01 September 2015

Stock Tip

I've found that if I want to look foolish, I predict short-term movements in the stock market. Or long-term movements.
Still, if you are like me and the real reason you're buying stocks today is the anticipation of having retirement money in a decade or so, I do have some advice. You know that stock that you were, about a month or two ago, wistfully thinking it would be nice to have bought a year before? Buy it this week. I'm not sure if it will go down even more or will bottom out this week. All I do know is that it is selling for less than it was when you wished you owned it. And that might just qualify as a bargain.

31 August 2015

Why the Longest Run of Job Creation in History Still Gets no Respect

This Friday will mark 59 uninterrupted months of job creation. In a month, we will break the old record by a full year.

Until Friday's report comes in, here are the numbers.





During the late 1990s, the American economy was able to string together 33 months in a row of uninterrupted job creation. This is still the most impressive period as measured by the average number of jobs per month: 273,000 per month for a total of 9 million jobs.

Curiously, in the lull between 9-11 and the Great Recession, the economy strung together its next best run. It was the least intense of the four major runs, though, averaging only 172,000 jobs a month for a total of 7.9 million jobs by the end of the 46 months.

The previous record was set in the late 1980s. Averaging 223,000 jobs a month for exactly 4 years (48 months), this run created 10.7 million jobs.

The runs of the late 1980s and late 1990s are often cited as proof of the efficacy of Reaganomics or Clinton's economic policy. During these runs, everyone was acutely aware that something very impressive - even if unnerving - was underway. (Unnerving because there's always a segment of the population acutely aware of the fact that booms end and sometimes end badly.) Curiously, this current run is largely met with an odd mix of criticism and yawning.

But the current run sets records on two of three metrics. It is the longest streak by 10 months. And counting. And while the streak in the late 1990s was more intense, creating more jobs each month, this streak has created more jobs in total: 11.8 million. It will probably top 12 million by Friday.

So why, then, is there so little acknowledgement of this run?

I still think it is because people don't fully appreciate how badly wounded the job market was by the Great Recession. In the 1970s, 1980s, and 1990s, the American economy created 19.4, 18.2, and 21.9 million jobs. In the 2000s (the aughts from 2000 through 2009), the economy actually lost 1.1 million jobs. What does that mean? For the 2010s to make up for that huge hole, the American economy would have to create about 38 million jobs, or 3.8 million per year. The fact that the economy is on track to create nearly 23 million jobs this decade should be impressive: instead, it still feels like this recovery should be about half again as strong to really leave the country excited.

Without a time machine, though, there is no way to right the wrongs of the aughts. Given that, it might be worth celebrating the fact that this recovery is not just the most impressive in history but is still far from over.

29 August 2015

I'm Thinking About Starting a Parade

I'm not a fan of parades but I have an idea for one that I'd like to see.

Imagine an intersection that brings traffic from the north, south, east, and west. That intersection is empty. Suspiciously so. A parade permit has been given that clears traffic from this route for the next hour.

A large crowd forms a block north of this intersection. Another crowd mills about a block south. A third is congregating a block east and a fourth a block west of this intersection.

At an appointed time, all four crowds grow silent. They form a row, like the scene out of Braveheart. Each of the four crowds is facing the intersection. For what seems like a longer time than is comfortable, the crowd staying silent but growing antsy, the crowd just waits. And waits.

And then, music blasts the silence. The crowds surge forward, running pell mell towards each other as though intent on harm and conquest. But as they converge into the intersection, they run past, rather than into, each other. The music segues into something with infectious rhythm. The four crowds become one happy, dancing mob. This only lasts for the duration of one or two songs. And then the crowd dissipates, filing back into stores, restaurants, alleys, libraries, coffee shops, and the suburbs.

That's it. The parade is over. And a new kind of parade has begun.

27 August 2015

It Will End Badly - and that's the worst reason to not do it

Yesterday was my 32nd wedding anniversary. One comedian's quip often comes to me in this context. "50% of all marriages end in divorce. But you don't know. You could be one of the lucky ones. Your marriage could end in death."

