The Danger of “Good Enough”: How Complacency Threatens American Innovation

EST
Thursday, April 13, 2017 - 9:00 AM to 10:30 AM
Information Technology and Innovation Foundation
1101 K Street NW, Suite 610A
Washington, DC 20005

Since its founding, America’s core economic advantage has been a culture that embraces change, risk-taking, and mobility. Or at least, it used to be, contends Tyler Cowen in his new book, The Complacent Class: The Self-Defeating Quest for the American Dream (St. Martin’s, 2017). The renowned George Mason University economist argues that Americans have drifted from the best traditions of their pioneer-spirit past and now strive to maintain the status quo. Because of economic trends including the stratification of educational opportunity and the socioeconomic homogenization of neighborhoods, there is less incentive than ever to innovate and create. This shift toward national complacency is a key reason behind the decline in U.S. dynamism, productivity, and innovation. ITIF hosted an event with Dr. Cowen to discuss his book and how the United States could restore its disruptive culture.

ITIF President Rob Atkinson opened the panel by drawing the connection between cultural complacency and economic and political stagnation. He argued, “if you’re complacent as a society, it means you’re also complacent about innovation, about the role of government.” With this preamble, Atkinson introduced Cowen and the panel.

Cowen began the panel discussion by outlining the main arguments of his book. Initially, he drew a distinction between individual and collective outcomes. For example, Cowen pointed to Keynes’s observation that individually rational decisions to withdraw liquidity from the economy in a credit crunch can result in broad, negative economic outcomes. Cowen highlighted a number of contemporary American trends in which a similar aggregation of independently rational decisions results in social torpor. These include the decline in the number of Americans who move across state lines, increasing usage of medication, overprotectiveness in parenting, the role of the Internet in increasing “returns to leisure,” and the fall in corporate R&D investment.

Echoing Bill Bishop’s work, Cowen argues the most damaging trend is the “sorting” of America along income and geographic lines. Rising housing costs in major urban centers like New York and Washington, according to Cowen, combine with increasing regulation so that only the well-educated can afford to move to these cities. The increasing concentration of these educated workers attracts even more graduates, cementing an “intellectual class” that overestimates how well things are going. Among this group and the rest of the country, Cowen asserts a “memetic desire … for safety” has taken hold, overriding a historical preference for risk-taking and lowering the labor force participation rate and productivity growth. He argues if this continues, the United States will face a “comeuppance,” either through a debt crisis or a foreign policy crisis prompted by a collapse in U.S. credibility.

Edward Luce, U.S. columnist at the Financial Times, spoke next. Luce noted the unique nature of Cowen’s book in economics, an academic discipline “impoverished by abstruseness.” Although Luce pointed out Cowen’s thesis is largely unfalsifiable and “doesn’t wait for the data,” he agreed with his argument in general. Luce expanded on Cowen’s observations of American culture’s rising risk aversion, increasing conformism, and declining individualism. This “systemic caution” manifests through a growing reliance on algorithms for dating and hiring decisions, as well as a shift in corporate resources from R&D to stock buybacks and dividends. Luce poses three questions for Cowen’s argument: First, is the decline in entrepreneurship and business formation the result of an eroding culture of risk-taking, or because of the aging of the U.S. population? Second, if sectors like healthcare and education, are “ready to be Ubered” as part of a push for higher productivity, how do we solve for resulting unemployment? Third, Luce argues Cowen’s book contradicts Western assumptions of progress by tracing history as cyclical, rather than linear, and questions whether we are culturally capable of understanding history as nonlinear.

