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.

Context:
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.

Revelation:
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. 

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, not 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


INSTITUTIONS AS TOOLS OR SACRED OBJECTS
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.

INSTITUTIONS AS SACRED OBJECTS OR SIMPLY TOOLS
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.

FREEDOM OF RELIGION
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.


DEMOCRACY
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 AMERICAN DREAM
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.

INSTITUTIONS AS TOOLS
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.

01 July 2017

Policy, Politics, and Personalities

Donald Trump has shown no interest in healthcare policy in the midst of the most important debate on the topic in a decade but he has obsessed over a feud with two TV personalities. If it seems odd that a president would ignore fundamental issues in a signature promise of Republicans (repeal and replace Obamacare) but tweet incessantly about a couple that maybe 1% of Americans watch regularly, you are forgetting something. It was his mastery in getting ratings - not his mastery of policy - that got him elected. Trump didn't come to national attention as a policy maker or politician; he gained fame as a reality TV star. He has no interest in policy matters or debates but does obsess over other TV stars.

I've gradually come to accept that my own fascination with policy sets me apart from many (most?) voters who instead find politics - who is more popular and why - more interesting. Politics is one step removed from policy but now, Trump has taken us one step further away: we've moved from politics to personality.

It's easy to think that he's got an interest in politics because he ran. I don't think that's it. I think he's interested in Fox News and the way that various personalities get higher or lower ratings. He knows how to drive ratings and is happy to tweet the most outrageous things to distract the world from politics or policy. Winning the presidency shows the ultimate ratings mastery.

He would glaze over in a conversation between Thomas Jefferson, Abraham Lincoln and FDR as they discussed government and society and would at best contribute little platitudes that sound like they were lifted from a 7th grader's essay. By contrast, he would light up in a discussion between Roger Ailes (who made Fox popular), Chuck Lorre (Big Bang Theory, and other popular TV shows), and Rush Limbaugh as they discussed ratings and would be able to contribute incredibly insightful suggestions about how to raise ratings.

Trump has no interest in policy beyond what it does for his ratings. He promised not to touch Medicare and is now pushing a bill that would slash it in part because he's a liar and in part because he just doesn't care; promising to protect Medicare meant higher ratings during the election; now pushing for a GOP bill that cuts Medicare means higher ratings during his presidency.

Cerebral discussions don't drive high ratings. Visceral arguments do. Trump puts the id in ideology.

He's off to a G20 summit where world leaders will discuss big and important issues. As they obsess over the environment or economy he will obsess over which world leaders insulted him and which ones flattered him. As it turns out, the instincts that give you the ability to raise ratings overlap with the instincts that keep you popular in middle school. It's not just that Trump's intellect is woefully underdeveloped; his stunted emotional development makes him can't miss twitter.

Policy under Trump is atrocious. Politics is in shambles. You would think that all of that would matter but it doesn't. What matters is personality and Trump's keeps the nation riveted.

29 June 2017

This is What a Virtual Coup Looks

The GOP has taken over the federal government and could keep it through 2032.

In 2010, the GOP targeted and won key elections in order to be able to shape national elections through 2020. Now, for instance, while Republicans make up about half of Wisconsin's polity they have about two thirds of its elected offices courtesy of gerrymandering. By refusing Obama's Supreme Court appointment, the GOP now has a majority on the Supreme Court. With the help of Putin, they now have the White House and probably one or two more Supreme Court appointments than they would otherwise have. And, finally, now that they have power over all three branches - courts, legislature, and executive branch - they are able to stop any investigation of Russia, enabling it to continue its meddling with our elections (something 17 national security agencies all agreed they had done and would continue to do) while also continuing with voter suppression efforts that arguably stole hundreds of thousands of votes in swing states. (One of the many things overlooked in the question of collusion is the certainty that Trump - and the GOP more generally - will do nothing to stop Russia from interfering once again. Why would they if it helps them to win?) The head of the Census recently resigned out of protest for not having budget enough to properly conduct the 2020 poll; the results of not having a valid 2020 poll will likely give Republicans cover for not updating any demographic or census data from 2010, effectively extending their gerrymandering victory of 2010 to cover 20 years rather than just 10. In this they are ignoring a constitutional mandate necessary for democracy. (No census, no information on which states and regions should have more or less representatives.) They won't loosen their grip on national offices until 2032.

