23 August 2019

Republicans - the Party That Does What It's Told

When it comes to how we're wired, liberals prioritize equality and care while conservatives focus more on loyalty, authority and purity. Once Republicans know who the authorities are, they'll reliably do what they're told.

No Republican has been more popular - not Eisenhower or Reagan, not Bush or Bush, not Nixon or Ford - than Trump. Trump defines and owns his Party in a way that no president since FDR has. This is only possible because Republicans so readily cede to authority.

Concerned Republican, "Trump had sex with a porn star while his wife was home with a new baby and then used campaign funds to hush her up. Oh, and then lied about it. We were really upset about sex and lies with Clinton, right?"
"Right. But that doesn't matter now."
"Oh, okay."

Concerned Republican, "Trump has doubled the deficit to a trillion dollars. We were really upset that the deficit grew so fast during the Great Recession under Obama, right?"
"Right. But that doesn't matter now."
"Oh, okay."

Concerned Republican, "Trump has insulted prisoners of war, discounting their sacrifice and heroism. We really love our veterans and in particular those who suffered as prisoners of war, no?"
"No. Not any more. A prisoner of war is a loser who got caught."
"Oh. Okay."

Concerned Republican, "Trump is against free trade. Aren't we against government interference in markets and for free trade?"
"Not anymore. Now we like trade wars."
"Oh. Okay."

Concerned Republican, "Trump is telling businesses that they can't do business in China or with China. Isn't government telling businesses what to do socialism?"
"Not anymore. We like this."
"Oh. Okay."

Concerned Republican, "Russia helped Trump to win. Don't we hate the Russians and isn't that foreign interference in our elections?"
"Not anymore. Democrats just hate Putin because he didn't help them to get elected."
"Oh. Okay."

Concerned Republican, "Every time Trump tweets the stock market falls. Don't we care about the stock market?"
"Not anymore. We think trade wars are more important than prosperity."
"Oh. Okay."

Concerned Republican, "Trump claimed that he was the chosen one and that he is the second coming of God. Should we be worried that he's going crazy?"
"No. He actually is the chosen one. God loves him best."
"Oh. Okay."

Concerned Republican, "Should we be drinking this kool-aid? It looks like it made those other people really sick."
"Everyone feels worse right before they feel better. Just close your eyes and swallow it quickly."
"Oh. Okay."

There was a reason Putin wanted Trump to win. Democrats will reject a Democrat because he posed for a picture pretending to touch a sleeping woman or because she was paid for a speech by bankers. You can't get Democrats to reliably vote AGAINST a madman. Republicans? You just have to tell them to vote for and what to support this year and they'll happily do it. It's a pretty easy group to herd. If you tell them they're supposed to, they'll even reliably vote FOR a madman.

09 August 2019

How Hosting or Squelching Science Determines Where Progress Goes Next

In 1642, Galileo died and Newton was born. That's still a poignant symbol of the hand off from Italy to Britain for progress.

In 1500, Italy's per capita GDP was about 50% higher than Britain's. By 1820, Britain's per capita GDP was about 50% higher than Italy's.

Galileo was arguing that the earth rotated around the sun. The church had the authority of Joshua 10:13, a verse that made it clear that it was in fact the sun that orbited the earth. They put Galileo under house arrest and made it clear that developing theories based on observation was not to be tolerated as long as Italy had the church's authority.

Science traveled north. The Protestants of Northern Europe accommodated Galileo's theories and became host to the scientific method that the Italians had helped revive from Greek and Roman time. Newton went further than Galileo, developing a set of laws to explain what Galileo observed. Newton's science and math became a foundation for the Enlightenment and that, in turn, became a foundation for the Industrial Revolution and Democracy. Italy protected its past and the UK created a new future.


Today, we have a similar inflection point in the transition from fossil fuels to alternative energy. China now leads in the production of wind turbines and solar panels. Meanwhile, we Americans have elected a president intent on protecting coal - an industry that dates back to the time of Newton. Trump - like so many of his supporters - denies climate change in the same way that the Catholic Church denied we orbit around the sun. And science, less interested in the vested interests of coal industry profits or old testament prophets than reality, is shifting away from the greatest home to science since, well, Italy during the Renaissance or the UK during the Enlightenment.

