20 July 2018

Everything You Need to Know About Trump, Russia and Putin

19 July, Trump tweeted out a video of Hillary Clinton saying this: "We want very much to have a strong Russia because we think that a strong, prosperous, stable Russia is in the interest of the world."
Tweet here.

His comment with the tweet was: "When will the Dems and fake news ever learn? This is classic!"

And in that tweet we have everything we need to know about Trump and Russia.

Russia, the country, is weak. Certainly not militarily but economically. Americans make 6.5X as much and live a decade longer. Russians don't have the same rights as Americans. Many reporters, politicians, and activists have been killed for opposing Putin. (Contrast that with the US where there has been a veritable industry in opposing American presidents since Bill Clinton's presidency. Nobody gets killed for speaking out against our president but quite a few have gotten rich.)

Hillary saying that it would be a better world if Russia were strong is spot on. A more affluent, more open, more democratic Russia not only makes for a better trading partner for the West but makes it less of a threat to the West. A genuinely strong Russia is less likely to invade the Ukraine or Estonia or disrupt elections in France, Italy, and the US.

Trump, though, thinks that this sentiment is proof that Hillary and the Democrats are being hypocritical in criticizing him. He sees no difference between Russia and Putin.

Trump's mind is not capable of abstractions, of statistics that represent a group. He's like a child in that he only knows personalities and stories about individuals. At some level he seems incapable of distinguishing between Russia and Putin.

Putin is very strong. CNN is going to do a "Most Powerful Man in the World" segment on him. Estimates of his wealth vary from $50 to $200 billion. Putin can have anyone killed. He can influence elections in countries throughout the West and apparently even control the American president. Trump admires all of this and is - at the least - eager for Putin's friendship and at most terrified of upsetting Putin. Putin may be the only person Trump has not insulted.

That Hillary could think it both good for Russia to be strong and Putin to be weak does not even compute for Trump. (History suggests that the weaker a leader is relative to his people, the stronger the people.) For him a country is simply the supporting cast for a leader. He's not really interested in Russia. He's fascinated by Putin. And of course he's not really interested in the US but he is fascinated by Trump.

16 July 2018

Gales of Creative Destruction and the Stress of Progress

Since Oct-2010, the US economy has destroyed 475.6 million jobs (layoffs, retirements, firings, quits) and created 494.2 million jobs for net of 18.5 million jobs.

As of June, the labor force was 162.1 million.

So during the 8-year recovery the American economy has created 3X more jobs than there are people in the workforce and destroyed 3X more jobs than there are people in the workforce

244,000 jobs were created in May. More precisely, 5.8 million jobs were created and 5.5 million jobs were destroyed for a net of 244,000. It is not true that everyone kept his or her job except for 244,000 people who were newly hired. Every month people are laid off, fired, quit or retire; in May, 5.5 million people had such experiences. That's a lot of elation (those who retire), relief (those who quit), frustration and panic (those laid off and fired). We talk a lot about taxes but an economy this dynamic is emotionally taxing.

One of the challenges of the modern economy seems to be that given progress comes in the form of gales of creative destruction we have a high level of stress. Personally I think that just reinforces the necessity of things like universal healthcare, investments in job retraining and generous unemployment, etc. But regardless of the solution you'd advocate, you have to realize that anyone whose idea of the good life is a stable, predictable career is going to feel a continual level of stress and unease by progress.

Two things can be simultaneously true: we are creating better jobs and a lot of people end up with worse jobs. There are probably as many people laid off from manufacturing jobs paying $45,000 a year now working at Wal-Mart for $25,000 as there are people with new programming jobs making $75,000. (And of course that very dynamic is part of why median wages move upwards so slowly and why income inequality is increasing.)

This economy is wonderfully creative but it is increasingly disruptive. Entrepreneurship and social invention creates the new and obsoletes the old just as innovation does with products. We used to have marriage between one man and one woman and now we have same-sex marriage and polyamory. We used to have jobs with pensions and 40 hour workweeks and now we have 401(k)s and a gig-economy that offers us Uber-like jobs with both more freedom and uncertainty. We used to have an American economy and now we have NAFTA. If you find comfort in continuity you will actually find progress threatening because so often it forces us to act or be different. 

Innovation changes products while entrepreneurship and social invention changes people. That's unsettling.

