Book notes: Tyler Cowen, The Complacent Class

“The complacent class itself has ceased to believe in the regenerative properties of the world we all inhabit.”

“There is the distinct possibility that, in the next twenty years, we are going to find out far more about how the world really works than we ever wanted to know. As the mentality of the complacent class loses its grip, the subsequent changes in attitude will be part of an unavoidable and perhaps ultimately beneficial process of social, economic, and legal transformation. But many Americans will wish, every so desperately, to have that complacency back.”

Tyler Cowen, The Complacent Class

Tyler Cowen wrote The Complacent Class in early 2017, and the book had clearly been in the works for quite a while prior to that. It’s one of my recent favourites - it effectively predicts much of what we’ve seen in the world in the years since. While on the surface it comes across as counter-intuitive, it quickly becomes clear that it’s in fact very intuitive and maybe our world-view had been unwittingly warped.

My notes:

The complacent class

• There is a lack of sense of urgency. For better or for worse, peace and high incomes tend to drain the restlessness out of people.
• This includes the privileged class (top 1%), those who dig in (mostly the middle class), as well as those who get stuck. The commonality is a level of social, emotional, and even ideological acceptance of slower change.
• While it may seem that the bottom group couldn’t possibly be complacent, their actual behaviour today compared to the recent past suggests otherwise.

• Favourite paragraphs -

  “In the 1970s, intellectual, angst-ridden American teenagers noodled over Nietzsche, the meaning of the counter-culture, and the classic Russian novels of ideas. Woody Allen satirized these books in his movie Love and Death, and it was assumed that enough of the viewers would catch the references. These days Jane Austen is the canonical classic novelist, with the Wall Street Journal even referring to ‘the Jane Austen industry.’ And a lot of her stories are about…matching. For better or worse, these stories are less concerned with the titanic struggle of good versus evil - can you imagine Mr. Darcy shouting, as would a Dostoyevsky character, ‘If there is no God, then everything is permitted!’?”

  “Today’s top novels are more frequently about well-educated, dysfunctional people who live in Brooklyn or the suburbs and who are not entirely happy with their rather well-heeled lives. There are more likely mentions of espresso than the settling of the frontier or of moving to another state to shake up the unhappy routine of one’s daily life.”

Low mobility

• Americans are less likely to switch jobs, to move around the country, or to go outside the house at all on any given day. Also, the average American is older than ever before, and so is the average U.S. business.
• The interstate migration rate has fallen 51% below its 1948-71 average, and has been falling steadily since the mid-190s. The rate of moving between counties within a state fell 31%. The rate of moving within counties fell 38%.
• Reasons for low mobility?
  • Not mainly demographics.
  • Native-born Americans have outsourced much of their geographic mobility to immigrants, especially Latinos. Labour mobility comes disproportionately from Mexicans and Mexican Americans.
  • Decline in job switching. Job reallocation rates, a rough measure of turnover in the labour market, have fallen more than 25% since 1990.
  • The American economy is evolving into a tiered system of high-pay, high-productivity companies on the one hand and lower-pay, lower-productivity companies on the other. This tends to reduce aggregate job turnover.
  • Growth of occupational licensure. In the 1950s, only about 5% of workers required a government-issued license, but by 2008, this figure was 29%.
  • Another possibility, but hard to prove, is that workers are better matched with their jobs.
  • Another less positive possibility is that workers receive less surplus gain from jobs. In crude terms, all jobs are more or less the same, and so you stay put. It is difficult to demonstrate this hypothesis, but it is consistent with the evidence.

