20 November 2014

Obama's Big Miss on Immigration Today

Obama missed a huge opportunity today. We may have 10 million illegal immigrants. Let's assume that half of them have jobs. Just think of what an incredible jobs program he could have launched.

One, he could have announced the forced deportation of all illegals. That would require hundreds of thousands of people searching records and houses to find them. It would require hundreds of thousands of swat team members to raid homes and work places to seize and deport these people, thousands more to drive them south. (All of them should be driven south. Even the Canadians and Germans who are here illegally. Let them sort out their troubles with AeroMexico.) That alone could create jobs for a million Americans over the course of 12 to 36 months.

Two, once the 10 million illegal aliens were deported, we'd have 5 million jobs to fill. (Well, maybe not a full 5 million. We would have - of course - lost 10 million consumers, so demand might dip a bit.) Those young men and women in swat gear who rounded up the illegal aliens could then take those jobs, picking fruit, changing sheets, and cooking meals.

If only Obama were more visionary, more committed to creating jobs. 

Biden: Why is America Able to Reinvent Itself? An Inherent Skepticism for Orthodoxy

I love Joe Biden. Today Biden addressed a group of entrepreneurs in Morocco. He spoke about the importance of entrepreneurship and the path towards it. 

So what is required to prosper in the 21st century?  What does it take? 
It takes an education system, but one that is universal, open to all, including girls and women, that trains people to be skeptical.  I was meeting with a man many of you know, a wise man from Singapore named Lee Kuan Yew.  He was asking me why did I think America was able to reinvent itself so often.  I said, because stamped into the DNA of every naturalized American, as well as native born, is an inherent skepticism for orthodoxy.  You cannot fundamentally change the world without breaking the old.  It takes a value system that gives people the freedom to try and to fail, or as they say in the fabled Silicon Valley, fail forward, without being criticized.

19 November 2014

Cardinal O'Malley - The Pope's Buddy - Tells a Big Lie About Women Priests

Cardinal O'Malley was on 60 Minutes this week. He said, "The tradition in the Church is that we ordain men.” That wasn't the lie. It is true that Catholics don't let women become priests. Then when Norah O'Donnell (apparently this was an all Irish interview) pointed out that the church doesn't discriminate by race but only by gender, he told his lie. "O’Malley smiled and said, 'If I were founding a church, I’d love to have women priests. But Christ founded it, and what he has given us is something different.'"

Basically, O'Malley said that he was enlightened enough to include women in his priesthood but Christ was not. 

In fact, there are plenty of verses to suggest that women did play a role as early apostles. The verses that explicitly say that "Women should be silent in the church" in I Corinthians 14 don't appear in manuscripts from before the 6th century. They were inserted by Bishop Victor of Capua between 541 and 546 AD. [Thanks Lori for the precise dates.]

A preacher spreads the good news that Christ is risen. When Christ first rose, he appeared first to Mary (Mark 16:9) and she went and told others. If she didn't qualify as spreading the good news about the risen Christ it's hard to imagine who does. 

Paul calls Junia (a woman) an apostle in Romans 16:7 and refers to Phoebe (Romans 16:1) as a deacon. In Acts 2:17, Peter is preaching and says that now scripture is being fulfilled from Joel, "I will pour forth my spirit on all mankind and your sons and daughters shall prophesy." Deborah, in the Old Testament, was a prophet (Judges 4 and 5). 

O'Malley rightfully said that the Catholic Church tradition is to exclude women from the priesthood. He lies when he said that he and the pope are just excluding women because Jesus did. In fact, we have no record of Jesus ever speaking to this topic and lots of verses in other places that suggest the early Christians did include women ministers. 

People who start religions are going to make up stuff. That's unavoidable. It seems terribly cowardly, though, to make it up (or defend something made up centuries ago) and then blame it on Jesus, implying in the process that while Jesus is perfect, O'Malley is an even better person but simply can't act on that nobler sentiment because of some oddly misogynist quirk of the son of God.

