Category: The Complacent Class – Tyler Cowen

The Dominance of Loss Aversion - Joe Abittan

The Dominance of Loss Aversion

Posted on by jabittan
Loss aversion is a dominant force in many of our individual lives and in many of our societies. At this moment, I think it is one of the greatest barriers to change and growth that our entire world needs to overcome in order to move forward to address climate change, to create more equitable and cohesive societies, and to drive new innovations. Loss aversion has made us complacent, and we are feeling the cost of stagnation in our politics and in our general discontent, but at the same time we are paralyzed and unable to do anything about it. As Tyler Cowen wrote in The Complacent Class, “Americans are in fact working much harder than before to postpone change, or to avoid it altogether, and that is true whether we’re talking about corporate competition, changing residences or jobs, or building things. In an age when it is easier than ever before to dig in, the psychological resistance to change has become progressively stronger.”

 

My argument in this post is that much of the complacency and stagnation that Cowen has written about stems from loss aversion. In Thinking Fast and Slow, Daniel Kahneman writes, “Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.” Additional research in the book shows that the pain and fear of loss is generally at least two times greater for most people than the pleasure and excitement of gain. Before we make a bet, the payoff has to be at least twice what we could stand to lose. If we are offered $10 or a gamble for more money, we prefer the sure $10 over the gamble, until the payoff of the gamble far outweighs the possible loss of the guaranteed $10.

 

I believe this is at the heart of the trite saying that people become more “conservative” as they get older. The reality is that as people get older they acquire more wealth, are more likely to own a home, and secure their social standing. People are not “conservative” in some high-minded ideological sense of “conservativism,” they are self-interested and risk averse. They don’t want to risk losing their wealth, losing value on their home, or losing social status. To me, this more plausibly explains conservatism and complacency than do political ideology explanations or cultural decadence.

 

To me, Kahneman’s quote is supported by Cowen’s thoughts. Institutions are built and run by people. People within institutions, especially as the institutions have become well established, become risk averse. They don’t want to lose their job, their position as the office veteran who knows how to do everything, and their knowledge and authority in their field. As the potential for loss increases, people become increasingly likely to push back against change and risk, ensuring that we cannot lose what we have, but also forgoing changes that could greatly benefit all of us in the long run. Loss Aversion has come to dominate how we organize our societies, and how we relate to one another, at individual, social, and political levels in the United States.

A Glitch in “Voting With Our Feet”

Posted on by jabittan
In the United States, we hold on to terrific myths about the power of the individual. We celebrate (mostly) entrepreneurs like Elon Musk who bring us new technologies and cool cars and we have magazines focused entirely on major business leaders whose insight and innovation power our most successful companies. We believe that individuals hold the power to change the world, and we believe that giving people freedom will lead to rational decisions on the part of individuals to find the best outcome for our country.

 

An idea that pops out of this myth is the idea of voting with our feet. The term refers to people making a decision to go someplace else, to chose something else and to literally move ourselves with our feet to a different option. We might vote with our feet when we move from one city to another, or when we leave one store to shop at another, or quite literally in some state caucuses when we walk from one side of a room to another to support a different political candidate. We believe that our individual choices and where we chose to shop and how we chose to vote will really make a difference in the world.

 

This is only partially true, and only sometimes has the positive outcomes we hope for. In many instances however, our individual choices are just not enough to overcome structural factors which entrench the status quo. Sometimes we vote with our feet, but really move from one option provided by a company to another, without really making a difference in the bottom line of the company we are voting against with our feet (think of moving from Facebook to Instagram, which is still owned by Facebook). Voting with our feet can also have very negative consequences, such as entrenching segregation without having anyone to blame.

 

In The Complacent Class Tyler Cowen writes about the ways in which our society is becoming more segregated through the use of voting with our feet. Across the country we see people move into “nicer” neighborhoods which creates a level of economic, racial, and political segregation that should raise moral concerns. About the issue Cowen writes, “The self-selection process is running its course, and how people are voting with their feet often differs from which is coming out of their mouths.”

