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We examine Robert Frank’s arguments for taxation to mitigate positional externalities. The scarcity that characterizes positional goods is real, but various mechanisms reduce the potential waste, and Frank overstates the case for a governmental solution. The plausibility of Frank’s arguments for extensive market failure requires various assumptions, including the usefulness of happiness comparisons over time, the widespread existence of winner-take-all markets, the failure of voluntary evolution to internalize externalities, and that both “leisure” and governmental activities are significantly less positional than the full-range of activities Frank proposes to tax. Each assumption is shaky. Frank’s policy solutions overlook standard public choice arguments against government expansion and shrug off the Smithian burden of proof incumbent on those proposing coercion.
Response to this article by Robert H. Frank: Taking Libertarian Concerns Seriously: Reply to Kashdan and Klein (EJW, September 2006).