*The Economist* reviews *Average is Over*

by on September 20, 2013 at 4:32 am in Books, Economics | Permalink

The very interesting and provocative review is by Lexington, here is one excerpt:

Mr Cowen’s vision is neither warm nor fuzzy. In his future, mistakes and even mediocrity will be hard to hide: eg, an ever-expanding array of ratings will expose so-so doctors and also patients who do not take their medicines or otherwise spell trouble. Young men will struggle in a labour market that rewards conscientiousness over muscle. With incomes squeezed, many Americans will head to the sort of cheap, sun-baked sprawling exurbs that give the farmers’-market-and-bike-lanes set heartburn. Many will accept rotten public services in exchange for low taxes. This may sound a bit grim, but it reflects real-world trends: 60% of employers already check the credit ratings of job candidates; young male unemployment is high and migrants have been flooding to low-tax, low-service Texas for years.

Read the whole thing.  And here is further book coverage from The Economist.

1 Steve Sailer September 20, 2013 at 4:59 am

Thank goodness all the smart people have favored massive low-skill immigration for years.

2 Gabe September 20, 2013 at 1:08 pm

my 2 cents:

Just moved to Houston suburb from Boston suburb(had been there 10 years). Property taxes are higher in Sugarland and there are actually more services(garbage pickup)…better public schools than we had in the Boston Suburb(Scituate).

I enjoy the summers in Scituate MUCH more. Moved to Texas for the energy trading mecca career opps.

The local tax waste in Texas is more visible(huge school “administration” buildings). But the invisible waste in Massachussetts = ridiculous public pensions= probably a wash between Texas and Mass. Income taxes are lower in Texas so there must be less overall waste from governemnt here.

Still public schools are not optimal in either place…If I make enough money we will be back in private schools in a year or two.

3 Selznak September 20, 2013 at 5:24 am

Things I wonder about, assuming that “Average is Over” is correct.

One reason for not taxing high earners is that it reduces the incentives to do high-reward, high-value work. The shrinking of the middle means that there is a greater incentive to do high-reward, high-value work, since there is more reason to fear poverty. Therefore, in an “Average is Over” world it should be possible to tax high earners at higher rates.

Another reason for not taxing too high is that it creates a drag on the economy. If “Average is Over” is correct that the shrinking of the middle is because of technological improvements, those improvements should be leading to a increase in overall wealth. If some of this wealth is redistributed with taxation, even with the drag and inefficiency of taxes, it should be possible to make people wealthier than at present.

So, doesn’t “Average is Over” imply that taxation should be made higher and more progressive in the future, in order to ameliorate some of the effects on the middle class?

4 Frederic Mari September 20, 2013 at 5:30 am

Of course. But people hate taxes, no matter how much they actually benefit from taxes: http://theredbanker.blogspot.com/2013/09/supply-side-liberalism-interesting-case.html

TBF, as far as any individual is concerned, his taxes are always a personal loss while public good provision is… spread-out. So you got a natural tendency to over-evaluate your tax loss and under-appraise your public goods gains.

5 Ted Craig September 20, 2013 at 7:11 am

If you look at tax rates across countries, high-service nations like Sweden are actually less dependent on the rich for taxes than the U.S.

6 Selznak September 20, 2013 at 7:59 am

Sure. Sweden historically has had a pretty even wealth distribution, with a large middle class, and a relatively small upper class to tax. The point of “Average is Over” is that that historical-Sweden-like countries won’t be possible in the future, as technological change will shrink the middle class, leaving it more polarized into rich and poor. In accordance with that prediction, inequality does seem to be rising in Sweden.

7 Buzzcut September 20, 2013 at 8:30 am

Wasn’t Ted Craig’s point that social democrat countries have things like VAT’s that make their tax system much less progressive than the US? Taxes on everyone are much higher, across the board.

8 Bert Derpleson September 25, 2013 at 5:26 pm

Incomes in Sweden are becoming more heterogeneous because Sweden is becoming more heterogeneous. Note: Both are bad.

