The Most Underrated Inventions of the 20th Century?

Robert J. Gordon's Rise and Fall of American Growth includes some stunning statistics about the American workforce.

First, the 20th century saw an outbreak of fabulous inventions. The automobile, radio, and light bulb were among the inventions made in the 19th century that were popularized in the 20th century. Additionally, inventions like the airplane, the polio vaccine, and the computer originated in the 20th century. I don't think the best inventions of that century get enough credit, though.

In 1870, male labor force participation rate for those 65-75 was 88 percent. Before social security or the popularization of financial tools like pension plans and investment accounts, people essentially had to work until they died. 

30% of boys 10 to 15 (and 50% of boys 14 to 15) also worked. And this is a formal count. More would have helped on family farms and not been counted. Kids had to quickly help with family finances. By 1940, this had dropped. Kids were in school instead.

Work changed too. The percentage of the workforce engaged in blue-collar work classified as operators (largely factory workers) and laborers held steady from about 1870 to 1970. Between 1970 and 2009, the percentage was halved to 11.6%. Meanwhile, workers engaged in "non-routine cognitive" work steadily rose from 8% in 1870 to 37.6% in 2009. The ratio of cognitive work to factory work rose from 0.4 to 3.2.

Work that builds up our intelligence rather than breaks down our body is yet another great invention of the 20th century.

Along with all this, the workweek fell from 60 hours to less than 40.

Childhood and work are becoming more interesting and less grueling. We have retirement and two-day weekends. That is at least as cool as automobiles and smart phones. I would say that childhood, weekends, and retirement are the most underrated inventions of the 20th century.

What I Forgot to Tell my Son on His Wedding Day

I gave a toast to Blake on his wedding Friday but managed to lose my list of bullet points. I reconstructed them about ten minutes before the toast, pocketed them, and then spoke. But it was only after an evening of strong emotions and great conversations with  old friends and friends freshly made that I remembered my main point.

Meditation magnifies.

Joseph Campbell said that we don’t need to learn how to meditate. We meditate all the time. We meditate on how tight money is this month or why she said that or whether they think we were foolish to wear this outfit or which celebrities’ life we covet.

Consciousness is like a radio dial that broadcasts a mix of fact and fiction, fantasy and memory, hope and resentment, passing scenery and national news. We can scan the dial and bounce from one thought to this perception to that memory to another thought all day. We can scan but we tend to land on familiar thoughts, our favorite stations. Those are our meditations.

Be aware. Don’t become a martyr for your mate. Your job isn’t to dedicate your life to suffering for them. So when awful or even merely annoying things come up, face them and deal with them. But resolve them and move on. (Oh, and resolution may be realizing “that is part of the package of her.”) 

Don’t meditate on the things that eat at you. Don't plug your ears and chant "I can't hear you," to them either. Deal with bad things. Do meditate on what it is about her that you admire, adore, or aspire to for yourself. Keep coming back to that happy station. This is not meditation as escape from the world but, rather, focus on and amplification of what is best in it.

Because whatever it is that you meditate on, whatever it is that you come back to again and again, that will be magnified. If it is good, that will seem bigger. If it is bad, that will seem bigger. Regardless of how wonderful or terrible it is, whatever you meditate on will seem like a much bigger deal than it actually is. And that will change what you talk about, how you act, and the ripple effect of your influence in life.

Face reality and deal with issues - both delightful opportunities to seize and ugly issues to resolve. And in between, magnify what you want more of by meditating on what delights you.

The Real Economic Debate (is not about socialism or capitalism)

The big debate isn’t about whether we should have a socialist or capitalist economy. 

Depending on how you define those terms, socialism and capitalism are either essential or absurd. 

Do you define capitalism as no different than a market economy? By socialism do you simply mean some mix of social security, public funding for healthcare, public education, and unemployment insurance? By those definitions, capitalism and socialism are essential. 

Or by capitalism do you mean that we should be rid of social security, healthcare, public education and unemployment insurance? And when you say socialism do you mean that we should do away with markets? By those definitions, socialism and capitalism are absurd and harmful. 

It’s a valid thing to argue where on the spectrum between cruel market or controlling government we should be, but that can easily distract us from a more vital, more concrete debate about how normal people are going to create new jobs and wealth. 

The debate about whether we're in an industrial or information economy is the more relevant and productive one. Put more simply, do we think that jobs and wealth are going to be created in factory work or knowledge work?

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College education has become one of the better predictors of how people vote. In the 50 counties with the highest levels of education, Hillary Clinton won by 26 percentage points. In the 50 least educated counties, she lost by 31 percentage points.[1] Those knowledge workers are also more affluent than factory workers. Clinton won only one-third of the counties in the US but those counties represent about two-thirds of the country’s GDP.