What are they doing with this power? They're instituting policies for which they don't have popular support.

The Republicans will get their tax cuts and will make their donors happy. And given they'll keep these tax cuts in place for at least a decade, they will become the new normal against which even moderates will be judged in any future quest to change things. It's also worth remembering that the most powerful Republicans and their donors will be dead soon. The Koch Brothers are 77 and 83 and will be dead by 2032. So will Robert Mercer, Mitch McConnell, John McCain, and Donald Trump. What happens after is speculative and, frankly, won't involve them. Trump, who is as immoral as any president since possibly Andrew Jackson (Trump's favorite past president), is the conscience of this party; it is not a party burdened with morals or any consideration of fair play. This is about power and profit.

The Republicans will pass a healthcare bill that Americans oppose and then follow that up with tax and budget cuts that lack popular support. Analysts and pundits will fret about how this will create problems for Republicans but of course it won't. Republicans represent the donors who can now spend unlimited money rather than the voters who can cast only one vote. Their gerrymandering has given them power disproportionate to their numbers: Republicans won less than half of the votes cast for House members in 2016 but won 55.2% of the House seats. With further help from Russia and voter suppression, they can leverage this vote into an even bigger gain in future elections. They've seized control and while there might be legitimate uncertainty about what they'll do with that power, we can be certain they won't give it back willingly.

The five most valuable companies today are Apple, Alphabet (nee Google), Microsoft, Amazon, and Facebook. American businesses have led in the creation of a new virtual world. American government, however, has yet to move into this new world. The result? The country so able to defend itself against any real world attacks has been virtually attacked. Putin has attacked us virtually, where we have little or no defenses; the GOP apparently sees no reason to defend itself against what benefits them. We've been the victim of a coup. Because it was virtual, most people still don't think it's real. The Republicans - intent on passing legislation that Americans would never vote for - know that it is.

26 June 2017

Minimum Wage

I believe in a minimum wage. Companies adapt to regulation in the same way that they adapt to market competition. If a community insists that companies have to pay at $7.50, a company has two choices: figure out how to create a profitable business even while paying this much or go out of business. A community has no obligation to keep in business a management team that can't figure out how to design a business to be profitable while paying people something approximating a living wage.

That said, there are at least two things that need to be considered in setting a minimum wage.

The first is the current distribution of wages. A third of Americans make an annual salary that equates to less than $10 an hour. Half make less than $15 an hour. If you - as Seattle has recently done - decide that the minimum wage should be $15 an hour, you have to explain yourself. I completely agree that laggards who can't, say, pay at least $7 an hour should be forced to change their business model or close shop. I like the idea of a legislative sheep dog nipping at the heels of the businesses that are in the bottom 10 to 30%, forcing them to move faster. It's a different thing, though, to suggest - as a $15 an hour wage does - that all the jobs should be above average. They won't be.

And that takes us to the next problem with the minimum wage. Whether it is set to $1 an hour or $25 an hour, there will be some people who aren't productive enough to cover that wage. It makes sense to tell businesses that they have to pay a certain minimum; regardless of what it is, though, some people are not productive enough to merit hiring. Those people need subsidies of some kind; not all needs will be addressed with a living wage.

The deeper need is for study of how jobs are evolving and a search for ways to move median productivity and wages. Individual success moves you from the bottom of a bell curve to the top; community success recognizes that there will always be one person at the bottom and one at the top of the distribution and will focus instead on moving the whole curve.

23 June 2017

Out of the Multitude

Do I contradict myself? Very well, then I contradict myself, I am large, I contain multitudes.
- Walt Whitman

Everyone is a multitude. When you address them, talk to their best self. See if you can get that self's attention first. They'll be better to deal with and that is the self you want a relationship with. At any given moment you might wake up their low self-esteem self, their angry at the injustice of it all self, their benevolent self, their irritated at you self ... To raise the odds of missing these sorts of characters, directly address their best self.

Of course sometimes that's like trying to get the attention of someone at a loud party.

12 June 2017

How Gaming Is Shaping a New Worldview

Mary Meeker delivered her annual Internet report Sunday. One of the points she made was about gaming.

