20 December 2015

Liechtenstein: World's Most Curious Country or the Future?

Liechtenstein might be the most curious country in the West.

It disbanded its army in 1868 and hasn't had a military since. Then, in 2007, the Swiss army accidentally "invaded" Liechtenstein after they got lost. The Swiss infantry unit conquered nothing during their brief invasion and later sent an apology.
Andreas Kieber, last surviving soldier of Liechtenstein, posing in the Vaduz Castle in the 1930s. The country abolished its armed foces in 1868. [From reddit, found on historicaltimes]

Liechtenstein  has put its trust in corporations instead of the military and the result is a remarkable ratio. Because it offers a corporate tax rate of 12.5% and made it easy to incorporate, about 73,000 corporations have incorporated there. That's not remarkable until you realize that this works out to 2 corporations for each citizen: Liechtenstein's population is only 36,000.

By putting their trust in corporations rather than traditional armies, Liechtenstein has done well. It's per capita GDP of nearly $90,000 is the third highest in the world and its literacy rate is 100%. (Imagine the pressure you'd feel if you were raising the one child in this small country who just couldn't get the hang of reading.)

No army for nearly 150 years, 2 corporations per citizen and 3rd highest per capita GDP in the world. It's not a formula that could work for everyone, or at least not until the popularization of entrepreneurship has gone much further than I've previously imagined. For the world to do what Liechtenstein has would mean that each person is, on average, running two corporations (presumably with robots). There was a time, of course, when the idea of two cars per household was unimaginable so just maybe ....

18 December 2015

What the Universe Wants

If the universe wants for there to be tragedy or boredom in your life, there is no choice. You will have tragedy and boredom.
Fortunately, as best we can tell, the universe if a place of possibility and it doesn’t want anything. You have to bring your own desire to it.

15 December 2015

Lines I Wish I Had Heard in Tonight's GOP Debate

Moderator: Donald Trump, you say that America doesn't win at anything anymore. Have you heard of Charlie Sheen? He's winning.
Donald Trump: I have. And that's why I'm naming Charlie Sheen as my running mate.'

Moderator: Why is it you hate terrorists so much?
GOP Candidate: Because people get us confused. We are the terroizers whose job it is to assure you that you should not feel safe and should vote for us to protect you. They're the terrorists. We're the terrorizers. They make you unsafe. We make you feel unsafe. There is a very real difference.

Moderator: Speaking of foreign policy, what about the Trans-Pacific Partnership, an agreement we have with 11 other Pacific Rim countries that will, among other things, eliminate more than 18,000 taxes and trade barriers? What do you think about that?
GOP Candidate (any GOP candidate): A response (any response).

Moderator: Speaking of foreign policy, what do you think is the right policy for dealing with Climate Change?
GOP Candidate (any GOP candidate): A response (any response).

Moderator: Governor Christie, you've expressed a willingness to go to war with Russia, Iran, and Syria in just the last 49 seconds. Why are you so angry?
Christie: Honestly? I'm so hungry I could punch a cow. I've had nothing but kale and tofu in the last 2 months. I'm starving.

Moderator: Senator Cruz, is there any particular reason you opted to pose like Napoleon during the opening song?
Cruz: Like Napoleon, I do think that we should export our revolution to other countries. Also, I think that can best be done by making me emperor.

14 December 2015

The Middle Class Isn't Disappearing. They're Becoming More Affluent.


The most absurd claims are being made about the above graph, made from census data found here. Simply put, people are claiming that this is further evidence that the middle class is disappearing. It's not.

What this data actually shows is that the middle class is getting richer. A lot richer. 

This data goes back to 1967 and it clearly shows two things: more people are rich and fewer people are poor.

The percentage of households making more than $100,000 a year has tripled. Tripled. (And yes. All of this data is inflation adjusted.)  In 1967, only 8.1% of households had incomes over $100,000 a year. By 2014, another 16.6% of the population had joined them, bringing their total to 24.7%.

The percentage of households making less than $50,000 has dropped from over half to well under half, from 58.2% of the population to only 46.8%, a drop of 11.4%. That, too, is progress.

