14 March 2018

The Libertarian Philosophy - A Truth (often ignored) and a Misconception (largely embraced)

Libertarians advocate one thing that seems to me obviously right (but is often resisted) and another obviously wrong (but nonetheless wins the approval of most Americans).

A general trust in markets seems to me the most important thing they get right. Market solutions don't require consensus or bringing along committees and citizen action groups or the popular vote. An entrepreneur can just try something and assuming they can convince the right mix of investors and employees to go along, they have a chance to change how we live. That's pretty cool and the libertarians' trust in individuals seems to me repeatedly justified by the on-going success of entrepreneurs whose success may never have been predicted by any majority opinion.

The problem with market-driven progress is that it blows in on gales of creative destruction. Solar power can close down coal mines; digital photography can close down picture development kiosks. The status quo has a lot of wealth and power and part of what libertarians get right is that because of this power, government tends towards crony capitalism that protects existing industries in order to protect those investors and employees rather than forcing them to respond to the market. Government can become an obstacle to progress. Look at the coal miners in West Virginia, an industry that began in 1740. If we protect the 44 year old miner today, how much longer do we need to save his job? For two more generations? Two more years? What is society's obligation to protect him? Some politicians will say that for as many generations as he'll vote for you to go to DC to protect him and as long as the coal mining investors will fund your political campaign. Industries that would have a rough time getting thousands from a venture capitalist are sometimes successful at getting billions from governments.

Libertarians' belief that we should let markets disrupt and create new wealth and jobs even while eradicating old jobs and wealth is something I think is right. Still, it seems easy to find programs that protect industries (think of our enormous subsidies to farming and oil). This feel likes a truth often ignored.

So what do I think they get obviously wrong? This notion that government should then be small. I believe that successful markets depend on robust government programs in at least two ways. People always want protection and security. If you are not going to protect their jobs and industries, you need to offer them some personal protection. This, to me, means healthy unemployment insurance, jobs retraining and really hefty subsidies to kindergarten through grad school education, among other things. I also believe that we can hardly spend too much on research at places like the Center for Disease Control or National Health Institute or the National Science Foundation.

I have worked with hundreds of product development firms within companies, from startups funding only one project to Fortune 50 firms with thousands of projects. They develop new products. They need a product that can launch soon. The pharmaceutical companies have the longest development window - about a decade - but most target product launches within about 2 to 4 years. You've heard of R&D, research and development? This is D, the development. It's important. It's crucial. As cliche as it sounds, it can change the lives of investors and consumers. The iPhone is an example of development. The rightful focus of private companies is the D in R&D.

Research is hugely uncertain, though. It will probably result in nothing. If it does result in something cool it may happen a decade or three later than you expected. Not every cool thing becomes profitable. Because of this, corporations rarely finance research and it needs to be heavily funded by government, by groups like DARPA (the Defense Advanced Research Projects Agency) or the University of California. This research - the R - is crucial to corporations' later development - the D. "The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were advanced by the Defense Department," as Mariana Mazzucato points out in her book The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Corporations try to find a way to translate R that has taken one to two decades into D that takes two to four years. It's a pretty cool system.

The libertarian fantasy that communities work well with lean governments is wrong on two counts: a community that learns to sail the gales of creative destruction makes its people feel secure with change rather than resistant to it (which requires a strong welfare state) and getting the research to the point that companies can make it profitable takes considerable public sector leadership.

James Watt, employee at University
of  Glasgow, the same university that
employed professor Adam Smith
The contest between the public and private sector is not zero sum. A strong public sector can make the private sector healthier, and vice versa. (And obviously by strong I don't mean power over, the power of corporate lobbyists to choke government or for governments agencies to choke corporations. Instead, I mean power to, the way that advances in one lead to advances in the other, each enabling the other.)

When a libertarian talks about how markets are more innovative than government programs and how individuals should be given freedom to pursue what they think will make them happy, nod knowingly and agree with him. (Libertarians are twice as likely to be men, so this is probably a "him" you're talking to.)  Say something like, "Yeah. The pursuit of happiness. It's literally in our founding documents."  

When he tells you that this means governments should be much smaller, laugh at his naivete. (Libertarian men love when you do that because then they chuckle with you and say, "Well, you can't blame me for wanting lower taxes.") 

The formula that has seemed to work for progress is to let entrepreneurs and companies rapidly change our world while funding the cost of their creativity with research and education and then funding the cost of their disruption with welfare, unemployment insurance, universal healthcare and - yep - more education and jobs training. Who pays for those government programs? Everyone, but the ones who pay the most are the ones who succeed the most: those successful entrepreneurs and companies who so benefit from being part of a system that knows how to create and then harness the gales of creative destruction.

08 March 2018

Open vs. Closed Economy

The San Diego Union Tribune was gracious enough to let me make an argument for an open economy here:


07 March 2018

In Defense of Thomas Jefferson

Thomas Jefferson was brilliant and visionary, a man who did as much as anyone to institutionalize the potential of the Enlightenment. Without him it's not clear that our Declaration of Independence, constitution or even Bill of Rights would be the remarkably durable and influential documents they are. He has also lost standing as one of our great presidents because he owned slaves and had a relationship with one.