  • Entrepreneurs are often fans of gaming, Meeker said, quoting Elon Musk, Reid Hoffman and Mark Zuckerberg. Global interactive gaming is becoming mainstream, with 2.6 billion gamers in 2017 versus 100 million in 1995. Global gaming revenue is estimated to be around $100 billion in 2016, and China is now the top market for interactive gaming.
One question she and the team at Kleiner Perkins asked was what does gaming prepare us for? I think it is teaching simulation to a generation who will need to become more adept at systems thinking.

The more one can play with the variables of a system, the better one understands it. To use a simple example, our company has software that lets a business unit forecast project completion dates based on shared resources and project priority. As you change the number of resources, project priorities, and how you model the use of resources within projects, the projected launch dates for these product development projects changes. One of the senior managers I once set up with this capability drove from Philadelphia down to Delaware each day for work. He told me that on his commute he would think about variables to change in order to explore what was possible to accelerate product launches. "I always sort of understood my business unit," he says, "but doing these simulations I came to understand it far better than I ever had. I learned what happened when I changed this variable or that one, what made a surprisingly big difference and what made hardly any difference and in what conditions. I understood the dynamics of the system in ways I never had before."

A great deal of what we see today shows graphs and numbers. "India is growing at 8% a year." "Smart phone sales are growing by 10% a year." What we have less experience with is simulations that allow us to change recent trends. "What might happen to its growth if India's move away from paper currency results in more theft from hackers?" "What happens to smart phone sales if they become a replacement for credit cards?" 

A simulation lets us do a few things. One, it lets us play with policy ideas. Two, it lets us explore the implications of entrepreneurial initiatives. Three, it helps us to better understand the way variables might interact to create emergent behavior that is the result of a the interaction of the variables in the system rather than the actions of any one variable in the system. Simulations will never be accurate. They can, however, be informative.

We are at the infancy of systems thinking in the same way that Europeans in 1700 were in the infancy of Enlightenment thinking. We will get better at simulating and thus understanding systems, systems as varied as ecosystems, financial systems, and educational systems - the variety of systems on which we're so dependent for our quality of life.

What is gaming prepare us for? It gives people practice with countless simulations, learning how changing one thing can change another, how this strategy results in an early death and this one lets you conquer the kingdom. Gaming teaches us that systems never depend on just one variable and that outcomes can never be determined even though probabilities can be changed. Gaming will make systems thinking and systems simulation intuitive to a new generation. That's pretty cool.

10 June 2017

The Biggest Danger of the GOP - Or What The Comey Hearing Drowned Out

Thursday, the House GOP passed a bill to repeal Dodd-Frank. Friday, the NASDAQ fell nearly 2%. Meanwhile, the world fixated on a UK election essentially won by the party already in power and a Comey testimony in which we learned that Trump lies. The news of the day was good cover for bad legislation. Really, really bad legislation.

A little story

A little town is divided among three groups. One group is pro-football, the other is anti-football and the third group is mostly neutral.

The anti-football group got that way because a couple of kids were seriously injured. One will be in a wheelchair for life. The anti- group simply argues that no sport is worth this risk.

The pro-football group are simply fans. They love the sport, point to the tradition, the way it gives the kids something to come together on and cheer for, the way it builds a sense of community, and how it calls young men to excellence. 

The problem is, the pro-football group has been hijacked by a sub-group so repulsed by the idea of rules to make the game safer that they've gone in the opposite direction. Call this group the football fanatics. They think that kids shouldn't even have to wear helmets if they don't want to - or can at least wear the old leather helmets that were good enough for players in the 1920s.

Here's the problem. The pro- group is only one or two spectacular injuries away from losing football altogether. And given the way the fanatics are approaching this - eliminating "silly rules that just slow down the game" like flags on late hits or tackles that involve helmet to helmet contact, etc., they have greatly raised the risk of serious injury.

The people who should be most grieved by the fanatics are the fans who care less about any specific rules of football than they do about just having the game in town. Because what the fanatics are doing is making it probable that the anti-football group will get their spectacular injuries that lead to cancelling the program.

The real story

Which brings us to capital markets.

