Robert Frank: Peer-Pressuring Our Way to Progress on Inequality and Climate

Robert Frank is the H. J. Louis Professor of Management and Economics at Cornell University. His newest book “Under the Influence, Putting Peer Pressure to Work” discusses how social environments profoundly shape our behaviors and how we can unlock the power of social influence – through fascinating ideas from behavioral contagion to consumption taxation. In this interview, Prof. Frank explains the core ideas of his book in detail: how individuals are constantly “under the influence” of others’ behaviors and thus do not always make the most rational decisions; how Adam Smith’s concept of “Invisible Hand” has been greatly misconstrued and overblown by free marketers; why we have a powerful and legitimate public policy interest in encouraging socially beneficial memes and discouraging socially harmful ones… We also discuss Prof. Frank’s progressive consumption tax proposal. It may sound surprising to many, but imposing higher tax rates for the rich might not hurt their purchase power because the prices for the scarce goods they pursue will come down correspondingly. However, by taxing lavish spending behaviors, we can discourage competitive biddings that do not improve society’s overall welfare. On the other hand, a progressive consumption tax would encourage saving and investment in ways that income taxes cannot, and a carbon tax will be effective in disincentivizing environmentally unfriendly activities. The deeper part of the conversation is towards the end, when Prof. Frank and Tiger talk about whether the field of economics needs a somewhat complete reworking – not to simply include more behavioral economists’ opinions, but even rethink the ways we teach about supply & demand and uproot fundamental theorems. It matters because economics is not an objective science, and it is built upon a set of assumptions that often do not hold true in reality when irrational agents come together. We talk about the “mis-valuing” of essential workers during Covid-19 to the glaring naïveté of free-marketeer Capitalism underpinned by UChicago-styled economists from the 80s… Robert H. Frank is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell's Johnson Graduate School of Management and a Distinguished Senior Fellow at Demos. For more than a decade, his "Economic View" column appeared monthly in The New York Times. His books have been translated into 23 languages, including ”Choosing the Right Pond,“ ”Passions Within Reason,“ ”Microeconomics and Behavior,“ ”Principles of Economics“ (with Ben Bernanke), ”Luxury Fever,“ ”What Price the Moral High Ground?,“ ”Falling Behind,“ ”The Economic Naturalist,“ ”The Darwin Economy,“ and ”Success and Luck.“ “The Winner-Take-All Society,” co-authored with Philip Cook, received a Critic's Choice Award, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books of 1995. Frank is a co-recipient of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought.