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

Authors:
  • University of Belgrade, School of Law
PANOECONOMICUS, 2018, Vol. 65, Issue 1, pp. 117-127
Received: 10 January 2018.
Book review
Boris Begović
University of Belgrade,
School of Law,
Serbia
begovic@ius.bg.ac.rs
The Complacent Class:
The Self-Defeating Quest
for the American Dream
by Tyler Cowen
St. Martin’s Press, 2017.
It is now almost a conventional wisdom that America lost the dynamics that made
her the leader of the world. The US growth rates, although positive, are rather modest
and not sustainable, and productivity growth is moderate, at least compared to the US
golden age. America is still the land of opportunity, at least compared to the rest of
the world, otherwise the inflow of immigrants would not be so substantial, but the
lack of dynamics has made the image of the American dream less credible. The cam-
paign slogan “Make America Great Again” indirectly confirms the stasis of the na-
tion.
Hence the crucial question is what is the origin of the stagnation. For Tyler
Cowen the roots of the undesirable outcome are not superficial, but rather deep in
American society. He describes his latest book “as detailing the social roots for the
resulting slow growth outcome and explaining why that economic and technological
stagnation has lasted so long and why, for the most part, it has failed to reverse itself”
(p. 12). The author clearly identifies the culprit responsible for the stagnation in next
sentence: “Sadly, the villain is us. Most Americans don’t like change very much…
Americans are sufficiently happy that they don’t even notice their starring role in the
stultification of what has been… the world’s great nation” (p. 12). In short, Cowen
sees complacency – “a general sense of satisfaction with the status quo– as an in-
creasingly prominent phenomenon in American life. The author coins the phrase
“complacent class” to describe the growing number of people in American society
“who accept, welcome, or even enforce a resistance to things new, different, or chal-
lenging” (p. 2).
The complacent class is not homogenous. Cowen identifies its three tiers: (i)
the privileged class; (ii) those who dig in; and (iii) those who get stuck. It is easy to
explain the behaviour of the first tiers – they do not face strong incentives to change
anything. It is bit more difficult to understand the complacency of the second tier,
who are doing better than a typical middle-class existence, but a reader could only
assume that it is about risk aversion. Nonetheless, it is quite difficult to understand
why the third tier, those who get stuck, are complacent, since they have every reason
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PANOECONOMICUS, 2018, Vol. 65, Iss ue 1, pp. 117-127
not to be. The author just points out that they have been committing much fewer
crimes, engage in much less social unrest, and embrace much less extreme ideologies
like communism. In short, “they have been more disillusioned than politically en-
gaged” (p. 4). Irrespective of the insight that political engagement is only one way
out of the situation of being stuck, this is a description rather than an explanation of
why the people who get stuck are complacent, especially taking into account that the
author considers that the source of complacent in America is “very appealing com-
forts of everyday life” (p. 5), something those who get stuck obviously do not have.
Nonetheless, the others, those who are happy with their lives, evidently have
strong incentives not to change anything, especially taking into account increasing
risk aversion – the marginal utility of getting better is smaller than the marginal loss
of utility of getting worse. Accordingly, no change is the only desirable option, hence
plenty of acronyms have been introduced, though most of them primarily or at least
initially in the area of town planning and urban projects: NIMBY (Not In My Back-
yard), BANANA (Build Absolutely Nothing Anywhere Near Anything), CAVE (Cit-
izens Against Virtually Everything) and more resolute than global NOPE (Not On
Planet Earth), with two more focused to politics: NIMEY (Not In My Election Year)
and NIMTOO (Not In My Term Of Office).
But town planning and politics, whatever constraints exist in these areas, are
hardly enough to proclaim, as the author does, that complacency is the Zeitgeist and
that it is the cause of America’s stasis. Nonetheless, Cowen is specific: it is lack of
mobility – lack of income and education mobility, lack of mobility across physical
space, and lack of all mobilities that, once upon a time, made America great. The
stay-at-home culture, provided by all the IT gimmicks of connectivity, successfully
undermines a cherished American tradition: the car culture. It is not only about the
cars, the author righty points out; car culture was an individualistic culture. The de-
mise of that culture can be easily seen from the quotation in the book: “Instead of
Ford versus Chevy, it’s Apple versus Android” (p. 10). The latter is the dilemma of
Millennial Generation, as only half of that generation bother to get a driver’s licence
by age of eighteen.
This is a symptom of the paradox that Americans now use innovative, even
more efficient technology to slow down the change. The other symptom is new cul-
ture of matching even more supported by such technologies. Nonetheless, as the au-
thor emphasises “good matching technologies can separate us more rapidly and more
effectively than ever before” (p. 15). And separation not only leads to segregation,
but also means less competition and fewer incentives to be innovative. The advent of
the culture of matching is closely linked to the “calm and safety above all” principle.
Cowen points out that in the 1970s American “angst-ridden” teenagers search for
ideas in Nietzsche’s works and classical Russian novels. These days Jane Austin is “a
canonical classic novelist” claims the author, even the Wall Street Journal refers to
“the Jane Austin industry”. Cowen’s punch line is a question to a reader: can you
imagine Mr. Darcy shouting Ivan Karamazov’s statement “If there is no God, then
everything is permitted!”? Very few, is an obvious answer. Although, some contem-
porary readers might say that the Karamazov’s statement is not politically correct
towards agnostics; perhaps the book should be banned on that ground.
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A part of contemporary calm of Americans, tens of millions of them, accord-
ing to the author is produced by antidepressant medications: Prozac et al. The debate
about these medications demonstrated that they are calming users down at the costs
of robbing them of their personalities or removing their authentic selves. The debate
is over, medications are in full use, and many Americans enjoy their medicated sense
of calm. Whoever is reminded of the Brave New World by Aldous Huxley is on the
right path, it seems.
The very first symptom of the strengthening, even dominance of the compla-
cent class is that American stopped moving, although they still think of themselves as
great movers. Nonetheless, the interstate migration rate has fallen 51 percent, below
its 1948-1971 average, and the number has been falling steadily since the mid-1980s.
The rate of intrastate migration between counties fell 31 percent, and the rate of mov-
ing within the county fell 38 percent. The author comments that “Americans have
used the dynamism of IT to help [themselves] to stay put, not to move around” (p.
28). These changes cannot be explained by demographic trends, and African Ameri-
cans, who were especially mobile in the past, have become especially immobile. So,
what is the reason for such a development?
One is the decline in job switching. The job reallocation rates – a rough meas-
ure of turnover in the labour market – have fallen by more than a quarter since 1990.
Furthermore, in 2014, 51 percent of the workers had five or more years on the job, a
substantially higher percentage than in 1984 (only 44 percent). Comparing the same
years, the percentage of workers with less than one year on the job dropped from 28
to 21 percent. The reasons for these trends are that, due to the technological change,
employers like finding quality workers and investing in them, and since specializa-
tion has gone up, it is the team with all the members that is important. In short, work-
ers are better matched with their jobs. Furthermore, there has been rising inequality
across firms, producing a tiered system: high-pay, high-productivity companies on
the one hand, and low-pay, low-productivity companies on the other. Cowen claims
that this division reduces aggregate job turnover, but this is rather dubious, since
there are no barriers for the turnover within the tiers. It is more compelling that, on
average, larger firms have been replacing smaller ones, and the former have lower
rates of both job destruction and job creation (Henry R. Hyatt and James R. Spletzer
2013). In addition to that, there is substantial growth of occupational licensure in the
United States. With states providing occupational licences, professional interstate
mobility has unsurprisingly decreased.
Perhaps the most important contributing factor to job stability in the US is
globalisation, however counterintuitive that may be. Cowen emphasizes that Ameri-
cans have kept many stabile jobs at home and exported many of the less stabile jobs,
such as to factories in China. Many of the stabile service sector jobs are kept in the
United States and some of the country’s previous labour market volatility sent to the
other countries, as demonstrated by Paul R. Bergin, Robert C. Feenstra, and Gordon
H. Hanson (2009). This is another kind of outsourcing Cowen that points out:
“Americans are outsourcing their mobility and capacity for economic adjustment” (p.
36).
The other reason for lower physical mobility is the decline in American geo-
graphic diversity. Cities across the country now look like each other much more than
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before. While some jobs are better paid in big cities, due to the higher productivity,
the costs of living in these cities are also greater, primarily due to high costs of hous-
ing. And a significant contributing factor to the high prices is the lack of supply of
housing due to the strict town planning constraints and building regulation. These
constraints have not come out of the blue; they are expected consequence of the resi-
dents of big cities not wanting to change their position – a privileged class in Cow-
en’s vocabulary, of say San Francisco, who have enough leverage to implement their
NIMBY or rather CAVE preferences. This equilibrium effectively stopped American
regional economic convergence and with that undermined the incentives for moving
from one city to the other and from one state to the other for work.