Finally, the percentage of households making $50,000 to $100,000 has also dropped, from 33.7% to 28.5%. That 5.2% of households joined the folks making more than $100,000, not the ones making less than $50,000. 

You can see in the above graph what's happened in the last half century. This graph focuses on cumulative change over time. 

The orange line - households making more than $100,000 a year - rose to include 16.6% more households than it did at the start. (And just before the Great Recession, it was up to 17.2% more.) 

The blue line - households making less than $50,000 a year - dropped by 11.4%. 

During that time, median household income rose from $44,284 to $53,657 and average income rose from $49,529 to $75.738 a year, increases of 20% and 50%. This even when the size of the average household has dropped by more than 12%. (From 1975 to 2014, household size has dropped from 2.89 persons per household to 2.54.)

I'm not sure how you misconstrue this sort of data into proof that things are getting worse but of course pundits on the right and left have done just that. I'm beginning to believe that there is no such thing as good news when your career depends on alarming the polity.

13 December 2015

In Donald Trump We Have a Great Example for the World

I don't doubt Ben Casnocha's sincerity here. In Eurasia, where multiple languages, peoples and cultures are interacting in regions smaller than some midwest states, the paranoia about anything foreign in some American circles is nearly incomprehensible. And Trump has to seem baffling to most thoughtful people around the world.

But I do think that we can make Donald a beautiful example. We can show the world that in the US we allow free speech. In fact, we're so committed to it that we don't just let people with bad ideas talk. We let them run for office. We don't shut them up. We give them a microphone and TV appearances. So in this, we're different from other countries but even better, it doesn't end there.

We don't hide bad ideas or let their owners take office by force. We put bad ideas out into the market place of ideas and reveal just how bad they are. Donald Trump's ideas have to compete with other ideas and, in the end, show themselves better. Nobody is talking about shooting or censoring or imprisoning Donald Trump. Instead, his ideas are getting air play and they are being exposed as ridiculous. He's safe in the US. His ideas aren't. They're grounded in fear not facts and this becomes more obvious to more people every day.

I know this can be confusing for people but it's hard for me to imagine a better example of how to deal with bad ideas and offensive people than this.