Marriage is going to end badly. You may well fall out of love and continue to stay married, fall out of love and divorce, stay in love and have him or her walk away or stay in love and watch them die. Once you're in a marriage, there is no good way out.

But that is the worst reason not to get married. Whether it is marriage or romance, a business venture or Saturday adventure, worrying about how it will end is probably a great way to miss the whole point.

26 August 2015

Putting This Wild Stock Market in Perspective

This last week has been brutal for markets, The S&P 500 has been jumping around by as much as 4% a day, and a great deal of it down.

So is the market in trouble? Should you flee to the hills to buy gold?

If your investment horizon is years or decades - as it is for most of us saving and investing in hopes of someday retiring - probably not.

While the market is moving as much as 4% a day, it is only down 2.3% from a year ago as of today's close. (And with the market so volatile, there is a very good chance that this will round to zero by tomorrow's close or be down by double or triple that.) That's pretty close to no change for the year. Still, it is 19.3% higher than it was two years ago, and 76.6% higher than it was five years ago.

Up 76.6% in the last five years works out to about 12.1% average annual return. Up 19.3% for the last two years works out to an average annual return of 9.2%. That's right. Even with the last week's "mini-crash" and this last year's negative return of 2.3%, annual return is still 9.2%.

That's nice. And not outrageous. Most studies show long-term returns of 6 to 8% for the markets. It makes sense that returns in the last 5+ years would be slightly higher than average given it came off a market that had fallen by half.

If you are saving for a retirement that is still five to 35 years off, 9 to 12% is a pretty good return. And with returns that consistently high for the last 5+ years, it really is no wonder that the market is pausing in the midst of what has been a steady upwards trend to have a year in which market movement is close to zero.

Is this a bubble bursting? More likely it is a strong return being adjusted downwards slightly. Short term, markets behave irrationally, jumping up and down like over-sugared kids at a party. Long term, though, they tend to make sense. And with employment, GDP, and profits steadily growing over the last 5+ years, it makes sense that the market has moved upwards. Given how slowly all three have moved upwards, though, it also makes sense that investors wouldn't bid up the price of stocks every year, hence, this year of uncertain returns.

Ben Carson Would Like to Put an End to Career Politicians. I Would Like to Put an End to Career Surgeons

Health care costs are ridiculous, devouring 17% of GDP. And an often overlooked fact is that more experienced surgeons make more than inexperienced surgeons. My own guess is that if we set up term limits for surgeons - limiting their careers to, say, 5 or maybe 10 years, we could lower health care costs by tens of percent. Worse yet, experienced surgeons get cozy with pharmaceutical companies and medical device manufacturers, often wantonly spending patients' money on products of dubious value but outrageous cost. Plus everybody knows that no one is as arrogant as an experienced surgeon.

Some of my more radical colleagues in this "term limits for surgeons" movement don't even think that surgeons should be required to study medicine. The study of medicine makes them biased towards, well, traditional medical thinking, and tends to close their minds to options like herbal remedies or faith healing. Plus it raises the costs for entering the career, putting pressure on surgeons to stay in the career longer. The problem is, of course, patients grow alarmed when surgeons unclear about where to cut or what to do come into the consulting room smiling and shaking hands. That could easily be overcome by earlier administration of anesthetic.

Ben Carson has a similar initiative for putting an end to career politicians. His argument is fairly simple.

Government costs are ridiculous, devouring 18% of GDP just for the federal government. Career politicians become too insular, too cozy with lobbyists. They tend to spend voters' money on policy initiatives of dubious value and outrageous cost. And politicians who stay in the field longer raise more money than novice politicians. And no one is more arrogant than a career politician. Carson's own guess is that if he were to limit political careers to, say, 5 to 10 years, he could lower government costs by tens of percent.

