14 October 2017

What Your Fellow Americans Are Making - And What That Suggests About Minimum Wage Law

13 October, our Social Security Administration released data on last year's wage earners.

An income of $95,000 put you in the top 10%, made you 1 out of 10.
An income of $250,000 put you in the top 1%, 1 out of 100. 
$500,000 put you in the top 0.1%, or 1 out of 1,000.
$50,000,000 - fifty million - put you in the top 0.001%. It made you one in a million. 143 people reported incomes of over $50 million and those 143 people had average incomes of $100 million.

Here's another remarkable stat. Merely having an income put you in the top 50%. When I write, "top 10%," above, I'm writing about the top 10% of wage earners. Social security has data on 163 million wage earners. There are about 325 million Americans, so only about half of Americans reported incomes. Some were too young. (My wife's second grade class is full of slackers who haven't earned a dime in their life.) Some were too old. Some are too rich to work or make their living from investments rather than wages, property or stock owners. Some are too handicapped. Some are working jobs without wages, jobs like caring for their kids or parents. Some depend on family or friends for food and housing, some are in school, some recovering from injury, some permanently disabled, etc.

Now let's get into the normal people, the wage earners who don't make six figure salaries but still work. The 90%.

If you make $15,000, you make more than 30% of all wage earners. $15,000 a year works out to $1,250 a month. Median rent for a one-bedroom apartment in the country's most expensive 22 cities is higher than $1,250 a month. Assuming that you have to eat, buy clothes, get transportation, etc., what nearly a third of Americans make is not enough. 

If you made $30,557.71 last year, you made more than half of all wage earners. You have as many people who would trade wages with you as you would trade wages with. In some sense, you are the representative American, someone fellow Americans are as likely to pity as envy.

$30,000 a year works out to $15 an hour. Half of wage earners make less than this. Half.

Seattle is a wonderful city. It's both home to two of the richest men in the world and to many liberals who folks in the Midwest would consider more liberal than Scandinavians. They've recently passed a $15 an hour minimum wage. 

I have a problem with that.

I don't have a problem with places like San Francisco and Seattle - places where median wages are $90,000 to $100,000+ a year - saying to employers, "If you want to hire our people you have to pay more than you would elsewhere." That makes perfect sense to me. 

What doesn't make perfect sense to me? Choosing to make that minimum wage $15 an hour - an amount MORE than what half the people in this country make. 

Average wages in Belarus and Armenia are about one-tenth the average wage in the US. You can't just pass legislation requiring all businesses to pay Armenian employees the same as American employees. It's a noble and proper aspiration to lift wages but the way you get there is complicated. Better education. Easier access to foreign markets where they can sell their goods and services. More capital investment that makes their people more productive. 

Minimum wage seems to work as a prod to businesses or industries that aren't keeping up. It can force the folks in the bottom of 10% or 25% of labor productivity to either go out of business, go overseas or to up their game and make their employees more profitable even at a higher wage. What it can't do is force wages up for half the workforce. You need more complicated policies than that.

Policies that make it easier to live when you make only $15,000 a year or less - something that 30% of the workforce is doing - are good, humane and necessary. Minimum wage laws that ignore what the market says about the value of half your workforce seem, by contrast, bad, silly and doomed to backfire. 

12 October 2017

What is Likely to Trigger the Next Stock Market Downturn

Watch for legislation that cuts capital gains tax. Once that happens, people with equities will be able to sell with lower tax penalty. If you have a 401(k) that lets you sell without paying taxes, you might want to sell off, say, 20% of the more volatile stocks before the legislation is signed because shortly after it is likely that the market will begin its correction.

Unemployment Rate: What is Next After the Longest Drop in History?

We have data on monthly unemployment rates in the US from January 1948 - shortly after World War 2 - through September of 2017. During that time it has never been lower than 2.5% (which it was in May and June of 1953 at the peak of the post war recovery) and never been higher than 10.8% (which it was in November and December of 1982 in the depth of the Volcker-induced recession during Reagan's first term).

Half the time it is below 5.7% and half the time it is above 5.7%.

Unemployment rates of 3.8% or lower put you in the top 10%; rates of 7.9% or higher put you in the bottom 10%. 80% of the time, unemployment rates have bounced between 3.9% to 7.8%; that range defines normal. Outside of that range things are great or awful.

At the depth of the Great Recession - in October of 2009 - unemployment hit 10%. That's among the worst 1% of all months. (Well, in the worst 1.2%.) Since then it has steadily come down during the longest uninterrupted streak of job creation on record. Last month - the end of the streak - unemployment hit 4.2%, a value in the best 17%. We're in the top 20% but not yet top 10%, really good but still not great.

One simple answer as to whether unemployment will drop further is to say that it's only been lower than its current rate of 4.2% 15% of the time. Again, unemployment rates bounce between 4% to 8% most of the time; it doesn't seem to last long outside of that range. That alone suggests that the unemployment rate will soon stabilize or even rise.

Another interesting thing to note is that this is an exceptionally long recovery. Unemployment peaked 8 years ago this month - in October of 2009. A steady drop in unemployment has never lasted longer. The next longest improvement, the drop from the 10.8% high in December of 1982 to its low of 5% in March of 1989, took just over 6 years before beginning to rise again. Unemployment rates steadily drop for a time and then steadily rise, and steady improvements usually last just a few years, not 8 yerars.

At the start of a recovery people are well aware of all the reasons things can go badly. After all, they are just coming out of a period in which things did, indeed, go badly. Remember how early in the recovery people were anxious about Greece, China's stock market, deficit spending, the mortgage market, Greece, etc. People were looking for reasons that things could go wrong. Now? Now they're looking for reasons that the recovery could continue and less aware of reasons it might not; this makes economies more vulnerable.

There are reasons the unemployment rate could drop further and reasons it won't. 

Among the reasons it could drop further is that our labor force is growing more slowly than it did a decade ago. From 1955 to 2005, US labor force (folks aged about 25 to 65) grew 1.7 percent a year. Since then it has grown about 0.5%. As companies seek to hire, they'll have fewer options; all else being equal, this would translate into lower unemployment.

Another reason it could drop further is because of a drop in immigration. Again, this lowers the number of available workers and could mean that employers will draw from the unemployed rather than the newly available. If immigration rates drop enough, the labor force might even stop growing.

Curiously, the reasons that the unemployment rate could start to rise again include a drop in immigration. Immigrants don't just find work here. They buy houses, clothes, meals and all the things that drive demand for goods and services that, in turn, drives demand for employees here. If Trump's policies are successful at slowing down the flow of immigrants, he'll actually succeed at destroying jobs.

Trade, of course, could still provide jobs for American workers. Assuming, of course that Trump does not ignite trade wars. Simply put, he wants trade wars with our biggest trading partners - threatening to blow up Nafta and trade deals with China - and if he gets his way we'll see a drop in trade with our three biggest trading partners. That will destroy American jobs.

The third reason that the unemployment rate could rise is because Trump is planning to cut spending and taxes. Tax cuts will disproportionately go to the rich. If you give a poor guy a $1,000 in tax cuts, he's likely to spend $900 of it. When you're making only $30,000 a year, you could use that extra $1,000. If, by contrast, you give a rich guy $1,000 in tax cuts, he's likely to save $900 of it. When you're already making $500,000 a year, an extra $1,000 isn't going to change your vacation plans. Government spending ripples throughout the economy in ways simple (the employees of the State Department buy coffee at that little coffee shop across the street) and complex (the Medicare recipient pays a medical bill which enables the hospital to make a down payment on a new imaging technology and the young doctor to make a down payment on a new car). If you cut $1,000 in government spending and then give a $1,000 tax cut to someone rich, you'll reduce spending, reducing demand for the goods and services that drives demand for employees.

What is the punchline? It depends on whether Trump ends trade deals. In either case, unemployment rates are likely to start rising again within 3 to 9 months. If he ends trade deals, they'll begin to rise sharply.

