Gen Z reads The Complacent Class, Review #2

Another one of my undergraduate students has written a review of The Complacent Class. His name is Vinny Russo and he’s going on to great things. Here’s a link to the first review published earlier by a different student.

For the simple are killed by their turning away, and the complacency of fools destroys them

Proverbs 1:32

When I read the Bible, I see God disrupting the lives of his people and moving them. People get moved as punishment, as well as for a reward or rescuing, including Adam and Eve’s expulsion from the garden and the Jew’s exodus from Egypt. Good things come from the movement of Israel and its people. The United States needs movement, too. Although I wouldn’t wish for a modern-day abusive Pharaoh to force us into some kind of exodus, I do think that Americans can learn from Tyler Cowen and his manifesto for mobility and taking risks. The future of America depends on it.

“Economists see migration as a kind of investment. You give up something in the short run, namely the home, job, friends, and conveniences, in the hope of achieving something different and better somewhere else. In the beginning, the move is not supposed to be easy, but it’s a sign of hope, faith in the future, and a belief that a new start can lead to something grander and more glorious.” – (Cowen, Page 24). After joining the military right out of high school, joining a Christian Missions agency, as well as coming to Samford University in Birmingham, Alabama for Undergraduate studies (I am from New York City), I can very much relate to this quote. Every move was difficult in its own way, but the growth in and from the process is invaluable. Should everyone enlist in the military, become a missionary or go to Samford? No. Can most Americans, after completing High school, go to school or find a job in a city other than the one they grew up in? Yes. If more 18-year-olds did this, they would be richer and their actions would boost production in the United States. If you have not done so already, take a leap of faith and pursue your God-given dream, or read Tyler Cowen’s The Complacent Class. Both can change your life. Thanks for reading!

Gen Z reads The Complacent Class

One of my undergraduate students has written a review of The Complacent Class. Her name is Hannah Florence and she’s going on to great things.

In his speech at Rice University about the United States’ intention to reach the moon, President Kennedy declared these iconic words: “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard…the challenge is one that we are willing to accept, one we are unwilling to postpone.

 I am struck by how out of touch his words are with the current political environment. Is there a challenge that we are currently not unwilling to postpone? Never mind reaching new frontiers; Congress has been unable to address issues in its direct purview for decades.

The ambition and boldness of Kennedy’s speech directly contrasts with the lack of urgency that characterizes the public square and American life in general. On a societal level, the current political class has not taken the initiative to exercise creative problem-solving with substantial nationwide issues. Yet on an individual level, Americans are more risk-averse in all areas. Despite the perception of increasing American dynamism due to information technologies, Tyler Cowen details the “zeitgeist of community-enforced social stasis” in The Complacent Class (Cowen 7). 

Americans used to be inventive and imaginative. Now Americans are less mobile, less innovative, and more reluctant to sacrifice comfort and safety for the chance at a better life. Cowen discusses how the restlessness of the 1960s – as evidenced in Kennedy’s speech – converged with the trends of the proceeding decades to create the foundation for the rise of The Complacent Class (5).

Cowen’s thesis is that people are less willing to disrupt the status quo, which is making us, writ large, worse off. More Americans don’t want to move or start a new business because the uncertainty of a better future is not worth risking the comfort of their current circumstances.

This thesis takes a different angle on a claim that has often been repeated in various social commentaries: many Americans, willfully or not, are stuck in a cultural and economic malaise. In The Decadent Society, Ross Douthat argues that following the Apollo mission, Americans underwent a period of economic stagnation, demographic decline, and intellectual and cultural repetition (Douthat). In a more dated, but highly prescient argument, Robert Putnam empirically chronicles the decline in volunteerism, political participation, church attendance, and associational involvement. He poignantly illustrates the decline of communal life of many American communities—we used to join bowling leagues, and now we bowl alone (Putnam).

