Why You Should Be Blown Away by Median Wage Growth of 2.1%

Wages rose 2.1% year over year through June 2014. That's been met with a yawn but it is a phenomenal number.

2.1% doubles wages every 33 years. Sustained, a wage growth of 2.1% increases wages by 8X in a century, enough to raise the median wage of $32,154 in 2000 to $256,927 by 2100. 

Does that sound outlandish? It's not. Wages grew about 8X in the 20th century. But more impressive than the increase in wages was the change in what you were able to buy over the course of the last century. At any price. I'm not sure how you would factor that into a calculation of wage growth. And the addition of outrageously cool things to buy is likely to continue. This new century has already given you new products like personal genetic analysis and a ticket for space travel. 

Here is a partial list of things that you could buy in 2000 that you could not buy in 1900. A surprising number of them are quite affordable. Any one of these would be deserving of a post that explores just what it means. (One day of travel would get you to the other side of the globe? For the average person in 1900 - very, very few had cars - a day's travel meant going into town and back.) Imagine what extraordinary things a person in 2100 with an income of a quarter of a million will be able to buy for Christmas presents.

Radio

A photocopy

Ticket to a movie

A video

TV

Airplane ticket. To anywhere

Airplane

Helicopter

Rocket

Anything plastic

Air conditioner

Teabag

Microwave oven

Electric refrigerator

Safety razor

Crossword puzzle

Bra

Vibrator

Rocket

Penicillin
Antibiotics

Hepatitis-B vaccine

Polio vaccine

Insulin

The Pill

LSD

Bubble gum

Nylons

Laser

Velcro

Credit card

Mutual fund share

A pacemaker

Valium

Viagra

Prozac

Computer

Personal computer

Smartphone

Video game

Email account

Website

Video conference. With anyone. From anywhere

GPS

Anniversary of Verdun - Not Just Worse Than Anything We've Experienced But Worse Than We Can Imagine

Try to wrap your mind around the scale of this tragedy. 9/11 happens. 2,996 lives tragically ended on a Tuesday. The country shocked. And then on Wednesday, 2,996 more lives are taken in a similar attack. Twice in a row now, the country is incredulous. And then on Thursday, another 2,996  lives are taken. Friday, 2,996  more. Every day this happens for 100 days, from 9/11 to 12/21.

Think of how many families would be shattered, the inconceivable number of young lives cut short. The baffled and heartbroken parents and siblings. Imagine how shell shocked people would become. Think about how hard it would be for the nation to absorb a loss of that magnitude, to even make sense of it. Imagine how much it would change us.

The Battle of Verdun ended on this day 98 years ago. In this single battle, 300,000 were killed.

By the time that World War 1 was over, 16 million people had been killed, 7 million of them civilians. 16 million is the equivalent of a 9/11 every day for nearly 15 years. This in a world where total population was about one-fourth of today's population.

It's not just that we really have no equivalent experience in our lifetime. We can scarcely imagine it.

Thank you Thomas for the reminder.

Halfway Point of the Decade that Will Transform the Middle East

Arab Spring seems to have begun with Mohammed Bouazizi, a 26-year-old Tunisian with 6 kids. Police had confiscated his vegetable cart – his livelihood - in December of 2010. When officials refused to hear his complaint, he protested by setting himself on fire. Within a month protesters had ousted Tunisia’s government.[1] 

This was the start of Arab Spring, a contagion of protest and revolution that swept through the Middle East. By 2013, the heads of state in Tunisia, Egypt, Libya, and Yemen had been chased from office and civil wars had started in two countries and protests in half a dozen others. These were protests orchestrated through Twitter and Facebook and played out in the streets with guns and tear gas. Secularists and religious groups have agreed to oust dictators but now have to agree about how to govern.

For me, this picture of the Camel with Google camera mounted on it seems to capture the Middle East's current, odd juxtaposition of old world and new better than anything I could imagine. 