09 December 2015

Bernard Delights in the Trump Candidacy

My friend Bernard was chuckling even before I sat down.
"Ha! Donald Trump has won the bet!"
"Donald! This whole campaign of his has to be based on some crazy bet. He has to have bet someone that he could enter the race and lead in the polls."
It had been a long time since I'd met Bernard for lunch and I was surprised to see him looking so animated. Apparently the Trump campaign had got his blood flowing.
"Um, so many questions Bernard. First, are you a Trump fan? Second, have you ordered?"
"Of course I'm a fan! What other country could create a Donald Trump? He's a phenomenon!"
"You think this ... this ... um, man, should be president?"
"Of course not! You didn't ask me if I was voting for him. You asked me if I was a fan." As we were talking, the waiter brought his sandwich and he hastily stuffed a bite of Reuben into his cheek and began to talk. I was partly interested in what he had to say and partly distracted by the question of whether he would manage to swallow the bite rather than spray it across the table. "Did you hear about the origins of the dada movement?"
"It was nonsense, right?"
"Sort of," Bernard answered. "They actually began as a satire of politics and it morphed into an art movement. They were attacking the rationality and nationality that had just given the world the Great War. What we call World War I. But their attempts at nonsense as an alternative to the rationality that led to the madness of war actually resulted in a somewhat coherent art movement. Their whole point was that there was no point, a point they actually made quite well."
"And .... "
"This is Trump! The man is art! He's an art movement! He's mocking American values by embodying them and taking them to their extremes. His Trump Towers, these incredibly phallic symbols that tower over their surroundings. His fear of anyone you're unlikely to see in a WalMart. His insistence on appearing in reality shows and now campaigns, the only places in American society in which it's considered appropriate to wax rhapsodic about your own virtues and denigrate everyone else. In the past, someone like Sinclair Lewis had to create a character like Elmer Gantry for us to understand American culture. Donald Trump is like Elmer Gantry and Sinclair Lewis in one! He's the author and the character. He's the dada movement personified and delivered a century after the dada movement. He's a genius!"
"Well," I hesitated, not really in the mood for a fight but still not sure whether criticizing Donald would launch Bernard into a rant against me or just make his point, "he certainly tells us often of how smart he is."
"Haha! He is! He's brilliant! I don't think that even he is smart enough to understand how brilliant he is! There are 7 billion people on this planet and he gets more coverage than any 1 billion of them. He is the idiot savant of modern culture."
"But who is supporting him?"
"Well, everyone has that one crazy uncle at Thanksgiving who says such outrageous things that no one quite knows how to respond. Now, thanks to polling, we know how many crazy uncles there are."
"Enough to win an election?"
"No! Of course not! But the fact that he's doing so much better than anyone thought is enough to make everyone alarmed. He's like a one-man voting awareness campaign. At this point, the odds that he wins the Oval Office and that he admits that all of this was the most elaborate prank ever played on American voters are about equal."
"You think that he's going to jump out and say, 'Candid Camera!'?"
"You think he's going to win," Bernard rebutted.
"Er, no," I responded.
"That's it! That's the beauty of it! Everyone on the right is running around scared to death that they'll die in a terrorist attack. There's a nearly zero probability that you - or any one American - will die in a terrorist attack. In 2011, about as many Americans were killed by terrorists as were killed by their own furniture. Someone will likely die in a terrorist attack in the next few months but it won't be you or the guy worked up about it at a Trump rally. "
"But it could happen."
"Sure! Could.  Few events have a zero percent probability. Which brings us to Trump."
"You think there is a zero percent chance that he'll win?"
"No! And the fact that there's a non-zero chance terrifies everyone on the left in the same way that being killed by terrorists terrifies those on the right. The whole chattering class of pundits and voters is terrified. Political discourse is now driven by two near-zero probability fears: being killed by a terrorist and living under a Trump presidency. It's better than the plot for a Marx Brothers film."
"You find all this amusing?"
"What's the alternative?"
"Find it alarming," I asked. He shook his head.
"You think that my being alarmed is going to make any difference to anything but my blood pressure? At my age I can't afford to be alarmed by improbable events. I could keel over at any minute and I should worry that a reality-TV star is going to win votes? No! I'll just enjoy this spectacle."
"So Donald is now your favorite show?"
"Donald is a show for the ages. I can hardly wait for the musical to come out. Donald singing, 'Donald! I love ya!'"
"There's a musical coming out?"
"Oh! That! That is a high-probability hope of mine and that trumps two near-zero probability fears." He paused. "Trumps! Get it?"
I still didn't but it made Bernard happy so I decided to just follow his lead and order a sandwich, shake my head at the improbability of so much energy going into such low-probability events, and join Bernard in brainstorming about the lyrics for the Trump musical.

2016 Economic Prediction

I will start with three certain predictions for 2016: the year will have 366 days and it will include a summer Olympics and presidential election. Now for things less certain.

2016 is going to be a great year for the American economy.

There are a number of reasons why. One reason is that Paul Ryan negotiated a deal with Obama to avoid another October standoff on the budget. It's good for everyone to know that 20% of the economy (roughly the size of the federal government) is not going to suddenly grind to a halt.

On a related note, spending at every level of government - federal, state, and local - should rise the most it has since the start of this decade. This is going to help with GDP growth rather than hinder it, as it did in the beginning of the recovery. Not since the Great Depression has a recovery relied less on government spending and starting now, the private sector won't be the only engine that needs to pull this train.

Another positive is that the largest age group in the population is 20 to 24 year olds (see Bill McBride's great post here on this and other reasons to optimistic). That age group is making the transition from college to work now and will be one reason that the decline in labor participation rate will start to rise again.

This will help to drive up household income. By the end of 2016, household income should be back up to its 2008 level of $55k, perhaps even $57k, where it was in 2007 and in the late 1990s. (One rarely mentioned reason it has fallen in this century is simply that household sizes are trending downwards.)

The birthrate rose in 2014 for the first time since 2007. That's good for the economy for a number of reasons. It shows optimism and babies drive new purchases of clothes, cars and homes.

That's one of the reasons that residential construction spending will continue to rise, going up by double-digits (10% to 15%). This drives the purchase of furniture and household appliances and so many other things. That is, it drives up consumption.