The common thread among these views is that something is amiss with the status quo and yet we are unwilling to challenge it. Across these different writings, there is a common cultural pivot point in the 1980s. Cowen argues that following the social and political turmoil of the 1960s, the Reagan era was a period of newfound wealth and prestige. The safety, prosperity, and stasis of the 1980s provided the means for Americans to dig in (Cowen 11). Douthat pinpoints the Challenger explosion in 1986 as the end of the era of space exploration (2). Putnam attributes a significant part of the decrease in civic involvement to the generational transition from the silent generation to the baby-boomers.

The three authors discuss a variety of different cultural phenomena – increasing income segregation, declines in political participation, institutional sclerosis to name a few – but they utilize the same vocabulary of stagnation, complacency, and resignation. Across all the texts, there is a sense that the grit, audacity, and optimism that characterized the generation that was raised during the Great Depression and served their community through WWII has been lost. If the Space Age represented the idea that tomorrow might hold something new; the ethos of our current era is the fear that it actually will.

The effect of these developments can be seen in the toxicity of our politics. During an ugly election in a strenuous year, we ultimately are the victims of our own complacency. We look to national elections to address our issues, with neither the grit nor audacity to serve our communities or change our circumstances. The high ideals espoused in decades past of service, mutual self-sacrifice, and courage seem beyond our reach.

Although comfortable (for some) in the short-run, Americans will be hindered in their abilities to meet the challenges and opportunities of an increasingly interconnected world without new ideas and people willing to spearhead them. This message is particularly relevant for current students (myself included) who are well-placed to take up this mantle but epitomize many elements of the Complacent Class. Our ambitions are tempered by our anxieties, and our resources are too often used as means of distraction rather than improvement.

In order for my generation to challenge the bulwark of economic and cultural stasis, we need to push against the guardrails we have grown up with. This won’t be an easy for a cohort that has long perfected their test scores and resumes. As I talk to other classmates about The Complacent Class, there is a general consensus that our generation won’t settle for the status quo we have inherited.

            However, the irony of reading The Complacent Class in an international pandemic is that everyone has been forced to adapt to the ‘new normal.’ The coronavirus—and not gen z or millennials– has proved to be the ultimate killer of complacency.  This means that the post-pandemic future may provide the needed margin to create a more dynamic economy and society. One that can bring those on the periphery into the fold and create opportunities for those who had been told to play it safe.

Works Cited

“John F. Kennedy Moon Speech – Rice Stadium.” Nasa.gov, er.jsc.nasa.gov/seh/ricetalk.htm. Accessed 12 Oct. 2020.

Cowen, Tyler. The complacent class: The self-defeating quest for the American dream. St. Martin’s Press, 2017.

Douthat, Ross. “The Decadent Society: How We Became the Victims of Our Own Success.” (2020).

Putnam, Robert. “Bowling alone: The collapse and revival of American community.” (1991).

Joy on Books for 2020 Holiday

I have, I’ll have you know, bought some adult books and read some of them in 2020. Two that I hope to eventually review properly here are One Billion Americans and The Property Species. For now, I’ll just say that I recommend them if your interests overlap with mine.

The books that I read are usually children’s books. I read them out loud, every night.

These are some classics that my 2-year-old is currently asking for on a nightly basis. She is in the repetition stage and also edging into the stage of development where she will flip through a book and “narrate” from the bits that she remembers. “Cow jumpin’ da moon!” is one of the lines she will use when flipping through Goodnight Moon.

Two classic books that are a little more complex for 2 are Make Way for Ducklings and The Little Engine That Could. Sometimes I’ll only read half of the words to keep the pages flipping faster for her.

I’ve got another classic recommendation. I don’t think it’s bad to recommend classics that you have already heard of. At this point, there are so many classics that people still need to choose between them. The Narnia series is really great. The plots are good. Kids are always being told to “be nice”, but children are going to see a portrait of goodness in these books that will serve them well. What does it mean to be good and why do we bother? We just got to the part where King Caspian abolishes the slave trade on an island.