 

Many people who believe that schools and communities should be more diverse are moving to areas with less diversity. They are not consciously choosing to live in more segregated areas, but they are voting with their feet to leave areas of worse economic condition but greater diversity in favor of more economically sound and culturally homogeneous regions. Sometimes the goal is to move into a more wealthy neighborhood, sometimes the goal is to move to reduce a work commute, and sometimes the goal is to move to be closer to a better school. Often the results are neighborhoods with more similar people in terms of race, income/wealth, and cultural values and backgrounds, ultimately, more segregation.

 

This process is playing out because we empower the individual in our society and don’t want to do anything to limit the power of the individual’s choice. Segregation is a result of the power to vote with our feet, but it is also the dismantlement of the myth of the individual. The rational individual is not making individual choices that make the world a better place. Instead, the individual is working on feelings that lead to a desire for greater similarity between themselves and their neighbors, ultimately creating a worsening system of segregation. We should learn from this example that our individual choices are both not sufficient to bring about the best outcomes for our society and planet, and that simultaneously our individual choices can have a serious negative outcomes when left unchecked. We must think first about the systems that structure our decisions, and then think about how we can make the most of our choices for positive, rather than negative outcomes.

Considering the Median Centrist Voter

Posted on by jabittan
This morning I was listening to a recent episode of The Ezra Klein Show and Klein said something interesting in how we think about our politics. Our institutions have their own memories, which are formed and created often by the memories and available histories of the institutions members. In politics today, we have an institutional memory of a time roughly after World War II where a lot seemed to be accomplished and we seemed to be less polarized. This view is our baseline for evaluating political function (or dysfunction) and it includes an idea of a rational moderate voter with both parties trying to adjust their platforms to capture a greater marginal share of this undecided moderate electorate.

 

This institutional memory (whether it is correct/accurate or not) is not what we see in our political system today. We act as if it should be the norm, but it is long gone and we are left with complaints about the loss of this ideal system. Tyler Cowen writes the following about our electorate and perceptions of our electoral system in his book The Complacent Class,

 

“Core government programs are still backed by most voters, but political change at the margins seems to result from complex battles among lobbies, interest groups, financiers, political maneuvering, and who can win public relations campaigns fought in the media. The ideal of the perfectly centrist voter as the ultimate adjudicating force just doesn’t appear that relevant for thinking about a lot of those changes we do observe.”

 

I’m not sure why we still live in a world where we believe that politics should operate in the way we believe it operated almost 70 years ago. Popular media and civics classes present government as ideally functioning in a way that compromises and attempts to sway marginal centrist voters who have not made up their mind. These votes don’t exist, and likely never existed. Better models should be presented and discussed so that we can better evaluate our government and what is or is not taking place within our institutions. By having more honest and open conversations, we can better address the role that identity and policy play in politics (hint: identity is all there is, policy is just a rationalization). Median and moderate voters who have not made up their mind don’t exist in the way we think they used to. They might exist, but more as individuals with identities pulling them in different directions, not as rational voters who are trying to make a decision based on policy outcomes and preferences.

Placing Blame Rather Than Working Toward a Solution

Posted on by jabittan
I like to think deeply about public policy. I think there are very interesting structures and ideas that we could put in place which would help us to achieve better outcomes in our societies. The challenge, however, is that the outcomes we want to see are based on value judgement. As in, I think the world should be more this way or that way. When we use the word should we are expressing a judgement that represents some type of value that we hold, which other people might not hold. That means that our political structure is ultimately based on opinion and preference rather than rational cold hard facts.

 

But we don’t really see our world of politics in this way. We see the world of politics differently, believing instead that there is a clearly preferential best answer that can be empirically determined, and arguing as if we know what that perfect answer is. The result from this in the United States, where we have a two party system, seems to be polarization and contempt for the people on the other team. Across the globe, this tends to result in blaming others for bad things that we see around us, and voting for politicians who make us feel warm and fuzzy and rationalizing our support for them even if their ideas might not actually make sense when fully implemented.