It seems to me like the divide that doesn't get talked to enough is the divide between those who embrace progress and all its novelty and those who embrace tradition and all its familiarity. To the latter group, progress can actually feel like a threat.

07 July 2018

The Most Important Development in the Evolution of Humans

First an excerpt from Thinking Big, a book about how our brains evolved to adapt to social realities. A key point here is this matter of thinking in terms of relationships and not just rationally.

Food was certainly of vital importance and obtaining it efficiently and securely must have dominated much of their [early hominins’] lives. The archaeologist Rhys Jones, who lived with Aborigines in Northern Australia, once said to us that these hunters and gatherers were always 24 hours away from hunger.But for us the keys to understanding food lie in the implications for social cooperation. This takes two forms. First are the tactical demands, of getting working parties together to hunt or gather safely and with greater chance of success. This covers defence against predators as well as obtaining those foods that were needed to fuel expanding brains. Second is the strategic matter of planning for bad times. This is achieved by looking for help beyond your immediate community. Instead of restricting access to resources by defending them against all-comers, it is better to allow other people in. By linking individuals and their communities over very large geographical areas a form of ecological insurance is produced. [highlighted added]Archaeologists refer to this as social storage: tokens exchanged for food in bad times, and vice versa in good. In other words, if conditions deteriorate where you happen to be ranging, then we will allow your community to come over to our range and use our resources for a while. Later, the reverse will be the case, and you can pay us back. Such a system works well, but it requires that the community has a territory large enough to cover a wide range of habitats. It won’t work so well if community territories are small and consist of essentially the same kind of habitat.
…..Rather than concentrating on what may be rational explanations of why they hunted bison rather than reindeer or chose not to eat fish, as the isolated Tasmanians famously did 6000 years ago, we need to shift the perspective and see the role of food and other materials in creating relationships rather than simply meeting calorific goals. Archaeological explanations for the human story need to be relational (being social) as well as rational (being economic). Social life is not based on calories alone but on the relationships that emerge when things are made, exchanged, used, and kept.pp. 86-7 of Clive Gamble, John Gowlett, and Robin Dunbar’s Thinking Big: How the Evolution of Social Life Shaped the Human Mind, Thames & Hudson, London, 2014, paperback version 2018.

Put more simply, as humanity evolved it faced two choices.
1. Defend your limited resources from others.
2. Expand your limited resources by sharing with others.

Archaeologists think that Neanderthals adopted the first strategy and early humans adopted the second. Neanderthals went extinct. We've become the dominant species.

As it turns out, the second strategy of strengthening relationships rather than walls has a host of advantages. Not only do you have more insurance against bad times but this strategy requires you to cooperate with larger groups of others, which enables all sorts of advances. This means opportunities for wider array of mates, the exchange of ideas, and the "outsourcing" of or cooperation on explanations, research and development, and cultural and technological innovations that eventually dwarfed the diversification of food sources in importance.

The choice to cooperate to share more rather than compete to protect less may be the single most important choice early humans ever made.

05 July 2018

Trade Wars, Immigration and the Invasion of Iraq

I remember feeling so utterly baffled as to why so many of my fellow Americans were eager to invade Iraq. The reasons we were given were so odd. Saddam might have weapons of mass destruction. (Without convincing proof that reason could be used to invade any nation.) This was retaliation for 9-11. (We already knew most of the terrorists of 9-11 were from Saudi Arabia and none were from Iraq and that Osama bin Laden was behind the attack, not Saddam.) We could "liberate" the people of Iraq by dropping bombs on them. Finally, the idea was that at the instant Saddam were taken out, democracy would bloom in its place. (There is no history to suggest that every community is a democracy waiting to bloom with the removal of a despot. The predecessors to democracy are more complicated by far.)

There were no experts who believed any of these weird claims. None of this made sense. And yet Americans were so excited to go do this and Bush and Cheney and Condoleezza Rice assured us that it would work. (Didn't explain how it would work or even what the risks were but instead just adamantly insisted that it would. As it turns out, this is a big sign that the person talking to us doesn't know what they are talking about.)

I never did understand how it was going to make our lives better here in the US but it did turn out to cost us $4 trillion, kill 4,000 American soldiers and somewhere between 100,000 to 2 million Iraqis, triggered a refugee crisis that still rocks Europe, was the catalyst for forming ISIS, which still terrorizes that region, and Iraq is not only now less stable but now so is its neighbor Syria. It turns out that anger isn't really a great guide to good policy.