If Trump fails to end trade deals:
Unemployment will fall to no lower than 3.8% within the next six months, after which time it'll start to rise again. Given drops in the growth of the labor force, job creation could turn negative at least one or two more months within the next year even as the unemployment rate remains relatively stable.

If Trump succeeds in ending trade deals like Nafta:
Unemployment will - at best - hit 4% near term but may have already bottomed out at the current 4.2%. We'll have a recession and the unemployment rate will rise to 6% to 8% within a year or two.

11 October 2017

Very Good News About What Happened to Household Finances From 2013 to 2016

Great things happened to the finances of American households between 2013 and 2016. Given it is great news, it didn't get reported. So, you've come to a lowly blog to learn what happened.

In the 3 years from 2013 to 2016

Average monthly income for American families rose by $1,000 a month from the start to the end of this period. Think about what new options that gives families. 
Median income rose nearly $400 a month. A family making $48,000 in 2013 was making nearly $5,000 a year more by 2016. $5,000 a year is half the median global family income. Half. That's how much household income rose.

Breaking it down, though, we find some wonderful gains for groups who make less. This might be the coolest thing about this cool news.

Households headed by someone without a high school diploma make the least (compared to households with high school diplomas, some college, and college degrees). They make the least but their incomes rose the most. Median income for households without a high school diploma rose 15% and average income rose 25%!. (Households with college degrees saw median income rise just 2% and average income go up 15%.) That's a big - and needed - boost to the working poor.

Minority families make less than white families but their gains narrowed those gaps too. (There is still plenty of gap to close but at this rate it will close.) Average income for white families rose 14%. Average incomes for Hispanics rose 26%, for blacks they rose 22% and for other / mixed race families average incomes were up 20%. As with different levels of education, everybody gained but the gaps between groups narrowed. 

Finally, the rich did get richer. Families whose wealth put them in the top 10 percent had average income gains of 23% whereas families in the bottom half of net worth experienced gains of only 5 to 6%. I don't know how one would change that. If I have a million in wealth, my money is going to make money for me. Someone without wealth is not going to compete with that - particularly in a bull market for stocks and housing as it was from 2013 to 2016.

Net worth also rose spectacularly in this time.

Net worth fell for families from 2007 to 2010 (thanks to the Great Recession) and changed little from 2010 to 2013. From 2013 to 2016, though, average net worth rose $140,800. That's nearly $4,000 a month through this 36 month period. Median net worth rose only a tenth of that but still works out to a gain of nearly $400 a month for this period. 

To summarize, in the period between 2013 and 2016, at least half of households experienced a gain in net worth and income of $1,500 a year or more. The average of all households was an income gain of  more than $4,000 a year and a gain in net worth of nearly $50,000 a year.

I don't know how you turn that into bad economic news but somehow, sigh, we have. 

All the data for this post comes from this Bulletin from the Federal Reserve.

10 October 2017

What Trump Will Do to Continually Raise His Ratings - You Won't Believe What He'll Do Next

It is doubtful that any man has more fiercely craved attention than does Donald Trump. Throughout 2016, his ability to attract and hold our attention seemed to wax and never wane. Just when we thought he had topped himself, he found a way to outrage more. Not content merely to lead his rallies with chants of "Lock her up!" about his political opponent - a tactic more befitting to a banana republic than the world's first modern democracy - he then wound up his crowd with an indictment of Clinton that ended with, "Oh well. Maybe the 2nd amendment people will take care of it." A death threat that even banana republic leaders don't make on camera. And on it went, all throughout his campaign, an escalation of outrage that continued to get him more and more attention. Now that he's president the coverage has become even more intense.

Here, then, is a recap of his amazing ability to get higher and higher ratings. I've added four at the end of the list, forecasting simply based on his repeated ability to raise ratings.

So far (in rough order)
1. Has some success as a NY real estate developer.
2. Builds biggest casino
3. Goes bankrupt
4. Coauthors best-selling book
5. Becomes star of wildly popular reality TV show
6. Stirs up birther controversy, claiming that the nation's first black president must not have been born in the country.
7. Announces run for presidency with claim that Mexicans coming across the border are rapists and murderers.
8. During the campaign, brags about the size of his penis in a presidential debate, threatens to lock up his political opponent at rallies, is caught on tape bragging about sexual assault, asks the Russians to release illegally obtained Clinton emails, insults a series of people, including a gold star, Muslim family,  etc., etc., etc.,
9. After election claims that some neo-Nazis are good people, fires or loses a string of key White House staff (including a speaker who is fired within 10 days), insists Congress pass healthcare legislation that he calls mean, insults a series of Republicans he'll need to pass any legislation, threatens to walk away from NAFTA, NATO, Paris Climate Accords, challenges his secretary of state (who called him a f*ing moron) to an IQ test competition, etc., etc., etc.

Then (a prediction of things he'll do to continue to gain even more attention)
10. Is put on trial by Mueller and Congress for colluding with Russians to win the 2016 election
11. Is found guilty and sentenced to prison
12. Forces an armed standoff before surrendering to federal agents (the most watched TV up to that point)
13. In prison is paired with a black Muslim roommate, something that is aired each week for an hour in the world's most popular TV series ever.

08 October 2017

A Simple Proposal for Making Congress Sane and Effective

Budgets are the clearest expression of values. Right now they are negotiated slowly and if a vote comes down to just one or two senators, say, those senators can dictate terms that give their state far more power than the other 48 to 49 states.

If our goal is to have a government that actually represents all 50 states equally - from the most conservative to the most liberal to include everything in between, there is a simple way to do it, as follows.

Require every member of Congress - Representatives and Senators - submit a budget. Don't negotiate. Just submit. Those budgets will be made public to the people in their district. Those budgets will also be averaged together to be the new budget.

This would have so many advantages. One, no one district would have more or less influence than any other. Two, extremists would be marginalized rather than given more power. A person who wants to slash funding for EPA to zero and a person who wants to double its budget would cancel each other out. Three, no one person would be able to hold the budget hostage; members who missed the deadline for submitting a budget would simply have no influence on the new budget.

The result? Less drama, diminished influence for extremists, and more business-like results for the Congress. Most importantly, it would make sure that EVERY district was represented which, it seems, should be the objective of a representative government.

29 September 2017

What (New) Word Describes Trump's Administration?

It's not enough that Trump has no interest in policy and experience in governance. Today with Tom Price's resignation we're reminded of the incredibly high levels of turnover in this White House and this fact: between Trump's leadership, his lack of patience for learning, and the fact that his staff is in constant turmoil, we're destined to be led by amateurs this whole time.

And actually, amateur is the wrong word. The ama in amateur comes from the Latin word amator, or lover. An amateur does what they do freely, out of love. The Trump administration has contempt for governance and the public they "serve" so this isn't work done out of love. It's not love but contempt that seems to animate them.  It's worth remembering that a climate change denier is head of NASA and a man (former governor Rick Perry) who vowed to eliminate the Energy Department if only he could remember its name is now head of the Energy Department.

Rather than led by amateurs, perhaps we could use the term contemptuaries. Contempt, too, has Latin roots. Temnere means to slight or scorn. Temp also has the connotation of someone who is just a temp, not a real, dedicated employee concerned with the success of the enterprise but instead someone who is just there to complete some tasks and then get out. Trump's administration - with people like Betsey Devos and Ben Carson - is full of contemptuaries who have little interest in policy, are just passing through, and show contempt for the government and the people their agency is supposed to serve.

Trump's contemptuaries. Not even at the level of amateurs.

24 September 2017

What Would We Be Fixating on if Trump Didn't Control the Media Narrative?

Because Americans couldn't look away from Trump, they now can't look away from Trump. A question worth asking is What would Americans be fixating on if it weren't a topic that Trump pointed us towards?