Economic growth and prosperity follows science. It has for centuries. If we continue to deny the reality of climate change and what that means for a shift in strategies and the source of prosperity, we will play the role of Italy in the 1600s. It's not a good role. Shakespeare - born the same year as Galileo - set half his tragedies there.

07 August 2019

We're All Becoming more Individual - or the curious challenge progress poses to politics

It's not just that we're getting more specialized in our work. We're also getting more specialized in our consumption. My lunch is different from yours. The last book I read has nearly a 0% chance of being the same book you last read. The article linked below is a tad wonky but the punchline is that there is a rise in "niche consumption."

This is so fascinating to me because it means that economically we have never been more diverse. I can't do your job and I never see you at my favorite lunch spot. To some degree. our lives are lived in separate economic universes whether we're on the production or consumption side of the economy.

Meanwhile, we have to come together as a community when it comes to the government we choose and the policies we implement. You don't have to live with the consequences of what I choose in the market - which is becoming increasingly fragmented and diverse - but you do have to live with the consequences of what I choose at the ballot box - which still has to hit 51% and by definition cannot be that fragmented. At no time in history have we had to bring so much diversity into one common cause, creating community even with less and less is in common.

In this way, progress poses a curious challenge to politics. Progress makes us all more distinct individuals. Politics is often built on what we have in common. As we make more progress, what is common between us becomes less obvious.

From the summary:

This paper empirically documents a rise in what we call "niche" consumption. Households are increasingly concentrating their spending. This pattern, however, does not appear to be driven by the emergence of superstar products. Rather, households are increasingly buying different goods from one another. The increase in segmentation seen in many other walks of modern life also applies to consumption: our grocery baskets look less and less similar. As a result, aggregate spending has become less concentrated.
From the intro:
We show that over the last 15 years, the typical household has increasingly concentrated its spending on a few preferred products. However, this is not driven by “superstar” products capturing larger market shares. Instead, households increasingly focus spending on different products from each other. As a result, aggregate spending concentration has in fact decreased over this same period. We use a novel heterogeneous agent model to conclude that increasing product variety is a key driver of these divergent trends. When more products are available, households can select a subset better matched to their particular tastes, and this generates welfare gains not reflected in government statistics. Our model features heterogeneous markups because producers of popular products care more about maximizing profits from existing customers, while producers of less popular niche products care more about expanding their customer base. Surprisingly, however, our model can match the observed trends in household and aggregate concentration without any resulting change in aggregate market power. 


26 July 2019

GDP Growth Under Last Four Presidents (Or What Trump Lied About This Time)

This morning the new GDP numbers were announced here. The numbers compare the second quarter of 2019 with the second quarter of 2018.

GDP is up 2.1% for 2Q 2019
Personal consumption is up 4.3%
Private domestic investment is down 5.5%
Exports are down 5.1%
Federal government spending is up 7.9%

So what does this mean in simple English?
GDP growth was below average. Since 1993, quarterly growth has averaged 2.6%. Hitting 2.1% rather than 2.6% is a difference of $100 billion. ($107 billion, to be exact. Which works out to about $300 per American.)  GDP rose because personal consumption and government spending is up and in spite of the fact that exports and investment are down.

It's dicey to play psychologist based on one quarter but this suggests that the great job market, long boom and easy credit have made American consumers more comfortable buying stuff. So personal consumption is up.

Meanwhile, Trump's constant trade war talk has made businesses nervous about investing more and has already hurt their ability to sell to foreign markets. So business investment and exports are down.

Households are comfortable and businesses are nervous. It's tough to sustain increases in household and government spending when investment and exports are dropping.

There is another element worth noting. I've heard from more than one Trump supporter that GDP growth under Trump has been unprecedented and that he's hit quarterly growth levels that Obama thought impossible. Like so many of the claims originating from the fake president, this is an absurd claim that quickly dissolves on contact with facts. 

