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Tyler Cowen, semi-persuasive futurist.

The Complacent Class: The Self-Defeating Quest for the American Dream

By Tyler Cowen

231 pp.; St. Martin's Press, 2017

Tyler Cowen, a prolific author and blogger and an economics professor at George Mason University, has written yet another book, The Complacent Class. In it, he argues that America has become complacent and that complacency has good and bad effects. He strongly believes that our complacency contains the seeds of its own destruction. America, he argues, will face tough challenges and our complacency will make dealing with them difficult.

Cowen argues that our decisions, although "economically and indeed socially rational," have "made us more risk-averse and more set in our ways, more segregated, and they have sapped us of the pioneer spirit that made America the world's most productive and innovative economy." He makes a good point. But many of the crucial decisions behind the problem are ones made by government. At times he recognizes that fact, but at other times he downplays or omits it altogether. Along the way, as is typical of most of Cowen's work, he has or reports interesting insights: on the serious problems caused by building restrictions, on income mobility, on how U.S. governments have slowly eroded free speech, and on why he thinks that crime will increase. Sometimes, though, he misfires: on income mobility, on the effect of reduced geographic diversity on mobility, on free trade, and on standards of living.

Gridlock/ Consider two of the major problems that Americans now face daily: high housing costs and slow traffic.

Cowen nails the causes and effects of high housing costs. He points out that restrictions on building have driven housing prices sky high in many major cities, especially in coastal California and the Northeast. Somewhat disappointingly, although his claims are generally well-cited, he doesn't mention the path-breaking work by Harvard economist Edward Glaeser and Wharton economist Joseph Gyourko, which shows the high prices are indeed due to a scarcity of building permits rather than a scarcity of land. (See "Zonine's Steep Price," Regulation, Fall 200.)

However, Cowen goes beyond that fact to make another important point: those high housing costs have discouraged movement by workers to those cities and have kept them in lower-productivity jobs elsewhere. The overall negative effect on productivity and output is huge. He cites a 2015 National Bureau of Economic Research paper by University of Chicago economist Chang-Tai Hsieh and University of California, Berkeley economist Enrico Moretti, who find that lowering regulatory constraints in those cities to the level of regulation in the median-regulated city in the United States "would expand [those high-cost cities'] work force and increase U.S. GDP by 9.5%."

On traffic, Cowen writes, "Traffic gets worse each year and plane travel is if anything slower than before." True. But why does traffic get worse each year? One's knee-jerk response would be to say that it's because more people are driving. But more people are going to Starbuck's each year, too; yet has the wait at Starbuck's increased? Not that I can see. What accounts for slow traffic on roads but not "slow traffic" at Starbucks? Starbucks is private and for-profit, and it has the right incentive to expand and manage traffic, whereas roads are generally provided by government and government has little incentive to manage traffic well. That's why so few roads are toll roads with congestion pricing. One little-known fact is that state governments were starting to move in the direction of toll roads in the 1940s and early 1950s. But President Eisenhower put a stop to it with his interstate highway system, 90 percent of which was HE funded by gasoline taxes. It's hard to compete with heavily subsidized roads. Disappointingly, in light of the problems caused by lack of tolls, Cowen cites the high-way system as a big success.

Less successful are other modes of transportation. He laments the fact that the number of bus routes has decreased, that "America has done little to build up its train network," and that American cities "haven't built many new subway systems in the last thirty-five years." That last lament was shocking because subways, except in high-density cities such as New York, are notoriously costly and inefficient.

Cowen extensively discusses mobility, both income mobility and physical mobility within the country. His discussion is a mix of tight reasoning and some confusion.

His strongest, best-argued point is that "America's income mobility is in reality much higher than standard measures indicate." Why? He explains with an illustrative example: members of a poor household in Mexico might make only a few thousand dollars a year. If the family moves to the United States, the household head might make $22,000 a year at a "mediocre" job. He has moved way up the income scale. Moreover, he probably sends a few thousand dollars a year back to relatives in Mexico, which doesn't matter for U.S. income mobility but does matter for world income mobility.

When Cowen sticks with the more narrowly defined measures of income mobility, though, he errs. He points out correctly that traditionally measured U.S. income mobility, which rose for a long time, has leveled off in recent years. But, he says, "that means Americans are more likely to 'stay put' in their educational, social, and income classes than before." No, it doesn't. If income mobility stays constant--that's what "leveled off" means--then Americans are as likely to stay put as they were before.

Cowen claims that reduced American geographic diversity has reduced geographic mobility. Each region of the country "has its shopping malls, its hospitals, and its schools in what is now a nationally recognizable sameness." Therefore, he claims, people have less reason to move from one region to another. But it could just as easily go the other way. What if the fact that one region is more similar to another than it used to be makes people more comfortable moving? Indeed, Cowen himself seems to doubt his own conclusion because just five pages later he argues that a Mexican moving from Houston to Chicago will find familiar foods, familiar faces, and a support network, and these similarities encourage Mexicans to move. That's my view, too, but it contradicts Cowen's earlier view.

