10 August 2020

Understanding the Republican and Democratic Party Divide Today as a Divide Between an Industrial and Information Economy

The last time I was on Google's campus, I was training 7 project managers. At one point it came out that 6 of the 7 had gone to Saturday school for years to study language and get religious / cultural education. Mandarin, Hindi, Hebrew, Nubian-Muslim (the Nubian tribe is divided by the Egyptian / Sudanese border) and Korean are five of the six that I remember. Another time, I was in a room with about a dozen engineers at Intel and every single one had a story about green cards.

That sort of diversity is pretty normal for the tech and pharmaceutical companies I work with. If you are hiring and want the best and brightest, you hire from around the world. Even if China and India's universities turn out great engineers at half the rate of US universities, they will still turn out two times as many given their populations are four times ours.

One thing that I've concluded from decades of working with engineers and scientists is that creating a team able to win in a global market without first or second-generation immigrants on your team is about as tough as trying to win MLB, NBA or NFL championships without players of color. Given how talent shows so little regard for race or nationality, you’d be a fool to exclude any group if you’re serious about conquering a global market or world championship. You’re not going to find the talent you need within your local zip code.

Anti-immigrant and free-trade nationalists inevitably argue for the importance of an industrial economy. Why? Industrial capital is in a place. By contrast, intellectual capital is in people’s heads and hands. You can put up walls around industrial capital. Look at a place like North Korea to see that walls are an obstacle to the creation of intellectual capital – something created through the exchange of ideas rather than their suppression.

The two economies - industrial and information - have been created by two kinds of politics. And that brings us to the divide we have today.

The Republican Party under Trump is championing a set of policies that are fitting for an industrial economy. People who consider themselves part of this economy feel threatened by immigrants, free trade and universities.

The Democratic Party - as it has been since about the time of Kennedy or Clinton - has a set of policies that are fitting for the information economy. People who consider themselves part of this economy see immigrants, free trade, and universities as essential.

To not understand the sharp divide in American politics is to not understand how much of the cultural war actually comes out of a perception of which economy livelihoods depend on. Whether something is essential or a threat is a question of which economy people consider themselves members of. And these two groups bring about as much passion to the topic as one might expect of people who see their livelihoods caught up in a particular set of policies.

Progress does have a direction, though.

William F. Buckley was one of the Republican Party's most respected intellectuals. He wrote, "A conservative is someone who stands athwart history, yelling 'Stop!'" To attempt to undermine the universities, immigration and trade that causes our information economy to thrive in order to protect the industrial economy is to do exactly that: yell stop to progress.

Republicans are fighting to protect the past, not create it. Since 1950, factory workers as a percentage of the workforce has dropped each decade and college grads a percentage of the workforce has gone up. Whatever economy we create in the future, it will be beyond the information economy, not back in time into the industrial economy.

How Compound Interest Made the Industrial Economy Obsolete

We don't have good intuition for compound interest over time.

Imagine that two families each started with $100 in 1900.
One family enjoys a 4% return every year.
The other family enjoys a 12% return every year.

After a decade, the 12% family has $311 compared to the 4% family's $148. They have twice as much.

After a century, the family getting 4% has $5,050.
The family getting 12% has $8,281,797,452.

12% is only three times 4% but over a century it is the difference between having thousands or billions of dollars.

This return doesn't come from magic. The returns on financial capital come from the same dynamic of compound returns on industrial capital. And it explains why there have been fewer factory jobs every decade since about WWII.

I was working with a management team for a mine in Michigan. When those guys - most in their 50s and 60s - had started their career, the trucks pulling ore out of the mines could carry about 25 tons of ore. Now those trucks carry more than 350 tons.

Assume that when they began their careers, that mine employed 100 truck drivers. Today, to carry the same amount of ore, they would need only 7 drivers.

The productivity of industrial capital - like financial capital - compounds over time. The original $100 you invested in 1900 will be making more money in 2000. The original factory or mine you setup in 1900 will be producing more product in 2000 with fewer workers.

Given our intuition for compound interest is so poor, it is little wonder that we fail to understand how a growing economy might actually need fewer and fewer factory workers even as it makes more and more stuff.

Meanwhile, a country like China that began industrializing decades - probably close to a century - after we did is still at the stage of compound interest that it needs 100 workers in the mine or factory rather than the 7 we in the US need.

People who don't understand how compound interest works could look at this and think that "our factory jobs are going to China." China's per capita GDP is one-sixth ours and one horribly crude way to think about that is to assume that their level of industrialization means that they need about 6 factory workers (or truck drivers) for every one we need. Our jobs are not going there; they simply need more workers given how much less capital they have.

Returns to capital eventually give a country such an abundance of capital that capital no longer limits. At that point, a community has transitioned from an industrial economy into an information economy. New jobs and wealth will not be created in factories or industrial companies but instead in cubicles and information economies. US Steel and General Motors fall in value and the number of employees and Microsoft and Google rise.

To fight to get back all those factory jobs from 1950 is to fight to get back to a time of less capital, less wealth, less productivity. It is like fighting to return to a time when 90% of the population still farmed just to feed us all. Progress leaves behind earlier stages of development as it takes us into new stages. The miracle of compound interest is one big reason why.

Bell Labs as a Pioneer of Culture and Practices that Made Knowledge Workers Productive

A number of elements were needed to create the information economy. Perhaps unsurprisingly, much of what was needed emerged at the company responsible for America's communication: AT&T. Bell Labs did not just develop amazing technology like transistors, fiber optics, lasers and cellular telephones. They developed the practices that made knowledge workers productive.

Three of those practices were a reliance on
1. research rather than just tinkering,
2. creating a community of minds, and
3. crossing boundaries between the private and public sector.

research rather than just tinkering
Thomas Edison tinkered. It took him about 3,000 experiments before he figured out the light bulb. He gained knowledge through trial and error.

No one has the time and money it would take to develop fiber optics, transistors, or satellites with trial and error. To develop products that much more sophisticated than a lightbulb required basic research, gaining an understanding of theory. Bell Labs had folks focused on basic research, on gaining understanding of deeper principles that would enable technologies like fiber optics that could carry thousands of conversations along the same strand or satellites that could seemingly defy gravity while collecting and transmitting information across continents at the speed of light.

Because it was a place where people could perform basic research, nine Nobel Prizes were awarded for work at Bell Labs. The ripple effect of this basic research has still not been fully felt. Three of those Nobel Prizes were awarded for the development of the transistor and one of those prize winners went on to found the first in a series of companies that would lay the foundation for Silicon Valley. It is true that a lot of basic research will never payoff; it is also true that it is impossible to fully calculate the value of successful basic research. Early in the 1900s, William James was explaining pragmatism as assessing the cash value of holding an idea. An idea like transistors and all that it enabled has a value in the trillions and counting.

creating a community of minds
Bell Labs was a community.

It was a creative environment that fostered a rich exchange of ideas, something the science writer Steven Johnson has observed is more important in eliciting important new insights than market forces. The projects at Bell Labs required teams. Those teams required a community. The problems they were solving and possibilities they were pursuing were far beyond the capabilities of any one person.

crossing boundaries between the private and public sector
One of the many reasons that the information economy is a global economy is because ideas show as little respect for borders as clouds or pandemics. Translating ideas into value doesn’t come from rigid barriers between nations or institutions. It comes from a flow of ideas and practices across such lines.

A 2008 study titled "Where do Innovations Come From?" concluded that partnerships between corporations, government laboratories, and university researchers has become essential to innovation. In 2006, for example, 77 of 88 US entities that produced significant innovations had received federal funding.

Bell Labs received government funding in a couple of ways. The first was that the government granted it monopoly status to run the nation’s phone system. This guaranteed steady revenues to fund long-term research. The second was that Bell Labs received billions from the federal government. In World War 2 alone, Bell Labs received thousands of contracts. It was the beneficiary of the funding for these projects and of course the beneficiary of the intellectual capital generated by these projects.

The central question of the information economy was how to make more knowledge workers and make them more productive. Bell Labs gave us some great answers to the question of how to make them more productive. Their technology made the flow of information – and thus ideas – easier, which made knowledge workers more productive. As befits a company responsible for creating and maintaining the phone system that connected an entire nation, it also pioneered a culture and practices for corporate America that encouraged cooperation and a free flow of ideas.

Given the complexity of the problems in the 20th century, any successful effort would find a way to encourage collaboration among lots of really smart and informed people. Because one of the many truths to emerge out of the 20th century is that all of us are smarter when all of us are smarter. As we connect and share ideas, your insights become mine and mine become yours. Often, this inspires yet another insight or idea. If I give you a dollar and you give me a dollar, we walk away no better off. If you give me an idea and I give you an idea, we both walk away better. Technology and culture that encourages communication and collaboration – even across traditional boundaries of private and public sector - is key to making knowledge workers more productive.