Evolution is hugely defined by environment. The Middle East is going through democratic revolution and reform in such a very different environment than did the West that it will be fascinating to see what it produces. Hopefully, among the things it produces there will be at least a few more pictures like this. 

---

[1] Jim Clifton’s The Coming Jobs War, (New York, NY, Gallup Press, 2011) Kindle location 558. 

Picture from Slate, video here.

Post- 9/11 Interrogations

This week's release of information about the CIA's torture glosses over something fundamental about the interrogations.

Kurt Eichenwald, in 500 Days: Decisions and Deceptions in the Shadow of 9/11 recounts how American interrogators worked at Guantanamo Bay. Reading it, I was struck by how odd their assumption was about the folks they'd captured. The prisoners at Guantanamo were - most of them - soldiers of some kind. Many were from Afghanistan, a place where 92% of the people don't even know about 9/11. (This is not a place where the average person watches the evening news or surfs the Internet for investigative reporting. And where - between Russians and the Taliban - they've had their own atrocities to deal with.)

Imagine that al-Qaeda soldiers captured some American soldiers, took them to an island in the Middle East, and interrogated them about Bush's secret plans for fighting Islam or details about Cheney's underground bunker. It wouldn't even matter if these al-Qaeda interrogators were polite when they asked questions of the American soldiers. It would still be stupid. It wouldn't matter if the al-Qaeda interrogators offered the Americans access to American football games and BBQ or tortured them. No kindness or threat would change the fact that these men were ignorant of what al-Qaeda wanted to know.

These prisoners at Guantanamo Bay were largely low-level soldiers who were nonetheless interrogated daily, as if they had great secrets to reveal. They didn't. The men working at Guantanamo were under pressure to produce results and they tried everything from kindness to threats to torture and nothing worked for the simple reason that the men they'd captured didn't know anything useful.

As with so much in the wake of the Bush Administration's reaction to 9/11, the folks executing policy were struggling to build a skyscraper on a foundation of reinforced cardboard. Even on a good day, when you're given an impossible task, what you try may be unreasonable. And on really bad days, what you try may be immoral.

Needs No Further Explanation

Or perhaps more precisely, I couldn't provide any explanation. This just seems to capture something perfectly.

The Arguments About Keynesian Economics Are Almost Never About Keynesian Economics

Keynes had a major insight into economics that people still seem to miss. It has to do with equilibrium and it plays out something like this.

1.

Capital markets are essential to a thriving economy. Without investors willing to fund new schools and factories, new businesses and non-governmental organizations, we'd have no innovation, no growth, no creation of wealth or jobs. As an economy becomes more dynamic, this steady infusion of investment becomes more important just to sustain normal growth and employment. 

2.

During a period of healthy growth, the equilibrium for capital markets and labor markets are coincident. Letting investment markets do their natural thing will result in new jobs and economic expansion. 

3.

The equilibrium for capital markets can shift. One day the price of capital can induce savers to invest and the next day it can convince them to hold their money in cash rather than make loans or fund new businesses. 

4.

This new equilibrium in capital markets shifts the equilibrium in labor markets. Unemployment can spike as capital sits idle.  

5.

This shift in equilibrium for capital and labor markets will drive down GDP. Sales will fall. 

6.

At this point, it's perfectly rational for every sector to sustain the recession. Households without jobs won't buy. Businesses without sales won't hire. Investors without sufficient number of employed households or expanding businesses to loan to will sit on their money.

7. 

In other words, at this point every "localized" market - labor, goods, and capital - will be in equilibrium. The good news is that the economy is stable. The bad news is that it has reached stability at recessionary levels. This general equilibrium needs to shift before it will make sense for investors, households, and businesses to change their behavior. There is nothing happening in the two other markets to drive a change in the third.

8.