9 Brian Donohue September 20, 2013 at 7:46 am

“Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.”

Which reminds me: I’ll be interested in what the progressivity of the country’s tax burden looks like in 2013 with the new taxes and all.

Most or all of the stops you recommend have been pulled out, and here we are.

10 Selznak September 20, 2013 at 7:59 am

If “Average is Over” is correct, in the future it will be a much more powerful horse, pulling a much smaller middle-class wagon. But if the horse will be so much stronger, why can’t we extend that wagon, instead of telling our kids to just get used to walking behind it?

11 Frederic Mari September 20, 2013 at 8:07 am

+1.

And the answer – our property rights, as presently understood, stand in the way – is going to be fairly difficult to swallow for a lot of people.

12 Brian Donohue September 20, 2013 at 9:36 am

Oh come on Fred the Red, these are just new clothes for an old battle.

The way I see it, our ole dray horse is already having a helluva time lugging Leviathan around.

13 Frederic Mari September 20, 2013 at 9:50 am

@Brian

I knew this moniker of ‘red banker’ was going to give me headaches… I like it but it gives the wrong image…

I am not a Marxist. I do believe in property rights as an important, nay, the important way to structure incentives. But I think that Noah Smith’s suggestion of every born baby being given some Capital endowment as well as some Labour endowment is a good image…

And, if your dividends started financing a meaningful chunk of your consumption, what would that do to corporate sales?

14 dirk September 20, 2013 at 3:40 pm

“in the future it will be a much more powerful horse, pulling a much smaller middle-class wagon”

Was the horse ever pulling the middle-class?

15 endorendil October 2, 2013 at 8:35 am

“If “Average is Over” is correct that the shrinking of the middle is because of technological improvements, those improvements should be leading to a increase in overall wealth. ”

Not really. There needn’t be an increase in overall wealth. In fact, it is more likely that the overall wealth would start decreasing at some point because wealth gained at the top may not offset wealth lost in the middle.

16 Alistair Cunningham September 20, 2013 at 5:46 am

Is there any reason Amazon is asking me $20.37 for the Kindle edition of Average Is Over? This is quite a bit higher than similar books. It’s also more than Amazon is asking for the hard cover edition at $16.49.

http://www.amazon.com/Average-Is-Over-Stagnation-ebook/dp/B00C1N5WOI/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1379670203&sr=1-1&keywords=average+is+over

17 dirk September 20, 2013 at 3:44 pm

Where do you live? It’s asking me $12.99.

18 Frederic Mari September 20, 2013 at 5:57 am

I wasn’t convinced by The Great Stagnation thesis on explaining why things are the way they are (though I am hearten when googling for my question below to find TC arguing that a big chunk of the slow down is due to health care, education and housing inflation. I would add ‘retirement’ to the list) but I find ‘Average is Over’ to be simply extending the trends we’ve seen in the last 30 years and thus relatively believable as long as no one rebels politically.

NB: The question referenced above. I’d like to write a blog-post on TGS and Average is Over; For this, I was looking for a post TC made/a commenter linked (hard to find, that!) about diverging sectorial productivity gains. Can someone help me find it?

19 mw September 20, 2013 at 6:02 am

I have a hard time accepting that TC actually believes this crap about a newly meritocratic ratings-driven society. Is there even one component of this utopian ratings system that being born into a well-off family wouldn’t automatically put you at the top of? What would Dick Fuld’s employee rating be? What real-world reflection would there EVER be of that?

20 Sam September 20, 2013 at 9:01 am

I think Tyler gets a lot of inspiration from the economics of sports. An older post had a link with him discussing these same trends in the NBA. The NBA is already a highly meritocratic organization. Of course there’s an incredible amount of luck involved in being noticed, but in general the best rated players are recruited, not the ones with the most well-off parents. It’s the sabermetrics of everything.