How harmful is geographical mobility decline? Cowen has no second thoughts
– very harmful, since there is a loss of dynamism: “a dynamic, moving society may
be less comfortable personally, but it is likely to be more innovative” (p. 38). Fur-
thermore, mobility decline made the American labour market more sluggish and the
author believes this to be one of the explanations why unemployment stayed high for
so long after the financial crises. Cowen also links geographical mobility decline
with the decline of upper income mobility and, in this way, increased income ine-
quality. He refers to the results obtained by Raj Chetty, Nathaniel Hendren, and Law-
rence F. Katz (2015), based on the program of subsidising migration, that children
who switched to better neighbourhoods when they are young can expect additional
earnings over the course of their lifetime, of the present value of 99,000 USD; a new
look at the sources of economic inequality in America, analytically superior to the
theory of conspiracy of rich against poor (Joseph E. Stiglitz 2012).
Perhaps the greatest consequence of the reduced geographical mobility in
America is productivity loss due to misallocation of resources. The point is that high-
productivity industries and corporations are located in big cities, like New York and
San Francisco. The productivity gains of workers moving into these cities, i.e. gains
of reallocating labour in this way, could be substantial. The problem is that CAVE-
style regulatory constraints to both new housing and business premises provide a
barrier for such a reallocation. Chang-Tai Hsieh and Enrico Moretti (2015) estimated
that, if high-productivity cities adopt regulatory constraints at the level of the median
city in the United States, such a move would increase the US GDP by 9.5 percent.
Furthermore, for those interested in inequality, that amount would be upward income
mobility.
The problem is, nonetheless, that the restrictive town planning regulation is
sustainable. As Cowen points out: “Current arrangements suit the interest of incum-
bent homeowners” (p. 44). Accordingly, this constraint, along with most of the other
constraints that contributed to the decline of geographical mobility of Americans, are
here to stay. No increase of the geographical mobility should be expected, at least not
soon.
The other consequence of the complacent class is the emergence of segrega-
tion in the United States. The author points out that: “Rather than a fully consistent
process of ongoing integration, this country [America] has seen widespread cocoon-
ing and digging in, with the final collective result being tougher implicit barriers sep-
arating various socioeconomic groups” (p. 48). Evidently it is not only racial segre-
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gation, as the most vivid example of new segregation, residential one demonstrates.
No more KKK and burning crosses, but, as Cowen explains, the black neighbour-
hoods have vanished in the other way. “Blacks have not been pushed out, but many
of them have been priced out” (italics in original, p. 51). Hence it is about matching
rich to rich and poor to poor. It just happens that African Americans, on average, are
not so rich.
The new segregation in America, all of it, according to the author, is deeply
rooted in a culture of matching. Nonetheless, this segregation has its easily recog-
nisable components. The first is segregation by income, and it is not only the easiest
to see, but also the crucial one. Cowen believes that the inability of lower-income
groups to afford a nicer neighbourhood (they are priced out) is a fundamental force
behind some of the other segregation as well, because “money, and what we can af-
ford, drives so many other decisions in contemporary America” (p. 54).
Segregation by income is followed by segregation by education and culture,
and the most segregated cities in this sense are high-tech, knowledge-based metro-
politan areas. Again, follow the money. Median rent in San Francisco just passed
5,000 USD per month for a two-bedroom apartment, so the traditional relaxed atti-
tude of this city towards people who are out of the box does not help to attract them.
The same goes for the college towns, inhabited by tolerant people. Those who want
to be well matched and to live among other tolerant people with equally high income,
education and similar preferences, do not mix with those who are different regarding
to those things. Their tolerance, the author points out, is for lavish cocktail parties
with other tolerant people, of course.
Due to the historic burden, racial segregation in America is probably the most
important. The robust indicator of racial segregation is the share of black students in
intensely segregated schools, i.e. schools with white enrolment below 10 percent.