Personal consumption will go up by at least 5%. The debt service costs for households is at a record low. People are quitting jobs about 2X faster than they are losing them, showing growing confidence in the job market. More confidence about future income and less worry about old debt will contribute to consumer spending rising at the rate that it did before the Great Recession (which is to say, above 5% rather than below it). This is going to help GDP growth and company profits.

Speaking of job growth, there is a great chance that the American economy will create more than 2 million jobs and a decent chance that it will create more than 3 million. In either case, the years 2014-2016 will mark the best three year total for job creation since 1997-1999. Oh, and this absurd streak of uninterrupted job growth might even extend from 63 months (what it'll be at the end of this year) to 75 months. Again, the old record was 48 months of consecutive job growth.

This job growth will do two things. There is a very good chance that it will bring down the unemployment rate to 4.5%. It will also will raise wages, as demand for new employees does once unemployment drops below 5%. (When unemployment is above 5%, it is easier to hire out of the ranks of the unemployed and there is little reason to offer high wages. Once unemployment drops below 5%, job offers more often have to entice employees away from current jobs, driving wages up.)

Wages are a little tricky, though. As you can see in the graph below, wage growth has been considerably lower than it was before the turn of the century but it is also true that inflation is much lower. So, nominal wage growth hasn't been too impressive but after-inflation wage growth is actually pretty strong. If wage growth rises a bit more even as inflation stays low, households will experience real increases in spending power, one more reason that consumption is likely to rise.

Finally, I think there is a great chance that the S&P 500 will rise over 10% and perhaps even over 20%. Why? For a host of reasons. There are still trillions of dollars in search of returns and there are not a great number of options for good returns. People have paid down debt and as they continue to make money their concern will shift from near term financial issues to longer-term issues (like retirement accounts). The US will continue to standout in the global economy. Also, it's been a really weak century for stocks for all of the talk about a bubble. From 1975 to 2000, the S&P 500 rose nearly 14% per year on average. From 2000 to 2015, it has been up less than 4% per year on average. The zero percent return of 2015 will turn positive in 2016, and rarely is market movement tepid in any one year. A correction like we had in the summer is pretty normal in a bull market that goes on this long but given the underlying economy will be strong, there is no reason to believe the market will stall or fall a second year in a row. Extended bull markets are typically the product of economic downturns.

Finally, the driver that is hardest to predict but that looks so positive is the uptick in early stage entrepreneurial activity. This may well be the biggest reason to be optimistic about 2016. This early stage activity is the ultimate in leading indicators. Why? It takes years to make business plans real. If it takes a few years for early stage entrepreneurial activity to translate into significant growth in GDP and jobs, this indicator looks promising for 2016 - 2018. Between 2010 and 2014, early stage entrepreneurial activity nearly doubled. Even if it leveled off in 2015, this sort of activity is the most promising indicator of all; successful entrepreneurs are the ones who create new jobs and wealth.

Painful memories of the Great Recession may have receded far enough into the past that people are less reluctant to use their credit cards to shop and their savings to invest. Gallup forecasts Christmas spending will rise significantly this year and that may well put everyone - from manufacturers and retailers to households and employers - in a more generous, positive mood from the very first week of the new year.

Happy (about to be) new year everyone!

07 December 2015

You Can't Fault Pro-Life Protesters. They Have No Choice

At the moment of conception, the microscopic life that will become a bawling infant is only 2 cells. You cannot see it with the naked eye.

The two people who made this little zygote are composed of about 15 to 70 trillion cells each. That's trillions.

The difference between 2 cells and 40 trillion cells is fairly significant.

When does life begin?
The first choice is at the moment of conception.
The second choice is at some arbitrary point in time and development after that moment of conception.

The first choice is clean. It doesn't involve any judgment in terms of starting point. It is simple.

It is also absurd because it suggests that two microscopic cells deserve legal rights. Surprisingly, the folks protesting abortion are supporting a life that they can't see and that can't see them. Unsurprisingly, the folks who protest abortion tend to have religious objections; it is this group that is used to advocating on behalf of the unseen.But if you're going to protect life from the moment of conception, why not make contraception illegal? Why not protect the sanctity of "human" life at the instant before conception as well as the moment after?