Government constraints / One of the areas in which I found Cowen depressingly persuasive is on free speech. He documents how over the last few decades governments have used force to blunt and marginalize protests. A major legal change that helped cause this, he writes, was the Supreme Court's "public forum doctrine." For people to be free to speak in a physical area, he writes, interpreting the Supreme Court's decisions, "that area should be a properly designated forum for speech." Cowen notes that the famous 1963 March on Washington, at which Martin Luther King Jr. gave his "I Have a Dream" speech, "enjoyed a freedom of movement that today would be very difficult to reproduce."

Cowen also believes that crime, which has fallen for a few decades, is on the rise and will continue to grow. The form, he says, will change, with more crime being committed in cyberspace. He's almost certainly correct. He also believes that "the next crime wave is going to break the internet, or at least significant parts of it." He doesn't address the extent to which cyber-crime is due to government regulation. We know that the National Security Agency, for example, has the ability to observe our personal lives. Will cybercrime hackers figure out ways to get the data that the NSA has on us?

One factor that could substantially protect us is encryption. Yet Federal Bureau of Investigation director James Corney has been hostile to encryption, and in 2016 two U.S. senators, Democrat Diane Feinstein and Republican Richard Burr, introduced a bill to undercut encryption so that the government could have access to people's documents and communication. That would facilitate cybercrime but, disappointingly, Cowen doesn't mention these hostile government attitudes.

Economists, caring as they do about overall economic well-being, tend to applaud free trade even when firms reduce labor costs by outsourcing. But Cowen is amazingly lukewarm on the gains from outsourcing. Cost-cutting developments, he writes, "build America's productive future less than coming up with neat and new ways of doing things, such as harnessing electricity, developing antibiotics, or inventing automobiles." But whether that's true depends on the degree of cost cutting. And what if American firms developed antibiotics by outsourcing to lower-cost outfits in, say, India? He sees outsourcing as "a way of keeping the status quo in place--for some, that is--at lower cost to owners of capital and privileged workers who have kept their incumbent status." Actually, that's not true. By definition, outsourcing improves on the status quo.

Note, also, in the quote directly above, Cowen's use of the word "privileged." This is not his only use of that term in the book. Elsewhere he discusses "the privileged class," whose members are "usually well educated, often influential, and typically stand among the country's highest earners." But what makes them privileged? He never says. Cowen seems to use "privileged" as a synonym for "wealthy."

Cowen worries, quite rightly, about the increasing percentage of the federal government's budget that is likely to be spent on three programs: Medicare, Medicaid, and Social Security. One reason for his worry, though, is that when a problem arises somewhere in the world--for example, "military crises in the Baltics and the South China Sea at the same time"--the American government "probably would need more resources" to deal with it. Nowhere in the book does he even hint that maybe the U.S. government having more resources helped lead to some of the problems in the world. If the U.S. government hadn't had the slack to invade Iraq in 2003, for example, that country would almost certainly be in better shape than it's in, and the Islamic State would not even exist. The Islamic State is an outgrowth of al Qaeda in Iraq, which itself didn't exist until the Iraqi occupation had been going on for a year and half. "Ultimately peace and stability must be paid for," he writes (italics in original) "with real resources, with tax revenue." Something closer to the opposite is the truth: war must be paid for. So avoiding war and letting countries around the world deal with their own conflicts rather than interfering in them is more likely to create peace for us and is certainly likely to allow deficit reductions and even tax cuts. And maybe even a little less domestic surveillance.

Related to his concern about too little spending on the military is

his concern about Americans' distrust of government. He notes a recent Pew poll that "found that only about 19 percent of Americans feel they can trust government always or most of the time." The data, he says, "are not so cheery." But he never considers whether that distrust is justified. In the late 1950s, he writes, 77% of respondents trusted the government. He seems to think that's good. Remember that this is the government whose FBI tried to persuade Martin Luther King Jr. to commit suicide.

Why does Cowen think that trust in government is good? Because, he writes, among other things it led to Americans supporting the moon program, the interstate highway system, and "even the Rea gan military buildup." But were those good things? Cowen doesn't even make the case. The one I'm most familiar with, the Reagan military buildup, wasted hundreds of billions of dollars.

The subtitle of The Complacent Class is "The Self-Defeating Quest for the American Dream." Maybe Cowen can argue that the American dream is harder to achieve--although in this era in which almost everyone over 20 has a pocket computer, that's an uphill argument. But he can hardly argue--and doesn't even try to--that pursuing the American dream is self-defeating. Which is fortunate.

DAVID R. HENDERSON is a research fellow with the Hoover Institution and professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School in Monterey, Calif. He is the editor of The Concise Encyclopedia of Economics (Liberty Fund, 2008).
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Author:Henderson, David R.
Article Type:Book review
Date:Mar 22, 2017
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