March 12, 2017

Review Corner

Overall, as a nation, Americans are sufficiently happy that they don't even notice their starring role in the stultification of what has been and still remains the world's greatest nation.
I may have mentioned, once or twice, that I am a big fan of Tyler Cowen. His "Conversations with Tyler video podcasts are windows into a rational intellectualism with few equals. He is a prolific and prodigious blogger, covering the economic side of larger ideas at Marginal Revolution. I may have to call myself his #2 fan, now that I have read Ryan Holiday's "29 Lessons I learned from Tyler Cowen." (I agree with 28; I have not moved to Texas yet.)

That stated, I had serious reservations about his latest: The Complacent Class: The Self-Defeating Quest for the American Dream. Cowen lets the data and reason lead to him to the truth. And some of those truths are difficult to accept and challenge our base beliefs. That is where I am with the great stagnation economists, among whom I would number Cowen.

I sometimes say that I am a happiness optimist but a revenue pessimist.

I'm an optimist in both, but some would say Professor Cowen was a bit smaterer than me.

We'll explore some differences, but I accept the central thesis 100% and bet all ThreeSourcers are in as well. Tyler, can you give us that thesis in a short excerpt?

The Reagan recovery seemed especially dramatic to those who had lived through the earlier periods, because all of a sudden, everything seemed to be coming together again. Economic recovery resumed, American power again seemed to dominate the world, it was "morning again in America," traditional patriotism returned to fashion, and global communism was to fall shortly thereafter. Collectively, as a nation, we used this newfound wealth and prestige to dig in, to protect ourselves against risk, and to build and cement a much safer and more static culture. So many features of the country became nicer, safer, and more peaceful, but as an unintended side effect, a lot of the barriers to advancement and innovation were raised.

Just as an individual shops for insurance when his or her income exceeds sustenance, Americans chose to use their affluence to featherbed. Zoning laws will keep the riff-raff out of our lovely Boulder neighborhood. Licensing and certification laws will impede pushy upstarts who threaten our profits. We can secure our security -- but it is at the cost of dynamism.
The clearest physical manifestation of these ongoing processes of segregation is NIMBY-- Not In My Backyard. Building new construction gets harder and harder in many of our most important cities, and the ratio of rents to median income in those locales has been rising steadily. American life is more segregated by income than ever before, and the new innovations we are creating are cementing rather than overturning this trend, which is backed most of all by city and county laws but also by our own desires for suitably nice living quarters and experiences.
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One upshot of this current Zeitgeist of community-enforced social stasis is that our physical infrastructure won't get much better anytime soon. Every time a community turns down a new apartment complex or retail development, it limits America's economic dynamism by thwarting opportunities for those lower on the socioeconomic ladder.

Cowen's stagnation -- in this book -- is chosen complacency, and overregulation to maintain it. It is not that we have run out of productive ideas or picked all the low hanging fruit. We're not reaching, we're not moving, we're not staring up new enterprises in the numbers we used to. What's the cost? Substantitve:
Muddy Waters is one significant creator who made the move from the Delta up to Chicago, and it is from that geographic transition that electric blues, and eventually rock and roll, was born. The story of African American popular music in the twentieth century is above all a story of migration and creative adaptation to new environments. It was in the large, noisier nightclubs of Chicago that Muddy Waters plugged in his guitar and made it electric, so that his music could be heard above the drinking, arguing, and overall hubbub of the audience.
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As late as the 1980s, when I was living in Germany, I recall bragging to my German friends that about a fifth of American households picked up and moved in a given year. At that time, America was living through an economic boom that saw high GDP growth and rapid job creation, while much of Europe was mired in persistent double-digit unemployment. Although my German friends already had the sense of America as a highly mobile country, they nonetheless found that statistic almost impossible to believe.

I don't quote pop country too frequently; I'm more comfortable with Muddy Waters. But Jo Dee Messina released "Heads Carolina, Tails California" in 1996. I don't know when I found it, but I have loved it for decades -- insisting it to be the most American Song there is. Its Wikipedia entry notes:
Deborah Evans Price, of Billboard magazine reviewed the song favorably, calling it a "rollicking country ode to flipping a coin and hitting the road in search of a better life "somewhere greener, somewhere warmer.'" She goes on to say that "passion and energy permeate Messina's strong vocal attacks on this infectious tune."