In the Jefferson Memorial
John Davison Rockefeller became the world's first billionaire in 1916. In today's dollars that would be worth $30 billion and his assets when he died would have been worth 1.5% of GDP, equivalent to about $300 billion today. Why mention this? Because today there are more than 1,500 billionaires on the planet and if we were to simply compare Rockefeller to billionaires, it would fail to really capture who he was. We understand that we need to adjust and that while any adjustments to his wealth a century ago are bound to include some measure of controversy, it is not controversial to suggest that an adjustment be made. Even more important than his money, if we brought him into today's world we'd laugh at the quality of his car, the fact that he didn't own a private jet or TV or any antibiotics. His time was very different and the way to measure his economic or business impact is by measuring how he changed business, how he compared to his peers, and how much wealth he created - not by comparing him to today's wealthy.

We don't measure Jefferson by whether he owned slaves. We measure his greatness by how much he changed the world and how that change has rippled into future generations. Before Jefferson, aristocracy and power was something inherited; after Jefferson "all men were created equal." It's true that he apparently didn't stop to think that not only could a land surveyor like Washington be equal to a king like George but that a black person could his equal just much as a white person. It is also true that as future generations tried to honor the spirit of "all men are created equal" it helped to fuel racial equality. His vision of democracy helped to change hundreds of countries and democracies almost invariably result in the creation of wealth and longer lives, enabling people more freedom to think, live according to their conscience, and choose a life of their own making. We measure Jefferson's life by how many lives are better because of what he wrote and created, not by the fact that he fails to measure up to all our modern day standards.

You don't need many people as impactful as Jefferson. The measure of how great a person is is not whether they had as nice a car in 1800 as everyone seems to have today or whether they were as "woke" about racial or feminists issues as many are today. The measure of how great a person is how much they were able to move the people of their time forward.

We are not better people than Jefferson because we don't own slaves. That's like thinking we're richer than Rockefeller because we have access to antibiotics or smart phones. The equivalent of Jefferson today would be the person able to end childhood poverty, making sure that every child had a safe place to sleep each night and there would be no difference in the quality of educational opportunities because of the difference in parents' income. The equivalent of Jefferson today would be someone who restructured democratic procedures and institutions so that people felt as delighted by their government as they are by their favorite restaurant. You aren't better than Jefferson unless you move the world forward as much as he did and I rather doubt that anyone reading this silly blog post is that person. But if you are, congratulations and let me tell you something I have never been able to tell Jefferson: thank you for making this a better world and while I'm not thrilled about whatever obvious flaws you have (perhaps you eat meat from factory animals or spend $200 on shoes, $200 you could send to refugee children or ... well who knows what all), I'm game to overlook them in you even if my great grandchildren (rightfully, I think) don't overlook those flaws in your great grandchildren. Progress means that we're appalled at how past generations lived and thought. Someday progress may even mean that how we live and think isn't largely defined by our own times (although my imagination fails me in understanding how that might be possible).

The measure of progress is not where we are but how far we have come. The measure of greatness is not how we compare to the standards of people living two centuries after us but instead how much we changed the standards from when we were born. By that measure, it's not clear to me that we have anyone today who can compare to Jefferson.

How Apps, Entrepreneurship and a Steady Boom Have Brought Unemployment Claims to an All-Time Low

The Facts

The 4-week moving average of initial unemployment claims is at an all-time low.

In raw numbers, it was actually lower in 1969 but at that point the labor force was exactly half (well, okay, 50.7%) what it is now. So as a percentage, it has never been lower in recorded history.

This statistic is a measure of how many people walk into an unemployment office to say, "I've lost my job and don't have another one to go to."

In April of 2009, 658,000 people filed for unemployment each week. That was the worst of the Great Recession. October of 1982 was even worse, with 671,750 walking into unemployment offices around the country during a single week.

But the American economy is always shedding and creating jobs, at a rate of about 2 million per month. It's remarkable that such a small number of folks laid off or quitting one job don't end up in an unemployment office before they get their next job.

The week of 24 February, only 220,500 people filed initial unemployment claims. The last time it was lower was 27 December 1969 - nearly 50 years ago - when it hit 219,750. As a percentage of the labor force, though, that 1969 number equated to about 1.1% of the labor force showing up in an unemployment office during the month whereas this latest number suggests only 0.5% of the labor force filed for unemployment in the month. It's a stunning number.

The Theories

The most obvious explanation is an uninterrupted rise in jobs created that has now gone on for 88 months (and counting). Every month that results in more jobs created than destroyed means that many fewer people unemployed or unable to find a job. I think there is more to even than that, though.

Simply put, the economy has never been more efficient at creating new jobs and then matching unemployed people to those new jobs. I don't know why but I have a theory that it is because of apps and entrepreneurship.

Uber, Lyft, Mechanical Turk, PostMates, and other apps quickly match people to tasks they can do. Even the websites like Monster, and Indeed have accelerated the time it takes for employers to find qualified employees to hire. Some apps quickly find someone to perform a task; other sites accelerate the time it takes to find a new employee.

Once upon a time, in small communities, you knew that Todd could help carry heavy loads and Melissa could repair fragile things. You could easily find help and they could find work. As the world got bigger and more advanced, it became harder to know who could program in Java vs. C, or who could design period-furniture and who could repair modern furniture. It took a long time for the unemployed to find jobs and for employers to find help. It would take months to find the right person for a job and for tasks that might take only minutes or days, you might never find a match. There was a lot of friction in job markets even a decade ago.

Now software lets a person who wants to drive you to the airport find the person who wants a ride to the airport within about 15 minutes. It's easier than ever to find a match and this makes for nearly friction-less labor markets. This means that more people are downloading an app to make money (I know, to qualify as an Uber driver is not as easy as downloading an app) rather than waiting for a person to hire them. One result is a lower number of folks who file for unemployment.

