Maybe Not Complacency

In his recent column at the Washington Post Robert Samuelson explores Tyler Cowen’s suggestion that “complacency” could explain our present slow economic growth:

We don’t move to new jobs as much as we once did; the cross-state rate of migration is down roughly 50 percent from its 1948-71 average. We don’t form new companies as fast as before; he cites one study estimating that start-ups now represent only 7 percent to 8 percent of firms, down from 12 percent to 13 percent in the 1980s. We increasingly cluster with people “like us” — in class, educational background — by marrying them and living in the same neighborhoods.

In isolation, none of these trends may be crippling, but collectively they undermine the economy’s flexibility and its “dynamism,” says Cowen. If people won’t move for work, some productive jobs will go unfilled. The growing segregation by background and lifestyles reinforces the reluctance to move. The scarcity of start-ups hampers job creation and higher living standards.

There may be some complacency involved but I don’t think that complacency, implicitly defined by Dr. Cowen as “increasingly valuing security and stability”, quite captures what’s happening.

The dictionary definition of “complacency” is:

self-satisfaction especially when accompanied by unawareness of actual dangers or deficiencies “When it comes to safety, complacency can be dangerous”.

and I believe that other explanations are more credible in explaining today’s lack of “dynamism”:

1. Managers have other alternatives to domestic investment for producing business growth or, at least, preventing business decline including overseas investment and rent-seeking, cf. the GM bail-out.
2. As I’ve mentioned before, large companies with the clout to get legislation enacted in their favor or engage in “lawfare” to prevent competition can inhibit start-ups.
3. Inadequate demand can make increased investment look less attractive.
4. Getting into other lines of business (particularly financial) may be a less risky way of producing business growth than expanding present business lines. It’s hard to imagine Henry Ford letting the auto business founder to become a banker. Or Tom Edison deciding that it made more sense to become a financier than invent the light bulb. Present day managers probably do not have that commitment. A company that was formerly a manufacturer may in effect become a wholesaler today through out-sourcing their manufacturing. And so on.
5. Multiple career households may make families “stickier” than they used to be. My mother-in-law followed my father-in-law anywhere he needed to go for work. If she’d had a career of her own, particularly one that paid more money or that wasn’t particularly portable, staying put even in the face of his unemployment could just be making the best of a bad situation rather than complacency.
6. Mortgages that are “underwater”, in which people owe more than than their houses are worth, make people less likely to move for work. The percentage of underwater mortgages tends to be inversely correlated with high unemployment rates particularly in regions where property values aren’t being pushed up by other factors, e.g. the Upper Midwest.
7. There actually might be some people somewhere who won’t move for work because of high levels of public services where they are, AKA the “Great Vacation” theory of economic turndown, but I think it’s pretty rare.

and any number of other factors. I wouldn’t count those so much as complacency as financial realities.