This graph shows quarterly GDP growth for the last four presidents. Specifically, it shows the average for each one (blue bar), their highest quarter (orange), their lowest quarter (gray) and the difference between the average of their first three quarters (the economy they inherited) and the average of their last three quarters (the economy they left for the next president) (yellow). 


Studying this graph quickly makes a few things obvious. 

Trump has the lowest high. In his best quarter, GDP grew by 3.2% from a year earlier. For Clinton, Bush, and Obama, the highs were 5.3%, 4.3%, and 4.0%. GDP is not growing at unprecedented highs under Trump. It is not even growing at precedented highs. Clinton, Bush, and Obama all had better quarters. (Clinton alone enjoyed 24 quarters of better GDP growth than Trump's best quarter. 24.)

Bush inherited a great economy and made it worse, GDP growth dropping by 2.8 percentage points from what it was in his first three quarters to what it was in his last three quarters. Obama inherited an awful economy and made it better, GDP growth increasing by 5.1 percentage points. Clinton inherited a decent economy and made it great, increasing GDP growth by 1.3 percentage point. Trump? Trump hasn't really changed things. He inherited a good economy and made it somewhat better, an uptick of 0.3 percentage points from his first few quarters to his most recent three. It is fascinating that so many of his critics who thought he would blow up the economy (in a disastrous way, as I did) and so many of his supporters who thought he would blow up the economy (in a great way), have found themselves in the calm before a clear direction. For the most part, the economy has continued on the same trajectory in which he found it.

Of course none of this is what he promised.

Trump promised GDP growth of 4, 5 or 6% after he passed his tax cut. (Video here.) He's currently averaging 2.6%, about two-thirds of what the economy averaged under Clinton and less than half of what he promised. It's not just that his tax bill has doubled the deficit; it has failed to make any discernible change in GDP growth.

If he just shut up, the economy might do better. Businesses might invest more and find it easier to sell abroad without dodging the tariffs of Trump's trade wars. Of course expecting Trump to shut up is like expecting the heads on Mount Rushmore to speak out. 

-------------
Catherine Rampell puts the surge in government spending into perspective.


25 July 2019

Progress Has a Direction

When it comes to politics, there are a lot of people who believe that the truth lies somewhere in the middle and that if only we listened to each side we'd find the truth there.

I actually agree with this on one dimension. Imagine a scale of 0 to 100. 0 is a world in which not a dollar of income is taxed, not a dollar of government money is spent, and not a single activity is regulated. 100 is a world where every dollar of income is taxed, every dollar spent is government money, and every activity is regulated. (And you could make this more complex and have three scales for the tax, spending, and regulation.) I have my own opinions about where we should be on this scale and so do you. (Mine involves more hand waving than precision.) It might be a simple thing to have democracy by averages in this instance and simply let every single American pick a value from 0 to 100 and let the tyranny of the average (or median) define our policy. We now have the technology for this. If every voter's opinion matters, we could easily weight every opinion equally and find our truth in the middle and let it move around over time as awareness of problems and possibilities changed.

(And it annoys me that we spend so much time debating this. Again, we have the technology that would let people quickly express their values and opinions on this. Once in place, we could know the answer to the question of where Americans think we should be on this scale in an instant.)

But some policies are not subject to average. Is slavery legal or illegal? Abortion? Do we make schooling mandatory for every child? Do we make child labor illegal? Or more relevant to my own obsession with economic progress, do we put in place policies that assume and support a national industrial economy or a global information economy? Or even better, an economy that popularizes entrepreneurship?

Progress has a particular direction and for me it can be captured along these four dimensions or scales. Progress isn't found in some average on these scales but always in one direction. 

Greater Interdependence and Specialization
Progress steadily makes us part of larger groups. Progress is coincident with greater levels of complexity and interdependence. One of the simpler ways that shows up is that we move from economies largely bound by tribes to city-states to states to nation-states to global markets. Individuals specialize more and more and their work is coordinated with bigger groups (partly through management and partly through markets and partly through platforms like Fiverr). When you are self-sufficient, you have to be a generalist rather than specialist and your living standard is very low. When you are interdependent, you specialize and your living standard has the potential to be very high. Nobody on a deserted island is living a life of luxury; some people in big cities are.