For about a year, Americans (myself included) could not look away from the train wreck of a candidate who was Donald Trump. He offended everyone from veterans (dismissing McCain's sacrifice because he prefers heroes who weren't captured) to women (bragging about how he can grab anyone's pussy because he's a star) to anyone with a triple-digit IQ ("I know more than the generals," "I know all the words, all the best words"). He kept the country incredulous throughout his entire campaign. I honestly thought at one point that he'd made a bet with some friends about all the things he could get away with before finally dropping in the polls. (Of course now we realize he has no friends. He has only sycophants and people who fear him.)

We couldn't look away from the candidate and now the price we pay for our inability to simply dismiss him and move on with a normal campaign is that we now can't look away from the president. He might gut our healthcare. He may start a nuclear war. He might jettison an investigation that would prove he colluded with Putin to seize the White House. He might pardon any racist who has committed any crime. Now he is the most powerful leader in the world and the damage he can do is worse than any hurricane.

One of my beliefs about us is that what we fixate on we head towards. Like a little kid learning to ride a bike, we steer in the direction of the thing that captures our attention. It's worth being careful about what seizes your attention because - whether it's fear of being alone or poverty or looking foolish - what you fixate on could become your reality.

We're living towards the end of the information economy, a time when little seems capable of holding out attention. In every direction there is a new distraction and it seems shiny at first. Trump's genius was knowing how to seize and hold attention. Now, of course, what he does has very real consequences, whether it is failing to initiate aid to Puerto Rico, Florida or Texas or initiating nuclear war. Before we could not look away. Now we can't look away.

One thing we do know about Trump, though, is that he creates the biggest distractions when he has the most to hide. Talking about "fire and fury" with North Korea or tweeting about firing black athletes who protest are topics that are sure to horrify or embolden people and pundits. And as Twitter and the airwaves become full of these topics, less attention is paid to the mounting evidence that the Trump campaign colluded with Russia to steal the election.

What should the American people and pundits be angrily debating? Not taking a knee in protest. Instead, they should be angrily debating whether the same rules of the Olympics hold with our elections. In the Olympics, if they discover that the gold medal winner cheated, the silver medal winner gets the gold. Once we prove that Trump cheated to win the election, the presidency should go to Clinton. That seems both obvious to me and like a topic that Americans should fixate on. This is unprecedented in our history and, it seems to me, worthy of our focus. Let's start that conversation.

13 September 2017

Americans Were Making About $500 a Month More in 2016 than in 2014 (And How Income Growth Changes Voting)

Yesterday the Census Bureau released new data on household income from 2016. There are a variety of interesting things to come out of that and one really interesting thing about how changes in income change how Americans vote. First some data.

Incomes grew at an impressive rate. Earlier in the recovery, while unemployment remained high, income growth was slow. It has been a spectacular recovery. For 83 uninterrupted months now, the economy has created a jobs. A total of 16.4 million. But the economy started from a 10% unemployment rate. As the economy continued to create jobs, detractors continued to say, "Yeah, but wage growth ..." Well when you have 8 million people still standing out in the hallway hoping for a job, there is not much pressure to raise wages. Later in the recovery, as unemployment dropped below 5%, companies had to start offering higher wages. And they have.

Across all households, median income rose 3.2% to $59,039 and average income was up 3.6% to $83,143. Since 2014, average income is up $6,360. Think about that. That work out to $530 a month in extra income. (Median income is up nearly $400 a month.) This strikes me as a big deal. Car payments, an annual vacation, eating out, paying down debt .... $400 to $500 a month extra income makes a very real difference. This is simply great news and actually unsurprising. For years I've been predicting that the first half of the 2010s would be about lowering unemployment and the second half would be about raising wages.

One other bit of great news is that we're narrowing the gap between white men and women and minorities. Everyone's income grew but the incomes of women and minorities grew at an even faster pace. Median income for all households grew 3.2% but for Hispanics it rose 4.3%, for blacks it rose 5.7% and most impressive of all, for households headed by single women, it rose 7.2%. (For those of you alarmed at an erosion of white male privilege, rest assured that while incomes of white households rose at a lower rate - 2% - it is still higher than other groups.)

In all, this income report is great news. It also suggests the possibility that income growth can predict who Americans vote for.

The data reported goes back to 1967 and I used it to analyze how changes in income change how Americans vote. Since 1967, four Republican and three Democratic presidents have taken over from the previous party. (In 1968, 1980, 2000, and 2016 Nixon, Reagan, Bush and Trump took over from Democrats and in 1976, 1992, and 2008 Carter, Clinton, and Obama took over from Republicans.)

On average, Democrats inherit a worse economy than Republicans. The three Democrats were elected in years when median income was falling an average of nearly 1%. The four Republicans were elected in years when median income was rising by 1%. A difference of 2% is a pretty big deal.

What I make that mean is that whether households are more or less inclined to vote for someone who promises a safety net depends on whether they are feeling good about their income or threatened. When incomes are shrinking, Americans are seemingly more aware of the need for government help; when incomes are growing they are less aware. Good times are bad news for politicians who promise to help you through bad times and good news for politicians who tell you that people don't need much help. If that's right, it might not have been economic woes that caused people to pull the trigger on Trump but instead people who were feeling more secure because of higher incomes.

09 September 2017

Why Kim Jong-un Isn't Giving Up His Nuclear Arms and Trump Isn't Passing Tax Reform

Kim Jong-un of North Korea is not giving up his nuclear arms. The US demanded that Libya's Gaddafi and Iraq's Hussein give up or stop weapon development programs and then later helped their enemies kill them. Kim Jong-un isn't about to trust the US and will keep his nuclear arms in order to keep the US at (nuclear) arms length. If he gives it any thought - and it seems he has - he never give up the nuclear arms that force the US to take him seriously.

Assuming that Donald Trump is as thoughtful as Kim Jong-un, he won't pass tax reform. Why? Once Republicans have that, they will do far less to resist Mueller's investigation even if that investigation leads to impeachment. Right now the GOP doesn't want to risk losing a rare instance in which they have the House, Senate, and Presidency. At least until they get their very important tax cuts.

03 September 2017

Why Even the Experts Vastly Underestimate the Impact of Trade Wars with Developed Countries

I harp on the prospect of a trade war for a host of reasons. For one thing, like the invasion of Iraq or the deregulation of financial markets that helped to set us up for the Great Recession, few people appreciate just how devastating this can be. A trade war has the potential to be as devastating as the Great Recession.

Expert economists worry about the magnitude of this. As someone who regularly works with product development teams in this and other countries, I think even they underestimate it.

A chip maker I worked with this year at a facility in Scotland represents the sort of trade reality that  a simple number like "China represents 4.4% of our trade" does not capture.

This chip company makes chips for cars - everything from the chips that help to control your air conditioner to chips used in self-driving cars. Chips in cars have become ubiquitous and every new car uses more than 100 chips. So what I'm about to describe could be multiplied by 100.

First, a single chip is designed with inputs from design and marketing people from Austin, TX, Germany, Scotland, China, India and Malaysia. Perhaps other sites I was not aware of.

Second, when the chip is physically made it literally travels around the globe in its production process. Value is added in Singapore, Austin, Tianjin, and then Kuala Lumpur.

Third, once the chip is made it still isn't a final product. For that it has to be integrated into a car. The cars it will be incorporated into are assembled in places like Bavaria, Detroit, Seoul, and Puebla.

Fourth, the cars these chips are incorporated into are not made at just one place. A tiny chip that is put into a car comes from half a dozen places. The same is true of the fuel injector, the axle, the pistons, the seat belts, etc. Final assembly just represents a final step in a series of complicated assembly steps for raw materials, intermediate products and final units that are then assembled into a car. Some variation of what I described for the single chip has occurred with most every discrete component in that car.