Another element is increased levels of entrepreneurship. It is easier than ever to start or expand a business. Once upon a time you had to get loans to buy a store or build a factory to start a business; now you can fund a software startup with six laptops. More than half of American employees now work at least part of the week at home. This suggests that the overhead for office space per person is dropping, one less barrier to starting or expanding a business. (I know. It's not THAT cheap or simple. Still, even renting a cubicle is cheaper than setting up a factory.) A great number of employees are hired as contractors; some because that is now how corporations are engaging employees and some because that is an increasingly common way to put someone through the equivalent of a probationary period. There is less commitment and expense in "hiring" an employee and thus less hesitancy to do so. Employees still face a great deal of uncertainty about particular contracts or income levels but less likely to go long stretches without some kind of income.

In this way it's a bit like the move from a bank account that offers 3% annual rate vs. a stock that could rise or fall 30% in a year. Income will fluctuate more but employment will not. People are less likely to turn to unemployment insurance than to another job or task that could mean a temporary rise or fall in pay. If not already, I suspect that fewer people will look back at the last ten years of employment as a steady rise of 4% in annual pay and will instead see rise and falls more akin to the performance of a 401(k).

What It Means

One thing that no one would suggest, though, is that the Uber drivers are fine with just their cars and Uber app. Among other things, they need roads to drive on. Why mention this obvious thing? As the economy and information systems become more adept at matching supply and demand, it's important to support the infrastructure that makes it work. In this case, it's not just roads. People who are more likely to be getting their income from contract jobs and apps need things like universal healthcare to replace the standard benefits once provided by corporate employers and job training programs to make them steadily more productive. The good news is that these more efficient markets will mean less reliance on government unemployment insurance; the bad news is that more tenuous income streams suggests a greater need for things like government health insurance and education.

Another implication of more efficient labor markets is the very real possibility that the natural rate of unemployment has dropped. The ideal rate of unemployment would not be zero for the simple fact that finding a great fit between employee and job is not an instantaneous process. Given it takes a little while to find a great match, it makes sense that somewhere between 2 to 5% of the labor force would be unemployed at any given time. If it is true that it's easier for people to find work, it makes sense that this rate has gone down. What that means is that if string of uninterrupted job creation continues another 6 to 24 months, the unemployment rate could approach 3%. [I've already forecast about a 33% chance of a recession but if that doesn't hit this year, unemployment could steadily trend downwards.]

In all, more efficient labor markets is yet another great sign of progress. It doesn't mean that business cycles are over but it does mean that in any given month fewer people face the prospect of unemployment. That's pretty cool.

28 February 2018

The Terribly Boring Headline That Won't Generate Any Outrage or Clicks: Income Mobility in the US is Not So Bad

The economist Raj Chetty of Stanford was in San Diego 27 February talking about income mobility. He's exploring a really important topic with fascinating data.

He used two measures of income mobility. The first measured what percentage of children made more than their parents had at the same age. The other was a measure of what percentage of children born in the bottom 20% made it to the top 20%. Those seem to me like very different measures.

Doing Better Than Your Parents

 90% of the people born in 1940 were making more at age 30 than their parents had at age 30. That is a really clear measure of progress: the next generation is more affluent than the last. But as you can see in this graph, that percentage drops sharply until about 1960 and then continued to drop, albeit more slowly, up to the point of people born in the 1980s. Roughly 90% of 30 year olds in 1970 were doing better than their parents had at 30, but by 2010 only about 50% were. That seems alarming but I don't think it's as bad as this first graph looks.

First, there are adjustments that Chetty himself makes. 

Adjusting for inflation across generations is not trivial. How do you properly adjust for the price of a mid-sized sedan in 1970 and 2018? The first might reach 100,000 miles and the second might reach 200,000; the first has seat belts and the second has air bags. A TV in 1970 might have been 15" and offered 3 channels; a TV in 2018 might be 50" and offer 300 channels. We could contrast a list of products like this, nearly all of them showing a similar uptick in quality that makes price adjustments tough.

Even assuming that inflation adjustments let you accurately compare incomes from 1970 and 2010, families are smaller. If you make $28,000 with a family of four in 1970 or $27,000 with a family of three in 2010, is your family income really lower? In this example, family income has dropped by $1,000 but income per family member has actually gone up from $7,000 to $9,000.

If you adjust for inflation and family size, the downward trend is less severe. About 95% of 30 year olds in 1970 were making more than their parents at the same age and that dropped to roughly 70% by the 1980s (not a mere 50% as suggested before making these adjustments). 

A drop from 95% to 70% of the next generation doing better is not great but even that is arguable. The average person in 2010 had a library of on-demand articles, books, songs, movies and TV shows that dwarfed the choices of even the richest people of 1970. House prices have gone up but so has the average square footage of homes and the quality of appliances within them. We have a wealth of choices at the grocery store and in 1970 not only did you have just a couple of tomato sauces to choose from in the store but it was tough to find good sushi, ramen or falafales in most of the country. People in 2010 had more choices about how to live their lives than people in 1970 and not all of that can be properly captured in income statistics.