I don't know about this. I'm not sure that I want a novice stumbling into negotiations with Iran or Wall Street lawyers, or like the idea of forcing someone out of office just as they gain some experience and knowledge of the job. It seems to me that this would give lobbyists a huge advantage in negotiating any deals between industry and taxpayers; taxpayers would be represented by people who are not only paid much less than the lobbyists they face (that is, of course, already the case) but people who would have far more experience.

Carson's idea for term limits for politicians shows incredible naivete about the complexity of modern policy, the need to balance economies and ecosystems, safety and freedom, progress and fairness, and private and public initiative. He's a surgeon more than willing to walk into the Oval Office to make policy, even though he's had no political experience. That's silly. It would actually make more sense for a career politician to walk into a operating room to perform surgery; at least that only involves the fate of one person - not millions - and there is a clear consensus about best practice for surgeries.

So ignore Ben Carson. He's just a surgeon. I do hope you listen to me, though, and join me in this move to establish term limits for surgeons. It's way past time to bring down health care costs and we should start with the highest paid in the field.


20 August 2015

The Internet is Making us Politically Smarter

I used to bemoan the fact that political coverage wasn't policy coverage. All the focus on personalities seemed to ignore the larger, more important question of how policies might actually change quality of life for real people.

Then it dawned on me: this political process we have actually does get us talking about policy. It seems at first blush to be about "Trump!" or "Hillary!" but the real meat of the discussion about these people is less about who they are than about what they would do. The candidate becomes a shorthand for the sort of policies they represent.

Mike Huckabee, for instance, came out as a national figure in the 2008 Republican primary, having been governor of Arkansas for the decade prior. He was folksy and seemed affable. I kind of liked him. Now this year, he clarifies that if he had his way, a 10 year rape victim would be forced to give birth to her rapist's baby. (Paraguay actually did just this. Huckabee thinks that is good policy.) It doesn't matter that Huckabee seems likable. He has become the face of an extremist position on abortion. This is not a personality issue. This is a policy issue.

The internet has seemed to divide labor in an interesting way. Traditional media gives us people. The internet gives us arguments.

The media tells a story about a person: "Trump says that 14th amendment is wrong. It's not enough to just grant citizenship to anyone who is born here." The media tries to pin him down on this but Donald being Donald largely refuses to elaborate, usually just reiterating what he said before. (And Donald isn't particularly unique on this. No candidate seems to stray far from talking points during interviews. And really, you can hardly blame them. One simple mis-statement that characterizes most interesting conversations can be enough to define them.)

Then Facebook and blogs and tweets become the forum for actually digging deeper into the policy that makes some people love Donald and some people hate him. People end up substantiating their seemingly visceral reactions to a person with arguments about their policy. "Putting aside feelings, it would be nearly impossible and incredibly expensive to find and deport millions of illegal aliens." "Oh yeah. Well why do we make things worse by letting illegal aliens sneak over our border to give birth to children who are automatically given citizenship?"

People's initial reaction might seem like a knee jerk reaction to a particular personality, but knowing that they could be challenged they often go do homework. They look up a claim at Politfact. They read a piece from one of their thought-leaders. They learn arguments from their favorite talk-show hosts. What starts out as a claim about a person often gets substantiated with arguments about their policy.

It may well be that we all just become more entrenched in our beliefs but it also seems that even that comes with more knowledge. Our cousin's husband will call us out on a false claim. Our old frat friend will throw facts at us that ... well, really do challenge our position. Even the most tightly managed social group includes people who think differently from us and those people have access to all kinds of facts and arguments that we might need to refute. This forces us to become smarter.

Steven Johnson argues in Everything Bad is Good for You that even TV plots are becoming more complicated, requiring more brainpower. So many different things - from video games to the vast array of choices that we face at the grocery store - are making us smarter. The same test results that would give you a score of 100 on an IQ test in 1950, would give you a score of 85 today. The difference between 100 and 85 is not the difference between an A and a B. It is the difference between scoring higher than 50% of the population or scoring higher than just 15%.  It makes sense that political arguments could contribute at least as much as game shows to our growing intelligence. And that can't help but bode well for future policy.

