This is the first of a series of book reviews I hope to host on this blog. I’ll strive to be fierce and unbiased in general, though in this case I’ll disclaim that I once had a very Complacent Class-like three Michelin star meal with Tyler Cowen and I liked him very much.
His book is one-third cultural history and observation (think David Brooks’ Bobos in Paradise), one-third data analysis on American class stratification (think Charles Murray’s Coming Apart), and one-third blunt assessment of America’s macroeconomic outlook (in which he says something similar to what I said yesterday, in assessing the outlook: https://steemit.com/bitcoin/@brandonadams/bitcoin-macroeconomics).
The piece that Cowen’s book most reminded me of was a blog post, the most important post I have read in the past five years. This was a post by @interfluidity called “Tradeoffs Between Inequality, Productivity, and Employment.” http://www.interfluidity.com/v2/3487.html
It’s hard to overstate in my mind exactly how good this post is, and a summary won’t do it justice. Here are some key excerpts:
Wealth is about insurance much more than it is about consumption. As consumers, our requirements are limited. But the curve balls the universe might throw at us are infinite. If you are very wealthy, there is real value in purchasing yet another apartment in yet another country through yet another hopefully-but-not-certainly-trustworthy native intermediary. There is value in squirreling funds away in yet another undocumented account, and not just from avoiding taxes. Revolutions, expropriations, pogroms, these things do happen. These are real risks. Even putting aside such dramatic events, the greater the level of consumption to which you have grown accustomed, the greater the threat of reversion to the mean, unless you plan and squirrel very carefully. Extreme levels of consumption are either the tip of an iceberg or a transient condition. Most of what it means to be wealthy is having insured yourself well.
In “middle class” societies, wealth is widely distributed and most peoples’ consumption desires are not nearly sated. We constantly trade-off a potential loss of insurance against a gain from consumption, and consumption often wins because we have important, unsatisfied wants. So we employ one another to provide the goods and services we wish to consume. This leads to “full employment” — however many we are, we find ways to please our peers, for which they pay us. They in turn please us for pay. There is a circular flow of claims, accompanied by real activity we call “production”.
In economically polarized societies, this dynamic breaks down. The very wealthy don’t employ everybody, because the marginal consumption value of a new hire falls below the insurance value of retaining wealth.
Cowen’s book, in my opinion, does as good a job as any book I have read in spelling out exactly how the problems Waldman details manifest themselves in contemporary American society. The cultural story Cowen tells is one where a large segment of the elite (in Waldman’s context, those seeking additions to their wealth for insurance purposes) understand that the game as it’s being played today (manufactured asset price inflations, at a time when the distribution of assets is highly unequal) is highly inequitable and likely to end poorly, but, far from trying to rectify the situation, they do everything in their power to try to cement the status quo. Cowen has some great material in this area. He notes, echoing David Graeber, that “The complacent class very often has explicit bureaucratization on its side… Bureaucracy, whatever its other goals may be, is very much on the side of the complacent class.”
The problems that pile up as this process continues to unfold used to have narratives associated with them that implied that things were under control and problems would soon be addressed. But increasingly this narrative is being discarded and it’s a raw power game. Cowen describes a dig-in-the-heels mentality. On page 165: “So we pile up more and more issues of this kind, namely ones that don’t require resolution right now. The end result is likely to be that we lose our capacity to solve them at all, whether today, tomorrow, or any other time in the future.” And, later, “as the years pass, it seems increasingly obvious that the social and economic stagnation of our times is more than just a temporary blip; instead, that stagnation reflects deeply rooted structural forces that will be not easy to undo by mere marginal reforms.”