Now Trump and his supporters are just as excited about immigration and trade as Bush and the country was about invading Iraq. Like then, this will create huge misery for others, some misery for us, and will cost us a lot.

Like the Iraq invasion, trade wars and cracking down on immigration apparently gives a lot of people a cathartic release but it is costly - like shooting up heroin before driving onto the freeway.

Trump has increased spending on border patrol. He was taken the dramatic and hateful steps of seizing children from asylum seekers coming to this country. He has claimed that trade wars are easy to win. Now he's even looking to rescind citizenship from people who have already been granted citizenship.

There are no experts who agree that trade wars are easy to win. Even the Trump administration's cost-benefit analysis of immigration saw it as net positive, and besides the rate of illegal immigration has been seriously lowered in this century. 

Illegal immigration is the weapons of mass destruction of this administration, the weird policy fixation that no expert understands but nonetheless seems to trigger every tribal instinct that drives GOP voters. 

I know that some voters are hopelessly enamored of the power to take lives, whether it be through actual killing in an invasion or in the form of seizing children from their parents as they cross the border. Obviously you people are beyond reaching. But there are some folks who don't get excited about creating misery for others who have nonetheless continued to be Republican. If this is you, if you are excited about the crack down on unfair trade and immigration, ask some important questions.

How much is this anti-trade, anti-immigration effort going to cost? 
How is this going to make your life better? 
Which experts defend this and how do they explain it? 
At least importantly, how does Trump himself explain how this is going to make life better? Is there data to support any of these claims?

As an American voter, you can increase or decrease the level of misery on the planet, including your own. Take that responsibility seriously.

27 June 2018

Conservatives are Just Obsolete Liberals (The Supreme Court We Will Have for the Next Generation)

In this week's decision to support the president's immigration ban on 7 countries, Chief Justice John Roberts ruled that the Supreme Court's 1944 ruling upholding FDR's internment camps for Japanese Americans - Korematsu vs. United States - "was gravely wrong the day it was decided." It didn't seem that way at the time, of course, but 74 years later it seems obvious. This is how progress works.

About Trump's immigration ban. Trump made it clear that he wanted to ban Muslims. The minority position was that his tailoring the words in the ban to make his religious discrimination less obvious was irrelevant: this was still religious discrimination and thus unconstitutional. The majority ruled that the president has this kind of power and that his previous words about this being a religious ban didn't matter.

Two things about this.

One, with Kennedy's retirement due soon, the Supreme Court will be dominated by conservatives for probably the next quarter of a century. Kennedy was a swing vote and Trump will surely replace him with someone very conservative. Through roughly 2040 - at least - we will get Republican decisions from the court. This seems inevitable to me. So we may as well get used to this. It will likely be going on until I die.

Two, conservatives do eventually come around. Conservatives did not believe in religious freedom. At first. Now they do. Conservatives did not believe that the power of kings should be usurped by representative legislatures and democratically elected executives. Now they do. Conservatives believed that the race of American citizens (the Japanese interned in camps, for instance) was sufficient reason to imprison them. Now - 74 years later - they don't.

Conservatives have the same beliefs as liberals. They just hold them for one to three generations longer. So, even this conservative (and soon to be even more conservative) Supreme Court will eventually catch up with the times. It is rather stupid to have rotary dial phones when you can have touch pad or touch pad phones when you can cellular flip phones or cellular flip phones when you can have smart phones but at least Americans will eventually get the latest policy .... about a generation or two later than it is available.

15 June 2018

Keynes, Capitalists, Communists, Cryptocurrency and Central Bankers

Cryptocurrency emerges from the notion that it is better to trust an algorithm than the judgement of a central banker. 

So before we evaluate cryptocurrency, let's evaluate central banks.

I stand with conservatives who argue for the importance of family, church, state, bank and corporation. Two-parent families raise children less likely to go to jail and more likely to go to university (speaking of institutions). People who go to church weekly live longer. If you live in a failed nation-state your income prospects are cut by tens of thousands of dollars and your life expectancy by a decade or more.  And a great financial system (what I mean when I say bank) helps to create trillions in wealth and enable R-n-D, infrastructure, consumption, and entrepreneurship. 

