04 May 2017

The Curious Solipsism of Donald Trump

From Wikipedia
Solipsism (Listeni/ˈsɒlpsɪzəm/; from Latin solus, meaning 'alone', and ipse, meaning 'self')[1] is the philosophical idea that only one's own mind is sure to exist. As an epistemological position, solipsism holds that knowledge of anything outside one's own mind is unsure; the external world and other minds cannot be known and might not exist outside the mind. As a metaphysical position, solipsism goes further to the conclusion that the world and other minds do not exist.

If Donald Trump didn't know it before, nobody knew it before.

"Nobody knew that [ ....] was so difficult." (Where the brackets are filled, alternatively, by healthcare, China and North Korea, NAFTA, etc.)

If it hasn't happened to Donald Trump before, it hasn't happened to anyone before.

The Fake News media is officially out of control. They will do or say anything in order to get attention - never been a time like this!

Not only has it never happened before, there has never even been a time like this in the history of the world.

This solipsism of Trump is partly intellectual - showing a lack of curiosity in history or ideas - and partly emotional. It's not obvious that he cares about the experiences of anyone but him. When he talks, he talks about his ideas and shows little or no interest in the perspective or values of anyone else. Everywhere he goes, he looks around and confirms that he's the center of the universe.

Curiously, his reality has become ours. In terms of media coverage, he has become the center of the world. If he manages to control Congress, his conviction that he's the center of the universe will actually be substantiated by actual events. Once upon a time, you had to be king to have your personal solipsism confirmed by everyone around you.

03 May 2017

Where Economic and Psychological Progress are at Odds (a partial explanation of how obviously bad policies can make for good politics)

Trump listens to his gut. While he may not be self-made man, his facts are, and he shows a disinterest in sustained thinking or nuanced thoughts.

His reliance on instinct and disdain for theory has taken him past what we know of how economies work to what he feels about how individuals feel about psychology of work. Freud could better explain Trump's economic policies than could Keynes.

Over the last couple of centuries, the economy has obviously made us more prosperous. Our prosperity from our work has increased more obviously than our contentment, though. What has obviously worked economically has less obviously worked psychologically. This is partly because of division of labor.

Adam Smith's Wealth of Nations, the book that was arguably the first to define capitalism, opens with the account of division of labor as a force that had multiplied productivity.

THE greatest improvement in the productive powers of labour … seem to have been the effects of the division of labour. ,,,, To take an example ... the trade of the pin-maker. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving, the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands ... Each person... might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day …

By Smith’s calculation, division of labor bumped up productivity somewhere between 240 to 4,800 times. As Smith’s Wealth of Nations was published in 1776, for the first time since the ancient Greeks, productivity began to rise in the West.

If anything, this process has accelerated and deepened. This month I'm working with a client's product development team intent on rolling out a next generation computer chip that can be used in self-driving cars. The team involved in planning includes a couple of folks from Scotland, a couple from India, one from Malaysia, a couple from China and one from Austin, TX. The team working on project tasks includes an even larger swath of countries. 

We don’t just divide labor to focus on different tasks within a factory. We now divide labor across continents.

But this comes with a price. What makes us more affluent makes it more difficult to be engaged. Division of labor makes it harder for employees to see – or experience – how their tasks feed into finished products. And when a product is dependent on the efforts of so many people, it becomes harder to feel as though your own efforts make a difference.

Obviously gales of creative destruction that obsolete jobs, companies and even whole industries are the most visible element fueling the support for Trump’s promise of a national economy that won’t lose jobs to overseas competition. I suspect, though, that this curious alienation that comes from the steady division of labor that has started with pins and extended to transistors so small that their state can be changed by subatomic particles (true story), is a big part of why we don’t feel more certain of the gains that have come through this process that has made us part of a global economy.

Trump's protectionist policies will stymie this force for progress. His economic policies are awful. To me, the fact that policies which reverse the increased specialization and global trade take us backwards is hardly worth arguing. (Although I have argued it here.) The bigger question is why Trump's anti-trade policies won so many converts. I think the answer is, in part, psychological. Progress has made us more affluent; it has also made it harder for us to be engaged in our work.

Csizkzentmihalyi reported on a studies of where people find flow. People doing more traditional work like farming are more likely to find flow - or engagement - work. People doing more modern work are more likely to find flow in leisure. Tasks that we can see the whole of - building a cabinet or sheering sheep or cooking a meal - are tasks that are easier to find flow in than tasks that are merely some small part of a larger process. 

What does this mean? Economic progress is at odds with psychological well being. As our work becomes more specialized and we're more productive, we run the risk of becoming less engaged in our work and less happy. 

I do think there is a fix for this and it goes back to Csikszentmihayli's work on flow. For the last 100 years - well, at least the last 50 years or so -  we've focused on the quality of the product, what we experience as consumers. At its current peak of evolution, this focus on what customers experience with your product is called UX, or user experience. It's a big deal and rightfully so. It's a big part of how we've made the post-Adam Smith rise in productivity translate into more happiness as a consumer. What's next? We focus on our work as producers. We can create video games that engage and delight; we can also design work - just as we design products - to engage and delight.

I won't pretend that the only problem with globalization is that specialization can lead to stronger feelings of alienation than more traditional work. I will say, though, that as we become better at designing work to engage us when we are wearing our producer hat, jobs and work will become less a matter of angst and anger than it has in recent decades and will make it easier to sustain support for a process that has not only made us more affluent than our ancestors but more affluent than they could even imagine.

27 April 2017

Adam Smith on What Disturbs the Peace of Society

The great source of both the misery and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another. Avarice over-rates the difference between poverty and riches: ambition, that between a private and public station: vain-glory, that between obscurity and extensive reputation. The person under the influence of any of those extravagant passions, is not only miserable in his actual situation, but is often disposed to disturb the peace of society, in order to arrive at that which he so foolishly admires.
- Adam Smith, The Theory of Moral Sentiments

[from Antonio Garcia Martinez's Chaos Monkeys.]

20 April 2017

Gays, Chechnya and Accepting Reality

Gay men are being rounded up in Chechnya for harassment, arrest, torture, detention and even death. The Kremlin has said that there is no reason to believe this is happening.  Chechnyan officials have variously denied these charges and claimed that there are no gays in Chechnya. In the midst of this cruelty and madness, this last claim deserves to be considered.

Christian Rudder, cofounder of OK Cupid and author of Dataclysm, reports on a curious thing about gays in the US. A Google engineer discovered that searches for gay porn are fairly constant, at 5%, across states, from Alabama to Wyoming, California to Massachusetts.

(How rare is 5%? Less rare than naturally occurring blondes, who show up in the population at a rate of about 2%.)

Even though searches for gay porn - and, presumably, gays - is fairly constant across states, the rate at which the population self-reports as gay varies wildly. 1.7 percent of the folks in North Dakota and 5.1 percent of the folks in Hawaii claim to be gay (Per Gallup's numbers.) Reality varies little but the ability to report on it does.

What determines whether people report as gay? Public acceptance. Gays in Mississippi or North Dakota are less free to admit to their orientation than are gays in Rhode Island or Hawaii because their neighbors are less likely to accept them. (One of the more poignant things that Rudder reports is this: women's search for "is my husband gay?" go up in states that are less tolerant of gays.)