Even though I’m currently reading through the series with my 5-year-old, I would recommend a different strategy to most parents. Wait until age 6. Start off with The Lion, the Witch, and the Wardrobe just one page before Lucy goes into the wardrobe. That way your kid will immediately start meeting magical creatures. Once your child is invested in Narnia, they can probably sit through the entire first chapter on a second read-through.

Two more random kid’s recommendation: (1) We got Germs out of the public library last year. When my son was 4 (well before Covid), he asked for that book every night for months. We checked it out over and over. In the time of Covid, I think this is a great intro to the immune system.

(2) Aunt Flossie’s Hats is a good way to sneak in some history without it feeling like school. The story involves a woman relating memories to her granddaughters. (bonus points for being anti-racist)

If wages fell during a recession

A paper I wrote with Dan Houser is forthcoming in the Journal of Economics Behavior and Organization. “If wages fell during a recession”

https://www.sciencedirect.com/science/article/abs/pii/S0167268120303577

The title comes from Bewley’s famous book “Why Don’t Wages Fall During a Recession?” In that book, Truman Bewley asks managers why they do not cut wages in a recession when equilibrium analysis tells us that the price of labor should fall.

We run an experiment in which employers and workers encounter a recession. The employers could cut wages, or they could keep them rigid as we normally observe during recession. The concept of a “cut” assumes a reference point from which to go down from. We establish that reference point by letting the employer set a wage before the recession and repeating that payment to workers for 3 rounds.

We use a Gift Exchange (GE) Game to model the relationship between employers and workers. Employers offer a wage that is guaranteed to the worker. Employers have to trust that workers will not shirk. We do observe a few subjects shirking, and those people are not very interesting to us. We are interested in the workers who respond with positive reciprocity because that means there is “good morale” in the “workplace”. The employers interviewed by Bewley were afraid that wage cuts would damage the good morale that is necessary for a business to run.

After three rounds, there was a recession. The total surplus available in the GE game shrank by 10%.  In the Inflation treatment, the exchange rate of tokens to dollars increased, such that if firms kept nominal wages rigid there would in fact be a 10% real wage cut.

If workers resent nominal wage cuts, then firms should keep wages rigid in a recession. If worker morale falls and workers decrease effort, then firms will be hurt more by the fall in productivity than by a large real wage cost.

In fact, about half of the firms did cut wages. So, we did not observe wage rigidity and we’d like to do follow-up research on that point. It did mean that we had variation and could observe the counterfactual that we were interested in.

Workers don’t like wage cuts. Workers who had been selecting an effort level near the middle of the feasible range dropped their effort significantly if they experienced a wage cut. The real wage cuts under Inflation did not have as sharp of an effect on effort, which suggests some nominal illusion.

Here’s a cumulative distribution of effort choices among workers (Recession treatment had no inflation). After half of the workers experienced a wage cut, the effort distribution moves toward 0.05, the minimum effort level.

We measured loss aversion at the end. We can’t say that loss averse workers resent wage cuts, because everyone resents wage cuts. There’s maybe some evidence that loss averse employers are less likely to cut wages. Thanks for reading! Please reach out through my Samford email if you’d like to know more.

The relationship between loss aversion and wage rigidity deserves more attention from behavioral economics.

Special thanks to Misha Freer, Cesar Martinelli, and Ryan Oprea for conversations that helped us. Also, we are indebted to everyone that we cited, of course, and to all the people we failed to cite.

Good Old Lemons

This post doesn’t have a darn thing to do with economics, statistics, or finance. This is a post about citrus storage.

There are problems with buying citrus.

  • If you get a big Sam’s Club size bag of limes, then they start going hard and thin-skinned by the end of a week.
  • A bag of grapefruit? There’s usually one in the bag that’s goes moldy almost immediately and you know what they say about one bad grapefruit spoiling the bunch.
  • Mandarins shrink and get hard to peel.
  • Lemons – even if you refrigerate them – get soft and un-zest-worthy.

