08 December 2018

A More Civil War Between Two Economies


The American Civil War was fought between two economies: the South’s agricultural economy and the North’s industrial economy. Today's more civil war is also a clash of two economies: industrial and information. In the industrial economy are factory workers threatened by globalization and traditional capitalists who want lower taxes and smaller government; in the information economy are knowledge workers and new entrepreneurs who depend on globalization and public investment in education and research. They live in different economies. They want different policies.
In a country as big and complex as the US, people don't vote for or against candidates for just one reason. Still, these two economies seem to explain a lot.

People in congressional districts that voted Democratic in 2018 are more likely to have college degrees, twice as likely to work in digital services and almost half as likely to work in manufacturing.[1] In the 50 counties with the most college grads, Hillary Clinton won by 26 percentage points; in the 50 counties with the least, she lost by 31 points.[2] College grads are the simplest proxy for knowledge workers and have become one of the simplest predictors of how communities vote.
The classic knowledge worker – whether biologists and chemists developing new drugs, engineers designing new products or programmers creating apps – is working towards disruption. Their new product displaces an old one.
By contrast, factory workers and traditional capitalists dislike disruption.
If we define traditional capitalists as people who invest in physical factories or private businesses, it becomes clear that they are more threatened by disruption. They can’t quickly buy and sell their assets like day traders and two things will enhance their investment: lower taxes and protection from sudden obsolescence.
If factory workers are laid-off they could be forced to leave manufacturing – or even town - for lower paying jobs. A new product or technology – the very goal of information workers - could make an entire factory obsolete and that could mean a wave of layoffs that might devastate a small community.
Disruption threatens factory workers and traditional capitalists in the industrial economy but is a goal of the new entrepreneurs and knowledge workers in the information economy.  This drives conflict.
People in the two economies also experience the outside world differently.
Knowledge workers inevitably have immigrant coworkers and foreign customers and suppliers. (As the name suggests, the world wide web isn’t a local service.) About half of Silicon Valley’s startups are co-founded by first or second-generation immigrants. Information shows about as much respect for borders as do clouds and this information economy is a global economy. NAFTA, WTO, and the EU were defined in the 1990s along with the internet. Also, knowledge workers generally live in cities among neighbors, coworkers and family from around the world.
By contrast, factory workers are more likely to see the outside world as a threat. Imagine competing with factory workers from foreign countries who might make as little in a day as you make in an hour. If you live in a rural area you know fewer foreigners. (Foreigners are 27% of California’s population but only 1.6% of West Virginia’s.) West Virginia has 5.6X as many veterans as immigrants; California has 5.3X as many immigrants as veterans. People in rural areas are more likely to meet foreigners through war and occupation than work and dating. To folks in the industrial economy, foreigners are people who take your job or even your life. To folks in the information economy, foreigners are coworkers, neighbors and family.
Everyone wants security. People in the industrial economy want it in the form of protection from the rest of the world and people in the information economy want it in the form of social programs. Factory workers want walls for immigrants and tariffs for trade. Knowledge workers want good social safety nets like generous unemployment insurance, universal healthcare and great education and retraining programs to help them through what they see as inevitable disruption. Knowledge workers want strong government. Factory workers want strong borders.
