23 March 2020

A Preview of What Alternative Energy Could Mean for the Health of our Planet

Per the Economist, by the 21st of March in most cities trips planned had dropped by 70 to 90%. People are traveling and polluting less - about 10 to 30% of what they normally would.

We are going to get such great data on what a difference dramatic drops in pollution levels make from this crisis as we all enjoy bluer skies and - in the face of a respiratory epidemic - actual decreases in asthma-related cases. (*Note - Ron is not a medical expert. He's just speculating on this point. Obviously rises in COVID-19 cases would dwarf drops in asthma due to drops in pollution. But if you can avoid the virus AND enjoy less pollution ...?)


In the mid 1800s, we slaughtered whales for oil to use on machinery in the early days of the Industrial Revolution. By 1900 we were using petroleum oil, a huge improvement. And now we're about to make another great improvement. a move to alternative energy. That can be accelerated with broader public support.

This trial period might help to raise that support by providing us a taste of what is possible, a preview of coming attractions.





22 March 2020

Where Progress Comes From - and what we had best not blow up

In a time of crisis, everything is questioned. That makes sense but the West has made progress in certain ways that should never be undone. These things should not be questioned.

1. Freedom of religion and freedom from religion
Martin Luther's declaration that "We are all priests," is the claim that freed us from theocracy. There was a time when people looked to the church to explain causation and looked to supernatural causes rather than natural causes as reasons for why people got sick, crops failed or ships wrecked.

The Enlightenment thinkers who founded the US were among the first to free the community from the tyranny of one religious voice, allowing us all to freely choose how - and whether - worship. One of the biggest benefits of this is that it shifted the basis for social cohesion from dogma to science. Science builds on testable hypotheses and regularly generates new understanding. Scientific thinking is the stuff of progress.

The first amendment to the US Constitution captures beautifully the dimensions of this:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

2. Democracy
The notion that a community should be for all its members and not just the aristocracy is another essential layer to the prosperity of our modern world. Theocracies and democracies are just made up but the consequences are real. Of the 10 most prosperous countries in the world, 10 are democracies. 

3. The American Dream 
Retirement income. The possibility of early retirement. Owning one's own home. Time and money for vacations. Most importantly, enough affluence to choose what career and what company - perhaps even one's own company - to work at.

The notion that people can freely and easily participate in job markets, credit and stock markets, and be consumers in a world with millions of products and services is another foundation stone to progress. 

These three are foundations to the world in which we now live. They do need continual improvement and refinement.  They need to be offered more broadly. (We need to continue efforts to make it easier for everyone to vote and lift more people out of poverty.) We will not make progress by having less of these three; we will have progress by having more them, more independence of thought and reliance on scientific rather than superstitious thought, more ability for communities to define the laws and policies that define their world, and more widely shared affluence.

These three also represent a transformation of the dominant institution from a tool for the elites into a tool for the masses. "We are all priests," and "We the people," made church and state tools for the individual, overturning theocracies and monarchies. The 20th century story of how the average person was given access to credit and investment markets and department stores and online shopping is a story of widespread poverty giving way to widespread affluence. The 20th century included the story of how financial markets - like church and state before them - became a tool for the masses and not just elites. Progress will never come from blowing these up, or reversing any of these three major institutional changes. It will come from furthering them.

More dramatic than incremental improvements on these three previous victories, though, is a transformation of the corporation. Like church, state, and bank before it, the corporation is now the dominant institution.

In the early 20th century, we made dramatic gains as corporations learned how to mass manufacture goods, giving the common person goods that had previously reserved for elites. Ford's Model T might be the most dramatic example of this. 
Year  -   Number Sold  - Price
1910        19,050             $900
1925    1,911,705            $260
This is a wonderful example of the American Dream in action, a good once out of reach becoming accessible. A broad swath of people were able to enjoy what only a few had earlier been able to enjoy.

Today's corporation is less about making products than creating value. In the company of 1920 succeeded by making products that benefited more people, the company of 2020 succeeds by making value that more benefits more people. Because of the transformation that has come from the American Dream, every year more Americans are benefiting from this latter promise of modern companies.

What does this mean for the corporation? For it to become a tool for the common person, it needs to build mechanisms that allow its employees to more easily create - and share in - wealth through forms of entrepreneurship. Like church, state and bank before it, the corporation needs to be made the tool of the common person and not just elites.

Progress won't blow up the three freedoms that have come from making church, state, and bank our tools to be used for us rather than we for them. Progress will come from extending that pattern of progress once more into yet another dominant institution. 