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Much of the above information about Bell Labs came from Jon Gertner's The Idea Factory: Bell Labs and the Great Age of American Innovation.

09 August 2020

How Pragmatists Created Knowledge Workers and the Information Economy

In 1776, Adam Smith published The Wealth of Nations and Thomas Jefferson and associates published the Declaration of Independence. The industrial economy, or capitalism, and modern democracy were products of Enlightenment philosophers who actually shaped their world according to their new philosophy reliant on facts and theories that fit them.

What the Enlightenment was to the Industrial Economy, Pragmatism was to the Information Economy.

Pragmatism – dismissed by Europeans as a curiously American invention – has come to guide how our experts and leaders think about everything even though we don’t much talk about it. To be dismissed in the modern world, tell someone you’re an idealist. To be respected, tell them you’re pragmatic.

One of Molière’s characters was surprised and delighted to learn that he had been speaking prose all his life without knowing it. We’re like that with pragmatism. Most of us have learned to think like this without even being aware that we are thinking like this.

The first published mention of pragmatism was in 1898. Arguing, as I do, that the 20th century was shaped by the rise of the knowledge worker, this timing is fortuitous. The 20th century was a century in which thousands of new jobs and areas of studies emerged. This sort of rise in specialization isn’t the product of people looking for universal truths; it is the product of people looking to solve specific problems.

Pragmatists didn't see ideas as some abstract truth out "there" to discover but instead as tools no different than a fork or knife. Ideas either enabled us to create the world we wanted or did not. William James wrote about the cash value of an idea: did it pay you to have this idea? And of course, for the knowledge worker who began a career with a university education, this was a very relevant question: what did it pay to be able to solve problems in this particular domain?

Enlightenment philosophers like an Isaac Newton were looking for universal truths. The apple falling from the tree as Newton pondered gravity was the aha moment in which he realized that gravity was universal - something that applied to the apple falling from a tree, the moon orbiting earth, or earth orbiting the sun.

Pragmatists had smaller goals. They were less interested in whether an idea was universal than whether it was effective here and now. Will this line of code stop the program from crashing? Will this change to the wing design stop this plane from crashing? This sort of problem-solving and design did, indeed, rely on some general principles but the value of the knowledge worker lay less in her ability to spout these universal truths than to solve this specific problem.

Universities were greatly shaped by pragmatist’s focus on the particular. The 20th century did not just see the rise of the knowledge worker – a person who worked with their knowledge, translating it into cash value as William James had suggested – but of university as prelude to careers. Out of pragmatism’s focus on specifics came a proliferation of new majors and careers. It was not enough to be an engineer. One had to choose whether to major in civil, electrical, mechanical, computer, chemical, industrial, or circuit engineering. None of these specialists were trying to discover the universal truths that a Newton sought; they were focused on solving a particular set of problems, translating their work into the cash value of the market place. For the knowledge worker, ideas were not abstractions; they were a source of income. The knowledge worker is very pragmatic about his knowledge.

The pragmatists were operating in a post-Darwinian world. For the pragmatist, we have minds because they help us to adapt to our environment. Our minds don’t simply mirror our world but help us to generate hypotheticals that let us adapt ourselves or our reality so as to live better.

It may seem innocuous enough for pragmatists to each focus on their own set of problems and possibilities. No pragmatists stood up to challenge the church or British Empire the way that the Enlightenment philosophers who led revolutions had a century or two earlier. But as it turns out, continuously creating new products and solutions is incredibly disruptive. If revolution overturns reality, evolution creates a new reality. The latter may work more slowly but it might actually change us just as much, if not more.

The Enlightenment philosophers who created democracy and capitalism in the US around 1800 gave us a new world. So did the pragmatist philosophers who created public education and the information economy around 1900. That one simply came with less fanfare and violence.

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The brilliant Louis Menand discusses his books The Metaphysical Club here. It is his book which properly introduced me to pragmatism. He does not make the tie between pragmatism and the information economy but he's incredibly insightful and, of course, the pragmatists like William James, Charles Peirce, Oliver Wendell Holmes and John Dewey are fascinating characters.

08 August 2020

How Life Transformed in the 20th Century - and is likely to transform again in the 21st

A curious thing happened through the course of the 20th century: companies shifted their focus from making things to making money.