18 November 2014

Why We Have No Experience with Policy

The biggest problem with modern politics is that people never experience good policy. Or bad for that matter.

If you go out to eat this evening, you’ll have a clear experience. You might love your dinner and think it’s reasonably priced. You’ll decide to go back the next day or next month but you will act on what you’ve learned. In theory, politics is similar but in practice it’s not.  When it comes to policy, you don’t actually experience it.

To take an obvious example, let’s say that you fund development and education in a poor neighborhood. Let’s say that you sustain this investment long enough – at least a decade or two – that it actually impacts the kids growing up in that neighborhood. So much, in fact, that those kids end up making double what their parents made – even adjusted for inflation. This policy is a raging success.

But what does it really mean to say that you’ve increased the earnings of a 7 year old? Their peak earning years will probably be about 40 years away. Worse, if you just look, say, 15 years out you might actually see lower earnings because these kids – unlike their parents – are still in school in their early 20s and not making any money. Even worse (yes, it gets worse) given they’ve followed jobs for young professionals, there is a very good chance that they won’t be living in that same neighborhood when they do hit their peak earning years. How would voters in an area ever “experience” that return on investment?

And of course it gets even more complicated. Education initiatives can change a dozen times in the dozen years that kids are in K-12. It’s tough to see the impact of programs that are discontinued before teachers have even adapted their curriculum to the initiative. The introduction of new technology like personal computers or nanotech can cause productivity and wages to rise regardless of education policy and the proliferation of outsourcing can cause wages to fall. There’s never just one thing going on and that makes it difficult for the average person to know what difference policies made.

It's only policy wonks who've teased through the data to isolate causes who can - with lots of caveats and uncertainty - say that - all else being equal - this policy is likely to raise wages and this one to depress them, etc. Again, your average voter won't experience that. Meanwhile, your average American is distrustful of experts so they won't listen to these experts and even if they did, the experts who express lots of honest uncertainty will seem less convincing than the politician who speaks with great confidence.

There’s an old quip about the guy who didn’t have 20 years of experience but instead had one year experience 20 times. In politics, it is worse. Whether the policy is economic development, education, environmental, or urban or family planning, the long-term effects of policy rarely are clearly experienced. 

For me, that's just one more reason that systems thinking and systems simulation has to be popularized and taught. It's not enough to let the experts benefit from running models that simulate reality. We could "experience" policy but it would take far better and easier to navigate simulations than anything we have now. Perhaps in a generation people play policy simulations the way that  simulate policies the way that Millennials played video games. 

17 November 2014

Patton Oswalt - Time Travel

How quickly we discount how impressive our technology is now and how bad our politics were then.

People in West 4X more likely to make it to age 26, 68X more likely to make it to 76 than in 1600

For me, the most amazing rags to riches story isn't the story of any one individual but is our story in the West. The difference between who we were centuries ago and who we are now is stunning on every measure.

The simplest measure of our progress is probably measured in life span. One early bit of data from London in the early 1600s captured the probability that a person would make it to various ages. It's not just an infant who could so easily die in the first years of life. Anyone subject to an abscessed tooth or bout of diarrhea was vulnerable. The reliance on superstition rather than science was just one of many reasons it was so easy to die: it was a century after this data was collected that England executed its last witch.

The red shows the probability that a person would make it to 6, 26, etc., in London in the early 1600s. The blue shows the probability of making it to those ages in the US in 2008. You were 4X more likely to make it to 26 in this century, 68X more likely to make it to 76.

It's right to be amazed at spacecraft landing on the moon or computers in our pockets that can download more data than we could consume in a million lifetimes. But what's even more impressive are the odds that you can still enjoy such things well into the last half century of your life.

13 November 2014

Bernard Opines on the 2014 Election and Gives His Endorsement for a 2016 Candidate

I hadn't seen Bernard since the elections. When I'd asked him to meet me at DZ's, he'd said, "I'm not sure I can find it." Surprised, I said, "But we meet there all the time. You know the way." "I don't know," he said. "How are you supposed to navigate your way around a country you don't recognize?"

