Should The Complacent Class Be Called The Fearful Class?

by Barkley Rosser  (originally from Econospeak)

Should The Complacent Class Be Called The Fearful Class?

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