Thursday, buried beneath the tsunami of coverage of the Comey hearing and UK election - the House passed a bill to repeal Dodd-Frank. Two major provisions of this bill set us up for another Great Recession: one provision exempts financial institutions from capital and liquidity requirements to allow them to take on more risk and another provision puts in place bankruptcy provisions in lieu of "orderly liquidation." So, financial institutions are free to take on more risk and when that risk leads to bank failure it won't be treated systematically. That is, it sets up the conditions for a run on the banks like the one that lead to the Great Depression. People will need to withdraw capital to protect themselves at the exact moment that the banking system would need more liquidity. 

Capital markets are one of the great inventions of mankind. Credit can finance the construction of high-speed trains or a cup of coffee, finance your education that launches your career or your house that becomes your home. Credit can finance research that cures an old cancer or a new product. The capital markets that have emerged since about 1700 have transformed our world, giving us longer lives, and making us more productive and happy. The joy football has brought into Americans lives is microscopic in comparison to what capital markets have brought. 

The Republicans are philosophically opposed to regulations. They are the pro-football fanatics who believe that the game of capitalism would be made better if only we removed all those troublesome rules that just get in the way of a good game. And while it's true that the game goes slower with rules and regulations, it also saves people from serious injury that comes from the failure of one or two big institutions becoming catalyst for a Great Recession. 

Real fans of football would shut out the fanatics who try to eliminate rules. Real fans of capital markets would do the same to the anti-regulation fanatics who - just years after the worst recession in nearly a century - are working to eliminate the regulations that save us from serious injury. Anyone who wants to see capital markets survive, evolve and prosper to continue to enable prosperity, will come out against this deregulation inspired by ideology. 

The biggest danger of the GOP's approach to repealing Dodd-Frank is that it will enable anti-capital market forces to make more coherent arguments against them. We now have a president who supports dictators; we can easily have a president in a decade who supports communists. If you love football, you would shut down the fanatics arguing against making it safer; if you love capital markets, you would shut down the fanatics working against making them safer. 


09 June 2017

The Real Failing of Modern Politics

Yesterday's UK election brought home what is for me the major failing of modern politics. There was little question that the biggest winner would be either Jeremy Corbyn's Labour Party or Theresa May's Conservative Party. Simply put, Corbyn wants more government spending and May wants more government austerity. These positions are distasteful to most voters because on the one hand it means more taxes and on the other it means fewer government services.

What is the biggest failing of modern politics within the West? Politicians have largely given up on promising prosperity. They've run out of tricks. W. Bush pushed capital gains tax reduction to stimulate more investment and investors pumped money into weird things like mortgage backed securities, thus setting us up for the Great Recession. Democrats push for investing more money into education but already we have more graduates than new jobs. (In 2013, the American educational system created 3.7 million college graduates (from AA and BA degrees to PhD and professional degrees) but only 2.4 million net new jobs.) What worked brilliantly in the 18th and 19th centuries (encouraging the creation and deployment of capital) and what worked fabulously in the 20th century (creating an extensive public school system to make K-12, even K-BA education the new normal) simply is not enough in this new century.

We will need capital in today's economy. More than ever. We will need well educated workers in this new economy. Again, more than ever. The difference? Capital and knowledge workers no longer lead the parade of progress. Entrepreneurship does. Any policy makers intent on creating prosperity need to focus on creating an entrepreneurial system.

One of the most spectacular inventions of the two centuries from 1700 to 1900 was the development of a financial system. Through a combination of private and public sector efforts, the West created an incredible ability to finance projects as vast as interstate highways or as small as the purchase of a coffee with a credit card. And policy makers can influence that system with changes in interest rates and other policies to stimulate or cool an economy, helping to promote the creation of jobs or to lower the rate of inflation. Our financial system is vast, complex, and rightfully the focus of policy makers throughout the economy.

One of the most incredible inventions of last century was the development of an education system that changed the experience of children from that of entering the work force at the age of 8 or 10 to that of entering university at 18 or 20. Again, this is a vast system with many moving parts but it is possible - through policy initiatives and cultural norms - to change and influence education and thus the economy through this system.