One last thing? The Great Recession was awful. Between 2000 and 2009, the economy destroyed a million jobs. In the 1980s (and 1990s and probably 2010s), the economy created roughly 20 million jobs. Any comparison of how people in 2010 are doing with people in 1990 has to account for the terrible shock that was the Great Recession. All else being equal, we would expect to see a downturn in the percentage of people in 2010 who are doing better than their parents did at 30. Millennials - like the rest of us - had to learn how to swim. Unlike us older folks, they had to learn how to swim in a tsunami and because of that careers were slower to take off and that could not help but be reflected in these numbers. I suspect that as we get further from the recession, this measure of what percentage of 30 or 40 year olds are doing better than their parents will rise.

Doing Better Than Your Peers

What about Chetty's other - very different - measure of income mobility? What percentage of people born in the bottom 20% make it to the top 20%? 

Let's explore this number a little. If parents made zero difference, we would expect that any kid born in any part of the distribution could land in any other part of the distribution by the time she's an adult. Maximum mobility means that there is no correlation between where you start and where you land. 20% of the kids born in the bottom 20% would make it to the top 20%. 20% of the kids born in the bottom would land in the middle. And 20% of the kids born in the bottom 20% would end in the bottom 20%.

This measure is zero sum, though. Every one percent of the kids who move out of the bottom 20% displace someone else. No matter how much your economy grows or stagnates, there will never be more (or less) than 20% in the top (or bottom) 20%. 

It is true that perfect income mobility by this measure means that a kid born in the bottom 20% is just as likely to end up in the top 20% (or middle 20%) as she is the bottom 20%. It is also true that any kid born in the top 20% of income distribution is just as likely to end up in the top (or middle) 20% as he is to end up in the bottom 20%. Perfect mobility means that parents make no difference. That's certainly not the case now. Chetty shared a remarkable statistic: kids born into the top 1% of households (those with incomes of $650,000 or more), were 80X more likely to be admitted to Stanford than kids born into median income households. 

What I find curious about this measure of income mobility is that if Chetty could convince CEOs, mayors, senators and tenured professors to pursue policies that would lead to perfect mobility, it means that the children of those policy makers would be just as likely to end up in the bottom 20% as in the top 20% where they started. I find it hard to imagine many of these leaders willing to adopt policies that allow for perfect income mobility by this measure. By both absolute and relative measures, affluent parents like the idea of their children doing well.

That said, it does seem like a healthy community would allow for children born in poverty to rise to the top and for children born rich to fall into the middle or bottom based on their own - and not their parents' - merit.

There are very real differences in a communities' ability to raise a child born in the bottom 20% up to the top 20%, from poor to affluent. Segregation is one big reason for this. Atlanta and Sacramento have the same percentage of blacks, whites, and Hispanics but Atlanta is much more segregated. (Whites live in one part of town, blacks another, etc.) A kid born in the bottom 20% has a 10% chance of reaching the top 20% in Sacramento; in Atlanta that kid's chances are just 4% and this seems illustrative of what Chetty sees across cities in the US. Segregating people by any grouping - education, race, income - seems to result in less income mobility. (And, as seen in other research, this ability of a community to expose its kids to a variety of other people seems to raise income and wealth for everyone.)

Entrepreneurship and innovation also seems to matter. If your community is creating new jobs and wealth, your kids have a better chance to rise. San Jose, San Francisco and Seattle are among the best communities for giving kids a chance to rise to the top; Cleveland, Detroit and Atlanta among the worst. (See one comparison of communities here.)

Finally, one of the most fascinating points Chetty made was merely implied. Some communities do a much better job of creating opportunities than others. A poor kid growing up in such an area has double or triple the odds of becoming affluent. I don't know enough about the data to conclude this but the impression I was left with is that spending money to get your kid into an innovative, integrated, affluent neighborhood will do more for her prospects than using those same dollars to get her into a better university. Geography is culture, and culture matters.

I'd be fascinated to know more about the differences in communities that are more effective at letting you do better than your parents but curiously, most of Chetty's research focused instead on the differences in communities that raised the probability of poor kids becoming rich. Given there will only ever be 20% of the population in the top 20% but 100% of us could be doing better than our parents, the latter seems like a goal that is easier to align around and more effective.

18 February 2018

A Failure of Empathy and the Preposterous Notion of 197 Shootings in Legislatures in the First 18 Years of This Century

"We all are born with a certain package. We are who we are: where we were born, who we were born as, how we were raised. We're kind of stuck inside that person, and the purpose of civilization and growth is to be able to reach out and empathize a little bit with other people. And for me, the movies are like a machine that generates empathy. It lets you understand a little bit more about different hopes, aspirations, dreams and fears. It helps us to identify with the people who are sharing this journey with us."
- Robert Ebert, film critic

There have been 197 school shootings in the first 206 months of this century. Congress has not passed a single piece of legislation in response to the fact that more than 3 people are being shot in schools - more than one of them killed - each month. 

It is true that this problem of shootings in America is complicated. It is also true that high school students feel that trigonometry is complicated and yet we - rightfully - force them to work on trig problems. Shootings are complicated but not more than any of thousands of problems that are given out each day to millions of students. We ask them to solve these problems because it will make them better. 

A failure of empathy is the root of Congress's lack of response to this carnage. Let's do a simple thought experiment, changing out schools for legislatures.

There have been 197 shootings in legislative bodies in the first 206 months of this century. Congress has not passed a single piece of legislation in response to the fact that more than 3 people are being shot in congress - more than one of them killed - each month.

Does anyone believe that the above paragraph could ever exist in the real world? After just 19 shootings in legislatures - 19 stories about congresspeople rather than students or legislative aides rather than teachers - does anyone believe that new laws would not quickly be passed?

