The Less You Have, the More Alluring is Gold's Glitter

The lower your income, the more likely you are to think of gold as a good investment.

From http://www.gallup.com/poll/168554/americans-sold-real-estate-best-long-term-investment.aspx?ref=image

What Government Does Well: Basic, Market Changing Research

There is a fascinating book review by Jeff Madrick that undermines so many of the casually inaccurate claims made by libertarians in the course of exploring The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato and Doing Capitalism in the Innovation Economy: Markets, Speculation and the State by William H. Janeway.

These titles buttress my suspicion that to be a libertarian requires a special blend of intelligence and naivete. Specifically, a naivete about the history of government's role in economic progress to date. These authors argue that economies move forward on a dance between government innovation (usually for basic research) and private innovation (usually for products that apply these innovations).

"Government can't do anything well," libertarians say. They've said it so much that it begins to sound like truth, in the same way that the Greeks' repetition of Homer's myths made Athena seem real. But what are the facts?

Despite protestations that government should not pick winners or losers, even including Solyndra it's only about 2% of the projects partly financed by government that go bankrupt. Symantec and Qualcomm were among the new companies funded by The Small Business Innovation Research program - a program started by Ronald Reagan. Google's basic algorithm was funded with a National Science Foundation grant. The iPod - and essentially every computing device - depends on technology that came out of US and European government-funded research labs.

It seems silly to say that the government should not choose research projects or companies or industries to invest in. The government - in the form of universities - regularly chooses which kids to invest in for undergraduate and graduate studies. The government chooses who goes to prison and who goes free. The government chooses who pays taxes and who gets subsidies. Governments inescapably make big decisions.

The real criticism of government is that they're likely to invest in projects, technologies and even companies that the market would not finance. I think this is accurate. I also think that such an accusation is actually an argument for such investment. Taking the lead on research can give a country an advantage for decades (look, for instance, at what the spending on computer chip and Internet research did for the US). Better to spend on 10 technologies, only a couple of which change the economy, than to spend on no technologies and watch another country take the lead on an important new industry or technology.

Yet because of recent cuts, funding for government research programs is at its lowest rate - as a percentage of GDP - in 40 years. Back to the level it was at before the personal computer, the Internet, bio-tech, and nanotech. (All, by the way, products of basic research initially funded by government programs.)

We're about to enter a period of even more rapid technological and economic change, not less. We can listen to the historically naive and continue to cut our funding on basic research. Or we can assume that even with all the change we're living through,the one thing that hasn't changed is that investment now determines income later, and in no area does that investment have more potential than basic research or even subsidies to startups.

Taxes Don't Determine Rates of Entrepreneurship, So Let's Determine What Does

The Kauffman Foundation just released a report on Entrepreneurship that, among other things, gives the rate at which people in each state have started businesses. I was tickled to see that Montana topped the list of states; not only that, but even among the metropolitan regions, only the Bay Area (San Francisco, et al) had a higher rate of entrepreneurship than Montana. (It's a good year for Montana. This year they bumped Colorado from number one on the list of fittest states, as measured by average body fat percentage.)

The top 5 states for entrepreneurship are:
1. Montana
2. Alaska
3. South Dakota
4. California
5. Colorado

The bottom 5 are:
51. Iowa
50. Rhode Island
49. Indiana
48. Minnesota
47. Washington

Of course the sum of Republicans' argument is that the less that government interferes with business, the lower governments keep tax rates, the more business formation and job creation there will be. And it's true that Alaska and South Dakota - number 2 and 3 on the list - have no state income tax, which would seem to buttress the Republican argument. Further, the worst state - Iowa - has a pretty hefty tax rate of nearly 9%. So points go the GOP for that.

But then the simplicity of this argument wanes in the face of facts as we look at the rest of the list. California has the highest tax rate of any state and is ranked 4th. Additionally, Washington state  has a zero rate and is still 5th from the bottom.