The claim that there are no gays in Chechnya is of course a denial of reality. It also, of course, sustains a reality, one in which 5% of the population loses the lottery that says, "Winners get to be open and honest about who they love and find attractive."

Progress results in autonomy. A person with a computer has more options, more choice about what to do with her evening than person who only has a typewriter. A person with an education has more career options than someone who never learned to read. A person in a tolerant community has more options about who to marry - or even whether to get or stay married - than someone in an intolerant community. Progress means more freedom to define a life and less pressure to conform to the ideals of strangers who don't only fail to understand you but don't even love you.

There are 7 billion people on the planet. It's impossible to keep track of what they're all doing with their genitals or sexual imaginations and absurd to try. Beyond the absurdity of it, though, is this cruelty of telling people that it's a crime to be who they are. One of evolution's most curious tricks is this matter of making each person an individual. The societies that most thrive are the ones that accept this and find a way to leverage what's unique in each person rather than ignore or suppress it. While only 5% of the population is gay, their demand to be accepted for who they are ought to resonate with everyone for this simple reason: everyone has something about them that even close friends and family might find confusing, perhaps offensive.

And you don't even have to be this interested in what is marginal in each of us to care about any marginal population. There is a simple acceptance of reality that is required in dealing with minorities in your population and in dealing with technology and science. Reality is what it is and people who start with a denial of reality tend to have a poor track record in technological or scientific breakthroughs. Not many Nobel Prize winners come out of Chechnya. Until they begin accepting reality rather than denying it, not many ever will.

17 April 2017

A Root of Evil

I wonder if one root of evil isn't as simple as believing that our own lives don't make a difference. Once you believe that, it doesn't really matter what you do, what battles you walk away from, what innocents you fail to stand up for, what effort you do or don't make.

By contrast, believing that your life makes a difference makes you responsible for making an effort, for doing good, for finding meaning. That may not be the fruit of all that is good but it could be a root.

[It's been rightfully pointed out to me that this assumes a measure of compassion or empathy for other people. That is, it assumes that you're not a Hitler or inspired to be like him, making a difference by extracting revenge, real or imagined, on the French or the Jews or Muslims or women ... It turns out that some people are quite convinced that their lives make a difference only the difference to which they're committed isn't exactly a positive one.]

Why Democracies Never Move as Fast as Business, Science, Technology or Culture

Politics is likely to progress at a glacial pace compared to every other important way that the modern world is defined and created.

Architecture, music, business, science, athletics, engineering are all examples of fields that are defined and furthered by elites, by people who are in the top 1%. You don't have to get 55% of your population to master genetics in order to enjoy the benefits of genetic engineering. If even 1% of your population becomes skilled in genetic engineering, you can see transformative benefits.

By contrast, political policy and philosophy in a democracy depend on the majority. It's not enough for an elite few to gain special compassion or policy wisdom. Whatever story encapsulates this compassion or wisdom has to translate into the language of the crowd.

We are motivated by impulses that we don't really understand, impulses like the ones that make TV reporters, crowds and columnists cheer bombing raids, impulses that make us more distrustful of people with different coloring than us, impulses that make us more likely to empathize with someone beautiful with a petty need than someone ugly with a great need. Worse, we live in and depend on systems as complex as global climate, local ecosystems, a global economy and local housing market and our understanding of these systems is at best partial and at worst distorted. Even the best among us take on policy questions with some mix of distorted personal judgments and poor systems appreciation. And it is not our best who determine votes: it is the 51%.

It's a scary combination. Our technology advances at the speed of the top percentile and our policies advance at the speed of the 51st percentile.

10 April 2017

What a Manager Should Know: Deming's Four Elements of Profound Knowledge

Deming argued that there are four elements of profound knowledge that define a what managers should know.
1. Appreciation for a system
2. Understanding of variation
3. Psychology, and
4. A theory of knowledge

To effectively manage or understand an organization, you don't need a deep understanding of any one of these but you need some understanding of all of these. Also, each of these elements makes more sense within the context of the other three; the four form a system.

"A bad system will beat a good person every time."
- Deming 

1. Appreciation for a system and 2. understanding of variation
Deming used things like control charts that tracked data over time to determine what was common cause and what was special cause. To understand variation is to understand the difference between what comes from the system and what does not. People in 2000 in the US were 6X more productive than people in 1900 in the US. It wasn't because they worked harder (in fact, average work weeks dropped from about 60 hours a week to about 38 hours a week in that time). It's because they had better systems. You'll never get as far trying to make people work harder in an old system as you will by improving that system.

Here is a set of 100 data points representing rework (imagine an auto assembly line that created 1,000 cars a day, say) that mostly varies from about 10 to 40 cars that need to be reworked each day That much variation yields a control chart that suggests that normal variation falls within a range of 1 to 47 cars. (Normal variation is what we can expect from the system.)

Only one data point in the above chart - the one on day 16 that hits 57 - appears to come from special cause. All the rest of the variation is just a normal part of the day to day variation. 

Normal variation can still be explained as special by people who don’t understand it. It often is. "Orlando was not paying attention and we had 6 cars in a row assembled with the brake pads swapped. That's what happened." There is always a story to go with the data. And there is often a person we can name in that story. Normal variation can be explained but those explanations are themselves randomly associated with outcomes of a stable system. (This does not just happen on assembly lines. Each day, regardless of whether it goes up or down, moves a lot of moves a little, analysts say things like, "Investors were skittish today because of ..." What would actually be remarkable would be a day in which the major indices finished exactly where they started. Variation is normal. It is only over longer periods of time that you can spot a general direction.)

The only story for a data point that deserves explanation in the above graph is what happened on day 16. That is unusual and the explanation for that day will likely tell you something. It is special, meaning that what happened on that day isn’t explained by the normal rise and fall of our system, is variation that lies outside the normal bounds of daily variation.

Meanwhile, if you don't like it when you have to rework more than, say, 25 cars in a day, you need to look at the system. Is the process you're using dependent on guys like Orlando performing four different assembly steps every 5 minutes for 2 hours in a row before he gets a break? Is there any data suggesting that the average person can sustain focus and accuracy for that long without attention wandering? It's easy to say that Orlando should focus but do you have any data suggesting the average person hired for this role does? If that part of the process is consistently contributing to, say, 4 to 15 of the rework events each day, then we know that changing that process has the potential to reduce rework by about 10 units a day. (Note that this goal of ten is not the product of some arbitrary goal that came of the fact that we have ten fingers but instead comes from examination of the data that suggests we get an average of 10 errors a day from the process Orlando works.)

Once we know what is wrong with the system, rather than blame Orlando for the errors, we can brainstorm solutions. What if we gave Orlando breaks every 90 minutes instead of every 120? What if we rotated the person responsible for this really demanding process step so that no one had to do this task more than 2 hours a day? What if we changed the process so that Orlando has to do just 3 steps every 5 minutes instead of 4 steps? And so on. If we find a plausible theory for improvement, we can implement it for, say, another 30 to 100 days to see if this brought down errors. If it did, we have made progress and we can turn to some other issue within the system.

