Tyler Cowen is a Semi-Persuasive Futurist
By David Henderson
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.