12 November 2018

What if the Senate is Obsolete?

As economic power and population shifted from rural farms to industrializing cities in decades around 1900, Britain and Germany changed how their parliaments were defined. US legislature hasn't made that shift in representation and probably should. This is going to be contentious.

As Britain pioneered the industrial revolution, Manchester's population exploded. A center for industrialization, Manchester grew to become the UK's third largest city (after London and Glasgow) by 1901. Between 1700 and 1800 it grew from fewer than 10,000 to about 90,000.  Manchester's population doubled between 1801 and 1820 and then doubled again by 1850.

Yet when it began its growth, Parliamentary representation was granted to districts. Manchester did not even elect its own Members of Parliament (MPs) in the early 19th century. It was just part of the Lancashire district.

Meanwhile, in "rotten boroughs," a paltry few could elect two MPs. How few? In one borough, 7 voters got to elect 2 MPs. Dunwich had literally fallen into the sea, leaving just 32 voters clinging to land; they, too, got to elect 2 MPs. In a sense, this was representation by acreage.

The economy changed how population and power was distributed. Industrialization brought workers into cities like Manchester and left behind smaller populations in the little rural communities that - in part thanks to industrialization - needed fewer people to raise crops and tend livestock. While the population and economies of cities grew, their political representation had not.

This changed in the UK (the disparity between Dunwich and Manchester began to be addressed with legislation in 1832) and, later, in Germany, Austria and France through a series of parliamentary reforms starting in the early 1800s and continuing through the first world war. As the economy shifted from agriculture to industrial, as the important factor shifted from land to capital, these communities shifted political power to give voice to the members of this new economy.

The need for such a shift in the US is less dramatic. At least in the House. Divided into 435 districts by population (obviously a number that grows every decade), the US is not going to have anything as egregious as 7 people electing two representatives.

Nonetheless, the Senate is still structured around the notion that acreage deserves representation. Like the early forms of British parliament that found themselves antiquated by urbanization and industrialization, the US Senate gives disproportionate representation to owners of land rather than capital or knowledge. Two states, Wyoming and Vermont, have populations smaller than Washington DC. Those states have four senators and DC has none. 21 states with a population of 36 million get 42 senators; California with a population of 39 million gets 2 senators. In one part of the country, you are just one of 850,000 voices your senator must represent; in another, you are one of 19.7 million voices

California has helped to pioneer the information and entrepreneurial economies and that has made it successful in industries like aerospace, communications, silicon, software, biotech, and the internet. Of the 100 most valuable companies in the world earlier this year, the market cap of companies in California represented $4.2 trillion of the US's $14.1 trillion (and of the world's $21.2 trillion). California represents 12.4% of the American population and 30% of the value of the country's biggest companies. Like Manchester in the early 19th century, California's lead in creating jobs and wealth has not yet translated into commensurate representation.

In 1790, when the US was founded, 90% of workers were in agriculture. Acreage was a pretty good proxy for good representation at that time. Agriculture now employs fewer than 2% of American workers. Acreage is now a terrible approximation of how representation should be calculated. (And yes, I know that technically the Senate is a way to represent states not acreage but it does effectively do that. State representation does not follow people around as they move; states "govern" over a constant and stable area, not a constant and stable population. What this effectively means is that Senators represent acreage.)

As it now stands, the politics in the US is going to be disproportionately defined by the least populous and least affluent areas of the country because of how the Senate is structured. It's hard to imagine us ignoring that for too much longer or imagine that addressing this issue will ever be easy.

11 November 2018

The Lesson of World War One (That is too costly to learn twice)

Today is the 100th anniversary of the end of "the Great War." This war killed 15 to 20 million people but within a generation we had a second world war that killed 60 million. In between, the Great Depression caused so much economic misery that it gave power to communists and fascists throughout the world.

The decades after the first world war were a time of misery. The decades after the second world war were a time of peace and prosperity.

Between 1350 and 1950, there was at least one major military confrontation between European powers in every decade. What changed after 1950 is that we created international institutions.

There is a quip that nations either exchange goods or gunfire. Economic development and trade have been a boon to peace. The West also has institutions that link it together: NATO, the UN the IMF and the EU. These didn't really exist until after WWII and they do a great deal to explain why the time after the second world war was so starkly different from the time after first world war.

Just as the institutions of families, city councils, federal governments, corporations, churches and banks all deserve continual criticism and drive to improve them so that they adapt to changing realities and new possibilities, so do these post WWII institutions. They need improving. Without institutions we are like the other primates, though. We can't afford to neglect or discard them. And the West without these post-WWII institutions would be more like the world of Stalin, Franco, Mussolini, and Hitler than JFK and Reagan, Thatcher and Blair, Trudeau and Mulroney, de Gaulle and Chirac, and Kohl and Merkel.

The lesson of WWI is that without creating institutions that transcend nations we again slip into the the madness that goes by a variety of names (patriotism, nationalism, self-interest) and devolves into the worst kind of competition rather than raise us to the best kind of cooperation. It is a lesson too costly to learn twice.

06 November 2018

What is Certain in Today's Election

We live in a probabilistic, not deterministic world. The Democrats will probably win the House and the Republicans will probably hold the Senate but .... we don't know. Yet. Fivethirtyeight gives Republicans a 15% chance of keeping the House and the Democrats a 15% chance of winning the Senate.

Reality is choosing among possible paths as rapidly as it can but there are so many of them. We can simulate reality so much faster than reality can play out because reality does not simplify.

One of the things that we will learn is how unique is Trump. It is very normal for a Republican to win the presidency after two terms of a Democrat in the White House. In that sense, the 2016 election was boring and normal. But of course Trump is a bizarre character who seems to most of us to be hugely different than a typical Republican. If he really is, the backlash could be bigger than what is captured in current probabilities; if typical Republicans and swing voters think he is really no different than a normal Republican, there will likely be a swing towards Democrats but it won't be very dramatic; about enough to win the House but still be still be a minority in the Senate.

What is certain? 

Democrats could win by 6 points nationally (53 to 47) and still lose the House. Because of gerrymandering and the fact that individual voters in big cities have less influence even in House races, Republicans have about a 5 to 6 point starting advantage for Congress. That strikes me as the most remarkable thing about politics in this second decade in the 21st century.

Related, the counties that voted for Clinton represent two-thirds of GDP. It is the areas of the country that least understand how to create jobs and wealth that thought Trump's anti-trade, anti-immigrant, nationalist agenda sounded like a good idea.

As it now stands, our policy is being decided by minorities as counted by the number of voters and GDP. That's certain. And that is certainly weird.

What else is certain? The House will decide whether we learn what Mueller has learned about Trump. The House will decide whether Trump will - for the first time in his life - experience any negative consequences for any negative deeds. Voters today will decide whether we continue to have a Republican-led House that merely enables Trump or a Democratic-led House that checks his worst excesses. 

What is certain is that Trump will be more dangerous with a Republican-led House. I'm certain that I don't want two more years of a Congress that merely acquiesces to his every whim; I wish I could be certain we'll get that.

Finally, as I think about today's election, the words of Tiny Tim repeat in my head: God bless us everyone.

30 October 2018

Rise of Entrepreneurial Economy and Fal(tering) of the Information Economy

Here is the table from The Fourth Economy. One of the central arguments is that we're living through a shift from the information economy to an entrepreneurial economy.

Google Ngram is an interesting way to track the usage of various words and terms.

Here you can see the steady rise in the use of the term "entrepreneurial economy."

And here you can see how the use of "information economy" has begun to fall (even though it is still used considerably more than the term "entrepreneurial economy").

So apparently a long way to go but the fourth economy does indeed seem to be (oh so slowly) gaining on the third, information economy in terms of mention in writing. My argument is that it is emerging but we're still not quite attuned to it so it is becoming harder to ignore but still not completely appreciated.

Oh, and for bonus points, here are the three most recent intellectual revolutions. Given we build on each previous stage, and given that we've had centuries to become aware of the importance of the Enlightenment and Pragmatism, it makes sense that systems thinking is only now beginning to rise in general use and awareness relative to those.

