23 December 2016

California vs. West Virginia: A Question About Which Direction the Country is Heading

Even some of my California friends had posted things like, "If you subtract California from the national vote, Trump won the popular vote." My counter to this is, "If you subtract the former confederacy from the national vote, Clinton won by 6.5 million votes."

Apparently there are folks threatening to boycott California because the state is out of sync with Trump nation. Such sentiments inspired this tweet:

Trump won by his biggest margin in West Virginia, by 42.2%. Clinton won by her biggest margin in California, by 30.4%. Let's compare those states and consider what it means to dismiss California as a place that is out of touch with the rest of the country.

California ranks third for median household income.

West Virginia ranks 49th.

California is the most populous state in the union. In 1950 it had 10.7 million and now it has about 40 million, nearly 4X as many. The simple fact that California has grown so rapidly is testament to its ability to create jobs.

West Virginia had 2 million people in 1950. Today it has 1.8 million, a drop of 10%. West Virginia has not been able to create jobs or even a net gain in population.

If you believe that people just are who people are, you might think that it makes sense that West Virginia would register a protest vote against the status quo. It's had trouble in this new economy and of course those poor people will vote for change. But if you believe that people are who their institutions are - if you believe that we're defined by our culture, schools, media, government, policies, and prevailing norms - then it is a terrible thing to follow the lead of a place like West Virginia. Why? Because the policies and norms it has chosen has made its people less able to thrive in the modern economy. History shows us that it's not how hard people work or who they are genetically that determines how prosperous they are. It is, instead, the systems they work with and within. Incomes were 6 to 8X higher in 2000 than they were in 1900 in spite of the average workweek dropping from 60 hours to 40. Incomes weren't higher because people were "better." They were higher because people learned, worked in, and were able to use better systems. If you believe that people can't change, than West Virginia was right to vote for different policies and leaders than California; if you believe that people can change and there is no intrinsic reason that West Virginia can't be as prosperous as California than it's a terrible thing that the nation is now going to follow after policies West Virginia voters think sound great rather than the ones that Californian voters think would be great. West Virginia's thinking doesn't make its people as prosperous as California's.

Here are just a few fundamental issues that Californians would find alarming in Trump's policies that apparently comfort West Virginians: immigration, free trade, and free religion.

California has the largest share of foreign-
born people, West Virginia the lowest. 
Trump wants to limit immigration, both legal and illegal. California is a land of immigrants. About 40% of Silicon Valley startups have at least one foreign founder. On a personal note, I was working with a startup on Google's campus this year and one of the departments (robotic sensors) had five people from five countries: the US, Iran, Italy, Poland, and South Korea. It's a global economy and California doesn't just sell to customers from all over the world, it hires and partners with people from all over the world.

Trump has chastised Apple for manufacturing its iPhone in China. He doesn't really like free trade and has threatened to levy a 35% tariff against Mexico and a 45% tariff against China. This could easily start a trade war. (Does anyone believe that other countries will merely pay huge tariffs and allow the US to continue to sell into their markets without levying an offsetting tariff? How naive do you have to be to believe that?) But it also misses the point. 75% of iPhones are sold outside of the US. Apple is headquartered in the US but it is an international company with an international product, customers, suppliers and partners. This is true of most of the products coming out of Silicon Valley, from Intel's chips to Uber's app.

Finally, Trump wants to limit the immigration of Muslims. This is a special kind of exclusion that is not only anti-constitutional (read the first amendment to be reminded that Congress shall pass no law regarding religion) but shows a complete confusion about where creativity comes from. Trump knows which religion is right and which is not. Really creative people don't even know which process is best or which theory will hold up for a century or will be dis-proven tomorrow. Freedom of thought - freedom to question or challenge established "truths" is fundamental to creativity. It's no accident that the free speech movement began in Berkeley just as the computer revolution was beginning. Freedom of religion is elementary compared to the freedom of thought needed to create new scientific theories, new social paradigms, new technologies, new businesses and new business models.

California has given birth to blue jeans, the Hollywood that generates TV shows and blockbuster movies, and a music industry that gave us acts like the Grateful Dead and the Eagles. It's been the source of so many cultural and business trends.  The most defining "industry" in California is Silicon Valley, a place that gave us Apple, Facebook, Intel, HP, Twitter, the internet, and venture capitalism. The most defining business in West Virginia is coal mining.

To this day we revere the ancient Greeks yet their golden age was only a century or two. Socrates died in 399 BC and Aristotle died in 322 BC. It was during the century or so around their lives that so much of what we know of their inventions - from philosophy to math to theater and democracy - emerged. It was an incredible time that the Greeks experienced only for awhile even though the world has felt its impact for the thousands of years since.

If this move towards West Virginia and away from California proves defining of the country's future, the US will go the way of other great and defining communities in history. We will have had our time and so much of what has come out of the US in the last century in particular is likely to continue to define the world in the way that the Athens of 4th century BC continues to define the world to this day. Civilization continues to carry forward the great inventions like money and democracy, even if it fumbles and drops them from time to time. It builds on what came before. Evolution - biological and social - doesn't throw away so much as build on. In that sense, the US of the 20th century will likely be with civilization for millennia to come. What isn't certain, though, is whether it will - like modern Greece - become just another also-ran as some other community becomes the innovators who we all follow with some odd mix of envy, reluctance, and excited mimicry.

For now, swing voters in the US have decided to follow the lead of a state that hasn't invented a new industry since coal mining in the 1740s rather than a state that is even now incubating industries as different as self-driving cars and genetic engineering. It's chosen to try going back to an earlier time when jobs were being created for coal miners rather than for entrepreneurs. If Trump is successful at creating such jobs it means that we'll be going in the direction of the 1700s rather than the late 2100s. That should be a sobering thought.

20 December 2016

Two Religious Divides that Can Ruin Christmas

Even an event as lovely as Christmas becomes a forum for dissent and proselytizing. It's not enough to simply let people enjoy the holidays, someone else has to foist their agenda on us. Here are two big ideological struggles that simply don't receive enough attention because they're so divisive.

Evangelicals: Let's put Christ back in Christmas.
Catholics: Let's put Mass back in Christmas.

Buddhists: Let's be open to the present.
Children: Let's just open the presents.

We're Uncertain Just How Much Economic Uncertainty Trump Has Added

"There are known unknowns and unknown unknowns," Rumsfeld famously said. With the incoming Trump administration we might now say, "There are certain uncertainties and uncertain uncertainties."

The stock market has rallied since Trump's election. Presumably, the reasons for this include expectations of tax cuts, stimulus spending, and deregulation. All of these add to uncertainty, though.

If Trump gets a stimulus package in the form of infrastructure spending, it will boost GDP more than if the stimulus comes in the form of tax cuts. (The tax cuts will overwhelmingly go to the rich. A guy making $500,000 a year is less likely to change his spending in response to a tax cut that puts $1,000 more in his pocket than will a guy who makes only $5,000 a year.) 

Will the stimulus - the assumed rise in deficit spending - boost the economy by 1% or by something negligible? It's uncertain because we don't really know what form the stimulus will come in.

Further complicating this, Trump has appointed Mick Mulvaney to head his Office of Management and Budget (OMB). He'll be responsible for crafting the budgets proposed to Congress. Mulvaney is a fiscal hawk who has voted against raising the debt ceiling and seems committed enough to a balanced budget that he'd shut down government for this. By contrast, Trump has promised tax cuts and boosts to defense spending and infrastructure, which will drive a big increase in the deficit.

