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

Thank you.

Okay, so let's start. Hello, my name is Stéphane Carcillo. I'm the head of the Jobs and Income Division here at the OECD, where we discuss a number of issues related to inequality and social mobility, notably. And also technological change. So I'm very happy and proud to welcome today Tyler Cowen. Hello, Tyler.

Hello, thank you for having me.

So Tyler Cowen is a, well, very influential economist. He's a professor at George Madison University in Virginia. And Tyler is notably known for running a very influential blog called The Marginal Revolution.

Yes.

With one of your colleagues, I think.

Yes.

And you're also a bestseller author. You've published a number of books, notably in 2011, one called The Great Stagnation that talked about the productivity slowdown. In 2013, another book called Average Is Over, which focused on The Polarization of Our Jobs and Societies. And the most recent one, which you have here, is called The Complacent Class, which talks about segregation in society and also the lower incentives we have to innovate and change. You also are known to think out of the box and come up with ideas and links that people haven't seen before. This is notably the case in, in your most recent book where you come up with a number of evidence explaining why we are witnessing a profound change in society actually, and why you're not so optimistic for the future. So that's what we can actually discuss today. But let me first start with going back to one of your previous books about technological change. And the polarization of jobs and society as a whole. In your opinion, what are the technological developments you think are going to have the largest impact on our jobs over the next 10 years or the next 25 years or maybe further down, further down in time?

I think tech is fundamentally changing the job market. If you think back to an old-style manufacturing job, you might need a high school education, but you probably don't even need a college education. If you look at the growth of manufacturing jobs in France in the 1960s, actually at that time very few French people had a college education at all. But now if you're working with tech, you probably need a college education, but even that is not enough. Often software is changing so rapidly, the devices you're working with are are changing so rapidly that you need to retrain yourself every 3 years, every 5 years. And the percentage of people who can do this well is much smaller than the percent that can work in those old-style manufacturing jobs. So we're seeing two classes of workers: those who work well with computers and those who have to compete against them.

Okay, so what can we do about it? What can we do for those who have to compete with computers? What do we have to offer them?

Well, ideally what we would like is to educate more people so they can retrain themselves. But the thing about retraining is you often have to do it yourself. You can send someone to college. Even in the United States, the college completion rate is probably below 40%. So what it takes for a person to be able to learn a new system every 5 years is really quite forbidding. So I think what will happen is people who are in lower-level service jobs, they will reap a bounty of free or nearly free goods from the internet. But I think already we see they're not receiving sustained wage gains in the way they did in the 1950s or 1960s.

Okay, so I mean, what's the consequences of that? Should we actually increase redistribution to, I mean, tax the jobs that are highly productive and also provide some support for these people who only have low-wage opportunities, or should we find other solutions? What's there for them?

Well, I would consider increasing redistribution, but keep in mind the United States and many other nations in the West, we're already— excuse me— we're heavily indebted. We've promised much more to our elderly than right now we can pay, so any surplus we can come up with In essence, we've spent it on our elderly and on pension promises. So I don't think a lot of redistribution will be coming. It will be a question of how people can adapt to a fairly wage-stagnant environment. A lot of people will still use the internet to be happy or creative in new ways. But you see in the data in many countries, wages at the middle have grown only quite slowly.

Well, these developments also probably have a lot of consequences in terms of income distribution or even wealth distribution. Distribution. Do we have to worry about that?

We do. I would stress, when it comes to happiness distribution, I'm much more optimistic. So one nice thing about the internet is it gives you more mobility of status. So if you think, what are the different ladders you can climb? What are the different communities you can find where someone values what you do, or where you can excel, or where you can make a contribution? The internet opens up a lot of opportunities for people to feel good about what they do, by targeting some niche, some hobby, someone they put themselves in touch with, working with another country from a distance. So I think status mobility will do okay. Happiness inequality probably is doing fine. But when we look at incomes, the tendency of the top 10 or 15% to really earn much, much more and a lot of wages to be stagnant, I believe that is our foreseeable future for decades.

And don't you think this could actually have consequences on social cohesion or even democracy? Political consequences?