 

In his book The Complacent Class, Tyler Cowen writes about this phenomenon, “Elections these days often seem more about who is to blame than who is to govern.” We don’t think deeply during an election about the governable skills that someone has. We discuss policy, but the reality is that almost none of us understand policy in a deep way, and if we do, we only understand one narrow policy space. We are not all economic experts across the board, we are not all education experts, and we are not all medical experts. But we have vague senses about what would be in our interest and what types of views we should hold to fit in with other people like us. As a result we fall into a blame game where we criticize the other side for bad things and put blinders on to ignore the governance shortcomings of our own team.

 

Cowen continues, “Voters are less inclined to see their selection as a long-term contract with a candidate or party and more likely to see it as resembling a transaction with a used car salesman.” This is not surprising if you consider that no one is actually a policy expert. We want to see people like us do well in society, so we align with whoever seems to be best positioned to do that. We don’t really know what will lead to good outcomes, but as long as the politician or party says that people like us are good, then we know to align with and vote for.

Countersignaling Today Through Clothing

Posted on by jabittan
I’m a big fan of stoicism and I also try to think about the recommendations from The Minimalists in my daily life. I try not to let material goods control me, and I try to stay away from overtly status seeking behavior. I try to be pretty content with an average used car and try not to feel a need to have very expensive clothing. I think these are meaningful ways to live and approach life, but part of what I might be doing is a substantial amount of countersignaling.

 

Tyler Cowen writes about this kind of countersignaling in his book The Complacent Class. He writes, “American’s at the top have become the experts in countersignaling, because they don’t feel they have to impress anyone. Everything is now casual, because the new aristocracy of talent enforces all the conformity that is needed.”

 

I started at a Bay Area tech company after college. We all wore hoodies and only a couple of our top sales executives ever wore slacks or a suite. The emphasis was never on what you owned or how you dressed, but on how smart you were and how many impressive ideas you could come up with. This came pretty natural to me, and it aligns with the stoic and minimalist ideas I frequently engage with.

 

At the same time, I think it is valuable to pull everything apart to look at my behaviors more closely. I hate the time and energy that goes into dress clothes. I like the relaxed feel of casual wear and the fact that I can easily pack casual clothes in a gym bag without them becoming a wrinkly mess. I’m uncomfortable with expensive clothing, knowing that I could use the $140 for a solid pair of dress slacks on more meaningful causes than just me looking good. From many standpoints, I think the shift toward casual dress is a good thing, for worker health, comfort, and for how we use resources.

 

Simultaneously, there is still a lot of signaling that is going on with the way we dress, even when we are dressing casually. It says, “I’m so good I don’t have to worry about looking the part—my work speaks for itself.” Dressing casually says, “The older generation that set the rules is irrelevant, we are defining things how we want.” In some senses these signals are direct attacks against the generations that came before us and built the business world and culture that allowed my generation to come along and invent innovative tech. There is something dismissive in the attitude presented and something that might be more inclusive for younger more diverse workforces, but simultaneously prejudiced against older workers. In the end, I think the trend is a good one, at least if it can live up to its inclusive potential. Slacks, dress shirts/shoes, and ties are terrible, and we shouldn’t have to suffer through them and spend all our free time and money hassling over our clothes. We should be comfortable with a minimal set of clothing, and focus on doing great work. Simultaneously, we should be respectful of the business culture that helps us be professional and get good work done. Somewhere in the middle lies a reasonable blend of both, and all along the spectrum is a lot of signaling and countersignaling.

Prioritizing Complacency

Posted on by jabittan
I studied political science during my Masters degree at the University of Nevada, and an important thing that we discussed in our classes early on is to think of a country by thinking of its voting constituents. Governments are ideally representative of all people in a society, but in reality, they are representative mostly of the people who vote for them. If you want to understand a society, think of its most likely voting groups, and their preferences and values are the ones you are most likely to see expressed in public policy.