29 October 2018

Saving the Nation with Poetry

Looking through my mail-in ballot and sad to see that there is still no proposition to tax pop songs to fund actual poets.

You think I'm being whimsical. If so you don't understand what nations are built on. The Grimm Brothers were nationalists and they wandered the country that was not yet Germany to find the stories Germans could tell themselves about who they were and were not. Focus too much on technology and not enough on the stories people use to inform them about what it means to be a particular kind of person and the technology will turn on you.

Imagine regularly hearing songs like this poem from Walt Whitman.

COME, I will make the continent indissoluble;I will make the most splendid race the sun ever yet shone upon;
I will make divine magnetic lands,
With the love of comrades,
With the life-long love of comrades.

I will plant companionship thick as trees along all the rivers of
America, and along the shores of the great lakes, and all over
the prairies;
I will make inseparable cities, with their arms about each other's

By the love of comrades,
By the manly love of comrades.
For you these, from me, O Democracy, to serve you, ma femme!
For you! for you, I am trilling these songs,
In the love of comrades,
In the high-towering love of comrades.

18 October 2018

Progress and the Marketplace of Ideas (or, how our love of villains and heroes is an obstacle to understanding systems)

There is a marketplace for ideas. It doesn't necessarily reward more effective ideas. It does seem to reward ideas that are easy to explain. Often, simple explanations that are wrong will triumph over more complicated explanations that are right.

One thing that is easy to understand it villainy. Bad guys and good guys, heroes and chumps. We love the movies that show the lone guy against the system, Bruce Willis taking on bad guys, bad officials and an entire skyscraper.

As it turns out, systems do more to define people than people do to define systems. I speak English. I never chose that. I was born into it and even the question of whether I would learn another language came to me in English. So much of who we are is not even our choice.

Much of what happens is the consequence of systems, not the people within them. Stories lend themselves to blame or credit to the people in these systems, though, and so those are the explanations we offer.


Progress doesn't really impress people. We make about 6 to 8 times what people made a century ago and can buy things that they couldn't even imagine. The thing is, nobody is really impressed with that. We don't compare ourselves with our great grandparents. We know that they didn't have smart phones. What matters is whether our smart phone is two years older than our friends. We compare ourselves with our peers. We have this tendency to care less about progress than status.

How we are doing relative to our grandparents is a variable sum game. It is possible for all of us to do better than all of them.

How we are doing relative to our peers is a zero sum game. It is impossible for all of us to do better than all of us.

The more we teach kids to focus on relative status the more unhappy and disengaged they will be. Not only is that a lousy way to walk through life in terms of happiness but even in terms of progress it is bad: unhappy, disengaged people will be less effective at making life better relative to their grandparents.

The politics of status will be fear-driven and angry. It promises villains, heroes and quick change.

The politics of progress is slow. It actually works across generations. It is less concerned with villains and heroes than the systems that throw people into such a role. It is a less engaging, less simple story. That doesn't mean that it'll always be rejected, though.


Progress is boring. I suspect that people are ready for that now.

08 October 2018

How Systems Thinking Will Define the Evolution of Democracy Within Your Lifetime

There is still a popular myth that our founding fathers fought a revolution in the late 18th century that - by the time they'd ratified a constitution in 1789 - culminated in democracy for all.

It was a much slower process than that. And understanding this process can give us a sense of how democracy will evolve.

Aristocracy were landowners. They inherited land and with it titles, privileges and power. Land was the basis of wealth during the emergence of nation-states and given that nation-states had borders it made sense that you'd look to the owners of the land within those borders (the king was often the chief landholder) and give political power to them.

In 1776 Adam Smith wrote Wealth of Nations and James Watt perfected the steam engine for use outside of mines. This birth of capitalism coincided with the birth of democracy across the Atlantic and what they represented was a shift in the basis of wealth from land to capital. The British had already seen a broadening of political power from landholders to capitalists even before the Americans designed a government that did away with royalty (the ultimate aristocrats) altogether.

At first, the vote in the United States was limited to landowning, Protestant, white men. It took nearly 200 years to guarantee the vote to minority, atheist, 18-year old women who rented. (A timeline for how democracy progressed from KQED is here.)

Commoners were allowed into the legislature throughout the West by about 1850. This dimension of democracy had to do not just with who could vote but who could craft legislation. About a century later, California gave voters even more power when the proposition allowed voters to completely bypass the legislature with a popular vote. By the time of Roosevelt's New Deal, voters weren't just able to vote for the folks who would craft their legislation but could actually craft their own legislation and put it before their fellow citizens for a vote.

Just like your car or computer, democracy has continued to evolve. And just like your car or computer, it has not yet reached its ultimate state. It will continue to evolve and I think that systems thinking will be a big part of what happens next.

Thomas Jefferson and our founding fathers understood how important education was to democracy. (Jefferson was apparently about as (more?) proud of founding the University of Virginia as he was in helping to found the United States.) Education still matters enormously to a functioning democracy but now it needs a new dimension.

Our lives are wildly dependent on systems. Ecosystems, financial systems, economies, healthcare systems, information systems, education systems, etc. If we get these wrong we get terrible outcomes; if we get these systems right we get wonderful outcomes. The most important political policy defines variables within systems and even the creation or change of systems. We can't make intelligent decisions about how to change or impact these systems without understanding their dynamics.

Systems often have lags and some causes explode to become a big deal and some causes dissipate into little or no consequence. Cause and effect in systems is complicated to understand and our systems thinking can be enhanced with the right kinds of simulations.

Cocaine makes you feel great but apparently isn't that good for your health longer term. Right now the American economy is phenomenal; 96 months in a row of uninterrupted job creation has doubled the old record (since records were kept in the late 1930s), unemployment at 3.7% is its lowest since 1969. Oh, and Republicans have doubled the deficit to one trillion dollars, its highest since the worst year of the Great Recession. We have a huge stimulus with unemployment under 4%. That makes for an interesting experiment but it also could be like cocaine binges that Trump's Economic Council Director Larry Kudlow was famous for in the 1980s. We may end up in rehab once the longer term consequences of this play out.

Even folks who study economies cannot say with certainty whether we're now creating a bad bubble (one like the bubble leading up to 2008 that raised home prices but didn't really create more economic capacity) or a good bubble (like one leading up to 2000 that actually created lots of new internet knowledge and capacity that would change what was possible). But we expect the average voter to make a judgement on policies and the politicians who support them without any real chance to play with simulations that would help them to understand dynamics.

Simulations can help to create new understanding. I think smart communities will tap into this.

Democracy will evolve to include massive online participatory simulations of the systems we depend on. One of the reasons I love history is that it lets us quickly - in the course of a book, chapter or even turn of the page - see how dominoes fall, even if those dominoes took a generation or two to fall. Like history, simulations don't require us to actually spend years or lifetimes to learn outcomes.

Simulations are not perfect but they do let you learn about dynamics in ways that you would not from prose. You can set up a model to capture what data and / or common sense tell you about cause and effect (e.g., raising interest rates will lower borrowing but increase the value of your currency on foreign exchange markets) for lots of variables and then run simulations to see what range of effects are possible as you tweak the knob on those variables. You're obviously hoping for a good model for predicting the future but almost as important as prediction (which is always hard and is at best probable, not precise), is learning more about dynamics that none of us are smart enough to keep track of ourselves. Simulations can sensitize us to cause and effect that isn't instantaneous and can be mitigated or exacerbated by other variables.

As democracy evolves to include simulations we participate in, it will make us smarter. Very few of us can calculate mortgage rate changes to reflect 20 vs. 30 year mortgages or a 3.2% vs. 4.1% rate but with a computer we can all easily discern that ourselves without reliance on an expert. Very few people can get across town in 15 minutes by running but with a car most of us can. Tools enhance our capabilities. Systems simulations seem like the most important tool one can imagine for any democracy that needs to navigate and manage the systems that so define our lives.