If you say that 4% of our trade is with China, that may naively refer to the fact that 4% of our products come from there. And that might accurately capture it but I suspect that reality is more like 8% of the value in 60% of our products have some input from China. What I believe the average person wildly underestimates and even expert economists probably somewhat underestimate is the massive complexity in product development and manufacturing and the extent to which any one finished product sitting in your garage, hand or kitchen has design inputs or parts that come from dozens of countries. One of the simplest examples of surprising complexity often used in introductory economics classes is the No. 2 pencil: at one point the lead for the graphite, the rubber for the erasure, and the wood for the pencil came from three different continents.

A trade war would disrupt millions or billions of complex product and design flows that result in the thousands or millions of products that we can buy here in the US. Even disrupting 4% of our GDP would be devastating but a ban on trade from China is likely to impact more than 4% of our GDP. (And of course China is not the only country that trades with North Korea.) If we ban trade with, say, a less developed nation like Cuba an estimate of our trade with them would probably be roughly accurate. Cuba is exporting cigars rather than complex technology made with inputs from knowledge workers scattered all around the globe. But if we ban trade with a country like China that has a complex trading pattern, the ripple effect is incredibly difficult to calculate and could quickly grow beyond casual, initial estimates.

We can only hope that Trump will be less effectual at implementing trade disruption than he was with the Repeal and Replace of Trumpcare. And given that most of Congress is less deluded about how independent we can be of other countries than Trump is, it is unlikely that a trade war will break out. That said, the probability is not zero and the probability is higher than it should be simply because so few people realize how complex are the trading patterns that define even some of our simplest products. It's good that people were outraged at Trump's comments after Charlottesville, but his ignorance there isn't going to cost millions of jobs. A trade war easily could.

01 September 2017

Progress, Sex, and the 24 Hour Workweek

About 90% of men had a job in 1900. (The Labor Force Participation Rate, or LFPR is the measure of this.)
The workweek was 60 hours.

Nearly the same percentage of men - 86% - had jobs in 1950.
The workweek was 40 hours.

Between 1900 and 1950, the workweek shortened and roughly the same percentage of men had jobs. Productivity gains translated into a shorter workweek rather than fewer jobs.

In 2017, about 63% of men have jobs.
The work week is about 34 hours.

Since 1950, productivity gains have translated into a slightly shorter workweek and a significantly smaller percentage of men with jobs.

To keep the same percentage of men employed would have meant a workweek of 24 hours instead of 34 (or 40).

Let me briefly digress onto the topic of sex.

Reading history made me deeply sympathetic to people who we would today call prudes. Pregnancy and childbirth could easily kill a woman a century ago. What people today may consider, "regular, healthy sex" could mean supporting a dozen children, a woman's life metaphorically lost to the logistics of child rearing if her life isn't first quite literally lost in the act of childbirth. To find sex alarming a century or two ago seems to me a wildly rational impulse. There was nothing casual about sex in this time, fraught as it was with sobering consequences.

The Pill - and more broadly, a variety of safe contraceptives - has changed sex. Technically speaking, given the rate at which women died in childbirth, a healthy sex life 100 years ago probably meant celibacy. Today, with contraceptives, a healthy sex life can mean sex throughout the week. Sex has been largely separated from childbirth and even when childbirth follows, it is much safer for mother and child. Casual sex is no longer an oxymoron.

The separation of sex from the natural consequence of childbirth caused a sexual revolution. For one thing, premarital sex has become fairly common in the West for the simple reason that sex no longer has to mean pregnancy. Everyone has to find and define their own morality in this time of easy contraception but the consequences of casual sex are far less dire than they were a century ago. This has forced people to rethink what they consider moral. You may have traditional or modern views on sex but whatever drives them it no longer has to be wrestling with the inevitability of childbirth.

Now let me return to the topic of work.

There was a time when 90-some percent of the population had to work simply to feed everyone. To have someone in your group slacking off could translate into starvation or malnutrition after harvest. In this period it made sense to be harsh with folks who weren't working. Today, though, productivity advances mean that we can feed everyone with just 2% of the workforce. No one is going to starve because a few guys in the corner are playing solitaire.

Technology has made it easier to be productive. We have a traditional definition of work ethic that includes - among other things - a 40 hour workweek. Technology and management enhancements have challenged that model in the same way that contraceptives have challenged notions of morality. 4 six-hour days could be to us what 5 eight-hour days were to our grandparents. Proof that we don't need everyone working 40 hours a week is that only 73% as many men are working as did in 1950. It's a fact that we don't need as many hours worked to enjoy our current level of prosperity; the question is whether we adjust to that by having fewer men work 40 hour weeks or having the same percentage of men work 24 hour weeks.

Gains in productivity, like the Pill, have challenged traditional notions of morality and ethics. You may have traditional or modern views on work but whatever drives them, it no longer has to be worry that if someone slacks off we won't have enough to eat.

If we were to lower the workweek to 24 hours, it could result in labor force participation rates of over 80% (assuming the same total number of hours worked as we do now with 63% of men working nearly 40 hour weeks).

How could this help? For one thing, it would result in a broader distribution of wages, a correction to growing income inequality. For another, people working 24 hours a week could have time to engage in creative endeavors that are high-risk and high-return. Pursuit of art, music, business startups or any of a number of efforts that are likely to fail but - should they succeed - have the potential to make the individual rich or gratified and positively change society.  More time outside of work could result in more binge watching of Netflix shows but also more socializing, exercise, startups, sex, and creativity. More people with jobs could even translate into lower incarceration rates.

Having sex need not mean facing the risk of childbirth. Cutting back on hours worked need not mean facing the risk of starvation. Progress has broken old linkages and given us choices that previous generations did not have.

What a 24 hour workweek would mean, of course, is a change in the definition of work ethic. That's not a tough thing, though. There was a time just a century ago when we thought it normal to work 6 ten-hour days. Why not change that again to 4 six-hour days? It could be fascinating to see what might happen.

Quick acknowledgement.
One reason LFPR for men has dropped is because the LFPR for women has gone up. It might not make sense for men's LFPR to remain closer to 90% when women's LFPR has nearly doubled (rising from 32.4% in 1948 to 57.3% in 2017, roughly 70 years later). Still, the general principle of shorter workweek as a means to sustain higher LFPR holds.

28 August 2017

Watching Republicans

Trump this week: "Bring me tariffs! I want tariffs!"

Me: Somebody has got to stop that kid. He's driving so recklessly that someone is bound to get hurt.
Republicans: Oh you are such an alarmist. He'll be fine.
Me: No. You don't get it. He's going to kill someone with the way he's driving.
Republicans: You can't say for sure that he'll kill someone. Settle down.
Me: True. I can't say for sure that he'll kill someone but driving on the left side of the road does raise the probability of that. Why are you so calm?
Republicans: Kids will be kids. He'll be fine.


Republicans: This is awful! That doctor said he might not be able to walk again. What kind of doctor is he?
Me: I think a pretty good doctor. It's just tough to fully repair a severed leg.
Republicans: This is outrageous. And he said that it's going to take months - maybe years - for him to get through all the operations and therapy. How could this be?
Me: Well, bodies take time to heal.
Republicans: How can you be so nonchalant about this?
Me: I'm not sure what more can be done now. The time when something could have been done was when you were chuckling at him driving on the left side of the road.
Republicans: Oh sure. Blame it on that. You keep going back to that. You're going to criticize him now that he's lying in there fighting for his life?
Me: Actually, it's you I'm trying to criticize for letting him drive like that.

And of course the script changes depending on whether we're talking about invading Iraq, deregulating financial markets, or launching trade wars - or even just more generally making Trump president. Republicans wonder why I'm so alarmed about it when nothing has happened yet and then get angry that occupation of a country costs so many trillions or creates millions of refugees, or that a recession that drives unemployment rates up to double-digits takes so long to recover from or that a trade war actually destroys so many jobs when they were promised that it would protect them.