There is a solution. Now, our lemons and limes last upwards of 6-8 weeks with hardly a symptom of age. Mandarins don’t shrivel and grapefruits remain edible. No, silly goose, the answer isn’t free markets and the price system.

Maybe it’s all of the additional vitamin C that I’m getting. Maybe it’s the warm and fuzzy feeling of money well spent. But I’m now excited each time that we purchase citrus. And I get a cozy feeling of satisfaction whenever I see a nice lemon that definitely should not still be any good.

The answer is really simple. You too can achieve such amazing results. All you have to do is:

  • Rinse your citrus under water, rubbing gently to remove any invisible bad-guy germs. In reality, you’re probably getting rid of mold spores.
  • Place the wet citrus into a ziploc bag, seal, and refrigerate. The refrigeration further retards the growth of any unwanted spores. The sealed bag prevents too much air flow and drying.( I don’t bother refrigerating grapefruit and oranges because I eat them quickly enough).

That’s it. You too can have 8 week old limes and lemons that you bought on sale or in bulk that are nearly as fresh as the day that you purchased them.

Enjoy!

Certificate of Need Laws

In 1960 $1 out of $20 in the United States was spent on healthcare. Sixty years later, nearly $1 out of $5 is spent on healthcare.

A dozen facts about the economics of the US health-care system

There are many reasons for this increase in spending (e.g. demographic shift, increased income, and more). In this post, I want to focus on competition in the healthcare industry. There is an excellent Brookings Institution piece from earlier this year on competition in healthcare. Martin Gaynor writes,

“The research evidence shows that hospitals and doctors who face less competition charge higher prices to private payers, without accompanying gains in efficiency or quality … the evidence also shows that lack of competition can cause serious harm to the quality of care received by patients.”

If there are benefits to competition in healthcare, the question becomes how we can increase competition. One of Martin Gaynor’s proposals is to eliminate or reform Certificate of Need (CON) regulations that require health care providers to obtain permission slips from a state health planning agency before the provider opens a new facility, purchases new equipment, or supplies a new service.

These laws were enacted federally in 1972 in an effort to control rising healthcare costs. The logic was that healthcare providers who are reimbursed for services would have incentive to invest in facilities and equipment that allows them to perform more services.

There is mixed evidence that CON regulations have achieved their goals. But, what is clear is that requiring permission erects barriers to entry. Moreover, these barriers to entry become more pronounced if the state health planning agencies are captured by existing hospital interests. Consumers like competition but suppliers do not.

In a new paper titled, “The Impact of Certificate of Need Laws on Heart Attack Mortality: Evidence from County Borders”, economist Kevin Chiu reports that the introduction of Certificate of Need Laws resulted in 6-7 additional heart attacks per 100,000 people. He focuses on heart attacks because the acute nature of heart attacks means you can’t “shop for care”.

The paper is an improvement over the existing literature because it zooms in on counties along state borders with and without CON regulations to get more apples-to-apples comparisons. For example, there could be regional trends that make a Florida to Washington comparison less valuable than a Florida to Georgia comparison. He also performs a number of tests that make the result more believable. For example, CON regulations have zero impact on suicides that normally take place outside the hospital.

Competition reduces prices, increases quality, and encourages innovation. Certificate of Need is one way in which laws have reduced competition in healthcare. The consequences are life-and-death without much apparent upside from cost containment. Currently 35 states still have Certificate of Need Laws. If you’re interested in finding out where your state stands, check out this map from the National Conference of State Legislatures.

The statistically diverse curriculum

It’s important to present undergraduate students with a wide variety of view points. But in my view the diversity of viewpoints is a means, not an end in itself. At the very least, it’s a path to learning how to evaluate arguments, and broaden sensibilities in a very Oakshottian way.

It seems obvious to me (and perhaps I am mistaken) that curricula should be structured around considerations other than mere diversity. After all “fields” of scholarship have formed around the types of conversations that develop when scholars try to learn about some aspect of the universe. There is a structure to knowledge and how it is generated, if only because of the particular history of particular inquiries about the world.