Autonomy Supportive vs. Control or Abandonment
William Deci makes really great distinctions for parents, teachers and managers. You can control a child or employee, driving them towards the fulfillment of your own goals. At the other end of the spectrum you can abandon them, leaving them to do what they want without your control, influence or help. He advocates instead supporting their autonomy by enabling them to define and pursue their own goals. Rather than dictate goals you help them to articulate their own. Rather than shrug and say, "Good luck with that," you help to develop their ability to pursue those goals.

Autonomy supportive is relevant in so many dimensions but for now I'll simply say that it applies in this matter of greater interdependence. Empire is one way to expand the circle of people upon whom we depend. In that sense it is progress. A global market is even better than an empire as a mechanism for increasing our level of interdependence. And of course even better than free markets is a world in which government enables individuals to succeed in markets, is autonomy supportive. What does that look like? Regulating health and safety so that the person can trust the water and transportation systems they depend on. Providing lots of research and education so that the individual has the benefit of a steady parade of new knowledge and best practices. Education and training so the person knows how to be productive. The government neither dictates nor abandons its citizens but instead is autonomy supportive.

Greater Inclusion
At one level of progress, white, male, land-owning Protestants are able to use government as a tool for their goals. At another level of progress, minority women atheists who rent are able to use the government as a tool for their goals. One dimension of progress is Carl Benz inventing the car. Another dimension of progress is Henry Ford applying the concept of the assembly line to building cars and making them affordable for 90% of households. It is the same concept for our government, laws, and institutions. The more people able to use them and call them their own the better.

More Inventive
As we make progress, our world becomes more inventive. We invent computers and canned goods as well as banks and corporations. The speed with which we travel across town is less defined by how fast we can run than it is by whether we have access to a bike, car or subway. Our level of affluence is less dependent on our ability to hunt or build our own hut than our access to great schools or venture capital markets or table saws and nail guns. Progress means increasing reliance on inventions - social and technological. This can be disruptive.

Given the above, progress clearly has a direction. Policies that are autonomy supportive rather than controlling or abandoning represent progress. Policies that help us to become more specialized and more reliant on a larger group are progress. Policies that are more inclusive, that allow more and different kinds of people to have the same access to the institutions - institutions like credit markets, courtrooms and schools - we rely on is progress. Policies that encourage more invention - technological and social - is progress. 

There will be times when we move backwards on these scales. Such movement might even be necessary. For instance, during war we no longer trade with some group of people we were formerly reliant upon. There are people we will have to imprison, to control. Again, that is not progress but is instead a breakdown at the individual level from what is ideal to what is necessary. Moving backwards on these scales is not progress. It is - at best - an interruption to progress.

It is true that for some issues, the best resolution is in the middle. Progress, though, is not somewhere in the middle but further along. 

The Inquisition 2.0, Virtual Bordellos in Every Head, and Elon Musk and the Collective Unconscious

Harper's Weekly Review always serves as a stark reminder of how many truly weird things happen in any given week. This week's account includes these juxtaposed reports:
“These porn sites need to think more,” said the author of a paper that showed that 93 percent of pornography websites sent data to third-party domains, including Google, which had a tracker on 74 percent of porn sites. Elon Musk revealed a technology that could connect the human mind directly to a smartphone with thin threads, which would be installed by drilling small holes in the skull.

This suggests a couple of possible futures. In one, our thoughts are monitored and used for blackmail or control. In another, our impulses - no matter how odd or distasteful - are happily accommodated by for-profit providers of virtual pleasure, private bordellos in every brain.
Imagine the odd texts that you'd generate in the middle of the night while dreaming. How complicated would your relationships get in that world?
"No! It was not me. It was my subconscious!"
"Uh huh. Sure."

23 July 2019

The Christian Equivalent of Sharia Law?



Someone literally responded to my making fun of Trump with, "Well Ilhan Omar wants Sharia Law here." And I thought, "Yeah, and every elected Christian wants to make the Beatitudes our law." And then I thought, wouldn't that be something? Elected officials who provided for the meek, comforted those who were mourning, and considered peacemakers to be the people most worth emulating.