People claim that it will, that inequality will corrode democracy. I'm not convinced that is the case. I think you can see plenty of economies that have grown quite rapidly. One example would be Poland. It's grown at 4% for well over 20 years. They are turning away from democracy. Even though a lot of people have received a lot of benefits from that growth. Compared to communist times, many parts of Eastern Europe, most people are much better off. They've turned away from democracy. So what determines when a society turns away from democracy? You hear many clichés, but I think if you actually look at the data, it's very difficult to reach firm conclusions one way or the other.

All right. Tyler Cowen, in one of your books you actually discuss the slowdown in productivity growth, and in your most recent book you discuss also the slowdown of innovation and the lack or lesser ability to innovate and change. And this does not really match with what we observe in the labor market and in jobs where we see actually a profound change due to technological change. On one hand, we discuss a lot here at the OECD and in your previous book about the impact of technological change, and on the other hand, we observe a productivity slowdown. So this doesn't really square.

If we look at available data on productivity, as best we can tell, American productivity in its best time earlier in the 20th century grew at about 3% a year. Right now it's growing at about 1% a year. That is much lower. The tech sector obviously is very dynamic. It's brought big changes to our lives. We see those as consumers. But most of the rest of the economy, productivity has grown very slowly. Automation is not throwing most people out of work. The US, Japan, Germany are basically at full employment. And if you look at the service sector, healthcare, education, and government, technology has not had so much of a major impact, not yet at least. It's mostly just the tech sector.

Don't you think it's also a problem of measurement? That we have problems measuring the, actually, the impact on the value added of technologies, on the value added produced by firms?

I don't think we do. I think the internet has become more and more monetized. So if you buy something you want on Amazon, that shows up in GDP. If ads on Facebook or Google help you buy roses for Valentine's Day, that shows up in GDP. Reading Wikipedia does not show up in GDP. If your GPS helps someone deliver a pizza to your home, that shows up in GDP. So when people correct for possible biases and omissions, productivity slowdown is still there. The internet is now quite monetized.

Okay, so in your latest book, you actually relate these productivity slowdown also to the lack of opportunities and also the slowdown of social mobility in a number of countries. What's the link?

I focus on the United States in my book, but you see common patterns in many, but not all, other Western countries. So social mobility, economic mobility, even just moving around the country, all of those were higher in the United States before the period 1970s 1980s, depending on the exact metric of mobility. And since then, they have slowed down. Americans move across the country at a rate about half of what they used to. Poor people rise into riches at lower rates compared to the immediate postwar era or, say, the 1920s. And there's a general stultification and locking in, people taking fewer chances, innovating less, Even how people bring up their children. It's much more paranoid, it's more controlling. You try to do everything you can to make your child safe. You don't let them play outside very much. And there's been this basic shift in mindset away from dynamic change toward protecting what you have.

Okay, so these changes in behaviors actually also lead to less innovation overall.

That's correct. And a lot of these changes, increasing risk aversion, increasing protection. They often make sense from the point of view of the individual. It's nice to feel protected, it's nice to be secure, but when everyone in society is making the same kind of decision, we get less innovation, less new output, less new revenue. It's harder to fund government programs. And again, other than the tech sector, you look at, say, life expectancy in the United States, it's not rising at an impressive rate compared to earlier times. You look at crop yields, you look at travel time, a lot of different metrics. How quickly are things advancing? How rapid is progress? Many different measures, they seem to be slowing down.

Okay, so this topic is actually really at the core of your new book. What are the factors behind this? Don't you think, for instance, that the fact that our societies are aging is also leading necessarily to less risk-taking behaviors or a more complacent society as well? We're all aging at the end. We also want to secure— we are less mobile because also because we were aging. We, we are, yes, probably more risk-averse.

Right.

That's definitely one factor. But what I find striking is if you take people of a given age class and still measure how much are they moving around, how much are they innovating, That too is still falling. So we have this double whammy. We're aging and also young people are acting older.

Interesting. So there are probably also other factors behind this. What about the role of debt? I mean, people are— notably in the US, are much more indebted than 50 years ago. There's been a huge mortgage crisis. People still have a lot of mortgage and it's not very easy to sell your house because the value of your house in a number of areas is still below the value of your mortgage, which necessarily limits the geographical mobility. Also, people have a lot of debt when they enter the labor market, you know, because they had to pay for education. The cost of education has increased dramatically in a number of countries, including the United States. And then you probably have more risk-taking behavior as a young educated person.