Whether it be tax rates or emission levels or research funding, in the future such important decisions will be accompanied by systems models that simulate these phenomenon. Will these simulations be perfect or even great? Definitely not and probably not. Will they be immeasurably better than reliance on prose and statistics to make the same determinations? Undoubtedly. And will future generations wonder how we could pretend to vote on such issues in the past without the aid of simulations, in the same way that we wonder at how people got around without cars? Definitely.

Progress isn't done yet. Democracy will continue to evolve, just as it has for centuries. The popularization of systems thinking will be a big part of that.

04 October 2018

The Most Important - and Largely Uncovered - Lesson from the New York Times' Article About How Trump Got His Wealth

This New York Times story about tax schemes used by the Trumps is a story of 3 things, only 2 covered by the media.

1. It clarifies how dependent Trump is on his father for his wealth. His father gave him over $400 million in various ways (Trump was a millionaire before he was out of grade school.) Trump is definitely not self-made and his net worth is not much different than what it would have been had he simply invested his life time of gifts into a stock index fund.

2. It itemizes the various ways the Trumps cheated to avoid taxes. A massive amount of tax. In one instance, they turned about $900 million worth of real estate into an estimated value of $40 million in order to avoid millions and millions and millions in tax.

All that the media covered. What they don't cover is item 3.

3. This is really a story about origins. Trump became who he is because he hasn't known normal consequences. The most succinct way to illustrate how his father covered his bet is this: Trump owed a bond payment on his failing casino in 1990. He did not have the money. Fred Trump - his dad - sent a trusted employee down to the casino to buy $3.5 million worth of chips simply to infuse Trump's business with enough cash to enable him to make the bond payment. (And even that was not enough; he also wrote a check that day to Donald for another $150,000.) Donald could take risks knowing that his father would cover that risk, do what he could to protect his favorite son. A pundit once quipped of George W. Bush that he was born on third base thinking that he hit a triple; Trump, by contrast, stands triumphant at the plate simply because his dad owns the stadium.

We teach our kids consequences. They learn that if they are rude to someone, they could lose them as a friend. They learn that if they spend all their money for the week by Wednesday they are penniless until Friday. We do things and sometimes good things follow and sometimes bad. We use that feedback to adjust who we are, to learn how to survive or even prosper within our world.

Trump never had to do that. His father protected him from normal feedback and thus normal learning. Trump never had to adapt to the world; he had money enough that it adapted to him. Here, from the story, is how Donald was raised:
By age 3, Mr. Trump was earning $200,000 a year in today’s dollars from his father’s empire. He was a millionaire by age 8. By the time he was 17, his father had given him part ownership of a 52-unit apartment building. Soon after Mr. Trump graduated from college, he was receiving the equivalent of $1 million a year from his father. The money increased with the years, to more than $5 million annually in his 40s and 50s.
For our purposes, the biggest problem with this is that it insulated Trump from normal consequences. He could be rude. He could be crude. He could spend money lavishly or invest it recklessly. And in the morning he would still have more income than 99% of the adults around him.

Fred Trump is now dead and gone. He's not around to cover his son's bad bets. Who now does? I think it is us, the American people. Donald has yet to suffer any negative consequences for anything he has said or done. We already do and we're not even done with the payments.

28 September 2018

The Simple Reason Kavanaugh Does Not Deserve to Be on the Supreme Court

If you wondered what people mean when they talk about white male privilege, you have to look no further than Kavanugh's testimony yesterday.

I was sick yesterday and was sleeping all but a few hours of the day, so my impression of Kavanaugh was gleaned from just twenty minutes or so of his testimony. (I saw nothing of Dr. Ford.) He made me think of Navy Seals who train here in San Diego. 

There are 2,500 Seals. It's a real honor and it is incredibly tough to become one. They are (rightfully) so proud when they make it and nobody thinks they deserve it. You have to earn that and the program is designed to weed out people. Designed to. And when they've made it they feel this combination of pride and honor when they realize what they've achieved. A friend of mine broke a bone in the training / audition process and was thrown out. Nobody owes you a place in the Seals. It's like making it into the NBA. It's not enough to be athletic, tall, calm in the face of adversity, fit, driven, a team player, competitive, a great shooter, etc. You have to be all of those to varying combinations. And there is no inside track; Michael Jordan's sons did not make it to the NBA and nor did his best friends from college.

The Supreme Court is so much more elite than the Navy Seals. Only 9 members, not 2,500. And it is an appointment for life, not just a few years. It makes sense to me that qualifying for the Supreme Court would be an incredibly demanding process. Any little thing should be enough to throw one's nomination into question in the same way that someone would be thrown off a list of top 10 NBA players for being a great player except not able to consistently hit a 3-point shot. It doesn't take much to keep you off the starting team and even less - far, far less - to be kept off the top 10 list.

So people questioned whether Kavanaugh really deserved to be there. They threw in one extra round of questioning. For a lifetime appointment.

Kavanaugh couldn't make it through one extra round of questioning without becoming rude (to senators?), angry, and crying? Really? This is how tough he is? And he was obviously outraged that anyone would dare to question whether he deserved to be on the court. Really? Not honored to be included but outraged to be questioned as to whether he should be included. That sense of entitlement baffles me. White male privilege, if it is anything, is this sense that I deserve this and you have to convince me why I don't. It's the opposite of, "I'll do everything I can and it still may not be enough. Oh, and if I do make it I'll feel so incredibly honored." Maybe it is a product of having never gone to public school. Maybe it's the product of being connected his whole life. He demonstrated none of the wisdom, the self awareness, or ability to remove his emotions from his judgement that one would expect of the most powerful judge in the country. If this was a tryout for a team, he missed all the 20-footers after making his layups the week before. We should expect more of someone supposed to be in the top 10.

Bill Clinton and George W. Bush put up with 8 years of steady criticism. Some of it highly personal. Some of it unfair. Attacks on character, their past, their intentions, their judgement, their intelligence, morals, etc. 8 years and I never saw an emotional outburst like this. Kavanaugh did not make it through 8 minutes of being challenged without expressing a real outrage that anyone would question whether he was qualified to hold one of the most powerful positions in this country. For life.

I felt like he should be eliminated for his obvious contempt for being questioned as to whether he deserved this incredible honor of a lifetime appointment to the highest court in the land.  He doesn't have the emotional intelligence to deserve that much power. I was aghast.

And then I went back to sleep.

After posting the above, I saw this from my Senator.


22 September 2018

From Gates to Bezos - What the Change in World's Richest Man Tells us About a Shift From an Information to Entrepreneurial Economy

On America’s west coast there are examples of what the popularization of entrepreneurship could look like at the regional and company-level.

Silicon Valley continues to attract more venture capital and to create more wealth than any country in the world. The folks in the Bay Area have created an entrepreneurial economy.

Further north in Seattle, Jeff Bezos has created an entrepreneurial company.

Jeff Bezos recently emerged as the world’s richest man and is the world’s only triple-digit billionaire. Bezos is an entrepreneur. He has also created a platform that has popularized entrepreneurship. Not only does Amazon have more than 500,000 employees, it has "2 million sellers, hundreds of thousands of authors, [and] millions of Amazon Web Services developers.”  And, Bezos reports, "In 2017, for the first time in history, more than half of units sold on Amazon worldwide were from third-party sellers."[1] 

Bezos isn’t doing all the entrepreneurial lifting at Amazon; he’s got millions of co-entrepreneurs and the result is that as they struggle to become rich they inevitably increase his net worth. People who create, make or ship products hope to get rich by selling through Amazon. Jeff Bezos is just one of the millions of entrepreneurs who use the platform that his team has built.

Knowledge workers turn raw data into knowledge in the same way that factories turn raw materials into products. A computer makes knowledge work far easier and during the 1980s and 1990s, the personal computer became ubiquitous as knowledge work evolved and became more common. Microsoft provided the PC’s operating system and software like Word, Outlook, and Excel and for Microsoft it was like having a patent on forks and spoons when people stopped eating with their hands.

