Thursday, May 11, 2017


In the last Desert of the Real Economics post, the fading future of “work” was addressed. Unless you live in Salt Lake City or a gated community in the Deep South, you are starting to  see the hints that AI and Robots really are coming for your jobs. (Hint: If you have a Confederate flag on your pickup and a Gadsden flag on the back of your bass boat, they already “done come for your job and took it.”) 


Author Tyler Cowan has written a book called “The Complacent Class,” which posits that Americans no longer want an untamed and boundless frontier, but a well-fenced, and unfunded and unassailable flow of benefits.  Reviewer Edward Luce writes in the Financial Times:

In his new book, The Complacent Class, Cowen expands the scope of the argument to sociology. He believes America’s restlessness of spirit is giving way to a safety-first society. Instead of pushing on to the next frontier, Americans are busy gentrifying the neighborhood. They are also making it harder for others to move in.

We used to suffer from the Nimby syndrome – ‘not in my backyard’. Now we have graduated to Banana – ‘build absolutely nothing anywhere near anything’, says Cowen. Public life is stymied by Cave (‘citizens against virtually everything’) in which politicians fall back on Nimey (‘not in my election year’). Politics has reduced itself to a theatre of symbolic gestures in which pressing issues are left unaddressed. [Just recall the House of Representative's vote to "repeal and replace" the ACA with the AHCA. (Not very imaginative differentiation in the acronym department) The AHCA will die a merciful death in the Senate.] Behind all the electoral volatility lies stasis. Perhaps that is just as well. During the heyday of non-conformism in the 1960s, almost two-thirds of America’s federal budget was discretionary. Now almost 80 per cent of it is locked up. Donald Trump is unlikely to change that.

From a nation of risk takers to future fore-sakers in just three generations. The old Chinese proverb goes “clogs to clogs in three generations.”  Grandma and Grandpa start the business. Their sons and daughters get rich off of the business. And the grandchildren squander it.[i]  Luce continues:

Cowen views Trump as the ultimate expression of a country that wants to turn the clock back. America’s 45th president is an authoritarian nostalgist who won by promising to shield voters from the forces of change. People were voting for a return to the certainties of the 1950s. ‘What I find striking about contemporary America is how much we are slowing things down, how much we are digging ourselves in, and how much we are investing in stability,’ writes Cowen.

This complacency threatens our prosperity, reduces entrepreneurial spirit, and redistributes wealth upward.  American corporations are being strip mined after 20 years of regressive tax policies.  Since dividends and capital gains are taxed at a lower marginal rate than real work done by real humans.

The spirit of risk-aversion is also infecting corporate America. The once lavish budgets companies devoted to research and development are now spent on legal compliance and human resources. Corporate income is no longer invested in future growth. Earnings are instead returned to shareholders through dividends or share buybacks. The rate of US start-ups has also slowed to a historic low. In the 1980s, by one estimate, such businesses employed 12-13 per cent of Americans. That has now fallen to 7-8 per cent. [emphasis added]‘The complacent class itself has ceased to believe in the regenerative properties of the world we all inhabit,’ says Cowen. America is ageing and older societies take fewer risks. They also try to hold on to what they have. Perhaps unsurprisingly, the millennial generation is the least entrepreneurial of all, in Cowan’s view. They are ‘most committed ideological carriers’ of the new spirit of complacency.

The problem is that the tax favored treatment of capital return is higher than the amount that many corporations can generate. So rather than lock up spare cash (and corporations have lots of it) in corporate treasuries, it is returned to shareholders at tax-favored rates. This phenomena of "trickle down" economics, or as Archie Bunker called it in one of his cherished malaproprisms, "tinkle down" economics, should be finally put to rest when we observed what happens when marginal rates on capital returns are lowered. With high marginal rates, companies are incented to actually grow businesses. 

            Folks, the markets are tightening up like a toy airplane’s rubber band. Low volume days, staying well within moving averages. None of the stocks on the watch list have hit their buy points. So the Author’s are holding the RSP, the S&P 500 equal-weighted index. Historically, this equal-weighted index has outperformed the capitalization-weighted index. 

 The market will move downwards. We are just watching for when. May's edition of the Desert of the Real Economic Analysis** will return to addressing investment matters.
*The Meatmen are a post-punk band from the 1990s.
**Desert of the Real Economics is a member of the Feightner Consulting LLC family of companies. 

[i] One reason that the Author Rob strongly favors reasonable Estate and Gift Taxes is the inefficient nature of the transfer of vast amounts of inherited wealth. Inheritance is a gift triggered upon death. Heirs do nothing to earn this wealth except managing to more favorably select their genes. Gifts, as economists and commercial law attorneys know, are the least favored, and least protected, economic transfers in capitalist economies. Bargained-for exchanges are efficient and produce growth, unlike gifts, which are inefficient. In fact, a promise of a gift is unenforceable.  In addition to creating oligarchies like the Walton Family, the Koch brothers, and the trumps, which can exert inordinate political power, forcing the sale of these assets to more productive owners and funding necessary government services is simply more economically efficient.


  1. Re: Risk aversion -- I was listening to a podcast where someone talked about domestication of animals. We bred for youthful, compliant, peaceful behaviors (e.g. dogs retain a lot more puppy in their behaviors than wolves.)

    He then suggested that we humans are, in effect, domesticating ourselves.

  2. Dog
    There is an interesting experiement that a Russian geneticist did with foxes. Within just a few generations. They were selected for non-aggressive behavior. They are not domesticated as much as dogs, but they can live around humans.

    My baby girl is a six-pound Bijon Freise named Isabella. She has been selected only to sit right next to her humans.

    I agree that humans are likely domesticating ourselves. And I have read that immigrants have higher level of dopamine which can make them crave adventure and success more than others. We know that immigrants to America tend to be more motivated and more entrpenuerial. But this higher level comes at a higher risk of schizophrenia.

    I tell my friends worried that social security will collapse in 10-20 years that the best solution is to welcome hard working and well educated immmigrants. They will keep the program funded through their higher wages. But when I tell them that their anti-immigrant sentiment kicks in and the point is lost. There just aren't too many one-handed solutions.