Matthew 5:3-12 New International Version (NIV)

“Blessed are the poor in spirit,
    for theirs is the kingdom of heaven.
Blessed are those who mourn,
    for they will be comforted.
Blessed are the meek,
    for they will inherit the earth.
Blessed are those who hunger and thirst for righteousness,
    for they will be filled.
Blessed are the merciful,
    for they will be shown mercy.
Blessed are the pure in heart,
    for they will see God.
Blessed are the peacemakers,
    for they will be called children of God.
10 Blessed are those who are persecuted because of righteousness,
    for theirs is the kingdom of heaven.


14 July 2019

Do I Have a Surprise for You

Moliere had a character in a play who was terribly surprised to learn that he'd been speaking prose all his life.
Today Trump told democratically elected, native born Congresspeople to go back to their "own countries. Like Obama who he insisted had to have been born in Kenya, these women just happen to all have brown skin. There's a pattern here and guess what? If you support that, like Moliere's character surprised to learn he was speaking prose, you might be surprised to learn that you're racist.

Why Trump Will Lose in 2020

Trump lost the popular vote in 2016. Less talked about is how narrow was his electoral college victory. To put that in perspective, he's the 45th president and 45 presidential elections were decided by a wider electoral college margin. Since his first day in office, his net approval across the 50 states has dropped by an average of 20 points. It is hard to imagine any scenario in which such a drop doesn't reverse his narrow margin of victory into a decisive loss.


Trump's approval rating has crashed since his first day in office. His net approval [footnote 1] across all 50 states has dropped by an average of 20 points since he took office, ranging from a drop of only 10 points [2]  to a drop of 33 points [3]. There is not a single state where his approval has gone up since he took office.


[graph with latest information at Morning Consult, here.]

He won 306 electoral votes in 2016, 38 more electoral votes than he needed to become president. That was a tight margin. (To put it in perspective, Trump is the 45th president and there have been 45 presidential elections decided by wider margins.)

I'm no scientist but I can't see how a margin of victory that slim can overcome a drop in approval rating of 20 points.

The states he won that have shifted from a net positive approval to a net negative represent 125 electoral votes. [4]

If all of those states shift from Trump to his opponent, he loses by 354 to 181, a victory roughly equivalent to Obama's 2008 win. If only one-third of the states that no longer approve of Trump vote for his opponent, his opponent wins by the very thin margin that George W. Bush won by in 2000. And obviously if his drop in approval rating doesn't change a single electoral vote, he wins again by a narrow margin. That last scenario is possible but seems wildly improbable.

And of course one thing that makes this even worse for Trump is that every year more of his supporters die. In 2016, 52% of those over 65 voted for him while only 36% of those 18 to 29 did. Every year, about 2.8 million people die and about that many become old enough to vote. Every year, Trump loses about 500,000 voters, net, as younger voters less likely to vote for him replace older voters. He lost the popular vote by 3 million in 2016. Since then, the conveyor belt of aging has meant a net loss of roughly 2 million more voters.

A cautious man would predict a narrow victory for whichever Democrat runs against Trump. These numbers don't make me feel that cautious.

----------------------------------
[1] % of the people in the state who approve of him minus the % who disapprove
[2] Hawaii, where it dropped from a negative 13 t a negative 22
[3] New Mexico, where his net positive of 17 points dropped to a negative of 16
[4] The states that have dropped from a net positive to a net zero approval rating represent another 26 electoral votes. In June, Georgia and Missouri would have to flip a coin to decide whether they approved or disapproved of him.


10 July 2019

What are the Odds? The Conservative's Unique Place in History

The women's soccer team is fighting for equal pay. A conservative friend thinks this is silly.

It's a curious thing. This friend is not a troglodyte. He does not support keeping women at home and out of the workplace like conservatives would have in, say, the 1960s. He also does not support efforts to get women equal pay now that they are in the workplace.

This is the belief of conservatives. Today, the natural evolution of "We deserve to be admitted to universities and corporate workplaces," to "and it makes no sense that we regularly make tens of percent less than men" gets the first part right and the second part wrong. In their eyes, conservatives who tried to keep women out of universities and the workplace were overly repressive decades ago and progressives who today would push for equal pay are overly progressive.

