Tyler Cowen has published his most successful book yet, The Complacent Class, now on the Washington Post nonfiction bestseller list and getting reviewed by everybody from The Economist to the New York Times and on. It is the Book de Jour that all are commenting on one way or another. Is America declining because so many of its people have become complacent? (Shame on them.)
The book has much to offer. It is chock full of many interesting facts, although many of them Tyler has publicized at one point or another on his blog, Marginal Revolution. He even pushes some newly fashionable ideas that have been in the dark for too long, such as a sort of cyclical theory of history. And he certainly makes the case that there are lots of trends that seem to show the American people not being as energetic or adventurous as they used to be, with headline data including reduced interstate migration, reduced changing of jobs, reduced patenting, and reduced entrepreneurial startups, among other things. He does note some external matters that may be adding to some of this, with building codes and land use restriction in economically dynamic urban areas a big culprit as it makes it harder for many to take advantage of the high paying jobs in those areas. He has also noted that we may be running out of new scientific knowledge to learn or discover, which makes it harder to find dramatic things to patent, and indeed he wrote a previous book about this, blaming this as a major reason for secular stagnation.
But the big question is whether the title is an accurate representation of what is in the book, which has come up in a series of inconclusive blogposts about “Who is the Complacent Class?” Frankly, it is not clear that there is one, or if there is one, they are not the people who are responsible for the data he puts forth as supposedly claiming there is one. If there is a complacent class in the US, it is the top 1 or 2 percent of the wealth and income distribution, who get lots of attention, but who are not the people who are not moving across state lines or changing jobs. That is going on in the other 98 percent mostly.
That great mass of the population is not complacent at all, as the election of Donald Trump shows. They are fearful. They are the Fearful Class. Real wages have been stagnant for a good 40 years, basically since the time that the distribution of income began to become more unequal again. This has been offset partly by the rise of double income households, but this phenomenon can be seen as the main reason why interstate migration has fallen. When there is only one breadwinner in the household, then the family will move when that person gets offered a better job out of state. But when there are two, a possible promotion/raise for one may mean the loss of income from the other losing their job without necessarily being able to find a comparable one in the new location. And such a move with such a failure can lead to the breakup of the family as well.
This flatness of wages also is obviously behind the decline of job changing. That has long been the path for raising one’s income, but as wages do not grow, the availability of such better opportunities declines. Another aspect of this is the worsening situation regarding pensions. We have seen a long term shift from defined benefit pensions to defined contribution pensions, which shifts costs to workers from employers. Given that the benefits then depend on the future stock market and other such noncertain matters, this reduces security and complacency and has many people approaching retirement more fearful. It is fear, not complacency, that holds people in their jobs and in their states.
One area where Tyler might have a point is the decline of startups. However, a close examination of this data shows that the main decline of startups has been since the advent of the Great Recession, with this decline looking like it has bottomed out and may be reversing. Of course one can argue about whether this is a chicken or egg situation. Was the decline of startups due to the Great Recession or did it aggravate it and add to the tendency of secular stagnation? Probably both are true, but this again cannot be blamed on some outbreak or even long term increase in complacency by whomever (although maybe this is that top group getting complacent). Rather this looks more like rational fear: when the economy is tanking the prospects for successfully starting a new business look worse. Again, it looks like we are dealing with fear far more than we are dealing with complacency.
Barkley Rosser
Excellent post. The points about two-income households cannot be allowed to pass without a reference to Sen. Warren’s The Two-Income Trap. If you have an hour, this video is well-worth your time:
If you have more time, get the book.
Obviously, I do not agree with everything Sen. Warren says, or with her proposed solutions. For instance, a huge driver was the government’s forcing banks to consider the wife’s income for a mortgage. (This is, obviously, me, not Sen. Warren.) The influx of money into the housing market drove up prices to the point that you NEED two incomes to get a house. So more wives got jobs, and bid up the prices still more.
Personally, I think it’s all those Latino and Middle Eastern and Indian and Pakistani and Somali immigrants–having now read roughly 1,000 Mike Kimel posts here at Angry Bear.
Then again, it could be all those Irish-Americans: https://www.nytimes.com/2017/03/17/opinion/when-the-irish-invaded-canada.html?action=click&pgtype=Homepage&clickSource=story-heading&module=opinion-c-col-right-region®ion=opinion-c-col-right-region&WT.nav=opinion-c-col-right-region
OMG, I just realized that in light of that comment, I too might become Real News, just like Alexandra Petri:
https://www.washingtonpost.com/blogs/compost/wp/2017/03/17/how-the-white-house-made-me-real-news/?utm_term=.801c259656e1
Hey, all, remember all my posts here at Angry Bear last summer and fall PLEADING WITH HILLARY CLINTON TO INFORM THE PUBLIC ABOUT THE MERCERS’ FUNDING OF AND CONTROL OVER THE TRUMP CAMPAIGN?