After Bernard had ordered his chicken noodle with matzo ball and I'd ordered my reuben, Bernard shook his head.
"What is it with Americans? We haven't completely crawled out of the wreckage and already we're voting again for Republicans?"
"Americans love their Republicans."
"Americans do nothing but mock them!"
"Well, in the media you ingest, sure. But America's natural state is under Republican rule."
"How can you say that? Look at all the Democratic presidents we've voted for."
"Really," I asked. "Who have we voted for lately? In the half quarter century or so?"
"Carter. Clinton. Obama."
"That's it! And look what it took for them to get into office!"
Bernard looked at me warily.
"This country doesn't like Democrats. Carter only won election because of Watergate, the worst political scandal of the last half century. Clinton was the most brilliant politician of a generation and even he only won because Perot introduced a real third party. And Obama came into office after the worst financial crisis of a century. We don't elect Democratic presidents unless Republicans have found themselves in a spectacular mess."
"We had a really long run of Democrats before that. Look at how long FDR served."
"Sure. It only took the Great Depression and the bloodiest war in the history of the world to elect and then keep him in office."

"You're no fun," Bernard pouted. "But still, those Republicans worry me. They're all religious fundamentalists."
"That's not really true," I said. "There are a lot of Republicans who aren't social conservatives. They're more libertarian."
"What? I'm 12? I don't know this? I know that party has lots of libertarians. They're the worst kind of religious fundamentalists."
I raised an eyebrow over top of my sandwich, opting to take a bite rather than actually say, "What?"
"They don't even know theirs is a religious belief. They don't believe in the invisible hand of God. They believe in the invisible hand of the market," Bernard continued.  "It's just a different kind of religious fundamentalism. Each are waiting for intervention from some outside force but in the end it's just people who do or don't do things. You might be induced by religious prophets or financial profits but in the end you can choose to do the right thing regardless. People can collectively decide to do the right thing without blaming religion or markets, showing blind trust in a benevolent God or in self-interest."
"How's that?"
"With policy. With culture. Not everything has to be inspired by belief in invisible forces."
"But the libertarian philosophy isn't incoherent. It makes sense that people could be free to do what they want without regulations and simply let supply and demand define what does and doesn't happen. I may not be enamored of it but it's not indefensible."
"No," Bernard said. "It's not incoherent. It's just naive. Libertarians' history usually starts back only a few decades, back to the 1980s. They don't realize that the 'ideal' state they've described is actually the conditions we began with centuries ago."
"Huampha?" I responded, my mouth full of sauerkraut and turkey.
"You should order soup," Bernard said. "It's healthier and it's more civilized. It allows a real conversation instead of these awful monologues you force me into once your sandwich has come."
"Mmmmp," I acknowledged, trying to quickly swallow. Bernard just shook his head.
"We started out with chaos, just like in Genesis. And then strong men arose to protect us from other strong men but of course the strong man demanded his tribute. He kept us safe so he got all the best, from land and food to the women and gold. Over time, laws got set up that let smart but obnoxious people like Steve Jobs and Mark Cuban become rich. They didn't have to cower before the big man because now the state protected them. And now they've forgotten these origins, wanting to shrink the state down as if the strongman wouldn't come back in a heartbeat to take their prizes."
"Well, in their defense they do advise that a state have things like defense and police. They just think that markets should define things. Community defined by supply and demand."
"And in that, too, they're naive. One, people who increasingly felt left out of prosperity aren't going to support the protection of private property. Everyone has to feel invested in the system and the raw workings of the market don't do that, don't automatically confer success on everyone. Markets leave some people unemployed and even more people poor. We're about to hit an unprecedented point in history in which the top 0.1% have as much as the bottom 90%! When have you ever made a "bottom" out of a full 90% of people? Why would poor people support a system that ignores them? And worse, these libertarians don't even listen to their own words. 'Supply and demand?' They think that there isn't a demand for a welfare state? It's been voted in - in one form or another - in every economically advanced nation. It's one of the most timeless products out there. If you're going to embrace supply and demand, you're going to embrace a welfare state that mitigates the effects of unregulated markets."