When you have more debt as a young person, it's harder to start a business. Americans are starting businesses at lower rates than they used to. They're living with their parents for much longer. We're becoming more like Italy in this way. This is not a positive. It's also interesting. Americans have become less interested in buying cars when they're young, less interested in driving, and young people actually, they're having less sex than they did in the 1970s and '80s. You may find that good or bad, but I think it's another sign of a certain kind of passivity.

Another factor that I found interesting in your book is also the role of regulations that have changed over the last decades, notably the regulation of a number of professions. For instance, in France, you have a regulation for a lot of professions, but in the US as well, actually.

Of course. You want to walk dogs for people? In many states, in many cities, you need a license. In some places, you need a state license and a city license. You want to be an interior decorator, you want to be a barber, and then if you move across the state line, you need to get a license from the new state. It's crazy. Licenses for doctors, that makes sense, yes. For nurses, yes. But licenses for people performing very ordinary services It's a barrier to competition, it limits dynamism, hinders income mobility.

You mean that these regulations are supposed to protect the customer when you have a problem of information you don't know and potentially very big, large consequences for the customer?

You can get the license and still rip people off. The customers are in no way protected. Just because you studied being a beautician for 6 months and you pass a test, It doesn't mean you're not going to rip off your customers. So it's mostly a way to raise prices and benefit the suppliers and rip off the customers.

Another type of regulation that you discuss in your book and that's been also discussed elsewhere is the limitations to new constructions in a number of areas, notably the most dynamic areas such as San Francisco or New York, where you have a lot of opportunities actually.

In the 1950s, 1960s, it was common that people would move to Manhattan, San Francisco, and they could rent a room very, very cheaply. Manhattan and San Francisco, they were the bohemian centers of America. They were cultural centers. Youth music came from these places. Artists lived there. Now they are gentrified. A typical rent, not a great place, a mediocre place, will cost $4,000 or $5,000 a month. Even normal families, engineers, software programmers, often can't afford to live there. So the idea that you move into a dynamic city to work your way up, that is much more a thing of the past. There are some problems like this in Paris. At least here you have a better metro system. You can live outside, commute in. But one of the central avenues for American mobility really has been choked off because we are restricting the freedom to build new and cheaper apartments.

Yeah, and this is especially a problem when we see that actually the jobs that are being created right now are actually around these big agglomerations, big cities, which actually attract a lot of investment and also create a lot of jobs, while the jobs that are being destroyed are in smaller cities, more rural or more semi-urban cities. And so there's a lot of, especially in the US, but also in Europe, in a number of countries, a lot of geographical redistribution of jobs.

You could say we're sending a lot of our productivity gains to our landlords. And until recently, Berlin was the one city where this really didn't happen. You could live very, very cheaply in Berlin. Even this is ending now. But we're reaching a point where global leading cities are no longer homes for artists and bohemians. And that's a very unfortunate consequence It reflects again the slowing down of creativity.

What about the protection of the environment, which is a more challenging topic and more controversial as well? Some people are saying that there's a lot of regulations to protect environment that actually also limits the ability to innovate and to produce at a lower cost in some instances. And some other people also mention the fact that I mean, the cost of ecological damage is huge. So these regulations protect our environment for the future generations. Is this a problem for mobility?

I think we regulate the environment both too much and too little at the same time. The main way we regulate it too little is climate change. So everyone talks, talks, talks about climate change, but it's really quite rare that something is done about it. So there's the Paris Accord, there was the Kyoto Accord, but the countries that signed these agreements actually have done really very little to meet their targets. The kind of evil United States, which didn't sign Kyoto and pulled out of Paris, has along many metrics done better than the countries that signed those accords because we use less coal. So you have Germany basically going off nuclear power, importing more coal, burning dirty fuel, climate change coming. People just assume somehow it won't hurt them, won't affect them. There's this very passive complacency. Well, someone else will do something about it. Maybe we'll talk about it. We'll put out a tweet. I'll complain on Facebook. But essentially we are not making serious progress. The percentage of global energy supplied by fossil fuels today is basically the same as it was several decades ago. And you look at nuclear, hydroelectric power, both of those which are pretty green, we are going backwards.