Government can make changes that will shift equilibrium in all the "localized" markets. By spending more, by cutting taxes, by putting more money into circulation or lowering interest rates, it can engineer temporary growth, helping to put an economy back on track for steady expansion. It can disrupt the equilibrium in the localized markets to get things moving again.

Valid rebuttals to Keynesian economics include criticism about a governments' ability to time stimulus, the level of downturn deserving of Keynesian stimulus, and the degree to which a Keynesian style intervention needs to be coordinated with other countries to be effective. You could even argue about whether expectations might mitigate the effect of such government policies.

Invalid rebuttals include "I don't like big government." Keynesian policy recommendations are incidental to the size of a government. Countries like Denmark (where government spending is 58% of GDP), Sweden (51%), Germany (45%) the US (41%), Mexico (27%), Singapore (17%), or the Philippines (16%) can all engage in Keynesian policies. Whether you want to emulate Southeast Asia or Northern Europe is irrelevant. Whether your long-term target for government spending is 50% of GDP or 15% of GDP, government spending can still be increased in the short-term in response to recessions and downturns. You can induce capital markets to engage in ways that stimulate the whole economy. 

For me, the real genius of Keynes was his realization that reaching equilibrium in capital markets didn't automatically ensure equilibrium in the general economy. Before Keynes, we only had economics. After Keynes, we had microeconomics and macroeconomics. His policies were key to creating conditions that allowed the limit to shift from capital to knowledge workers. 

The One Piece of Art that Most Defines the Renaissance

Much of Renaissance art is priceless. If you could own a work by Michelangelo or Botticelli or Raphael you would not only have sublime art to gaze on but could - any time you wanted - sell it for more money than you could hope to spend in a lifetime. And rightfully so. It's not just amazing art. As cliche as it sounds, Renaissance art changed how we looked at the world.

And on that note, I think Peter Bruegel's Landscape With The Fall of Icarus from 1555 best depicts the change from focusing on the supernatural to the natural. It shows how the Renaissance changed how we in the west looked at - and saw - the world.

The most obvious thing here is the farmer plowing the land. He's at work. Just behind him is a ship likely laden with goods from or to another land. A shepherd over the shoulder of the farmer is contemplating the sky, perhaps daydreaming or perhaps looking for signs that would help him to forecast the weather. Oh, and in the water before the ship is Icarus who flew too close to the sun.

Icarus's story is amazing. He flew to freedom with wings his father had constructed of feathers and wax. His father warned him not to fly too close to the sun lest the wax melt and the wings be unable to keep him aloft. Of course Icarus was unable to resist the exhilaration of flying high and, indeed, his wings failed him, causing him to fall out of the sky into the sea to his death. Not only are a host of themes bound up in this story of Icarus (among other things he's a lesson in hubris) but the idea of freedom through flight is sort of amazing. Especially to ancient Greeks and even 16th century Dutch.

But what Bruegel does with this incredible story is relegate it to a corner of the painting. Myth has given way to business. The farmer could not be less impressed with Icarus's foolishness.

We can hardly imagine how completely the promise of heaven or threat of hell defined medieval life. For most Europeans from the fall of Rome until the discovery of the new worlds (about a 1,000 years, from roughly 476 to 1492) business concerns like plowing a field were a distant second to religious concerns. By the time of this painting, in more developed places like the Netherlands and Northern Italy, this had begun to shift. And Bruegel's painting rather brilliantly captures this. A great deal of how we look at the world is defined by where we look. By Bruegel's time in the mid-16th century (Columbus had "discovered" the "new" world and Magellan's crew were the first to circle the whole world), people realized that the natural world was full of the unknown, full of promise, full of riches. It deserved our full attention. At least during harvest or planting.

In Which Your Blog Author Manages to Turn a Big Stock Market Prediction into a Very Small Gain

On October 13, I made a prediction about job numbers and a prediction about the stock market. 

Here is the prediction I blogged about the stock market.

"The S&P 500 is up only 1.4% from the start of the year. ...