The behavior of the system is typically stable even as we change who we hire. (And the hiring process is part of the system. If we make a real change in what we screen for when we interview candidates, that too, might improve our system.) Systems define most outcomes. Changing teachers or politicians, employees or bankers is often like changing the cast in your play in the hopes that Romeo & Juliet will end happily.

Also, systems can behave in unexpected ways. A system has emergent properties that none of its part have. For instance, an engine cannot get you across town, nor can a steering wheel nor tires nor an axle. But when these parts are brought together in a system like a car, they can. Organizations are made up of knowledge workers who have to coordinate in order to create value. The person who designs a new product is worthless unless there is a person who can make it. Even those two are worthless if someone can't sell what they make, and so on. Just like the parts of the car cannot get you across town, the parts of an organization can't create value; through coordination, though, these people can create enormous value that emerges from their interactions. As a manager, you need to understand their current output as something that has lots of normal variation and you need to appreciate that the efforts in one part of the process can create problems in another step. (For instance, optimizing each part of the car could result in 87 different size bolts. This complexity could make it more difficult to keep all your parts stocked and even errors in assembly as you raise the risk of someone using the wrong bolt that is just fractionally off in size. Doing what is best for the system - changing the design so that it relies on just 3 different size bolts for instance - might mean doing what is less than optimal for a specific part.) The point is to optimize the system and that depends on people within it cooperating rather than competing.

Which brings us to psychology. 

If you have people within a system compete for promotions and raises rather than cooperate to create a fabulous product, you lay land mines for issues. If you have people work towards local goals rather than cooperate to create a success for the whole organization, you can easily encourage sub-optimization. Worse, you can disengage people through the use of extrinsic motivation.

The worst kind of motivation focuses people so much on the rewards that they don’t pay much attention to the task itself. One study of four-year-old children who tend to love a drum at that age broke the kids into three groups. One group was told that the box in front of them had a special gift for them for playing the drum. They stared at it distractedly the whole time they were pounding. Another group was told, almost in passing, that they’d get a prize for playing the drum. The third group was told nothing but was turned loose in the same toy room that included a drum. The second group was most likely to later identify the drum as their favorite toy, which gave rise to a notion of minimal sufficiency principle, [Mark Lepper] “using rewards or threats that are minimally sufficient to get kids to do the desired behaviors, but not so strong that the kids view the threats or rewards as the reason they are acting that way.”

As with systems or variation, psychology is rich with much more than the simple considerations I’ve mentioned. Deming felt that so much of what we do in school and work undermines the intrinsic motivation of people to learn, engage, cooperate, and create. He often showed this chart (video to follow).

This psychological question of how the system you have designed engages or disengages people might be the most important question of all.

"90% of what matters cannot be measured."
- Deming 

Finally, the fourth element of profound knowledge is the theory of knowledge. How do you know what you know? Your data and people’s behavior might be stable but what if the environment changes? How do you know that customers like your product? What about it do they like? The advances in UX since the time of Deming (he died in the early 1990s) have taken this question seriously. It’s worth remembering that he made his name as a management consultant but first got to Japan as a person to help with the census (“How do we know how many people live in Nara?” “How do we count people staying in a hotel on the night of the census? Are they counted as residents of the city of the hotel or the city they claim as home?”). And he got into the position to help to define this after getting a PhD in Physics. He studied phenomenon and tried to understand how we knew what we knew, and carried that basic inquiry into the question of how to count the population of an entire nation and how to measure quality in a product or service.

Evidence for what you know comes from data but data comes after you’ve formulated a theory. If you change what you are trying to measure or what you believe about the phenomenon, the data may suddenly be made obsolete or you’ll need to collect it differently. Your theory of knowledge is bound up in how you measure variation and how you define and understand the system you expect people to engage in.

Theory of knowledge, psychology, variation and systems. You can start anywhere and go everywhere but the real goal is to understand what you are dealing with in terms of a system and how that enables or disables people from realizing their potential within that system. This means understanding the difference between common cause and special cause variation and even a deeper understanding of how you know anything at all. All of it is humbling but it also leads to continuous learning and improvement as you continue to inquire on all of those fronts. Systems evolve with the people within them and the environment around them … or they become obsolete.

Ultimately, a successful social inventor or entrepreneur creates a system that outlasts them. The US didn’t collapse when Thomas Jefferson and John Adams died hours apart on the country’s 50th anniversary. Apple’s stock didn’t fall to zero when Steve Jobs died. The real value is less about your efforts within a system than your ability to improve or create the system. It’s true that some people run much faster than others but no one outruns a jet; what you want to do in improving or creating a system is to create something that performs much better than the people within it could hope to on their own.  A great manager does the same and I’m not sure how you’d do any of it without at least some intuitive or learned understanding of Deming’s profound knowledge.

09 April 2017

Post-Capitalist Market Economy (or why markets obsolete everything - even capitalism)

I recently heard Dr. Katharine Hayhoe speak about why people are climate change deniers. She said that when people don't see or don't like a solution, they'll deny the problem. An example she didn't use but that seems appropriate is that of a poor woman in a abusive relationship who brushes away claims that her man is a threat because she can't imagine raising the children on her own. Given the solution seems untenable, she doesn't admit to the problem.

What's curious about climate change deniers who inevitably are fans of gas and coal is that they seem to see an admission that carbon emissions are dangerous as an admission that capitalism is over. This, this notion that the communists would win because of some science issue seems like something that McCarthy would have warned them about had he the foresight to see how clever the foes of capitalism were.

This misses something really important about markets, though. Markets proceed through sustained drives of incremental improvement punctuated by bouts of creative destruction. Little is safe from the force of markets. Bicycles and roads get better and better every year and then ... we get cars. Gas engines get better and better every year and then ... we get electric cars. Markets are so disruptive that they're even making capitalism obsolete.

People often use the terms capitalism and markets interchangeably. I don't. To me, capitalism defined the market economy that was limited by capital. The West went through a capitalist period from about 1700 to 1900. During this period it wasn't just discovery of how to harness energy from coal and oil that helped to fuel the first real gains in productivity in thousands of years. It was a relentless automation of manual work with machines and factories. Life sped up and output increased. We went from battling starvation and having very few material goods to battling obesity and having an abundance of goods.

By that definition, capitalism is over. It became eclipsed by the information economy that simply assumed the presence of an abundance of capital. In the third, information economy, retirement plans made tens of millions of Americans new capitalists. We now have trillions of dollars in capital in search of returns and the limit is not capital but good investments in which to pour that capital. What is the source of good investments? Good entrepreneurship (and not just private sector entrepreneurship, but public sector as well). The creation of new infrastructure and businesses that generates a return to capital is the new task. Worry about financing such ventures is almost incidental.

And here is the problem with seeing the problem of climate change as meaning an end to capitalism. Capitalism is already over. Not even capitalism was safe from the creative destruction of markets, so it is hard to imagine how carbon fuels could be. Markets don't show anymore respect for carbon fuels than evolution pays respect to dinosaurs.