Think of the current way boards choose CEOs as analogous to the way old-school managers drafted baseball players — if they’ve got the money, they go for the most prestigious names; apply a lot of ‘gut’ and superstitious thinking, and look at statistically inferior performance indicators. Dick Fuld is a product of an older pre-big data means of picking executives. One consequence of Tyler’s predictions is that a lot of underdog “Oakland Athletics” style companies will succeed by finding the most cost effective management, and other talent. Ultimately the big guys will follow suit.

21 Andrew' September 20, 2013 at 9:37 am

Sports guys would also literally get away with murder if the judge would give them a weekend furlough.

22 Claudia September 20, 2013 at 6:53 am

“Others will endure stagnant or even falling wages, as employers measure their output with ‘oppressive precision’.”

.. and how does that compare to the currently imprecise and subjective (read: favoritism/human bias) measurement? Most people averse to ambiguity/uncertainty and dislike being treated unfairly. I get the dystopian vibe of transparency in the book but better (fairer/transparent) matching functions and small data-guided tweaks to enhance productivity might be the new ‘low hanging fruit in a tech rich world. I just hope the programmer remembers to put in output for positive feedback too … figuring out your value-added (by success, not just a lack of failure) is important. Precision need not be oppressive.

23 prior_approval September 20, 2013 at 7:46 am

Do you honestly think anyone working in a call center, to give a contemporary example, is imprecisely measured? Or any working at a POS (point of sale) terminal? Or anyone connected to an ERP system?

In other words, ‘Precision need not be oppressive’ may be proper in measuring machine performance, but humans are not machines.

Unless one feels that a self check-out workstation is a better way for a store to run things, of course.

24 Claudia September 20, 2013 at 8:14 am

Actually I have a friend who manages at a small call center and there’s always a human element to measurement and feedback … thresholds not triggers. I agree the devil’s in the detail.

25 Frederic Mari September 20, 2013 at 8:32 am

Interesting point indeed.

For example, I remember reading that it wasn’t doctors who make the most mistakes/the more egregious mistakes who get sued the most. There’s something else. And that something else is, basically, their bedside manners i.e. an incompetent but pleasant doctor will get sued a lot less than a competent asshole.

Because the one time the asshole will make a mistake, the patient won’t forgive and will sue…

But the idea of precise measurement for all human endeavours clashes with the idea of self-branding becoming ever more important. Right now, favouritism/human bias is the main basis for promotion and climbing the corporate ladder. Does anyone think that more precise measurements would change anything to that? Admitting it’s even possible to measure, say, the quality of project-based team members and management?

26 Ted Craig September 20, 2013 at 7:13 am

“also patients who do not take their medicines or otherwise spell trouble”

Don’t doctors already do this?

27 matt September 20, 2013 at 7:15 am

Things won’t be so bad if you have muscles. You may lose out in the labor market but will still succeed in the dating market.

28 Steve September 20, 2013 at 7:23 am

At $12.99 for the Kindle edition, too bad a lot of those unemployed young males won’t get the message.

29 prior_approval September 20, 2013 at 7:55 am

‘Mr Cowen’s vision is neither warm nor fuzzy.’

Well, unless you are one of the well off, having a dedicated coach ensuring your well being.

‘… an ever-expanding array of ratings will expose so-so doctors and also patients who do not take their medicines or otherwise spell trouble.’

Ah – recognizing the ‘troublemakers.’ All determined most algorithmically, unlike in the past, to quote a Suicidal Tendencies song –

‘So we decided that it would be in your interest
If we put you somewhere
Where you could get the help that you need
And I go, Wait, what are you talking about, we decided
My best interest, how can you know what’s my best interest is?

How can you say what my best interest is?
What are you trying to say, I’m crazy?
When I went to your schools, I went to your churches
I went to your institutional learning facilities?
So how can you say I’m crazy?’ – Institutionalized

30 Andrew' September 20, 2013 at 8:25 am

So, increased scrutiny should be zero sum or even positive sum, so I’ve been wondering how it could end up being negative sum. One possibility would be liability.