Paul Ryan and Mick Mulvaney's desire for balanced budgets will be at odds with Donald Trump's "deficit be damned" policies. Will Trump's proposed budget deficit shrink or even become a budget surplus? It's uncertain.

Deregulation adds the most uncertainty of all. Before the Great Recession, banks were leveraged about 30 to 1. For every dollar they had in deposits, they had loaned out about $30. That gives you great returns but it makes you vulnerable to a credit crunch. Since Dodd Frank,that ratio has dropped to about 10 to 1, which makes for a much safer banking system. Now, the expectation is that a Trump administration will lower regulatory requirements and allow banks to raise that ratio again. Will the ratio go up to just, say, 12 or 15 to 1? That ratio might still be reasonably safe but raise profits nicely. Or will the ratio be allowed to rise all the way to 20 to 1 or even 30 to 1 again? That ratio will greatly raise profits .... and risk. Financial stocks could look really healthy even as the financial system gets sick. 

Will Trump deregulation give finance a little nudge or a dangerous shove? That's uncertain.

Add to this the uncertainty inherent in Trump's trade policies. Will he actually put 35% and 45% tariffs in place against Mexico and China? If he does, WTO will probably slap on retaliatory fines and this could set off a trade war. That path would cost us millions of jobs. If he only talks about trade wars but doesn't actually impose tariffs, it could "just" result in a slowdown in trade. It's uncertain.

And then there is the policy with undocumented workers. Will he actually deport 11 million people? If so, that will crush growth in aggregate demand here in the US and crash house prices. It's uncertain.

Economics is always uncertain but the Trump Administration has added more uncertainty to that than any that I can remember. And perhaps inherent in that uncertainty is an uncertainty about what Trump's victory will mean for the future identity of the Republican Party.

15 December 2016

Key Statistics From Obama's Final 2017 Economic Report

The president's economic advisers released their annual report - the 2017 Economic Report of the President - today, 15 December. You can find it here but you might not have time to read through all 599 pages of Barack Obama and Jason Furman's report, so here are some highlights.

Jobs, Unemployment, Wages

Economy has added 14.8 million jobs over 74 months, the longest streak on record.
  • Since June 2009, when Chrysler and General Motors (GM) emerged from bankruptcy, the automobile industry (manufacturing and retail) has added nearly 700,000 jobs, the industry’s strongest growth on record.
  • The unemployment rate has been cut by more than half to 4.6 percent as of November 2016, below its pre-recession average

    Wages for production workers grew faster since 2012 then they did from 1980 to 2007

  • In 2015, median household income rose at the fastest rate on record, with the typical family earning an additional $2,800.
  • Since the end of 2012 private production and nonsupervisory workers, who comprise about 80 percent of private-sector employment, have seen their real hourly earnings increase by 5.3 percent, more than the total cumulative real wage gains for these workers from 1980 to 2007
  • Real wage growth has been faster in the current business cycle than in any since the early 1970s.
  • Real median household income increased 5.2 percent in 2015, the fastest growth on record. 
  • Households at all income percentiles reported by the Census Bureau saw real gains in income, with the largest gains among households at the bottom of the income distribution.
  • The poverty rate fell by more than any year since 1968


     As of 2016, the uninsured rate stands at its lowest level ever.

  •      The uninsured rate among children has fallen by almost half since Obama took office
  •      20 million more adults have health insurance
  •      So do 3 million more children
The growth in healthcare costs has dropped since ACA

Since the ACA was signed into law in 2010, health care prices have risen at the slowest pace in 50 years.
  • The average costs for a family with employer-based coverage in 2016 were $4,400 below where they would have been had costs grown at their pace over the decade before the ACA became law

Wealth & Budgets

The 2016 deficit was 3.2 percent of GDP, about a third of the 9.8 percent of GDP deficit recorded in 2009 and equal to the average over the last 40 years
Per capita GDP growth higher in US than Japan or Euro Area

The economy is now 11.5% larger than at its pre-Recession peak

Real household net worth exceeds its pre-recession peak by 16 percent


     Since 2008, the United States has tripled the amount of energy harnessed from wind and has increased solar generation thirtyfold.

     Today, the United States is less reliant on foreign oil than it has been in nearly three decades.


     The America Invents Act (AIA) of 2011 led to a 20% reduction in patent wait times, supporting a 30% increase in patents granted

23 November 2016

We are all in pieces, struggling to create the illusion of a coherent "me" from moment to moment

Fascinating article by Julie Beck at the Atlantic on our inner voice. Excerpt from early on:

Inner speech, Fernyhough writes, isn’t bound by many of the conventions of verbal speech. For one, we can produce it much faster when we don’t have to go at the pace required to use tongues and lips and voice boxes. One researcher the book cites clocks inner speech at an average pace of 4,000 words per minute—10 times faster than verbal speech. And it’s often more condensed—we don’t have to use full sentences to talk to ourselves, because we know what we mean. 
But it does maintain many of the characteristics of dialogue. We may imagine an exchange with someone else, or we may just talk to ourselves. But that doesn’t mean it’s not a conversation. Our minds contain many different perspectives, and they can argue or confer or talk over each other. 
“We are all fragmented,” Fernyhough writes. “There is no unitary self. We are all in pieces, struggling to create the illusion of a coherent ‘me’ from moment to moment.”

22 November 2016

Expanding us

You have heard that Usain Bolt is the world's fastest man. He ran 100 meters in a record 9.58 seconds, which works out to a speed of 23 mph. He's a phenom who deserves to have a new verb named after him. (The t-shirt "walk, jog, run, sprint, bolt" captures it). He is not, however, the world's fastest man.

That honor goes to whoever is riding in the space station. Usain ran 23 mph. The space station travels at 17,150 mph. It orbits the earth every 92 minutes, something that would take Usain 45 days to do assuming that he could find bridges to cross the ocean and could maintain his mad sprint for 6 weeks. In truth, there is no comparison; it's impossible for him to sprint around the world and will be until we've been genetically re-engineered and ocean-crossing bridges that are not even designed yet have been built. 

We love stories of individual achievement but of course what we can accomplish on our own is - at best - akin to what Usain Bolt can do racing against the space station. Progress is dependent on social inventions, social constructs and institutions as varied as language, schools, guilds, and romance. 

The social inventions that are most powerful are the ones that make our world bigger. We have a natural love and concern for our family but that's a pretty small group. In fact, families are getting smaller all the time. Interdependence among families is not enough to get us to our current standard of living.

Religion seems to have been the first social invention that successfully expanded the trusted in-group from kin to something that encompassed not just neighbors but even strangers. The Kaaba in Mecca is the magnetic pull of the pilgrimage of Muslims. Even before Mohammed and the birth of Islam, this was a place that attracted pilgrims who came to worship the many gods within it. (Later, these many idols were destroyed in honor of Allah.) Mecca became a wonderful place for two reasons: one could go to worship and feel wonder and it was a safe and holy place where no war was allowed but trade was. This - safety that allowed trade but not battle - was the stepping stone from nomadic tribes to the rise of an Arab civilization that gave us the zero, algebra and Rumi.

Throughout history one thing has been clear: progress follows from the expansion of our institutions to include more people. The bigger the group, the more specialization, experimentation, creativity and abundance that is allowed. The bigger the group we're a part of, the more abundance. 