Maybe the most essential feature of any leaders is empathy. What help would you need if your mom were single and poor and you had no access to mentors? What help would you need if you were an aspiring entrepreneur without access to mentors? What would it be like to be faced with the prospect of 30 years of commuting an hour each way to work? What would it be like to be on your third military deployment in two years? Leaders who make communities happier places are leaders who can empathize with people they are not and understand what would help.

In no small part because our legislators cannot understand what it would be like to go to work each week wondering if theirs will be the legislative body where the one congressperson will go berserk and begin shooting, or where some madman with an AR-15 will walk into the deliberative chambers to begin systematically shooting helpless, frightened congresspeople, they will not do a thing for our students and teachers. "Women and children first," is not a phrase heard on this ship of state.

A terribly conservative friend who loves Trump told me that what he likes best about him is that "Trump's a fighter." I guess one emphasis for leadership would be to find someone who fights, even though most of the people he fights with are fellow Americans. For me, I like the idea of empathetic leaders.

16 February 2018

The Switch That Triggered the Rise of the West (Can Also Be Switched Off)

"I am not an advocate for frequent changes in laws and constitutions, but laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors."- Thomas Jefferson

From the time of Homer (roughly 1,000 BC)  until Marco Polo (about 1300 AD), incomes were stagnant.

Starting about 1300, productivity began to rise and with it came a remarkable transformation in life. In the 18th century, life expectancy in England was about 35 to 40 years and now it's about 80.  Incomes are up about 30X from when Shakespeare was buying ink. What happened in England was fairly representative of what happened in the US, Canada, Germany, France and the rest of what we now call the West.

Change in income from century earlier
Since the 1700s the median income for each century has steadily gone up. From 1700 to 1900, per capita GDP tended to be about 62% higher than it was a century earlier. That was the reward for creating more capital and making it more productive. From 1900 to 2000, per capita GDP tended to be about 158% higher than it was a century earlier. That was the reward for creating more knowledge workers and making them more productive. So far this century, per capita GDP tends to be about 250% higher than it was a century earlier. This is the result of continued gains in capital, knowledge workers and their IT, and - most importantly for this century - the increasing power of entrepreneurship.

The West started this parade but it no longer leads it. Singapore has higher per capita GDP than the US, England, or Germany. There is nothing uniquely British about industrial economies or uniquely American about entrepreneurial economies. Anyone can lead this parade but why did the West start it? I think it's because of a unique approach the West took to its defining institutions.

Social invention is an overlooked component of progress. Banks, corporations, and nation-states matter as much in this story of progress since 1300 as trans-Atlantic ships, steam engines, and computers. The very notion, though, that these institutions are merely tools - no different than engines or electronics - is what has made the West different.

People within the the West have taken three distinct approaches to institutions.

Social Conservatives and Social Inventions as Sacred
The first approach is the most obvious. You come to awareness as a small child, growing up with the wonder of a church, the splendor of a king, the wealth of a bank and when you become an adult you accept that this is the way things are. Realizing how instrumental are these institutions to your world, you fight to defend them as they are.

Social conservatives treat social inventions as sacred. These are the loyal Catholics who see in the Protestant Revolution a route to hell and social chaos. These are the royalists who see in challenges to the crown a tumult of conflicting claims for authority, a challenge to all that is sacred. These are the capitalists who see conspiracies in the Central Bank that "runs" things, feeling instead that the banker should be left inviolate and unregulated.

They are quite right that these institutions keep us from chaos. I personally feel like institutions - social inventions - are the simplest reason that we have more control over our lives than do the great apes.

Radicals and Social Inventions as Disposable
Radicals go to the other extreme. They are well aware of how awful the church or state or bank has been. The French Revolutionaries outlawed religion at one point. The Enlightenment was about science and rationality and religion was all about superstition and dogma; it had to go. Radicals knew the church was merely an obstacle to progress and had to go.

Whether it is atheists who want to eradicate the churches, communists who want to shut down financial markets, or anarchists who want to outlaw laws, the radicals quite accurately see all that is awful about these social inventions and want them gone.

They also don't have a clue about how important are these flawed institutions to civilization, to modern life.

The radicals and social conservatives are an important part of the conversation and should always be heard; left in charge, though, they'll only ruin things. They're important voices who should never actually be given power to change anything but instead should only have power to point out problems and make suggestions.

Power over these social inventions should instead be given to people who are not naive enough to believe we can live without them or naive enough to believe that they should be defended in some current or (more often) idealized past form.

Social Inventions as Tools
Progress has been made by the folks who see social inventions as tools. Not sacred things that need protection. Certainly not as disposable. Progress has followed from people who realize how important the church is to how people construct meaning and gain empathy and compassion, become more loving and happy even when life hits one with the inevitable tragedies of illness, death, financial setbacks or even wars and pandemics.

The ones who see church, state and bank as mere tools realize that - just as with cars or can openers - these tools are more valuable as more people are able to use and define them. "We are all priests," as Martin Luther claimed, or "All men are created equal," as Jefferson wrote express the sentiment of those who don't think that popes or kings should have a unique right to define the institutions that so define us.

And the social inventions as tools people are the ones who are unafraid to change these institutions to make them work better for who we really are and aspire to be than who we imagine our ancestors once were. A church is not sacred but it is precious. What does this mean? Everything about it should be challenged except for what it does for people; a church is more important than a juicer only because of what it makes. Fresh orange juice is lovely but meaning and compassion can make the difference between whether or not you even feel like it's worth it to get out of bed to make that orange juice.