By contrast, Trump won by nearly 16 percentage points in the ten states with the highest percentage of manufacturing workers and lost by 9 points in the ten states with the lowest percentage.

In 1972, the Democratic Party shifted its focus from factory workers to knowledge workers. In 1972, the Democratic National Committee had set quotas for women, minorities and youth but none for blue-collar workers. In terms of policy, that was visionary. Since that time an information economy has clearly driven economic growth. In terms of politics, it was disastrous. Knowledge workers still made up only 11% of the population in 1970. Democratic nominee George McGovern lost by 520 to 17 electoral votes in 1972 and in 1984, Mondale won only 13 electoral votes. 

Since 1992, college grads have outnumbered factory workers and since 1992, Democratic presidential candidates have won the popular vote by an average of 4.1 million votes (and only lost the popular vote once in the last seven elections). In the Democrats’ last three presidential victories (Obama 2012 and 2008, Clinton 1996), they won the popular vote by a total of 22.7 million. In the Republicans’ last three presidential victories (Trump 2016, Bush 2004 and 2000), they lost the popular vote by a total of 400,331. Because of the quirk of the electoral college and knowledge workers’ tendency to cluster in cities, Republicans and Democrats have split the last six elections in spite of Democrats dominating the popular vote.

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Trying to bring back manufacturing jobs makes about as much sense as trying to bring back farming jobs. And for a host of reasons it simply isn't smart policy. Ours would not be a better economy if we still had 90% of the workforce engaged in raising crops for us nor would it be a better world if we still had 36% of the workforce making stuff. We can now be fat and our houses be cluttered with less than 2% of the workforce raising our food and 8% making our stuff.

The question is not "How do we get more people back into factories?" The question is, What work will add value, what work will actually improve our quality of life, what work would voters value enough to fund with government spending or consumers value enough to fund with cash or credit? That is the question entrepreneurs ask.

The answer to the question of whether we think that jobs and wealth are going to be created in factory work or knowledge work has two parts. Short-term, none will be created in factories but many will be created in knowledge work. (And by none I mean net. New jobs will emerge in factories but not as quickly as they are destroyed.) Long-term, all will be created by entrepreneurs.

We don't exactly have all our problems solved as yet. In every direction we turn there are problems to solve and possibilities to explore. How do we create affordable housing in big cities without creating more congestion? How do we increase the quality of life of people over 80? (The fastest growing group in the world.) How do we create institutions that encourage the intrinsic motivation that makes us happy, creative, and productive? How do we automate more of the tasks that have become boring and simply reduce our quality of life and create the tasks in their place that both create value for customers and flow for workers?

Wasting effort on returning to the past is like a 60 year old dressing like a 16 year old. What was once exciting has become disconcerting, what was great becomes caricature. 

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[1] http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/

Overeducated Workers in a Post-Information Economy

The simplest statement of effective economic policy is to create, get, or get more from whatever limits progress. As a community shifts from one economy to another (from, say, an agricultural to industrial economy), the limit shifts and so does effective policy.

All that as prelude to summarizing a report recently released by the UK's Office for National Statistics (ONS). 

Here are some excerpts of note:

Overeducation is a form of mismatch where a person can be overeducated if they possess more education than required for the job.

Levels of overeducation: completed  

before 1992: 21.7%; 

1992-1999: 23.4%;  

2000-2006: 24.8%;  

2007 or after: 34.2%

The wage of an overeducated worker is between 3.3% and 8.1% lower compared to the wage of a worker with a similar level of education who is matched to the right occupation. 

We find that overeducated graduates experience negative returns to overeducation.

Overeducation is becoming more prevalent and overeducated graduates actually get negative returns on their education.

I have not seen a similar report on American workers but have little doubt that it would tell a similar story.

We still imagine we're living in a world in which capital and knowledge workers limit progress and we put trillions into capital gains tax cuts and education funding .... even as those no longer limit. 

What a Shrinking Labor Force Means for the Job Market & the Economy

Since December, the labor force has shrunk by 770,000. This is one reason that the unemployment rate hit its lowest in this century in March. (It's been half a century since unemployment was at 3.6%.) This fall in labor force could be random variation but it may be a sign of a trend.

As you can see in this graph, the rate of growth in the labor force has been steadily falling in the last 5 decades.

Baby boomers and immigrants drove a big rise in the labor force. LBJ's Immigration and Nationality Act in 1965 ended the fairly racist quotas for immigration and increased the number of immigrants about the same time that baby boomers entered the job market. The birthrate for a stable population is about 2.1 births per woman. In 1960, the US had a birthrate of 3.65 and in 1973 it fell below 2, where it has stayed since.

The number of kids coming of age and the number of immigrants coming to our country have both steadily dropped since the 1970s. It is conceivable that in the 2020s, the labor force will actually stop growing.