In 1995, Bill Gates became the world’s richest man by creating tools that enabled knowledge workers to do their work. In 2018, Jeff Bezos became the world’s richest man by creating tools that enabled entrepreneurs to do their work. From the last couple of decades in the 20th century to the first couple of the 21st century, the source of new wealth was shifting from making knowledge work easier to making entrepreneurship easier.

Sometimes what is most obvious deserves the closest scrutiny. A region that has created record amounts of wealth. The world’s richest men? Those might just hold clues as to how the economy is changing. Successful economic policies in this century will popularize entrepreneurship.

Three categories of successful 21st century economic policies will be “follow the lead of Silicon Valley,” create an entrepreneurial track in education, and make it easier for employees to act - and be rewarded - like entrepreneurs

[1] https://www.sec.gov/Archives/edgar/data/1018724/000119312518121161/d456916dex991.htm

18 September 2018

Trump Hikes Taxes - How Tariffs Really Work and Why They Rarely Do (work, that is)

Here in mid-September, Trump just announced tariffs on $200 billion in goods from China.

This is a tax on American consumers that works out to about $60 per American. Americans will pay that much more for items.

Who gets that money? American companies that have already proven themselves incapable of competing. American companies who need protection in the form of tariffs.

There are times when it makes sense to have trade protection in the form of tariffs. If your national policy is working to move from an agricultural to an industrial economy, or from an industrial to information economy it makes sense that you may want to protect some sectors or companies from foreign competition as they establish themselves against global competition. For awhile.

Companies that benefit from trade protection have a few options about what to do with the added revenue. They can increase the wages of hard-hit employees who have been competing against cheaper foreign labor. They can use the extra revenue to invest in new capacity or technology so that they are more competitive. Or they can payout the profit to stockholders and executives in the form of bonuses, using this subsidy from American consumers as a reward for having the political clout to do what they could not do through the market.

Tariffs are essentially a tax but not a tax that go to the government. Government spending can actually help displaced workers by funding unemployment and retraining. Government spending can finance infrastructure building that makes regions more competitive because of better rails or roads or cheaper energy or water. Government spending can go into the basic research that companies can develop into products.

Apple is now the most valuable company in the world, worth more than a trillion. It's most profitable product is the iPhone. The iPhone represents product development that incorporates research advances like touchscreen, satellite, and small chip technology originally funded by government research. (This is well documented in Mariana Mazzucato's The Entrepreneurial State.) Government research can lead to breakthroughs that not only help citizens but that can be the basis for new products that companies develop into highly profitable markets. A few billion in research spending can help to create trillions in value.

Tariffs don't help to finance basic research, infrastructure, education, or the creation of new industries and companies. Tariffs often subsidize companies that have not kept up, doing more to reward executives who have made campaign contributions than executives who have invested in the future. Within the last year, the GOP passed a tax cut that makes it harder to do any of these things. With Trump's new tariffs, it has just reversed that tax cut for the typical American and will now give that tax or tariff revenue to uncompetitive companies instead. 

16 September 2018

When Trial by Jury Costs Too Much

I had jury duty the other day. Along with 40 others, I was called into a courtroom to be considered to serve on a trial. Simply put, an individual felt that a car dealership had misrepresented a car to him and he was suing. I wasn't chosen. (Juror 22 of our 40 ended up on the jury; I was juror 23.) Given that, I never learned what he paid for the car but the average price paid for a used car is about $15,000. Taking such a case to jury strikes me as absurd.

Median income in San Diego is about $50,000 a year, which works out to $1,000 a week or $200 a day.

40 of us jurors spent a day on that trial. (Most of that time was spent waiting before being called into the courtroom to be screened.) So, day one of that trial cost us or our employers about $8,000. (40 people at $200 a day.)

The judge and attorneys chose 14 people (jury of 12 plus 2 alternates). The judge had estimated that the trial would be done the following Monday, which meant 5 more days for those 14 jurors. That's another $14,000. Combined with the $8,000 for the 40 jurors on day one, that means $22,000 for jurors.

That does not include the salary for the judge, bailiff, court clerk and various administrative folks we briefly dealt with. Let's say that collectively those folks make the same $200 a day and that there are only 4 of them (assuming that all the administrative folks behind the scene average out to one per courtroom). So this trial costs another $4,800 (let's call it $5,000) in salaries for them, for a total of $27,000 for actual or lost wages / productivity of the folks needed to support this one trial.

$27,000 in salaries for the folks involved in litigating a case that probably had to do with what portion of a $15,000 car purchase a buyer should be reimbursed. As a society, we're spending at least twice as much to settle a grievance as the grievance is worth.

I completely support the right of individuals to sue companies and for companies to sue individuals. Bad things happen and injustices deserve their day in court. It's a great thing that we have our court system and that we're free to sue anyone (within reason). I simply think it's absurd to treat so many of these civil cases as deserving of a jury trial given the labor costs involved.

During a football game, there are set rules and there are referees who penalize teams for breaking the rules. Within the NFL it is about 14 penalties a game, (given the ball is in play only about 11 minutes a game (and no, I'm not joking: you can read the explanation behind that stat here )), that works out to more than one penalty per minute. We do this because we want games to be fair. I think that the world of everyday business and employment is at least as important and while I don't think that we should have penalties levied every minute, I do think that such penalties should be standardized, cheap and common. If you rough the kicker, the penalty is 15 yards and an automatic first down. If you fail to tell a buyer that a car has been in an accident, the penalty is $5,000 or 20% of the purchase price, whichever is more. (Or whatever we decide as a society.) As with referees who know the game and can quickly adjudicate the penalty, these business issues that fall under the bailiwick of a civil suit should have default penalties that expedite the process. Many such incidents should be judged within an hour or at worst half a day and then levied a penalty (or thrown out) by an individual expert or two. It should not cost $30,000 to litigate a case on a $15,000 purchase; at most it should cost a couple of thousand dollars.

If trials were cheaper, we could have more of them, in the same way that cheaper computers or cars have meant that more people can have them. More of a good thing is better and cheaper trials would make life more fair. 

Our court system is too expensive and this notion that every petty case deserves a jury trial is one reason. As with so much in life, experts can do a better job for less and should.  We should have justice. It should not cost society more than it is worth.

14 September 2018

The Recovery is Real And Yet We Still Have Poor People. That's How Economies Have Always Worked

I'm seeing a fair bit about how the recovery isn't real or isn't really done because people are still poor. That's nonsense. We have had and always will have poor people. Markets simply don't lift up everyone. Markets are marvelous but they've never taken care of everyone.

The philosopher Karl Jaspers (who died in 1969) argued for an Axial Age. Within a few centuries the foundations for religions we still have today were laid. 

Confucius and Lao-Tse were living in China, all the schools of Chinese philosophy came into being, including those of Mo Ti, Chuang Tse, Lieh Tzu and a host of others; India produced the Upanishads and Buddha and, like China, ran the whole gamut of philosophical possibilities down to materialism, scepticism and nihilism; in Iran Zarathustra taught a challenging view of the world as a struggle between good and evil; in Palestine the prophets made their appearance from Elijah by way of Isaiah and Jeremiah to Deutero-Isaiah; Greece witnessed the appearance of Homer, of the philosophers – Parmenides, Heraclitus and Plato, – of the tragedians, of Thucydides and Archimedes. Everything implied by these names developed during these few centuries almost simultaneously in China, India and the West.
— Karl Jaspers, Origin and Goal of History, p. 2

One theory (I don't think it is Jaspers') is that this happened at this point in history because of the emergence of the city which lead to wealth. Oh, and disparities in wealth. If you are living as a hunter gatherer, you can't accumulate much. If you settle down in a city, you can. And as more people live in proximity there is more opportunity for trade (of goods, ideas and services) and the prosperity that comes with it. This emergence of wealth raised the question of who we should be towards the poor; the major religions emerged - in part - as answers to that question.

