We’re taking the day off, but there’s something from Sunday’s Times. Cornell’s Robert H Frank (whom we call “Luxury Bob” to distinguish him from the author of Richistan) wrote about what he calls the “toil index,” the number of hours that must be worked in order to pay for housing of average quality. Given income inequality, this average keeps climbing out of reach.

The index rejects the standard economic assumption that well-being depends primarily on absolute consumption. Instead, it assumes that the context of that consumption is often far more important. Context matters because the brain requires a frame of reference to make any evaluative judgment.

For example, is a particular family’s house adequate? The answer invariably depends on the quality and size of other houses in the surrounding area.

Rising inequality has shifted the context that governs housing choices. Higher incomes at the top have led the wealthy to build bigger mansions, shifting the frame of reference that shapes demands for those with slightly smaller incomes, who travel in overlapping social circles. The near-rich respond by building bigger houses as well, shifting the frame of reference for others just below them, and so on, all the way down the income ladder.

Have we missed something, or is there a reason why no one speaks of social economics?

Drop me a line at rjk@dailyblague.com
This entry was posted on Wednesday, April 6th, 2011 at 10:30 am.