It would be nice if Republicans decided to learn about cause and effect that plays out over years and use their disgust to stop crazy policy rather than whine about how long it takes to recover from it.

27 August 2017

Why Blog Posts are Better Than Marches

I've gone to a few political rallies and inevitably find them dismaying. There are a variety of reasons for this but a couple of obvious ones are that I find myself in a group of people, some of whom are expressing nonsense and because it requires - rather than challenges - conformity of thought.

The exercise of writing a blog post, by contrast, forces me to articulate thoughts that are not always clear or coherent when I begin but I have feelings about - a process that seems the reverse of protest marches.  A blog post also forces me to articulate a position that is individual (what is the use of quoting - at length - someone else?) rather than fit in with a group that - at best - loosely maps to my own beliefs and sensibilities.

16 August 2017

The Only Enemies Americans Ever Eradicated

We fought the British. We fought the Mexicans. We fought the Japanese. We fought the Vietnamese. When those battles were over there were still Brits, Mexicans, Japanese, and Vietnamese.

We also fought Confederates and Nazis. Two things that were different about these wars.

One, the death toll. Including all deaths during war, from the American Revolutionary War to the wars in Iraq and Afghanistan (but not counting the deaths of Confederates), about one million American military have died. The number who died fighting Confederates and Nazis? 73% of that.

Two, when those wars were over, Confederates and Nazis had been eradicated. They no longer existed. We dropped atomic bombs on two Japanese cities but Japanese still existed at the end of that war. We took Texas and California from the Mexicans but Mexicans still existed at the end of the Mexican - American War. At the end of WWII there were no more Nazis. At the end of the Civil War there were no more Confederates. Those were the only times in history that Americans didn't just defeat an enemy but eradicated them. This would seem to make you a true American if you stand up against Confederates and Nazis

Until, of course, they started showing up at demonstrations within .... the United States.

14 August 2017

Trump's To Do List for August

Trump's (presumably partial) to do list for August

1. Take 17 day vacation on Trump property golf course
2. Criticize McConnell for not working
3. Threaten North Korea with  nuclear attack of "fire and fury"
4. Take 3 days to condemn Nazis and KKK after a violent protest
5. Hire a Communications Director who fires his Chief of Staff after calling him a "fucking paranoid schizophrenic," and then hire a new Chief of Staff who fires the Communications Director before his job had officially begun.
6. Have Secret Service exit Trump Tower after being unable to resolve dispute about how much Secret Services owes for occupying Trump Tower while protecting the president and his family
7. Encourage police to commit acts of police brutality
8. Threaten to invade Venezuela
9. Call the White House a "real dump"
10. Propose a cut to legal immigration

Curiously, in spite of such a bold and ambitious to do list, Trump's approval rating hit a new low (34%) and his disapproval ratings hit a new high (61%). (Gallup poll here.)

It's as if the American people don't appreciate how much effort it takes to get through a to do list like this in a couple of weeks. It's almost as if Americans don't deserve a man like this.

09 August 2017

The Test for Gods and Worldviews

Once upon a time people had a fairly simple test for the power of a God. They simply wanted to know, did he help you to win battles? Constantine supposedly adopted Christianity before a major battle and then won it, cementing his conversion and prompting him to make Christianity the official religion of the Roman Empire.  When Romans proved themselves stronger with their god, other communities took this as proof that this was the god to worship. A few centuries later, a similar wave of "proof" in the form of power and conquest swept down the silk routes from northern Africa to China with Islam.

It is easy to mock this test but it's not the worst test of efficacy; does adopting your god make us more powerful, more able to get what we want? For whatever limits we have in making arguments or accepting data that contradicts deeply held beliefs, we might still benefit from this simple test: does that worldview make people prosperous or poor? Does it give you the power to live a life of your choosing?

Right now facts seem to have gone out of style. Republicans and their president have largely dismissed the importance of facts, particularly the ones that challenge their worldview. People worry that the party - the country even - will never recover and will be hijacked by irrational worldviews that weaken the country. It might.

I think, though, that this worldview is too ineffectual to last long.

In San Francisco, average household income in 2015 was $119,406. In West Virginia average income was less than half that, $56,425.  Less than half of San Francisco's population is white; 94% of West Virginians are white.

Making the assumption that every baby has the same potential at conception - regardless of race or gender - San Francisco is obviously doing a better job of creating prosperity for its residents. It might be that their residents are genetically superior to West Virginians who suffer from a lack of racial diversity; or it might be that the worldview of San Franciscans is more effective than that of West Virginians.

There are a variety of ways to define the difference in worldview but one simple one is to look at how these two communities voted. Fewer than 10% of San Franciscans voted for Trump; more than two-thirds of West Virginians did.

One of two things will happen in our country. Either the Trumpian worldview will spread like a virus and the country will become like West Virginia, a place where Trump holds rallies when he wants comfort. Or people in places like West Virginia will see the worldview of the people in San Francisco - a worldview that embraces diversity and disruption, a place that funds startups rather than tries to protect a coal industry that first emerged in 1740 - as more powerful and adopt it. If the first happens, the country will look back at the 20th century as a golden time; if the second happens, West Virginians will look back fondly at the time that their grandparents adopted a new worldview that made them prosperous and powerful rather than poor and angry, roaring approval of a man who manages to connect with facts only about 25% of the time.

07 August 2017

The Pyramids of North Africa You've Never Heard of (or, how Islam spread so rapidly throughout Africa and Eurasia)

In Peter Frankopan's new book, The Silk Roads, he offers one explanation for the spread of Islam that I'd never heard before: it was a pyramid scheme.

In 614, the Persians conquered Jerusalem, the most holy city in Christendom. It is hard to overestimate how alarming this was to the Christians of the Roman Empire. "The True Cross on which Jesus was crucified was captured and sent back to the Persian capital as a trophy of war."

The Byzantine Empire (what was left of the Roman empire) won back Jerusalem in 627, seriously weakening the Persian Empire in the process.  By that point, the Persian and Byzantine empires had both been decimated. Between 628 and 632, the Persian Empire dramatically collapsed and anarchy took its place through much of its old empire. It was into this milieu that Islam emerged.

In 610, Muhammad began to receive revelations. In 622, he fled to Medina, a date that would become year one in the Islamic calendar. His revelations came out of a time when the old empires were crumbling and the holiest city was under hostile occupation.

How Islam Spread:
As the Persian Empire collapsed, Muslims began to conquer the lands and cities they lost.
"Willing to sanction material gain in return for loyalty and obedience, Muhammad declared that goods seized from non-believers were to be kept by the faithful. This closely aligned economic and religious interests.
"Those who converted to Islam early were rewarded with a proportionately greater share of the prizes, in what was effectively a pyramid system. This was formalized in the early 630s with the creation of diwan, a formal office to oversee the distribution of booty. A share of 20 percent was to be presented to the leader of the faithful, the Caliph, but the bulk was to be shared by his supporters and those who participated in successful attacks. Early adopters benefited most from new conquests while new believers were keen to enjoy the fruits of success. The result was a highly efficient motor to drive expansion."
The city of Baghdad from about the 10th century

Given the Muslims were filling in a vacuum left by falling empires, conquest sometimes required little in the way of battle. "Damascus, for instance, surrendered quickly after terms were agreed between the local bishop and attacking commander." Basically, the folks in Damascus could keep their churches open but were now expected to pay tax to the prophet rather than Constantinople. Later, the Muslims' conquest of Egypt tripled their income from taxes and often just the threat of military force against other people was enough to provoke negotiation and surrender. The Muslims ignored Europe because it was so poor, concentrating instead on the Middle East and eastward to the border of China. The result was worth billions of dollars (in today's terms), making the Muslims and all of those conquering converts rich. Very rich. One wedding in what is now Baghdad included presents from the groom to people all over the country: "gold bowls filled with silver and silver bowls filled with gold were taken around and shared out ..."