So what does the relationship between state income tax rates and rates of entrepreneurship look like? If Republicans' are right, we see should at least a rough correlation between a state's tax rate and its rate of business formation. Here's a graph that shows the relationship between the two variables:

The line that Exel fits to this data does slop downwards - suggesting that as tax rates go up, the rate of business formation falls. The Republicans are right. If everything else were equal, entrepreneurs would choose to start a business in a state with lower taxes.

But it also turns out that this relationship seems to explain only 1% of the difference in rates of entrepreneurship. Polls have suggested - as does this data - that taxes aren't very important in the list of consideration for aspiring entrepreneurs.They're more interested in finding a place where they themselves want to live and where they can find good employees. It's true that low taxes that leave more money in their pocket are likely to attract them. It's also true that low taxes that leave a community unable to provide a great education or high quality of life are likely to repel entrepreneurs. On their own, taxes simply aren't much of a determinant of where businesses get started.

Arguing for lower taxes is akin to saying, "We don't have a clue why entrepreneurs choose, or emerge out of, some communities but not others." Or more precisely, "We can explain about 1% of why states differ."

Communities serious about increasing the rate of entrepreneurship - and that should include any community serious about job and wealth creation - should first admit that the problem is more complicated than the simple matter of tax rates and then dive into discovering what does. The longer they waste time debating a dead issue, the longer they'll defer a genuinely profitable discussion.

Two Reasons Why This Recovery Feels So Anemic (And Why Even Normal Could Create a Boom)

The economy is recovering but we've yet to feel a wave of optimism sweep across the country. The two biggest reasons are that the 2000s gave us a huge hole to dig out from and we're creating jobs at about half the rate we should be given our population.

At first blush, the first few years of this decade have been pretty good in terms of job creation. Assuming that the rate of job creation continues at the average of the first 4.25 years (2010 through March of this year), a graph showing job creation by decade looks like this.

At the rate it is going, the economy would create 19.4 million jobs - exactly what it created in the 1970s and not that much better than the 1980s or worse than the 1990s. That seems really good but I'll explain in bit why it isn't.

REASON ONE: MAKING UP FOR AN AWFUL DECADE
In this graph we see the first reason why our recovery seems so anemic. During the 2000s the economy actually destroyed 1.1 million jobs. Such a decade is unprecedented in the post WWII period. A disaster. And think about what it means for a running total. During the 1990s it wasn't just that the economy created nearly 22 million jobs: added to the 1980s, it created a total of 40 million jobs. For an equivalent job market coming off a decade in which no jobs were created, the economy would have to create 40 million jobs during the 2010s, an average of 4 million per year. During the entire period shown in this graph (1940 to 2014), the economy created 4 million jobs only one year (1978).

REASON TWO: A BIGGER POPULATION NEEDS MORE JOBS
It gets worse. These numbers of jobs created make no allowance for whether the population is 132 million (as it was in 1940) or 309 million (as it was in 2010). Obviously, though, a larger population needs more jobs. This graph shows the number of jobs created as a percentage of the population.

As a raw number, a rate of job creation that would give us 19 million jobs by decade's end is not bad in comparison to the previous seven decades. But creating new jobs for only 6% of the population is bad. The average for the decades up to 2000 was 9%. To create the equivalent number of jobs would mean creating about 30 million jobs in this decade instead of 20 million.

What would it take to party like it's 1999? To feel as flush with jobs, cash, and wealth? At least a few years of job creation at the rate of 3 to 4 million per year. If we come even close to this, it'll create a boom as impressive as any since WWII even though it will - in some sense - simply get us back to normal.