This may sound cliche but it is important. In 1900, the average home did not have running water, electricity, a car, a radio, telephone, TV, computer, store-bought clothes, frozen food, takeout, aspirin, a refrigerator, microwave oven, canned goods, sneakers, safety razors, shampoo, or credit cards.

Fortunes were made by the various companies able to produce those goods at affordable prices.
And then our curious thing happened: given these companies had gone public, they rather inadvertently created a new product: wealth. If you owned shares of a company that became successful, you could have one of the more curious products of all: financial independence.

Between 1900 and 2000, life expectancy rose from 47 to 77. (And no, this was not all due to infant mortality rates dropping. Your odds of dying at any age - from six months to 20 to 50 to 70 - steadily dropped during the 20th century.) Old age was popularized in the 20th century and retirement was invented.

Pension plans and 401(k) accounts took advantage of decades of compound interest over these newly long lives to create enough wealth to fund retirements. People no longer had to work until they died or rely on the generosity of their children. And of course there is variation in all things and as it turns out, some people don't have enough to retire at 85, some have enough by 65 and some have enough to retire by 45.

At a certain point, more goods have less appeal. Your closet has more clothes than you'll wear, your freezer and pantry has more food than you'll eat, and your garage had more things than you use.
An amazing, unprecedented economy emerged in the 20th century, providing goods that past generations could not have imagined. Of all the goods it made, though, perhaps the most alluring was its promise of financial independence. Of all the things that companies could make that people were eager to buy, wealth ranked highest.

It it difficult to properly understand modern companies if you still understand them as institutions focused on making things. That was largely true a century ago. Now, they are largely focused on making people rich. (What does Google "make?" Well, they have made a lot of people rich.)

Henry Ford became famous for making cars affordable for normal people. Previously, they were something only the very few, very wealthy could afford. The challenge of the early part of this century is to do something similar with companies' most interesting product yet: make ownership of wealth more widespread, more common.

06 August 2020

How to Explain Why Stock Markets Do So Much Better Under Democrats

"If Biden is elected, markets will fall," Trump has warned. "Socialism!" Trump friends have posted.

The curious thing is, while the folks who still identify as members of the industrial economy obviously consider themselves part of capitalism, it is actually knowledge workers who are a new kind of capitalist. It is not the companies who manipulate things that account for the rise in stock prices; it is the companies who manipulate symbols. Not General Motors but Microsoft, not US Steel but Google are now the world's most valuable companies.

In 1989, working class whites and white college graduates had about the same share of the country's net worth: 45 and 46 percent. 

By 2016, that had dramatically changed; the share held by the white working class had dropped to 22 percent and the share held by white college graduates was at 67 percent. (See figures 4 and 5.) The two groups had gone from equals to a 3 to 1 difference. 

The post-FDR Democratic Party had shifted from the party of farmers to the party of labor. Post-JFK, they had increasingly been aligned with a particular kind of labor, with knowledge workers who have college degrees. In a recent Quinnipiac poll, there was a stark contrast between whites with and without college degrees. Trump led by 3 points among the white working class and trailed Biden by 33 points among white college graduates. White college graduates aren't exactly socialists; they actually are the ones with an increasing share of capital.

Trump warns of market collapse and for the white working class, that actually resonates. The truth is, though, that the stock market first made significant by Republican policy in the 1800s now seems to do best when a Democrat is president. (I'd be remiss if I didn't point out that people like Daryl - who are smarter than me - point out that seeing a correlation between who is president and how the market does is akin to seeing a face in piece of toast; there are simply too many variables at play to claim such a simplistic link, they say.) One big reason markets do better under Democrats is because the are more likely to push for Keynesian policies that accelerate recoveries and mitigate busts. A more subtle reason is that Democrats are the ones whose pro-education and research policies are more obviously assisting the information economy dependent on knowledge workers. One can argue that stock market performance is too complex to trace to something as simple as who is president and that market movement has little to do with that. That is certainly the rational thing to argue. I argue instead that at different points in economic development, different policies are better aligned with current and emerging realities. The important reality of the 20th century is that labor led progress in the same way that capital led progress in the 19th century. The party advocating for labor was the Democratic Party and so the market did better under their leadership.

The stock market has done well under Trump. The average of S&P 500, NASDAQ and the Dow in his 3.5 years in office have gone up 57%, so better than it had at this point under Carter, about the same as under Clinton and not as well as under Obama. Since Carter, though, the differences through the first 3.5 years of the presidency have been 2 to 1 in favor of Democrats. On average for Democratic presidencies 3.5 years in, the market was up 53% and the average for Republican presidencies was up 26%.