There are certainly things we can do to make the poor more self-sufficient, to create opportunities for them and their children. I think that's hugely important. But once we've done that, we will still have poor people. And at that point how we treat them is not a question of economic policy; it's a question of morality, something humans were clear about roughly 3,000 years ago.

08 September 2018

Kaepernick, Nike, Police, and a Protest of a Protest of a Protest

I have this thing about institutions. When they use people, they're oppressive. When people use them, they're enabling.  Free people get to use their institutions - from church and state to bank and corporation - rather than be used by them. In oppressive communities, people are tools of their institutions; in free societies, institutions are the tools of people.

I say all that to opine about Kaepernick, Nike, and the The National Association of Police Organizations.

In response to Nike's new ad featuring Kaepernick, the National Association of Police Organizations has protested Nike's campaign and any NFL player who takes a knee during the national anthem. They argue that Kaepernick's protest suggest that the police are systematically racist and so they are protesting his protest.

I'm protesting their protest of his protest.

A police organization ought to focus on the work of making police better, in the same way that NFL teams should focus on making their teams better. Period. That is the purpose of the organization and that should be their focus.

Meanwhile, we live in a country with a first amendment. I know that some of you will say that an employer has the right to dictate what its employees - whether police or football players - should do. I think you're wrong.

If all of the football players want to protest, let them. If only two do, let them. If all of the police officers want to protest that protest, let them. If only two do, let them. Be clear that they are exercising these first amendment rights as individuals though. At the moment of protesting police brutality or protesting people who protest in front of the flag, the people protesting are doing this as citizens, not football players or police officers. No matter what percentage of them do it, they do it as individuals, not as that institution. At that moment they are not a 49er or a police officer. They are Americans.

First amendment rights are not subject to democratic vote or group norms. You have the right to believe whatever religion you want, express whatever opinion you have, assemble freely with whoever you want. The institutions you're a part of don't have the right to dictate any of that - or co-opt your first amendment rights to express those on your behalf.

That concludes my protest of a protest of a protest.

What a great country.

07 September 2018

In Other News, Trump Still Has a Penis

This week Bob Woodward's new book Fear and an anonymous New York Times op-ed from a Trump administration official describes a president who is inexperienced but confident, stupid, impulsive, and amoral.

We knew all this before the 2016 election. This was treated as news this week but there is nothing new in these reports. It merely confirms what we've known since Trump came down the escalator to announce his campaign and to accuse Mexicans of being rapists and murderers. In spite of the hoopla surrounding this news, Trump's poll numbers barely moved. Americans know who he is.

What remains so absurdly sad is that given the choice between that and a woman who believed in public service, was incredibly intelligent, disciplined, and experienced .... we chose that. Clinton carefully thought through the consequences of choices; Trump doesn't even have the attention span to think through the choices, much less their consequence. And speaking of choices, given the choice of someone as qualified for the presidency as anyone in our lifetimes, we chose someone who is not qualified to be a mayor.

Hillary Clinton was unable to close the deal that so many thought was done. She won the popular vote by 3 million and came within 100,000 votes in the three states that would have put her over the top in the electoral vote. I can't help but think it is because she was lacking one simple thing that every previous president had: a penis. It was a close race. She lost by inches.

Trump is so many things but maybe the saddest thing is that he is a reminder that even 96 years after women were finally given the right to vote, even the worst man as candidate wins against a woman. Some time ago my son came home from class reporting that one of the students actually said, "I think that women should be treated equal to men. I just don't think that they should be in positions of authority over men."

In Clinton's book What Happened she has a chapter on being a woman in politics. That chapter alone should be required reading. At one point Clinton quotes Frances Perkins, the first woman to serve in the U.S. Cabinet, under FDR, who said, "The accusation that I'm a woman is incontrovertible." But women in politics is only slowly becoming normal. Clinton also writes, "Even the simple act of a woman standing up and speaking to a crowd is relatively new. Think about it: we know of only a handful of speeches by women before the latter half of the twentieth century, and those tend to be by women in extreme and desperate situations. Joan of Arc said a lot of interesting things before they burned her at the stake."

Social change seems to lie somewhere between the glacial pace of evolution and the still leisurely pace of personal development. We have so very far to go before the best kind of woman is able to beat the worst kind of man. We still weren't there in 2016.

Trump will be taught in future classes for so many reasons: the most pathetic may be to illustrate how resistant this country still was early in the 21st century to giving women power.

06 September 2018

The American Way - What Amway and Shaklee Had to do with the Popularization of Entrepreneurship

Richard DeVos died today. In 1959 he co-founded Amway with his friend Jay Van Andel. Like Shaklee - founded just three years earlier - Amway had an interesting business model. Rather than manufacture products to be sold in stores by someone else, these new businesses recruited sales people to be part of the business. The bad thing about the model is that it is wildly inefficient compared to, say, a Walmart where sales costs are so much lower and less labor intensive. The good thing about the model is that the product is being sold by people who can explain why it deserves a price premium and - most interesting of all - make money for recruiting people better than them.

My mother was in Shaklee [note that I'm not as familiar with Amway but think it generally has the same model] and one of the really fascinating things about it is that if she recruited someone who was downstream from her, she got some credit for their success. I don't know the exact formula but I do know that she partly had incentive to sell product and partly had incentive to recruit people even better than her. With the right people "downstream" from her, her income was enhanced. She was an entrepreneur (or at the very least a salesperson) who could make more money by recruiting other entrepreneurs (or salespeople) - some of whom might even be better than her.

I think this should be emulated by more traditional Fortune 500 firms. 

Imagine that when hiring someone to join the Fortune 500 firm, each manager wasn't just trying to recruit someone able to do the job and report to that manager. Imagine instead managers trying to bring on board "employees" who had the entrepreneurial drive or perspective that could result in their transcending their designated role to build the business. And imagine that these managers who hired employees who turned out to be even better at the entrepreneurial effort of building the business saw an increase in their income because of the success of the people they'd hired.

For one thing, managers would be happy to hire someone who quickly advanced beyond that hiring manager. You would be happy to have people who quickly outgrew a role and forced you to - sigh - go through the hassle of hiring again. For another, managers would do a lot to develop these new hires because of this incentive. (We invest in things that offer a return.) And the focus on the business would be less about finding people to fill roles in an existing business than in finding people who could build the business. This is not a bad mechanism (albeit just one mechanism) for the popularization of entrepreneurship. 

I kind of like the idea of this being the American Way (or as those two cool Dutch guys abbreviated it, Am'way). 

That's a fairly cool business legacy.

05 September 2018

The Silly Debate About Bannon and Free Speech and the Two Reasons That the First Amendment is So Vital

As I write this there is a bit of a furor over the fact that Steve Bannon was invited to an ideas festival hosted by the New Yorker and then disinvited, prompting a flurry of pieces like this one in the New York Times by Bret Stephens.

"The only security of all is in a free press."
- Thomas Jefferson
Steve Bannon is a white nationalist. He believes that white superiority and national economies are nonfiction. There are people who think that he deserves an audience for his tried - and spectacularly disproven - ideas. Some of these people argue that this is a free speech issue.

At some point in the evolution of science, astronomers presumably stopped inviting "scientists" who argued that the earth was at the center of the universe. Like white nationalists, geocentrists had been proven wrong and no longer deserved a hearing.

Free speech doesn't mean that any curator of content like the New Yorker owes you their audience. I wish that were the case because I would sue every major news outlet and conference host (as would every person with a set of ideas they were trying to get out into the world).

There are two reasons for the first amendment that guarantees the right to free speech, assembly, religion, and press, what is essentially freedom of thought and expression.

The first is simply because it is such a vital part of the human experience to hold beliefs and to express those. This is reason enough for the first amendment but there is more.