When healthy and strong, these institutions make lives better. Showing a disregard for these institutions is to show a naivete about who we are as individuals. (Spoiler alert: alone we're less able to survive than dodo birds.)

Where I depart from conservatives is in my conception of these institutions. I do think they are hugely important. I don't think they are sacred. Instead, I think they are just tools.

The church is just a tool, no different from a juicer. What a church makes is more important than what a juicer makes, though, and that is why it is more important. Through a church people make things like meaning, faith in an uncertain future, compassion, identity and community. Those things matter more than juice so churches are more important tools than juicers. It is both that simple and complex.

Once we conceive of institutions as tools, we realize a couple of really important things. One, they didn't always exist. Like a car or toaster, church, state and banks are inventions. Two, just like other products or tools, they can be continually improved. If the purpose of a church is to create compassion, we can design rituals and beliefs to better enhance that just like we can design a saw to more accurately cut wood or a car to more comfortably get us across town. We can judge the Mormon Church or Catholic Church or Church of Scientology by how happy its members are, how much grief they cause non-members, and whether they make the world around them better. (And we can leave it to various churches to discover later who - if anyone - gets sent to heaven and who to hell.) If a church forces its members to disregard the Copernican Revolution or evolution and as a result its members end up in more primitive, less prosperous, anti-science communities we can judge that as a design flaw that needs updating, requiring change no different than debugging needed when  software keeps crashing or works on a laptop but not a smart phone. Catholicism, the United States, IBM, a chest freezer and a bulldozer all share this simple characteristic: they are merely inventions and can - indeed should - be changed and improved. It's true that children do better in two-parent households than they do in one: those two parents may be two dads, two moms, a grandma and a dad, etc. There is no sacred formula for effective institutions but some designs are more effective than others. The best societies design their institutions for who they actually are, not who their ancestors thought they were.

Banks - like churches and nation-states - are not sacred. They are just tools. When effective, they are tools for the masses and not just the elite.


So many questions arise from this orientation but a key one is, Who gets to use these tools? The answer is that it depends on how evolved a community is. The nation-state that is a tool of the monarch is more primitive than the nation-state that is a tool of the people. Dictatorships are more primitive than democracies. No one was richer than King Louis XIV in France or Saddam Hussein in Iraq or is richer than Putin in Russia. A nation-state that is the tool of the elite is only partly evolved. The bigger the market for a tool, the more benefit. This was true of computers once bought only by nation-states and now by most people and is true of nation-states once conceived for the glory of the king.

The progress of the West has come in two phase for each of its big institutions. 

In the first phase, creative geniuses conceive of and create institutions like church, state, banks and corporations that make us part of a bigger us. These social inventions hack into our tribal instincts and - rather than leave us in a small tribe of 150 or so - make us the part of a larger group, more people than we can ever hope to meet. "I'm a Christian," we say or "I'm an American" and we feel affinity for a group of billions or hundreds of millions of strangers. Social inventions make us part of a bigger us and that makes us more prosperous. A tribe is poor. Always. A tribal economy doesn't have enough people to allow specialization, economies of scale or the growth in knowledge that comes out of millions or billions of people interacting with one another. The state economies in the US before the Civil War were not as prosperous as the national economy of the US after. The bigger the group, the greater the prosperity. This act of social invention is incredibly important to progress.

In the second phase, the institution is made the tool of the masses and not just the elites. Martin Luther's cry of "We are all priests" or Jefferson's cry of "All men are created equal," were revolutionary. Why? They called for a shift in power from popes and monarchs to the common person. They made church and state tools for anyone to use. In the wake of this reconception of church and state we have religious freedom and democracy and now church and state policy are the product of every- and any-one.

The simplest way to think about the central bank is that it is a means to do for banks what Luther and Jefferson did for church and state: the central bank is a means to make banks a tool for the masses and not just the elites.

Four times the West has created the great institutions that have come to define market economies. Three times it has turned those institutions into tools for the masses. (The corporation is only now changing from tool for the CEO to tool for the newly entrepreneurial employee; that is not something that I'll get into here.) 