Five states with the higher enrolment of black students in such schools, i.e. states
with the most intensive racial segregation, are: New York, Illinois, Maryland, Michi-
gan, and New Jersey. “That’s hardly whistling Dixie” Cowen comments (p. 63). The
point is rather clear “that segregation is being enforced by incomes, rents, home pric-
es, building codes, how school districts are drawn, and a culture of sorting and
matching” (p. 63). A rising African American star employee of Google points out:
“It’s about cultural fit. Do you laugh to the same jokes?” (p. 65). And it is even Afri-
can American parents (in New York City) that are against integration, because they
fear that introduction of white children will increase the competition for their chil-
dren. This segregation is sustainable and there is no constitutional amendment that
can do anything about it. This is soft segregation by mechanism, with all the availa-
ble political correctness, and iron hard by its consequences. Who needs burning
crosses after all?
There are two crucial bad outcomes of the segregation. “There is good evi-
dence that more integrated neighbourhoods produce greater upward mobility in terms
of income and education” the author emphasises (p. 66). The second bad outcome is
intense sorting along political, primarily partisan lines, due to segregation. Again,
urban economic processes always work. Liberals/Democrats prefer cities for living
and Conservatives/Republicans prefer suburbs. It is now more difficult to be a liberal
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in suburbs and conservative in cities. This sorting “will make liberal areas more lib-
eral and conservative areas more conservative and our [American] representatives
will reflect this more split division of opinion” (p. 68). Cowen does not believe that
this development made American constituency more polarised, but admits that this
political consequence of segregation at least in part is the reason why Congress can-
not agree on much.
The most intriguing part of the book is about answering the question why
Americans stopped creating. First, some undisputable evidence is offered. Start-ups
were 12 to 13 percent in the US economy in the 1980s, but today there are only about
7 to 8 percent. Not only are there fewer start-ups, but smaller portion of them are
succeeding. This is demonstrated by pointing out the decline of 29 percent (in less
than 20 years) in the share of employment in firms five years old or younger. In addi-
tion to that, the author claims, the more successful new firms are not growing as they
used to. American firms are ageing. William J. Baumol, Robert E. Litan, and Carl J.
Schram (2007) made distinction between big-firms capitalism and entrepreneurial
capitalism, with America as the embodiment of the latter. Nonetheless, it seems that
America is rather swiftly moving from the latter to the former, which many people
consider European-style capitalism.
The author points out the growing market concentration in many industries in
the United States as a contributing factor for the low level of innovations. Although
some data is provided, the finding is rather far from being conclusive, especially tak-
ing into account the results of the analysis with a different finding (Carl Shapiro
forthcoming). Nonetheless, more interesting is the author’s view on how growing
market concentration decreases innovations, since Schumpeterian growth theory is
based on the premise that market power, the result of market concentrations among
other things, can be beneficial. Cowen explains these concentrations by huge fixed
costs, especially in marketing and in product development, which smaller firms can-
not follow, and these fixed costs brings more elements of a winner-take-all market.
Furthermore, most of the assets of US firms (80 percent of the S&P 500 com-
panies) are intangible assets. These assets, national or international brands, are basi-
cally barriers to entry, hence market power is widespread. More important for the
main topic of the book is the finding that many intangibles rest on reputation and
image. So, those who hold them have all the incentives not to change anything, let
alone to disrupt the achieved equilibrium.
Since the US economy has moved towards the service sector, only 8 percent
of the workforce is employed in manufacturing. Yet manufacturing accounts for
about 70 percent of private spending on research and development. Though the ratio
of R&D expenditures to the GDP has remained the same for decades, a smaller num-
ber of the American workers are directly involved in innovation, concludes the au-
thor. It is not unexpected that productivity growth in America in recent decades, as
has already been demonstrated by Robert J. Gordon (2016), is stagnating. Even some
of the productivity increase is due to “restructuring productivity”, i.e. due to out-
sourcing work to foreign nations with lower labour costs. Innovations are restricted
to the super companies, e.g. Apple and Google, they are doing well, but American
midsize companies, let alone SMEs, experience almost no innovations and records
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virtually no productivity increase. Consequently, the increase in the standard of liv-
ing for many is very modest. Cowen claims that “the median male wage was higher
in 1969 than it is today” (p. 86) – not quite surprising, taking into account the record-
ed productivity growth.
It is not only wages that are stagnant. Travel in America, at least most of it,
has become slower since 1970s. The author points out that “general picture on trans-
portation can be described with two words: less and slower” (p. 91). Such transporta-
tion, with the progress in IT, made Americans travel less, so there is no political
pressure to improve the transportation system; a bad equilibrium at the best, but more
likely a vicious circle.