In the wake of these conquests, the Muslim world was incredibly wealthy. They were not only materially rich but intellectually rich, with leading thinkers in philosophy, physics and geography. Their thought leaders wrote about medicine and lovesickness, how the world revolves around the sun, and the concept of zero. Money funds leisure and even the pursuit of knowledge. Not all of these great thinkers were Muslim but they were drawn to its world and resources.

Islam is a religion. Curiously, its expansion seems to have been fueled by a very clever business model: profit sharing from conquest for anyone who converted. It was a model that seemed, in retrospect, to ensure plenty of converts and plenty of cities and territories in which they could live.

05 August 2017

The Entanglement of Desire, Identity and Suicide

We are creatures of desire.

Desires make us happy but can also hijack us. We can find shortcuts to satisfying desire that lead to addictions to drugs, alcohol or banana nut muffins.

Scientists have found ways to suppress desire. The good news is that this seems to work. People taking the drugs that dampen desire lose weight or stay sober. Compulsion gives way to control. That's pretty good.

The problem is that when you begin to tamper with reward centers, you begin to tamper with our reasons for being. A life without desire is a life full of control yet empty of reward. These drugs targeting the desire for food or alcohol can wipe out our desires more broadly.

Desires can - and have - taken anyone in directions they regret:  the good sex with a bad person, the 5th slices of delicious pizza that hardens arteries, the alcohol that impairs judgement.

Desires also make us different than robots or our daily planners. It's hard to find joy in rotely going through to do lists full of tasks that never feel rewarding to complete.

One of the challenges with designing drugs to target desire is one of entanglement. Part of what happens when you eat is that it lights up rewards centers - similar to what happens when you win a video game, have sex, snort cocaine, or solve an intractable problem. One problem with tamping desire for the things we shouldn't have is that it can mess up reward centers; it's an entanglement problem, a question of how you manage to take away one desire without messing up desire and reward more broadly.

When you start tinkering with desire you start flirting with suicidal impulses. These drugs that give us more control by suppressing desire also have a tendency to drive a rise in suicides. Suppressing desire can suppress the will to live. Even our less noble impulses are entangled with a reason to live and desire is entangled with what it means to be human. Kill our desires and it makes us want to kill ourselves.

Maybe the trick is to have desires but not let desires have us. Talking to a scientist this week who I was working with on a project to develop a drug targeting dangerous desires, she said that studying this has simply led her back to an embrace of the simple philosophy of, "moderation in all things."

Desire is part of our identity and that is not just the stuff of drama that dates back to Homer's stories of the gods but determines how happy we can make ourselves and others. Desire is itself something to be desired.

That's kind of fascinating.

01 August 2017

Top 26 Largest US Cities Ranked by Median Household Income

For context, US median household income for 2015 (the year reported on above) was $55,775.

Data sources:
Population of cities here.
Median household income for cities in 2015 here.

Related - highest income communities here. (Top 20 listed below, these are much smaller places and thus vary more from US median.)

25 July 2017

What To Do About the Immaturity of Systems Modeling

Sam Harris recently had a conversation with Scott Adams (Dilbert creator and author of How to Fail at Everything and Still Win Big) about Trump. Adams predicted Trump's victory because he sees Trump as a master persuader. There's a lot to say about that but Adams made a really useful distinction about what he saw as the three stages of climate change policy. He distinguishes between:
1) The reality of climate change as an ongoing phenomenon that seems to be man made;
2) The ability to simulate future climate change with good models; and,
3) An appreciation of the economic policy implications of the above.

A decade or three ago, it was fashionable to dismiss climate change. This has become problematic for at least two reasons. One, the science is not that sophisticated. Certain industrial activity releases greenhouse gases. These gases - as the name suggests - work like a greenhouse and trap heat. That science is not exactly quantum entanglement and the data for greenhouse gas emissions and resultant warming seems to track pretty well to the theory. So Adams cedes this point and allows that climate change is probably real and ongoing.

Adams worked as a financial analyst at a bank, though, and challenges the second point: the ability to simulate future climate change. He said that it reminds him of the financial models he ran as an analyst that - should they reveal something his boss didn't like - could readily be changed with just a tweak of a few variables. Given we can't really forecast accurately what might happen, it is good to be skeptical, he says.

In this he has sort of put his finger on something really important and is sort of missing the point (probably intentionally).

What is really important is that systems define so much about what does or does not go well in our world - systems as varied as the economy and financial markets, energy systems, ecosystems and school systems - and yet we really don't understand system dynamics that well. Systems are tough to model and our models are not great. This is reason to be skeptical about any predictions but it also suggests that systems modeling deserves a massive infusion of research money. A crowd was gathered to watch a hot air balloon ascend and some woman said, "What is the use of all this new technology." Benjamin Franklin answered, "Madam, what is the use of a new born infant?" Systems simulation matters a great deal and is not that mature. Better to invest more heavily in it than to walk away from it. (And I think that computers' ability to simulate systems is maturing just when that capability is most needed for shaping policy dependent on such systems.)

And even with admitted limitations of models for any systems, it is worth asking whether even the models Adams was tweaking for his boss were all that bad. Once you understand a model for an economy or business, you articulate risks, a range of outcomes, and important variables. With good models you learn what factors they are most sensitive to (housing mortgages are sensitive to widespread economic downturns or refinancing from a drop in interest rates, for instance) and even spotty historical data can give you some sense of the probability of those events. (Yes. Nassim Taleb has rightfully pointed out that markets can be rocked by unpredictable events but risk mitigation can protect you from some of these rare events. A person who has saved three years of salary is better prepared for an event "they never could have predicted" than is someone with only three months of salary.)  Financial models are a little sketchy in prediction but there are ways to gauge their efficacy in spite of a large margin of error. (For instance, only about 20% of businesses succeed past 5 years. If your bank lending model assumes that is going to raise to 50%, it will probably be wrong; if it assumes that it will raise to 25% or drop to 15%, it could be right but done properly even that should require a coherent explanation that tracks to the numbers rather than arbitrary tweaks.) Further, to the extent that Adam's boss was unique in cheating the models so that they showed what he wanted, his bank would suffer. There is a drive to make models more accurate and - within the financial world at least - big rewards for such accuracy.

Models force questions and conversations about what variables matter and they bound reasonable outcomes. It is true that climate change models will be wrong but the simplest truth is pretty easy to predict: we will emit more greenhouse gases and temperatures will be higher than they would have been without these emissions. There are a host of unknowns that come with that (will particular regions benefit or lose, will changes in wind or sea currents result in unexpected cooling in certain regions, might unforeseen natural phenomenon or new technology absorb these gases, etc.) but the general story is known. If you invest in stocks over a 25 year period you can't be sure of when your portfolio will drop by half or raise 20% a year for successive years but you can reasonably guess that over your lifetime you'll be a better shape for having saved 10% of your income than not. Same with greenhouse gases; reducing emissions will drive less uncertainty, disruption and climate change.

Denying climate change is in a long tradition of denying scientific results like the health hazards of tobacco or the notion that we orbit the sun. Climate change deniers are traditionalists who conflate market economies with oil and gas and see an admission of climate change as a threat to those forces. (It does seem like climate change will threaten oil and gas. The possibility of oil and gas being displaced by alternative energy is not a refutation of markets that periodically unleash gales of creative destruction, though, but is instead an affirmation. Markets are no more dependent on oil than horses and markets don't treat fossil fuel industries as sacred.)

As to Adams' third point about evaluating the economics of climate change policy, I'll just say this. If it is inevitable that we'll adapt new energy technologies, there is less likely to be a penalty for rushing into creating and then converting to alternative energies than there is to be a penalty for delaying that change.

24 July 2017

Why Tax Policy Is Largely Incidental to Economic Development

Two quick things about taxes.