Okay, let's turn to another topic that is related also, potentially related to behaviors and risk behaviors, which is health.

Yes.

There's a huge crisis in the US right now around opioids. Yes. There's also a lot of addiction that we see, addiction to antidepressants to tranquilizers to other forms of painkillers, also addictions to alcohol and even addiction to sugar, which is being discussed by a number of academics. How this relates to complacency?

The good news— there's not much good news— but the good news is addiction to alcohol is going down, but overall addiction to drugs dangerous drugs seems to be going up. Uh, they're painkillers. So it's interesting what kind of drugs are more popular now. Marijuana is legal in many states. It's a kind of drug that puts you to sleep. It makes you somewhat passive. The drugs of the 1960s, LSD, the 1980s, cocaine, they were drugs that maybe riled you up or made you more active in some way. They were destructive, but we're moving toward more complacent, more passive drugs based on the premise that no one should have to feel pain or no one should have to be unmedicated. Rates of medication of children are shockingly high. It's very hard to measure, but we all know that rate has gone up. If a child has a problem, the school system, the first reaction is, "Let's medicate the child." In my view, this is very much destructive, and it's hurting those children, often, not always, but from turning into creative people.

All right, so let's go back to the previous topic, the social mobility. Do you think that actually this relates also to social mobility? I mean, why people are becoming more addictive to these substances? And when we look at the data, especially in the US, we see that it's mostly low-educated white men who tend to become more addicted to these substances.

Yes, but it's spreading to women now too.

Okay.

Yes.

Yes. But do you think it also has to relate to the pretty grim outlook perspectives for them in the labor market?

If you're addicted, you are not upwardly mobile. The labor market right now in the US, it's not that hard to get a job. It may be hard to get a job that has a lot of good upward ladders, but you're seeing more young males live at home, just play video games, consume pornography, spend time on the internet. You may or may not wish to call these addictions, but again, it's a series of patterns of behavior that are not really pushing people in the upwardly mobile direction. They're implicit ways we are medicating ourselves because we can't stand the anxiety of not everything being right for us at every moment.

So, um, do you think that, um, in order to boost social mobility, uh, it only takes removing a number of barriers, such as a number of regulations, for instance, in the construction, uh, uh, market— in the housing market, sorry, uh, a number of, uh, regulations of professions, uh, or, um, uh, what does it take really to boost social mobility? And do you think that it's only about regulation or something else needs to be done?

It's not just regulation, it's the whole mentality. Whatever it takes to boost social mobility. I'm pretty convinced we're not going to do it. People who have the most influence, upper middle class, wealthy people, in the United States, in France, many other nations, they have really pretty great lives, better than ever before. Wealth marries wealth more than ever before. Education marries education. The movement to have a lot of building in the middle of San Francisco or central Paris, it's really not there. No party is pushing for a major attempt to relax those regulations. The amount of occupational licensing that we get rid of in a year is, you know, about this big. It's just a few things. So I think it's this overall social malaise that for most people at a given moment it feels okay. There are fewer riots and revolts from so-called lower classes. On one hand, that's very pleasant not to have to deal with it, but on the other hand, it's a sense we've lost the ability to imagine a future radically different from the present we have right now.

I mean, you mentioned the assortative matching, which is increasing not only actually in the US but in other countries presumably. What we see is that it's getting harder for children of low-income families to go up the ladder?

I would say low education families. I think if your parents' income is not that high, maybe they're professors, but they're smart, they bring you up with books, you have a certain kind of upbringing, you can still be very upwardly mobile. It's just like aristocracy of IQ.

Okay, so education. So let's, let's talk about education. What should be done in terms of education to foster mobility?

I think elite Schools should take many more chances with whom they let in. The entering class at Harvard is hardly larger today than it was in the 1960s. They should take in many more people the way University of Chicago has done. The people who are donors to Harvard, the alumni, people on the board of Harvard, they don't want to do this. They're not going to do it. But there is a lot we could do that would make things better for many people. Just take more students into Harvard. They won't do it. I'm not saying that one change will fix the whole problem, but when we're not even willing to do that, that convinces me that we are fundamentally stuck for basically internal mental reasons.

