David R. Henderson  

Tyler Cowen is a Semi-Persuasive Futurist

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My review of Tyler Cowen's latest book, The Complacent Class, is now out in the pages of Regulation. It's titled "Tyler Cowen: Semi-Persuasive Futurist."

This excerpt gives a flavor of what I liked and disliked:

Cowen nails the causes and effects of high housing costs. He points out that restrictions on building have driven housing prices sky high in many major cities, especially in coastal California and the Northeast. Somewhat disappointingly, although Cowen's claims are generally well-cited, he doesn't mention the path-breaking work by Harvard economist Edward Glaeser and Wharton economist Joseph Gyourko, which shows the high prices are indeed due to a scarcity of building permits rather than a scarcity of land. (See "Zoning's Steep Price," Regulation, Fall 2002.) However, Cowen goes beyond that fact to make another important point: those high housing costs have discouraged movement by workers to those cities and have kept them in lower-productivity jobs elsewhere. The overall negative effect on productivity and output is huge. He cites a 2015 National Bureau of Economic Research paper by University of Chicago economist Chang-Tai Hsieh and University of California, Berkeley economist Enrico Moretti, who find that lowering regulatory constraints in those cities to the level of regulation in the median-regulated city in the United States "would expand [these high-cost cities'] work force and increase U.S. GDP by 9.5%."

On traffic, Cowen writes, "Traffic gets worse each year and plane travel is if anything slower than before." True. But why does traffic get worse each year? One's knee-jerk response would be to say that it's because more people are driving. But more people are going to Starbuck's each year, too. Has the wait at Starbuck's increased? Not that I can see. What accounts for slow traffic on roads but not "slow traffic" at Starbucks? Starbucks is private and for-profit, and it has the right incentive to expand and manage traffic, whereas roads are generally provided by government and government has little incentive to manage traffic well. That's why so few roads are toll roads with congestion pricing. One little-known fact is that state governments were starting to move in the direction of toll roads in the 1940s and early 1950s. But President Eisenhower put a stop to it with his interstate highway system, 90 percent of which was funded by gasoline taxes. It's hard to compete with highly subsidized roads. Disappointingly, in light of the problems caused by lack of tolls, Cowen cites that highway system as a big success. Less successful are other modes of transportation; he laments the fact that the number of bus routes has decreased, that "America has done little to build up its train network," and that American cities "haven't built many new subway systems in the last thirty-five years." That last lament was shocking because subways, except in high-density cities such as New York, are notoriously costly and inefficient.


I was surprised by how lukewarm he was on gains from outsourcing. Here's that segment:
Economists, caring as they do about overall economic well-being, tend to applaud free trade even when firms reduce labor costs by outsourcing. But Cowen is amazingly lukewarm on the gains from outsourcing. Cost-cutting developments, he writes, "build America's productive future less than coming up with neat and new ways of doing things, such as harnessing electricity, developing antibiotics, or inventing automobiles." But whether that's true depends on the degree of cost cutting. And what if American firms developed antibiotics by outsourcing to lower-cost outfits in, say, India? He sees outsourcing as "a way of keeping the status quo in place--for some, that is--at lower cost to owners of capital and privileged workers who have kept their incumbent status." Actually, that's not true. By definition, outsourcing improves on the status quo.

And he and I seem to disagree a lot about which requires more resources for government: war or peace:
Cowen worries, quite rightly, about the increasing percent of the federal government's budget that is likely to be spent on three programs: Medicare, Medicaid, and Social Security. One reason for his worry, though, is that when a problem arises somewhere in the world--for example, "military crises in the Baltics and the South China Sea at the same time"--the American government "probably would need more resources" to deal with it. Nowhere in the book does he even hint that maybe the U.S. government having more resources helped lead to some of the problems in the world. If the U.S. government hadn't had the slack to invade Iraq in 2003, for example, that country would almost certainly be in better shape than it's in, and the Islamic State would not even exist. The Islamic State is an outgrowth of al Qaeda in Iraq, which itself didn't exist until the Iraqi occupation had been going on for a year and half. "Ultimately peace and stability must be paid for," he writes (italics in original) "with real resources, with tax revenue." Something closer to the opposite is the truth: war must be paid for. So avoiding war and letting countries around the world deal with their own conflicts rather than interfering in them is more likely to create peace for us and is certainly likely to allow deficit reductions and even tax cuts. And maybe even a little less domestic surveillance.

Finally, note that he and I have very different views about whether it's good or bad that people distrust government so much now. See my reference to the FBI.


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COMMENTS (14 to date)
Jerry Brown writes:

I totally agree with you that it is war- not peace and stability that has to be paid for. With more than just money and at uncertain future costs. Thanks for saying that. I don't think it can be said enough.

Thaomas writes:

Where congestion pricing would REALLY help is city streets and roads. A carbon tax, though it's main justification is to off set the externalities of CO2 accumulation, would also reduce road congestion.

Komori writes:
By definition, outsourcing improves on the status quo.

This statement seems too strong. I've worked for several large high-tech companies, and they all seem to go through a cycle.

1st they decide to save money by outsourcing (whichever manager can take credit for this usually gets a bonus).

2nd they actually outsource, cut some costs up-front.

3rd they find out they're getting much worse quality and have to ramp up their outsourcing expenditures to try and fix things.

4th they realize they're actually spending more money and getting worse results than when it was all insourced. (The original manager that proposed outsourcing is usually gone or promoted by now, but never seems to catch any flack for this.)