Studies suggest that if you try to increase government revenue by raising tax rates, the rich leave. The result? Your higher tax rates result in about the same tax revenue. So, if your route to making your government more vibrant and healthy is raising tax rates, you'll fail.

Studies also suggest that tax breaks for job formation are really expensive. It looks like you have to pay about $100,000 per job by taking the tax incentive route. So, if your route to making your business sector more vibrant and healthy is lowering tax rates, you'll fail. The rest of the community is unlikely to get $100,000 back in taxes and additional business for each new job created in the area.

Tax policy - whether to raise tax rates for your government or cut tax rates for your businesses - is an admission that you don't have any good ideas for development. 

Economic development is a slow game and has a few elements. 

1. Create an alliance between city leaders, education, and industry to facilitate the creation of wealth and jobs through the creation of new businesses and technologies. Fred Terman at Stanford worked to bring in venture capitalists onto campus to collaborate with his professors and students; his early students included Hewlett and Packard.

2. Welcome and attract the best and brightest from any and everywhere. Do this by hosting conferences on important topics, by developing university programs for emerging technologies, nurturing startups with mentors and financing, and promoting a culture of entrepreneurship starting as early as high school. Alphabet (nee Google) has 70-some thousand employees and - like half of the tech companies in Silicon Valley - was co-founded by an immigrant.

3. Make your city a great place to live. This gets overlooked but ultimately you want to attract employees and entrepreneurs and world-class researchers who can afford to live anywhere and will choose to spend a good portion of their wealth and income to live in an area that they love and is stimulating. This means public works projects like art and museums and it means taking advantage of and incorporating into your city, natural beauty and / or good weather. California has relatively great weather and Seattle - a place that has created an abundance of wealth in the last 30 to 40 years - is surrounded by natural beauty. Edinburgh has developed a vibrant startup scene in part because it is such a great city that Scotland's best and brightest are happy to live there, making it easier for companies to attract talent. Creating a great community also means including a lot of voices in the definition and pursuit of quality of life. 

Bookstore door in Seattle, close to Pike Market
4. Welcome diversity. West Virginia's population has dropped in the last 50 years. California's population has gone up 4X. West Virginia is 92.3% white. California is 37.7%. From the early Silk Road that facilitated trade between folks who live in what is now Europe, Iran, India, and China to Silicon Valley, regions that have brought together people from a variety of cultures and perspectives are the regions that are more creative and prosperous. And diversity doesn't just mean skin color or cultural background. Places like California's Bay Area and Seattle have not just created billions in wealth; anyone who has spent time there will tell you that these areas are also hotbeds of radical ideas. It almost seems like it is the same magnet for diversity that will attract people from other countries, communists, and venture capitalists and if you're unwilling for one or two (or, given it is is diversity, twenty or thirty) of these categories of people and thinkers, you're unlikely to get any of them.

Each of the above points deserve their own blog post - their own set of books, really - but taxes are tools towards these goals, not something that will magically create a better community. You shouldn't invest in Business A instead of Business B simply because Business A said they need less capital. Nor should you be impressed that Business B needs more capital so is obviously building a more impressive business. Capital is necessary to a business just as tax revenue is necessary for a community but the fact of it being higher or lower is largely incidental to whether that business or community will prosper. 

16 July 2017

Red State, Blue State, Old Jobs, New Jobs

Edward Glaeser's Triumph of the City [2011], opens with some statistics that illustrate the remarkable contrast between big city productivity and smaller city or even rural productivity.

About half the US population "crowd together in the 3 percent of the country that is urban." "Workers in metropolitan areas with big cities earn 30 percent more than workers who aren't in metropolitan areas." And the bigger the city, the more this effect is exaggerated. "Americans who live in metropolitan areas with more than a million residents are, on average, more than 50 percent more productive than Americans who live in smaller metropolitan areas. These relationships are the same even when we take into account the education, experience, and industry of workers. They're even the same if we take individual workers' IQs into account." {emphasis added]
"On average, as the share of a country's population that is urban rises by 10 percent, the country's per capita output increases by 30 percent. Per capita incomes are almost four times higher in those countries where a majority of people in cities than in those countries where a majority of people live in rural areas."

GDP is measured by exchange. Big networks make it easier for people to easily exchange goods, services, and ideas. If you live in a rural area, two miles from your nearest neighbor, it is much harder to exchange anything than it is if you live in a densely populated area where a million neighbors are within a mile. Bit city networks are rich and complex; rural networks are sparse.
City of the Future, Lev Rudnev, 1927

There is so much to this but one comes from openness to innovation. Cities are like diversified portfolios. If you own 50 different stocks, you just accept that one (or two or four or ten) will shrink in value as markets shift; your entire portfolio may well do better in disruptive, tumultuous markets because the one (or two or four or ten) stocks that thrive through this change could create wealth that is worth multiples of what you lost in the bad stocks. The investor who owns one or two stocks sees big change as a threat because if one or two of her stocks collapse in value, the whole portfolio does. There is so much going on in a city that its people can more easily adapt to innovation and disruption. You get laid off from one failed startup and you go to work at another. In a rural area, if you get laid off from a company you may literally need to move out of state. And as a people become more open to innovation and disruption, they create more value over time than people who try to conserve what they have and protect themselves from change.

As an economic model, cities just work better than rural areas. To the extent that the country moves in the direction of what works best for rural areas, it will generally move in the wrong direction for economic progress.

12 July 2017

Things That Seem Fictional Even Now

Trump's candidacy and administration has been bizarre. If you were to make up any of the following for a novel or screenplay about politics, it would likely be rejected as too incredible.

Jared Kushner, Trump's son-in-law, who has been given authority over more domains of the executive branch than possibly anyone in the last century, owns 666 Fifth Avenue, NY.

Trump appointed Rick Perry - who as a candidate for GOP president wanted to eliminate three agencies, one of which he could not remember - to head up the agency (Energy) that he could not remember.

Within hours of the release of a report endorsed by 17 national security agencies that reported on Russia's interfering with the election to help Trump, Russia dumped private emails from Clinton's account. (Also in that same small time period was the release of Trump's notorious "grab 'em by the pussy" tape in which he talked about how when you're a celebrity women let you do anything.)

Trump's first wife Ivanka testified during their divorce trial that Trump slept with a book of Hitler's speeches by his bed.

10 July 2017

What Made - and Still Makes - Western Civilization Great

The battle between social conservatives and progressives

In last week’s speech in Poland, Trump warned about a threat to Western Civilization. He mentioned “history” six times and spoke of          “the bonds of history, culture, and memory,” and “the bonds of culture, faith, and tradition.” Speaking for the right, Trump is proudly pointing to the West as having a superior tradition worth fighting for.
Douglas Murray, author of The Strange Death of Europe: Immigration, Identity, Islam, argues that the Left in Europe is essentially embarrassed to argue that their culture is really better than any other and authorities have actually looked away number of atrocities, including honor killings (families killing their own sisters and daughters because of their shame at who they’ve married) because it might seem racist to prosecute these as crimes.
So we have the Right arguing for tradition and the Left arguing for cultural relativism. The one would head backwards and the other would stand around awkwardly, apologizing for seeming to suggest that their ways are any better than that of any other people.
What seems to be missing is the appreciation for history without treating historical institutions as sacred or a culture as synonymous with race or nationalism (which it is not).
The West was seemingly the first to do something that set it apart and set it on the road to progress. This is worth defending.