The differences in market returns since 1900 have been stark. Imagine two families, each with $100,000 at the start of Teddy Roosevelt's presidency in 1901. One puts all their money under a mattress each time a Democrat is in the Oval Office and puts it all in a Dow index fund each time a Republican is in office. The other family does the opposite, going all in on the Dow each time a Democrat is in office and under the mattress when a Republican is president. How would the two families have done since 1901? The Republican family would now have $700k. The Democratic family would have $5.9 million.

I argue that the stock market has done better under Democratic presidents because financial capital now follows the development of intellectual capital and Democratic policies are more obviously pro-labor with its consequent intellectual capital. Smarter people than me look at this same data and say that this link between presidencies and stock market performance is random. Folks on talk radio look at this data and argue that it is clear evidence that Democrats are socialists and the market does better under Republicans. That last claim - that in spite of the data markets actually do better under Republicans - seems the hardest to believe.

05 August 2020

The 20th Century as the Century of Labor: the invention of retirement, knowledge work and the worker as capitalist

In the early 1900s, labor followed capital. Specifically, workers came off of the farm to work in factories. By the late 1900s, capital followed labor.

Workers used to need the industrial capital that increased their productivity; investors now need intellectual capital that increases their returns. Four companies are now worth more than a trillion dollars, making thousands - possibly hundreds of thousands - of investors rich. Those four - Apple, Microsoft, Amazon and Alphabet (Google) - have leveraged the efforts of knowledge workers via the design of software, processes, and processes.

In the same way that workers once brought their labor to factories that made things in places like Manchester or Detroit to enhance the return to their efforts, investors now bring their capital to these companies that manipulate the symbols of things to enhance the returns to their capital.

The Labour Party was founded in 1900 in the UK. At about that same time, the Democratic Party was struggling to reinvent itself from the farmers' party to a labor party. These changes in political realities followed from changes in economic realities.

The 20th century was the century of labor, which got its workweek reduced from 60 to 40 hours, gained safer working conditions, got children out of factories and into schools, and invented retirement, something made possible by extending life expectancy from 47 to 77 and making labor the new bourgeois, investors in their own and other companies' stocks as they built up retirement portfolios.
And this reality of making more and needing to prepare for a retirement also made financial capital more eager to invest in the companies that hired knowledge workers.

Employees at companies like IBM and Eastman Kodak in the 1960s began to buy stocks in their own companies as their salaries grew. They saw surprising returns from this and informed family and friends. Investing became more popular. In 4Q of 1969, mutual funds were worth $48 billion. By 4Q 2019, mutual funds were worth $17.7 trillion.

One of the reasons that financial capital is no longer scarce is because there are so many capitalists now. An increasing percentage of employees are also investors. This new abundance of capital has driven down its price; the returns to capital measured by the interest rates on bonds has moved close to zero. It's no wonder that everyone - even labor itself - is now placing bets on the returns to labor and entrepreneurship in the form of stock in the companies that employ the most iconic of today's knowledge workers.

The Self-Exploitation of Intellectual Capital: How Returns to Labor Have Eclipsed Returns to Capital

Social security only began keeping track of salaries over $50 million in 1997. (In 1990, the highest group it broke out were folks making more than $5 million.) In 1997, 13 people made more than $50 million in salary. By 2018, that had increased to 211.

In the last 50 years, arguably only the returns to entrepreneurship have grown more than the returns to elite labor. This huge gain in wages is easiest to see with CEOs and professional athletes. 

In 1969, Willie Mays was the highest paid major league baseball player at $135,000. In 2019, Mike Trout was the highest paid player at $37.7 million. (Willie made about two-thirds what we paid Nixon to be president; Trout makes 94X as much as we pay Trump.)

In 1969, the ratio of CEO to average worker pay in the S&P 500 was 32. In 2019, it was 264. (Which means that S&P 500 CEOs make per day what their employees do per year.) 

Median wages between 1990 and 2018 grew about $4,700. Meanwhile, wages for those in the top 1% grew about $114,000. (Both numbers are adjusted for inflation.) Folks making median wage had about $90 more per week; folks in the top 1% had an extra $2,200 per week.

The old models still suggest that capital is the source of income inequity. The new data suggests that it is increasingly returns to labor - unique skills and intellectual capital - that drive big differences in income. 