By contrast, we still have not developed a comparable entrepreneurial system. That is the work of our generation. We can lower interest rates and increase borrowing, change educational standards and increase the number of students who get a high school diploma or a graduate degree in business or education. Meanwhile, our relationship to entrepreneurs is about what it was to education in the 1800s. In 1800 most communities supported freedom of speech and thought but they largely left education to autodidacts and elites, self-taught gentlemen who could afford libraries, trips abroad or time at a university. The masses were not expected to get much of an education. In 2000, most communities support the ideas of entrepreneurship and grant a measure of freedom to private citizens to try their hand at starting a business. Entrepreneurship is left to those who are strong enough to push against the system or financially supported enough to fund a venture that might take years to become profitable. (The children of the affluent are far more likely to become entrepreneurs.) We don't expect the masses to consider - or even know how to approach - entrepreneurship. Unlike education, we have yet to popularize entrepreneurship.

Rather than force communities to choose between cutting services or cutting taxes, really effective politicians will engage in a conversation about how to create prosperity. During the 20th century, not only did families end up with vastly more income but they were able to fund a vastly larger government. There wasn't a trade off. The private AND public sector got enormously better. Prosperity gives you that option.

My own sense is that until communities throughout the West get as serious about the work of popularizing entrepreneurship, they'll continue to pursue a politics of divisiveness that forces communities to choose between the lesser of two lessers rather than the greater of two mores.

02 June 2017

Job Growth During the Trump Administration and Beyond

In the last year, the number employed has gone up 1.8 million but the number in the labor force has gone up only 1.1 million. Because the number employed has gone up faster than the number in the labor force, the unemployment rate has dropped (from 4.7% to 4.3%).

Since 1983, the unemployment rate has been lower than its current 4.3% just 5% of the time - and all of that between 1999 and 2001. Outside of that period, it's never been lower than it is now.

So what does that mean when it comes to forecasting job growth? It means that at some point between now and the end of 2018, the unemployment rate will be as low as it can go. At that point the rate of job growth will be limited by the rate of labor force growth.

Labor force growth in the last year has been nearly 100,000 a month. (And shrank by more than 400,000 people in May as baby boomers retired and fewer Americans looked for work.)  During the recovery from 2011 to 2016, job growth averaged 203,000. That gap is not sustainable at full employment.

This makes a couple of things predictable for the Trump term.
1. Job growth in the first four years of Trump's administration will be about half what it was in the last four years of Obama's administration. (Closer to 100,000 jobs a month than 214,000).
2. We will have our first month of negative job growth within the next 18 months. (Simply put, given normal variation, a median value of 100k is far more vulnerable to slipping below zero than is a median value of 200k. For instance, in March the economy created only 50,000 jobs.)

There are other factors.

On a positive note, the labor force participation rate could rise, prolonging the time when job growth exceeds labor force growth.

On a negative note, Trump's policies will discourage immigration of all kinds. Tourism has already dropped. Universities are reporting fewer applicants from abroad. This sort of things takes time to show up in numbers but as foreigners are less willing to live in an xenophobic America, we lose twice. Once because those immigrants don't come here to join our workforce and a second time because as they choose to live and work in places like Eindhoven, Netherlands or Vancouver, British Columbia, they create more jobs in those communities rather than ours. An Iranian who works on robotic sensors will help to make a team successful in some other country and all of the jobs that ripple out from that effort - the project managers and administrators within his company or the restaurateur or furniture salesperson outside of his company -  will be in a different country as well.

Pew forecasts 18 million fewer potential workers without immigration. In such a scenario, the number employed would shrink for decades, shrinking the economy with it.

You might easily dismiss this prospect of a sharp decline in immigration as unthinkable. Of course just a year ago, the thought that Republicans would be arguing that we should ally with Russia rather than NATO would have been unthinkable, as would have cuts of 21% to National Health Institute (NIH) or slashing Medicare by half. Trump is disruptive and prides himself on that. It would be silly to bet on him reversing his position on immigration.

Three other huge variables are trade deals, climate change technology, and cuts to science funding. If Trump slaps tariffs onto trading partners and sets off a trade war, our economy will slump. If his policies continue to focus on protecting coal mining jobs that originated in 1740 rather than creating new technologies and jobs in alternative energy, our economy will fail to thrive. If he slashes funding for science and research (like his proposed 21% cut to NIH), he will undermine the creation of new products and technologies that would create jobs in two to twenty years.