How we think about institutions defines our communities. Three ways to characterize the great institutions of the West like church, state, and bank are:

      Sacred objects that must be preserved: this the attitude of the social conservative
2.      Obsolete objects that must be eradicated: this the attitude of the radical
3.      Simply tools that everyone should have access to: this is the attitude of the progressive

The debate in the West today is between social conservatives and progressives. The radicals who in past generations argued to outlaw religion (as the French Revolutionaries and Soviets did), financial markets (as communists throughout the world did last century) and even the nation-state (as anarchists have) are largely ignored in today’s political debates. Institutions separate us from the other primates and the real argument is not over whether we should have them but how we should treat them.
The most defining revolutions of the West were led by progressives and transformed these institutions:

1.      Church - the battle between Protestants and Catholics that gave us freedom of religion between about 1300 and 1700
2.      Nation-state – the battle between royalists and revolutionaries that gave us democracy between about 1700 and 1900
3.      Bank - the democratization of financial markets that gave us the American dream between about 1900 and 2000

Each revolution turned a dominant institution ruled by elites into a tool used by the average person. These were not one-time events. For instance, democracy was a revolution but it took centuries more to extend it from white, property owning Protestant men to even 18-year-old minority women. Early forms of religious freedom just gave you a choice between Catholic, Calvinist and Lutheran, not the thousands of denominations and religions (including atheism) available today. Like economic progress, this social progress isn’t something that happens one year and then stops; it is on-going and progress is as dependent on social change as it is on technological change.
Social conservatives are more likely to wonder about the intentions of founding fathers. If you see institutions as tools, though, the idea of protecting them from change is about as odd as insisting that Rudolf Diesel or Henry Ford never intended for us to drive cars with cup holders or GPS. Even if true it’s irrelevant to those of us alive now.
It’s difficult to understand how visceral is the reaction to Trump without understanding how differently social conservatives and progressives think about our major institutions.

First amendment:
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.

As it turns out, freedom of religion, free speech, a free press and political activism are all intertwined. Our founding fathers had genius enough to see that and packaged them into the same amendment. All have to do with freedom of thought but started with freedom of religion.
In 1302, Pope Boniface issued a bull that asserted his lordship over all of Christendom. By 1648 the Treaty of Westphalia essentially took away the pope’s power to dictate religion to a ruler and the ruler’s power to dictate religion to the people. The battle for freedom of religion played out between roughly 1300 and 1700 and gave us terrible atrocities like the Spanish Inquisition and the Thirty Years War that killed about ten percent of Europe’s population before reaching a resolution.
Had freedom of religion merely brought peace, that would have been enough. There is more, though. Once you’re free to choose your beliefs, you might just choose to base those beliefs on scientific evidence rather than religious revelation. As it turns out, freedom of religion allows scientific thinking to flourish.
In the early 1600s, the Church put Galileo under house arrest; by the late 1600s, England made Newton the Master of the Mint. Freedom of religion enabled the rise of science.
Progressives see in Trump’s travel ban targeted at Muslims not just a challenge to freedom of religion, which is reason enough to be upset. They see it as an attack on freedom of thought. Trump “knows” that Islam is the wrong religion and that climate change is not real and that he’s being attacked by “fake news.” Social conservatives see Trump as protecting their true and sacred religion; progressives see him as attacking freedom of thought.

The next big revolution played out between about 1700 and 1900. At its beginning monarchs had absolute power and by its end those monarchs were either constrained by law or had been removed. The nation-state had become a tool for the average person and not just the elites. Rule of law and a representative government are foundational to democracy and both continue to evolve.
Newton defined laws that could apply universally to any object, from planet to moon to apple. His friend John Locke argued for laws that would apply universally to any person, from aristocrat to merchant to laborer. Laws that governed the natural world and should govern the social world were a focus of the Enlightenment thinkers who inspired democratic revolutions.
When Trump asks the head of the FBI not to investigate his National Security Adviser, this is a challenge to the rule of law, taking us back to the old system of personal privilege. When he leads a task force to investigate voter fraud (that all studies suggest is nonexistent), he is actually moving to make voting more restrictive. (Although he does seem rather sanguine about foreign interference, even if he’s trying to block Americans without photo ID.)
The invention of the car was dramatic but no one with a choice between a Tesla and a Model T would choose to drive the T. Like the car, democracy continues to evolve. If 1776 was the moment Americans “invented” modern democracy it is worth remembering that voting rights continue to expand to include more people over time. It took 200 years before the 18 year olds we sent to war could vote.
The real question is, who should be able to define the policies that define the community they live in? Put differently, is the government a tool for anyone to use or is it reserved for just a few? Progressives and social conservatives have very different answers to this.

The most recent of our great institutions to be made a tool of the masses and not just the elites is the bank (or, more broadly, financial markets that include credit and investment markets). This access has helped people to become more affluent and more able to define their own lifestyle.
The levels of consumption that enable individuals to pursue the American dream would not be possible without modern capital markets. Warren Buffet argues that his upper-middle class neighbors in Nebraska live better than John D. Rockefeller did roughly a century ago. The cars, smart phones, TVs, and polio vaccines the average American now has rely on vast amounts of capital. The billions it takes to produce and purchase this vast array of goods would boggle the mind of any adult living in 1900, even John D. Rockefeller.
Access to financial markets gives the individual access to the American dream and the credit card and 401(k) account might be the simplest symbols of this broadening of access. Keynesian economics is another element of this revolution.
One of Keynes most overlooked insights into capital markets was this: capital markets could reach equilibrium before labor markets did. In other words, it was possible for capitalists to stop investing before a community reached full employment. If capital markets were just tools for elites, communities would have to accept this; if they were to be tools for the masses, communities would have to adopt policies that changed this. Keynes gave us options for this.
Unemployment during the Great Depression hit 25%; during the Great Recession, it peaked at 10%. One big reason for the differences in severity was the application of Keynesian stimulus; Bernanke did all he could to prop up credit markets to encourage investment and consumption. Like church and state before it, the bank has been made a tool for the average person. Interest rates were used to maximize employment, not returns to capital.
Social conservatives don’t like the Federal Reserve or its charter to subject financial markets to larger goals like employment. Again, as with church and state, they feel that what we’ve inherited is sacred and should not be changed. For them, Keynesian is a bad word. The battle between social conservatives and progressives over banking regulations and Federal Reserve policy often seems obscure but there is a reason that bank is the first part of bankrupt. The consequences of getting this policy wrong are severe.

For centuries, progress has followed from letting more people have access to these great institutions, using them as tools for their own benefit. Life got better when our founding fathers extended the use of government from just aristocrats to landed gentry; it got better again when it was extended to women in the early 20th century and to minorities in the late 20th century. There is no evidence that progress now lies in the opposite direction, in restricting rather than broadening access to freedom of religion, democracy, and the American dream. The more that people have been able to use church, state and bank as tools for their own lives, the better the world has become.

05 July 2017

The Bill of Rights and the Difference Between Modern Republicans and Democrats

The first two amendments to the constitution regard freedom of speech and the right to bear arms. All you may need to know about the modern Republican and Democratic parties might be summarized in these simple stats: 31% more Republicans than Democrats think the US has gone too far in expanding freedom of the press and 32% more Democrats than Republicans think the government should ban high-capacity magazines. Republicans are threatened by free speech and Democrats are threatened by automatic weapons.

Here are the differences between Republicans and Democrats in regards to gun policy:

Here are the differences between Republicans and Democrats in regards to freedom of the press. 42% of Republicans think that freedom of the press has gone too far.

This is a wildly incoherent thought, one that is fueled by Trump's incessant attacks on #fakenews. So much about this is bizarre (how would you even regulate speech or "the press" in this modern world?) but perhaps the weirdest thing is that this isn't about the genuinely fake news of folks like Alex Jones who Donald Trump has praised (and who recently had a guest on claiming that NASA is shipping children up to Mars where they are forced to work as slaves) but instead about the real news of folks like the New York Times and Washington Post who continually reveal that Trump tells the truth only about 25% of the time. What convinces Republicans that the press has gone too far is not actual fake news but instead good reporting that reveals Trump's disinterest in facts or evidence.

Democrats think that guns are dangerous and should be better regulated. Republicans think that ideas are dangerous and should be better regulated.

First amendment:
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.

Second amendment:
A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.