17 March 2020

How Trump's Policy Turned a Catastrophe into a Tragedy

Greek tragedies were based on the notion of a dilemma, a character forced to choose between two bad options. Kill your mother or your father. Be sat on by an elephant or eaten by a tiger. Crash the economy or kill millions of people. There is no happy ending in a tragedy.

Right now the US is choosing to crash the economy rather than kill more people. The virus has already cost us trillions in lost equity. It will likely cost us millions in lost jobs. Most of us support that choice but there is another option.

We have this dilemma in part because we don't know who has the virus and so we're acting as if everyone does. Why don't we know? A paucity of testing.

If you know who has the virus you don't have to quarantine everyone and shutdown everything. You track who has the virus and who they've come into contact with and you restrict their movements. People they've not come into contact with are free to go about their day. It's business as usual for some portion of the community.

It costs money and takes executive expertise to do this kind of testing and tracking. One of the things that Singapore does is take government seriously; just as in the private sector, they pay some government executives millions and can compete with corporations for the best and brightest. They did extensive testing and tracking of people with the virus and took a very targeted approach.

Michael Lewis's The Fifth Risk may become the source for explaining the deeper cause of why 2020 became a tragedy. Lewis (author of Moneyball, Blind Side, The Undoing Projct and other best sellers) documents how the Trump administration at turns gutted and neglected the various agencies that employed the experts who do things like track hurricanes or nuclear weapons. Trump slashed funding to the Center for Disease Control (CDC), which included eliminating the team responsible for simulating, setting policy for, and coordinating responses to a global pandemic. That cost us in response time and decision quality when this pandemic hit. It's like the difference between calling the fire department that is sitting around the firehouse and waiting for your call and figuring out who could help to fight the fire and where they might find hoses and ladders and how to use them ... while the fire is burning.

Trump has largely replaced any experts who might challenge him with sycophants who only praise him. The World Health Organization (WHO) offered testing kits early on in this pandemic. His administration - biased against anything global - said "No" to this offer and chose to manufacture the kits themselves. Consulting on product development projects, one thing I've learned is that it always takes longer to develop something than you think it will, even if you allow for it taking longer than you think it will. It took longer to create testing capacity than the experts hastily drafted into roles as pandemic response team members hoped. We lost valuable time. And now the virus has spread without check or without good information about where it is. Vietnam - a country with a fraction of our per capita GDP - had conducted more testing than us early on.

We saved a few billion dollars by not taking government seriously Now we're going to lose trillions and trillions. (I know. It's a global pandemic. Lives would have been lost regardless. Trillions of dollars would have been destroyed regardless. My argument is not that this could have been completely avoided. My argument is that it could have been significantly mitigated. The fallout could have been much less severe.)

I understand that Singapore is city-state rather than a sprawl of a nation-state spread over a continent. Still, they pulled off this strategy of extensive testing and tracking and have been able to avoid the tragedy we face. They've had no deaths. Schools without cases of the virus are open, as are shops and restaurants. The American disdain for the importance of good people in strong agencies who are not forced to operate in the equivalent of a pop-up store to deal with something of this magnitude is going to cost us dearly, in lives and dollars. It's tragic.

12 March 2020

How Trump's Fixation on Wealth and Disinterest in People Has Exacerbated the Stock Market Crash

Right now, Trump seems focused on the stock market. You can see why. The stock market that he has taken as an affirmation of his leadership and wisdom is now in free fall. The Dow did well under Clinton and Obama's presidencies (gaining the equivalent of 15.9% a year and 12.1% a year) and disastrously under George W. Bush's 8 year term (losing the equivalent of 3.5% a year). With this coronavirus rippling through markets, Trump's annual compound returns equates to 1.1%. By another measure, as of 12 March 2020, the market had lost the entire $11.5 trillion it gained since his election.


Trump's travel ban and the Fed's attempt to add liquidity and dramatically lower interest rates has done little thus far to slow the fall of markets. Trump's fixation on wealth and disinterest in people and complex problems has caused him to work backwards on the catastrophe before him.

1. The first priority is lives and healthcare. Trump has done little to suggest more lives will be saved by his actions. Test kits have been slow to emerge. Treatment centers are not set up across the country. More will die than need to. He's announced a travel ban from Europe because he's xenophobic, not because it is likely to make much difference at this point. Tests and treatments should be made free and capacity for testing and treatment should be radically increased.