It was silent for awhile. I couldn't argue. I had a sandwich to finish.

After awhile, I asked, "So, who are you pulling for in 2016?"
"Rand Paul," Bernard said as he took a sip of his soup.
"Well, as fantasy novelists go, I prefer JK Rowling to Ayn Rand, but if there's no Rowling to promise a world that previously existed only in fiction, I guess I'll go with Rand." And then he laughed at his own joke.

12 November 2014

Einstein's High Praise to His Adopted Country

Einstein thought the US was following in the footsteps of fascists when it got caught up in McCarthyism. He didn't think that communists were nearly as much of a threat as those who used the fear of communism to trample civil liberties. "America is incomparably less endangered by its own Communists than by the hysterical hunt for those few Communists that are here," he said. And it seems to me that one could substitute terrorists for Communists in that sentence.

But eventually our country's anti-communist hysteria died down. When it did, Einstein wrote to his son an expression of  high praise for our country, his appreciation for the resiliency of the country's sensibilities.
"God's own country becomes stranger and stranger, but somehow they manage to return to normality. Everything - even lunacy - is mass produced here. But everything goes out of fashion very quickly."

*All quotes from Walter Isaacson's biography of Einstein.

11 November 2014

Corporations are Turning More to Bond Markets And Away from Banks

Corporation have options for financing not available to noncorporate businesses. Specifically, they can issue bonds, borrowing directly from investors in addition to borrowing from banks. Since the Great Recession, as banks have put as much effort into correcting balance sheets as originating loans, this has been a real advantage.

Since 4Q 2008, corporations have increased their reliance on bonds 10.3%, even as they've decreased their use of mortgages (down 7.3%) and bank loans (down 3.3%). By contrast, noncorporate businesses have increased mortgages (up 1.5%) and bank loans (a paltry 0.2%). (All stats are reported at an annualized rate.) They have not increased their use of bonds, of course, for the simple reason that for them it is not an option. This has meant a big difference in levels of credit. While corporate liabilities have increased by 20%,  noncorporate business liabilities have increased by only 4%.

As a gross generalization, credit and capital aren't limits in today's economy. But when it comes to the experience of specific noncorporations (and many households) credit is a limit. Until this changes, it's just one more reason why the current expansion will be less robust than it could be. And one more way that corporations have an advantage over noncorporate businesses.

10 November 2014

1st Time In History That a CEO Has Denied That He Earned the Billions He Made

Harold Hamm is CEO of Continental Resources, and owns 68% of the company's shares. Some believe he is the largest holder of underground oil in the US, his shares now worth nearly $14 billion.

His wife is suing for divorce and as it turns out, divorce law has given Hamm incentive to downplay his role in the phenomenal increase in share price during his time as CEO. Although Hamm's net worth was about $18 billion at the beginning of the trial, his wife will get a settlement of less than a billion. The reason is that Hamm didn't really earn the money. At least according to his lawyers. The following is from Reuter's:

Under Oklahoma law, the enhancement of wealth that comes as a result of the efforts, skills or funds of either spouse is subject to "equitable distribution."
Over the 26-year marriage, the value of Continental soared some 400-fold. During the trial, Harold Hamm's legal team contended that Continental's growing wealth was mostly due to passive or market factors such as the rising price of oil.
Seeking a larger judgment, Sue Ann Hamm's lawyers called expert witnesses to show that Continental grew because of Harold Hamm's deft management decisions.
Judge Haralson found that Harold Hamm played a central role in his company, but he did not agree with the massive dollar values that Sue Ann's expert witnesses placed on the CEO's contributions to Continental's weatlh.
For instance, Haralson wrote that the experts had not established exactly how much value was attributed solely to Harold Hamm and not to other managers at Continental, and that passive factors like oil prices and new technologies helped to propel the firm's value.