Forecasting Job Numbers for Tomorrow and the Unemployment Rate for 2014 (and Beyond)

Tomorrow the Bureau of Labor Statistics unveils their job numbers for March, reporting job creation and the unemployment rate. My prediction is job creation numbers closer to 300,000 than 200,00 and an unemployment rate dip from 6.7% to 6.5%. Gallup's job creation index has risen sharply in the last couple of months and everyone is hiring - from stores and construction companies to manufacturing and governments.
[P.S. from 4 Apr 2014. Well, I blew this forecast. ADP was spot on, forecasting 191,000 when the number came in at 192,000. At this point the closest I can come is in the revisions that will come out over the next two months. The numbers for January and February were revised upwards, making the new jobs reported for this month about 220,000. There is a chance that the March numbers will be revised upwards eventually but probably not enough to get us north of 250,000. Mine is an optimistic bias. But my forecasts are also a reminder of how tepid is this recovery. In 1999, in 7 of 12 months the economy created more than 250,000 jobs.]

It gets even more interesting if you interpret the stock market as a leading indicator of the economic recovery. That perspective suggests 2014 will be a really good year.

From January 2008 to the worst of the recession, the S&P 500 fell by half and the unemployment rate doubled. The two markets moved in tandem.

The S&P 500 has since fully recovered. In fact, it's now 34% above what it was in January of 2008. Lest you get too excited about that, up 34% in 6 years equates to an annual return of 5%. That's not exactly amazing. In fact, given the (obvious) risk in the stock market, a 5% annual return would roughly equate to "back to normal."

So what about the labor market? Shouldn't unemployment be about normal by now?

Well, the markets don't move at the same speed. There is a time lag since capital moves faster than labor. During the Great Recession, the stock market hit bottom seven months before the unemployment rate peaked. You can sell stock much more quickly than you can layoff employees. And of course it takes even longer to hire than it does to fire, so if the labor market is lagging the stock market by seven months on the way down, it seems safe to assume that it would take about two to three times as long - 12 to 24 months, say, - to catch up during the recovery.

So if that's right, it means that the unemployment rate could hit "normal" in another 6 to 18 months.

That raises the question, What is normal for the unemployment rate? The obvious answer would be 5%, where it was before the Great Recession began. My prediction? The unemployment rate will dip below 6% by Fall and by this time next year will be somewhere between 5.5% and 6.0%. Whether it returns to 5% or even goes below 5% or 4% will depend on the extent to which governments and corporations get serious about popularizing entrepreneurship. Once we learn how to popularize entrepreneurship, unemployment could join starvation as something that people regularly worried about in the past.

Within hours, we will find out whether I'm right about the March job numbers. It will take years to find out if I'm right about the popularization of entrepreneurship.

My Invisible Friend Bernard Uses the Expansion of Space to Illustrate Social Change

Bernard was excited, which delighted me. I knew that his eyes lit up like that only when he'd been seized by a new idea he wanted to share.

"It's been a long time Bernard," I said as I sat down.

"How is this for a long time," he said leaning forward. "13.8 billion years!"

I had to shake my head. "That's a really long time."

"Yep. I heard scientists talking about new experiments that shed light on dark matter," he said. "And the big bang. Did you know that in the first trillionth of a trillionth of a trillionth of a second the entire universe expanded from something smaller than an atom to something the size of a grapefruit?"

"That actually sounds kind of good," I said.

"What does?"

"Grapefruit. Do you think they have any grapefruit juice," I asked.

"Out of what I said you heard, 'I think I'll have grapefruit?'" Bernard slumped. "You've got to be kidding."

"Bernard," I leaned forward. "I was! I was only kidding." Some days he was more sensitive than others. "Go ahead. It really sounds interesting."

"That's not even the interesting part," Bernard began anew. "That's just the set up for the interesting part. Get this," he leaned in. "The particles in the universe have to obey the speed limit, can travel no faster than the speed of light. But, the expansion of the universe itself can take place at any speed."

"Hmm," I said in what I hoped sounded like an intelligent tone.

"Hmmm," he shook his head. "You had better find that waiter and order your grapefruit juice," Bernard scoffed. "I think your blood sugar might be low."

I nodded. He shook his head.

"So this is pretty phenomenal to think that while the stuff in the universe - stars and planets and comets and even the light they emit can only travel so fast, the container in which all of this is moving can expand out at some multiple of the speed of light."