Traditional capitalists want low taxes and small government. They are trying to maximize their return on investment and aren’t interested in high-taxes to create a strong government. By contrast, the new entrepreneur relies on healthy government investment. The quality of his employees depends on the quality of education. And the knowledge workers the new entrepreneur employs often develop products that depend on government research. Mariana Mazzucato argues that companies like Apple could develop products like the iPhone because of earlier government research into technologies like touch screens and satellites. Government funds the uncertain R (research) and companies invest in the shorter-term D (development). In the information economy, R&D is a collaborative affair between the public and private sectors.
The conflict between knowledge workers and factory workers does not come out of irrational thinking or tribal impulses. They are protecting the economy that defines them.
There is precedent for such a divide.
The American Civil War was fought in the 1860s. Between 1840 and 1890, agriculture’s share of economic output and employment fell by half while manufacturing’s share doubled.[3]
The industrial economy – and Republicans - emerged from the north. Lincoln was the first Republican president, elected just six years after the party was founded. Between 1861 and 1933, a Republican sat in the White House 72% of the time. In 1861 daily life would have been mostly familiar to someone from 1776; by 1933, the nation had automobiles, electricity, telephones, airplanes and radio. Republicans were presidents and capital was king. The industrial economy emerged in gales of creative destruction and the South’s agricultural economy and way of life – both dependent on slavery - were two of the things that it destroyed.
The agricultural economy employed 90% of the workforce at our country’s founding; it now employs 1%. The industrial economy is following its trajectory. From 1910 to 2015, manufacturing as a percentage of employment fell from 33% to 9%.[4] Meanwhile, between 1940 and 2016, the percentage of Americans with four or more years of college rose from 5% to 33%. The industrial economy, like the agricultural economy before it, has proven to be just another phase of economic development rather than its culmination. The industrial economy eclipsed the agricultural economy as a source of wealth and jobs in the late 1800s; about a century later, the information economy has eclipsed the industrial economy. If you define yourself as a farmer or factory worker, such disruptions are a personal threat and not just an economic phenomenon.
People in the industrial economy feel under attack. For that reason alone they rally behind the warrior chief Trump and care little about whether others see him as crude or combative; he’s protecting them from an attack on their lifestyle and livelihood.
But if a transition from an industrial economy is as inevitable as the transition from an agricultural economy, the question becomes, What policies help with the transition? Policies designed to protect jobs, industries or even economies are expensive and defer the inevitable. Policies that protect people rather than jobs, helping them to make transitions rather than resist them, are less expensive and yield a better return. The transition won’t be – has not been – trivial but here are just a couple of suggestions.
Treat career investment more like a common right than a special privilege. States invest about $40,000[5] in knowledge workers who spend five years at a public university. Factory workers (or anyone who doesn’t go to university) deserve a similar investment. The money could be spent on education (vocational or trades schooling, for instance), venture capital for startups or housing allowance to move them into more dynamic communities with better jobs.
Another policy initiative could better integrate rural workers into the information economy. People in cities are 40 to 50% more productive for host of reasons, most stemming from the fact that they are part of richer and more varied communities. It is worth exploring options for better connecting folks in less populous communities with folks in nearby cities or rural hubs so they, too, enjoy more of the economic benefits of living in cities where ease of connection and specialization makes people more productive. 
One step to ending the more civil war between factory workers and knowledge workers is to treat them the same: invest in both and make them part of the same, continually evolving economy. Because as it turns out, the economy is not any one thing: it is an evolving market that will change even more rapidly as it becomes more clearly an entrepreneurial economy rather than the agriculture, industrial or information economies that preceded it.