2. The economy is the second priority. People will lose jobs and will need income. Children may be turned away from schools and will need childcare. Businesses like airlines and hotels will suffer severe income loss and will likely layoff workers. Plans need to be in place to keep the economy operating and to keep people financially secure with things like mortgage payments and grocery money, to say nothing of healthcare.

3. Last, actions should be taken to stabilize markets. Without a foundation of good healthcare and protected economy, actions to stabilize the stock market simply ring hollow and seem insufficient. And in truth, the stock market is one way to predict the future. Without good plans in place to change that future, tinkering with the stock market is likely to be ineffectual. With credible healthcare and economic plans in place, stock markets may correct on their own.

Lives matter more than the economy. The economy matters more than the stock market. And if policy makers work on these issues in that order, they could return things to normal by year end. If they try to rush things and gloss over these real world issues and "fix" the stock market first, they will exacerbate a catastrophe that will include the stock market. The stock market is not the game. It is merely the scoreboard. If you want to change the score, you focus on the field of play. What's on the field are real lives and their medical and economic health. Thus far, the market is not convinced that Trump has a good game plan for those realities and if Trump wants to change the score he has to turn the game around.

Globalization and Today's Reality

Markets across the West are down 9 to 15% today. It's important to talk globalization.

The most defining issues of our day are not national. Pandemics, economies, financial markets, global warming, immigration, culture, ideas, research .... all of these issues are about as neatly contained within borders as are clouds.

The US went to war in 1860 to settle a really important question: would we be a confederacy of independent states or a union of states? Before Lincoln, the most common phrase was "The United States are." After Lincoln, the most common phrase was, "The United States is." Lincoln made us a nation. By 1860, railroads, a nascent stock market, and factories able to make enough goods for a nation and not just a neighborhood had transformed the US from a collection of neighborhoods and states into a nation. The world had become bigger and our government needed to adapt. At that point, state economies had become less meaningful than the national economy and we needed a national government to match that.

Today a similar thing has happened in regards to national borders. We cannot resolve the big issues of the day with national policy. It requires international alliances and strong international organizations, just as the growth of the economy in the late 1800s required a national government.
Globalization is not just about international trade. It is about creating strong alliances and organizations that enable coordination and cooperation. National today is what states were 150 years ago. And just as states still have distinct cultures and policies, so will nations. That said, our reality is global. We need institutions that match that reality.

11 March 2020

How Exponential Growth Boggles the Mind

Somebody picks up on a problem in the pond. Lily pads are growing rapidly. By their calculations, they're doubling every day to cover more and more of the pond.

Assume that it takes 30 days for the pads to cover the whole pond. Someone who has been hollering about this problem for 25 days sounds shrill for a simple reason: on day 25 lily pads cover only 3% of the pond. From day 1 to 25, lily pads have only grown from a tiny fraction to 3.1%. Double that 5 more days, though, and you're looking at 100% coverage - enough to choke out the pond.
We don't have good intuition for exponential growth.

In related news, a week ago Italian hospitals were able to give each coronavirus patient high-quality care. Today they are practicing triage. Not everyone who comes into the ER is getting treatment - even some folks who are dying for reasons unrelated to the coronavirus. They simply haven't the capacity.

09 March 2020

Real GDP Growth by Decades


Fund

Mutual fund.
Fund, from the past tense of fun.

Unprepared for a Pandemic

A standing army is a fairly new thing in the history of humanity. Now we likely spend too much on the military but the notion is that a community needs the ability to rapidly respond to a threat as serious as invasion. And it turns out that a strong military is a deterrent. The fact of having it makes us less likely to need it. (Although sadly, not less likely to use it ... which is another story.)

Trump's 2020 budget proposed an increase in military spending of $210 billion over 2016. Increase. He proposed a total of $2.7 trillion.

Meanwhile, he proposed only $136 billion in public health and safety, a cut from the $140 billion in 2016.

He proposed a bigger increase in military spending than he proposed in total for public health and safety. Military, INCREASE by $210 billion; health and safety, FUNDING of only $136 billion.

Infrastructure, staffing and research to rapidly respond to a threat as serious as a pandemic will - like a standing army - save lives and perhaps even make us less likely to need to respond to a pandemic because it might help us prevent such an event.

In an interview about five years ago, Bill Gates called a global pandemic the most predictable catastrophe of our time and said that there was no excuse not to be prepared.

And if you think that it cost too much to have the equivalent of a standing army for battling pandemics, consider this: in the last 3 weeks, the market has lost about $4 trillion in value. Even more than Trump wants to spend this year on the whole of our military. It may cost you more but the life you save could be your own.