31 AD September 20, 2013 at 8:28 am

Can we dispel the myth that lower taxes means lower services? I recently moved from a low-tax western state to a high tax northeastern state. I expected to find more public services. I didn’t. I found less. Fewer parks, fewer swimming pools, lower quality libraries, more traffic, higher crime, etc. Some of this might be because I have a young family and more services in the west are aimed at that demographic while those in the northeast are aimed at poverty and old people.

32 Finch September 20, 2013 at 11:04 am

+1

Cross the border between Massachusetts and New Hampshire and watch as the infrastructure and services go up in quality while the taxes go way down. It’s like North Korea and South Korea.

The correlation between tax and government quality might even be negative among the US states.

33 gabe September 20, 2013 at 1:21 pm

no trash pick up in massachussetts…I drove my own truck filled with garbage to a “dump” err transfer station in massachuseets for the 10 years I lived there. We cotnracted with private companies for trash pick up some of the time too..I actually prefer that to the bundled monopoly we are forced into in the “higher servie” state of texas…but it is doubly stupid to say that Mass was “high service” while Texas is “Low service”.

34 Hoosier September 20, 2013 at 12:57 pm

Try living in Florida and then tell me about high quality public services.

35 Floccina September 20, 2013 at 1:06 pm

I moved from RI to Florida and one of the things that I noticed was that Government services in RI seemed worse despite the much higher taxes.

36 gabe September 20, 2013 at 1:24 pm

How can you make statements on comparing “high service” vs “low service” while only making silly comments about one state. Please tell me about the high quality services in Massachusetts or new jersey…I guess you place a real high value on paying $100/hr to donut eaters to stand next to all construction sites for NO reason?

37 Slocum September 20, 2013 at 9:01 am

A bit of a countervailing trend?

http://www.detroitnews.com/article/20130920/AUTO0101/309200046/Manual-labor-helps-Chrysler-boost-capacity?odyssey=tab|topnews|text|FRONTPAGE

““We’ve found over the course of time that our return on investment for some of this automation is very low because we turn around and change it to accommodate something that may not even be that major,”

Are these laborers providing ‘muscle’? Not really. What they’re providing is flexibility — the ability to be ‘programmed’ and ‘reprogrammed’ rapidly and to be redeployed in new configurations.

38 Andrew' September 20, 2013 at 9:41 am

“geared to appeal to his audience of younger white males”

You obviously don’t know this guy.

39 radical blogger September 20, 2013 at 6:44 pm

Evidence to support your argument?
My evidence is the frequency of how often palecon/libs writers return to the IQ theme.

Also, the post of mine which you quoted was censored, deleted.

Typical….

40 prior_approval September 21, 2013 at 12:59 am

Luckily, Andrew’ has some experience with this, so he has a fair idea just how typical it can be.

41 Nick_L September 20, 2013 at 9:51 am

In case anyone missed the reference in the lexington article.

http://en.wikipedia.org/wiki/Peasants'_Revolt

http://en.wikipedia.org/wiki/Wat_Tyler

42 mike September 20, 2013 at 9:52 am

“Young men will struggle in a labour market that rewards conscientiousness over muscle.”

I like this new PC meme. Men and women aren’t exactly the same any more. Women are more conscientious and men are more… muscly.

43 prior_approval September 20, 2013 at 10:23 am

And yet, one of the unavoidable statistically based realities of the differences between men and women is muscular strength, particularly in the upper body area – though obviously not definitive, here is just one data based example – http://www.ncbi.nlm.nih.gov/pubmed/8477683

And since when did men and women become identical? After all, even the most fanatic MRA or devoted feminist recognizes that human males don’t get pregnant, to cite another example of where a ‘PC meme’ is obviously impossible to stand against empirical data.

44 Larry Summers September 20, 2013 at 10:40 am

Careful with that ‘statistical based reality’ stuff.

45 Dan Weber September 20, 2013 at 11:23 am

Male refers to gender, which is a social construct. Check your privilege.

46 mike September 20, 2013 at 5:00 pm

I don’t get it, is PA agreeing with me in his own disagreeable way?