[1] https://www.cnbc.com/2018/11/15/charts-democrats-represent-modern-economy-republicans-left-behind.html
[2] http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/
[3] https://www.cambridge.org/core/journals/journal-of-economic-history/article/americas-first-great-moderation/E3217E2FA4B9D3CAD4AA23A67CDCDC62
[4] https://www.bls.gov/opub/ted/2016/employment-by-industry-1910-and-2015.htm
[5] https://www.usnews.com/news/best-states/slideshows/states-investing-most-in-higher-education-per-person

02 December 2018

You Dreamer You

Imagine a game show.

You find yourself on stage with 3 strangers.

You are told to vote on a proposal to send foreign-born, undocumented people back to the country where they were born. If a majority of you vote for this proposal, it will be immediately enforced. Whether brought to the country as an infant or a 14 year old, one cannot stay here unless one's parent or guardian had the proper paperwork. Such people will be immediately deported once the law is passed.

Now it gets more interesting.

You are then told that one of you is actually foreign born and undocumented. As you talk among yourself you realize that none of you have a memory of living anywhere but the US. There is a 25% chance that the "born in a foreign country but raised in the US" person is you. Meaning, there is a 25% chance that you are the one who will be deported to what is - to you - a foreign country.

How do you vote?

#dreamers

01 December 2018

Systems Optimization and a Life

I'm going to argue two seemingly contradictory points. First, a point about systems optimization.

You don't optimize a system by optimizing any one part of it. To optimize a system, you have to sub-optimize its parts. Let me illustrate what I mean by talking about a life.

Your life is a product of so many things: your physical health and fitness, your mental health and learning, your social life and psychological well being, your sense of meaning, your connection to the community around you and your sense of individuality in the community around you, your sense of legacy, individuality, belonging, your income and financial security, your cool shoes or cool car or cool taste in music, your hedonistic pleasures of food and sex, the hunger for stories that comes in the consumption of books and movies, or your tribal urges that find expression by cheering for your team and so many other things.

Here is the deal, though. If you optimize any one of those, you will sub-optimize your whole life. Do everything you can to be in peak physical condition and you'll likely have little energy left for something like plowing through great literature or keeping current on important new books. And if you do both of those things while working a full-time job, working out and reading all the great books, your social life will suffer. Life is zero-sum and if you optimize to any one piece of the myriad pieces that make up a life, you will sub-optimize the whole of your life. Oddly, the way to optimize any system - including and perhaps especially your life - is to sub-optimize every piece of it.

The punchline is perhaps cliche: a balanced life means moderation in all things.

Now the contradictory point.

This week there was some furor over Elon Musk's claim that to accomplish anything a person needs to work 80 hours a week. People pointed out that an 80 hour week is counterproductive. I totally agree. Long term. Short term? I think he's right.

A moderate, balanced life is not something that one achieves in any given instant. You don't split up each hour into 7 minutes for workout, 3 minutes for reading great literature, 8 minutes for building relationships, 4 minutes for eating, etc. Even within the course of a day or week we focus on just one thing at a time. So in any given instant, we're certainly not balanced.

There are times in life when you need to move forward. In those instances you look for the limit or obstacle to moving forward and you challenge that. You do optimize to the part that is the limit .... at least until it no longer is.

So then the question is, if you are going to optimize a life but not any one part of it, what does it actually mean to sub-optimize in a way that is best for your life?  It means that you have stretches of life that really do optimize for one part of it and subordinate everything else. Let's say that you have children. You don't want the entire rest of your life dedicated to doing what is best for your children, optimizing everything for them. But in those first few months? First few years? Maybe even first decade or so? You will optimize for them. Nobody with a newborn is running marathons or throwing big parties or reading great literature. They're sub-optimizing pretty much everything to that one thing: the newborn.

If you create a dissertation or book or symphony or business, pursue a gold medal or partnership in a prestigious law firm, you will probably go through something similar to what one goes through with a newborn. You're going to sub-optimize to that one thing. At least for a few years. New parents are not going to say that they'll only put in 40 hours each to care for their newborn; it would die in the other 88 hours of the week. A similar, but less dramatic thing, can happen with any of these ventures. Balance suggests that you never dive into anything: success suggests that you do.

And maybe you just keeping diving into things for the whole of your life. Or more realistically, at various times in your life that could be separated by six months to six years of "la de dah," days in which not a great deal happens. (That perfect storm of incredible opportunity for which you are incredibly well suited at the right time of life only happens one, two, maybe three or four times a life.) You throw yourself into things that result in sub-optimization elsewhere. You're immoderately out of balance at every stage and the end result is a full life that is balanced in that it lets you experience life as whole over the course of a whole life, but never in any one instant. Because in the end, a life takes a lifetime and if you're interested in a legacy of any kind, you don't even optimize for a window that small. (But that's the stuff of another post.)