I worked with a startup on Google campus this year. One department had hard-to-find specialists who developed robotic sensors. There were only five people in the group but they came from five different countries: South Korea, China, Poland, Turkey, and Iran. This new venture brought in the best people it could find and it drew them in from every country. (Actually, it was the universities that did; robotics programs at John Hopkins, Stanford, and Vanderbilt had already brought these people from their home countries.) If you want the best, you draw from around the world.

Whether it is finding the best programmers in Silicon Valley or best frankincense and myrrh in Mecca, progress means drawing from a wide circle. If you can draw only from a circle 100 miles in circumference "best" will be much less impressive than if you can draw from around the globe.

Progress comes from a more expansive definition of "us." Regression comes from narrowing that definition of us to something smaller, "more pure." Nigel Farage in the UK was a chief voice in the Brexit movement, an attempt to protect the UK from the corrupting influence of immigrants. 

Thandie Newton, the brilliant actor who has starred in films like Mission Impossible and Crash, represents the product of that corrupting influence of immigrants. Her English father diluted his genes with a woman from Zimbabwe and she is the result. She's a reminder there is something even more important about globalization than competition or specialization. 

Specialization is both as profound in its influence on productivity as Adam Smith claimed and is almost incidental to the real prize of globalization. Economic value is an emergent property that doesn't belong in any one place but instead emerges out of the interaction of peoples, ideas, products, and services. The very measure of economic progress is a measure of exchanges, trades, transactions. Value is the little residual of an exchange between two people. The real prize of globalization is the vast numbers of interactions it enables and what that means for the spark of creativity. A friend recently reminded me that cities have described as the place where ideas come to have sex. The product of two ideas is a new idea and those can transform or create an industry, much less a product. 

Value comes from making our world bigger, not smaller. It comes from greater exposure to ideas, some of which even make us uncomfortable, not closing ourselves off from them. 

Progress doesn't involve abandoning our institutions. It doesn't lie in the direction of Brexit or retreating from trade with other countries. Trying to go it alone means that - at best - we run about 23 mph an hour while those within the comfort of elaborate institutions are traveling overhead about 75X faster than we could ever hope to. It might be that the simplest limit to our level of affluence is the extent to which we can expand our notion of "us."

The Rise (of Japanese Cyber-Virgins) and Fall (of the Japanese Population)

Nearly 20 years ago I was in Japan. People on the subway were staring at their lap and at first I thought they were merely avoiding eye contact, then - when I saw hand movement - wondered briefly about rosary beads (wrong culture) and then was flummoxed. I asked my client about it and he said that they were "texting." "Texting," I asked. "What's that?" He explained but it didn't really make sense. Years later, we adopted the craze and since then I've paid closer attention to Japan, which brings me to this excerpt from Mary Aiken's The Cyber Effect.

A [Japanese] government survey released recently estimated that nearly 40 percent of Japanese men and women in their twenties and thirties are single, not actively in a relationship, and not really interested in finding a romantic partner either. Relationships were frequently described as "bothersome."
Another survey found that one in four unmarried Japanese men in their thirties were virgins. The number of virginal single women in their thirties was only slightly less. At the time, Shingo Sakatsume, who works as a "sex helper" and counsels middle-aged virgins, observed, "In Japanese society, we have so much entertainment beyond love and sex. We have animation, celebrities, comics, game, and sports .... Why do you need to choose love or sex over the other fun things that don't have the potential for pain and suffering? The illusion of a perfect relationship, combined with the Japanese fear of failure, has created a serious social problem."
By 2060, if current trends continue, Japan's population will have shrunk by more than 30 percent.

In 2010, Japan's population was 128 million. By 2082, the number is projected to drop to 64 million, a drop by half. These aren't just projections. Last year Japan's population dropped the most since they began keeping records.

21 November 2016

Kanye West's 2020 Campaign

In 2020, Kanye runs for president. The GOP laughs.
He starts winning primaries. The GOP is dismissive. 
He continues to win. "This is outrageous," Republicans say. "He's incoherent. Sure he's famous and rich but he knows nothing and what he does know is wrong. He's rude. He's crude. There is no way he can win." 

The Chinese start dumping internal Trump administration emails. Kanye rises further in the polls. "A communist government is helping him to win! This is incredible!" Republicans protest. 

The few sane people left in the country acknowledge Republican outrage and say, "Wouldn't you think that all of that would make a difference."

"How did we get here," Republicans ask.

"Yeah," we respond. "How did we get here?"

Kanye's 2020 campaign begins

18 November 2016

Don John and the 1st Amendment

First, Islam is a religion. Like Christians, some Muslims are violent and anti-democracy or opposed to science and most love peace, democracy, and science.

Second, the simplest predictor of terrorism is not Muslim or anything else. It's a question of whether foreign troops are stationed in your country. If you want terrorism, put your troops into someone else's neighborhood. Think that's inconceivable? Imagine the reaction in Dallas to Saudi troops stationed there. Or Boston's reaction to troops from Zimbabwe stationed around Faneuil hall. Or Russian troops ogling our girls at a San Diego beach.

Third, we have religious freedom and more fundamentally, freedom to believe what we choose even if it has nothing to do with - or is even fiercely opposed to - religion. This freedom is foundational to the modern world and bless Spinoza and Johann de Witt and then the Brits who followed the Dutch lead and then our founding fathers for enshrining that right of the individual to hold private beliefs and thoughts that don't require anyone else's approval or acceptance. Nothing. Nothing. Nothing is more essential to the peace, happiness and prosperity of a people than this. It's foundational to every good thing that follows. Every good thing.

Fourth, if you voted for Trump in spite of his disdain for religious freedom and ready willingness to jettison the first amendment in order to mollify people afraid of "others," you need to read some history. There is no limit to the grief that comes from regulating thought or religion and there may be no amendment to our constitution that has done more to fuel progress and happiness than the first amendment.

Fifth, I certainly believe that Trump may be kept from signing any laws that go against the first amendment and I think that is the most probable outcome. Partly because of other people and partly because of how wildly impractical it is to actually enforce laws based on what is inside of people's heads. The fact that you thought it unlikely he could make good on his promise is no excuse for giving him the power to attempt that. Trump has repeatedly demonstrated his ability to do what no one thought was possible.

This, by the way, is the first amendment in its entirety. 

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Two Financial Regulation Models: NFL or WWE

One of the most dangerous things about a Trump presidency is what it could mean for financial regulation.

This weekend millions of Americans will watch football, a sport punctuated by flags, whistles, and officials calling back a run because someone cheated when blocking or granting yards on a failed pass because someone cheated when defending a receiver. The game is fiercely competitive and highly regulated. Americans love it. The teams want your money but they also want to win. All of them. And they have to follow clear rules that ensure that the competition involves football skill, not thuggery.

Far fewer will watch World Wrestling. Entertainment. At the WWE, the officials are props who circle the fighters and hopelessly flail, even when one of the fighters grabs a chair to hit the other over the head. This game is not competitive, as winners and losers are often negotiated beforehand. It's rigged. The wrestlers want your money but winning or losing is just part of their job. It's less about competition than theater.

Trump has hosted WWE events at his properties and has body slammed a guy whose head he later shaved. He and the Republicans in Congress largely believe that financial markets are self-correcting and don't really need regulation, suggesting that their ideal referee is more WWE than NFL.

Let's review what that means and start with a review of the Great Recession because it is so easy to forget.