But don't you think we should actually do something also just before Harvard and before tertiary education? What can be done very early in life?

You need parents to really believe in the value of primary education. In the United States, this happens with High variance. A lot of parents do. Those tend to be good schools. A lot of parents don't. Uh, some of it is schooling policy, but most of all it stems from the parents and their attitudes. You see South Koreans, they move to the United States, very pro-education attitude. Their kids grow up being pretty well educated and overall doing very well in the marketplace. But there's too little of that attitude and the kind of consistency a French primary school education we do not have in my country.

But you have a number of programs in your country. Actually, you have a lot of innovative small programs, pilot programs, to intervene in— to work with families, to work with pregnant women from— with a low-educated background or in particularly disadvantaged neighborhoods. You have a number of programs for preschool programs. But it seems that it's in the United States notably, but not only in the United States, in the United States, these kind of programs remain very small-scale. Even though we have evidence that these early investments might have a large impact on the chances of social mobility later in life. Why do they remain at a very small scale?

We're a federalistic country. We're very decentralized. That helps us innovate. But it also means that good things we do don't always spread very quickly. But my view actually is the very poorest people in America have seen some real gains. A lot of that just comes from lower prices due to Walmart, Amazon, cheap goods from China. It's kind of the lower middle class that I think is really suffering. They're competing more against foreign labor. But I think like the very poorest people in America have seen real gains. It's contrary to what you often read, but the numbers appear to bear that out.

Okay, so now Let's turn to the future. And in your book, you have a pretty gloomy prediction of a Great Reset. You think that actually at the end of the day, something's going to happen. I mean, we cannot continue like that forever. So can you tell us how you see this Great Reset? How is this going to happen? What's going to happen if we don't do anything about this?

Well, I think complacency is fine if you have no debt and you save a lot of your income. So if you look at a country like Denmark and you ask me, "Can Denmark pull off complacency?" In some ways they're the masters of complacency. I am not pessimistic about Denmark. But you look at the debt levels in the United States, which have been worsened by Donald Trump's tax cut, and you ask, "Where will the money come from?" The long-term strategy of the United States has been to run up a lot of debt—personal, corporate, public sector, whatever—but then pay the bills by innovating a lot. That can work fine if you keep on innovating. We are not playing the Denmark game. We are on a treadmill where we need to stay dynamic or we will run out of money, just like Italy maybe is facing that right now.

Thank you very much, Tyler Cowen. Thank you. Thank you. You might actually have some questions for Tyler. It's time to ask them. I can probably give you mine. Thank you so much.

Thank you so much for your interesting discussion, Mr. Cowen, Professor Cowen. I'd really be interested how much, you know, in the economics literature there's so much talk about heuristics now. What is the relationship between complacency and that we're all sort of thinking fast, for a lack of a better way to explain it, for much of our lives, that, you know, to some extent some of this is on autopilot. And why is this different now than previous generations?

I think if you look in behavioral economics, the strongest effect you'll find is what's called status quo bias. People tend to stick with the status quo. They don't like giving up what they have. What they have, they value more highly than they ought to. This was different in earlier times because change came at you, in a sense. This is the case in China today. People in China are not typically complacent. They figure change is coming at them whether they like it or not. They want to be ahead of that curve to master it. They take more chances. Their lives are riskier, more volatile, but they're creating at a relatively high pace. But when you get into a situation where politics is more zero-sum, rate of productivity growth is something like 1%, it's only natural to think, "Well, I have a nice home, a good job. I just want to hold on to that, pass down the same to my children." And this becomes the collective social mentality, and that's become our major heuristic.

Professor Cowen, have you been able to link the behavioral patterns which define complacency with, on one hand, environmental foundations, and on the other, microfoundations, including neurofoundations? Because there's some very interesting and worrying research, or results anyway, partial anyway at this stage, coming out from neuroeconomics pointing to the, to the determinants of stress, notably urban life and— well, urban life and the fact of being born in a city, arguing that it affects our tolerance to stress. And they're actually producing mechanisms showing in the brain exactly what is happening and why that is affecting our tolerance to stress.

