As President Obama said in his inaugural address, the time has come to put away childish things. It is also time to discard childish ideas. It is not true, as we were urged to believe in recent years, that an invisible hand driven by greed serves up the greatest good for all. Even the gaudiest array of private-consumption goods, by itself, cannot sustain a flourishing society. We need a well-nourished public sphere as well. Nor can our government continue to spend hundreds of billions of dollars more each year than it takes in. Continued prosperity will require large, ongoing public investments in our long-neglected public sphere—investments that will have to be paid for with additional tax revenue.
Although big sums are involved here, the task is manageable. If we take the relevant evidence at face value, there is nothing controversial about the claim that by slowing the rate of growth in spending on positional consumption and cutting back on activities that pollute the planet, we can free up more than enough resources to pay for Obama's ambitious agenda for national renewal. Nor is there any controversy about the policy instruments needed to bring about this change.
Pollution taxes have proven their effectiveness in the environmental domain. In addition to generating a lot of revenue, they provide powerful incentives for the private sector to undertake much of the required investment for successful transition to sustainable energy sources. And as the European experience has shown, people are able to adapt to these taxes in ways that leave their standard of living essentially undiminished.
Progressive consumption taxation has a similar pedigree. It has long been proposed, for example, by distinguished economists on both sides of the aisle. In a 1943 article published in the American Economic Review, Milton Friedman, the patron saint of free-market conservatism, proposed such a tax as by far the best way to pay for the war effort. In 1995, a progressive consumption tax was proposed in the Senate under the bipartisan sponsorship of Republican Pete Domenici and Democrat Sam Nunn. This tax is not a fringe idea. On the contrary, it is a veritable poster child for the kind of bipartisan policy wisdom the president has been actively seeking.
An opportunity to enact fundamental reform occurs only rarely. The current crisis has given us one, but the window for seizing it will remain open only briefly. If we act quickly, we can ensure a future in which Americans consume less, yet have far more.
Robert Frank is the Louis Professor of Management in the Johnson School, a New York Times columnist, and the author of such books as Luxury Fever and Falling Behind. His latest book is The Economic Naturalist's Field Guide: Common Sense Principles for Troubled Times.
REPRINTED WITH PERMISSION FROM ROBERT FRANK, "POST-CONSUMER PROSPERITY," THE AMERICAN PROSPECT, VOLUME 20, NUMBER 3: APRIL 2009. WWW.PROSPECT.ORG. THE AMERICAN PROSPECT, 1710 RHODE ISLAND AVENUE NW, 12TH FLOOR, WASHINGTON, DC 20036. ALL RIGHTS RESERVED.