Think about the odds of this. For thousands of years before the current conservative became an adult, society was too repressive. Societies that have pushed further and now ask for equal pay for men and women have gone too far. Out of thousands of years of history and thousands of years of future, only the society they discovered at the time they became an adult got it just right. Progress had neatly deposited the conservative in just the right place in history and no further.

You would think that conservatives would be happier people. Had they been born even a generation earlier, they'd be outraged at the inequity of repressive conservatives around them not enlightened enough to give women equal opportunity. And had they been born even a generation later, they'd be outraged at the inequity of all the progressives who were stupid enough to insist on equal pay. There was only one generation in history to get it just right and it happened to be theirs. You'd think that would make them feel happy and proud.

"50 years before I was born, the world was in the Dark Ages. 50 years after I turned 18, the world had gone mad. What a joy that I found just the right time to live in, a glorious golden age in which the golden mean was achieved. What bliss. What luck. What perfect timing."

"A conservative is someone who stands athwart history, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it."
 - William F. Buckley, Jr.

03 July 2019

Micheal Flynn, Q-Anon, Conspiracy Theories and Trump's Descent into Madness

Excerpt from P.W. Singer and Emerson T. Brooking's LikeWar: the weaponization of social media.

Michael Flynn's personal Twitter account was @GenFlynn . Once he entered politics, Flynn's persona changed dramatically. His feed pushed out messages of hate ("Fear of Muslims is RATIONAL," he fumed in one widely shared tweet), Antisemitism ("Not anymore, Jews. Not anymore," referring to the news media), and one wild conspiracy theory after another. His postings alleged that Obama wasn't just a secret Muslim, but a "jihadi" who "laundered" money for terrorists, that Hillary Clinton was involved with "Sex Crimes w Children," and that if she won the election, she would help erect a one-world government to outlaw Christianity. To wild acclaim from his new Twitter fans, Flynn even posted on #spiritcooking, an online conspiracy theory that claimed Washington, DC, elites regularly gathered at secret dinners to drink human blood and semen. That message got @GenFlynn over 2,800 "likes."
....
Despite the online madness that violated his advice (or perhaps because of it), things seemed to work out well for the general. When Trump won the election, Flynn was named to the position of national security adviser, one of the most powerful jobs in the world. His first tweet in the new role proclaimed, "We are going to win and win and win at everything we do."
The winning didn't last long.
Claims that would have gotten someone checked into a clinic decades ago instead got Flynn appointed to one of the government's most important and sensitive positions. This is how Trump's mind works.

Not enough is made of how susceptible Trump's base is to positively bonkers conspiracy theories. After his election, Donald Trump thanked Alex Jones for his reporting. Among other things, Jones had reported that the government has created tornadoes to kill people, deployed a gay bomb designed to slow population growth, and that Hillary Clinton ran a child sex ring out of a pizza parlor.

More recently, QAnon has captured the imagination of Trump supporters. It, too, feeds a steady stream of conspiracy theories to Trump's base. QAnon's latest test of gullibility? The belief that John F. Kennedy Jr. is not dead and will emerge at the 4th of July celebration in DC to support Trump as his running mate.

Trump lies about 8 times a day. And that rate is accelerating. Not only is this properly understood as mental illness, it is a loud confession that his worldview and policies have little connection with reality. He can't support his policy and actions with facts. He has to make them up. And what happens to people who have a schizophrenic break with reality is that they descend into poverty and squalor. The same thing can happen to a nation. Trump's madness is Shakespearian and future generations will read about his descent into madness the way that past generations have read about King Lear. (But of course Trump would never be heard saying, as Lear did, "I fear I am not in my perfect mind." Further tragedy that.)

Maybe we will look back at this descent into unsubstantiated and irrational conspiracies as a generation's reaction to a world where data doubles every 3 years. Faced with too many facts to process into a coherent theory, the choice between the shrug of the shoulders and the honest answer of, "I don't really know," or the more alluring, "Did you know which evil characters have kept you down ..." a swath of the population has opted for evil conspiracies over benign uncertainty.