I'd look for a sharp rise in the market before year end. I think between now and December 31, the market could easily rise 5% or more. The result will be a fairly unimpressive year but it will have gotten there in spectacularly volatile fashion."

I predicted a rise of 5% or more and the S&P is up 10.7%. I'd like to file that under accurate prediction but of course the market could still fall spectacularly before 2015, so let's mark that as tentative. 

Here is the prediction I tweeted about job numbers. 

"Prediction:

Job report for October (released 7 Nov) will be for over 300,000 new jobs."

I jumped the gun on this one. Even with Friday's upward adjustment to the numbers, it looks like the economy created only 243,000 jobs for October. It didn't break 300,000 until November. So, that's a miss on timing.

Finally, in spite of getting the market prediction right, my own portfolio limped along in that time. The S&P is up 10% since I made my stock market prediction and my portfolio is up just 2%. Pretty pathetic. So that's a big miss.

My final score on predictions:

1 right (so far)

1 right about magnitude, wrong about timing

1 major miss in applying big insights into personal victories (the sort of thing that might have happened to me once or twice before).

So, 1 for 3. That sounds better in baseball.

Is This Record Streak of Job Creation Finally Raising Wages?

Today's job reports makes for some great facts.

In November, the American economy created 321,000 new jobs. 365,000 jobs were announced today, though, because the job creation numbers for September and October were revised upwards.

Since 2000, there have been only 2 months with job gains of more than 365,000.

It has been nearly 20 years since we've had 10 consecutive months in which the economy has created at least 200,000 jobs.

This month's positive number means the current uninterrupted streak of positive job numbers is now 50 months, breaking last month's record for longest streak since the US began keeping records in 1939.

Even if the economy creates zero jobs this month, 2014 will be the best year for job creation since 1999. That is, this is already the best year of the new century.

While the unemployment rate held steady at 5.8%, it is down 1.2% from last year and this sustained rate of job creation might finally be putting upwards pressure on wages.

There is also really promising news about wages. In the October report, wages were up only 0.1% from the previous month. This month, they were up 0.7%. Now 0.7% is almost surely unsustainable. (That would translate into a 8.2% raise in wages for the next year, a delightful prospect that's more fantasy than possibility in light of the last couple of decades but a rate that we actually hit in the 1970s and 1980s.) But such a sharp upwards trend in the context of lower unemployment rate and strong job growth suggests that we might finally be moving beyond the prolonged period of wage stagnation that has characterized this new century. If so, that could be the best news yet.

File Under "Reasons to Be Optimistic." Is Entrepreneurship the Reason US Recovery is Stronger Than Europe's?

The Global Entrepreneurship Monitor (GEM) report on entrepreneurial activity is promising on two counts for the US. First, it shows that the steady trend for entrepreneurial activity here is upwards. Second, it shows  a sharp drop in "necessity driven entrepreneurship," suggesting that the job market's recovery won't inhibit this rise.

The above chart shows the percentage of the population between 18 and 64 who are either a nascent entrepreneur or owner-manager of a business. While this number dropped through the worst of the recession, it has now recovered to its best levels in the century. (At 12.7% it is essentially where it was in 2012, when it hit 12.8%.)  That's great news.

When financial markets convulsed and credit disappeared, it made sense that the number of new business ventures would drop. But of course as layoffs spiked, it also makes sense that more people would be forced into entrepreneurship. If you can't find a job, you have more incentive to make one.

Well, the GEM tracks the relative prevalence of this ""necessity driven entrepreneurship," as well. It captures the percentage of folks who have gone the entrepreneurial route because they had no other options for income. 

As you can see, Spain - where unemployment is still above 20% - continues to rise in necessity-driven entrepreneurship. Such entrepreneurship is too often driven more by fear than hope. In the US, though, there has been a sharp drop in this type of entrepreneurship from 37% to 21% of total entrepreneurial activity. As the labor market has recovered, fewer Americans are forced into entrepreneurship.