The Great Recession
After January 2008, employment fell for 25 straight months - the longest streak since the 1930s. By February 2010, the "job deficit" was 12 million. (The job deficit equals the number of jobs lost plus the number of jobs that would have normally been created during that time. The economy destroyed about 8 million jobs in a period when it would have normally created about 4 million. Add them up and you're short 12 million jobs compared to any normal period.)

Long-term unemployment as a percentage of unemployment swung between 5% and 20% of total unemployment in the period after 1948. By April of 2010, it had hit 45% and would take years to drop to its old level.

GDP growth, too, was slow to recover. After the last two recessions GDP grew 6.2 and 5.6 percent in the years right after the recovery. This time it grew about 2%.

Between housing and financial assets, wealth fell about $18 trillion, an amount equal to annual GDP.

[All of these stats from Alan Blinder's After the Music Stopped: the financial crisis, the response, and the work ahead.]

These seem like cold stats. They're not. They represent millions who were made homeless, had careers and retirement plans derailed, and were unable to do things like help children with a college education or buy a car or pay a medical bill. They represent millions whose lives were set back. According to one study, the trauma of the Great Recession provoked 10,000 suicides and that is just the most extreme emotional consequence of an economy this brutal.

What Caused this Financial Crisis?

I think that a few things caused it.

Martin Wolf writes of the lead up to the 2007 - 8 Great Recession that "risk had been distributed not to those best able to bear it, but to those least able to understand it." Local bankers were less likely to own mortgage loans than remote investors.

Securitization let banks take loans and then turn them into securities that could be sold to investors who did not understand the underlying risk as well as local bankers might have. Coupled with loose regulation that allowed banks to issue NINJA loans (loans to folks with no income, no job, and no assets) that were then sold to largely ignorant third-parties who were misled by credit ratings agencies who called these good risks. (Michael Lewis tells this story in the Big Short.)

Financial innovation led to a rapid proliferation of new products that people didn't really understand. Imagine drug development that required no FDA approval or trials and you get some sense of the potential, unknown danger of these new products suddenly in circulation. The derivatives market exploded between 1998 and 2008; notional values grew from $72 trillion to $673 trillion. (If that sounds like a lot, it is. Total global GDP is about $50 trillion.) The market value of derivatives is considerably less than the notional value but even that grew from $2.6 trillion to a stunning $35.3 trillion by December 2008 at the cusp of the Great Recession. What's a derivative? It's a financial instrument whose value is derived from another, like a bet on a stock price or pork bellies. If a name like "financial derivative" makes your eyes glaze over and - at the same time - makes you feel impressed by the fancy term then it is doing its job; it is great to sell a product that is poorly understood but trusted as high-tech. Again, this is another example of risk being shifted from those who understand it to those who don't.

The rapid innovations in finance helped and was helped by the emergence of a shadow banking system. It was negligible in 1980 but by the early 2000s it had grown larger than traditional, regulated banking. In 2007 this shadow banking sector was about $13 trillion.

[Above facts are from Martin Wolf's The Shifts and the Shocks: what we've learned - and have still to learn - from the financial crisis.]

Banks had become public companies rather than private concerns. This gave them more capital to use but it also made them more accepting of risk. If you are a partner in a private bank, you want to make a good return on your money. But this is your money so you also want to avoid a lot of risk. If someone doesn't pay back your loan, you're out that amount. That was the old world. In the new world, banks were public and the money that bankers loaned was stockholders'. Bankers had incentives to originate loans in order to get big bonuses which often were paid at the time of the transaction, not slowly over time as the loan was paid back. Suddenly, the risk was someone else's and bankers wanting a bonus rather than protecting their own capital had an incentive to pursue returns with less discrimination.

Finally, the whole system was more fragile. The push for greater returns coupled with the ability to off-load risk and use someone else's money had driven the market to leverage more. Once upon a time banks had leveraged investments at a rate of 10 or 20 to 1. By 2008, they were leveraging investments at 50 to 1. That sort of leverage greatly inflates your returns on the way up but it disastrously exacerbates losses on the way down.

When the downturn hit - and downturns always hit - the system was fragile and poised for massive losses. The result has already been mentioned (13 million job deficit, $18 trillion in wealth disappeared, etc.)

"The crisis takes a much longer time coming than you think, 
and then it happens much faster than you would have thought."
- Rudiger Dornbusch

We Americans depend on Wall St. and the banks. Finance is to the economy what oxygen is to an ecosystem. The purpose of financial regulation is not to make the game noncompetitive but instead to ensure that competition is about creating value rather than hiding risk, about creating sustainable returns rather than unsustainable bubbles, and protecting the naive from the manipulative. With good financial systems, people still get filthy rich but fewer people go bankrupt. Someone like Elizabeth Warren understands the importance of NFL style regulation. Trump's sensibilities seem to run more towards WWE. That should have frightened voters last week. It should frighten you now.

As to timing of this? I don't know. Glass Steagal was repealed in 1999 and the Great Recession hit within a decade. There is a small chance that Trump and the Republicans have learned the lesson of the Great Recession and won't deregulate. It seems optimistic to assume this. There is a better chance that it takes at least two year for new regulations - or deregulations - to be put in place. And at that point the impact of the return to fragile finance could take a year to manifest or two decades. It's harder to predict than the impact of a rate hike or tax cut.

17 November 2016

A Stimulus, a Boom and White Men Dancing: an economic forecast to the end of the decade

The economy is going to sing for at least the next couple of years. After that, its performance will depend on the extent to which Donald was lying during his campaign.

The following is what I would write if a completely normal, centrist president were coming into office.

First of all, the economy is primed for take-off. Debt servicing as a percentage of household income is at the lowest on record. Initial unemployment claims are too (if measured as a percentage of the labor force). P/E ratios are high but not unreasonably so given how low interest rates are. Unemployment rate is under 5% and last year wages grew more rapidly than any year on record. This economy has been and is doing all the right things. And it will just get better.

The long-term prospect for the economy is even more impressive. The millennials and younger are entering the work force now at a rate faster than baby boomers are leaving it and this new generation of workers is the best educated ever. Also, when the economy has been healthy for five years or more, good things start to happen. Wages grow. Wealth is created. Entrepreneurs become bolder. And speaking of that, entrepreneurship education and awareness continues to rise and a record number of millennials want to become entrepreneurs.

Perhaps the biggest threat is in China where the economy is now going to force government liberalization or the government is going to stifle economic disruption. It's not clear which way that will go but it can make a big difference in global economic growth. Africa and India have the potential to compensate for China's woes but depending on which way it goes, this could still make a noticeable difference.

The next four years will be great and it's perfectly plausible that unemployment will drop below 4% within two to three years. We might even see the uninterrupted run of positive job creation run out another four years, as absurd as that sounds.

Now here is how I would adjust that for Trump. 

Short term, Trump changes this for the positive. Why? Congress will cooperate with him and he'll probably double the deficit from last year. This stimulus in the form of infrastructure spending and tax cuts will be a boost to the economy and could bump GDP growth up another half point or even full point. It is the expectation of this bump that is likely driving stock prices higher right now. The GOP knows that increasing the deficit will stimulate the economy and that is exactly why they wouldn't approve of it while Obama was in office. They don't actually care about deficits but do holler about them whenever they think that a Democrat might get the benefit of one.