The second choice is reasonable. It acknowledges the silliness of arguing that two microscopic cells are human in the same way that a baby in a high chair is human.

It is also just as bad. It involves all sorts of judgments about a starting point. At what point might this life be viable? When might a mother first realize that she's pregnant? When is the fetus conscious? Conscious by what standard? Are you just going to pick some day at random out of this string of 266 days? Why day 112 but not 113? Or day 199 instead of 200? This is unconscionably murky about the starting point for something as important as life. Get it wrong by even a day and we are killing human beings rather than terminating a pregnancy.

I find the notion that life begins at conception emotionally appealing. It is clean. It's almost romantic, certainly spiritual to imagine "life" begins in an instant, an instant when it is scarcely corporeal.

I also think that it is more rational to acknowledge that "life" at the moment of conception is not really different from the "life" of living egg and sperm cells. There is nothing human about sperm or eggs except for the DNA, DNA that can be found in skin cells or saliva. Again, you can't even see it. It makes more sense to refrain from equating mere cells with a human being until some development threshold has been reached.

It is a choice between the heart and head, the romantic or rational.

So what to believe? Whatever you'd like. At least with current laws.

The beauty of current laws is that a person can go with the rational decision that "life" is something we'll never precisely time and the visceral decision that "life" is something that transcends our normal powers of perception. We're not forced to live by someone else's indefensible standards. And this is fitting because the only thing more absurd than having to defend either of these choices is having one of them forced on you.

If the Beginning of the End Times Marks the End Then Would the End of the End Times Mark a Beginning?

I've been surprised lately that so many people I know are convinced that the shootings in San Bernardino and Colorado Springs are proof that these are awful times to be alive. I don't question that these events are tragedies. I do challenge the notion that these events make today a worse time to be alive than in the past. 

Every 50 to 100 years, life gets remarkably better. And the rate at which it gets better is improving.

50 years ago, in 1965, people on the left were convinced that the world was being ruined by the military industrial complex and people on the right were convinced that it was being ruined by hippies and communists. Everyone had his reasons to believe that the world was getting worse and plenty of good data to prove it was bad.
  • Civil Rights demonstrations included hundreds of Alabama State Troopers attacking demonstrators, and the KKK killing activists. 
  • US involvement in Vietnam escalated. The rate at which men were drafted doubled. The rate  at which soldiers were dying quadrupled. This, too, triggered demonstrations that included LBJ being hung in effigy at Berkeley and at least one man lighting himself on fire.
  • In terms of social progress, in most states, a woman could not open a checking account without her husband's signature and segregation was still common throughout the south.

100 years ago was much worse. In 1915, World War I was well under way. 

  • Before it was over, WWI killed 17 million people and wounded another 20 million. If you couldn't find reason to suppose this "Great War" marked the last days, you probably didn't have much of an imagination.
  • Life expectancy for men in the US was 52 and for women was 57, about 2 decades less than it would be at the close of the century
  • In terms of social progress, there were no federal laws banning child labor and the six day workweek was still the norm
The simplest measure of whether things really are getting worse is this: would you rather live in those earlier times when lives were shorter and work weeks were longer, when we were at war with countries and not concepts? I'll let you discuss that among yourselves.

05 December 2015

Comparing the Surprisingly Similar Recoveries of the 1980s and 2010s

As it turns out, the recovery since 2010 is fairly similar to the recovery between 1982 and 1989.

In 2010 and 1982, unemployment rates were nearly identical (9.6% and 9.7% respectively). Those years represented the peak unemployment rate for that recession. During this decade's recovery, it took 5 years for unemployment to drop from its peak to 5.3%.  During the 1980s, it took 7 years for unemployment to hit 5.3%.

It is true, though, that this recovery is lowering the unemployment rate faster than it is creating jobs. Five years in, the 1980s and 2010s recovery had created roughly the same number of jobs: 12.9 million in the 1980s and 13.3 million in this decade.

This suggests that as people come back into the job market during the next couple of years, unemployment won't drop at the same rate that it has for the first five years of this recovery. That is, even if we keep creating 2 to 3 million jobs a year, the unemployment rate is unlikely to keep dropping by more than 0.5 percentage point a year.