Finally, Kauffman tracks entrepreneurs who are currently setting up businesses. These are ventures that still haven't paid salaries but promise to create jobs and wealth. This is a measure of early-stage startups. Here, the US stands out with rates that have doubled in the last few years and are double those in most of Europe.

This nascent entrepreneurship rate is a pretty shocking number, really. Not only has it jumped from 4.9% in 2010 to 9.2% of the workforce in 2013, it is more than double the rate in the UK (3.6%) or Norway (2.9%). 

Most of these startups will fail. Still, you miss all of the new jobs that you don't try to create. This bodes well for the US and could be the simplest explanation of why Europe's GDP is close to dipping into yet another recession even as the US is flirting with GDP growth of 4% and about to extend its record for consecutive months of job creation. It seems to me as good a reason as any for optimism. 

There's a Bigger Issue Here - The Norms We Accept For Police Shootings

Firearm related deaths per 100,000
Hong Kong: 0.03
Japan: 0.06
US, police only: 0.13
Singapore: 0.16
UK: 0.25
US: 10.30
Honduras: 64.8

A Life in Motion Tends to Stay Imbalanced ...

A young friend who became a dad this year was commenting about how he has to cut out personal activities now. I was probably in my thirties or forties before I realized that when people said, "Hard work and sacrifice" they weren't making the two synonymous. Sacrifice means giving up something you value.

You don't pull off any really important "project" like starting a business or raising a child without making sacrifices. In the end, a balanced life is made up of some extreme moments, prolonged periods of imbalance. At least if you want to accomplish anything much. Walking is a controlled fall, action that harnesses imbalance.

Why Our Media Will Make it Difficult for Anything Good to Come of Ferguson

Protests flared up around the country and violence and looting resulted in at least one death last night in Ferguson following the Grand Jury's decision not to indict Darren Wilson. So what's the good news? All of this media attention and turmoil is in the wake of the killing of an 18 year old boy rather than a man of Martin Luther King's stature. That, for me, signals hope. But it's a signal that could get lost in our media's noise.

I've become increasingly disillusioned with our for-profit media. A for-profit media is motivated to increase revenue. If that means making a big deal about Kim Kardashian's butt than they'll do that. Real progress is slow and takes some sophistication to cover. It's like writing a novel: you have to be skilled to get it right and it takes a long time. The conversation the media needs to facilitate now is one about causes and cures for the huge cost of being a black American.

The simple fact is that a black man can expect to die in his 60s and a white man in his mid-70s. (White males life expectancy is 75 years and black male's is 6 year less.) Household income for blacks is only 59% of whites' and wealth of black households is 20% of white households.

There are only two explanations for this. The first is that blacks are inferior and this is a natural consequence. We can dismiss the fact that blacks - once excluded from sports and pop culture entertainment because of their supposed inferiority - have proven that they're more than able to compete in their athleticism, comedy, creativity and music ability.  It's possible that they really are as good as whites on a variety of performance measures but just happen to be bad at business. Or it could be that business relationships are one area where it's still common to be unscientific and instead rely on  our judgments that are colored by folklore, gut, instinct, and racism that we scarcely admit even to ourselves. Which brings us to the second explanation for the gap between whites and blacks: racism.

It's obvious that there is still plenty of racism alive today. It's less obvious that when we're talking about issues like wealth and income, racism suffered by your grandparents puts you at a disadvantage.  Privilege and opportunity - for good or for bad - dominoes across generations. Even if we eradicated all racism today, blacks would still take generations to catch up simply because privilege and opportunity provide advantages that take generations to dissipate. Even if the average American's income stopped growing for decades, it would still be higher than that of China's.