Increase in segregation

• Today there is greater segregation by income, by education (and culture), by social class, and of course also by race.
• Most extreme income segregation is the northeast Amtrak corridor, with Connecticut (Bridgeport-Stamford-Norwalk) coming in at the top, followed by NYC, Philadelphia, and Newark to round out the top 4. Then you have four main Texas cities in the top 14 for segregation by income.
• One way to put it is that segregation tends to be correlated with those qualities of cities we regard as trendy. At the end of the day, most Park Slope, Brooklyn, and Ann Arbor, Michigan residents are morally opposed to segregation and would be horrified if you pointed it out in their neighbourhoods, but still the process continues and indeed intensifies. Ending it simply isn’t high enough of a priority for anyone to induce people to live in less-desirable neighbourhoods when they can afford something better, most of all for their children.
• Who is driving this segregation? The rich and well educated are keener to live together than the less well-educated. Democrats cluster more tightly than do Republicans. And the so-called creative class is more clustered than the working class. Ironically, it’s these groups (the wealthy, well educated, and the creative class) who often complain about inequality and American segregation.
• There is a common pattern of young, dual-earner couples deciding to live in cities and often choosing the funkier parts of mixed neighbourhoods, in part to save money and in part because those areas may be interesting to live in. Still, when they have children and it is time to send the kids to school, they often move to the suburbs, or to a more expensive part of the same city, or to a different city altogether.
• It has been estimated that for NYC to become a perfectly integrated city (measured by residences rather than school attendance), 78% of the city’s population would have to get up and move to some other neighbourhood.
• The average black student attends a school that is about 8.3% white. Is that really a fulfilment of the integrationist civil rights dream of the 1960s?
• In California, only 7.8% of Latino students are in majority-white schools. In 1990, Latinos had more residential proximity with whites than they did in the period 2005 through 2009.
• Among African American male high school drop-outs aged 20-24, 19.2% are employed and 26.4% are in jail. Compare this to the 1930s when 68% were employed and only 6.7% were in jail.

Decline in dynamism

• For the most part, the American economy is more static than it was several decades ago.
• Some of the largest declines in dynamism, as identified by the rate of business turnover, have come in the construction, mining, retail, wholesale, and services sectors.
  • Dynamism declines are much smaller in transportation, communications, utilities, and manufacturing, which were more static to begin with.
• Today, only 8% of the workforce is employed in manufacturing, yet it accounts for 70% of private business spending on R&D. It means that fewer and fewer American workers have a direct connection to a sector engaged in a lot of fundamental change and innovation.
• Overall, the history of the total factor productivity variable suggests the following story: Productivity heyday from the early 20th century through about 1973. But then innovativeness slowed sharply. The early years of applying IT brought a major rebound, but that dwindled as some of the low-hanging fruit from computer use (basic inventory management practices and email) was exhausted. Since the early 2000s, America has settled back into what is essentially a low-innovation mode of existence, with the exception of a few areas (such as social media).
• Monopoly power is on the rise. Most of the rise in inequality is across firms rather than within firms. Thus, productivity growth at cutting-edge firms has not declined, but what has slowed down is the ability of other, less-successful, lower-tier companies to bring productivity gains of the same magnitude.
• The median male wage was higher in 1969 than it is today. A big chunk of our economic gains have been driven by women getting better educations and working longer hours. That is good news for many women, but if the American economy were more dynamic, we would expect the males to have rising real wages just because so many technological advances have been dumped in their laps.
• Are the pessimists undervaluing tech innovations? (i.e., is this lower productivity growth underestimated because it does not properly take into account tech innovations?)
  • Short answer: no. Had the pre-1973 productivity growth rates prevailed post-1973, household median income would be over $90k rather than its current $50k. That $40k yearly difference amounts to more than $3k per month. Do users value Facebook, Google, and other ‘free’ services at this level? If a web connection or smart phone costs $3k a month or more, how many people would be buyers?
  • “I still think that the internet will at some point deliver very high productivity gains again, perhaps by connecting us with very high-quality artificial intelligence programs, as it is starting to do, but in very recent times we have not seen that progress.”

Efficiency of matching as a problem

• There is much more pairing of like with like, whether it has to do with marriage, the associations we belong to, or the income levels of the neighbourhoods in which we live.
• “Assortative mating” - that is, the marriage of people of similar educational and socio-economic backgrounds - has become more widespread than in the past. That phrase refers to matching generally, but it also refers more specifically to men of high education and income marrying women of high education and income.
  • One study showed that family-connected decisions, including marriage, choice of spouse, female labour supply, and lower divorce rates for wealthier couples, accounted for 1/3rd of the rise in income inequality from 1960 to 2005.
  • Some of this choice may encourage a narrowing of horizons, or too much choice may be alienating, or maybe the surfeit of choice makes it harder to settle down and be content.
  • Now, effective matching makes it more likely that Americans will get what they want, and find it more quickly and more readily than before.
  • There is also evidence that individuals with similar attitudes and values tend to do better in relationships, and online dating may help people find such matches. On the downside, people are bad at specifying in advance what they really want in a romantic partner, and most generally, according to one comprehensive survey of online dating analyses, “there are inherent limits to how well the success of a relationship between two individuals can be predicted in advance of their awareness of each other.” So online matching is probably useful for romance, but a lot of our contentment or even enthralment with online practices may be based on an illusion of security, stability, and control, a theme running throughout this book. Unfortunately, information can be manipulated more easily than can reality.
• A counter-intuitive way to put it is that the American economy has been deleveraging more than it appears, albeit in fairly invisible ways, namely improving the quality of purchase decisions. Informed stability is the new boon of modern consumer society, in America most of all.
• In economic terminology, it might be said that the world of good matches is a world of stocks, not flows. It is a world of accumulated and stable wealth and satisfied ownership rather than one of perpetual personal churn. It is a world of slower economic activity in some regards, because your good purchases and good personal choices last longer. But not all Americans have entered this new and stable world.
• If we look at the budget of a typical middle-class American, commonly the major items include rent (or mortgage payment), healthcare (if only indirectly through employer provision of insurance and thus lower wages), higher education, transportation, and food. Unfortunately, not all of these areas are seeing big gains in the quality of matching, and that is one way to understand why some big parts of the American economy remain somewhat stuck.
• That all said, the gains from matching are distributed very unevenly, and they accrue mainly to people who are better at using and handling information, i.e., the infovores. If you are completely wired, with a smart phone and good digital skills, and you’re great at using Google, various apps, and knowing how to search for information, you’ll improve the quality of the matches that you find on the internet a lot.
• Also, technology has made it easier for better corporations to identify those workers with stronger skills, more demanding work ethics, and higher intelligence, and vice versa. Americans with potent talents are working together and more effectively than ever before, and that is a kind of successful matching, an assortative mating of IQ and talent at the corporate level. This results in a kind of segregation of the skilled, hard-working, and smart; a negative in the sense of giving less-skilled workers a chance to learn from the best.
  • A troublemaker can’t just show up at Google and set up a desk and start working and interacting with workers.
  • Companies, of course, can always find ways to use people who don’t fit their ideal. If need be, the company can still buy things or services from those or comparable workers, but outsourced at a great distance and kept away from the prevailing corporate culture at home in the firm. Outsourcing is not just about the potential for lower wages, it’s about not wanting to disturb a very tidy, neat, and somewhat conformist culture of highly co-operative and intelligent…nonconformists.
• This may be one reason for the oft-reported diffidence that characterizes many of the Millenial generation. They are not actually indifferent or lazy or lacking in enthusiasm - quite the contrary - but more and more of their passions take forms other than those of the old climb-the-social-ladder variety. Millenials might therefore appear to be lacking to the older generations who don’t quite get the new terms of competition and satisfaction. In reality, the Millenials are doing pretty well with respect to the options the world has given them, and they are helping move that world toward more contentment and also less interest in grand projects or topping previous records of achievement. They too are part of the complacent class, and they are also its finest product and its most committed ideological carriers.

Decline in rioting, and drug use

• The 1968 to 1975 period saw more instances of anti-government violence than any time since the American Civil War.
• There is a decline in rioting. While rioting in and of itself may not seem desirable, its decline is consistent with complacency.
• Drug use today is mostly opioids, i.e., painkillers (especially among the poor and less educated). Even the legalization of weed is more about numbing pain. Contrast that to experimental drugs, psychedelics of yesteryear. Incidentally, experimental drug use is currently most popular in the Silicon Valley subculture.

How a dynamic society should look and feel

• Just as previous generations saw America through the lens of Europe and European culture, so will forthcoming generations understand America through the lens of China and, to a lesser extent, the other major emerging economies, such as India. And such a contrast will draw attention to the relatively static sides of the United States.
• Upward income mobility is something Americans are leaving to foreigners and migrants more and more. But still there is a downside, namely that those who are rising in income are less culturally central to the US than might be ideal. Americans who have lived here for a few generations or more are probably culturally more central and more influential than recent arrivals, at least on average. This isn’t to be critical of immigrants; it’s understandable that they are spending their energies on providing for their families. A lot of the immigrants aren’t citizens yet, and many are working very hard to get ahead and have less discretionary time to devote to volunteering and the local bake sale.

• Great quote -

  “I’ve found more and more that, in modern America, whenever we argue for doing something virtuous - and I don’t mean this in a cynical way - we will find something deeply calming, stabilizing, and risk-reducing beneath the surface.”