It took centuries for the Protestant Revolution that transformed the church in the West to culminate in religious freedom. Martin Luther nailed his 95 theses onto the door of the Wittenberg Castle Church in 1517 and it was not until 1648 that the Treaty of Westphalia was signed to grant religious freedom. (And of course what they thought of as religious freedom we would think of today as hugely restrictive.)  It took about a century for democratic revolutions to transform monarchies across the West. So I guess one ought not to be surprised that the revolution that transformed the bank -  a revolution that largely played out between 1933 and 2000 - is still not really understood or appreciated. You have to understand that revolution before you can really understand cryptocurrency.

"You have made yourself the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out."
- John Maynard Keynes in an open letter to FDR in 1933

The revolution of the third economy - like the two before it - turned that period's dominant institution into a tool for the masses. The bank became a tool for everyone - and not just bankers - through a couple of mechanisms. The first was simply the work of social evolution - market forces at work. As capital became more abundant, the competition in capital markets shifted from households and businesses competing for capital to lenders and investors competing for customers of capital. The ads for credit cards, home mortgages, and 401(k) accounts late in the 20th century were evidence that capital markets had become as eager for thousands of dollars in business from tens of millions of people as they had earlier been for the tens of millions of dollars in business from thousands of elites. That alone helped with the popularization of capitalism from the wealthy elite to the average consumer. Keynesian policies were the second tool for turning banks into tools for the masses.

Before Franklin Roosevelt became president in 1933, the American economy had been in recession 48% of the 20th century. Half the time GDP was contracting. The good news is that capitalism was creating entirely new industries and technologies as transformative as electricity, radio, automobiles, and airplanes. Life was markedly better with the fruits of capitalism but it was also a world that generated about as many busts as booms. The bank obviously made capitalists rich but it wasn't as clear that it was benefiting workers. (Spoiler alert: it was but not not as rapidly or obviously.) Bankruptcy emerges after banks. From this turmoil of sudden wealth and poverty, income inequality and booms and busts communism was born. Communists knew the pain of that institution the bank and they wanted to be rid of it. It seemed to them wildly unfair and inefficient to have capitalists get rich while workers were losing careers each time a new industry emerged and an old one contracted. The innovation and automation that capital fueled could obsolete entire careers. Instead of banks, communists thought they'd use the nation-state as a mechanism for creating, investing and distributing capital.

The battle before Keynes was between capitalists (who Keynes refers to as orthodoxy in the quote above) and communists (the folks Keynes saw calling for revolution). Capitalists wanted the bank to be unchallenged and unchanged, left a tool for the elites to profit from with little or no regard for the worker or the broader economy. The capitalists were to the bank what royalists were to the nation-state or Catholics were to the church. They thought capitalism sacred. (They even referred to the market as the invisible hand, a nod, of course, to the hand of God that had earlier been thought to drive change and, of course, as with God's will, the market's decisions were not to be questioned or overturned.) Communists, by contrast, wanted the bank eradicated. Treat the institution as sacred or disposable? Side with the capitalists or communists? 

Well, the Keynesian response was to create policies that allowed capitalists to profit (profit motive remains a pretty clear signal about where to best allocate capital) while regulating banks through laws and central bank policy. The Federal Reserve's mission is to keep unemployment and inflation low.  Keynesian policy is fairly simple in concept: banks can do their thing as long as that doesn't mess up the larger economy that includes workers who have to stay employed and are also paid wages that can be made weaker by inflation. Capitalists were left free to profit as long as capital markets helped everyone prosper. Like freedom of religion and democracy before it, this "American Dream" treated a major institution both irreverently and as vital. 

After 1933, the world had three competing models running. One model was communism, another orthodox capitalism and the third Keynesian. (The orthodox capitalism models included a mutated form known as fascism that shared the orthodox belief in the natural inevitability of elites and the need to subordinate workers to business owners (and, of course, the state).) There was no competition. The Keynesian model was a triumph. As mentioned, from 1900 to 1933, the American economy was in recession 48% of the time. Since then it has been in recession only 14% of the time. In the 20th century, throughout the West, incomes and life expectancy rose dramatically. Keynesian economies trounced communists and unregulated market economies. People steadily got more access to credit and investment markets and as they did, wealth increased more than in any previous century.

The inventions of church, state and bank were so very, very cool. Turning them into tools for the masses rather than just elites was even more cool.

The punchline of the third economy's transformation of the bank? A banking system needs a central bank and regulations that save it from sub-optimization. Keynesian policies subordinate the banking system to the broader economy. Without that the economy booms and busts in ways that costs everyone - even banks.