08 February 2020

Why Pete Buttigieg Could Be Our Next President

One simple distinction for leaders is eloquence. Bill Clinton was the best speaker I've heard in politics. Obama created a similar confidence in listeners, exuding intelligence as he calmly explained things. And now we have Pete Buttigieg who is easily the most eloquent of the great candidates in the 2020 field. (He may have been making a dig at his opponents in the debate last night when he said, "As everyone up here has so elegantly [rather than eloquently] said.")

Republicans love to talk about Democrats as socialists but of course that is nonsense (stock markets actually do better under Democrats and have for a century). In truth Democrats nominate moderates who prefer markets to government agencies but are not afraid of government. It is true that Democrats prefer candidates who actually believe in science rather than conspiracy theories and Keynesian policies to unregulated markets but only in the mind of the most excitable Republicans (that is to say, talk radio and Fox TV hosts and their fans) does that make anyone a socialist.

One thing that sets Democrats apart is their insistence on inclusion. It is older white men who vote Republican. Democrats lead in just about every other group - young, minorities, women and - speaking of minorities - the college educated.

51% of men vote Republican and 59% of women vote Democratic. The last Democratic nominee was a woman.

54% of whites vote Republican but 90% of blacks, 69% of Hispanics, and 77% of Asians vote Democratic. The last Democratic president was black.

50% of those over 65 vote Republican. 67 to 58% percent of voters under 44 vote Democratic. Bill Clinton, George W. Bush and Donald Trump were born within 66 days of each other; Bill was sworn in when he was 46 years old, the third youngest president ever. Donald Trump was 70 - the oldest president ever when sworn in for his first term.

Like Obama and the Clintons before him, Pete Buttigieg has moderate politics and a distinct identity. He's young. If he won this election he would become the youngest ever president. And he would be the first gay president.

Like Bill Clinton, Barack Obama and Hillary Clinton before, it is not Buttigieg's policies that make him a liberal but instead his identity. (And like Bill Clinton, he was a Rhodes scholar.)

So why might he become President Buttigieg? Because what he shares in common with the two previous Democratic presidents is eloquence, moderate policies with an emphasis on use of reason rather than emotion to solve problems, and an identity as an "other." It may not be a fluke that he won the Iowa caucus.


Graphs from Pew here.

17 January 2020

Alphabet (Google) Joins the Trillion Dollar Club

This week Google joined Apple, Microsoft and Amazon in the trillion-dollar valuation club. 

Location matters.
Microsoft and Amazon headquarters are 11.7 miles apart.
Apple and Google headquarters are 8.7 miles apart.

In 1901 US Steel became the first billion dollar company.
1955, GM, first to hit $10 billion
1995, GE, first to hit $100 billion
1999, Microsoft, first to hit $500 billion
2018, Apple, first to hit $1 trillion.

Here are some things you may find by googling Google.

Larry Page DOWNLOADED THE INTERNET in 1996 as part of his doctoral work at Stanford.

Larry Page grew up in the Bay Area and his dad was a big Grateful Dead fan, had a weekly radio show about the Dead. When Google could afford it, Larry Page hired a chef who had worked for the Grateful Dead to feed his employees. Every winter they had employee trips up to Squaw Valley and one year, Google employees were coming back to the chef to ask what had been in the ganja goo balls that was making them hallucinate.

3 years ago someone at Google told me they were spending $2 billion a year on employee meals. (Food - the fuel of knowledge workers - is free at Google.) I'm sure that has gone up. I don't think they serve ganja goo balls anymore.

In 1998, Jeff Bezos was so impressed with Page and Brin that he invested $250,000 in Google, buying what is now 6.6 million shares at the equivalent of 4 cents per share. (It closed today at $1,479.52 a share, so up 39,059X on Bezos investment.)

16 January 2020

Is the Future Non-Factory Jobs? (One Way to Understand the Jobs Numbers for Manufacturing)

Each month bls.gov releases the new jobs numbers. "The economy created 130,000 jobs last month." The technical title for this jobs number report includes the phrase, "nonfarm." Farming is such an insignificant and volatile portion of the nation's workforce that it is excluded from the official record of new jobs created or destroyed.

Once upon a time, farming was hugely important. Now it is not. We may eventually say something similar about manufacturing jobs.