The West has led the great parade of progress in no small part because it has treated its vital institutions as mere tools and subject them to challenge and redesign as if they were products no different than cars or radios. They're not sacred. They're not disposable. We've made progress by changing our relationship to church, state, and bank, making them tools for anyone rather than just popes, kings, and bankers. We will make progress again in this generation by making a similar shift in how we treat corporations, turning them into tools for employees to create wealth and jobs and not just tools reserved for CEOs (who, by the way, are also employees).  Freedom of religion, the spread of democracy, the American Dream and the popularization of entrepreneurship have treated - and will treat - our big institutions as mere tools. That orientation is essential to progress.

So why mention all this? Because in the wake of the Great Depression, extremists seized governments everywhere; fascists and communists took control and progress halted or reversed everywhere they did. Now, in the wake of the Great Recession, extremists are again gaining power.

On the left we have activists who see banks as evil. And on the right we have activists who see banks as sacred. The first group doesn't understand the importance of banks, the second group doesn't understand the importance of regulating them and subjecting them to a central bank. Those on the left aren't numerous enough in the states to spoil capital markets but those on the right actually are in Trump's government. Trump is moving to deregulate banks so that banks are tools for bankers and not the community, not for everyone. The social conservatives don't believe in Keynesian economics (most recent evidence of that is the fact that they protested deficits when unemployment was high and now want larger deficits now that unemployment is low) or monetary policy.

Social conservatives are also working to reverse democracy. In 1789, only white, property-owning Protestant men could vote. About every 50 years, another group gained voting rights until, by the end of the 20th century even minority women who rented could vote. Courts have repeatedly ruled that Republican efforts to reverse voting rights are actually targeted at reversing that, taking power from minorities and the poor to vote.

Finally the continued effort to impose a religious definition of when life starts (at the instant of conception) and dismissing any other reasonable definition is an attempt to encroach on freedom of religion, the freedom of women to follow their own conscience and belief about when sperm and egg become a baby.

Social conservatives are wonderful to have in a community. They remind us that family as an institution really does matter, that churches make lives better for so many, that banks and the state create order we would not have without them. We should listen to them. But social conservatives are better reminders than managers; put in power, they treat as sacred what any forward moving community treat merely as as tools that are best used by many rather than a few.

Prosperous and happy communities will continue to construct institutions that are tools that help people to create meaning and be compassionate. They may not even call these institutions churches - and that is part of the genius of lumping freedom of religion under the first amendment along with freedom of assembly, speech, and press, the realization that it is the freedom to form thoughts and express them that is at the heart of religious freedom.

Prosperous and happy communities will continue to construct institutions that are tools to allocate and create capital that helps to fuel progress in productivity and profits. Again, they may not even call these banks but they will be tools that make people richer and able to afford now what they cannot pay for until later.

Prosperous and happy communities will continue to construct institutions that are tools for governing, for creating policies that make their world safer, easier to navigate, and more likely to offer them lucrative options and freedom to live a life as they please - whether in the form of neighborhood planning boards or the UN or any level of government between.

Prosperous and happy communities will continue to construct and revise institutions that are tools for creating wealth and jobs, new technologies and new products and services and in the process of creating value for customers, suppliers, stockholders and the community.

And the communities that prosper the most will never pretend that these tools should be reserved for the elite. They will never pretend that they are not necessary. They will never pretend that they are anything but tools.

What has fueled progress for the West is treating these great institutions as tools. Every time we've instead treated them as disposable or sacred, progress stalls or even reverses.

06 February 2018

Shout it - Yellen was Flawless at the Fed (Hopefully It Won't Be Another Century Before Another Woman is Fed Chair)

This Monday was our first day with Janet Yellen as Fed Chair in four years. The market marked her departure with the biggest ever one day drop in the Dow. Now that's a send off.

The job of Federal Reserve Chair has become more important since Congress has become more dysfunctional. In an ideal world, the government has a mix of fiscal and monetary tools to use to help to smooth out the inevitable bubble and busts of an economy. Now we really have just monetary policy, the tool of the Fed. In the recovery from the Great Recession, when unemployment was still above 8%, the media and Republicans made a great deal of noise about deficits. Now that unemployment is only 4.1%, the Republicans have decided to add another trillion to the debt this year with no noise from Republicans (they're the ones creating this) and very little noise from the media. This is backwards and the Fed has had to work against Congress in their efforts to keep the economy from extremes during the recovery. Yellen has done that flawlessly.

For 100 years we had Fed Chairmen. Then, four years ago, Obama appointed Janet Yellen to succeed Ben Bernanke as Fed Chair. Here is how the economy has performed during her four-year term.

The uninterrupted streak - a new record
When Yellen took over as Fed Chair, the American economy had been creating jobs every month for 40 months. That's great but on two different occasions, the streak had lasted longer: 46 months in the mid-2000s and 48 months in the late 1980s.

Not once did the jobs report come in negative during her time as Fed Chair. The streak is now 88 months and counting; she set a new record each month for the last 40 months of her tenure, shattering the old record and bringing the unemployment rate down from 6.7% to 4.1%. No other Fed Chair presided over a time in which every single monthly jobs reports was positive.