Job growth will be less vibrant under Trump. (And to be fair, it would have been with anyone, from Sanders to Clinton to Bush to Trump.) If he gets his way with policy proposals on immigration, trade, and defunding the development of alternative energy and other technologies (new medicines that could have emerged from NIH research, for instance), we will be measuring the net loss of jobs each year, not their creation, tracking a steady decline of 100,000 jobs each month rather than bemoaning a gain of only 200,000 a month as anemic.

31 May 2017

The Simple Solution to the US Trade Deficit with Germany

If you spend more each month than you make, you will run a personal deficit.

If a country buys more than it sells, it will run a trade deficit.

One of the simplest determinants of whether or not a country is spending more than it makes is determined by its government accounts. If a government has a surplus, the country will tend to have a trade surplus; if a government runs a deficit, the country will tend to have a trade deficit. Generally - but not always - the government is big enough that it will cast the swing vote, if you will, as to whether the country as a whole spends more than it saves and, thus, runs a trade deficit or trade surplus.

Trump has called the Germans very bad because the US runs a trade deficit with Germany. Germany's government ran a government surplus of about $27 billion last year. The US federal government is projected run a deficit of about $400 billion and Trump's proposed budget would probably increase the debt by about $1.7 trillion over the next decade. Our government deficit loosely translates into a trade deficit.

Assuming that Trump has more influence over the US federal budget than he does over German consumers and companies, if he were sincere about reducing the trade deficit he would reduce the federal deficit.

Or he could send angry tweets that insist the real problem is Germans who save too much rather than a US government that can't agree on how to finance its spending.

28 May 2017

Prophets Who Create By Reforming


Well, it’s certainly true that all great religions deal with the same conflicts of politics and violence, and the struggle to reconcile with the realities of a changing, evolving and modern world. I think there’s this misunderstanding, among most people of faith, that prophets sort of grow up in some kind of cultural or religious vacuum. That a prophet is somebody that just plopped down to earth from heaven, and with a ready-made message, in which they found a brand-new religion. But prophets don’t invent religions. Prophets are reformers of the religions that they themselves grow up in. Jesus did not invent Christianity. Jesus was a Jew. He was reforming Judaism. The Buddha did not invent Buddhism. The Buddha was a Hindu. He was reforming Hinduism.
- Reza Aslan,
taken from Krista Tippet's book, Becoming Wise

Magic Math in Trump's Budget: How an Imaginary $2 Trillion Gets Spent Twice

Trump's new budget plan forecast $2 trillion in additional revenues because of economic growth and then simultaneously applied that $2 trillion to a tax cut and to a deficit reduction. This faster economic growth will both increase revenues in the form of higher taxes and fund a tax cut in the form of lower taxes. Wrap your mind around that.  It is as if Trump's Budget Direct Mick Mulvaney (people say he's Irish but it seems clear that he's a goblin) said, "The amount we get in extra taxes will pay down the deficit AND will let us cut taxes by that same amount." It's like someone has won $100,000 in the lottery and excitedly announces their plan to pay down their $100,000 in debt and spend $100,000 on new cars and travel. It's double counting.

It might be that the Trump administration is that sloppy. Or it might be that they trust that they have so undermined the credibility of the press by continually calling it fake news that they will be able to ignore or brush off any reporting that points this out. They are operating in a fact free zone.

If that's not enough, there is more. Where does this extra $2 trillion over 10 years come from? It's existence comes from an assumption that the economy will grow by 3% a year for a decade. How likely is that?

Well, since 1948, the longest stretch during which GDP growth exceeded 3% was 6 years. (From 1961 to 1966, when Johnson's New Deal was increasing government spending, defense spending for Vietnam was just ramping up, and the baby boomers were starting school and driving their parents to buy more housing, clothes, and cars.) It has been eleven years since GDP growth has been as high as 3% (exactly 3% in 2005, and 3.1% the year before that.) In this century - since 2000 - GDP growth has not even averaged 2%, much less 3%.

So is there reason to believe that economic growth will bump up 50%? (3% is 50% more than 2%.)

