In short both the things we feel we need and the things available for us to buy depend largely—beyond some point, almost entirely—on the things that others choose to buy.

Many decry rising inequality because it makes those who've fallen behind feel impoverished. But it's done much more than cause hurt feelings. It has also raised the real cost to middle-income families of achieving many basic goals. The process begins with the completely unremarkable fact that top earners have been spending at a substantially higher rate than before. They've been building bigger mansions, staging more elaborate weddings and coming-of-age parties for their kids, buying more and better of everything.

Questions like, "Is my suit OK?", or "Is my job performance satisfactory?", are impossible to think about in the absence of a suitable frame of reference. For an interview suit to serve its purpose, it must make you look good relative to other candidates for the job you want. For your job performance to be satisfactory, it must compare favorably with the performance of others who want the same promotion you do. As Charles Darwin saw clearly, much of life is graded on the curve, and conventional economic models completely ignore that fact.

Only the federal government has the power to spend beyond its current revenue. It shouldn't do that when the economy is at full employment. But it's an essential step for an economy mired in recession.

The link between rational individual behavior and collectively desirable outcomes is extremely tenuous.

As John Maynard Keynes taught us in the 1930s, in such situations, government is the only entity with both the motive and the ability to boost total spending by enough to put people back to work. As it happens there are long lists of important public projects that cry out to be done.

When people bump up against one another in the course of pursuing their goals, it is in everyone's interest to resolve any resulting problems in the least costly ways possible.