17 August 2015

Donald and His (Surprisingly Large) Base

To the consternation of America's pundits, Trump still has a commanding lead in the Republican primary.

Someone interviewing Trump supporters at the Iowa state fair - where the pork chop on a stick is getting as much coverage as Mike Huckabee - asked them whether their support is for specific policies of his or more based on their gut. All of his supporters freely admitted that this was coming from their gut.

Before you glibly dismiss his chance to actually win this thing, just think about that. Because if there is anything you should be careful about underestimating, it's the American gut.

15 August 2015

What You Might Be Doing Wrong as a Parent, Teacher, or Manager (Deci's Three Models)

One of the books to greatly influence my thinking was William Deci's Why We Do What We Do. Deci makes a distinction between three styles of parenting, management, and teaching. For simplicity, I'll call the parent, manager or teacher the mentor and the child, employee, or student a mentee. (As the person making this distinction, I'll be like a manatee, like a referee who defines the game between mentor and mentee. But I digress.)

1. Control. 
This is the classic model we'd expect in a Hollywood movie that included a father who was a military officer. He's commanding. He has clear expectations for his children and those expectations don't just define what time they should get home. The children are expected to follow a certain course in life, to worship a particular way, even to provide a particular number and type of grandchildren.
With this mentoring model, the mentor clearly defines the goal, agenda, and process. Your job as mentee is to follow their script.
This is easy to criticize but it creates a predictable environment. Well, until it doesn't.

2. Abandonment.
This model arises out of a reaction to the control model. In this model, the "authority" figure doesn't pretend to set the agenda. Or define your behavior. You're pretty much on your own. The good news is that you have freedom. The bad news is that you don't have much guidance. Kids who grew up with this model could very plausibly become the parents who adopt the above model of control. In the Hollywood movie of cliches, the character representing this model would be the hippie who just says, "Cool," to most anything the child suggests or tries.

Given that circumstances can define when one of the above is more appropriate than another, it is easy to toggle between them. This can make the cliched military or hippie father actually seem more coherent than you. At least they are consistent. There is a better way.

3. Autonomy-supportive.
This third way is the hero of Deci's story and the one that won me over. The notion here is to shift the locus of control from the mentor to the mentee. As prelude to coaching the mentee on how, the mentee coaches (or perhaps more accurately, coaxes out of) the mentee what sort of goal would be appropriate given their own preferences, skills, aspirations and the context of the time they are living in. The mentor is not the locus of control, does not define the goals. In this it is similar to the abandonment model. But unlike the abandonment model, the mentor stays around to help the mentee to translate those goals into processes, into how.
The implications of this model are sweeping. It suggests a creative response from each mentee. This is highly disruptive to the status quo. It means that the mentee may define a goal that the mentor has little experience with and quickly turn the mentor into a co-learner rather than a person who can knowledgeably inform the mentee about what to do next or how to do it. It turns the two into collaborators rather than sage and student. It disperses power over others and instead emphasizes power to accomplish.

My next post will be about what the adoption of this third model suggests for institutions, from government to schools and corporations. Because if this really is the best model for most circumstances, it suggests a real change in how we define institutions.

14 August 2015

We're Close to Cuban Cigars (Why Trade Embargoes are Bad Ideas)

After we'd taken over, we were sitting around a table defining the new government. Castro asked "Who is an economist," but I thought he'd asked, "Who is a communist," so I said, "I am."
"Good," he said. "You'll be in charge of the economy."
 - Che Guevara

I was standing on the steps of the Hanoi Opera House when I first heard that Richard Nixon had died.

I was with a group hosting the first trade show to feature American companies since the fall of Saigon. We were told that it was the first time that the American and Vietnamese flags had flown side by side over the soil of North Vietnam. One of my highlights of that fascinating year was what I learned just as I was to announce our upcoming trade show back in the US, in Chicago. I was to speak just after the man who was the closest thing to Vietnamese ambassador given that stage of normalization. And just before he went on, Clinton announced from the White House that the US was moving towards trade normalization with Vietnam. That felt like an historic moment.