Furthermore, there is no grand project in sight. Following the Manhattan Pro-
ject, the Apollo moon program, the interstate highway network, the construction of
social welfare state, winning the cold war and other the grand projects implemented
in the 20th century, there is no new project in sight, as there is no demand for one.
After all, the author points out “Millennials as a generation just don’t seem that inter-
ested in grand projects” (p. 94). Perhaps, everything is done at the micro level. Better
matching, Cowen emphasises, means that the preferences of Americans are better
satisfied when it comes, for example to dining, the entertainment sector or residential
decisions, even in the labour market something that is not recorded in the GDP.
However, the downside, according to the author, is easily seen in the economic statis-
tics, because “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 perpetu-
al personal churn” (p. 117).
For Cowen, the absence of rioting in America, a familiar picture in the 1960s
and early 1970s, is a clear symptom of the nation’s stasis, especially in university
campuses, where the complacent class exercises its strongest influence. It is an inter-
esting remark is that many of the seminal events of the civil rights movement could
not happen today, because, among other things, society is less tolerant to any kind of
disturbance. The policing of these events has been transformed and become much
more effective, because of the stronger demand for a high level of public order.
Hence, there are “demonstration zones”, “strategic incapacitation”, with the omni-
present CCTV cameras. Together with a “bunker mentality”, developed after 9/11,
which can explain the lack of rioting in contemporary America, save for Ferguson,
Missouri, and Baltimore, Maryland, two events that for Cowen represents “cracks in
this façade” (p. 134). Whether they are actually cracks or not is not so important,
since the problem is that a reader finds no link, no causality between the lack of riot-
ing and US stagnation, simply because the US dynamism in 1960s was not caused by
the riots.
China is, no doubt, a dynamic economy and society and the author use it as a
yardstick to measure American stasis. According to Cowen, “America is the calm,
safe-haven country, with clear blue skies, clean air, freedom of speech, and a reliable
currency” (p. 144) – everything China is not. China is about income mobility. Is that
not the American dream: poor childhood, work hard and get rich? Well, it is the Chi-
nese dream these days. The author is very specific: “Upward income mobility is
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something Americans are leaving to foreigners and migrants more and more (p.
151).
Furthermore, a concept of cyclicality of the dynamism of societies has been
introduced. According to Cowen, “societies that initially are dynamic, by the very
nature of their ongoing successes, become less dynamic and more complacent over
time” (p. 147). Well, that is more like nonlinear than cyclical, but there is a testament
of that nonlinearity in the case of American rich and successful. They embraced the
culture of the causal. And that vary culture is, the author points out “… a culture of
people who already have achieved something and who already can prove it. It is a
culture of the static and the settled, the opposite of Tocqueville’s restless America”
(p. 156).
Is there any chance for a piecemeal political change that can reverse stagna-
tion? No, at least not in the foreseeable future, the author believes. One of the reasons
for that is the size of the entitlements, predetermined spending programs like Social
Security, Medicare, and Medicaid, which constitute 49 percent of the federal budget.
Due to demographics the share is about to rise, not to go down. Only half of the
budget is left for everything else, and that includes defence spending and paying in-
terest on the national debt, two items with significant lock-in effect. Accordingly,
democratic decision-making about the budget is greatly reduced – a low level of fis-
cal democracy. For Cowen this is “a sign of stasis and a lack of investment in think-
ing boldly about the future” (p. 162). The point is that one of the standard arguments
for democracy is about the quality of public policies: the democratic political system
provides flexibility and has built-in error correction mechanisms. Quoting Winston
Churchill on than helps: “You can always count on Americans to do the right things
after they’ve tried everything else” (p. 162). But with entitlements consuming 50
percent plus of the federal budget, the room for a built-in correction mechanism is
substantially reduced.
Cowen plays down the relevance of the median voter theorem, at least in ex-
plaining contemporary US political decision making. His point is that, though core
government programs are still backed by most voters, i.e. they are consistent with the
preferences of the median voter, but the political change on the margin “seems to
result from complex battles among lobbies, interest groups, financiers, political
manoeuvring, and who can win public relations campaigns fought in the media” (p.
166) – a picture very close to Mancur Olson (1984) and his grim view of America as
a rent-seeking society.
Taking all the insight about America today and its stasis, Cowen turns his
analysis to the future. The question is not only what will happen, but also is there
anything that policy makers today can do to direct the outcome to the desirable one –
a dynamic America. The answer to the latter question is nothing. Cowen is clear
about it: “Sadly, there isn’t any ‘fix’ above and beyond waiting for some parts of our
current institutions to crumble away and eventually to be replaced” (p. 21). He thinks
that the social change will boil over in uncontrollable ways and that America is head-
ing towards a “Great Reset”. According to him, this happens when you postpone
change. A comparison with the Reformation is made.
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Now, more specific questions can be asked. First, what are the events that will
lead to the “Great Reset”, i.e. how will Americans and foreign observers know that
the time has come for the “Great Reset”? Second, and perhaps, more intriguing, what
will be the elements of the “Great Reset”? Depending on the answers on the second
question, a reader can infer whether America will be great again, or at least will it be
a dynamic society.
The answers to the first question that Cowen provides looks like a doomsday
check-list: “major fiscal and budgetary crisis, the inability of our [the US] govern-
ment to adjust to the next global emergency that comes along; impossibly expensive
apartment rentals in the most attractive cities; the legacy of inadequate mobility and
residential segregation; a rebellion of many less-skilled men; a resurgence of crime
and a decline in economic dynamism, among other social and economic problems”
(p. 22). Big changes, i.e. the “Great Reset” will have to come, Cowen concludes,
whether Americans like it or not. “Ultimately peace and stability must be paid for
(italics in original, p. 177).
To what extent is the check-list checked? The US domestic order has started to
unravel Cowen believes, and refers to the 2015 Ferguson and Baltimore riots and to
the 2016 election of Donald Trump. Well, Ferguson and Baltimore proved not to be
sustainable. Even if they were, it was not the widespread rioting of the 1960s, togeth-
er with assassinations of prominent public figures (the Kennedys, Martin Luther
King, etc.) and Vietnam War, that made US domestic order unravel. As to the US
domestic order and Donald Trump, both have proven to be resilient, at least for the
time being. As to the return of instability to the campuses, the events at the Universi-
ty of Missouri are a far cry from “Four Dead in Ohio”. Although Cowen tries to con-
vince the reader that the crime rates in the US are rising or about to rise, this is not
persuasive. The rise in internet crimes is due to the advent of the internet, not due to
advent of crime. The author offers his own explanation of the crime decline in the US
as “declines in American restlessness”, whatever that may mean less convincing
than, for example, the abortion legalisation hypothesis (John J. Donohue and Steven
D. Levitt 2001). As to the return of instability to Government, there is no evidence of
this, apart from the statement that: “Building good institutions and capabilities very
quickly is no longer something the American public sector is very good at, perhaps
not since the days of moon-landing program” (p. 189). Readers may be convinced
that the disruption capabilities of Donald Trump are substantial, but he still has to
prove himself on that court. Perhaps America is stirred, but definitely not shaken.
Although the author tries to convince a reader that “it is about to start”, it
seems, based on the information provided in the book, that America is rather far
away from the doomsday, required to trigger the “Great Reset” machine. Let us sup-
pose, for the sake of argument, that doomsday has come. Would it really start the
“Great Reset” machine? Cowen provides sufficient evidence that the doomsday is a
necessary condition for the “Great Reset”. Numerous political economy vicious cir-
cles, reinforcing bad outcomes, must be smashed for the “Great Reset”; a step-by-
step approach is just not effective. More dubious is whether the doomsday is a suffi-
cient condition. Recent history, the aftermath of 2008 financial crisis, a doomsday
event for the financial world, proved to trigger only fire fighting operation there
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was no “Great Reset” of the financial services industry and its regulation. One should
keep this in mind when considering the rearrangement of the whole American socie-
ty.
Nonetheless, if everything works out according to the plan, first a change for
the worse, ending in doomsday, and that change for the better, the “Great Reset”,
what would be the scenario of that change? Cowen boldly offers a scenario with sev-
en elements: (1) new, non-tranquilising antidepressants; (2) big difference between
well-developed cities and suburbs make the people move again; (3) artificial intelli-
gence; (4) cheap, clean energy, enabling a lot more ambitious physical projects; (5)
ongoing world crisis, convincing American that living for the moment deserves more
attention; (6) due to growing wealth, families with three and four children will return
to favour; (7) African Americans start to play a greater role in many parts of the na-
tional scene.