Is this stimulus bad? No, but it's not great. The economy can handle the debt and will benefit from the boost. The capacity for debt is huge with interest rates so low and so much capital in search of either returns or a safe home. The problem is, the stimulus doesn't do nearly as much for the economy when unemployment is already under 5%. Party politics aside, it would have been so much better to have given the economy this bump about 3 to 6 years ago. This stimulus will be like white men dancing: the timing is off and it'll be awkward to watch in spite of the joy on the faces of the people doing it.

The stimulus won't be great though because it'll come in the form of tax cuts that mostly go to the rich. If you give a man making $20,000 an extra $1,000, he'll spend it. If you give a man making $2,000,000 an extra $1,000 he's unlikely to change his behavior at all; very little of the extra money is likely to increase spending. It's a stimulus that will do as much to promote income and wealth inequality as it does GDP. And a stimulus does less with the low unemployment we now have than it does with the kind of high unemployment we did have. If the the stimulus went to the poor instead of the rich or went into government programs, it would raise GDP by probably 1%; as it is, it might just bump it by half a percent.

As with George W. Bush, Trump will be running a big deficit with full employment. This is exciting initially but tough on an economy long term. It leaves it vulnerable because if the economy dips a little, there's not much you can do. At that point it's like Scotty calling up from the engine room of the Starship Enterprise saying, "I'm giving her all I've got, captain." And eventually, every boom busts and when it does, the bust is always worse when you've already been running a big deficit.

Meanwhile, Trump may be waving his hands or he may be acting on his campaign promises. If we're lucky he'll just be waving his hands pretending to act and he was lying about what he would do with trade,  with American companies who subcontract work abroad and with illegal immigrants. If he's not, the little boom will become an ugly bust.

It will take at least a year - probably two or three - before Trump can re-negotiate trade deals, begin to deport illegal aliens, and to change laws so that it is harder for American companies to find subcontractors outside of the US. If he's lucky - and it seems that he always is - the negatives of this won't hit until close to or even after re-election time and most people won't believe that he's setting the economy up for trade wars, a loss of 3% of the population and GDP, and an exodus of American companies to other countries. (It would be ironic if American companies re-located to Mexico, a place with low taxes and newly deported people who are great workers, and laws that make it easy to subcontract work to other places - even the US.)

But 3 to 5 years is a long time and when the Trump recession hits, none of his supporters will blame him because things were so good in 2017 and 2018.

The good news is that the next couple of years at least will be great. The bad news is that people will think this is proof that Trump's bad ideas were good rather than realize that an economy's momentum is such that today's realities are almost always a function of policies and actions taken at least a year - and often a decade - earlier. (And I'm not just talking about government policies. They're also the product of corporate policies that define next generation products, factories, and R&D initiatives years earlier.)

If Trump does what he promised, he'll blow up the economy. Even that will take at least 3 years. If he waffles on his promises, the economy could do pretty well in both the short term and long.

I don't say this because I am a fan of Trump. Putting aside the morality of it, deporting 11 million aliens alone is enough to set off a recession; that's nearly 4% of the population and that kind of exodus will disrupt home prices, sales, and entire industries. If he starts trade wars or attempts to control multinational corporations ability to buy and sell in other countries, he'll knock employment and GDP growth for a loop yet again. Longer term, his stance on immigrants is going to make the next Sergey Brin - the co-founder of Google - think twice about coming to the US for education and stay for a startup. Further, his rejection of climate change as a real issue won't just set us back on addressing what is the most important issue of our time but it'll set us back on the industries that will become to the 21st century what oil was to the 20th century. And of course his rejection of the first amendment in the form of a ban on Muslims will have all sorts of negative consequences. Sadly, these issues play out on a time scale that almost no one evaluates when making decisions about who to vote for and may not be fully evident in four years.

The central problem with the above forecast, of course, is that no candidate has entered office surrounded by more uncertainty. 80% of what he said while campaigning was somewhere between a half-truth and a pants-on-fire lie, so it's almost impossible to know what he'll do after the tax cuts are put in place. We can hope that he's limited by practical concerns; of course if he is, it'll be a first for him and the people around him but it'll be great for an economy so ready for a long boom.

There are a few added layers of uncertainty in the above forecast. The first is the unpredictability of what Trump will do. The second is what Ryan and Congress will let him do. The third is the general reaction of global markets to his Twitinomics, or policy by late night tweets.

16 November 2016

Why You Should Marry a Republican

"My brother kept us safe," Jeb Bush said, offering a common Republican quote.
"Except for 9-11," Trump said. And just like that, Trump let it be known that while he was running as a Republican he wasn't bound by its past. It was a curious test to see how much of what Republicans claimed to believe or believe in would actually make a difference in their support.

Over the years Republicans have offered a variety of reasons for voting for one candidate vs. another. It turns out, they were all negotiable in spite of the passion they brought to the topic at the time.


Republicans couldn't vote for Clinton because of his womanizing. 
Trump is a serial adulterer who eventually marries one of the women he's cheating with and meanwhile brags that he can grab any woman by the pussy. 

Oh well, say the Republicans.


Republicans wouldn't vote for Carter or Kennedy or Clinton because they were too ready to negotiate with dictators and foreign countries who were hostile to our interests.
Trump colludes with Putin to hack emails from the Clinton campaign and release those to the press, timing those releases for maximum damage to Clinton's candidacy. 

Well it's not like Putin is a communist, say Republicans. I mean, that's why we didn't like Russians.


I can't vote for Obama. He's the junior senator from Illinois. He has no experience!
Trump is the first president in history to have neither military nor government experience of any kind. He wasn't even a dog catcher or private in the army, much less governor or general.

But he's made so much money, Republicans say.

Republicans didn't vote for Obama because deficits were out of control. 
Trump's plan to stabilize (perhaps increase) government spending even while slashing taxes will cause the deficit to balloon by an extra $5 trillion according to various neutral analysts. 

Well no, Republicans say. The economy will grow so much that there will be no deficit. Those forecasts are wrong because it assumes that GDP growth will be no higher than its average over the last 50 to 100 years. As a matter of fact, it'll be terrific. Just amazing.


Republicans wouldn't vote for Clinton because she's a liar.
Nearly 80% of what Trump said at rallies and in debates was false, a record for a modern candidate.

Harumph, says your Republican friend. As if we can trust data from the media. We can't even trust government data. Those fact-checkers are rigged.


Do you vote Republican because you believe in free trade and corporations ability to trade and outsource as best works for them? 
Trump wants to put an end to trade that will export jobs and stop corporations like Apple from doing things like making their phones in China rather than Sunnyvale.

Well he didn't mean that, Republicans say. Didn't you yourself just point out that most of what he says is false?


And do you vote  Republican because you believe in the sanctity of the church and religious freedom? Trump wants a religious test for any immigrants. He wants to jettison the first amendment.

Well its just for Muslims, say Republicans. That's not a true religion so it's not protected y the first amendment.


He's even attacked other Republicans. Threatened to turn his voters against them if they don't back him. He's shown his willingness to bring down the party if they don't support him.

The media is making too big a deal of this, says Republicans. It's just politics.


He won't even accept a loss at the polls. He doesn't even support democracy.

Well I don't believe that. He's just protecting himself from a rigged election.


He talks casually about re-negotiating the government debt, as if that wouldn't set off a financial crisis that would make 2008 seem tame. The dollar would collapse and so might any number of markets.

You're just saying that. He wouldn't do that and besides it wouldn't do what you think it would.