The stock market did better in the 1980s. Through the first five years of that recovery, stocks were up 114%, and rose a total of 186% by 1989. By contrast, five years in the S&P 500 is up 95% (and of course that could change by 1 to 6% in either direction before December 31). The suggestion from this (simplistic comparison) is that markets still have room to rise over the next couple of years.

These simple measures suggest that this recovery is not so very different from the recovery of the 1980s, playing out over roughly the same time frame to largely the same effect. We've lowered unemployment faster than in the 1980s but because people are dropping out of the job market faster, not because we're creating jobs faster. 

And on that note, for whatever reason, people seem to be leaving work more rapidly than they're losing work, as can be seen in this graph below. It could be as simple as baby boomers retiring. It might be the rise of "free agents," folks like Uber drivers and Makers who don't count as entrepreneurs or employees. It might be a rise in education levels (people leaving the work force for degrees) or stay-at-home parents. In any case, people are still leaving the workforce even as layoffs are slowing.

Finally, the great news is that this recovery still shows no signs of stalling. Not yet. Our streak of uninterrupted months of job creation is now at 62 months and counting (the old record was 48 months). Next year could be the best year yet of this recovery and in 1989, unemployment of 5.3% represented the best it would get until 1997. By contrast, unemployment will likely stay below 5.0% all of next year. At year 7, the recovery of the 1980s was stalling. At year 5, this recovery still has steam left. Or, to update to a more contemporary metaphor, there is still charge left in this battery. 

04 December 2015

As a country, we really are vindictive towards children stupid enough to be born into poverty.

03 December 2015

An Immodest Proposal for Reducing Gun-Related Violence

17th Century Dutch guns in Rijksmuseum, Amsterdam
I've recently heard conservative friends make the point that these mass shooters never attack folks who are armed. "You don't see them going into gun shows," they say.

There is so much about this reasoning that is mis-guided. My first response is, "Yeah. If American history has taught us anything, it is that no one was shot at the OK Corral." There was a time when everyone was armed and ready to shoot to defend themselves. As it turns out, the folks who are best at shooting and / or most ready to pull the trigger are not necessarily the best human beings, most committed to creating a world safe for women and children. As it turns out, they are violent and a world that depends on the victors being more violent than those they defeat will be violent and so will the world they "protect."

And of course if it was right that more guns made us more safe, we wouldn't have 40X the number of gun-related deaths as the UK or 175X as many as Japan. We have more guns than the UK and Japan and we have more gun-related deaths. Since Obama has taken office, the paranoid right has bought guns at record numbers. According to their logic, that should make us safer. It has not.

Death dominates the news. Not, of course, the main causes of death like old age, heart attacks and cancer. Instead, we get a litany of violent tales, from bombs dropped in the middle east to guns fired here at home.

Perhaps the closest thing I have to magical thinking is this: what we focus on, what we meditate on, what we obsess over comes to define us. It might be mystical, the result of meditations manifest as our reality, the power of imagination to - for good or bad - shape reality. More likely it is akin to a child learning to ride a bike who can't help but steer in the direction he's looking. As a society, we stare at these mass shootings and all of us gravitate towards them. The mentally ill imagine themselves as Rambo, with the power to get everyone's attention. The fearful imagine themselves as victims and make their guns easy to grab, putting them in places where they turn out to be just as convenient for toddlers and their depressed selves in their darkest moments as they are for stopping mass killers.

So we obsess over this virus of mass killings, seeming to spread it with our obsession. Perhaps the starting point in bringing these numbers down is to simply look away, to stop giving it so much of our energy and attention. Let it go out of style like zoot suits and bell bottoms, its popularity diffusing as attention moves on to something new.

And maybe we could help this along by leaking reports that one shocking revelation about the shooters has come to light. As it turns out, this group of massassins that includes atheists and Muslims, Christians and satanists have only one thing in common: each one had an incredibly small penis.

01 December 2015

Bertrand Russell on Fools and Fanatics

Bertrand Russell once said that, "The whole problem with the world is that fools and fanatics are always so certain of themselves and wiser people so full of doubts."


Or maybe the real problem is that fools and fanatics aren't afraid to use guns to win an argument.