Second best annual job growth
Uninterrupted job creation makes it easier to create a lot of jobs. During her four years the economy did. Only one Fed Chair - Miller who served for only 17 months during the 1970s - presided over a higher annual average job growth.  (And wasn't it curious how the media continued to whine about so-so job creation rates, as if they had any instances of it being better during a four year or longer Fed term?)

Second best annual rate of stock market return
The market returns during her tenure were also second to only one other Fed Chair - Volcker. It seems fitting that the market began falling spectacularly after her last meeting Wednesday and before Powell's first day of work Monday. (Speaking of which, Powell did have a miserable start in his first two days. After Monday's huge sell off, the market return for his first day worked out to a 99.9% annual return which would have made him the first Fed Chair to have lost the entire stock market in his first year on the job. "Where are the returns Jerome?" "I don't know. Yellen seems to have taken them when she cleared out her desk.")

Lowest Inflation
The Federal Reserve has two goals: keep unemployment and inflation low. No one presided over lower inflation rates than Yellen. The goal is 2%. Her highest year was 2.1%. Only Bernanke - who was dealing with horrendous unemployment rates - was close to her and most Chairs were more than double that.

Trump, unsurprisingly, decided that Yellen's performance wasn't good enough to warrant a second term and thus hers will be the shortest term of any Fed Chair since 1979 when Carter decided that inflation was too high and he needed to truncate G. William Miller's term and replace him with Volcker.*

Of course it was unsurprising that Trump would replace Yellen. In Trump's final campaign ad, he lumped Yellen with Clinton, Soros and other world leaders as "globalist" financiers "who don't have your good in mind."

As it turns out, for a woman who didn't have our good in mind, she did pretty good. I'd go so far as to say that her performance was flawless. Let's hope it's not another century before a president has the good sense to appoint the second woman to head the Fed.

*(It's worth noting that when Carter interviewed Volcker for the job as Fed Chair, Volcker warned him that his approach to squeezing out inflation would hurt the economy short-term and about the time Carter was running for reelection the economy would be in bad shape. Carter said, But this is what we need to do. And sure enough, in November of 1980 when Americans elected Ronald Reagan to take Carter's place, unemployment was at 7.5% and continuing to rise.)

01 February 2018

General Intelligence and General Stupidity - Smart People Know the Difference

As an old guy I've given up on the notion of meeting someone who is brilliant. So, if I'm told that someone is brilliant, I want to know in what. Because while I know that the most we can hope for is having one thing that we're really good at - if we're lucky, even great at. That's what we can hope for , being pretty good or even great at at least one thing. But the only guarantee we have is that there will be at least half a dozen tasks and activities that make us look like complete idiots when we try them.

So it is too simple to say of someone, "He's brilliant," or "He's an idiot." You have to be more specific and clarify on what task is he brilliant or an idiot.

The ideal politician would be brilliant at two things: politics and policy. Politics makes you successful at the ballot box, it gets you elected. Policy makes your community successful - your average person able to make more money and live longer. Ideally a politician would be great at getting elected and enacting effective policy. I think FDR is an example of this. FDR got elected president four times. He helped the country navigate its way out of the Great Depression and through World War II. He wasn't ideological but was open to experimentation, trying whatever he thought would work to lower unemployment from the 25% it was when his presidency started. And he knew that the Nazis were not just "their" problem but were ours. He had press conferences twice a week and his willingness to answer questions on the host of issues the country faced gradually won over even hardened journalists. He also gave a weekly radio address; years after he'd died, his wife Eleanor said that people would approach her to say how much they missed having him explain "their government" to them. By the end of his presidency the country - indeed - the world was a better place. That's the simplest measure of effective policy.

You haven't heard of the worst politician. Not only can this guy not get elected or get any media coverage, but he has truly bad ideas. He might be ranting to some long-suffering friends in a coffee shop diner somewhere but he's not winning any elections. Bad at politics and bad at policy.

View from Adlai Stevenson College at UC Santa Cruz
My college was named after Adlai Stevenson, who ran for president in 1952 and 1956. I don't pretend to know much about him but by all reports his policy solutions were thoughtful and ahead of his time but he ended up running against Eisenhower, the man who led the Allied troops against Hitler. Stevenson was seemingly gifted at policy but not terribly effective at politics - at least at the national level.

Which brings us to Trump. He might understand the media better than anyone in my lifetime. He continues to dominate news coverage of every cycle, regardless of what seems to be going on anywhere else. He was so good at politics that he was able to get elected without having held any office before and having been caught on tape bragging about grabbing women by the pussy. It seems highly probable that he had help from Putin but the punchline is that he won the election. He won by offering to make the country more like the former Confederacy, his base. The states whose lifestyles, decisions and policies put them at the bottom of every meaningful list - from household income to life expectancy - all thought he had the best ideas (well, 8 of the 10 poorest states) and the states at the top of every meaningful list (well, 9 of the 10 richest states) all voted against him. He wants to renege on trade deals, lower immigration, and build walls in a time when the most prosperous counties, states, and countries are more tightly integrating with the rest of the world rather than sealing themselves off from it. Trump is an idiot savant, a man brilliant at politics and an idiot at policy.

For my nickle, this makes him the most dangerous man in politics. If he were this bad at policy but just as bad at politics, he might have a talk radio show but he wouldn't have the White House. If he were as naturally gifted at policy as he is at media coverage and politics, it would be a joy to have him in the White House.