5th they insource things again, frequently trying to rehire the same people they let go in their outsourcing effort (this is always much more expensive than if they had just kept people in place) at the higher skill levels.

6th they relax as their quality and costs stabilize.

7th, they start the process all over again as some new manager gets the idea to save money by outsourcing.

Successful outsourcing may well always improve the status quo, but outsourcing is not a trivial task that can be assumed to go well. Certain areas do work well with outsourcing, but there doesn't seem to be much overlap with the areas that are most prone to outsourcing attempts.

Planning fallacy is a real thing (especially when the incentives are to fall for it).

Seth writes:

My wait at Starbucks has increased. I was thinking that impending min wage hikes and Obamacare may have been been making them more hesitant to invest in new locations and rather focus on supposed efficiency gains through things like mobile ordering (which also seemed to contribute longer lines).

Dylan writes:

I'm in agreement with Thaomas that the additional benefit of a carbon tax is in reducing congestion, and for that reason along with privacy I prefer that option over tolls. And I do want to note that the nearly $50 I recently spent in tolls to go ~90 miles from NYC to PA was apparently not enough to make the trip possible in less than 5 hours. So I'm skeptical that tolls would be able to be set at a rate high enough to keep the riffraff out, but low enough that I'm not part of the riffraff.

Mark Bahner writes:

No analysis of the future of traffic should ignore potential impacts of autonomous vehicles. They will rock the transportation world. (And the retail world. And the world in general.) Among the possibilities:

1) Car ownership declines significantly. (A >90% decline is not out of the question.) Currently most people are in their cars perhaps 2 hours per day...so cars are parked 22 hours per day. Autonomous vehicles will greatly promote transportation-as-a-service...essentially taxis without the driver.

2) Cars will become *very* diverse. Most people currently buy cars that are "compromises." For example, I purchased a used 4-door Camry because it has a fold-down rear seat so I could take large items back from home improvement stores. But most of the time, I drive alone (as do most people). With transportation-as-a-service, I might very well order a single seat vehicle...especially for rides to work, which are ~5 miles on low-speed roads. How many single seat vehicles do you see on the roads today? Essentially none, because no one wants to own a single-seat vehicle and therefore completely forgo the option of ever having a passenger or hauling items.

3) Multiple-passenger vehicles may be emphasized. With transportation as a service, the fleet owner knows where everyone is going, and when. So the fleet owner can offer to combine multiple people in a vehicle for a lower per-passenger cost.

4) Vehicle behavior at intersections will be dramatically impacted. Cars may not stop for lights...and lights might even be eliminated.

5) Vehicle speeds will probably significantly increase, and vehicle spacing will probably significantly decrease...dramatically increasing the capacity of roads.

6) Intercity multi-passenger travel may increase dramatically, because there won't be the problem of finding transportation in the destination city. For example, a person might get in a single-seat car at home in Raleigh, NC, go to a bus/minivan that's just taking off for Charlotte, NC...travel to Charlotte at 100+ mph in that bus/minivan, and transfer to another single-seat vehicle in Charlotte. Reverse the process to come home.

7) Parking lots and parking decks will disappear. Roads may get much narrower. Streetlights may disappear.

donald writes:

Komori is spot on with (some) outsourcing.

Myopia and bad incentives and unintended consequences. Commercial activity requires more than prudence. (low cost =/ value)

Surprised there was no mention of how high housing cost leads to traffic and congestion as folks are required to commute from lower cost housing to their jobs - see: California.

MikeP writes:

A carbon tax, though it's main justification is to off set the externalities of CO2 accumulation, would also reduce road congestion.

In case you don't know, the current gas tax is higher than the social cost of carbon carbon tax would be. And the gas tax in Europe is many multiples of the social cost of carbon.

Are your roads less congested now? Are theirs?

MikeP writes:

...the additional benefit of a carbon tax is in reducing congestion, and for that reason along with privacy I prefer that option over tolls.

A carbon tax would be between 1 and 2 cents per mile, maybe 3, depending on your car's miles per gallon.

The congestion-priced toll lane on I-680 in the Bay Area doesn't even charge less than 3 cents per mile. It maxes out at 65 cents per mile.

The carbon tax applied to gasoline is simply an order of magnitude lower than the massive consumer benefit of driving.

Mike writes:

I'd disagree with your analysis that the Reagan military build-up was a waste. By ending the communist hold on Russia and ending the supposed non-aligned movement (India and Indonesia, in particular) the build-up ended the stranglehold that kept, at least, one billion in poverty. Globalization was a direct result of the end of a superpower duolpoly.

Thanks to Mark Bahner for new (to me) insights on how auto transportation may change soon.

Chris Weber writes:

You have, by far, the best review of Tyler's new book I've seen. It was wonderful to read.
Actually, everything I've read of yours is great. I especially like your foreign policy perspective.

David R. Henderson writes:

Thanks so much, Chris.

Jeff writes:

Traffic getting worse over time is not inevitable. In the early 1990's I moved from Northern Virginia to Cleveland for a couple of years. My commute in Ohio was just as long in miles, but took less than half the time it did when I worked in DC. Cleveland's road system was largely completed at a time when the population was at an all-time high, and the subsequent declines after that also lessened traffic.

In contrast, there is the "growth control" movement that started on the West Coast in the mid-80's and later spread to the East Coast as well. Many proponents of this view actually think that more roads cause more traffic. The underlying idea is that local population growth is the real source of the problem, and if you don't build roads, people will stop coming. In the limit, that may be true, but you only arrive at that limit when you've made life for the existing population so unpleasant that nobody wants to move in.

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