47 A Gen Y White Collar Worker September 20, 2013 at 10:47 am

Yes, women are men are equal, and any differences in outcomes reflect sexism, unless women are doing better, in which case it’s just intrinsic characteristics of women being better suited for the current environment.

Quite a racket if you can get it. #Solidarityisforwhitewomen, though, not all women. We’re talking farmer’s market and bike lane people.

48 Andrew' September 20, 2013 at 12:15 pm

I wasn’t there, but was that stuff real and did you really listen to it?

As my daughter this morning was making a Mickey Mouse family with the same toys my son had the very notion that not only would I not have cooed at him with exactly the same high-pitched voice but I would have slapped them out of his hand and told him “fuck that shit, son, go get a fuck’n truck.”

49 Dave September 20, 2013 at 1:06 pm

Are we sure the trend to Texas isn’t just the relatively strong energy job market? I’m not sure that if oil drops to $50 that people would still move to TX in droves…

50 gabe September 20, 2013 at 1:32 pm

Well NG dropped to $1.90 and it didn’t stop Houston from being the NG center of the universe, nor did it cause massive layoffs. Companies have headquarters here for lots of reasons and taxes are definitely one of them. So energy is as important a reason as taxes for Texas jobs…but causation is mixed.

51 Bill Reeves September 20, 2013 at 1:38 pm

I have lived in both Houston and Chicago and for the life of me I cannot figure out what these supposedly ‘exra’ services I got when I lived in ‘high tax, high service’ Chicago are when compared to ‘low tax. low service’ Houston.

It can’t be public Universities because both flagship Universities have similar rankings UT (#51) and U of I (#42) and in state tuition at U of I is almost twice as high.

It can’t be the quality of public schools because according to the Dept of Education despite spending much less per pupil, TX public pupils score higher in national assessments.

It certainly can’t be the quality of roads and streets – Illinois roads are a shambles and with their stagnant population they haven’ had to build many new ones. TX roads are much better and they’ve added hundreds of miles of new urban freeways to accommodate a 250% increase in population.,

It can’t be world class parks, museums and theaters because almost all of that type of spending these is private, including he maintenance of many flagship and community parks.

The only real difference that I can see is that Illinois has more generous social welfare programs for the poor. But people who migrate their families and businesses do not tend to be poor and certainly aren’t moving for the smokin’ hot SCHIP benefits. They move for jobs – opportunity and and optimistic future. The other real difference is that Illinois government is much more complex and meddlesome which enables impressive levels of rent seeking. And that’s really the big ‘service’ difference between the two states: TX gives its people hope, IL: not so much.

In 1970 both states had 11 million people and the IL ones were much richer. Today TX has 27 million vs. Illinois 12 million and the Texans (a majority of which are minorities) are richer. Give me ‘low tax, low service’ over Obamaland any day.

52 Gabe September 20, 2013 at 2:28 pm

I’ll explain it. Low taxes are obviously better.

This designation of “low service” vs “high service” is the best way that statist have thought of to try and frame the arguments in a more opaque way.

53 Tim September 20, 2013 at 5:33 pm

Hmm… low taxes. Like the $3.4 billion in taxes the state takes in from oil and gas taxes? Those low taxes that keep the state afloat?

Huh. That seems like an easily reproducible economic plan for Massachusetts.

More likely it’s because there are massive revenues from oil and gas and Texas is still heavily green field development and hasn’t accrued legacy costs… yet. We should expect Texas to quickly look like Michigan when the oil runs out.

54 dirk September 20, 2013 at 6:12 pm

“We should expect Texas to quickly look like Michigan when the oil runs out.”

Maybe if you mean when all the oil is gone from the planet. Houston is a global energy hub. Only a small fraction of its business has to do with hydrocarbons physically inside Texas.

55 dirk September 20, 2013 at 3:58 pm

“I have lived in both Houston and Chicago and for the life of me I cannot figure out what these supposedly ‘exra’ services I got when I lived in ‘high tax, high service’ Chicago are when compared to ‘low tax. low service’ Houston.”