08 April 2017

Polarized or Zero-Sum Politics?

Our politics has become more divisive. Republicans and Democrats seem to look at each as aliens and look back at the past as a kinder, gentler time.

Stagnating wages have contributed to this. Call it take-home pay economics. You could argue that since 1980 politicians have been giving tax cuts because employers aren't giving pay raises. (You could argue this. It doesn't really match the facts but it does seem to match popular perceptions.)

Assume Pradeep and Martina each make $50,000 a year. It turns out that Martina is very conservative and just doesn't understand why the government needs more of her money. Well, she understands it sort of but isn't a big fan. Pradeep thinks we should have better roads and schools and help for the homeless. He's a fan of government.

Now they each get a raise of 10%. An extra $5,000. Pradeep argues that 50% of this raise should go to government, a full $2,500. Martina thinks that is ridiculous. She thinks that 15% is more than enough. It's reasonable to think that in spite of their different values and passions, they might reach a compromise to, say, split the difference and pay about a third in taxes, less than Pradeep's $2,500 but more than Martina's $750. $1,500 say.

This goes on for years, heated debates culminating in some sort of compromise that neither one sees as particularly awful. In that world, politics are not so bad.

Now imagine a parallel economy where our heroes also make $50,000 a year. Again, Martina is very conservative and Pradeep is very liberal. That has not changed. What is different, though, is that in this world, wages are stagnant. Instead of a raise of 10%, they get a raise of only 2%. In the prosperous economy, their gross pay bumped up $5,000; in this stagnant economy their pay bumped up only $1,000. Pradeep sees how hard it is on people to live in this economy; he'd still like to give $2,500 but his raise is only a portion of that, so he thinks that maybe $500 of his $1,000 raise?  Martina? She thinks that $1,000 is already too little and isn't about to give any of it to the government. She doesn't want to give any of her tiny raise away. Well, maybe $100, $150 tops. The more she listens to Pradeep's inane proposals to take most of her raise, the more she feels inclined to just keep it all. She thinks he's nuts.

Maybe it is because they are fighting over such small amounts, but this question of how much they'll support the larger community vs. be allowed to keep to themselves is contentious. Already Pradeep knows that there won't be enough money to build the new school that he thinks the neighborhood deserves. He's appalled that not only will his neighborhood not get a new school but they might actually have to layoff some teachers and go from 22 kids per classroom to 32. Martina is appalled that not only will she not be able to afford her new car but it looks like she might not even have enough extra to get the repair she's been putting off. The debate about building a new school or buying a new car is heated but it is not viscous; the debate about teacher layoffs or car repair is.

It's probable that fragmentation of news sources has reinforced and magnified the differences in our politics. It's probable that politicians playing to primaries, making the effort to win their party's voters rather than the voters in a general election has made us more polarized. It's probable that the big divide into different communities, liberals who shop at Whole Foods and conservatives who dine at Cracker Barrel each self-segregating into their own neighborhoods has made us more polarized. Too rarely mentioned, though, is the effect of stagnating wages over the last 17 years.

There are numerous approaches to diminishing polarization and there is likely no one solution to this. That said, as policies create more prosperity, politics could become less viscous.

07 April 2017

Group Names for Birds ... and for People

My friend Norman shared with me some of these delightful group names for birds:

  • a charm of finches 
  • an exaltation of larks 
  • a murmuration of starlings 
  • an ostentation of peacocks 
  • a pitying of turtledoves 
  • an unkindness of ravens 
  • a wisp of snipe

It seems like someone should do something similar with group names for people. Something like this:

  • a bafflement of Republicans
  • an embarrassment of Republicans
  • an entanglement of Republicans
  • an electoral of Republicans
  • a morality of Republicans

Okay, so I didn't manage to diversify the groups of people like I'd planned. I'd initially considered  a cistern of plumbers, a retirement of seniors, a tyranny of toddlers and a fuse of electricians. I didn't get that far. I got stuck on Republicans.   I might be part of a perturbation of liberals. 

05 April 2017

Development, Social Evolution, and a Post-Economic Community

Apparently it is bad form to talk about communities being at different stages of development. It is supposedly demeaning of "less developed" communities. To me, though, this stage of history is so transitory that the differences between poor and rich countries is almost incidental.

One of the more important people in the Pharaoh's Court:
The Royal Manicurist
If you had a smattering of parents talking about their young children, the conversation would gravitate towards the perils of potty training, sleepless nights, tantrums, and speculation about whether toddlers are natural tyrants. No one would think it demeaning to suggest that it'd be a good idea for your two year old to learn how to control her bladder before heading to university. And no one would think for a moment that the fact that all the toddlers were going through nearly identical stages of development suggested that they were - or would grow up to be - nearly identical people.  Or that the child who is three years younger is going to be perpetually less developed than the older children. We all go through similar, necessary stages of development but we will end up with very different lives.

Communities that give their people fewer options about how to live a life - whether in the form of letting women stay single or providing young people with enough income to afford a place of their own - are less developed. Development involves an overlapping series of steps like accumulating and creating capital, educating children to become knowledge workers and popularizing entrepreneurship. (Something even our most advanced communities haven't quite done. Yet.) There is reason to believe that the roughly 7 or 8 centuries from about 1300 to 2100, a period in which we transition from abject poverty to something like widespread abundance, will take us from a starting point of a community based on shared superstitions through the creation of communities focused on overcoming economic scarcity into a post-economic community in which the questions of economic scarcity give way to larger, more interesting questions about how to live and what sorts of communities to create.

Social evolution has been playing out for thousands of years, since well before Assyrians, Persians, Egyptians, Jews, and Greeks brought humanity into history with writing, giving us a continuity beyond the scope of our own lives. Our own lives play out within a tiny little window of this evolution that is likely to continue for thousands - possibly hundreds of thousands - more years.

Our society doesn't represent  the culmination of evolution. We are not the product of evolution: we are just part of a process that has and will play out for a longer time than we could ever imagine.

01 April 2017

Want to be More Productive? Try Shorter Days with Longer Naps

Alex Soojung-Kim Pang published a fascinating piece - Darwin was a slacker and you should be too - in Nautilus about the work habits of the folks who have made a huge difference in their field. Darwin wrote 19 books, including perhaps the most famous science book of all time - The Origin of Species - on a schedule that essentially included 3 1.5 hour sessions and one 1-hour nap between 8 and 5:30. During the normal work day he worked about 4.5 hours and slept one hour.

Warren Buffet estimates that he spends at least 4 hours a day reading - corporate reports, articles, and books. He just closes the door and reads. Uninterrupted. This unorthodox practice has been profitable. If you do the math, he has - on average - increased his net worth by about one billion per year. His work is profitable.

As Soojung-Kim points out, a schedule like Darwin's would likely get you fired at most corporations. Curiously, I've been in dozens - hundreds? - of corporations and can attest to two things. One, this schedule likely would raise eyebrows and perhaps even get you a warning or get you fired. Two, it would represent far more focused time than most employees get inside a corporation. And it is this focused time that demands extra sleep that so often gets missed in the middle of emails and meetings.