So now let's turn to cryptocurrencies, the currency that relies on an algorithm rather than a central bank.


Cryptocurrencies are designed to avoid central bank policy. As long as they remain a minor part of the economy, this isn't such a big deal. Their value will vary wildly against other currencies but that won't adversely affect the economy, just the investors lucky enough to catch it on a swing up or unlucky enough to catch it before a big fall. 

But the more widely cryptocurrency is adopted, the more it will drive variation in GDP growth. Cryptocurrency promoters are not communists or Keynesians but instead are orthodox capitalists who have come back with algorithms. They are true believers in financial markets as forces that act best unsubordinated to anything else. They are designed to avoid central bank influence. If they are right than Keynes was wrong.

The good and the bad thing about algorithms is that they are rules that don't change in different environments. A new species can change an environment, though. The mortgage instruments that seemed like just a new product for bundling mortgage debt into securities that could be sold ended up changing the financial market in 2008. They were a key trigger to the Great Recession. It is not just that cryptocurrency would change the financial environment as it becomes more popular. The simple algorithms it follows will behave very differently in an environment in which they are dominant than one in which they are marginal.

Simple rules can still lead to weird chaos. This is one reason that the Federal Reserve has goals rather than rules. Things change and a constant growth in money supply can be a problem in an economy subject to shocks and surprises. Central banks change the variables they can to effect stability in employment and inflation. They are not perfect - that's impossible - but they are willing to subordinate capital markets to broader goals and they are willing to change things in novel or unexpected ways to effect such change. A cryptocurrency disconnected from any central bank or government regulation won't subordinate to broader economic goals and any attempt to suddenly change a predictable algorithm to do that could lead to chaos within the cryptocurrency market.

We see already that the simple algorithms that drive cryptocurrencies don't translate into stable prices of cryptocurrencies. As (and if) they become more popular they will not translate into stable economies. 


Speaking of social inventions, currencies are just made up. As it turns out, though, the point of currencies is not currencies. Currency just facilitates economic activity. To do this currencies have to be a store of value as well but that is incidental to its property, not its purpose. Currency induces people to work, to part with resources, to sacrifice or work now for future gain, and so on. A body is not made more healthy by the production of more RNA (that can, in turn, synthesize protein) any more than an economy is made more healthy by the production of more money. Hyperinflation is a reminder that the goal is not to maximize currency (or even to minimize it or keep it constant). 


One of my beliefs with the fourth economy is that what limits in one economy becomes abundant in the next. In an industrial economy, capital is so scarce that more of it will almost always provoke more economic growth, the creation of more jobs and wealth. In an information economy, though, capital has become more abundant and introducing more of it has a diminishing effect.

What limits economic progress now is not the capital to finance education for knowledge workers or factories for capitalists or the startup capital for entrepreneurs. We have trillions wandering the globe in search of returns (and arguably driving prices of stocks higher than is justified by expected profits).

A key question to ask about cryptocurrency is whether it has emerged because we have so much capital in search of novel returns or if it exists because we do not have sufficient currency to facilitate the economic activity that creates new jobs and wealth. For me, the answer seems obvious. Cryptocurrencies emerged during a time of such capital abundance that the interest on Dutch bonds - and they have records that go back to the time of Martin Luther - was negative for the first time. It is hard to argue that the problem with the modern world is a lack of capital or currency. 

Cryptocurrencies seem a symptom of a glut of capital rather than shortage.


Nor do we have a shortage of currencies. It seems plausible that the euro that emerged out of the EU will be  a prelude to the consolidation of currencies within regions. There are about 180 currencies around the world (most nation-states have one). It's not clear that we need more.  

Cryptocurrency advocates argue that bitcoin is poised to become the replacement currency for many of these national currencies. If currency needed no Keynesian policies to direct its behavior, this would actually be plausible. It is unclear, though, what would act as a central bank mechanism for any cyrptocurrency. I actually think it more plausible that the World Bank could issue a currency at some point.


Keynes published The General Theory of Employment, Interest, and Money in 1936. (But as was evident in his 1933 letter to FDR, he'd been thinking about this theory for years.) Kurt Godel published his incompleteness theorem in 1931. Godel essentially argue that a system cannot contain its own proof. Ultimately, a system needs an outside reference. Keynes notion of capitalism was similar to Godel's notion of math: it needed an outside reference point to keep it from collapsing in on itself. 

