Culture or Policy?

That’s a question I waved at in a post yesterday about the Equity Summit 2011, specifically in reference to the roots of the massive inequality of wealth we see in the US. I wrote:

Any sensible answer mixes pieces from both, but you simply can’t deny the history of wealth building efforts in this country and how they have contributed to the situation we have on our hands today. Policy plays a critical role in shaping culture and it would be foolish to take a fatalistic approach to the problems posed by inequality. The message of the Equity Summit to me is simple, we can do something about it.

This is something that Robert Frank talked about at much greater length when he was here to discuss his book, The Darwin Economy. I went back and took a look at the video, and there is a terrific section of his talk where, in the context of discussing his idea for a progressive consumption tax, Dr. Frank lays out an argument that I believe carries great weight. He argues that context matters, that as wealth grows people spend more and that those increases in spending are imitated down the income ladder. He posits that this expenditure cascade has contributed to the financial crisis. Finally, he argues that we can do something about it. That we can change individual incentives through policy. Those changes will impact markets and impact culture and they can do so in a way that betters the lives of Americans and the fiscal health of our government. It’s a remarkable talk, I recommend watching the whole thing, but this clip is the heart of it from my perspective.