The other day in the airport, I struck up a conversation with a guy from Wisconsin. He told me that his dad was one of 11 and his mom was one of 4. All 15 of that generation (we're talking about folks who started careers in the 1950s) were dairy farmers. There were 64 cousins in his generation. Of those, only one is a dairy farmer and he's going bankrupt. (This cousin has only hundreds of cows; the dairies that are surviving are big businesses with thousands of cows.) Nobody in that group of cousins is encouraging their children to prepare for life as dairy farmers.
Manufacturing jobs as a percentage of the total workforce are now where farm jobs were in 1963: 8.4%, suggesting that manufacturing is running about 60 years behind farming. Defining factory jobs is harder than defining farming jobs, though. I've seen a note at BLS.gov to the effect that an increasing number of jobs in manufacturing fall into the category of knowledge work. Programmers for the robots and process design experts are among the folks who now fall into the category of manufacturing; a decreasing percentage of the folks in manufacturing are not working on production lines as we classically envision it from pictures of the 1950s. They are as much a part of the information economy as are the programmers and analysts sitting in cubicles for software or service companies.

Of late I've seen an uptick in our consulting for projects that are production line transfers. The vast majority of our work is with companies developing new products. These production line transfers have literally gone from zero percent of what we do to about 10%.  What does it mean to transfer a production line? A factory line in, say, Pennsylvania is being transferred to Monterrey, Mexico. The savings are huge and irresistible and when the transfer is done, the US has fewer manufacturing jobs.

Trump has defined his presidency in large part by two things: radically slowing immigration and bringing back factory jobs. Immigration has dropped under his watch. Initially, factory jobs rose as well but there is a problem with that.

His sudden imposition of tariffs made domestic sources more favorable and seemed to have raised the percentage of jobs created in manufacturing to meet this uptick in demand. The problem is, though, that supply chains are complicated. If I bought cheaper steel from China to manufacture a car, say, a tariff on Chinese goods may cause me to shift over to an American supplier of steel within a month or so. Short-term, that would raise the number of manufacturing jobs. But given that ultimately I need to compete on the global market, this need to pay more for a key input might cause me to make a more dramatic change over the next year; I may shift my entire production line out of the US to where tariffs don't distort input costs and threaten my profit margins. Short-term, the tariffs may raise manufacturing in the US; longer-term, they may drive it out. And that seems to be what is happening.

When Trump was sworn in, manufacturing was 8.4% of the total workforce. As a percentage of new jobs created in the prior 12 months, that rose above 10%. For nearly a year. During the last twelve months, though, it has dropped to about 2%. During the last twelve months, manufacturing jobs as a percentage of new jobs created is about one-quarter of what it was when he took office.


This is not something to celebrate or to mourn. This is simply a fact. Once upon a time we were in an agricultural economy and children grew up expecting to work on farms. Decades later, that expectation shifted from farms to factories. A good society prepares its children for jobs that will keep them employed at good wages, though, and cares less about whether they will work on farms in factories or in cubicles or in the home office than if they are making good wages. A bad society forces traditions on its children and tries to prepare their children for jobs that were suitable for their grandparents but not for them.  It's not an agricultural or industrial economy any longer.

It is true that there are problems with the information economy and some evidence that we're getting diminishing returns from encouraging more children to get college degrees to prepare for work. That said, children are much more likely to grow up to work on a laptop than they are in a factory or on a farm. Promising to bring back factory jobs is like promising to make your skin look younger; it may work for a time but the long-term trend is against you.

08 January 2020

Why Automating Truck Drivers' Jobs Could be Good News

I've heard and read concern about the millions of truck drivers who could lose their jobs to self-driving trucks.

Here are two reasons why I don't think it's a big deal. It might even be a positive.
1. Every year the American economy destroys nearly 30 million jobs and creates about 28 million. It is a very dynamic economy.
There are currently about 3.5 million truck drivers. Let's assume that they are ALL gone in a decade. (That strikes me as wildly optimistic or pessimistic, depending on your perspective.) All gone in a decade means that every year 350,000 lose their jobs. That sounds like a lot. You know what percentage of jobs destroyed that is? Just over 1%. It's a dynamic economy. We can create new jobs for them. Our economic health is never defined by the number of jobs we destroy; it is defined by the number of jobs we create.
2. What kind of jobs will be lost? Dangerous ones.
Across the American workforce, per 100,000 workers, there are 3.5 fatalities a year on the job.
Transportation workers? About 15 to 16. Truck drivers are more than 4X as likely to die on the job as the average worker and twice as likely as police officers or fire fighters. In most jobs they'll be safer.

Data on how dangerous jobs are here:

Data on how many jobs are destroyed and created each quarter are here: