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U.S. Economy

How to Shake Up the Complacent Class: A Debate

Ease up on regulation. Make it easier to move. Build a better Internet. Don't shred the social safety net.

Bloomberg View columnists Tyler Cowen and Noah Smith aired some differing perspectives last week on Cowen’s new book, “The Complacent Class,” which argues that the U.S. has lost dynamism as Americans embrace a comfortable status quo. Here, they discuss some possible solutions.

Noah Smith: Last time we discussed “The Complacent Class,” we talked about whether “complacency” is the right way to describe whatever’s causing a drift toward segregation, inequality and stagnation. Let’s suppose it is. The next big question becomes: What do we do about it? And should we do anything?

QuickTake Secular Stagnation

From an economics perspective, it was always inevitable that as society got richer, it would get more satisfied. Indeed, that’s the point of getting rich in the first place! Wealth brings diminishing marginal utility -- people never get completely satisfied, but as they get richer their desires become less urgent. Is complacency then such a bad thing? What’s the point of a society getting rich, if not to enjoy some complacency?

Tyler Cowen: Keep in mind that this is about decisions at the margin. Of course a wealthier society will become safer and in some regards more complacent. But would we be better off if we could preserve some extra amount of risk-taking behavior? I say yes, and note that this is consistent with the theories of Kenneth Arrow, one of the 20th century’s greatest economists.

Even at the individual level, behavioral economics gives us plenty of evidence for status quo bias and what are called “endowment effects,” namely that we value something more simply because it is ours. Recent research by Steven Levitt has found that if people flip a coin, and that induces them to make a major change, overall they tend to be happy with those decisions.

So yes, I do think most of us are being too complacent.

Smith: Good point about the behavioral biases. The reason I ask about the connection between wealth and complacency is that it seems like one response to your book might be, “Let’s force people to be less complacent by depriving them economically.” Deprive people of health-care benefits, food stamps, child-care subsidies, etc., and their complacency might indeed go down, as desperation drove them to do things like crowdfund their own cancer treatment. But to me, that seems to defeat the point of creating a wealthy society in the first place, hardly worth it just to combat some behavioral biases. What do you think about libertarian “solutions” to the complacency problem?

Cowen: Most libertarian solutions to complacency problems take the form of deregulation, and I favor those for most though not all sectors of the economy. I do, however, believe in a social safety net, and cutting that in the wrong ways, as opposed to rooting out waste, might make individuals more risk-averse.

It does seem to me that there is plenty we could do to make various benefits more portable across state lines, including for instance the federalization or at least greater uniformity of standards for Medicaid. Right now, a person considering a move to another state won't be sure of eligibility in the new state, and that restricts mobility in an inefficient way.

I think also that both higher education and K-12 systems enforce a great deal of conformism and complacency in this country, and that is another avenue for considering reforms.

Smith: Can you say more about reforming the education system? That’s interesting.

I like some types of deregulation, though your co-blogger Alex Tabarrok has found some evidence that it’s not a big factor holding back business dynamism. Which regulations should we be focusing on?

There’s also the idea -- which you mention in the book -- that increasing monopoly power is choking off dynamism. If network effects, intellectual property and other technological and legal changes are protecting incumbents from competition, how should we go about fighting that trend? Stronger antitrust enforcement? Allowing fewer mergers? Less protection for intellectual property?

Cowen: Too many professors get tenure and never really go on to take risks in their research strategies. I view academics as among our most complacent individuals. I don’t have a clear solution for this, but perhaps the selection process should be shorter, and do less to root out the nonconformists.

As for regulation, CEOs attest with virtual unanimity that regulations and legal matters take up too much of their time and attention. Just look at how much harder it is to build infrastructure today. I would rather concentrate on a few important financial and environmental regulations, rather than have the government try to set standards for so many different parts of the economy, and that involves the state and local governments too.

I would weaken patent protection in many areas. I am skeptical of many hospital mergers. Too many business decisions are ruled by fear of lawsuits. All of that could indeed be changed.

Smith: Let’s talk about the impact of the Internet. Your critique of matching -- the tendency to use the Internet to find the mates, neighborhoods and consumption goods that fit our existing preferences -- reminded me of an influential 2011 article by the science fiction author Neal Stephenson called "Innovation Starvation." Stephenson hypothesized that because the Internet lets people search to see if their idea has been tried before, and since almost everything sort of looks like it has been tried before, people avoid spending the effort of trying to implement their ideas, which leads to fewer happy accidents and big breakthroughs. This reminded me of how you criticized the matching economy for preventing people from spending the effort that leads to serendipity and personal growth.

If this really is happening, what do we do about it? We can’t get rid of the Internet. How do we prevent information technology from making us complacent?

Cowen: I am not sure there are easy solutions here, but we do need a better Internet. For one thing, more individuals could decide to use it less. We also could use it more randomly. Mix up the list of people you follow on Twitter every now and then. Try a different search engine. Spend less time with your friends on Facebook. I agree, however, that such changes only would make a small dent in the problem.

The word “matching” sounds so positive, and indeed it is, because good matches are stimulating and fun. But let’s not forget the word “segregation.” That sounds so negative, but in fact the concepts of matching and segregation are dangerously similar, just described from a different vantage point.

Smith: One last question. You basically describe your thesis as a glum return to a cyclical view of history -- the idea that a society’s success plants the seeds of its own downfall. In this case, that seed is complacency. There are definitely shades of Edward Gibbon’s “The History of the Decline and Fall of the Roman Empire.”

Do you believe that by taking active steps to reduce complacency, the U.S. can smooth out this cycle of history and prevent a major collapse? Or is your warning merely a prophecy of inevitable doom?

Cowen: I view it as a prophecy, but one of ultimate renewal rather than perpetual doom.

There is plenty we could do to renew American dynamism, and economists agree on many (though not all) of those remedies. I just don’t see us doing it, however, and dare I suggest that the quality of governance in this country has taken a downward turn as of late?

Eventually we will get to the point where Americans will have to take risk to avoid risk, and that will jog our dynamic and competitive spirits once again. The thing is, the path to the state of affairs is going to be a fairly unpleasant and painful one. Still, this country has plenty of talent and in the longer run I am going to bet on that talent coming through once again.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the authors of this story:
    Tyler Cowen at tcowen2@bloomberg.net
    Noah Smith at nsmith150@bloomberg.net

    To contact the editor responsible for this story:
    Jonathan Landman at jlandman4@bloomberg.net

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