The second is that a community with freedom of thought and expression will make more progress. If you espouse a really dumb idea, I can refute it with a better idea. As I stand there smug and proud, another person can come along with an idea even better than mine. And as they accept their accolades for such insight and intelligence, another person comes along with an idea that refutes theirs. And so it goes in a parade of progress that all depends on people freely having ideas, sharing ideas, and refuting or refining ideas to evolve a worldview that lets them better deal with reality. The ultimate test of their ideas is whether these ideas enable them to travel across the ocean or sky or space, conquer diseases that once conquered them, feel happy and know how to make others happy, and do other things like create energy or knowledge. The first amendment is not meant as a tool for protecting old ideas but as a tool for creating new ideas that we can act on in new ways.

The real power of the first amendment is that the evolution of ideas drives progress. This evolution is driven by the free expression and exchange of ideas and animated by beliefs we're passionate about.

Old ideas like white nationalism that destroyed a country as great as Germany and resulted in 100 million deaths do not deserve a second chance or a new audience. We already know it doesn't work. The first amendment doesn't mean that it has a right to an audience. Properly understood, the first amendment means that it deserves to be discarded as we move on to something more practical and intelligent.

04 September 2018

What Freedom of Religion Has to Do with Abortion

One sign that the Catholic Church is losing its monopoly over the opinions of the Irish is the vote there in May to end the ban on abortion.

Make no mistake about it, abortion is about religious freedom.

And on this side of the pond, here in the States, the Republican Party is strongly supporting a weak president for the simple fact that he'll get them Supreme Court justices who could overturn Roe v. Wade.

One group believes that at the instant a sperm and egg combine they deserve the legal protection of a newborn baby. For them, this is the start of life. At this point we can't even see this "baby." Even months later 99% of us would be unable to determine whether we were looking at an embryo that will later turn into cattle who we will later kill to eat or a child who we would later die to protect. The belief that a sperm becomes a human life at the moment of conception is essentially a religious belief.

Because we have religious freedom in this country, the group that believes zygotes at the moment of conception are no different from children are allowed to act on their belief. In this country women are not forced to abort. Their belief about when life begins is a religious or philosophical belief. We respect such beliefs in this country.

Because we have religious freedom in this country, the group that believes that life does not begin at the instant of conception but instead begins later (whether that be in the first or second or - in some states - in the third trimester) are allowed to act on their belief. In this country women are not denied the right to abort. Their belief about when life begins is a belief that we respect in this country.

The movement to ban abortion, to make it illegal, is a movement to end the religious freedom of people who believe differently from devout Catholics and some evangelists. Belief about when life begins falls into a category more akin to religion than science.

Curiously, it's not a ban against people who believe differently than Christ. We don't have a single word of Jesus pertaining to abortion. Abortion is something added since his time by some denominations of Christians. Most Lutherans think that abortion should be legal and most Jehovah Witnesses's think it should not. (And 57% of all Americans think it should be legal.)

Religious freedom takes many forms. Abortion rights is just one and it deserves as much protection as the right to be, to start being or to stop being a Muslim or Catholic or Jew or atheist. If you dig into the philosophy of someone who wants to take choice away from women you'll find someone who - at heart - does not buy into the notion of trusting individuals with religious freedom. They don't trust women who disagree that a sperm is just one moment away from having a soul.

And finally, let's talk about sex, pregnancy and raising a child. Sex is pretty awesome. A pregnancy with the expectation that you'll bring a little person into the world is kind of magical. But having sex forced on you - being raped - is one of the most traumatic things that can happen to a person. It rarely gets talked about, but it seems to me that having a pregnancy forced on you, being forced to have a child, has to be incredibly traumatic. Women know when they're ready to bring a child into the world and if this isn't that time, their lives are rocked. It's awful. Sex, pregnancy and children are wonderful ... when they're freely chosen. It's unconscionable to force them onto women.

All of progress results in more choice, more freedom. We have fireworks to celebrate national independence. We call this the land of the free. We fight for freedom. We've killed people from dozens of countries to "protect our freedom." Freedom is that cool and that important to the human experience. To deny women the freedom to choose when they bring a child into the world seems like a terribly medieval kind of oppression and one of the worst kinds of thefts of freedom, a theft even worse than stealing someone's freedom of religion.

02 September 2018

John McCain and What Might be Trump's Most Incredible Accomplishment

There were things I did not like about John McCain's politics. McCain and his buddy Lindsay Graham seemed intent on sending troops into every hot spot around the world. He gave us Sarah Palin, helping to move us towards candidates whose major qualification is fame rather than understanding. (He obviously regrets that. Palin was asked not to come to his funeral.)

There were things I did like about his politics. Most importantly, he pushed the Bush - Cheney administration away from torture; without him it's plausible that our official policy on torture would be no different from that of dozens of dictatorships around the world. 

Beyond politics, I'm not sure how you would dislike his person. A man who nobly stayed a prisoner of war for years rather than leave behind his fellow prisoners - a price that cost him, among other things, his ability to raise his arms above his head - is a man you can't help but respect.

He was an icon of the Republican Party and yet Trump attacked him.

Even though he was not running against McCain in the primaries, Donald Trump went out of his way to say that McCain was not a war hero. "I like people who weren't captured," said the man who claimed that his own personal Vietnam was avoiding sexually transmitted diseases at Club 54 in the 80s and who avoided being drafted into Vietnam because of "bone spurs." Trump made more than one enemy with that comment.

Trump has also - repeatedly - shown disrespect towards all the former Republican presidents named George Bush.

Here's Trump's remarkable achievement. To side with him, you have to side against both living, former Republican presidents and one of the party's most iconic figures and former candidate for president in John McCain. He has repeatedly shown contempt for those men. They have repeatedly made clear their disdain for him.

Trump has forced his supporters to choose between him and *
  • American prisoners of war
  • a gold star family (a family who has lost a child in combat)
  • every living former Republican president
  • the FBI
  • his own Attorney General Jeff Sessions
  • the American Intelligence community (which includes the CIA)
  • Economists who argue for multi-lateral trade agreements like the WTO, TPP, and NAFTA (which includes the overwhelming majority of economists)
  • the Editorial boards on 100 of the nation's top 102 newspapers (of the two newspapers that endorsed him for president, one was owned by Jared Kushner, his son-in-law)
  • iconic conservative voices like George Will, David Frum, and David Brooks
And Trump has succeeded in this. Republicans have sided with him over all these opponents to his policy and person.

In spite of making enemies of every living Republican candidate for president and every former Republican president, Trump's approval rating among Republicans stays close to 90%.

Based on this, I think it is safe to say that no president has - in my lifetime - changed a party more. Republicans not only love him but are willing to side against so much of what past Republicans have sided with to do that. Most recently they have happily joined with him in his contempt for McCain. (40% of Republicans disapprove of McCain.) To redefine a party that much is an incredible accomplishment.

* And of course as time goes on, the list of people Trump supporters have to side against grows. His former allies who have turned against him immediately end up on his enemies list. His former lawyer and confident Michael Cohen and former adviser Omarosa Manigault are just the most recent of the people who his supporters had to once revere and now disrespect.

01 September 2018

A Big Reason Racism is So Dangerous

The world's fastest man in the 100 meter race is black. Has been for some time. It seems tough to deny that there are differences in populations and it may be that some subset of folks with dark skin have a genetic advantage when it comes to something like quick sprints. It could be. Some Asians might be consistently different from other populations of Asians and some European consistently different from other populations of Europeans and perhaps the population of Asians is consistently different from the population of Europeans or Americans or Africans in some consistent way. I'm a little dubious about this and I don't really think that we have enough data as yet to know. (How could we not have enough data? Even genes get expressed differently in different environments and circumstances. I can easily imagine someone in 100 years laughing at these myopic observations of mine, pointing to all that they'd learned since about how "situational genetics" makes environmental factors seem like genetic factors. We are living in such a tiny slice of the story of human evolution. Plus even within families there are such huge differences that it's hard to imagine any real differences hold within much larger populations.)

Whether or not there are differences in populations in terms of ability, though, completely misses the point. Let me briefly digress to make that point.