This is good news for workers. Sort of.  It should be mean strong wage growth for the millennials whose careers started out in the midst of the Great Recession. Workers will have more power in negotiations with companies who are competing for a shrinking pool of workers. They deserve it and it could be good for their pocketbooks. This also suggests that house prices will increase at a slower rate as demand for housing eases.

The news is not as good for the economy for at least two reasons.

The most obvious is that the ratio of retired to those working will go up. That suggests more poverty among the retired than we'd otherwise have. (Baby boomers might care about this.) Elder care will be more expensive as wages rise.

Less obvious is what fewer workers mean for an economy.

Just today the New York Times published a story on how Hungary's economy is now limited by workers. Prime Minister Viktor Orban is, like Trump, an anti-immigrant nationalist.  Hungary is not the only European country experiencing lower birthrates, though. Demand for workers is up throughout much of Europe. Because of this, Hungarian workers are leaving for better paying jobs in big European cities. So Hungary's labor shortage is driven by two things: its own people emigrating to other countries and other people not immigrating into Hungary. As a result, businesses are turning away orders because they cannot fill them.

How are we i the US doing with immigration as birthrates fall?

Foreign student enrollment in American universities has fallen two years in a row - essentially since Trump has taken office. The immigrants we should most want - those able to get into our universities - are choosing to go elsewhere, raising the probability they will go work elsewhere.

There is something else going on here that rarely gets mentioned. As population increases, so does per capita GDP. More people stimulate more ideas, more creativity, more products, more technologies, and more businesses. This is a big reason why productivity and wages are so much higher in cities than in rural areas. Our creativity is stimulated by interactions with people; and the more diverse that group, the more creative our response.

The good news about diminishing growth in the labor force is that it will mean that workers will likely get more of the pie, be able to negotiate higher wages this year. The bad news is that there will be less pie, less creativity, innovation and entrepreneurship than we'd have with a larger, more diverse population and wages - while taking a higher percentage of corporate revenue - could actually be lower than they otherwise would be. (And that, of course, suggests company earnings would be smaller for two reasons: smaller portion of revenues going to profit and smaller revenues.)

As birthrates fall across the West, smart countries will compete for immigrants, not shun them. Us? Well, apparently we're cashing in our lead in immigration and choosing to become more like Hungary.

Conservatives Very Odd and Highly Improbable Belief

Yascha Mounk has an interesting podcast on the BBC in which he traces the rise of populism along the old iron curtain in Europe.

A Polish conservative he interviews makes the most curious set of statements. First he talks about immigrants, pointing out that Poland took in a lot of Ukrainian refugees and saying that they have no problem with refugees but instead just with Muslims. The problem is, he says, that Muslims have beliefs that are too dated for Poland. Later he talks of Western Europe and how the Poles don't like their values. They're too modern.

Conservatives seem to get that norms and institutions change over time. What could get you burned at the stake in one century can become admired in another. They get that. Sort of. But in spite of the fact that they realize there are communities "behind" them in the progress of values and "ahead" of them in lifestyles and acceptance, they seem to believe that they are the only instant in time that has it just right. They don't want to return to the crude norms of the 1800s but they also don't really like these jarring norms of the 21st century.

The curious thing about conservatives is this: of all the times to be born in history, they were lucky enough to hit just the right time, the perfect mix of tolerance and tradition. It seems improbable - but obvious to them - that with thousands of years of history and thousands of years of future, they hit the evolution of society at just the right instant. It's almost like a miracle and they don't want to spoil it with change.

Fed Appointments and Trump's Tenuous Grip on Reality

Trump wanted to appoint his friend Herman Cain to the Fed. He's still pursuing the appointment of Stephen Moore.

As it comes out, Trump likes two things. He wants someone supportive of loose money policy even with unemployment under 4%. And he likes the gold standard. Those are not just two very bad ideas. They are also mutually exclusive. It's not enough that he's stupid. He's also incoherent.

How Podcasts Could Reverse the Influence of Talk Radio

During his thirty-year career, Martin Luther produced 544 separate books, pamphlets, or articles, slightly more than one every three weeks. He was responsible for over a fifth of the entire output of pamphlets by German presses in the 1520s, the master of the possibilities that the Gutenberg press had unlocked.

That changed religion in the West. The Protestant Revolution shifted power from church to state.

In 1987 the Reagan Administration repealed the Fairness Doctrine that meant broadcasters were no longer obligated to dedicate programming to public interest or to represent opposing points of view. This was a boon to conservative talk radio. Between 1987 and 1992, the number of talk radio stations in the country rose from 240 to 900, and Rush Limbaugh came along, the master of advocacy reporting.

That changed politics in the US. From 1931 to 1995, Democrats had controlled congress 30 out of 32 sessions. After the rise of talk radio, Democrats controlled the House in only 2 of 12 sessions. The 2018 election made it 3 out of 13.