Yet, somehow in every curriculum conversation I have been involved in, I get significant pushback from those that view diversity as an end itself. To put the matter to rest I present the statistically diverse curricula. For the liberal arts core, let’s randomly assign courses and readings to each student such that the average student has the maximally diverse curriculum. The average student will be well rounded. We can even draw courses and readings from some weighted distribution to avoid a bias stemming from viewpoints that have been the most dominant throughout history. I doubt this would satisfy, or even make sense, for those that defend diversity of viewpoints as an end in itself. If the statistically diverse curricula is a no go, then diversity of viewpoints as an end in itself should be a no go as well.

How to Think About Inequality Data and Public Policy

Lately I’ve been thinking about the disagreements among economists about the extent to which inequality has increased in recent decades. I am facilitating a reading group at my university on inequality this semester with some great undergrads, so it has very much been on my mind.

With conflicting data showing different trends, how are we as economists to judge this? How can the general public even have a clue how to judge this?

You may have seen this chart before. It comes from an article in The Economist, which actually does a really good job of explaining the debate over the data if you know nothing about it.

TaxProf Blog

According to some estimates, the share of income going to the top 1% has doubled and is now over 20%. That sounds bad. Maybe we need some more redistribution. Maybe a wealth tax.

But according to other estimates, and taking account of our existing system of progressive taxes and redistribution, the share of income going to the top 1% has not risen at all, is only about 5%. Less worrisome. The existing system of taxes and transfers seems to be doing a pretty good job, or at least no worse than in the last 60 years. No need for a new wealth tax, etc.

So who is right?

Sorry, I don’t have the answer. I think I’m pretty good at digging into economic data (follow me @jmhorp on Twitter for an almost daily dose of data debunking!), but I am no expert in this area. There’s probably only a dozen economists that really understand this data and the trade-offs in different forms of measurement.

So instead of giving you the “correct” answer, I offer you a chance to reflect. Our temptation is to say the “correct” data is the one that comports with our political preferences. If you are a progressive, you probably think inequality is bad and getting worse. Piketty is your man. If you are more of a libertarian, you probably think it’s about the same as recent years. Auten and Splinter must be right!

Stop. And instead, consider how you might view the policy implications of the data you don’t like being the correct data. If you are a progressive, would you still think we need a wealth tax even if the Auten and Splinter data is correct? If you are a libertarian, would you still think things are just fine and maybe we should cut the top tax rate if it turns out that Piketty and co-authors have the real data?

If you answer is the same for the policy implications regardless of what the data say, you might want to check yourself. And if so, why are we even arguing about the data?

Perhaps your answer is “I might have the same policy answer regardless of the data, but there are people out there that are convinced by data.” I think that’s possibly reasonable, and I would like it to be true, but where are these people?

Perhaps the answer is “as a libertarian, I don’t care about inequality so long as the poor and middle class are also sharing in the gains.” Or “as a progressive, I will continue to worry about inequality until the top 1% only has 1% of national income.”

I think these are the normal fallback answers. But really? Libertarians: if the income of the top 1% doubled in a decade, but the bottom 99% increased by 0.5%, you would be fine with this, because at least no one declined? Progressives: you would really support increasing taxes on the rich, despite any downside to this, until incomes were exactly equalized?

Frankly, I don’t believe anyone really holds either of those extreme positions. So surely, the data must matter? We want some reasonably shared benefits from economic growth, but no one really demands that they be exactly equal, right?

So, consider your own biases. Don’t engage in motivated reasoning. And think through how your views might change if you are wrong about the data. Perhaps someday Mother Nature will reveal herself, we’ll have the true inequality data, and we’ll see if we were honest about our reflections.