It is now 2017, Cowen doesn't mention this song, but it is clear from his data that this no longer describes America. The strong vocal attacks and infectious melody may still be "us." But we are no longer a mobile society, either in economics or geography. To Cowen, it's the same thing.
They noticed that within the United States, the dispersion of worker productivity across different cities has gone up. For instance, New York, San Francisco, and San Jose have become especially high-productivity cities, compared to, say, Brownsville, Texas; the size of these gaps has been growing over time. Those large gaps mean that the American economy could become much richer if more workers could be moved from the low-productivity cities to the high-productivity cities; that would increase income mobility too. The researchers estimate that "[ l] owering regulatory constraints in these [high-productivity] cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%." In a $ 17 trillion economy, that is indeed a huge effect-- you can think of it as an extra $ 1.7 trillion in upward income mobility.

Yes, we have residual wealth from the Reagan Revolution -- but Cowen suggests we still have residual ennui from the oil shocks of 1973 and President Carter's sweaters a few years later.
In that year the era of cheap energy ended and the American economy slowed, and more generally the culture moved away from the idea of immediate and rapid transportation. Mentally, Americans moved from a world of moon shots to waiting in line to buy gasoline.
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Jimmy Carter put on a sweater and urged Americans to turn down the thermostat, representing a new era of lowered aspirations. In other words, the American response to economic adversity was to seek to restore comfort more than dynamism, and Americans pushed their culture in this direction all the more in the 1980s. President Reagan resurrected the rhetoric of dynamism, and Americans started to feel better again, but that was a time when dynamic economic growth was available only to a minority of Americans; in other words, it was the beginning of the age of income inequality.

Obama-era 1.8% percent growth may be a thing of the past (Cowen is not optimistic) but if this "New Normal" continues, it will take, by rule of 72, 40 years to double GDP. Cowen reminds that a doubling of GDP is a reinvention.

I have visited China many times over the past five years, for a different book project, and what I've observed there has made America's social stagnation increasingly clear to me. That was one reason why I came to write this book. Even with its recent economic troubles, China has a culture of ambition and dynamism and a pace of change that hearken back to a much earlier America. China, even though it is in the midst of some rather serious economic troubles, makes today's America seem staid and static. For all of its flaws, China is a country where every time you return, you find a different and mostly better version of what you had left the time before.

He returns to the same America. New fortunes are made, but to whom?

American rags-to-riches stories are much harder to find these days. You can certainly find riches-- look at someone like Mark Zuckerberg. But he hardly grew up in rags. Simply put, these days not many, if any, Americans are starting out their lives in the kind of poverty that [Alibaba founder] Jack Ma experienced as a kid. That sounds good, and indeed it is good, but it also means that wealthy, comfortable societies have less dynamism and churn,

I think that progressives are the kings and queens of this featherbedding complacency. Protecting union jobs over educating children, rent control, open-space, &c. Cowen doesn't call them out as I would. But their world cements inequality, not the libertarians'.

I'm running out pf space and user attention, so I will stop with this wonderful book under-described. I'll toss two quotes out of interest to ongoing internecine debate 'round these parts. One, increased immigration offers an infusion of dynamism:

What is the broader lesson here? It is not, I think, that migrants are stealing all of the upward movement away from Americans. If you look at America's earlier period of very high immigration, early in the twentieth century, domestic intergenerational mobility was probably high too, from what we can tell. Quick question: If your family has been in America for a few generations, and you are ambitious, are you really considering moving to a region of the country with very few immigrants? How about West Virginia or eastern Kentucky? Probably not.

My hope for escape remains increased future productivity and lower loss of life from autonomous vehicles. I fairness, I share a quote which speaks to both sides;
America's future is likely to bring a much greater use of driverless cars, which will be a major gain in terms of safety and convenience. But just think of the reorientation in terms of cultural and emotional significance: It will be the cars controlling us rather than vice versa. The driver of the American car used to drive an entire economy, but now the driver will be passive, and what will the culture become?

Heads Carolina -- oh it doesn't matter, we'll go where Google says...

Many disagreements, but it is for me to work them out. This is a superb book -- five stars, easy.

Whatever his fears for the future, Tocqueville's basic portrait of the United States was of a land perpetually in motion. Democracy in America details a nation in ferment, in the process of becoming, and full of energy and ambition. Tocqueville noted that Americans were far more restless than the English, and furthermore this restlessness came from a great awareness of what they always were lacking. In his view, "[Americans] never stop thinking of the good things they have not got. It is odd to watch with what feverish ardor the Americans pursue prosperity and how they are ever tormented by the shadowy suspicion that they may not have chosen the shortest route to get it."

Tails California. Somewhere greener, somewhere warmer...

Review Corner Posted by John Kranz at March 12, 2017 3:52 PM
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