Let's say that all you've known of transportation technology is bikes. You see a group of people standing around and you're asked to predict who will get to the next town the soonest. You "know" that men tend to be stronger than women, that young men are stronger than old men, and lean men are faster than fat men. So you spot the youngest, leanest man in the group and point to him. "He'll be fastest," you say. 

What you don't know from your little slice of time in 1880 is that you are now in a time when there are bikes, cars, bullet trains, planes and zip line infrastructure built between towns. As it turns out, an elderly lady with a cane and more money than the rest has hired a helicopter to get her to the next town and arrives there ten to 45 minute faster than anyone else.

Given technology advances, all the usual determinants are made irrelevant for predicting outcomes. The strong young man and the weak old woman move at exactly the same speed on the 767 jet and both are moving much faster than Usain Bolt ever ran. 

Which takes me back to social realities that are most often equated with economics.

At one point in time, physical strength makes the biggest different in one's productivity. At the next stage of development, the ability to quickly calculate numbers is the biggest determinant. At the next it is creativity. And so it goes. As machines and systems at turns obsolete, automate, and enhance our skills, different "natural" skills matter more or less.

I put "natural" skills into quotation marks because as we learn more about genetic engineering and enhance tools like CRISPR that enable genetic engineering, even genetic differences at birth will matter little at determining our "natural" set of skills.

Progress is about creating better systems to enable us to enjoy life. "All men are created equal," is such a brilliant line because it shifts the focus from the question of whether one is an aristocrat or peasant and the argument of how different such people may be to the question of how we engage in social inventions to make everyone happier and more prosperous.

Racists focus on the wrong thing. Genetic evolution hasn't been a determinant of progress for hundreds of thousands of years. Social evolution is what makes Norwegians more affluent than Greeks, not biological evolution. The question of how quickly we get to the next town is a question of technological invention The question of how prosperous, peaceful and long we live is a question of social invention; do we have the right education systems, financial systems, business systems, and healthcare systems to enhance our lives? 

That question matters to progress; the question of race does not.

31 August 2018

Progress under Threat

It's more interesting to write about how to make future progress than how to protect past progress but we don't always have that choice.

Apparently this blog closes down in August. I have not written a single post all of this month. I feel so very French.

I've written a fair bit about Trump when I would much rather write about the next economy. That will continue because Trump is such a big threat to progress.

As I wrote The Fourth Economy, I realized that I needed a definition of progress that worked from 1300 to 2050 - the period the book covers.  Progress couldn't just be conquering more land or manufacturing more goods or processing more information. It had to be bigger than that. The simple definition I adopted is that progress is an increase in autonomy. Autonomy means that an individual directs her own life. Power over gives way to power to, and the pope or monarch's power over the individual gives way to the individual's power to choose or define her own beliefs and policies and life. More goods to choose from means more autonomy. More data to inform a decision means more autonomy. All economic progress falls under the category of increases in autonomy.

Autonomy is the destination of and the means to progress. A rich man has more options about what to do with his weekend than does the poor man. A rich man can afford more education and investment to give himself more options in the future. Autonomy now can translate into more autonomy later. And it is not just about cash in one's pocket. Someone living in a place that respects religious freedom has more choices about what to do with his Sunday morning or Friday evening than a person living in a theocracy. When we make progress, we have more freedom about how to define and live a life and generally become more able to do that as a result.

In the first economy from 1300 to 1700, the individual gained autonomy in the realm of religion. Religious freedom meant that the no one could dictate to the individual what beliefs they held. It also meant that given a community could not impose supernatural beliefs upon people, so public affairs had to rely on the testable claims that eventually gave birth to the Enlightenment. Science that could be replicated and votes that could be counted became the basis for public practice rather than revelation of the elites about what God intended for communities.

In the second economy from 1700 to 1900, the individual gained autonomy in the realm of politics. No longer a subject of the monarch, individuals became citizens whose votes and dialogue shaped the policies that in turn shaped them. 

In the third economy from 1900 to 2000, the individual gained autonomy in the realm of finance. By 2000, the individual had access to credit and investment markets that were largely reserved for elites in 1900. Not only did life expectancy increase from 47 to 77 in the US but so did the means to fund retirement in those advanced years, through social security, pensions, and 401(k)s. Additionally,  Keynesian policies and bank regulations subordinated individual banks to a central bank goal of low unemployment and inflation.

What do these shifts have in common? The institution in question - church, state, and bank - get defined as mere tools that can be - that should be - used by anyone. The church becomes a tool for the masses and each individual is free to use it or not as they wish (or even create their own church). The state becomes a tool for the citizenry and not the monarch. Bankers can - and rather spectacularly still do - pursue profits but within financial conditions that will be tweaked to keep inflation and unemployment within a certain range; banks and financial markets are meant to be tools for the masses, for the betterment of the whole economy and not just elite bankers.

This table captures one dimension of the Fourth Economy, this notion of institutions as tools.

And here's a really important point: you never make progress into the next economy by reversing the progress of the last. The first step of democracy is not to discard religious freedom; democracies build on religious freedom.

Given, that we have freedom of religion, democracy and Keynesian policies, we can now shift our focus to how we want to define the corporation.

Or so I thought.

I thought that the 21st century would be a story of how we change the corporation to make it a tool for the average employee, the popularization of entrepreneurship resulting in - among other things - more employees using the corporation as a tool for creating wealth for other stakeholders and for themselves. Part of that vision is that within a corporation of, say, 100,000 employees there will about 1,000 employees so successful at creating wealth that they make the same as or more than the CEO. (This 1% number is roughly what we have in the US: about 1% of the population makes more than the $400,000 we pay our president. This is a sign that our nation-state is mature. As the corporation matures from a tool for the elites to a tool or the average employee, we should see a similar percentage of employees equal or beat their CEO's pay.) 

I thought that we'd be focused on how to transform the corporation in this century. I was wrong.

For now.

As it turns out, the transition to the fourth economy has hit snags. Rather than a debate within the West about how to transform the corporation, we've got a president who challenges freedom of the press (a first economy issue), makes voting harder (a second economy issue) and challenges the Fed and banking regulations (a third economy issue).

Trump regularly calls the press the enemy of the people and warns evangelicals that a vote against him is a vote against "your religion." He constantly spouts nonsense, showing a disregard for anything vaguely resembling the truth, which might be the biggest first amendment threat of all. (One huge reason for freedom of thought is to allow the advance of good theories that crowd out bad theories in the form of superstition and conspiracy theories.) The GOP - in control of every branch of government - seems intent on making voting harder, not easier. They seem convinced that too many people are voting and that democracy has gone too far. Additionally, they still seem at odds with the gains of FDR's time and are trying to reverse  financial regulations meant to make finance safer for common people. 

Progress does not scuttle the old; progress builds on it. Multi-cellular creatures don't throw away single cells as outdated; they use them as building blocks. A democracy does not get rid of freedom of religion, it builds on it. There is no scenario in which we move forward by robbing people's freedom of thought (that shows up in freedom of religion, speech, assembly, religion and press) or even erode it. There is no scenario in which we move forward by giving fewer people in a community the power to define and choose the options that defines policies.; a better community will not have less democracy.  And there is no scenario in which progress will mean having less capital - or fewer people directing capital - to fund R-n-D, retirements, hiring and consumption. Progress will build on all that, not bulldoze it. 

And yet we have a president who regularly attacks the press, the Fed, and even religion.

I had thought that at this point I would be mostly exploring ways to make the corporation a tool, how to transform work in a way that made employees more entrepreneurial, gave them more power to use the corporation to create their own lifestyles and wealth rather than be treated as tools for that corporation. This seems relevant as a means to address issues of stagnating wages and wealth and income inequality. That conversation seems to be on hold.

I did not anticipate the fact that I'd have to feel alarm at the prospect of the progress of the first three economies being reversed. I never thought that we'd have a president so casually attack the press or feel so little compunction about things like imposing a Muslim ban. But as long as the gains of the first three economies are dismissed, we are at threat for a reversal that can quickly cost us. Without the first three economies to build on, the fourth becomes precarious, probably even moot. As long as we have President Trump, I will write about him.