That's possibly true. A lot of neuroeconomics papers are a bit speculative. I don't rule out that channel. Keep in mind also the United States, most people live in the suburbs. The net movement is toward the suburbs. That can be stressful also, but it's not exactly the same as a city. You have more space. I think part of another reason we've become more complacent is the internet so far, it encourages leisure time and staying at home. So you watch Netflix from your home, you order on Amazon, they bring a package, to your home. You can do much more at home without having to get out. And I don't think that's what the internet will be forever and ever, but right now the net effect has been to encourage more leisure time and lack of mobility rather than getting out there and interacting with people. And I think that's another factor that's operating through neuro routes. But that's speculative, I think, rather than proven. Hi.

Thank you so much for coming. My name is Lena Hu. I'm an American student. I go to Princeton University, which is in the Ivy League. And I was really interested in your comments on higher education right now. And from my perspective, along with the perspectives of my friends who are in the millennial generation in America, we've seen the highest rates of diversity at Princeton that we have seen in many, many years. Sure, ever. For example, this is the first year that Princeton allowed transfer students, which came namely from people from community colleges as well as those who took time off to go to military service and then came back to college. And there's also been an increase in aid programs for minority students, first-generation Americans like myself, and first-generation college students. So I wonder if you are aware of are there maybe generational differences in motivation for mobility upwards? Because I've noticed just that among my millennial peers, there definitely is a very strong intent, at least within the college campus community, to push for diversity and allow for more aid programs to people from different backgrounds.

I think Princeton, Yale, and University of Chicago have done much more than a lot of other schools. That's to their credit. We, we need more of that. But even those schools— I mean, Princeton, in my view, should boost the size of its entering class by 3 or 4, and I don't see them doing that. Chicago has done the most in that direction. So it's great to have more diversity, but just letting more people in— there are more people knocking on the door, brilliant people from Nigeria. Maybe some of them get into Princeton, but you have more admissions, entering class not going up very much, and then there's this crazy scramble to do everything you possibly can to get into Princeton. We need to put more people into elite institutions and make them less exclusive.

Any other questions? Maybe one last question?

They're saying time is up, I think.

Yeah, we actually started late. We can probably take—

Hey, thanks a lot, Tyler. I was wondering if you'd— you talked a bit about the corporate sector and declining rates of startup of new businesses, but do you see this also in just the entrenchment of firms and them protecting their patch and that lack of business dynamism? And also there's talk about the role, the rising non-compete clauses for employees of these types of firms. I'm wondering if you see that as being much of a role in— in promoting complacency.

Those are both good examples. The rate at which firms turn over in a given sector is lower than it used to be, and it's falling. Now, sometimes that's because a lot of firms just keep on doing a good job. It's not always a bad thing. But I think on the whole, it's a sign of less dynamism. Even the tech sector, it's too early to say, but I think there's at least a chance. We now have 4 or 5 giants who for a while just won't really budge. And maybe the tech sector will become less dynamic than it had been. We don't know. Non-compete agreements, I would not allow them the way we do now. I don't think we have clear evidence on how much they matter, but the argument for having so many of them, I just don't see it. So let's, you know, let's roll them back and see what happens.

Well, thank you. I think it's time to conclude. Thank you so much, Tyler Cowen, for for being here today. I have to say that we have a couple of reports that are going to come out in the next few months that relate actually to your book, and that'll be to the segregation that you, you're talking about and to the lack of mobility that we see in our society and economies. One is about the lack of, oh, the lack of social mobility, uh, uh, the Broken Elevator it's called, and it's going to come out, uh, on the 15th of June. And, and then in, in the fall we have another report on the middle class with the new risks and opportunities of the middle class. So these two themes will actually relate very well to, uh, to your new book. I recommend reading this book. There's a lot of, actually plenty of food for thought, sometimes, uh, very controversial, so, uh, positions or ideas. But it's a very good, uh, point of start when you want to are thinking about these issues. Thank you very much. Thank you.

Thank you. Pleasure.