A currency or financial system ultimately needs an outside regulatory engine or mechanism to keep it running smoothly. (Or relatively smoothly. Booms and busts are inevitable even if it is not inevitable that the busts are underway half the time.)

Currencies are only part of the system. The economy is the whole system and in order to optimize the economy you have sub-optimize the parts of it, including its capital or currency.  The lesson of Keynes is that banks, capital and currencies have to be regulated by something outside. (Lightly. But regulated nonetheless.)


Cryptocurrency seems like modern technology based on an old, pre-Keynesian worldview that trusts in self-regulating financial markets that don't disrupt employment and GDP. I'm not sure that using a computer rather than a printing press makes that worldview any more effective. In fact, it could even make it more dangerous.

14 June 2018

Trump's Birthday and the Baby Boomer Model of Leadership Expiration Date

Today is Donald Trump's birthday. He's 72.

Trump, George W. and Bill Clinton were all born within 66 days of each other in the summer of 1946, 9 to 11 months after the end of WWII. They are the very definition of baby boomer. Bill was elected at 46, George at 54, and and Donald at 70.

I suspect there is a "lead by end of 20th century" expiration date hidden somewhere on the back of their neck but the GOP are the guys who find something in the back of the fridge and say, "This says 'Sell by 2000' but it doesn't smell weird. I won't get sick if I eat it, will I?"

09 June 2018

The Illusion and Importance of the Individual

I think Christians, Buddhists, evolutionary biologists, statisticians, and developmental economists are right. There is no way to make sense of a life in isolation. The notion of individuals breaks down under scrutiny.

One of the lessons of systems thinking is that systems emerge out of the interactions of parts.

Systems thinking advocate Russell Ackoff was fond of the analogy of a car to illustrate this point. A car can get you across town. The tires alone can't do that. The steering wheel cannot. The engine, alone, will just sit in your driveway and roar. What makes a car a car is the interaction of its parts, not the actions of its parts in isolation. The quality of a car emerges out of the interaction of its parts.

Your life is a system. What does it mean to be human? No species is born more helpless. A horse can run within minutes of being born. It takes us a year to be able to stagger and another year before we can talk about it. Humans are helpless for the first 10 to 25 years of life. Put aside the necessity of biological parents who "create" you. You don't even get to be human without the assistance of others for the first decade or two of life. We're little different from other primates without our speech and tools and to learn those adds another layer of dependence on others. Language does not emerge from an individual experience; it comes out of interaction with others.

To understand the culture we're born into, the options for work, and the skills needed to contribute to a working society adds yet another layer of dependence.

An individual life is an emergent property. It comes out of interaction with others, it has a particular place in history, economic development, and culture. It does not exist in isolation and to even speak of it as if it does is to strip it of all that defines it. We get defined through relationships and who we can be is hugely dependent on everyone else. Who a peasant woman in 1318 could be is vastly different than who an urban woman in 2018 can be. Each emerges out of her time and place. The notion that either is an individual who chooses her own life is a popular myth but a myth nonetheless.

Paradoxically, this is why it is so important to be an individual as defined in popular myth. The way progress works is that it sends tentacles out into the future in the form of individuals. Some paths work out and some hit dead ends. Your effort to become someone new and different becomes a starting path for those who come along later, even though that effort is absurd to even contemplate in a vacuum. Our life is the variation in the distribution of the system and through our life the distribution has the potential to change over time.

Because the system is twice emergent. Your life emerges out of a system that is a complex mix of culture and technology and that system emerges out of the complex mix of who people were and aspire to be. You define the system that defines you.

It's not paradox but rather perspective that makes two contradictory things true at once: lives emerge out of systems and systems emerge out of lives. The two options that are illusory are the options to believe that you define your own life or that you don't define the world you live in. This means that we have to work through others to even have the hope of changing ourselves. And others have to work through us for any hope to change themselves. We are inescapably created by the world around us and create that very world, sometimes in ways that have less to do with who we ever get to be than who other people get to be - now and in the future.

07 June 2018

Deficit Swing - How Deficits Have (and are projected to) Change Under Each President

Trump signed a budget that will increase the deficit to a trillion dollars.

The deficit will grow simply because the economy is growing. If the deficit were stable as a percentage of GDP, it would grow about $100 billion during Trump’s four-year term.