Review of: “How the Scots Invented the Modern World”, by Arthur Herman

This book describes the development of intellectual life and related events in Scotland from about 1700 onward. Scotland in 1700 was a small, poor, largely agrarian independent nation, still characterized in large part by feudalism. In much of the country, clansmen in their kilts constantly robbed and fought each other. By 1800, it was an economically thriving section of the United Kingdom of Great Britain, and a huge contributor to modern thought on many levels. The subtitle on the front jacket of the book expansively portrays its contents as: “The True Story of How Western Europe’s Poorest Nation Created Our World & Everything in It”.

A key event which helped launch this flowering was an economic one. The 1690’s were an unusually cold decade, leading to famine and poverty in the more northern European countries like Scotland. Scottish trade and industry were constricted by the policies of England, their more powerful neighbor to the south. Other nations of Western Europe in the 1600’s had colonies in the Americas, which seemed to be a source of national wealth and influence. Scotland tried to found her own colony, called Darien, on the coast of the Isthmus of Panama. A huge fraction of the wealth of Scotland was invested in this venture. It failed, for various reasons, which was an economic disaster for the country.

This led to a willingness on the part of the Scottish elite to surrender their independence in return for the chance to participate in commerce on the same terms as the English and under the protection of the Royal Navy. An Act of Union between the two kingdoms was approved in 1707. This led to a rise in prosperity and helped set in motion various influences of modernization.

A lively intellectual life in the burgeoning cities of the Scottish lowlands put Scotland at the forefront of the 18th century enlightenment. The Scottish Enlightenment was more practical and aligned with common sense than was the Enlightenment of the French philosophes.  David Hume and Adam Smith are just two of the significant Scottish thinkers of this era. The works of Hume and of Smith (e.g. The Wealth of Nations) are still required reading today in the fields of philosophy and of economics.

Scots likewise made great contributions to science and technology. Today we measure power in terms of “watts”, a tribute to James Watt, whose improvements to steam engines made them finally practical for widespread use. We drive on “macadam” roads, initially developed by John McAdam.

How the Scots Invented the Modern World weaves all these themes together, going into enough detail with key actors to make them come alive as real persons. Since there are so many books and so little time, I rarely go back and reread a book. Also, I ruthlessly pruned my collection as part of our recent household interstate move. But I have found myself picking up this volume from time to time, and so it survived the cut. I recommend it as an entertaining and enlightening read.

2020 Nobel Prize to Milgrom and Wilson

The big news in our world is that the Nobel Prize was announced today for economists. (We call it “the Nobel Prize”.)

Paul Milgrom and Robert Wilson win for 2020. They are known for auction theory and design. Here is a popular introduction from the Nobel Committee.

This prize is special to me because auction design was one of the very first practical problems that presented me with a chance to put economic ideas into practice. As an undergraduate at Chapman University, I had the privilege to spend time talking with people like Vernon Smith and Dave Porter. Some people think of Vernon Smith as being someone who “does things in the lab”. The thing that he actually did was often auctions.

My master’s thesis at Chapman University was a project on auctions. A practical problem to motived our inquiry. Students at Chapman were upset about the way that the most convenient parking spots were allocated. Concerns about parking showed up in quantitative student satisfaction surveys.

We designed an auction to price and allocate the most coveted parking spots. In this scenario, multiple items are being sold because the parking lot has many spots. Hence the “multi-unit” in the title of our paper Information Effects in Uniform Price Multi‐Unit Dutch Auctions.

We had an important question, since we were actually going to run an auction that would affect people’s lives. How to we choose from among the different possible auction formats?

Paul Milgrom (with Robert J. Weber) provided guidance to us in their 1982 paper in Econometrica.

Among other things, in that paper, they compare the revenue properties of English auctions and Dutch auctions. In an English auction, the price starts low and bidders compete to out-bid each other until the price is so high that only one bidder remains. That is the popular conception of an auction. There is another mechanism class (Dutch) in which the price starts higher than anyone wants to pay and drops until a buyer jumps in. Once you start thinking about how many ways one could run an auction, then you need some way to decide between all the mechanisms.

Theory can help you predict who will be better off under different formats. And, in my case, needing to figure out the revenue properties of different auction formats can help you learn economic theory!