Cowen, Peltzman, Taleb, Trump, and the Complacent Class

Tyler Cowen’s latest, The Complacent Class, is getting a lot of talk already. I haven’t yet read it, but some initial thoughts based on what I have heard.

Book thesis summary

In the Complacent Class, Cowen argues that people are taking less risks and seeking more comfort and security, leading to less dynamism in the economy. For example, people move less for new jobs, they seek security in discussion, they aim to control pain and distract themselves.

Cowen vs Peltzman

I wondered whether Cowen’s thesis was due to government making dynamism harder, which incentivises people to take less risk. But, as per the Peltzman Effect, if risk is artificially reduced, people will take more risk to get back to their preferred level of risk. Thus, the Peltzman effect suggests the opposite of Cowen’s thesis (if in fact there is an cause outside of the individual of the reduced risk). How do we reconcile these? Perhaps people are taking less risk in certain areas (such as moving jobs and house) and more risk in others (such a drug-taking and alcohol abuse), to ensure their overall level of risk remains the same. Or perhaps people simply do not like discomfort, and things like safety regulation (which Peltzman wrote about) were discomforting, while drug-taking and steadiness in employment and living are comforting. Or, perhaps it is not so much about risk for us as it is about the ongoing search for comfort and pain alleviation. Human history would be very different without this propensity, and perhaps, having achieved all the major breakthroughs with respect to modern innovation and the comforts they bring (as set out in Cowen’s The Great Stagnation), we are content to enjoy our comfort as we have been trying to do forever, thereby leading to ever lower levels of risk-taking (which is counter to Peltzman). Or, as alluded to above, perhaps our risk-taking has spilled into other domains. Daniel Bell’s The Cutural Contradictions of Capitalism, argued that capitalism saw us partying by night and working steadily by day, with the contradiction of capitalism being this inconsistency in our approach to life. Perhaps Bell was more prescient than we thought.

Cowen vs Taleb

This one is straightforward, it seems. Cowen apparently argues that greater individual safety may lead to greater collective risk. This is roughly what Taleb argued in Antifragile. Attempts at imposed security and stability only lead to vulnerability, like being on a salary but then losing your job. Consider this on a mass scale and you have the financial crisis of 2008, where seemingly stable jobs were no longer, and the more stable those jobs, the greater the losses (see this Italian labour market study as supporting evidence). Worker protection, or the desire for comfort, stability and security, only makes us more vulnerable.

I view this in the following way: we have ‘perceived risk’ and ‘true risk’ or ‘underlying risk’. We may not see the true state of risk until it hits us in the face, at which point underlying and perceived risk collide. Risk still exists, but we are doing our best to cover it, for the sake of personal comfort, all the while contributing to the risk and making ourselves more fragile.

Returns from risk-taking

If there is less-risk taking, shouldn’t there be greater returns to risk-taking? That is, if less people are being entrepreneurial, shouldn’t there be bigger opprtunities for those that do take a chance? Or, is it that there is less entrepreneurship because there are fewer potential returns? The Great Stagnation thesis supports the latter, although may it is peoples’ search for comfort and stability, which has now been conquered by many, may be diminishing the urge to be an entrepreneur. Perhaps we just really don’t like risk. If we don’t like risk, and we think we have the means to remove it, we grab that opportunity and build our dream – a stable, secure environment for us to divert ourselves pleasurably and trivially with entertainments and comforts, with people just like us.

Or perhaps returns for entrepreneurship really are down at the moment. The money to be made may instead be during the transition from our secure state to a new equilibrium, brought about by a decline or disruption. In such an environment, people will be spurred into action as new patterns of behaviour, production and consumption emerge.

So do we act now because no one else is acting, or act when we really need to, because only then will it be worth it?

Or perhaps the returns are available now, but the potential downside is bigger than ever? So while money can be made, we can lose more than we could have ever lost before. So we sit tight.

Cowen’s book in the Trump era

Perhaps entrepreneurship has been declining in an intellectual environment increasingly hostile to markets, profit and business, reinforced by a regulatory state that hampers business and dynamism. Perhaps the Trump administration will spur a resurgence entrepreneurship, through changes to culture, action and institutional setting, enabling us to avoid a decline and instead spur the required resurgence. Trump’s positive rhetoric about America’s potential, his apparent plan to make it happen, and his efforts to increase the status of everyday workers and business people, may well be the inevitable reaction to our ongoing complacency.


PS: see my earlier discussion on complacency, where I argue that complacency is the underappreciated reason for declining educational attainment.



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