Be that as it may, of course it is speculative, not all of these developments can
bring America out of stasis and back to dynamism. Some of them, like artificial intel-
ligence, could even reinforce the stasis. One way or the other, almost all these devel-
opments, save the one regarding African American, are the consequence of ongoing
technological progress, whatever its pace may be. Accordingly, there is no need for
any institutional change – this will happen anyway. Cowen suggests to the reader that
this could happen in ten to twenty years (p. 194), not from the “Great Reset”. At the
end of the day, according to the scenario that Cowen suggests, there is no need for
the “Great Reset”. Well, a rather awkward inconsistency. It is a grim, pessimistic
picture of present-day America, and scary prospects for the near future, one that has
almost started, say in Ferguson, Missouri, on the one hand, and a rosy, optimistic
picture of the American future in ten to twenty years. This was not a great way to
conclude the book.
Nonetheless, this was a much needed and fascinating book, which provides a
lot of food for thought and sheds new light on contemporary America. Unlike the
conventional economic approach that treat preferences endogenously, Cowen boldly
steps into the preferences and preference formation process of contemporary Ameri-
ca. This approach demonstrated how individual rational utility maximising behaviour
produces socially undesirable outcomes, and that there is no need for any kind of
conspiracy to explain recent developments in America. The crucial contribution of
the book is a consistent explanation of the reasons for America’s stasis. This gives
the reader a solid ground and an opportunity to contemplate the future.
The bottom line is that the culprits are Americans – the country’s complacent
class. It would be an interesting intellectual exercise to consider how many of these
culprits, say from America’s privileged class, would recognised themselves while
reading the book. Perhaps, depending on the outcome of this exercise, a new acro-
nym could be introduced: CABUR – Citizens Against Being Ultimately Responsible.
127
Book Review
PANOECONOMICUS, 2018, Vol. 65, Iss ue 1, pp. 117-127
References
Baumol, William J., Robert E. Litan, and Carl J. Schram. 2007. Good Capitalism, Bad
Capitalism and the Economics of Growth and Prosperity. New Haven: Yale
University Press.
Bergin, Paul R., Robert C. Feenstra, and Gordon H. Hanson. 2009. “Offshoring and
Volatility: Evidence from Mexico’s Maquiladora Industry.” American Economic
Review, 99(4): 1664-1671.
Chetty, Raj, Nathaniel Hendren, and Lawrence F. Katz. 2015. “The Effects of Exposure to
Better Neighborhoods on Children: New Evidence from the Moving to Opportunity
Experiment.” National Bureau of Economic Research Working Paper 21156.
http://dx.doi.org/10.3386/w21156
Donohue, John J., and Steven D. Levitt. 2001. “The Impact of Legalized Abortion on
Crime.” Quarterly Journal of Economics, 116(2): 379-420.
http://dx.doi.org/10.1162/00335530151144050
Gordon, Robert J. 2016. The Rise and Fall of American Growth: The US Standard of Living
since the Civil War. Princeton: Princeton University Press.
Hsieh, Chang-Tai, and Enrico Moretti. 2015. “Why Do Cities Matter? Local Growth and
Aggregate Growth.” National Bureau of Economic Research Working Paper 21154.
http://dx.doi.org/10.2139/ssrn.2693282
Hyatt, Henry R., and James R. Spletzer. 2013. “The Recent Decline in Employment
Dynamics.” Institute for the Study of Labor Working Paper 7231.
http://dx.doi.org/10.1186/2193-8997-2-5
Olson, Mancur. 1984. The Rise and Decline of Nations: Economic Growth, Stagflation, and
Social Rigidities. New Haven: Yale University Press.
Shapiro, Carl. Forthcoming. “Antitrust in a Time of Populism.” International Journal of
Industrial Organization.
Stiglitz, Joseph E. 2012. The Price of Inequality. London: Penguin Books.
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Article
Full-text available
This paper studies the second-moment properties of offshoring, the arrangement whereby firms carry out particular stages of production abroad. It documents a new empirical regularity: maquiladora industries in Mexico that are associated with US offshoring experience fluctuations in employment that are twice as volatile as the corresponding industries in the United States. This finding is not attributable simply to higher volatility in the overall Mexican economy, nor to the smaller size of Mexico's industries compared to US counterparts. (JEL F14, F23, L24, L25, L60, O14)
Article
Full-text available
We offer evidence that legalized abortion has contributed significantly to recent crime reductions. Crime began to fall roughly eighteen years after abortion legalization. The five states that allowed abortion in 1970 experienced declines earlier than the rest of the nation, which legalized in 1973 with Roe v. Wade. States with high abortion rates in the 1970s and 1980s experienced greater crime reductions in the 1990s. In high abortion states, only arrests of those born after abortion legalization fall relative to low abortion states. Legalized abortion appears to account for as much as 50 percent of the recent drop in crime.