Which brings me back to the claim that no one is generally intelligent at everything. We all have our weaknesses, our areas of absurd inadequacy and stupidity. There is, though, one way to not make this evident. People who are aware of their areas of weakness and don't do that thing they do so poorly - whether it be choose their own clothes or tell jokes or dance or calculate equations or analyze data - are people who seem really with it. A person who knows his limits is a person who can leave a great impression; you don't see him look foolish.

And this is might be Trump's biggest weakness of all. He understands policy and governance so poorly that he doesn't even understand how poorly he understands it. The final thing that makes him so dangerous? He doesn't even know that he's bad at what he's bad at. Sadly, Trump won't be the guy who leaves you with such a favorable impression because he only does what he's great at; instead, he insists on showing you how badly he does what he thinks he does so well.

The closest thing to general intelligence is the ability to discern what we are intelligent at and what we're stupid at and focus on the first and avoid the second. Sadly, we're led by a guy who doesn't even have enough intelligence to know the difference between what he's brilliant at and what he's stupid at.

22 January 2018

The Trick is Finding Someone Whose Unusual Interest in Dwarfs Has Forced Them to Sell Their Art

From the early 1500s to early 1600s, the English destroyed a lot of art. Perhaps as much as 98% of their paintings and statues as part of their rejection of Catholicism and its rather worldly reliance on images. 

King Charles (the king who ruled until the Puritans cut off his head in 1649) revived an interest in art. An avid collector, at one point he was able to get a good deal on some great paintings (among them a Titian) because a certain Gonzaga family had fallen on hard times morally and financially; only interested in sex with dwarfs, they sold him paintings in order to get money to purchase a rather extraordinary Hungarian she-dwarf for a high price. (Yes. The actual woman. Not a painting of her.)

Had Shakespeare only lived a few more decades, he could have included accounts like this in his plays. As it is, we have only stories of passionate teens and mad kings.

[This is a story that was casually dropped into conversation on Andrew Marr's Start the Week podcast today. It struck me as remarkable.]

05 January 2018

The Real Culprits in the Trump Presidency

We've watched a year of extreme incompetence in Trump's presidency. Not only does he not understand trade or war or trade wars or any of a hundred other topics intrinsic to governing, he lacks interest in these topics or the cognitive ability to process any data or narratives with more subtlety than a bumper sticker. Since Twitter has allowed a doubling of character limits to 280, even his tweets have taken on a curiously rambling tone, becoming even less coherent. Every successful politician represents some serendipitous match of time and destiny; it may well be that one of the chief reasons for Trump's political success is that his thoughts and policies don't need to be packaged to fit into a 140-character limit but are actually birthed whole at no more than 140 characters. Twitter was the perfect medium for Trump, a medium serendipitously designed to the exact dimensions of his cognitive limits.  

Now that Wolff's book is revealing so much that - as James Fallows says - is an open secret, pundits are coming out critical of his staff for not outing him as grossly incompetent. Among the many open secrets about Trump is the fact that the man who was already prone to repeat stories in a thirty-minute cycle has reduced that cycle to about 10 minutes. This is a man bragging about the size of his nuclear bomb button, threatening nuclear war against the poor people of North Korea whose lives have already been ruined by one madman and could now be ended by another. He's easily distracted and apparently has little interest in consequences. 

The Republican Congress, too, has been criticized for worrying more about protecting Trump than the country. Ryan and McConnell haven't had courage enough to criticize Trump on any of his tweets, positions, or evidence of madness and incompetence. 

There is a group, though, that bears the most responsibility for Trump and has not been criticized at all: Republican voters.

Republican voters excitedly voted for George W. Bush and Dick Cheney. These voters cheered on an invasion of Iraq and then screamed about a stream of refugees from Iraq and the rise of ISIS out of the chaos of that country. These voters cheered deregulation of financial markets and then screamed about the Great Recession that quickly destroyed a decade's worth of jobs in just a few years. Like moths to a flame, they want their hand on the burner but are mad about it hurting. These are not people who understand cause and effect that takes months or years to play out. These people are upset about the number of Muslim refugees who have come into Europe but don't see it as connected to their insistence that we literally bomb Iraqis to liberation. These people were upset about the number of unemployed but don't see it as connected to their cheering for deregulation, or in simpler terms, removing rules that made financial markets more fair and safe. ("Why do you make our kids wear helmets when they don't want to!" Games later, "How could you let our kids get these kinds of head injuries?")

Undeterred by how badly the Bush Cheney experiment went, Republican voters went all in on a vice presidential candidate who showed about as much understanding of policy as someone who distractedly listens to talk radio as if it were background music. Sarah Palin was simple minded but photogenic, a beautiful woman unafraid to speak like an internet meme and Republican voters fell in love with her.

Most recently, Republican voters have given us a man who repeatedly demonstrated his disdain for women, his ignorance of policy, his lack of morals and his disregard for truth, data, or experts.

Republican voters will excitedly support some new candidate once Trump is institutionalized (whether this institution is a home for those with Alzheimer's or criminal convictions is as yet uncertain). It would be best if they did not. At this point conservative voters are like that friend who has been thrice married to men who have each turned out to be abusive who is nonetheless convinced that she should marry again. Someone has to tell this woman that her judgement is bad and her husbands are worse, no matter how exciting she finds them.

Republican voters are the real culprits here. If not for them, Trump would be a comical figure, a TV star who took himself too seriously but was nonetheless amusing for that very reason, like a character on Seinfeld. Instead, Republican voters who cannot tell the difference between comedy and tragedy or lies and revelations have given him more power than anyone else on earth.