Many of my clients are double and tripled booked for meetings throughout the day. Additionally, they will get 150 to 200 emails in a day.  They are busy. So busy. What they rarely get in their long days, though, is 3 90 minute chunks of intense focus.

My own experience with intense projects and tasks suggests that one of the many obstacles to such immersive focus, though, is a place where one can nap. More than once, my working from the home office has allowed me to punctuate my work with a nap. Curiously, I don't feel the urge for such a thing when I'm working on less demanding tasks (like, for instance, being in a meeting). When I sustaining intense focus for longer periods of time, I need more sleep. And often in the form of a 20 to 40 minute nap.

Maybe the biggest boon to productivity would be a proliferation of hammock rooms. Or at least blocking out 2 (not everyone is of Darwin's caliber) to 3 90 minute blocks of time per day during which nothing is expected to be done but the one thing that requires the deepest thought.

21 March 2017

The Attempt to Take the Judgement Out of Judging

Just call the pitches as balls and strikes, the tired analogy goes. Don't let judges act as legislators. They should, instead, be impartial interpreters of the law.

"Thou Shalt Not Kill," is one of the earliest surviving examples of a law. The text is pretty simple. Don't kill. The context makes it a little more subtle. So, in the context of war should you not kill? Conscientious objectors believe that. Do you have license to kill if you're hungry? Vegetarians don't think so. Can you kill in self defense? Or if you're really angry? 

All legal text gets applied to a situation in a particular context of actions, intent, social norms and historical precedent. Those change from situation to situation and evolve over time. A judge has to consider this context when making judgement on the text or law.

Acting as a judge inescapably involves making judgments. To pretend that it doesn't shows really poor judgement. 

13 March 2017

The Odd Collusion of the Rich and Poor to Block Progress for Security

There is a curious collusion between elites and the working class that can actually arrest progress and stop wage growth. 

You wouldn't think that the working class - people in the lower middle part of the income distribution - would willing collude with the wealthy to perpetuate what might strike others as a fairly basic income. And yet ...

There are a few concepts that come into play in this attempted explanation: extractive institutions, insecurity, and gales of creative destruction. 

Schumpeter immortalized the term, "gales of creative destruction" as a means to define how markets simultaneously create the new - "look! a horseless carriage!" -  and destroy the old - "look! Clem's closed up his horse dependent carriage shop!" By most every measure, these gales of creative destruction are the source of progress but they also threaten the folks who are currently making a perfectly good living selling the old, soon to be obsoleted product. 

When you are working class, you're not in poverty but you are not secure. Over half of Americans don't have enough savings to cover an unexpected expense of $500. For these Americans losing a job and then getting retraining for a new career are simply not a practical choice. (It might be a necessary one but it's not a practical one.)

Finally, there are extractive institutions (I first encountered this concept in Acemoglu and Robinson's book Why Nations Fail) that leave workers within them at a subsistence wage. The owners or rulers of these institutions - whether the Spaniards who ruled the encomiendas or Robert Mugabe over Zimbabwe - extract all the profit from the institutions. Among the many problems with extractive institutions is this: no one has incentive to conjure up the gales of creative destruction to create the next, best thing. Any breakthroughs in process that workers could adopt to raise profits will just flow to the pockets of the owners. People within the system won't make any more whether they work harder to smarter so they tend not to. People who control the institution aren't really interested in any progress that could create the gales of creative destruction that suddenly obsolete their system so they tend to resist progress or improvement. There is a huge difference between the poor people within the system and the rich who rule it but they do share this: they feel threatened by change and will resist it.

Progress steadily makes life better for everyone. It also tends to abruptly make life worse for at least a few: the unfortunate stockholders in Kodak when Instagram comes along, or worse, their unfortunate employees.

Politically, this is tough. The folks who lost their jobs to automation or outsourcing are acutely aware of this. The folks who are buying 1" extra of TV for 90% less are less aware of this and less passionate about it. Progress's creative gales are more evenly - and imperceptibly - spread across a population than are its destructive gales.

An aversion to change that might bring in the gales of creative destruction is shared between the insecure working class and the owners of extractive institutions who profit from the status quo. They make for odd bedfellows but both share an incentive to resist free trade and new technologies. 

12 March 2017

Bernard on Free Speech, Protests at Middlebury and When It Becomes Unreasonable to Rely on Reason

It had been awhile since I'd met with my invisible friend Bernard. He sounded a little hoarse.

"What's with your voice," I asked.
"I've been shouting at my twitter feed," he said. 
"TV, Bernard. "The phrase is 'shouting at your TV.'"
"You have to change with the times Ron." He paused. "You should have never told me about Twitter. I now get a steady stream of evidence that the world has gone mad."

We ordered our usual. I ordered the Reuben and he - as he usually did - ordered something new to him from DZ Aiken's vast menu, always first marveling at the fact that the portions were so huge and then methodically finishing everything on his plate.

"Hey, you read Charles Murray," he said. "Did you see that people at Middlebury College rioted against him the other day?" He chuckled as he surveyed the vast expanse of food on his plate. "That's one advantage to books over lectures. Nobody reading a book in the corner suddenly leaps out of his chair and riots. You bring a group together, though, and no telling what will happen." And with that he popped an entire matzo ball into his mouth. I took that as an invitation to respond.

"It does seem terribly uncivilized of a university to invite some guy to speak on your campus and then threaten him with violence when he shows up," I said.

Spewing a fine spray of matzo ball as he did so, Bernard spoke. "So you're making the freedom of speech argument?"
"Well not free to chew when you're talking, but yeah. Plus Charles Murray made some really important points in his book Coming Apart about how poverty and job loss is undermining institutions like the family. That's an important conversation. If you have a process for bringing someone onto campus, you should respect it."
"Sure," Bernard said, his Adam's apple bobbing furiously either because of excitement or because he was trying to hastily swallow. "Assuming that the people on a campus are any more monolithic than a population in a country or city. But you're saying that Charles Murray had the right to speak?"
"But that is very different from the right to an audience."
"You are free to speak but that doesn't give you a right to speak on Face the Press."
"Do you mean Face the Nation or Meet the Press?"
"Meet the Nation. Whatever. Charles Murray doesn't have a right to the audience at Middlebury University."
"Well they invited him. Plus, students need to learn how to think critically about ideas they don't like. University is not a place where you go to be protected from controversial ideas. Ideas shouldn't be censored."
"Well not censored but they certainly can be mocked or belittled or demolished with data."

"Which is why they need to be brought into the open. So they can be fought. Bad ideas flourish in dark spaces like closed minds and alt-right websites," I said. My point made, I stopped to enjoy my sandwich. That proved to be a poor debate tactic because it gave Bernard time to make a little speech.

"You are so naive Ron. You think that everyone with a bad idea will suddenly abandon it when they hear a good argument? Do you really think that if you point out that every time blacks have the chance to perform in an arena where prejudice gets demolished by performance - every time they compete in a game or on a track or in music sales or making people laugh - they flourish that a racist will just stop and say, 'Oh. Good point'? Do you think that sane people didn't try to make an argument against eugenics in Germany in the 1930s? Some minds are so simple that they desperately need simple arguments. Nothing is simpler than saying that Jews are plotting to take over the world or that blacks are inferior. You're not going to argue people out of those ideas. Your only real hope is to keep them away from those ideas."