Since then, Vietnam has prospered. According to at least one forecast, it is the economy expected to grow the most rapidly in the next decade. And Vietnamese have the most favorable impression of Americans of any Asians. When I was in Hanoi in 1994, you could still see the scars of war in the city. Buildings were still pock marked from American attacks. And yet the Vietnamese could not have been more friendly or more happy to see us there. One group told us that they would rather do business with Americans than Europeans, Chinese, or Japanese. They claimed that the Japanese and Chinese were only interested in their own profits whereas the Americans seemed interested in setting up relationships that both made the Americans a profit and their Vietnamese partners.

Which brings me to today's embassy opening in Cuba. The trade embargo against Cuba that is older than Obama is about to end.

From everything I've read of history and development, one thing seems true: if you want to disperse power, encourage widespread economic development. When the early merchants began to gain wealth at the dawn of capitalism in the 16th and 17th centuries, they successfully challenged the landed aristocracy for political power. People with economic options demand political options.

Trade embargoes sound like a nice alternative to war. No bombs are dropped but regimes feel pressure to change. Or so the theory goes, but I don't buy it. Inevitably, when an economy is isolated from global markets and stagnates, the powers-that-be lock their control over the people. No new resources are flowing into the country to enable new groups to make new demands. Economic progress inevitably begets political progress. If you are sincere about wanting the democratization of a political system, you should work towards opening up the economy, not shutting it off. The Taliban realized how dangerous trade is to autocratic regimes; it was no coincidence that they flew planes into the World Trade Center. You buy a computer to automate your accounting and the next thing you know your daughter is learning Beyonce dance moves. Trade transforms.

Since Nixon visited China, that country has gone through an amazing transformation. In 1990, 60% of China's population was categorized as extremely poor; today it is only 4%. It is true that China's government shows less regard for human rights than, say, Sweden's. It is not true that the average Chinese citizen is worse off than they were when Nixon visited in 1972. Progress is not an on / off switch; progress is a dimmer switch.

Opening up Cuba is a wonderful thing and will mean that the country will make more progress in the next decade that it has in the last half century. That's good for everyone. a

12 August 2015

Jeb's Bold (But Vague) Plan for 4% GDP Growth (which we can only hope isn't the same one he had for Florida)

Jeb Bush is promsing 4% GDP growth. That would put him in the company of presidents FDR, LBJ, Reagan, and Clinton.

I've heard him say something like, "There is no reason we can't have 4% growth. We did it in Florida." He's fairly vague about how he'll do this, though. His big brother George W. promised to make Iraq a beacon of democracy in the Middle East but didn't seem very clear about how that would happen or why it wasn't already so. At first glance it would seem that Jeb has a similar problem of offering platitudes rather than actual policies but in his defense, Jeb has actually accomplished his goal. While he was governor of Florida, the state did hit 4% GDP growth.

FDR hit 4% GDP growth with a combination of New Deal and WWII spending. LBJ hit it with spending on Vietnam and the Great Society. Reagan outspent the Soviets on the Cold War arms race. Clinton rode a wave of dot-com innovations and investments.

It takes something historic to sustain 4% growth in a country as big as the US. 4% GDP growth for a full four years would result in GDP that's $3 trillion bigger than it is now. That's huge. Only four countries (US, China, Japan, and Germany) have an annual GDP greater than $3 trillion.

So what remarkable thing did Jeb do in Florida to hit 4% growth? Real estate.