01 July 2019

One Way to Beat Mitch McConnell in 2020

Here's one possible route to beating Mitch McConnell. I think it may work politically but in any case it presents the truth about Kentucky.

First, McConnell's opponent makes the case that she isn't a racist. This is said casually, sort of a nod to the normal tropes of modern politics. And then she says this.

"I'm not a racist which is why I know that Kentucky is the victim of terrible leadership. It's true that we have only half as many minorities as the average state in this country but that should not account for why we're poorer. Whether measured by median or average, our household income is 20% lower than the rest of the nation. And we have only half as many households that make over $200,000 a year.

"This isn't because the good people of Kentucky are any less as people. Birth doesn't explain this difference. It's not bad genetics but bad leadership that explains why Kentucky is poor. It's because the systems our leaders have developed are inferior. Our education systems. Our health systems. The systems we depend on for creating new businesses and with it new jobs and wealth. All of these are inferior here in Kentucky and that's because leaders like Mitch McConnell have done such a terrible job of nurturing and advancing these systems and the culture that embraces rather than rejects the disruption that comes from new ideas and businesses.

"What we need is a very different set of expectations. Mitch McConnell has kept Kentucky in the past because the ideas he has are anchored in the past. It's time to send someone to DC more intent on making the good people of Kentucky prosperous than he is on fighting to protect that past."

And from then you hammer the point that his terrible leadership is what has caused Kentucky to be 20% poorer than the rest of the nation rather than 25% richer, like Massachusetts (a place which has twice the percentage of minorities that Kentucky has).

The point is to clarify that Kentucky is not destined to be poorer than the rest of the country (while pointing out to the folks who are racists that a lack of diversity is probably one reason they're behind the rest of the nation) and that its culture and institutions - products of leadership and history - are making it poor and need to change. The way to make this change is to create the future rather than defend the past, to change leadership, starting with the most powerful man in the state.

27 June 2019

Bigger is Better


It seems a requirement of modern politics that Democrats criticize big business and Republicans criticize big government.

There is one problem with these shibboleths, these tests of the faithful: they ignore how the interplay between big government and big business has made us prosperous. History suggests that any politician successful at impeding either government or business will effectively slow economic progress.


Some people know the amazing story of Elisha Gray arriving at the patent office just hours after Alexander Graham Bell with his patent application for the phone. Bell went on to fame and fortune and Gray to a life of anonymity. There’s more to it, though. Our founding fathers were intent on creating an accessible, affordable patent system. One might even say it was democratic. Fewer people know that the Italian Antonio Meucci had invented the telephone years – not just hours – before Bell but could not afford to patent it through Italy’s expensive patent system. Had Italy been more visionary about subsidizing the work of its inventors by making it cheaper to file for a patent, it may have hosted the myriad, great inventions that defined the decades around 1900 or had the equivalent of Bell Labs from which communication satellites and transistors emerged as catalyst for huge industries. Our government enabled invention.


In his book The Rise and Fall of American Growth, Robert Gordon shares this story of Bell, Gray and Meucci and gives a host of other examples of government and business interacting to create prosperity.


During the second world war, the federal government led initiatives to increase industrial capacity. The government invested capital equal to half the capital that existed at the start of the war, capital in the form of factories and machine tools (which doubled during the war). Even better was the problem-solving that resulted in better production methods. During the war, Kaiser initially took 8 months to complete a ship; they accelerated that to just a few weeks by the next year. A plane factory of Ford's increased its rate of 75 planes per month in February of 1943 to 432 per month by August of 1944. By D-Day, the Germans could launch only 319 aircraft; the US and its allies launched 12,837. American factories won the war.


After the war, the government turned all this over to private companies. Armed with these investments in capital and knowledge, these companies began making consumer products like cars and TVs. Before the second world war, the economy had lurched in and out of recession. After, it took off. Government regulations helped raise wages and government investment helped raise productivity. Workers both made and bought these new products.