It sort of looks like he stands against everything you've claimed to be for. So, will you vote for him?

Will it shut you up if I tell you that I'll vote for Gary Johnson?
You will?
Hmm. Sure. 


Meanwhile, from fivethirtyeight, Harry Enten reports this

Trump won 90 percent of self-identified Republican voters, a higher percentage than Clinton won of Democratic voters.

As it turns out, even though Trump promised things that should have alienated evangelicals, free traders, pro-corporate folks, and social conservatives, he still won the hearts and minds of Republicans. What does this suggest? Either the only thing that actually matters to them is tax cuts or that you could put a dog in a sweater, call it the Republican nominee, and Republicans would still vote for it. It's a loyal bunch who is not going to leave you for silly reasons like policy. My advice? Marry a Republican because apparently there's nothing you can do to alienate them.

Post-Apocalypse Question

After the apocalypse, when we're hiding from feral animals and hominids, scraping by on 900 calories a day, going months between showers, and living in conditions that would make our ancestors feel nothing but pity, we're going to spend a lot of time reminiscing.

"Do you remember just going into your own house and putting up your feet and getting onto the internet?"
"You could literally find any book, movie, photo, painting, song that existed. And just enjoy it right there in your living room while drinking iced tea."
"And if you wanted to, you could travel to another city or country and you'd still be safe. All over the world, just about, it was safe."
"And we wasted so much time just whining about things. What were we so angry about?"
"I don't remember. Tell me again about getting ice straight out of your refrigerator. Right there in your own home."
"Yeah ...."

15 November 2016

The Political Value of Media Coverage

In retrospect, it seems like the most obvious thing in the world to master reality TV before running for president rather than wasting time on policy papers.

This from near the close of  Daron Acemoglu and James Robinson's rich and insightful Why Nations Fail.

Peru's Fujimori, President 1990 to 2000
Authoritarian regimes are often aware of the importance of a free media, and do their best to fight it. An extreme illustration of this comes from Alberto Fujimori’s rule in Peru. Though originally democratically elected, Fujimori soon set up a dictatorial regime in Peru, mounting a coup while still in office in 1992. Thereafter, though elections continued, Fujimori built a corrupt regime and ruled through repression and bribery. In this he relied heavily on his right-hand man, Valdimiro Montesinos, who headed the powerful national intelligence service of Peru. Montesinos was an organized man, so he kept good records of how much the administration paid different individuals to buy their loyalty, even videotaping many actual acts of bribery. There was a logic to this. Beyond just recordkeeping, this evidence made sure that the accomplices were now on record and would be considered as guilty as Fujimori and Montesinos. After the fall of the regime, these records fell into the hands of journalists and authorities. The amounts are revealing about the value of the media to a dictatorship.
A Supreme Court judge was worth between $5,000 and $10,000 a month, and politicians in the same or different parties were paid similar amounts. But when it came to newspapers and TV stations, the sums were in the millions. Fujimori and Montesinos paid $9 million on one occasion and more than $10 million on another to control TV stations. They paid more than $1 million to a mainstream newspaper, and to other newspapers they paid any amount between $3,000 and $8,000 per headline. 
Fujimori and Montesinos thought that controlling the media was much more important than controlling politicians and judges. One of Montesinos’s henchmen, General Bello, summed this up in one of the videos by stating, “If we do not control the television we do not do anything.”

Through April, mediaQuant estimated that Trump had received $2.8 billion in free media coverage, a multiple of his opponents within the Republican and Democratic parties.  Trump understood better than anyone the media's desperate need for content that would drive ratings. He delivered for the media and it delivered for him.

Of course this leaves him vulnerable. If a stripper enters the race in 2020, he could lose re-election.

10 November 2016

The Good News Is That We're Only 6 Years Away from Republicans Blaming Democrats For Taking Too Long to Repair the Economy

We're about six years away from the Republicans tapping their foot impatiently, glancing at their watch, complaining to anyone who will listen that the Democrats are taking too long to repair the wreck they had made of the economy.

The conversation in 2022

"Oh sure," the Republicans will say. "The economy is creating jobs. But what kind of jobs? I've heard that they're not even good jobs. This recovery is so slow."
"We don't really have data on that yet but indications are that they are not much different than the jobs we created last time."
"They're part-time jobs."
"Well, we are creating about 200,000 jobs a month again. That's a lot better than losing 400,000 jobs a month like it was at the end of your guy's term."
"Oh sure. Blame him for your problems. Take responsibility. You're in charge now and the economy is growing very slowly."
"Yeah. It can do that after it's been gutted."
"That's history."
"Well, the recession lasted nearly two years and just ended months ago. At least the economy is now growing even if it is growing slowly."
"You know that the American people will hate you for this slow growth, right? They're going to blame you for every bad thing in the recession because the fall was quick and the recovery slow. And we are so going to beat you in your re-election bid because we're going to tell them that we need change."
"Even though the recession started on your watch and the recovery was on mine?"
"Oh please. That's easy. After the economy created 23 million jobs under Clinton, we talked the country into change."
"Yeah. Quite the change. Dubya presided over just a tenth of that number of new jobs. And left Obama with an economy that destroyed 800,000 jobs in just his first month alone. 5 million in his first year."
"Sure. And then in his second term the economy created 10 million jobs."
"Something it had done in only two terms before, both of them Clinton's. See. You agree it got better under a Democrat."
"Doesn't matter. After that term we talked the American people into change again."
"And blew up the economy. Again. The third Republican administration in a row and the third recession in a row."
"So how do you think the American people will be suckered into changing yet again from what's working to the party that keeps blowing up the economy?"
"Because recessions take a long time to recover from and they'll be hungry for change. They won't be happy with your paltry recovery. I'll be able to tell them that this is all your fault and they'll believe me because their memories only go back about three to six months, tops, and the problems they had with us happened years earlier.  You know I'll win again."
"Yeah. I do know that."
"But don't worry. We'll bring you in for clean up again in four to eight years because it makes such a lasting image, you surrounded by debris, up to your elbows in high unemployment rates you only gradually whittle back down. It's a picture that will help us to win again."
"Yep. I know that too."

09 November 2016

Science - and Policy - Proceeds Upon Death

Louis Pasteur championed germ theory. He was able to collect data that rather conclusively proved that if only doctors washed their hands between working with patients that infections dropped significantly. This saved lives.

Sadly, his fellow doctors dismissed the data and his theory. They kept doing the same thing and patients continued to die at the same rate.

Pasteur then gave up on his peers and took his message to med students who had no habits or preconceptions. These students readily adopted his suggestions and death rates rapidly dropped.

Observing the big difference in the willingness of his peers and the students to adopt the new approach, Pasteur supposedly quipped, "Science proceeds on the death of scientists."

It seems to me that voter ideology proceeds in the same way. There is a window between about 13 and 30 when - for probably 2 to 4 years - a person forms a worldview. After that, the software loaded up in the form of biases, processes, habits and preconceptions, the work of learning is largely done. The software in the form of memes (customs, mores, philosophy, norms, etc.) becomes hardware, something that is unlikely to ever again change.

Once your worldview is set, the world changes but you don't. You become increasingly dated in your worldview. You think the world should be based on kin and clan, not tribe or city. Or you think that women belong at home and not in the office. Or you think that wealth is zero sum and we need to seize and conquer rather than collaborate and create.