As Daniel Markovits points out in The Meritocracy Trap, one of the fascinating things about this is that to be rich once meant you owned land and capital and could afford to be idle. Those assets worked for you. Increasingly, being rich means working more than the poor, not less. Bankers used to work 10 to 3; now investment bankers report working 17 hours a day. In 1962, elite lawyers were expected to bill about 1,300 hours a year; now they are asked to bill 2,400 hours a year, which means working long hours six days a week. To be rich now means having to put in the hours to get a return on the skills or intellectual capital you have created. The old, financial capitalist exploited the worker; the new, intellectual capitalist has to exploit him or herself.

Information on social security here.
Information on CEO to worker pay ratios here.

02 August 2020

Villainomics (or, the question of who to blame for bad times and stagnation)

We had witch trials into the 18th century. To this day, tens of thousands of people are killed throughout the world each year, accused of the witchcraft that caused someone's misfortune.

We think we're more modern than that today but that question of who to blame stays with us. When it comes to prosperity issues, something I'd call villainomics is pretty common.

The big question of villainomics is who to blame; do we blame our woes on bankers or Jews, immigrants or bureaucrats? Find that group and reduce their number and then things will magically improve.

It is possible to win at the game of politics with villainomics. It is impossible to win at the game of economic progress with villainomics.

01 August 2020

The Republican Party's Mission is Done

About a year ago, I was at the Nixon Library. I had been to the Reagan Library months before and compared to that, the Nixon Library had very few visitors. Something to do with Watergate and resignation.

The docent said that about a quarter of the visitors to the Nixon Library are from China. The Chinese remember Nixon as the president whose visit helped to open up China to the rest of the world; Nixon visited China in the early 1970s and by the end of the 1970s, Deng Xiaoping had become China’s leader. Deng would begin the economic changes that began China’s amazing economic growth and opened it up to the rest of the world.

From the time of Lincoln – their first president – to about WWII, Republicans were focused on a domestic policy of making ours an industrial rather than agricultural economy. After WWII, Republicans were focused on a foreign policy of spreading capitalism to the rest of the world.

Eisenhower’s Marshall Plan helped to rebuild Europe and Japan after WII. Nixon visited China. Reagan stood in Berlin and told Gorbachev “Bring down this wall.” Bush and Cheney invaded Iraq, promising to make it a beacon of democracy and capitalism.

But a curious thing happened.

As Republicans were busily exporting policies for an industrial economy to the rest of the world, that industrial economy was – like the agricultural economy before it – being eclipsed by a new economy.

Trump’s policy seems weird but has an odd kind of logic seen from this perspective. It is quite possible that in his mind, seeing that the industrial economy has been successfully exported around the world (particularly in China), it is now his job to revive the domestic policy of creating an industrial economy here. This shift in focus to foreign countries has caused us to lose the industrial economy that made us great, made us a world power. It is his mission to recreate it.


But of course, the Republicans are where the Democratic Party was at the time of Lincoln: promoting policies for an economy already eclipsed. At the time of Lincoln, the agricultural economy had been eclipsed by the industrial economy At the time of Trump, the industrial economy has been eclipsed by the information economy.

Republican identity is so bound with capitalism (which I would say is a crude synonym for industrial economy), that it is not clear that they can shift to a new identity now that their mission is done. In any case, reviving the past has never seemed a particularly effective way to create the future.

31 July 2020

Kent State and a Half-Century Conflict Between Two Economies and Two Kinds of Labor: Factory Workers and Knowledge Workers

On May 4, 1970, the National Guard opened fire on student protesters at Kent State, killing 4 and wounding 9.

On one side of campus were guardsmen - most of whom had not considered going to college until ordered to go that day - and on the other side were students who were preparing for careers that neither they nor their professors could imagine. A divide that would define the next half century.

Economic change creates new identities which changes politics. Before 1970, white collar and blue collar workers shared the identity of labor and tended to vote similarly. After 1970, a divide began to emerge between the college educated who saw themselves as part of a global, information economy and non-college educated who felt more a part of an American, industrial economy. Labor split into factory workers and knowledge workers and they voted differently.

Between 1933 and 1969, as the party of labor the Democratic Party had the White House and a majority in the House and Senate 72% of the time. They dominated. After 1969, labor identities split between factory workers and knowledge workers and the vote - too - was split. Since 1969, power has been shared between Republicans and Democrats 70% of the time, and each has had control of government only 15% of the time. That could change.