"But those college kids need to hear the arguments and hear them demolished."
"Really," Bernard look at me with a measure of pity. "Why? Why even waste the time? Should we open up our university lecture halls every time some idiot with a feeling that he's mistaken for an idea wants to tell us why women are inferior or why climate change isn't real or why dictatorships are more effective than democracies? Those ideas are toxic. They literally kill people."
"Who decides, Bernard? I think that the burden of proof lies with the people who want to shut down the debate."
"No," he said firmly. "The burden of proof lies with those who think that the idea deserves an audience. There are an infinite number of ideas. When it comes to a university, someone needs to curate those ideas, make a choice about who gets access to the audience and can later say 'I have spoken at Middlebury, Harvard, UC San Diego, and Claremont Colleges. You, too, should listen to my very important ideas.'" 

"But nowadays we don't have curators of ideas" I said. "It's a free for all. It's not like an editor will keep a community from a terrible idea. People in every community will find really bad ideas on the internet as easily as they can find porn. You can't rely on curation of bad ideas once you have the internet. Instead, you have to teach people how to defend themselves against bad ideas, have to vaccinate them with good thinking."

Bernard was quiet. "Well that's a precarious place to rest the future." He ate a little more then said, "It's the most curious thing, Ron. The older I get, the less time I have left, the more I worry about the future I won't even be part of. You'd think it would be the other way around. You're young and you have decades left, longer than you've ever experienced, and you worry about what's going to happen in the next hour or day. You get old and have days left and you start worrying about how things will play out over the next century." He ate some more. "Well, and you worry about what's for dinner."

"To me it's fascinating because really, this is a debate about what we can debate," I said.
"Yes. Or the criteria you use for judging debates." 
"So we agree," I happily exclaimed.
"This fried kreplach," he murmured "It makes me happy."
"You're not really even listening to me, are you?"
His eyes closed as he chewed, he didn't respond.

"But you know, it's a lie we tell ourselves that we got here by reason and we stay here through reason."
"What," I asked.
"In the end, all reason rests on force."
"That's quite a statement."
"Violence is at the base of every argument. At some point you conquer the other guy and say, 'Our values, our norms, our goals are going to rule from this point forward. Not yours.' In the end, we didn't argue with Nazis. We shot them."
"Well that's bleak."
"You don't win all the arguments Ron. Our founding fathers were geniuses who understood Enlightenment principles and the fact that progress was incompatible with reliance on rule by aristocracy and religion. But they didn't argue their way into independence. Middlebury University there in Vermont where your Charles Murray was run off. It was founded by Congregationalists. Do you know what they were? The descendants of Calvinists, the folks who rode over on the Mayflower. What was Calvinists' big idea? Predestination. How at odds is that with the notion of a nation of self-made men or even the ideals of a university? Predestination is at odds with the very notion of progress. Sometimes you can win an argument over generations without resorting to force, the way that the Congregationalists won the argument about predestination with their Calvinist grandparents. That's ideal. Other times, you use force against a few guys with bad ideas before they use their arguments to ruin the lives of millions."
"I don't think that we're going to see something like Nazis again Bernard." 
"I wish I shared your confidence, Ron. But regardless, there are a variety of ways to cut short a life," Bernard said. "Sometimes it is in war or concentration camps. Other times it is by acting like blacks really are inferior and there is nothing that can be done about a black man having a life expectancy ten years shorter than a white man. Any argument that suggests we simply accept that reality is already violent. You can hardly blame some people for responding to such a dangerous idea with the threat of violence. It's unreasonable to think that reason is always enough."

05 March 2017

The Fourth Economy & the Popularization of Entrepreneurship (or how work evolves from farming to entrepreneurship)

Graphic created by Jacob Morch jacobmorch.com

The definition of work changes as economies evolve. The grandchildren of farmers became factory workers and the grandchildren of factory workers became knowledge workers.  There’s good reason to believe that the definition of employee will change again, this time into something like entrepreneurship.

Thomas Jefferson imagined the United States as a country of educated, gentleman farmers. Even when he became president in 1801, though, the percentage of Americans farming had begun its steady decline. Now, each month economists await the announcement of nonfarm payroll employment. Today farm jobs are not even included in the country’s defining measure of jobs lost and gained.

Alexander Hamilton’s vision of an industrialized nation turned out to be more prescient but in recent decades, manufacturing’s share of the work force has also been in steady decline. Next century, economists may await the nonmanufacturing payroll employment report.

Millions voted for Trump and his promise to bring back manufacturing jobs. As promises go, it seems more akin to a 1916 campaign promise to bring back farming jobs than an adaptation to new realities. Yet acknowledging that farming and manufacturing are unlikely to reverse their decline leaves us with the question about the source of next generation jobs.
The economy has shifted but policy has not. Until economic policy begins to address the new limit, it will continue to be ineffective.

Over the last 40 or 50 years the per capita GDP growth rate has fallen. The fallout is not just economic. It has made voters less trusting of major institutions and expressed itself in surprising victories for BREXIT and Trump. Most people now feel that “the system is broken, unfair, and failing them.”[1]

Meanwhile, one place that has done remarkably well in the last half century is Silicon Valley, a place that more than any other has become synonymous with entrepreneurship.

About a century ago, Henry Ford made business history by doubling the wages of his factory workers. Doubling. Not only was he making cars more affordable, he was paying working class people enough to buy them.

In 2016, median wages in the US were about $51,000 a year. Like Ford, Silicon Valley has doubled that. In Santa Clara County – one reasonable approximation of Silicon Valley – average wages were $117k, or 118% higher than the national average.

It’s possible that Silicon Valley is an anomaly, a place that other communities can only envy but never emulate. A more interesting possibility is that Silicon Valley is to a new entrepreneurial economy what Manchester, England of the 1700s was to a new industrial economy: just the first place to enter a new economy whose practices will eventually spread around the world.

Four Economies and Four Limits
Agricultural economies give way to industrial economies, which give way to information economies. Most people share that intuition but their understanding of what these labels mean and how to distinguish between them is fuzzy. Even industrial economies have farms and information economies have factories. It takes a little explanation, but limits can clarify the distinction between different economies and predict a fourth, entrepreneurial economy.

Period in West
1st, Agricultural
1300 to 1700
2nd, Industrial
1700 to 1900
3rd, Information
1900 to 2000
4th, Entrepreneurial
2000 to ~

Before talking about economies, imagine a factory with four stages. It gets raw materials in on one end and sends product out the other. The materials that become a finished product must pass through all four stages before they’re sold.

The numbers and height of the bar indicate how many products a stage can process in an hour. The first stage can process only 1, the second can process 2 and the fourth and final stage has the capacity to process 4 products an hour.
The customers don’t buy the unfinished product from any intermediate phase, though. They only buy product that comes out of the whole factory, product that has passed through all four phases. The question is, what is the capacity of this whole factory? How many products can it produce per hour?

The answer is 1 per hour. Your factory’s capacity is equal to the capacity of your first stage. You could call that a bottleneck, a constraint or limit. Whatever you call it, this limit defines the capacity for your whole factory. If it can only feed the next stage 1 item per hour, it doesn’t matter that the second stage has the capacity to process 2 items per hour because it won’t get product fast enough to process that many.

Until you increase the capacity of the first stage, you will not increase the capacity of your factory. So, you experiment. Maybe you speed up the process, simplify the process or just buy a second machine for that first stage. However you do it, you eventually double the capacity of this first stage to get a picture like this:

The good news is that by doubling the capacity of the first stage you have just doubled output for the whole factory. Armed with the knowledge that focusing on the first stage makes all the difference, you continue to experiment and invest in improving that first stage until you find a way to double its capacity again.

This time, though, doubling the capacity of your first stage does not change your factory output. Why? You were so successful at improving the first stage that it is no longer the limit to your factory. Your limit has shifted elsewhere.

Two lessons from your factory could apply to any system.[2]
  •        To improve the system, you have to focus on the limit, and
  •        Success eventually shifts the limit.

So, what limits an economy? In every introductory economics course, students learn that there are just four factors of production: land, capital, labor, and entrepreneurship. Anything of value created by an economy depends on some mix of these four factors and one of those would have to be the limit at any given stage of economic development. Land includes all natural resources, from herring to oil, acreage and cotton. Capital includes the financial and industrial tools that transform those natural resources into finished products, the factories that can turn cotton into clothing and the stocks or bonds that finance the machines and factories. After the industrial revolution, the labor of knowledge workers – people like accountants, engineers and advertisers – who manipulate the symbols of things rather than actual things was the most defining labor. Finally, entrepreneurship brings together land, capital and labor into a profitable enterprise.

The four phases of a factory can become four factors of production in an economy and we can examine limits to an economy in the same way that we examined limits to the factory. The output of an economy can be measured by things like jobs or wealth, income or GDP.

Different limits create different economies
Agricultural economies are limited by land. Wealth between 1300 and 1700 didn’t result from advances in information technology (not that the Gutenberg Press wasn’t disruptive) but instead came from trade, conquest, and colonization with faraway lands and creating nation-states and private property in your own land.

An industrial economy is limited by capital. Between 1700 and 1900, the creation of wealth was less about exploration, conquest and colonization than it was about building the factories that could turn raw materials into finished goods and then build out canals and railroads to distribute those goods. Wool and cotton became fashion. Iron ore became railroads. Skyscrapers rose in cities and cars emerged to drive between them.

An information economy is limited by knowledge workers. Between 1900 and 2000, it wasn’t enough to have factories that could make more products than anyone had ever seen before. They had to be the right products (which required marketing and design expertise) made for and sent to the right places (which took manufacturing and distribution knowledge) by the right methods (which took advertising and retail display experts.)

An information economy emerges after an industrial economy. Before the automation of the industrial economy, you need workers to manipulate actual things, afterwards, machines can do that and  labor can shift its focus to manipulating symbols. The sequence from agricultural to industrial to information economies is not just an historical sequence, it’s a logical one.

Period in West
1st, Agricultural
1300 to 1700
2nd, Industrial
1700 to 1900
3rd, Information
Knowledge Workers
1900 to 2000
4th, Entrepreneurial
2000 to ~

Economies are complicated and progress is slow so it makes sense that as communities gradually overcome limits they’ll cling to the processes that once made them great. Like the factory manager who keeps doubling the capacity of his first process step to no avail, communities can continue to create foreign colonies, spending huge sums on a global empire even after they’ve entered an industrial economy. Or more recently, they might pump money into their economy or create graduates past the point that capital or knowledge workers actually limit the rise in per capita GDP. It is almost inevitable that communities will continue to do what they’re now good at even after reaching a point of diminishing benefit. Cultures last longer than cost-benefit analysis and new practices become old habits.

An additional complication is that there are always pockets within a larger community that face earlier limits, and those limits define local culture and politics. When natural resources are the basis for wealth in a region, for instance, it will be more religious and more inclined towards policies like a strong military that support the notion of a zero-sum economy. It’s not the ingenuity of people that creates an oil field but is instead just a gift of God or nature. And that oil field doesn’t get larger because we decided to share it. Either I own it or you do, and rather than win-win we’re going to have a winner and a loser in this exchange. There will always be regions that lead or lag in development and thus will lead or lag in the reality they experience and that informs their convictions. It’s not just that a person living in rural Kentucky has a different political philosophy than her peer in Cambridge, MA; the daily reality that informs her perspective is different.
One other way to understand a limit is to look at its price. Scarce factors are expensive and abundant factors are cheap.

The success of the second economy made capital abundant. Traditional bankers who emerged from the second economy (many of our current banking practices were defined in England by 1900) carefully loaned out money, trying to minimize the risk of losing capital. Venture capitalists, by contrast, treat capital as abundant and fully expect to lose quite a few investments. Given they’re taking equity in a new firm rather than hoping to get back capital with interest, they know that only a fraction of their investments need to succeed in order for them to get great returns. Traditional banking evolved when capital was scarce: venture capitalists evolved when capital was abundant.
What is scarce now? Entrepreneurship and we can see that in its price. At 31, Bill Gates became the richest self-made billionaire in history. A generation later, Mark Zuckerberg became a billionaire at 24. The price of capital is the interest rate and towards the end of last year, investors owned about $12 trillion in negative interest rate bonds. Trillion. We have a glut of capital and a shortage of entrepreneurs, which suggests that effective policy would focus on increasing the supply of entrepreneurs rather than the supply of capital. Between 1700 and 1900, we learned how to increase the supply of capital through a variety of means, from popularizing savings and investment (from founding father proverbs like “A penny saved …” to expanding the number of people who bought wartime bonds and then later became savers) to changing the money supply or interest rates. If policy makers think that we’re short of capital, they can quickly pump billions into the economy. There are no comparable policy levers for increasing levels of entrepreneurship. Not yet.

When The Old Limits No Longer Limit
If capital were still a limit, we’d be in great shape. The S&P 500 have $1.5 trillion in cash and in the third quarter of last year they paid out $200 billion in dividends and stock buybacks. Banks excess reserves have dropped from their August 2014 high of $2.7 trillion but are still at a staggering $1.9 trillion.[3] (Before the Great Recession, excess reserves in the US were closer to $1.5 billion.)

Our education system helped us to overcome the limit of knowledge workers. In 1900, less than 10% of 14 to 17 year olds were formally enrolled in education. By 2000, less than 10% were not. In a century, the US went from an industrial economy dependent on child labor to an information economy dependent on adult education. That helped to transform life in the 20th century, real incomes increasing 6X to 8X and life expectancy rising from 47 to 77.

If knowledge workers and their information technology were still a limit, creating more graduates would help to create more jobs. In 2013, the American education system created 3.7 million graduates, everything from folks with AA degrees to PhDs and all the degrees in between. That same year, the economy ended the year with 2.4 million more jobs than it had at the start. We’re creating graduates faster than we’re creating jobs, 15 new graduates for every 10 net new jobs. It’s no wonder that student debt is becoming a growing issue.

It’s not just ineffectual to pursue old policies in a new economy. It can be dangerous.

A glut of money creates problems. Investors in search of returns, unwilling to accept negative interest rate bonds, too readily bought expensive things like tech stocks in 1999 or subprime mortgage instruments in 2007. Trillions in investments can create a series of bubbles and busts as it wanders the earth like a murmuration of starlings in search of returns.

A glut of graduates creates problems. Young people not only start careers with mounting debt but find it more difficult to find jobs they could not have worked with just a high school diploma. Millennials who are the best-educated generation in history nevertheless fear that they’ll be the first generation in American history to do worse than their parents. (This student debt will also make it tougher for them to finance startups. As medical school has become more expensive, for example, the percentage of doctors working for large groups or hospital has gone up relative to those who start a private practice.)

One consequence of continuing to pursue dated policies is that it makes it tougher to pursue any policy. When incomes are steadily rising, politics is civil. Families can pay a little more in taxes to support schools and help the poor while still taking home more pay after taxes. When incomes are stagnant, politics becomes more divisive. Few people like the idea of not supporting education or the sick but if the choice is between that or less take home pay? Well, the conversation becomes more heated and compromise is harder to reach on top of the fact that everyone starts this policy conversation disenchanted and bewildered.

We don’t need to jettison incredible financial and educational systems that are essentially over-producing, creating more capital or graduates than we can fully employ. We just have to stop looking to those systems as the means to create jobs and wealth. As we become successful at overcoming this new limit of entrepreneurship, we’ll be able to fully employ capital and college grads. Eventually, we will even create enough demand for them to bid their prices up further.

The Central Question of Every Economy
The central question for any generation concerned about economic progress is how to overcome its limit, not the limit of its grandparents or founding fathers. Creative answers to that question result in a new economy and a very different community.

In retrospect, the central question of economic development from about 1700 to 1900 was simple: how do we get more capital and make it more productive? The creative answers to this included everything from the Dutch stock market, Rothschild’s international bond market and the British banking system to the spinning jenny, steam engine, and continuous production technology. (The question is simple. The answers can be complicated.)

The central question of last century was, how do we create more knowledge workers and make them more productive? The creative answers to this included the popularization of K-12 education, the modern university, R&D labs, the modern corporation and information technology.

The question that policy makers everywhere – city hall and senate floor, corporate boardrooms and universities – should now ask has two parts:
  •       How do we create more entrepreneurs and make them more effective?
  •        How do we make employees more entrepreneurial?

Creative answers to these simple questions will transform the economy. We now have a financial system and an education system. We don’t have an entrepreneurial system but instead expect our entrepreneurs just to show up, like autodidacts in 1800. Changing will be an odd, fascinating and profitable project. Think about educating students to be prepared to become entrepreneurs in the same way that we now educate students to become university students and knowledge workers, for instance, or changing the definition of employee.

Changing the Definition of Work. Again.

Perhaps more interesting than the question of how to create more entrepreneurs is the question of how to make employees more entrepreneurial. We – rightfully – make a big deal about national economic policy. It’s worth keeping in mind that measured by GDP or revenue, of the 100 biggest economic entities only 31 are countries; the other 69 are corporations. (Walmart’s $480 billion in revenue would put it just between Sweden and Belgium’s GDP.) Corporate policy deserves as much discussion as national policy if we’re interested in progress. The most important topic in this discussion might be to ask what it means to be an employee in a time when AI like IBM’s Watson is liable to automate knowledge work in the same way that capital automated manual work.

Think about changing employment so that employees within a corporation had as much freedom to pursue new ventures as citizens within a country. Roughly 800,000 Americans make more than the $400,000 a year that we pay the president.[4] That sort of thing was unthinkable in Egypt under Hosni Mubarak or France under King Louis XIV, but as nation-states evolve, people within them have the potential to prosper more than even the head of state. Contrast that with how evolved the corporation is. While it’s common for professional athletes or portfolio managers to make more than their managers, it is rare that anyone inside a traditional Fortune 500 firm makes more than the CEO. What if employees could become more entrepreneurial, were able to create equity by taking existing products into new markets or by leading product and business development efforts that are akin to startup activities? And what if the success of those ventures could actually result in their making more than the head of the company in the same way that an American entrepreneur has the potential to make more than the American president? This dispersion of power and pay is just one way that the popularization of entrepreneurship will change the corporation.

Overcoming the limit of entrepreneurship will require and result in new legislation, new education, and new definitions of what it means to be an employee. As importantly, it will continue in a grand tradition of the west, doing for business what earlier economies did for religion, politics, and finance. That is, it will expand freedom for the individual. There is no way to make employees more entrepreneurial without giving them more freedom.

There are interesting examples of popularizing entrepreneurship within companies. Ricardo Semler did something interesting with his Brazilian company Semco. He gave his employees freedom to negotiate work arrangements. People working side by side on the factory floor doing similar work might have very different arrangements. One was paid hourly, another a monthly salary, another paid by piecework and another might actually be paying Semco to use equipment to make product that she – the employee – could later sell herself. Uber lets “employees” accept or reject specific fares and take just one fare a week or work all day. Amazon’s marketplace and Apple’s iTunes are platforms that let companies and entrepreneurs sell their own products. P&G is among the companies who richly reward successful product development leads whose responsibilities overlap quite a bit with entrepreneurs. All of these are examples of enabling entrepreneurship, blurring the boundary between traditional definitions of employee and entrepreneur, and giving the employee more freedom to define their own work and its results.

This matter of employees gaining more autonomy is not incidental to progress. Autonomy is a way to define progress and each new economy has given the individual in the West more freedom. If you have shoes you have more options about where to go than if you are barefoot; if you have a car you have even more options. If you live in a democracy, you have more options about what to believe and how to live than if you live in a theocracy. If you have a credit card you have more options than if you need to approach a banker to request a loan for a specific item, or can’t get a loan at all. If you have the freedom to create equity as an employee you have more freedom than if you’re expected to adhere to a process someone else defined.

The popularization of entrepreneurship will increase our product options and levels of wealth. Progress, though, is only partly about more and better products. That is only one way that our lives expand to include more options. The first economy didn’t just bring potatoes and tomatoes to Europe; it brought religious freedom. The second economy didn’t just bring fashion and automobiles to households; it brought democratic freedoms. And the third economy didn’t just give us radio and the polio vaccine; it made capitalists out of knowledge workers, giving them financial options that people in 1900 would have found as baffling as the internet. The fourth economy will transform business and work in the same way that the first three economies transformed religion, politics, and finance. That is, it will give us more autonomy, as economic progress always does.

As you might imagine, there is a great deal more to this new economy than would can be captured here. My book, The Fourth Economy: Inventing Western Civilization, can be found here. It's a longer read but it does explain progress from the Dark Ages to about 2050.

[1] https://twitter.com/Bill_Gross/status/821245915579240448
[2] Eli Goldratt, author of The Goal and Critical Chain popularized the ideas of Theory of Constraints (TOC) in the 1980s and 1990s within many Fortune 500 companies and government agencies.
[3] https://fred.stlouisfed.org/series/EXCSRESNS
[4] https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2015