"Wow," I responded. "So you're saying that the space in which space happens can expand faster than the speed of light even though things in space can't?"

"Exactly," Bernard grinned. "Exactly." He looked like a seven year old who'd just played a Coltrane solo on a waxed papered comb. He actually rocked as he smiled.

"So this explains cultural evolution," he said. "It explains how it is that we get progress even though we're social creatures."

"The expansion of space explains cultural evolution?"

"Yes! See, we are products of our culture. So much of who we are is defined by that. If you're born in Indonesia there is a 99% chance that you're Muslim. It's hard to move faster than the speed of light if you're a particle or faster than your culture if you're an individual."

"Okay," I took the bait. "So what about a culture?"

"Aha!" Bernard jabbed the air dangerously close to my nose. "That can move rapidly. See Ron," he said. "Context is everything! Culture moves so rapidly that people can barely keep up. One century everybody is Catholic and the next they're Calvinists and Lutherans and Anglicans and Puritans and Deists. One year everyone is trying to be like Bobby Darin and the next it's Mick Jagger and then the next year rock gives way to disco. One decade everyone is embodied  and hang out in clubs and the next they're virtual and hang out on social media."

"So what's the container that can move so much faster than individuals?"

"The container is the code, the DNA, the meme, the new normal. As individuals we can't travel much faster than that but that - that normal - it can change so rapidly. And given we're social creatures, we keep up."

"So who changes the code?"

"Social inventors. You succeed at that experiment and you've just changed the container - maybe even more rapidly than people could ever think to move."

The waiter showed. "What can I get you," he asked.

I looked up. "For like the last ten minutes I have not been able to think about anything but grapefruit," I told him. "Do you have that?"

Before the waiter could say, "Sure," Bernard let out with a groan.

"Something wrong," the waiter inquired, worried.

"Yeah," Bernard said. "I guess that just because the container expands rapidly doesn't mean the people in it move at all."

The waiter looked at me with raised eyebrows. I shrugged. "Excuse me," the waiter asked.

"I said I'll take the lox and bagel," Bernard said. "With sesame seeds."

"any fool can get into an ocean ..." a poem by Jack Spicer

It's Sunday night. That seems reason enough to post a poem.

“Any fool can get into an ocean . . .”

BY JACK SPICER 1925–1965

Any fool can get into an ocean   

But it takes a Goddess   

To get out of one.

What’s true of oceans is true, of course,

Of labyrinths and poems. When you start swimming   

Through riptide of rhythms and the metaphor’s seaweed

You need to be a good swimmer or a born Goddess

To get back out of them

Look at the sea otters bobbing wildly

Out in the middle of the poem

They look so eager and peaceful playing out there where the

    water hardly moves

You might get out through all the waves and rocks

Into the middle of the poem to touch them

But when you’ve tried the blessed water long

Enough to want to start backward

That’s when the fun starts

Unless you’re a poet or an otter or something supernatural

You’ll drown, dear. You’ll drown

Any Greek can get you into a labyrinth

But it takes a hero to get out of one

What’s true of labyrinths is true of course

Of love and memory. When you start remembering.

The Most Important Government Policy for Determining Unemployment Rate

In most EU countries, the majority of people report that their government makes it hard to start a business.  Sadly for them, this matter of ease in starting a business seems to be a simple determinant for unemployment. And it makes sense. The harder it is to start a business, the harder it will be for successful entrepreneurs to hire people.

Here you can see the relationship between how hard it is to start a business and the unemployment rate. Do you want a high unemployment rate in your country? Make it hard to start a business.

Obviously unemployment rates depend on a variety of factors, but governments sincere about lowering their unemployment rates would great a great return from making entrepreneurship easier. (I argue incessantly that the task for policy makers in this new economy is to popularize entrepreneurship just as successful policy makers popularized knowledge work in the Information Economy.)