The good news is that such disruptions to progress, such reversals, are common. Transitions into new economies are rough.

I still feel optimistic and intend to soon write a post on the inevitability of progress. The bad news is that over the course of history that plays out across four economies, a "short-term" blip can last a decade - or even generation.  If successful, Trump's attacks on freedom of religion, democracy, and our central bank will be costly.  For this reason the blog will continue to discuss the threat of Trump more than I would like.

It seems so very silly and unnecessary to re-litigate cases for democracy or freedom of religion or Keynesian policies that have already been so brilliantly argued through the history of the West and yet ....

Sometimes you are able to make progress. And sometimes you just do well just to protect what you already have. I'm looking forward to the time when we can again shift our focus to making progress into what we can't know rather than protecting what past generations have already proven.

20 July 2018

Everything You Need to Know About Trump, Russia and Putin

19 July, Trump tweeted out a video of Hillary Clinton saying this: "We want very much to have a strong Russia because we think that a strong, prosperous, stable Russia is in the interest of the world."
Tweet here.

His comment with the tweet was: "When will the Dems and fake news ever learn? This is classic!"

And in that tweet we have everything we need to know about Trump and Russia.

Russia, the country, is weak. Certainly not militarily but economically. Americans make 6.5X as much and live a decade longer. Russians don't have the same rights as Americans. Many reporters, politicians, and activists have been killed for opposing Putin. (Contrast that with the US where there has been a veritable industry in opposing American presidents since Bill Clinton's presidency. Nobody gets killed for speaking out against our president but quite a few have gotten rich.)

Hillary saying that it would be a better world if Russia were strong is spot on. A more affluent, more open, more democratic Russia not only makes for a better trading partner for the West but makes it less of a threat to the West. A genuinely strong Russia is less likely to invade the Ukraine or Estonia or disrupt elections in France, Italy, and the US.

Trump, though, thinks that this sentiment is proof that Hillary and the Democrats are being hypocritical in criticizing him. He sees no difference between Russia and Putin.

Trump's mind is not capable of abstractions, of statistics that represent a group. He's like a child in that he only knows personalities and stories about individuals. At some level he seems incapable of distinguishing between Russia and Putin.

Putin is very strong. CNN is going to do a "Most Powerful Man in the World" segment on him. Estimates of his wealth vary from $50 to $200 billion. Putin can have anyone killed. He can influence elections in countries throughout the West and apparently even control the American president. Trump admires all of this and is - at the least - eager for Putin's friendship and at most terrified of upsetting Putin. Putin may be the only person Trump has not insulted.

That Hillary could think it both good for Russia to be strong and Putin to be weak does not even compute for Trump. (History suggests that the weaker a leader is relative to his people, the stronger the people.) For him a country is simply the supporting cast for a leader. He's not really interested in Russia. He's fascinated by Putin. And of course he's not really interested in the US but he is fascinated by Trump.

16 July 2018

Gales of Creative Destruction and the Stress of Progress

Since Oct-2010, the US economy has destroyed 475.6 million jobs (layoffs, retirements, firings, quits) and created 494.2 million jobs for net of 18.5 million jobs.

As of June, the labor force was 162.1 million.

So during the 8-year recovery the American economy has created 3X more jobs than there are people in the workforce and destroyed 3X more jobs than there are people in the workforce

244,000 jobs were created in May. More precisely, 5.8 million jobs were created and 5.5 million jobs were destroyed for a net of 244,000. It is not true that everyone kept his or her job except for 244,000 people who were newly hired. Every month people are laid off, fired, quit or retire; in May, 5.5 million people had such experiences. That's a lot of elation (those who retire), relief (those who quit), frustration and panic (those laid off and fired). We talk a lot about taxes but an economy this dynamic is emotionally taxing.

One of the challenges of the modern economy seems to be that given progress comes in the form of gales of creative destruction we have a high level of stress. Personally I think that just reinforces the necessity of things like universal healthcare, investments in job retraining and generous unemployment, etc. But regardless of the solution you'd advocate, you have to realize that anyone whose idea of the good life is a stable, predictable career is going to feel a continual level of stress and unease by progress.

Two things can be simultaneously true: we are creating better jobs and a lot of people end up with worse jobs. There are probably as many people laid off from manufacturing jobs paying $45,000 a year now working at Wal-Mart for $25,000 as there are people with new programming jobs making $75,000. (And of course that very dynamic is part of why median wages move upwards so slowly and why income inequality is increasing.)

This economy is wonderfully creative but it is increasingly disruptive. Entrepreneurship and social invention creates the new and obsoletes the old just as innovation does with products. We used to have marriage between one man and one woman and now we have same-sex marriage and polyamory. We used to have jobs with pensions and 40 hour workweeks and now we have 401(k)s and a gig-economy that offers us Uber-like jobs with both more freedom and uncertainty. We used to have an American economy and now we have NAFTA. If you find comfort in continuity you will actually find progress threatening because so often it forces us to act or be different. 

Innovation changes products while entrepreneurship and social invention changes people. That's unsettling.

It seems to me like the divide that doesn't get talked to enough is the divide between those who embrace progress and all its novelty and those who embrace tradition and all its familiarity. To the latter group, progress can actually feel like a threat.

07 July 2018

The Most Important Development in the Evolution of Humans

First an excerpt from Thinking Big, a book about how our brains evolved to adapt to social realities. A key point here is this matter of thinking in terms of relationships and not just rationally.

Food was certainly of vital importance and obtaining it efficiently and securely must have dominated much of their [early hominins’] lives. The archaeologist Rhys Jones, who lived with Aborigines in Northern Australia, once said to us that these hunters and gatherers were always 24 hours away from hunger.But for us the keys to understanding food lie in the implications for social cooperation. This takes two forms. First are the tactical demands, of getting working parties together to hunt or gather safely and with greater chance of success. This covers defence against predators as well as obtaining those foods that were needed to fuel expanding brains. Second is the strategic matter of planning for bad times. This is achieved by looking for help beyond your immediate community. Instead of restricting access to resources by defending them against all-comers, it is better to allow other people in. By linking individuals and their communities over very large geographical areas a form of ecological insurance is produced. [highlighted added]Archaeologists refer to this as social storage: tokens exchanged for food in bad times, and vice versa in good. In other words, if conditions deteriorate where you happen to be ranging, then we will allow your community to come over to our range and use our resources for a while. Later, the reverse will be the case, and you can pay us back. Such a system works well, but it requires that the community has a territory large enough to cover a wide range of habitats. It won’t work so well if community territories are small and consist of essentially the same kind of habitat.
…..Rather than concentrating on what may be rational explanations of why they hunted bison rather than reindeer or chose not to eat fish, as the isolated Tasmanians famously did 6000 years ago, we need to shift the perspective and see the role of food and other materials in creating relationships rather than simply meeting calorific goals. Archaeological explanations for the human story need to be relational (being social) as well as rational (being economic). Social life is not based on calories alone but on the relationships that emerge when things are made, exchanged, used, and kept.pp. 86-7 of Clive Gamble, John Gowlett, and Robin Dunbar’s Thinking Big: How the Evolution of Social Life Shaped the Human Mind, Thames & Hudson, London, 2014, paperback version 2018.

Put more simply, as humanity evolved it faced two choices.
1. Defend your limited resources from others.
2. Expand your limited resources by sharing with others.

Archaeologists think that Neanderthals adopted the first strategy and early humans adopted the second. Neanderthals went extinct. We've become the dominant species.

As it turns out, the second strategy of strengthening relationships rather than walls has a host of advantages. Not only do you have more insurance against bad times but this strategy requires you to cooperate with larger groups of others, which enables all sorts of advances. This means opportunities for wider array of mates, the exchange of ideas, and the "outsourcing" of or cooperation on explanations, research and development, and cultural and technological innovations that eventually dwarfed the diversification of food sources in importance.

The choice to cooperate to share more rather than compete to protect less may be the single most important choice early humans ever made.