Good policy starts with facts and then makes plans to change them. It doesn't ignore facts. It doesn't defend the status quo. And it looks beyond the stories of heroes and villains to systems. It's true that privileged whites screw up their advantage sometime. It's true that disadvantaged blacks rise above obstacles. But it's not the folks who do well or poorly in spite of prevailing norms that should concern policy makers. The focus of good policy is on improving the distribution of the whole population, not putting a spotlight on outliers. And of course, outliers - the violent youth or wealthy businessman - are the focus of our media, which makes it so hard to hope for policy that will change normal rather than spotlight the extremes.

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.

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.

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. 

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.

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.
"What?"
"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.

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.

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.

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. 

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.

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. 

What Democrats' Domination of California Predicts About Which Faction of the GOP Will Control the National Party

On average, Democrats won California House races by nearly 19 percentage points Tuesday, winning 70%  of the districts and beating Republicans 2 to 1 (or more precisely, in 37 of 53 districts). It might be that California is out of sync with the nation. It might also be that it's still out in front. If the latter, this isn't necessarily bad news for all Republicans - just a particular kind.

We have an open primary for our Representatives in California. The top two vote getters face each other in the general election, whether one is Democrat and one is Republican or whether they're both from the same party. The idea is that even in districts that tilt strongly in one direction, the final representative of that district has to appeal to the whole district, not just those voting in her party primary. The result is that Republicans or Democrats can end up with zero votes in the general election in any one district. And this happened.

Democrats were completely shut out in 2 districts and Republicans in 9. (To that put that shutout in context, only 12 states other than California have more than 9 Representatives.)  In nearly 40% of the state's districts (21), Democrats won by at least 2 to 1.

Democrats get their support from odd places. Most of the nation would not be surprised to hear that the 44th district - an area of south LA which includes Compton and has only 7% white population - did not cast a single vote for Republicans in the House race. But they might be surprised that in District 17 - a region that includes Santa Clara and the headquarters for Apple, Intel, Yahoo, and eBay - Republicans were also shut out. The 14th district is in the heart of Silicon Valley, including legendary Sand Hill Road (home to the biggest names in Venture Capital), Stanford, and Facebook Headquarters. According to one 2006 report, it is the third wealthiest district in the nation. In this 14th district, the Democrat got more than 3X as many votes as the Republican candidate. The two most affluent districts in California - the 33rd that includes Malibu and the 18th that includes Palo Alto - are solidly Democratic. The average income in Democratic districts is actually slightly higher - $72,609 - than Republican districts - $71,274.

The Republicans get their support in a couple of different segments of California: the farming areas (particularly around Bakersfield, where the new House Speaker is from) and Stockton in central California, and Orange County and San Diego's East County in the south.

Part of the difference seems to come from source of income. Folks in Silicon Valley are products of universities. Menlo Park - in the 14th district mentioned above - has one of the most educated populaces in the country. 70% of the adults there have advanced degrees. These folks - whether or not they are rich - are biased in favor of supporting R&D and education and they aren't much bound to tradition. For them, same-sex marriage is just another innovation, like blue-tooth or wireless. (Tech-savvy San Diego nearly sent an openly-gay Republican to DC. It's safe to assume he would not have won the Republican primary in many states.) They aren't threatened by change. It's their business. Disruption might be one of the terms most bandied about in Silicon Valley.

By contrast, the biggest city in the 25th district, where Democrats got zero votes in the House election, is Palmdale. It's biggest university isn't actually a university but is instead the community college and its two biggest employers are defense contractors. In such a community there is less support for disruption. There are other more affluent and educated places that support Republicans in the state. The 45th district - which includes UC Irvine - is in Orange County and conforms to some of the popular stereotypes about rich, white, conservatives.

California might represent the nation's future, both in terms of its reliance on education, its acceptance of individual choice (whether in gay marriage or women's choice) and its portion of minorities.