 

Tyler Cowen, an economist at George Mason University understands this and writes about it in his book The Complacent Class. Cowen recognizes that the voters matter because they influence the elected officials who make decisions, and voters are more likely to elect people who are like themselves. The class of voters in our country now, and the class of elected officials, Cowen argues, is relatively homogeneous, especially in regards to complacency. He writes,

 

“So overall, America is building its core culture and norms and politics more and more around people and families who just aren’t that mobile across the generations and who have a relatively static and stratified sense of how things work, which indeed is a pattern they see in their own lives. In other words, we are building our core norms and culture around the complacent class, even though some very different tendencies exist in the America of today.”

 

Our biggest voting block in the US is older, whiter, wealthier, more likely to be retired, and less likely to move across state borders in a given year than the general public. Those who can vote consistently, participate in town halls, and write letters to elected officials are the ones who have more time to spend tracking politics and attending events. They are more likely to have been rooted in a specific community for a longer period of time, and are more likely to have more wealth, equating to more vested interests in maintaining a status quo.

 

Our key electorate, is not a very dynamic group.

 

Cowen contrasts this group with immigrants, who have less free time, are likely to be working more to earn more, and are more likely to have dynamic lives that include moving from one place to another, starting a new business, or trying a new approach to something that has existed before. Additionally, younger generations show similar patterns of more dynamic lifestyles than our main electorate.

 

However, many immigrants cannot vote if they have not obtained citizenship, and younger people are less likely to vote and less likely to have a strong sense of what is happening in government, especially local government in a new region they have moved to.

 

So in the end, the strongest voice in our politics is likely the most risk averse, homogeneous, and complacent segment of our population. The dynamic people that our country relies upon in order to push the economy forward and deliver new innovations is not prioritized in our government and public policy. The voices of those who benefit from the status quo are usually the loudest. Cowen is concerned, and I think rightfully so, that we may be headed in the wrong direction by deprioritizing the most dynamic segment of our population and over-representing the least dynamic people in our country. We will have to make big changes to address the challenges we face in our new globalized world economy, and that will require thinking dynamically about growth, the future, and life in general.

We Should Give Our Desire for Normalcy and Incrementalism More Attention

Posted on by jabittan
I think the idea of political stability is generally underrated and under-explored in the context of current American political discussions. We are in the midst of deep demographic changes in our country, we seem to be at a real inflection point in jobs and automation, and inaction on several major policies have driven support for massive upheavals in some aspects of American public policy. Boring incrementalism seems to be very out of favor within both Republican and Democratic sides of the political divide, and the likelihood of clicking a news article with a headline applauding an incremental approach to a policy solution or a marginal change in anything is laughable.

 

But incrementalism is probably what most Americans would actually prefer. Many of us would just like a stable equilibrium, rather than a wholesale confusing and controversial change. The candidacy and relatively strong polling from Joe Biden seems to support the idea that a lot of people, despite news coverage of big events and potential systematic changes, really just want normalcy. The idea that stability itself could be a good thing and a desired political outcome feels undervalued to me.

 

This idea of incrementalism and normalcy isn’t 100% related to the quote that got my mind working in this direction this morning, but I think I can tie things together. In his book The Complacent Class, Tyler Cowen writes that the idea that increasing economic growth and equity will reduce social tensions is wrong. He writes,

 

“The 1950s and 1960s are considered a golden age for middle-class income growth in the United States. The same is true for black income growth, as the decades leading up to the 1960’s saw the greatest gains in African American income in the history of the republic. Yet many of the 1960s riots were motivated by race, and many African Americans were prominent participants. In short, income gains are no guarantee of peace.”

 

In the 1950s and 60s, inequality sparked outrage and action by those who were excluded and those who felt a visceral sense of injustice. Rising wages gave people the belief that they could strive for more and reach a better future. People didn’t simply enjoy a rising tide, but used a surge in income to demand that the tide rise equitably for all.