George Packard, in The Unwinding, captures the dynamic of growth through real estate speculation in Tampa, Florida during Jeb's time as governor.
As long as more people came this year than last year, and next than this year, there would always be more houses to build, and more jobs in construction and real estate and hospitality. Property values would continue to go up, and the state could continue to do without an income tax, financing its budget with sales taxes and real estate fees. ... In the exurbs going up around Tampa Bay, property taxes could remain low, with new schools and fire stations funded by bond issues floated on the projection of future growth. ....
A few local critics pointed out the strategy's resemblance to a Ponzi scheme. But everything kept growing and no one paid attention. ...
The growth machine became the employment agency. Other than minimum wage jobs at restaurants and big-box stores, it was hard to find work outside the real estate industry. In the hierarchy of the boom years, the poor were Mexican day laborers on construction sites; the working class had jobs in the building trades; the lower middle class were bank tellers; the middle class were real estate agents, title insurance agents, and civil engineers; the upper middle class were land use attorneys and architects; and the rich were developers. ....
At the peak of the madness, in 2005, a house in Fort Myers sold for $399,000 on December 29 and $589,900 on December 30. Flippers were the ones driving prices to crazy heights. ..
What sort of culture promotes such growth? Packard writes that, "auto insurance was higher in Florida than elsewhere - insurers called it 'a fraudulent state.'" The demand for housing was not because of some booming industry. The demand for housing was the booming industry. During the peak of Jeb's governorship, about half the houses selling so rapidly around Tampa were going to investors. Speculators.

The real engine of this unsustainable growth was the banks' willingness to write mortgages for nearly anything, for nearly any amount, issued to nearly anyone. It didn't really matter who had the mortgage for two reasons. For one thing, these mortgages were now being re-packaged into securities and sold in global financial markets. The banks issuing the loans didn't hold the loans. For another, even if someone defaulted on a loan and the holder of the loan repossessed, what was the worst that could happen? With rising home prices, whoever owned the loan could easily end up making money by taking possession of a home now worth more than when they first financed it. A critical number of these mortgages were never going to be paid for with income; speculators merely needed short-term loans that would enable them to sell the home later for more.  No one really thought about what would happen to the equity behind those loans if huge swaths of households defaulted on their loans and home prices fell.

It took awhile for the boom to bust. For years it made for ... well, it made for 4% growth. Happy times.

Then, in 2007, Allied Van Lines started to move more people out of the state than in. "Between 2007 and 2008, the number of electrical hookups in Florida decreased for the first time in the forty years that records had been kept. And for the first time ever, the state's net flow of immigration, the engine of the growth machine, dwindled to zero," Packard writes. This could not end well. Given the mortgages were no longer owned by local banks, the wreckage was not going to be contained to the state. It would ripple across continents.

When these mortgages blew up, they blew a hole in the side of credit markets that nearly sunk the global economy. When the foreclosures came, they flooded into Florida's courtrooms. Judges in their 70s were called out of retirement and given as many as three thousand cases at a time, working through 20 an hour, each case another home foreclosed, leaving more people homeless and more investments written off than any hurricane in the state's history.

Jeb Bush was governor of Florida from Jan of 1999 through December of 2006. As it turned out, his timing was perfect for claiming economic boom and avoiding economic blame. When Florida's real estate market blew up, he had moved out of government housing - er, the governor's house - in Tallahassee.

The month that he left office, January of 2007, things were great. The unemployment rate in Florida was only 3.5%, impressively lower than the nation's healthy 4.6%. With a booming housing market, wealth was high and taxes were low. A year later, though, the unemployment rate in Florida was the same as the rest of the country; 3 years after Jeb had left office, when unemployment in the US was at a painful 9.7%, Florida's unemployment rate was a disastrous 11.2%.


4% GDP growth is a great goal. It is double what Jeb's father and brother achieved during their time in office and would put Jeb in the company of FDR, LBJ,  Reagan, and Clinton. History suggests, though, that a president intent on such growth needs to have a grand plan like fighting Nazis or building a welfare state. We can only hope that Jeb's plan is something other than another mortgage-leveraged real estate boom. So far, though, he hasn't explained it. If that doesn't worry you, I've got a beacon of democracy to sell you in the Middle East.