More regions are trying to replicate Silicon Valley's success. As they do, they'll learn that this encourages a disregard for traditions that libertarian Republicans will embrace more quickly than the party's social conservatives. And a real embrace of innovation typically encourages immigrants, something many of the GOP core get antsy about. A Kauffman Foundation study showed that a quarter of the CEOs or lead technologist in US technology companies founded between 1995 and 2005 were immigrants.

Also, California is one state where everyone is a minority. Blacks make up about 7% of the population, Asians 14%, Hispanics 38.4% and whites 39%. Every decade, fewer states will be as white as Vermont and Maine (the country's whitest states, each more 96% white).

The Economist once said that what the US was to the rest of the world, California is to the US. And what California is to the US, the Bay Area is to California. San Francisco mayor Gavin Newsom was the first official to legalize gay marriage. That's swept the nation. Palo Alto was granting business licences to Venture Capitalists before the rest of the nation had heard the term. That, too, has swept the nation. If California - and the Bay Area in particular - is the future, though, that isn't necessarily bad news for Republicans. It is, instead, just bad news for some segment of them.

While folks in the Bay Area pity social conservatives, lumping them in with folks who have rotary-dial phones, they take libertarians seriously. The notion of self-organizing complexity - the thought that markets could self-correct to regulate behavior - actually seems to them like a proposition worth considering, even if they aren't fully bought in.

At the national level, though, Republicans include folks who deny climate-change and evolution, people who oppose a woman's right to choose and same-sex marriage. Any party that includes such candidates will never win a majority vote in the Bay Area. Or soon, the country.

The Republican Party may already realize this. One stark contrast from the 2012 election is the fact that very few - if any - Republican candidates were caught making outrageous statements like, "If a woman has really been raped she can't get pregnant." The GOP seems to have silenced its social conservatives. And in that, too, the country is following California's lead. Republican governor Arnold Schwarzenegger was pro-choice. San Diego's new House Representative Carl Demaio is Republican but he's also gay. Voters around the country didn't just sweep in Republicans in record numbers. They voted to legalize marijuana and defeated anti-abortion proposals. This suggests a libertarian rather than traditionally conservative tilt.

It's the libertarians within the Republican Party who will increasingly define it. The face of this new Republican could be Rand Paul or outspoken libertarian Peter Thiel - the venture capitalist who co-founded PayPal with Max Levchin and Elon Musk who - of course - rose to fame in Silicon Valley.  This, of course, raises a whole new set of questions but for now I think it points clearly to a particular kind of future for Republicans.

America Looks at Republicans with Tears in Their Eyes and Says, "I Wish I Knew How to Quit You"

In 2004, George W. Bush was re-elected in spite of the fact that unemployment was up 30% from when he'd been elected.

Yesterday, voters' unhappiness with Obama and worry that the country was headed in the wrong direction led to a huge victory for Republicans. This in spite of the fact that unemployment is down about 38% in the last four years.

Voters say that they're unhappy with the direction of the country but it might actually be that they're unhappy with its location. When W. was re-elected, unemployment was up but it was still only 5.4%. (It took him another 4 years to nearly double that.) When Obama "lost" the mid-term election, unemployment was still at 5.9%. The location - just under 6% rather than close to 5% - seems to be more upsetting than the direction - dropping rather than rising.

It would be a beautiful thing if only the Republicans' policies were as effective as their politics. The default for this country is the GOP. Look at what it takes for Republicans to lose the White House. Watergate. The Great Recession. A once-in-a-lifetime politician like Bill Clinton. Barring disastrous performance by a Republican president or a phenomenal performance by a Democratic candidate, Republicans win. For whatever reason, the country trusts them. And oddly, it's the same country that is gradually legalizing same-sex marriage and marijuana. Perhaps the Republican ads should end with an American shaking their head at some silly thing their Republican candidate has said before putting their arm around him and saying, "I don't really like your policies, Jim, but there's just something about you."

How Voters Actually Judge Candidates (And It Has Nothing to do With Policy)

Here is an excerpt from Frans de Waal’s Our Inner Ape: A Leading Primatologist Explains Why We Are Who We Are.