Still, he makes $5.49 million, which isn't bad for having little to do with the company's performance.
It would be really fascinating to see just how much CEOs thought they'd actually earned in such a case. 

Alain de Botton's The News: A Users Manual

I just finished Botton's book The News and was at turns delighted and envious of his ability to stimulate thought with such perfect phrases.  It is the media that shapes our view of the world and Botton helps the reader to question how it does this. 

Here is a quote from early on,
"Societies become modern, the philosopher Hegel suggested, when news replaces religion as our central source of guidance and our touchstone of authority. In the developed economies, the news now occupies a position of power at least equal to that formerly enjoyed by the faiths. Dispatches track the canonical hours with uncanny precision: matins have been transubstantiated into the breakfast bulletin, vespers into the evening report."

And here is a quote, from further in, about Gustave Flaubert's disgust with the news, which had evolved during his lifetime from something published only in reaction to big events to something published daily.
"But now the press had made it very possible for a person to be at once unimaginative, uncreative, mean-minded and extremely well-informed. The modern idiot could routinely know what only geniuses had known in the past, and yet he was still an idiot - a depressing combination of traits that previous ages had never had to worry about. The news had, for Flaubert, armed stupidity and given authority to fools."

We are shaped by the news, whether it comes in the form of Fox or the New York Times or any of a wide variety of interesting publications. It's worth thinking about how that happens and what we might do to gain more autonomy over our view of the world. 

08 November 2014

Wage Stagnation's Simple Cause

Household income is about where it was 20 years ago. This is attributed to slow wage growth. But wage growth may - in turn - just be a function of job creation.

In this graph, the blue line traces inflation-adjusted household wages. The red line is actually plotted upside down. When it falls, the number of discouraged workers goes up. When it rises, their numbers go down. It essentially tracks the conditions of labor markets.

From 1993 to 1999, wages rose 15%. During that same time, the American economy created 21.2 million jobs. From 1999 to 2004, the economy lost 192,000 jobs and wages fell 4%. From 2004 to 2007, the economy gained 6.6 million jobs and wages rose 3%. From 2007 to 2011, the economy shed 6.5 million jobs and wages dropped 8%.

It's not a hard equation. As demand for workers rises, their wages go up. When demand falls, so do their wages.

As we create jobs, wages should become less of an issue. Better education, stronger unions, and higher minimum wages will all help wages to grow but none of these matters as much as simple supply and demand in labor markets.

07 November 2014

683,000 Jobs Created in October

Each month the jobs reports includes two numbers. The one widely reported is based on interviews of firms. This month that was 214,000. The one buried further in the report is based on interviews of households. This month the household survey reported 683,000 new jobs.

The household survey is more volatile and is thus discounted. Rightfully so. But it isn't just capturing volatility. It reports 3.8 million new jobs in the last twelve months - significantly more than the 2.6 million reported by firms. It's not just more volatile. It's higher. 

It's tough to capture reality in a dynamic, market-driven economy of 308 million people that destroys and creates about 20 jobs for every one job it keeps. So it is a good reminder that there is no precisely accurate number for job creation. 

But think about what it means for an increasingly entrepreneurial economy when households are reporting more new jobs than firms are. What if this isn't just an error but instead is a way of reporting job creation that has not yet come onto the radar? What if the firms helping to create these jobs aren't official enough - yet - to register for Labor Department surveys? That's an optimistic - and obviously unproven - interpretation of the difference between the two surveys. Still, it's worth considering.

Ben Casselman reports that 24% of the unemployed found jobs in October, the highest during the recovery.

The employment to population ratio - which fell from about 63% just before the Great Recession to 58% after has grown 1% in the last 12 months, above 59% for the first time since 2009.

Meanwhile, the really big news is that we've just hit a new record since the government began tracking monthly job creation numbers in 1939. Never before has the American economy had an uninterrupted streak of months with job creation for this long. The old record, set in the late 1980s, was 48 months. We're now at 49 months and could easily continue this streak for another 6 to 24 months.