H L Mencken once defined a wealthy man as one who earns $100 a year more than his wife's sister's husband.
Gilbert puts the dollar amount closer to $40K, rather than $60K, and points out the Mencken quote in action: most people think they need to earn about 20% more than they do, almost regardless of how much they earn. But people seem more satisfied by work they find meaningful, a good sex life, and social connections (not necessarily in that order).
I mentioned Stumbling on Happiness in my list of influential / important books to me: http://jseliger.com/2010/03/22/influential-books-on-me-that-... , though perhaps I should've said more about it.
Frank's argument boils down to the fact that a lot of categories of consumption are zero-sum games, and that if played with lower stakes people could afford more important things with the money they save.
For instance, if every SUV owner has to have 20-inch wheels to appear wealthy, SUV owners aren't as a whole are worse off than if 18-inch wheels were considered a sign of wealth and they all had health insurance.
So the argument is that there are a lot of consumption arms races in the economy where some sort of coordinated de-escalation would benefit all of the players.
The coordination he proposes is a progressive consumption tax imposed by the government, which I would agree is probably superior to the current progressive income tax.