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We document and attempt to explain the recent decline in employment dynamics in the U.S. We have four major empirical findings. First, each measure exhibits a “stair step” pattern, with the declines concentrated in recessions and little increase during subsequent expansions. Second, changes in the composition of workers and businesses can explain only a small amount of the decline. Third, any explanation for the decline in job creation and job destruction will account for no more than one-third of the decline in hires and separations. Fourth, the decline in hires and separations is driven by the disappearance of short-duration jobs. JEL Codes: E24, J63
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We study how growth of cities determines the growth of nations. Using a spatial equilibrium model and data on 220 US metropolitan areas from 1964 to 2009, we first estimate the contribution of each U.S. city to national GDP growth. We show that the contribution of a city to aggregate growth can differ significantly from what one might naively infer from the growth of the city’s GDP. Despite some of the strongest rate of local growth, New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period. By contrast, almost half of aggregate US growth was driven by growth of cities in the South. We then provide a normative analysis of potential growth. We show that the dispersion of the conditional average nominal wage across US cities doubled, indicating that worker productivity is increasingly different across cities. We calculate that this increased wage dispersion lowered aggregate U.S. GDP by 13.5%. Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%. We conclude that the aggregate gains in output and welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor are housing supply constraints. These constraints limit the number of US workers who have access to the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers.
Book
A NEW YORK TIMES BESTSELLER In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, home appliances, motor vehicles, air travel, air conditioning, and television transformed households and workplaces. With medical advances, life expectancy between 1870 and 1970 grew from forty-five to seventy-two years. Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth provides an in-depth account of this momentous era. But has that era of unprecedented growth come to an end? Gordon challenges the view that economic growth can or will continue unabated, and he demonstrates that the life-altering scale of innovations between 1870 and 1970 can't be repeated. He contends that the nation's productivity growth, which has already slowed to a crawl, will be further held back by the vexing headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government. Gordon warns that the younger generation may be the first in American history that fails to exceed their parents' standard of living, and that rather than depend on the great advances of the past, we must find new solutions to overcome the challenges facing us. A critical voice in the debates over economic stagnation, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.
Article
The top 1 percent of Americans control 40 percent of the nation's wealth. And, as Joseph E. Stiglitz explains, while those at the top enjoy the best health care, education, and benefits of wealth, they fail to realize that "their fate is bound up with how the other 99 percent live." Stiglitz draws on his deep understanding of economics to show that growing inequality is not inevitable: moneyed interests compound their wealth by stifling true, dynamic capitalism. They have made America the most unequal advanced industrial country while crippling growth, trampling on the rule of law, and undermining democracy. The result: a divided society that cannot tackle its most pressing problems. With characteristic insight, Stiglitz examines our current state, then teases out its implications for democracy, for monetary and budgetary policy, and for globalization. He closes with a plan for a more just and prosperous future.
Article
Imagine this: a mere century ago, the purchasing power of an average American was one-tenth of what it is today. But what will it take to sustain that growth through the next century? And what can be said about economic growth to aspiring nations seeking higher standards of living for their citizens? In Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity, William J. Baumol, Robert E. Litan, and Carl J. Schramm contend that the answers to these questions lie within capitalist economies, though many observers make the mistake of believing that capitalism is of a single kind. Writing in an accessible style, the authors dispel that myth, documenting four different varieties of capitalism, some Good and some Bad for growth. The authors identify the conditions that characterize Good Capitalism the right blend of entrepreneurial and established firms, which can vary among countries as well as the features of Bad Capitalism. They examine how countries catching up to the United States can move faster toward the economic frontier, while laying out the need for the United States itself to stick to and reinforce the recipe for growth that has enabled it to be the leading economic force in the world. This pathbreaking book is a must read for anyone who cares about global growth and how to ensure America's economic future.
The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment
  • Raj Chetty
  • Nathaniel Hendren
  • Lawrence F Katz
Chetty, Raj, Nathaniel Hendren, and Lawrence F. Katz. 2015. "The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment." National Bureau of Economic Research Working Paper 21156. http://dx.doi.org/10.3386/w21156