In 1972, the Democratic National Committee set quotas for women, minorities and youth but not union members or factory workers. After that point, feeling ignored by the Democratic Party, factory workers tended to vote Republican and knowledge workers to vote Democratic.
When there were more factory workers than knowledge workers, the Republicans won the popular vote for president. When the number of knowledge workers began to eclipse the number of factory workers, the Democratic Party began winning the popular vote for president.
In the 1970s and 1980s, factory workers outnumbered knowledge workers. In five presidential elections from 1972 to 1988:
- Republicans won 4 by average of 11.2 million votes
- Democrats won once by 1.7 million (and that was after Watergate)

Since 1990, knowledge workers have outnumbered factory workers. In the seven presidential elections since 1992:
- Democrats have won 4 by an average of 7.1 million votes
- Republicans have “won” 3 by an average of -133,444 votes (the one time a Republican presidential candidate actually won the popular vote was after 9-11)

Factory workers as a percentage of the population continues to fall and the percentage of folks with a Bachelors degree continues to rise. While Trump has a shot at winning the electoral college, his odds of winning the popular vote are close to zero. Trump has finalized the Republican Party's identity as the anti-knowledge worker party. Since he has become head of the Party, Republican's trust in universities has dropped and a willingness to defy experts has become key to the identity of Trump's Republicans.
That day at Kent State dramatized a dividing line between two groups with very different identities that considered themselves part of two very different economies. It is a conflict that has continued to define our politics for half a century and is finally waning in importance as the percentage of factory workers falls to the level that knowledge workers were at the beginning of this divide.

30 July 2020

Trump's Last 24 Hours - Catastrophe, Cowardice, Conspiracy, Cain and Economic Collapse

Within the last 24 hours,
  • Trump promoted the health claims of a woman who not only advises against wearing a mask but warns of alien DNA and demon semen,
  • Admitted that he didn't confront Putin about his paying the Taliban to assassinate American soldiers,
  • Proposed indefinitely delaying the election (something neither Lincoln (during the Civil War) nor FDR (during WWII) did).
  • Additionally,
  • The country lost 1,400 people to COVID for the first time since May. That number included Herman Cain, a former GOP presidential candidate who was diagnosed with COVID 2 weeks after attending Trump's Tulsa, OK rally and
  • The Commerce Department announced that GDP fell at an annualized rate of 33% - the worst quarterly contraction in at least 145 years.

One day in the life of Donald.

It's a remarkable thing to have a president so cognitively, emotionally, and morally deficient.

We Are At the Moment of Galileo's Trial, Making the Choice Between Science or Superstition, Progress or Stagnation

The 30 Years' War was still nearly a decade away from resolution in 1642. That was a religious war in Europe between Protestants and Catholics and still other Protestants that left millions of Europeans dead, a war that killed 40% of the population in some regions. At that point you'd do well to explain the Protestant faith as a destructive force in history, a tragedy unleashed a century earlier by Martin Luther. As it turns out, it was more complicated than that.

In 1642, Galileo died and Isaac Newton was born. It's easy to see that now as a year in which power in Europe shifted from the Mediterranean to northern Europe.

Galileo was a genius put under house arrest by the Catholic Church because he argued that the earth orbits the sun, one of the first to use a telescope to look into space at wonders like the moon.

Newton was a genius who explained gravity and the laws of motion. Newton was an Enlightenment philosopher (his one of the minds that defined the Enlightenment) working in a country that had broken away from the Catholic Church. In England, he was free to explain the world without the approval of popes.

After 1642, Italy lost its dominance (although to this day people visit it to see the wonder it was during Galileo's time - St. Peter's Basilica, among other wonders, created only decades before Galileo was born) and Britain grew in power and influence to become the largest empire in history, eventually ruling over nearly a quarter of the world's population and land.

A community that aligns itself with science can go to the moon. In a community that rejects science, you can get in trouble just for looking at the moon.

Which brings me to the United States today, the country that arguably became the world's most powerful as the British Empire began to wane from its peak before World War I. The US has partly come to power because of its great universities, public schools and corporations and partly because as Europe was devastated by two world wars, many of its best and brightest chose to come to the US to study and work. In the last decade, the US has dominated in Nobel Prize winners and about half of those Nobel Prize winners were born and raised outside the US.