If you want to stymie economic growth in an Industrial Economy, make it difficult to attract or create capital. If you want to stall growth in an Information Economy, make education expensive and unattainable for large swaths of people. And if you want to frustrate growth in an Entrepreneurial Economy, make it hard to aspiring entrepreneurs to start a business. It certainly seems to work for countries like Italy, Greece, and Spain.

Data for the above graph.

	Hard to Start Biz	Unemployment
Italy	96%	20%
Greece	93%	24%
Spain	82%	25%
Portugal	80%	16%
Lithuania	72%	13%
Latvia	71%	15%
Slovenia	69%	9%
Ireland	69%	15%
Romania	68%	7%
Slovakia	68%	14%
Cyprus	67%	12%
Bulgaria	66%	12%
France	66%	10%
Czech Republic	61%	7%
United Kingdom	59%	8%
Belgium	58%	8%
Croatia	57%	16%
Denmark	54%	8%
Poland	52%	10%
Netherlands	49%	5%
Hungary	48%	11%
Finland	46%	8%
Germany	46%	5%
Estonia	44%	10%
Austria	43%	4%
Luxembourg	33%	5%
Sweden	25%	8%
Malta	21%	6%

Once Upon Time (1998), Republicans and Democrats Had Nearly Identical Views on Climate Change. Then it Became Political

Up until 1998, Republicans and Democrats were equally likely to believe that climate change resulted from human activity and was already having an impact.

And then it became political. A decade later, Democrats were almost twice as likely to believe that climate change was real.

As it turns out, Democrats aren't smarter or better educated than Republicans. Nor are Republicans more scientifically inclined than Democrats. Randomly select a member from either party and you're about as likely to get someone who couldn't explain their way out of a rain storm. Or for that matter, about as likely to give you a cogent argument based on science. (Note that actual scientific experts, however, are not divided on climate change. I'm making a point about the average layman, the voter who can swing an election.)

Once climate change became political, though, it became a matter of identity, of being in the club. If you have lots of Republican friends, it becomes increasingly awkward to argue for climate change. By contrast, if you hang out with Democrats, it is hard to argue that climate change is not such a big deal.

I think its true that - outside of scientists, philosophers, and prophets - very people seek truth at the expense of alienating friends and family. Most folks would rather hang out with actual people than be alone with ideas or facts. It's peer pressure that seems as likely to shape our beliefs as an objective look at the facts. And now the argument is not scientific: it's an attack on you and your group. To change your belief might mean alienating you from your peer group. That's tough to ask of anyone, unless your peer group is fellow scientists, philosophers, and prophets.

[Last note: the Gallup numbers since 2008 haven't changed much. It's now 79% probable that a Democrat will belief in climate change. Republicans are unchanged at 41%.]

The Trip to the Therapist Took an Unexpected Turn Today

Gallup Job Creation Index Back to Pre-Recession Levels

Gallup tracks job creation in the US, posting a three-day running average. Its posted values go back six years. Here is a graph that plots only the value on March 16, from 2008 to 2014.

The index is back to where it was just before the recession. It's worth remembering that six years ago, unemployment was 5.1 percent.

This is good news for the obvious reason that a job creation index this high will continue to bring down unemployment. Almost as importantly, as unemployment continues to lower wages will start going up. That is terribly overdue.

I think that this graph showing how household income has stagnated is probably the single most important graph from the president's recent economic report. It explains a host of political and economic issues, showing that household income last year was about where it was in the late 90s.

As household income has stagnated, it has simultaneously put pressure on two political fronts. Liberals, aware of how hard this economy has been on people, have pushed for a better safety net. Conservatives, aware of how hard this economy has been on government debt load, have pushed for less spending. Because of this reality of diminished household income, both sides are hugely disappointed: debt has soared even as government programs have been scaled back. 

Back when household income rose, it was possible to simultaneously increase government revenues and take-home pay; that makes for easy politics. When household income drops, so does take-home pay and money for government programs; that makes for hard politics.

If the rate of job creation rises, it won't just make things easier in households across the country. It will make politics a little easier in capitol buildings in DC and every state.