Michael Lind, senior fellow at the New America Foundation, spoke after Luce. Lind offered critiques of three parts of Cowen’s argument. First, Lind noted that while the United States has undeniably seen declining productivity growth since the mid-2000s, the country has not dropped noticeably in global economic rankings. Arguing this is because the decline in productivity growth is a global phenomenon, Lind asked, “how can you explain a global phenomenon in terms of the culture of a particular country?” Second, Lind rebutted Cowen’s argument about the decline in geographic mobility in part by arguing a study cited in Cowen’s book is flawed. The study in question, published in 2015, claimed if regulations restricting the housing supply in cities like New York and San Francisco were reduced, U.S. GDP would increase by 9.7 percent. Lind asserted this is “nonsensical,” because it assumes inter-industry movement (e.g. from manufacturing to software programming) on a scale that would be impossible. Also on the question of mobility, Lind asserted interstate movement is not so much falling as it is returning to normal, after massive “push factors” in the 20th century created “turmoil” like the Great Migration. Third, Lind countered Cowen’s observation that the rate of new startups is declining by attributing this phenomenon to Schumpeterian theory. In this paradigm, new general-use technologies like electricity, automobiles, or as Lind argued, the Internet lead to a proliferation of new companies until the “low-hanging fruit” are gone and the industry consolidates into an “oligopoly” like the Big Three in Detroit. Thus, Lind believes, the current decline in startups is not a sign of U.S. complacency but a natural “trough” which will be followed by an increase in business formation. In general, Lind argued, he disagrees with Cowen’s cultural attribution because he views the underlying causes of complacency as institutional and political constraints on risk, which cannot be reduced to culture.

National Review Executive Editor Reihan Salam offered two predictions dovetailing with Cowen’s work. First, Salam pointed to a 2014 paper which found that although younger Americans are in general more socially liberal than older generations, this does not hold true on the issue of abortion. The researchers argue this is because families that are pro-life have more children than families that are pro-choice. Salam postulated that if this demographic phenomenon continues, “it’s possible that we will see this really dramatic turn that will come … 15 or 20 years from now, as some of these larger, more religiously conservative families come of age … [this could] break us out of our complacency.” Second, Salam asserted the United States is drastically underestimating the economic and social burdens of long-term care for an aging population. He stated, “one way to break out of complacency might be simply acknowledging that we are going to bear these costs, and that the period over the next 15-20 years is a period in which we’re just going to have to get through this crisis.” On a related note, Salam predicted the next two decades will see a transfer of 30 or 40 trillion dollars from the Baby Boomers to their children. He feared this transition could create a tenuous political situation as this wealth flows from college-educated whites in cities to their children.

Atkinson followed the panel by responding to concerns raised about automation, arguing, “we’ve become so complacent, we cannot even contemplate for even one single moment that a truck driver might lose his job.” Contrary to fears of mass unemployment, he noted that the last few years have had the lowest rate of occupational churn of any period since 1850.

Cowen concluded by responding to several points raised during the panel discussion. He argued the overarching question of what solutions are needed to break the United States out of its complacency is wrong-headed, and that there may not be solutions. Even if such fixes exist, he argued, the point is that we are not interested in solutions. In response to Lind’s concerns about the 2015 study on geographic mobility, he noted several other sources cited in his book came to similar conclusions through different methodologies. Answering Luce’s questions about disruption in the education and healthcare sectors, Cowen argued massive upheaval in these sectors is “not around the corner.” The United States is probably not capable of reconceptualizing history as nonlinear, he said, even if that is a more accurate historical approach. Finally, he warned that not all countries are complacent, pointing to China’s massive economic growth since 1980 as a case-in-point.

The range of views expressed at the event demonstrates the importance of The Complacent Class as the beginning of a crucial and long-overdue conversation. The degree to which cultural stagnation underpins the threat to U.S. innovation and risk-taking can and should be debated; the importance of defending traditions of disruption and discovery cannot.

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Speakers: 
Robert D. Atkinson
President
Information Technology and Innovation Foundation
Moderator
Tyler Cowen
Holbert L. Harris Chair of Economics
George Mason University
Presenter
Michael Lind
Visiting Professor
Lyndon B. Johnson School of Public Affairs, University of Texas
Panelist
Edward Luce
Washington Commentator
Financial Times
Panelist
Reihan Salam
Executive Editor
National Review
Panelist
The Danger of “Good Enough”: How Complacency Threatens American Innovation