 

Today, in contrast, we have flattening wages and a sense of complacency around most things for most people. I think the majority of American’s would say they are not happy with the status quo, but most are simultaneously too complacent to take action. Some small-ish groups are extremely upset and outraged over the current political and economic dynamics of our country, but their voice is likely overplayed relative to their size and influence. While some energy is swelling for massive changes, as can be seen by the candidacy of Bernie Sanders, an equal mass is pushing for boring incrementalism and stability.

 

Cowen continues, “In the 1960s, Americans expected more, they didn’t quite get what they had set their eyes on, and so they became more restless.”  In a sense, we have just accepted that we won’t get what we have our eyes set on. Five years ago it was common to hear people lament, “we were promised flying cars, and what we got was 140 characters,” in reference to Twitter being our best innovation as of late when we all wanted flying cars. In 2020, we seem to have just given up, and we are waiting for our electric cars, which won’t really have any cataclysmic shifts in our auto industry. Perhaps it is stagnant wages, perhaps it is something else, but I think that Cowen is correct in stating that we have lost our restless spirit. I think the desire for normalcy and incrementalism should be more explored and receive more focus than it does in our current media environment.

An Illusion of Security, Stability, and Control

Posted on by jabittan
The online world is a very interesting place. While we frequently say that we have concerns about privacy, about how our data is being used, and about what information is publicly available to us, very few people delete their social media accounts or take real action when a data breach occurs. We have been moving more and more of our life online, and we have been more accepting of devices connected to the internet that can either be hacked or be used to tacitly spy on us than we would expect given the amount of time we spend expressing concern for our privacy.

 

A quick line from Tyler Cowen’s book The Complacent Class may explain the contradiction. “A lot of our contentment or even enthrallment with online practices may be based on an illusion of security, stability, and control.”

 

I just read Daniel Kahneman’s book Thinking Fast and Slow and in it he writes about a common logical fallacy, the substitution principle. When we are asked difficult questions, we often substitute a simpler question that we can answer. However, we rarely realize that we do this. Cowen’s insight suggests that we are using this substitution fallacy when we are evaluating online practices.

 

Instead of thinking deeply and critically about our privacy, safety, and the security of our personal or financial information in a given context, we substitute. We ask ourselves, does this website intuitively feel legitimate and well put together? If the answer is yes, we are more likely to enter our personal information, allow our online movements to be tracked, enter our preferences, and save our credit card number.

 

If matching technology works well, if our order is fulfilled, and if we are provided with more content that we can continue to enjoy, we will again substitute. Instead of asking whether our data is safe or whether the value we receive exceeds the risk of having our information available, we will ask if we are satisfied with what was provided to us and if we liked the look and feel of what we received. We can pretend to answer the hard questions with illusory answers to easier questions.

 

In the end, we land in a place where the companies and organizations operating on the internet have little incentive to improve their systems, to innovate in ways that create disruptive changes, or to pursue big leaps forward. We are already content and we are not actually asking the hard questions which may push innovation forward. This contentment builds stagnation and prevents us from seeing the risks that exist behind the curtain. We live in our illusion that we control our information online, that we know how the internet works, and that things are stable and will continue to work, even if the outside world is chaotic. This could be a recipe for a long-term disaster that we won’t see coming because we believe we are safely in control when we are not.

Everything Matches

Posted on by jabittan
Tyler Cowen is worried about our matching technology. We have algorithms which tell us what TV shows to watch, which books to read, what wine to drink, and what shoes to wear. We can be matched with romantic partners and music, and very often our matching gives us exactly what we wanted and were hoping for. But, in the eyes of Cowen, all this matching has a dark side. It can make us complacent and can lead to greater segregation between people with different backgrounds, experiences, and interests.

 

In his book The Complacent Class Cowen writes, “Better matching for all its pleasures and virtues, is also in some regards uncomfortably close to the concept of more segregation … Very often we match to what we already like, or what is already like us. Matching brings many new and varied delights into our lives, but in a lot of spheres, the like-to-like effects of matching outweigh the ability of matching to shake us up. That is partly why matching can make us so happy.”