The 2018 election was the first post-podcast election. It was a blue wave. Obviously there is a lot more going on than podcasts (in the same way that a lot more was going on in politics after 1995 than talk radio) but the long-form of podcasts might do for wonky politics what talk radio did for conservative politics, giving an edge to the folks who take longer than 4 minutes between commercials to make their point.

Stephen Moore and His Odd Belief in Gold

"I like the idea of a gold standard and, you know, restoring value to the dollar," Stephen Moore says in this clip.

Trump has appointed Stephen Moore to the Federal Reserve and his compliant Senate is likely to approve him.  This should worry you.

Moore has said that a gold standard for our dollar would be better than what we have now but what he really wants is a basket of commodities to drive the value of a dollar. This is to economics what the belief that the sun orbits around the earth is to astronomers.

Commodities. Sigh.

There are so many ways to highlight how absurd this is but I'll just use two.

One, commodities have marginal impact on the economy. (Obviously if we suddenly lost all grains or  water or precious metals or oil, the impact would be enormous. Our economy is built on a layer of commodities and credit and a sudden threat to either could crash the economy. There is a difference, though, between saying that we'd starve without food and saying that food production should be the basis for prices in all sectors.) In 2016, mining employed 0.4% of the population and "agriculture, forestry, fishing and hunting" employed 1.6%. So, between them, these professions that harvest commodities like silver, iron, corn, or elk employ 2% of our workforce. It would make more sense to base our currency on health care and social services (that sector employs 12.2%), letting our currency move in response to the price of medical devices or drugs rather than commodities.

Two, there is nothing more real about using "hard" objects to determine price levels than "soft" objects. It's true that gold is a solid object and, say, wages or the consumer price index (CPI) are softer, more abstract things. But the fact that you can weigh the gold to a precise amount is a very different matter than saying that we can peg its value to a gallon of gasoline or 50 minutes of a therapist's time or a year's supply of an engineer's career or a house in San Francisco or Detroit. When your currency is backed by gold, your economy will get an infusion of new "money" when new gold mines are discovered and be short of money when no new gold is discovered. There is NO correlation between when you discover new gold and when your economy needs to grow because of new population, new technologies or new products. The intuition that gold is "real" and that CPI is not is akin to the intuition that the sun orbits around us.

Trump is all folk tales and fear, loud noises and intimidation. For this, Moore is a perfect fit for his worldview and policies. For our modern economy, though? Not so much.

Entitlement without Taxation

The notion that immigrants are a threat to your job has a few elements, just one that I want to explore here.

If an immigrant is a threat to your job it means that if you were to swap places with that immigrant, you would lose money. That is to say, the immigrant has an incentive to come here to take "your" job because it pays more than "his" job back home. And if you moved to his town to replace him, you would make much less.

So that suggests that there is a wage premium for living here in the US.

Curiously, the voters who assume that they are making more money for living here are also the ones who don't want to pay additional taxes to live here because "they earned it." It's an odd kind of recognition of a system they're reluctant to support.

The Random Ten Percent

Universities have standards they use to judge whether applicants deserve to join.
We have elections to decide who should serve on city council or in state legislatures.
Venture capitalists and banks have criteria for deciding whether or not to fund a startup or business.

Given that all of those processes can be gamed and all of those processes depend on judgement against a set of criteria that may turn out to be a really poor predictor of success, we should set aside 10 percent of all slots for a randomly chosen group.

This would have a host of benefits.

One, given these people would be randomly chosen from the population, they would be more representative. Right now, more than 90% of money venture capitalists give is given to men. Blacks and Hispanics are under-represented at universities. The folks who win elections tend to be good looking. The processes we use are skewed and a random process would help to partially offset that.

Two, it would be a chance to test the null hypothesis. All of these institutions have theories about what predicts success. Inevitably those theories have flaws. One way to discover those flaws is to compare the success rates of those randomly chosen with those intentionally chosen. To the extent that unpredictable things happen, it will be a chance to update the choice algorithm, throwing out criteria that turn out to be unrelated to success and adding criteria that - surprisingly - turns out to be very predictive.

Three, it would be an experiment to test the notion that access to these institutions will improve anyone's life, and not just the lives of those carefully chosen. Perhaps 4 years of Harvard will improve the life of a kid with a 2.4 GPA at least as much as it will a kid with a 4.2 GPA. Perhaps the community will be improved as much by the startled bartender or civil engineer who learns she or he has been chosen to serve in the state legislature by lottery as any politician capable of getting big financial donations. Institutions are powerful and it is important to better understand how much of the benefit they yield comes from their careful selection of who gets access to them vs. who those people are. That is to say, we need to understand when the goal should be to widen access to these institutions as a means to improve everyone's life or when we should narrow access to make sure that only people with a certain potential should be given access.