed only in driving up prices – and Frank argues that much of this waste could be eliminated by enforcing a steeply progressive tax on consumption. Frank added that tax rates at the top would not become so high as to prevent spending from being choked altogether.

After Frank’s talk, alumni posed questions and reacted to his vision.

“Broadly, I agree with the ideas Bob shared today,” said Neel Lakhani, MBA ‘07. “I think the consumption tax is an interesting concept.”

Questions and comments for Frank ranged in theme from the need to combat political corruption to understanding the difference between his consumption tax and the luxury tax.

“We took Bob’s class years ago and were excited to hear his lecture, said Mark Adam, MBA ‘92. “He definitely did not disappoint.”

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