Memes are the set of norms and policies that define us as a people. Wearing Levis. Holding doors for women. K-12 education. Like genes, memes carry information that shape us. Genes shape biology. Memes shape society.

Memes proceed on the passing of generations.

If we still had people with us from 1600, we would still have kings and not presidents. If we still had people from 1850 instead of 1950, we'd still have child labor rather than public education. If we still had people from 1950 instead of 2005, we'd still have blacks in separate schools and unable to vote.

I've known and discussed politics with a lot of people. Not once have I witnessed a conversion experience of anyone over 30. (Probably even 25.) Software becomes hardware past the age of 30.

The Epic of Gilgamesh dates from about 2000 BC and is considered the earliest surviving work of literature. Gilgamesh learns at one point that while man is mortal, mankind is immortal. Each generation regenerates itself. And given the story includes a character - Enkidu, who emerges from the wild, raised by wild animals and ignorant of civilization - who has to be civilized, it suggests that the city of Babylon could turn you into a human and then make you immortal. One big difference after the Enlightenment is the notion that this process that transcends any one person also transcends any one way of living; progress replaced tradition. But progress is tough.

It's lovely to think that people learn or update their memes. And some do, bless their heart. But most of us do not and for that reason, social progress depends on people dying and the next generation coming along, willing to adopt new ways in part because all ways are new to them at the start.

Which brings us to millennials.

Of the 250 counties with the most old men, 241 voted for Trump. (Of the 250 counties with the most white people, 249 voted for Trump. Race is an even better predictor of voting than age.) Millennials, by contrast, voted overwhelming for the first woman president, as you can see in this map:

You almost wonder if the rapid pace of social change that defined earlier times has slowed because people live longer or if it has sped up because we have more education. In either case, it's obvious that the things millennials are comfortable with - minorities, same-sex marriage, public funding for universities, public healthcare - freak out the elderly who voted overwhelmingly to make America great again.

The Awkward Truth About the Fourth Economy

Roughly a quarter of a century ago I dreamed up the fourth economy. Since then, the idea that we're in an entrepreneurial economy rather than an information or industrial economy has become more plausible and it sometimes feels as though I've gone directly from incomprehensible to obvious in my claims. Still, there is so much about an entrepreneurial economy that we have yet to fully realize.

One reality that I've taken quite awhile to admit is that we're not going to find our next meal on the menu. We'll have to make it ourselves.

I still believe that within a generation employees will be more entrepreneurial in the same way that everyone over the last half century has become more reliant on information technology to do their work. It will simply be the new normal and most employees will expect to have the opportunity to create more wealth or revenue by taking entrepreneurial initiative.

What this really means, though, is that the systems you encounter as customer, employee, student, or citizen are less likely to have what you want on the menu. You'll have to create it.

What unified Sanders and Trump supporters in this election was a deep-seated frustration with the system. What does that really mean? Among other things (and there are a number of other things), it means that they aren't satisfied with the current options, with the choices they have now.

What are the responses to that?

The ineffectual responses include

  • Whining
  • Holding protest rallies
  • Writing blog posts

The effectual responses include
  • Creating an option that you do like
As it turns out, we have to create our way out of our frustration with the situation.

I follow a woman on Twitter who made a major break with her tribe in this election. I really admire her for that. She's a religious conservative who was appalled that her tribe embraced the amoral Trump. She broke away, which is not an easy thing to do. But I don't know that it has yet dawned on her that she may well have to create the party or faction or group that does express her sensibility. It's a ton of work to create a movement but she doesn't have the option to find a movement that fits her. She's take the first two steps in creating a life, the steps of realizing how the current system falls short of what she needs and then breaking away. That's hugely courageous. But she'll be adrift if she doesn't take the next step; at a minimum it means finding a new tribe or system to be a part of and at the most it means creating that tribe. To the extent that she represents a next step in evolution, a creative response, she will have to create what's next. It's so much harder to step into the kitchen and prepare something than it is to just say, "I'll take the No. 5."

What is the awkward truth about the fourth economy? As we become more animated by realization than basic needs, we'll find it more necessary to create our way out of present realities. If we're expecting the systems as they're now configured to realize those needs, we'll find ourselves increasingly frustrated.

Or so it seems to me.

Confusion About Probabilities and An Alternate Universe

Fivethirtyeight put Donald Trump's odds at about 29%. Today, so many people are shocked because the odds were in Clinton's favor.

What does 29% probability mean? It means that if the universe were to suddenly diverge into 1,000 different universes, in 290 of those Trump would be president. We might personally be shocked at this but there is nothing shocking about a 29% probability coming true. We just ended up in the wrong universe. Even if Clinton had won, there would have been 290 parallel universes in which she'd lost. If you won the lottery, it is still true that the odds were a million to one before you won. The odds weren't wrong, you just beat them.

08 November 2016

Stunning Election Results from San Diego

Today I went into my wife's class and held an election for 23 second graders. 7 year olds, most of them. Everyone at this San Diego city school qualifies for free lunch. The class isn't all Hispanic. There are two African-Americans.

They were intrigued with the process. I let them choose between four candidates: Jill Stein, Gary Johnson, Hillary Clinton, and Donald Trump. We discussed each candidate. I made the argument for each one. (Jill Stein wants to protect the environment, air and water, etc.) We talked about voting and hard choices (broccoli vs. candy), etc. They had some good questions (What's the difference between government and the president?) And opinions. (Trump just wants to make the rich richer.) They certainly know who Trump and Clinton are.

They voted in private at their desk, checking a box next to the candidate and his / her picture and name before folding up their ballot and handing it in.

Johnson, Stein, and Trump had a three-way tie.
Clinton got every single vote.

Nate Silver might dismiss this as both irrelevant and statistically insignificant. I think it's an indication of the trouble Trump faces with Hispanics.

You Can't Praise Democracy Without Praising Those Other Idiots

We all are subject to the conceit that our own intelligence and morality is superior. And it's one of the reasons that so many people are afraid of what democracy will bring. It's stylish to decry the stupidity of "them," a group that ultimately means people who don't vote like us.

One of the many miracles of economics is that it coordinates the efforts of strangers. People I don't even know helped to make my shirt and my computer. They got money from me, a person they don't even know.

Democracies are similar to markets in that they enable strangers to agree to policies.

Democracies flourish for the same reason that markets do: it let's the common person choose. Ultimately our government - like our malls and farmer's markets - is shaped by individual choice. No system has done more to sustain innovation and progress. As it turns out, those [liberals / conservatives] who horrify you are smarter than you think and they care as much about the country as you do. You're not unique in your intelligence or altruism. Nobody is. Inevitably there are unintended consequences of policies and laws and inevitably there is someone who irritates you who points that out. That's why you are not the only one we let vote and why we let so many other people vote. They may be idiots but they make you smarter.

There are problems with democracy. For one, I believe that systems do so much to define our world that we need to make systems thinking as common and as required as reading. Thomas Jefferson thought education was essential to a functioning democracy. Today, a good education should emphasize system dynamics as much as it does grammar or multiplication. Democracy is impossible with an illiterate population; it's problematic with a population that doesn't appreciate or understand systems. (What do  I mean by systems? Ecosystems. Economies. Financial systems. Education systems.) This and other problems with democracy can be addressed though.

Also, elections are also terribly contentious. And for good reason. We are one nation but on election days we settle the current argument about how we'll define that nation. That's not a trivial conversation or one we're happy to lose.