Likewise, watching a group of people, one will quickly notice which individuals act with the greatest confidence, attract the most glances and nods of agreement, are least reluctant to break into the discussion, speak in a softer voice yet expect everybody to listen (and laugh at their jokes!), voice unilateral opinions, and so on. But there are far more subtle status clues.

Scientists used to consider the frequency band of 500 hertz and below in the human voice as meaningless noise, because when a voice if filtered, removing all higher frequencies, one hears nothing but a low-pitched hum. All words are lost. But then it was found that this low hum is an unconscious social instrument. It is different for each person, but in the course of a conversation people tend to converge. They settle on a single hum, and it is always the lower status person who does the adjusting.

This was first demonstrated in an analysis of the Larry King Live television show. The host, Larry King, would adjust his timbre to that of high-ranking guests, like Mike Wallace or Elizabeth Taylor. Low-ranking guests, on the other hand, would adjust their timbre to that of King. The clearest adjustment to King’s voice, indicating lack of confidence, came from former Vice President Dan Quayle.

The same spectral analysis has been applied to televised debates between the presidential candidates. In all eight elections between 1960 and 2000 the popular vote matched the voice analysis: the majority of people voted for the candidate who held his own timbre rather than the one who adjusted. In some cases, the differences were extreme, such as between Ronald Reagan and Walter Mondale. And only in 2000 did a candidate with a slightly subordinate voice pattern, George W. Bush, get elected. But this was not really an exception to the rule because, as Democrats will relish pointing out, the popular vote actually went to the candidate with the dominant voice pattern, Al Gore.
pp. 56-7.

Alan Watts On the Unpredictable Nature of Outcomes

Here's something profound for you this morning, a little reminder of the fact that life's outcomes aren't always obvious.

When Your Worldview is Literally Figurative: The Hereford Map and the Last Days of Mythical Living

The Hereford Mappa Mundi illustrates how inextricably linked was religion and myth to the Medieval worldview. The map is - literally - a map of the world and hence it clearly depicts their worldview. And while it is literally a map, it is full of the figurative.

Not only does this map miss entire continents like the Americas and Australia, but it adds to the world stories that are known to make sense of land that is unknown. East is at the top and anyone trying to map this map to known maps will be lost. This map is anchored in myth, not experience.

Cannibals detail from Hereford Mappa Mundi

The known world contains such creatures as a lynx in Asia Minor that sees through walls and urinates a black stone. Beyond the very limits of the known world the legend warns, "Here are all kinds of horrors, more than can be imagined: intolerable cold ... savage people who eat human flesh and drink blood, the accursed son of Cain."

Noah's Ark from Hereford Mappa Mundi

About this map and others like it, Jerry Brotton writes, "Hardly any of these maps provided new geographical material on the world based on travel or exploration. Instead, they fused classical and biblical places to project a history of Christian creation, salvation and judgment onto the surface of a map. On most of these mappaemuni, viewers could trace the passage of biblical time vertically, from its beginning at the top of the map in the Garden of Eden in the east, to its conclusion in the west, with the end of time taking place outside its frame in an eternal present of the Final Judgment. ... The essence of the Hereford mappamundi is contiguity, the proximity of one place to one another, each place charged by a specific Christian event.. It is a map shaped by its religious history connected to specific places, rather than geographical space. The map offers the faithful a depiction of scenes from the Creation, the Fall, the life of Christ and the Apocalypse in an image of the vertical progression of Christian history from top to bottom in which they could grasp the possibility of their own salvation."

This map was made about 1280 and captures the world before the age of exploration. The limit to progress in the first market economy - which emerged about this time and transformed the West from about 1300 to 1700 - was land. And as it odd as it sounds, this limit couldn't be properly addressed until it was properly seen. It wasn't what they knew that changed the world but instead what they discovered.