Using the average spending and tax levels since 1979, the deficit under Trump would grow from about $600 to $700 billion. But given his tax cut this year and spending increases in the next few, it will instead hit $1,017 billion (a trillion) in 2020, or about $300 billion higher than what it would be if the Republican budget just met average standards for fiscal responsibility. (Since 1979, spending has averaged 20.6% of GDP and taxes 17.4%.) And this during a projected boom time; if you aren’t going to lower the deficit when unemployment is under 4% and the stock market is at an all-time high, you aren’t going to lower the deficit.

Here’s a table showing how much the deficit swung during a president’s time in office. Reagan’s first year in office, he had a deficit equal to 2.5% of GDP. In George H. Bush’s first he had a deficit of 2.7% of GDP. So, during Reagan’s time the deficit swung negative by 0.2 percentage points of GDP, which you can see in the "Swing" column.

Deficit (-) or Surplus (+) Swing

Passed on
Ronald Reagan
George H. Bush
Bill Clinton
George W. Bush
Barack Obama
Donald Trump

Trump's first year in office he inherited a deficit equal to 3.5% of GDP.
According to CBO projections, whoever is president in 2021 will inherit a deficit of 4.9% of GDP. And that assumes no recession, which could raise the deficit by hundreds of billions.

Since 1981, the deficit has worsened every time a Republican president was signing and vetoing bills and has improved every time a Democrat was. You know what they say: you campaign like a fiscal conservative and govern like you're trying to make friends with everyone at the bar. "Tax cuts on me! For everyone!"

01 June 2018

Video Games, Systems, Consequences and the Afterlife

I'm a fan of video games. I think that the world will get better as we build more effective simulators to teach systems dynamics that include the behavior of nations at war, ecosystems, financial and labor markets, popularity, and the change in social norms. Different dynamics are tough to understand as prose or equations; sometimes the patterns become easier to see when they play out in video simulations that let us see causality that simulates centuries within an hour. I don't think that we've really understood how powerful this potential technology is for teaching systems dynamics that so define our world.

There is one lesson that these video games gloss over, though. And it may be the most important lesson of all.

What we enjoy or suffer today rarely has anything to do with today.

Mark Zuckerberg made $1.5 billion today. I'm not even sure he went into the office today. He may have stayed home with a cold or may have had a really important strategic meeting. I don't know what he did today but I guarantee you that it does not explain his gain in wealth today. That is the consequence of things he did years ago.

Probably 99.9% of what we enjoy or suffer from today is the consequence of something done in the past. Little of it even done by us. Today my portfolio is up. It is the result of investments and sacrifices I made in the past, but that's the least of it. It's also the result of the Dutch who came over to New Amsterdam and recreated the stock market they'd first established in Amsterdam. It's the result of countless employees and entrepreneurs who have created equity out of thin air. It's the result of laws that protect private property. And so on.

That lesson that evolutionary biologists and religious teachers would both teach you is that causality does not stop at death. There is an afterlife. The lives of people in the future will be diminished or enhanced based on what you do in your lifetime. I suppose it is a kind of evil to believe that your life has no consequence and a sort of good to believe that it does.

If you are looking for cause and effect that can be experienced within a day or even a year, it is easy to get discouraged. Little of consequence plays out that rapidly and if you are measuring the impact of yesterday or last month's efforts on today, you'll conclude that there's not much that can be done. But the stories that inspire are those of the immigrant mom who worked two jobs to get her kids through college. There is generational causality and it doesn't end with her grandkids. One of the reasons I love history is that it explains so much of what defines today. We are the product of decisions made centuries earlier.

The community you live in is the product of the despair or hope of past generations, their action or inaction, their creativity or conformity. One definition of foolishness might be to believe that nothing we do has any consequence; one definition of wisdom might be to believe that what we do has consequences for generations. (Even if that consequence is to have made no difference because even not making a difference makes a difference.)

Finally, I leave you these words of advice from one of my favorite people.

The Buddhists have a good piece of advice: “Act always as if the future of the universe depended on what you did, while laughing at yourself for thinking that whatever you do makes any difference.” It is this serious playfulness, a combination of concern and humility, that makes it possible to be both engaged and carefree at the same time. One does not need to win to feel content; helping to maintain order in the universe becomes its own reward, regardless of the consequences. - Mihaly Csikszentmihalyi