How about public transportation?

56 Finch September 20, 2013 at 4:18 pm

Arguably public transport is another “generous social welfare program[] for the poor.” Albeit with a significant free-rider problem.

In Massachusetts, at least, MBTA subsidies are a large fraction of the budgetary problem. So there may be something to your suggestion.

57 Tim September 20, 2013 at 5:30 pm

I can explain it better. Massachusetts doesn’t have massive revenues from oil and gas. Houston looks great because Houston has a fantastic local tax base. Comparing middle of nowhere Texas to middle of nowhere Massachusetts would probably be more illuminating. My hunch is Massachusetts would come off *much* more favorably.

Most people get transit backwards. It’s a tax to get drivers off the road and reduce congestion. When you compare it to things like adding and maintaining additional lanes that purport to do the same thing, it’s a pretty good deal. The social justice aspect is just icing on top.

58 Careless September 22, 2013 at 6:32 pm

“middle of nowhere Massachusetts” Doesn’t even exist in the sense that “middle of nowhere Texas” exists. The least densely populated county is part of a Metropolitan Statistical Area. It has a thousand times the population and population density of the least densely populated county in Texas (not hyperbole). There’s a county in Texas 1/4 the size of Massachusetts with 1/6600th a thousand people. There are chunks of area in West Texas larger than Massachusetts with fewer people than the largest town in the most “middle of nowhere” place in Massachusetts

59 Careless September 22, 2013 at 6:37 pm

oops,

There’s a county in Texas 1/4 the size of Massachusetts with 1/6600th the population of Massachusetts

fixed

60 Careless September 22, 2013 at 6:36 pm

Chicago has a two tier system. CTA (light rail, bus) for the poor, Metra (heavy rail) for the not-so-poor. It’s also interesting seeing how different the clientele is on the reverse Metra commute

61 A Gen Y White Collar Worker September 20, 2013 at 6:05 pm

Public transit sucks in Chicago. Just because it is good by American standards, doesn’t mean it doesn’t suck.

Signed,
Someone using Chicago public transit since 2005

<3 Suburbs <3 Highways <3 Parking <3 1 bedroom outhouses that don't cost a quarter million dollars

62 Alex' September 20, 2013 at 5:44 pm

You’re calling that network of cracks and potholes in Houston a selling point?

63 Floccina September 20, 2013 at 1:46 pm

IMO Tyler’s prediction would mean that it would good to teach children practical do it yourself skills. With such skills one can live a good life on very low income. Home and auto repair over Shakespeare and calculus.

64 FUBAR007 September 20, 2013 at 1:57 pm

>>The left is sure that inequality is a recipe for riots. Mr Cowen doubts it. The have-nots will be too engrossed in video games to light real petrol bombs.<<

You hope. In a country with hundreds of millions of guns, three post-war generations raised with a massive and cultivated sense of political and material entitlement, and where the military, unlike in the empires of old, draws its members not from the nobility, but from the lower and middle classes.

This country is a tinderbox soaked in gasoline.

Human nature doesn't change. The capacity for violence is hard-wired in. And the soma–in whatever form it takes–only works for so long…

65 The Anti-Gnostic September 22, 2013 at 9:02 am

LOL.

“The chalupas in this authentic American favela, located right here in suburban DC, are, in a word, delicious!

[gets kidnapped]

66 Peter Sperry September 21, 2013 at 2:03 pm

2/3rds of the way through the book and so far have learned much more about the impact of technology on chess than effect on economy or implications for public policy. Clearly there are serious lessons to be headed by leadership of public and private organizations; but every time the book threatens to deviate in these directions, the next paragraph or chapter returns it to a discussion of free style chess.

67 isomorphismes September 23, 2013 at 3:30 am

Tyler, what makes you so sure computers are going to play such an important role in this? I understand theoretically how programming/robots/sensors/data/AI can automate or measure things. But from where I sit info-technology seems perennially over-hyped. If you address this in the book maybe you will take the time to reply with a page range. Thanks.

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