We are now at the moment of Galileo's trial. This week Trump retweeted a video starring a woman arguing that masks don't slow the spread of COVID. She also warns about alien DNA and demon semen. We are literally at a point in history in which membership in the Republican Party requires a belief in conspiracy theories and a rejection of science. The GOP doesn't even offer anything remotely as beautiful as St. Peter's basilica in return for the rejection of science; the Italians of Galileo's time had the David to gaze at in wonder and we have the Donald to gape at in horror.

It is no trivial matter to choose superstition over science. Italy went from home to the Renaissance (the place where the progress of the Greeks and Romans that had been interrupted for centuries by the Dark Ages began again) to an also-ran, a country that to this day suffers from high levels of corruption and incomes that are about 40% lower than those in northern Europe.

Four years ago, I was eating lunch with a robotics engineer from Italy. He said, "I kind of don't want Trump to win but I also kind of want him to win."
Thrown, all I could think to ask was, "Why?"
"Because everyone thinks we Italians were crazy to elect Berlusconi. If you elect Trump, no one remembers how stupid we Italians were. You will make the world forget that."

We don't have popes making the decision about whether or not we are the place where the next Newton is born or the last Galileo worked. Here it is the people making that choice. While the choice we make to trust in science or conspiracy theories won't make the world forget how Italy derailed its wondrous Renaissance progress, it could easily remind the world of that derailment, another golden age derailed by a rejection of science.

29 July 2020

Arrested Development: November as a Choice Between a Patrimonial or Modern State, of Progress or Decay

The worldviews we hold determine what kind of institutions we can create.

Francis Fukuyama argues that government emerged gradually through these stages:
  • A band: small group of hunters and gatherers who were related.
  • A tribe: like a band but they pushed back genetic connection a generation or more and thus were able to get bigger groups than a band.
  • A patrimonial state: the state administration is essentially an extension of the ruler's household (think Louis XIV or Kim Jong un) and relies on family and friends.
  • A modern state: this state is impersonal and power does not consist of the ruler's family or friends; rather, recruitment to administrative positions is based on impersonal criteria such as merit, education, or technical knowledge.
I was talking to a guy from Africa, asking about the government in his country. He said that the political party you join is almost always defined by which tribe you're part of, which often makes politics zero-sum. Most of his countrymen get their identity by tribe and not nationality, he said.

The good news is that we seem to be further along than so many besieged African nations . What's shocking to me, though, is the realization that so many Americans would still prefer the patrimonial state that Trump fights for, a government in which his son-in-law consistently gets the most important assignments, his friends are made immune from law and order, and his decision about whether to send aid or troops to a state are based on which party dominates. And of course when loyalty is the test and not technical expertise, conspiracy theories abound because belief in conspiracy theories that defy critical assessments are a great test of loyalty. As Trump said, "Stick with us. Don't believe the crap you see from these people, the fake news. ... What you're seeing and what you're reading is not what's happening."

We create the institutions we believe in. You could probably say that our institutions are simply manifestations of our beliefs. For now, a big portion of the American population believes in a patrimonial rather than modern state. It's simply not possible for African nations ruled by people who think of themselves as tribal to enjoy the peace and prosperity a nation affords. Similarly, it's simply not possible for the US to enjoy the peace and prosperity a modern state affords when so many Americans are committed to a patrimonial state. The regions of the country that hold this view are going to always be less prosperous than the regions that instead believe in a modern state. We will soon see which is the real America and what stage of development we're at.

The Massive Gap Between California's Information and Agricultural Economies Has Grown Even Larger

In June, California's unemployment rate was at 15.1%, up from 4.1% a year earlier. The most vulnerable regions have been hardest hit.

San Jose-Sunnyvale-Santa Clara is the metropolitan area with the lowest unemployment rate: 10.8%.
El Centro is the metro area with the highest unemployment rate: 27.3%.

It gets worse.
El Centro's per capita income is $28,099.
San Jose-Sunnyvale-Santa Clara is $128,308
A difference of $100k, a ratio of 5 to 1.

50% of the jobs in El Centro are in agriculture. Farming can't be done online.
50% of people in Santa Clara have Bachelor's degrees, a simply proxy for knowledge workers who can work online.

The ability to work online is not just a proxy for higher pay. It is a proxy for safer working conditions.  The ratio of per capita COVID cases and deaths in Imperial County (home to El Centro) to Santa Clara County is 10 to 1.

It is another reminder of the fact that even though we are one state, we live in very different worlds.

Find your metro area unemployment rate here:
https://www.bls.gov/news.release/metro.t01.htm