• Americans at the top have become the experts in counter-signalling, because they don’t feel they have to impress anyone. Everything is now casual, because the new aristocracy of talent enforces all the conformity that is needed. The wealthy have set this tone, most of all in America’s highest-glamour Silicon Valley tech sector.
  • But don’t be fooled - this new form of status-seeking is no less oppressive than older practices, and in some ways it is less conducive to upward mobility. The problem is this: if everything is casual, what exactly do you do to show your seriousness? Bill Gates wears khaki pants and enjoys McDonald’s, but he has achieved renown as the world’s richest man and one of its most influential philanthropists. He can counter-signal all he wants, and he is still Bill Gates and obviously so. A variety of other billionaires and millionaires, or Nobel laureates, carry their reputations with them too. Recognition is never more than an act of Google away, and so the American notion of class is based all the more on what a person already has done, and the class distinctions are enforced ultimately not by snobby matrons who run social circles but rather by the act of Googling itself.
  • If you’re twenty-four years old and looking to get ahead, it can be tougher. There isn’t such a simple way to visually demonstrate you rae determined to join the ranks of the upwardly mobile. Looking smart on “casual Friday” may get you a better date, but the boss will not sit up and take notice. In other words, a culture of the casual is a culture of people who already achieved something and who already can prove it. It is a culture of the static and the settled, the opposite of Tocqueville’s restless Americans.
• Good matches are lots of fun, but in a country with so much social stagnation and extremely good matching, eventually we become aware that we too are most of the time being turned away at the gate.

Political stagnation

• Political system has creaked to a standstill. Discretionary budget was about 2/3rds of total in 1962; today, it’s only 20%, and by 2022, it’s slated to fall to 10%.

• Tocqueville was right, in Democracy in America:

  “People suppose that the new societies are going to change shape daily, but my fear is that they will end up by being too unalterably fixed with the same institutions, prejudices, and mores, so that mankind will stop progressing and will dig itself in. I fear that the mind may keep folding itself up in a narrower compass forever without producing new ideas, that men will wear themselves out in trivial, lonely, futile activity, and that for all its constant agitation humanity will make no advance.”

The return of chaos, or how do we get a more dynamic and chaotic future

• Prediction for the next crime wave is pretty simple. The next crime wave is going to break the internet, or at least significant parts of it. Most likely, the growth of Amazon and Facebook (or the next generation of their competitors) will continue unabated, because those companies and some others will have enough money to invest in making their systems secure. But most people will not think of the open internet as a safe space. It will be viewed as a place to be abused, insulted, and harassed and to have one’s identity stolen. We will move more nad more to walled-off, regulated apps, and the former utopian dream of the internet as a true intellectual and commercial free-for-all won’t ever come to realization. A mix of crime and a slack online advertising market will take that from us.
• The complacent class itself has ceased to believe in the regenerative properties of the world we all inhabit. So it’s not that lower-income groups are rebelling against their wealthier overlords, but rather that so much of society, at all levels of income and education, has lost faith in the system. And without a strong ideology and a strong belief in the future, the vacuum can be filled by other, worse ideas, and again that will happen at various levels of income and education.
• One scenario for a more dynamic and more chaotic future:
  • Antidepressants have fallen out of favour; i.e., not ‘tranquillizing’ Americans so much.
  • Differences between America’s wealthy and less well-developed cities and suburbs have become big enough to resurrect economic motives as a reason to relocate, leading to a new pioneer class. Driverless vehicles and better transit systems make these new commutes bearable.
  • AI, smart software, robotics, and IoT have come together to bring significant productivity gains and lots of disruptive change.
  • Cheap, clean energy has become a reality, enabling a lot more ambitious physical projects in physical space. Americans become interested in exploring outer space again, if only through robots.
  • Ongoing world crises, and a continuing uptick of domestic terror attacks, convince Americans that ‘living for the moment’ deserves a lot more attention. Life won’t feel so calm any more.
  • Growing wealth, automation and automated home chores, combined with changing customs, mean that families of 3 or 4 children will return to favour. Over time, American society becomes much younger again, and in the meantime, the adults start thinking more about the dynamism of the future.
  • Spurred by the growing prominence of racial incidents in the headlines, the ongoing cultural marginalization of African Americans turn around, and African Americans play a greater role in the national scene including American intellectual life. More African immigrants.
  • The biggest story of the last fifteen years, both nationally and globally, is the growing likelihood that a cyclical model of history will be a better predictor than a model of ongoing progress.
  • There is the distinct possibility that, in the next twenty years, we are going to find out far more about how the world really works than we ever wanted to know. As the mentality of the complacent class loses its grip, the subsequent changes in attitude will be part of an unavoidable and perhaps ultimately beneficial process of social, economic, and legal transformation. But many Americans will wish, every so desperately, to have that complacency back.