E.G., PLEEEEADING WITH HER TO MENTION IT AT THE DEBATES, or at least to have Kaine mention it at the VP debate?
Hmmm: http://wapo.st/2mRGaYE?tid=ss_tw
Nope; way better that she just kept telling the public the stuff about Trump that they ALREAY KNEW. Over and over and over again.
And again. And again. And …
Labeling them ‘complacent’ places the blame directly on the little people for their condition, and their spiteful refusal to be ever-mobile labor for their overlords.
Some people don’t move because they are complacent. Some don’t move because they are fearful. Both states could explain the data. So if you want to smoke out trends in mood, survey data would probably be more useful.
Make that: “… ALREADY KNEW.”
As for why some people don’t move, if they own a home they can’t sell, that’s big problem, especially if they don’t have a job lined up where they’re moving to. Which is hard to have, long-distance, even for some white-collar workers.
“We’ll be right back with more ‘Blame The Victims” from Tyler Cowen after these words from our sponsors”
One reason for slower small business creation is the lack of credit available for small businesses. A lot of this is the result of bank mergers and financialization of the credit markets. There are so many fewer local small scale banks around to back small scale businesses. I don’t know how many small businessmen have turned to alternative credit mechanisms like selling discounted gift certificates or pre-ordered merchandise. In contrast, large chains have access to credit, so every other store is now a franchise of some regional or national chain.
The women in the workforce to pay the mortgage thing can be blamed on the Fed raising rates in the late 70s to squelch inflation. There was a distinct phase change masked by the surge. Before 1980, a typical mortgage would require about 600 hours of labor. By late in the decade it was over 800 hours and had passed through much higher levels. Before 1980, a single worker could buy a house. Afterwards, it took two paychecks.
Kaleberg, you’re exactly right that the extreme consolidation in the banking industry is a mega-factor. It is effectively a cartel.
Another, very much related factor is the almost complete collapse of meaningful antitrust enforcement. Virtually every industry now–from banking, to agriculture, to retail pretty much across the board (Walmart, Home Depot/Lowe’s, Amazon)–is effectively controlled by a monopoly or tiny cartel.
And almost everything is imported now, so virtually all retail involves contracting with overseas manufacturers.
With experience both as a banker and a small business owner, have to disagree that lack of bank credit for small business is an impediment. No bank, large or small, will lend to a start up business, without collateral. Never have, never will. It’s not the business they are in. It’s too risky. It’s for the venture capitalist and the family money business.
A problem that is not a problem.
“The National Federation of Independent Businesses (NFIB) has been surveying its members on the problems they face in their business. They explicitly ask about credit conditions. In recent years, this has been a very minor problem and in fact last year hit record lows for the survey.
While all surveys have methodological issues, there is no reason to believe that the NFIB would tilt its findings to make credit look like less of a problem than it actually is. Nor is plausible that credit could be a major problem for a substantial portion of U.S. businesses but not for the businesses included in the NFIB survey.
In short, we do have evidence on the question of Dodd-Frank undermining access to business credit and it is unambiguous, it has not posed a major problem. The claim that Dodd-Frank has prevented businesses from expanding and undermined the recovery is one of those alternative facts that is so popular in political debates these days. It should not be taken seriousl”
http://cepr.net/blogs/beat-the-press/there-actually-is-evidence-on-whether-businesses-can-get-credit
It would have been profoundly awesome if the Dems had nominated a presidential candidate who would, like, TELL THE PUBLIC ABOUT THAT NTIB SURVEY in response to Trump’s false statements, INCLUDING AT THE DEBATES.
It would be almost as awesome if, now, Warren, Sanders, Sherrod Brown, and the newly constructed DNC, would TELL THE PUBLIC ABOUT THAT NTIB SURVEY in response to Trump’s false statements.
GOD.
JUST. PLAIN. GOD.
Not rocket science, but it still may be too hard for the Dems to figure out AND ACT ON.
One caveat re the NTIB survey, though, EMichael. The survey measures ease of credit for ongoing small businesses, not ease of credit for starting one.
Of course, Dodd-Frank has no impact on that, but the cartel-like extreme consolidation in the banking industry probably does. You used to hear stories of successful small-business owners saying that such-and-such local bank “took a chance on me and on the prospects for my business, and gave me a startup loan.”
Now the only time you hear of that is, “Peter Thiel and Mark Andreessen took a chance on me and the prospects for my tech startup.”
“[If] they own a home they can’t sell, that’s big problem.”
Which is why encouraging people to buy instead of rent may not be the best thing for them.
Bev,
“You used to hear stories of successful small-business owners saying that such-and-such local bank “took a chance on me and on the prospects for my business, and gave me a startup loan.”
Anecdote, and hearsay anecdote especially, is no substitute for data. There is no bank, small or otherwise, that would give someone a startup loan based on a good business plan or stellar community standing without collateral. It’s not their business.