 

We like matching. We like knowing that other people like us already like the restaurant we are going to, or the show that is on tv, or the song that is about to play. We like when things are similar to what we already know. It reduces our cognitive burden and eliminates the stress of picking something and spending money on something we ultimately do not like. We are all risk averse to losing money, and hate the feeling of sunk costs. Matching makes us happy by making decisions more simple and helping us avoid the feeling of loss. It reduces our worries and in many instances, such as auto-playing shows online, we don’t even have to make a decision at all.

 

At the same time, matching technology reduces the chances for us to find something new. Up-and-coming artists with a new take on an old style can have trouble breaking through if the algorithms don’t match them with our tastes. We might miss out on great new content because our matching technology put us in a certain silo. When we reduce opportunities for new experiences, we stagnate, leading to the complacency that Cowen feared as we lose a belief that we could be something better than what we are and currently have.

 

A further downside to the matching technology we use is the potential for extreme segregation. If we really like one sport, then we can be pushed ever further into the specifics of that sport. Our algorithms can provide more and more specific content, advertisements, and connections to that single sport, eliminating things unrelated to the sport from our orbit. As we get further along, we might find that all the people we interact with are also obsessed with our particular team from one particular sport, and we will lose some ability to be with people who are not also living in the same bubble.

 

The sports example is a relatively harmless side of segregation, but it can be worse. Racial, political, and religious segregation are also possible with our matching technology. As we burrow down in our own communities, in real life or online, we may alienate those who do not look, think, and hold the same preferences that we do, leading to situations where we cannot have meaningful interactions with diverse people. This type of segregation is not healthy in a democracy because it makes shared visions and understandings of society and culture impossible across different isolated bubbles.

 

Our matching might make us happy and reduce our cognitive load, but it certainly comes with dangerous downsides. We can embrace the matching technology we have, but we should also be aware of what can happen if we let it make too many decisions in our lives. We should also find ways, times, and spaces where we can get beyond the matching to try something new and experience something beyond our typical bubble.

Stagnation

Posted on by jabittan
Tyler Cowen’s book The Complacent Class challenged my thinking on a moral level that I had not expected. He argues in the book that it is morally imperative that we make efforts to increase global GDP and encourage economic productivity and development because it will raise living standards and improve people’s lives at a level that individual interventions cannot. After reading his book and listening to him discuss his ideas, I think he is correct, and I think his concerns about a lack of innovation and a general stagnation in the United States has a solid foundation.

 

In the book, Cowen writes about his main area of focus and consideration regarding progress and development. He writes, “The ultimate measure of technological progress is not the number of gadgets we own, but rather how much better are lives are.” Complacency, in Cowen’s view, doesn’t care if our lives are getting any better. Complacency says that what we have satisfices. We are not really maximizing our lives along any particular dimension, but we are generally content with the status quo, and not pushing new frontiers. To Cowen, this is a dangerous place to find ourselves.

 

“The income of the median or typical American household is down since 2000, and unless wage gains are very strong in the next few years,” writes Cowen, “this country essentially will have gone twenty years with wage stagnation or near wage stagnation for median earners.”

 

Stagnation might not just be bad, it might be a moral failure. If we can improve the standards of living for people across the globe, free up time, increase productivity and efficiency, we can help lift more people out of destitute poverty. Increases in technology can bring increases in living standards that help people get away from indoor wood-fire cooking, access healthy drinking water, and generally avoid unsanitary conditions that lead to preventable health conditions. Increasing productivity and global GDP might just be the best way to help reduce suffering across the planet.

 

The statistics on stagnation suggest that we are not moving forward but instead sitting where we are in a state of complacency. Stagnation likely describes part of the opioid crisis and the anti-immigrant sentiment that fuels right-wing government coalitions across the globe. Stagnation projects a fixed pie that we all get a small share of. Each slice is just enough for us to be content, but any dreams of enlarging the pie are gone. This is Cowen’s fear, and the statistics on wage stagnation seem to suggest that it is the reality we are facing in our country today, and that complacency could have dramatic impacts for global development and the lives of billions of people beyond the borders of the United States.