That said, there is no substitute for the voice and values of the people. And that is why we have democracies.

Today is a happy day.

06 November 2016

Why Republicans Who Care About the Party Should Vote Against Trump

Trump will lose.

If he loses by a small margin, little will change within the Party. Trump himself - an obvious addict of attention - might even run and win again in 2020. And lose again.

If you want to hasten the reform of the Republican Party into something that offers sane and viable candidates, you should do all you can to make sure that Trump's loss is decisive. If you want to continue to lose presidential elections until at least 2024, possibly later, then make the 2016 election close.

05 November 2016

Rapid Progress, or Shocked at the Future

Progress depends on two kinds of innovations and inventions: technological and social. A technological invention like a water wheel or social innovation like outlawing serfdom lead to better lives and disrupt current lives.

It's easy to forget how rapidly we're making progress and how much disruption we face.

In 1903, for the first time in human history, we had heavier than air flight. By 1968, men were walking on the moon. Just 65 years.

In 1967, the Supreme Court ruled laws against interracial marriage unconstitutional. President Barack Obama was born to an interracial couple six years before the Supreme Court ruled that he - or at least he marriage that produced him - would be legal in every state. (And the ruling was for a couple so aptly named Loving.)

In 1969, Yale went coed. In 1969, Hillary Clinton began law school at Yale.

It's not just that we're creating new technology like the pill or smart phones; we're creating new social realities that are unprecedented. It's little wonder that there is a backlash from time to time, a variant on Alvin Toffler's future shock that might just be a state of feeling shocked that the future is now rather than later and that the reality we'd just grown accustomed to has changed again today. You don't have to move to find yourself living in a different place.

04 November 2016

Fact Free and GOP - Why Republicans Do So Poorly with College Educated Voters

Much has been made of the fact that a growing population of minorities hurts Republican chances in the future. This, though, is a phenomenon largely contained to a cluster of states. More widespread is the growth in the number of college educated and this threatens the GOP and its future even more.

SurveyMonkey has a fascinating little toy you can play with to see how outcomes change as the country's voting is given over to certain demographics. You can ask questions like, What if just women voted? What if just white people voted? One of the stark contrasts is between the the vote of college-educated and those who haven't been to college.

This is what the election would look like today if only people without college voted.
Trump would get a decisive victory and Clinton would win only a handful of states - places like California, Washington, Illinois, New York, Massachusetts.

Now here is the map of what it would look like if only people with college education voted.

This is a landslide, leaving Trump with just 33 electoral votes. In this scenario he would win only Wyoming, North and South Dakota, Oklahoma, Louisiana and Alabama. (A few states could go either way.)

The narrative conservatives tell is that universities are temples of liberalism and they indoctrinate your children. There is some truth to this. What nearly every university insists on is adapting theories to facts, and as it turns out, this results in very different conclusions than an approach that adapts facts to theories.

Richard Hofstadter argued that an intellectual is not necessarily any smarter than an apologist for a particular political party, church or corporation. What sets the intellectual apart is a commitment to following the facts to a conclusion that may or may not end up making a political party, church, or corporation look good. An intellectual commits to a process, not an outcome. The wise archbishop has to - in the end - defend the church and explain why it is right in spite of its flaws. The clever political analyst has to do the same with his candidate or her party. The archbishop or political analyst might be smarter than the intellectual by any number of traditional measurements of intelligence but they are less trust-worthy. For a party to remain viable over the long-run, it must make room for intellectuals who discomfit even party elders with facts that force an evolution - sometimes even a paradigm shift - in their worldview. Once you shut out the voices of intellectuals, you commit to stagnation. You don't change in response to facts and arguments but instead choose among facts and arguments to support your cause.

It's difficult to get through a university education without having to change your mind. You believe that your code will run smoothly and it crashes. You can curse at the screen but you'll eventually have to debug your code if you want to pass the class. You believe that the median of this data is 77.2 and the grad student grading your test marks you down because you calculated the mean instead. You think that the founding fathers were all traditional Christians and get marked down because, in fact, a few were clearly theists and possibly even atheists. You are not going to get a university degree without changing your mind in the face of facts.

How has the GOP lost the college educated? It continually jettisons facts that would force its base to change its mind. If the university student cussing at his screen is told to look again at his code to make it work, the GOP supporter cussing at his computer is told that the computer is likely broken. Or intentionally designed to frustrate you. And of course it isn't a computer screen and code they're cussing at but instead a TV screen and the news. It's not fun to debug code, whether in the form of C++ or a worldview. It's painful.

Four things have helped to bring us out of the Dark Ages and into the modern world, all dependent on adapting conclusions to facts; the scientific method, trial by jury, democratic vote, and investigative journalism. It's not enough to have a gut feeling or a conviction; you must have evidence. The scientist, journalist, judge, and pollster are all - by Hofstadter's definition - intellectuals. Again, they may not all be brilliant and they may make mistakes but they do commit to a certain process that leads to an uncertain outcome.

When it comes to scientific method, the GOP has put opinion and research at the same level, choosing to believe their favorite talk show hosts rather than scientists.

Why would they do this when facts and the theory of green house gases so convincingly support climate change?  A critical mass of GOP voters believe that reliance on fossil fuels is inseparable from a market economy so reject climate change because to them these facts are an attack on capitalism. (Missing the point that capitalism itself continually attacks capitalism, digital devouring the market for analog, smart phones devouring the market for landlines, alternate fuels devouring the market for fossil fuels.)

The GOP continues to insist that Clinton is guilty in spite of the FBI director reporting that her handling of classified documents was not criminal. They're not really interested in a judicial or investigative process. They "know" she's guilty in spite of the conclusion of criminal investigations to the contrary. Again, they put their suspicions and actual facts at the same level.

The GOP hates the main stream media, particularly one that reports, as Politicact has, that 78% of what Trump says is untrue. "Don't read those sources," Donald says. "Go to the internet instead." And of course you have to be careful even there because even Snopes' reliance on facts has made them untrustworthy. On the internet conspiracy theories get as much credence as any story based on facts or careful reporting. Most Trump supporters do not believe in any data from government sources; in their minds we're still in the midst of the Great Recession, a tragedy glossed over only by government lies.

Finally, Trump is already disavowing election results, saying that he'll only accept the results if he wins. It would hard to be less subtle about your willingness to jettison any facts that don't support your worldview, a worldview in which climate change is a hoax, the media and elections are rigged, and Clinton should be in jail. It doesn't matter whether there is evidence for any of these claims. Donald - and most of the GOP - knows they're true.

The GOP and its supporting media (e.g., Rush, Fox, Drudge, Brietbart) has decided that it's better to support beliefs with conspiracy theories than to challenge beliefs with facts. They're busy defending old worldviews rather than creating new ones. And in this process they've lost graduates from universities who've been taught that progress lies in the opposite direction, with a reliance on challenging testable hypotheses rather than defending traditional beliefs. And they're now addressing an audience who will be dead rather than running the country's major institution in a quarter of century. This rejection of facts for conspiracies might be the single biggest reason that they're heading towards extinction rather than the White House. Extinction naturally follows from a refusal to adapt and its difficult to adapt to a reality you distort or ignore.

It is not just that economic success has become increasingly reliant on education and suggests that every year there will be a slightly higher portion of the population with college education.  The GOP's dismissal of facts as the starting place for policy ensures that either it will become increasingly dysfunctional or the country it manages to win control over will.