Curiously, per capita GDP growth has been incredibly stable since after the Civil War. Here it is by decade. (Source data here.)
Note that in only one decade has per capita GDP growth been more than 3%; in the 1940s, when the US was spending a huge amount of money first fighting Nazis and then rebuilding Europe and Japan, per person GDP growth was nearly 4%. World War 2 was the catalyst. Pull out that decade and you can see that per capita GDP growth has never averaged 3% for a decade. 

And here is a phenomenal statistic. Pull out the 1940s and the average per capita GDP growth since the 1870s has been 1.88%. The average GDP growth in this century? 1.88%.

GDP growth bounces over 3% in healthy and normal decades but it does not stay much above 2% for any length of time without a growth in the workforce. A growth in the workforce depends on immigration and birth rate.

So, will GDP bounce up to 3% for a decade? Only if Donald decides to encourage immigration. (Insert laughter here.) Millennials will cause a growth in the workforce during this next decade to offset baby boomer retirements but it won't be enough to cause a noticeable surge. 

Trump's budget plan doesn't just use the same $2 trillion to simultaneously pay down debt and cut taxes. It forecasts this additional $2 trillion by assuming GDP growth we've only experienced in one out of the last fourteen decades. It's not just that he and Mulvaney are spending this money twice; it's imaginary money.

83% of what Trump says ranges from half-true to pants on fire. Only 17% of what he says is mostly true or simply true. It's little wonder that with such disregard for facts he would put out a plan that shows such utter disregard for simple arithmetic or reasonable assumptions. He continues to show his contempt for Americans' ability to reason. So far, assuming that we're all stupid has worked out well for him. It doesn't seem like it'll work out as well for the rest of us.

Thomas More's Utopia - How Poverty Makes for Bad Government

A century ago, Thomas More published Utopia. More was beheaded by Henry VIII when he refused to break with Rome and pledge allegiance to Henry rather than the pope and Erasmus helped him to publish Utopia. 500 years ago the modern nation-state was emerging and it created a thicket of issues that had to do with the question of policies and authority and the very identity of a people. More's Utopia was his way of dealing with this, using a fictional place to model what a country could be. It's an imaginative leap that's not just fanciful but helpful as a way to define what could be but has not yet been experienced. (In Utopia, More argues against private property. Centuries later, the Soviet Union honored him for this early definition of communism.) One of the more fascinating acts of social experimentation since has happened when Utopians have tried to create communities that break with tradition.

One of the arguments that apparently prevailed at the time was over this notion of wealth and poverty. Here, More attacks the notion that it is better to rule a poor people. This is one section of his book that still seems relevant.

19th Century Dancing Utopians
And they think it is the prince's interest, ... as if it were his advantage that his people should have neither riches nor liberty; since these things make them less easy and less willing to submit to a cruel and unjust government; whereas necessity and poverty blunt them, make them patient, beat them down, and break that height of spirit, that might otherwise dispose them to rebel. Now what if after all these propositions were made, I should rise up and assert, that such councils were both unbecoming a king, and mischievous to him: and that not only his honor but his safety consisted more in his people's wealth, than in his own; if I should show that they choose a king for their own sake, and not for his; that by his care and endeavors they may be both easy and safe; and that therefore a prince ought to take more care of his people's happiness than of his own, as a shepherd is to take more care of his flock than of himself."It is also certain that they are much mistaken that think the poverty of a nation is a means of the public safety. Who quarrel more than beggars? Who does more earnestly long for a change, than he that is uneasy in his present circumstances? And who run to create confusions with so desperate a boldness, as those who have nothing to lose hope to gain by them? If a king should fall under such contempt or envy, that he could not keep his subjects in their duty, but by oppression and ill usage, and by rendering them poor and miserable, it were certainly better for him to quit his kingdom, than to retain it by such methods, as makes him while he keeps the name of authority, lose the majesty due to it. Nor is it so becoming the dignity of a king to reign over beggars, as over rich and happy subjects. And therefore Fabricius, a man of a noble and exalted temper, said, he would rather govern rich men than be rich himself; since for one man to abound in wealth and pleasure, when all about him are mourning and groaning, is to be a jailer and not a king.