Eisenhower had been a solider during the first world war and was part of a group transporting vehicles across the US. It took them 62 days to go from coast to coast. Head of the Allies’ conquering army, he experienced first-hand the German autobahn and was amazed at the contrast. The interstate highway legislation Eisenhower signed increased American productivity by tens of percent.  Like the railroads the government subsidized a century earlier, the highway system gave customers and producers easier, more affordable access to products and markets. Decades earlier, life expectancy had gone up as a result of similar, local efforts to build out the infrastructure that brought safe water into homes and piped sewage out, another initiative dependent on the cooperation of government and business.


Another outcome of the second world war was increased investment in research and education. In WWII we didn't just pump unprecedented amounts of money into research but FDR asked Vannevar Bush to institutionalize that, which he did with what become the NSF (National Science Foundation) and DARPA (the Defense Advanced Research Projects Agency). From DARPA we got the Internet which has enabled the creation of trillions in new wealth and millions of new jobs. The GI Bill was another product of the second world war and it led to a huge increase in college enrollment, creating a new generation of better educated, more productive workers.


Possibly the most important interplay between big government and big corporations comes in R&D. Research is hugely uncertain and most of it results in nothing. If it does result in something cool it may happen a decade or three later than expected. Also, not every cool thing becomes profitable. Because of this, corporations rarely finance basic research and it needs to be heavily funded by institutions like DARPA or the University of California. This research is crucial to corporations' later developments. "The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were advanced by the Defense Department," as Mariana Mazzucato points out in her book The Entrepreneurial StateCorporations try to find a way to translate research that has taken one to two decades into development that takes two to four years. It's a great system and at its best we tax successful corporations to fund the next round of research which could be transformed into new products by corporations. Symantec and Qualcomm were among the new companies funded by The Small Business Innovation Research program - a program started by Ronald Reagan. Google's basic algorithm was funded with a NSF grant.


Of late, our policies seem less reflective of this interdependence. As corporations pay less in taxes the government has less money for initiatives that could help the next generation of companies and workers to prosper. Our productivity, wages and GDP were growing faster during a time when corporate tax rates were maxed out at about 50% and personal income tax rates maxed out at about 70%. The trick is to tax what is successful now to fund what will become successful next.


Government has an important job as a referee, a role Elizabeth Warren articulates well. Government has an important job of moderating wealth and income inequality. (Trump looked at the world with the biggest gap between rich and poor in history and concluded that the rich were not rich enough and the poor were not poor enough, giving the first a tax break and cutting assistance to the second. Few people would reach such a conclusion.) Those jobs of referee and moderator are important but over the long term, they are not as important as the job of collaborating with business and labor to create the next generation of technologies, products, industries and companies. It is in that direction that lies the kind of progress we had from 1900 to 2000 that increased real incomes by 8X and let us buy myriad objects like airplane tickets, personal computers and antibiotics that did not even exist at the start of the century.


The world is full of communities who would love our problem of big government and big business. Big projects are not done by small organizations. It should be a cliché to say what is too rarely said: progress is not a product of markets or democracies but rather their interaction. Strong companies and strong government go together in vibrant economies. Even within the US, the states that keep taxes and investment lower and have few big companies have lower household income and create fewer jobs. Big businesses and government agencies are not a sign that we’re off the rails. They are, instead, the way we got both the rails and the trains.



14 June 2019

Your Money for Nothing - When Capital is Free

File under: things that mostly just fascinate me but really do affect everyone:
"$20 trillion of the $55 trillion in global sovereign bonds currently yield zero percent or less." From here.

Why does it fascinate me? In our new reality, money is free for countries.
Why does this affect you? It means that we're under-investing in infrastructure, education and most importantly of all, research. All of that can essentially be conducted by nation-states with zero percent loans. A return of even 1% on that investment covers the cost of capital. A lot of what passes for returns to capital now are actually winning bets on entrepreneurship. 

We're going to look back on the first decades of the 21st century as a lost opportunity for massive investments in projects - public sector and private sector (in the form of startups and corporate initiatives) - given that capital was free and we had more university graduates than we were fully employing.

Future generations' assessment of us will be that what we lacked in imagination we more than made up for in risk-aversion. And instead of funding grand projects, we used this free capital to bid up the price of art, stocks and other pre-existing assets.

13 June 2019

Father's Day: How Dad and I Were Just Alike (and so very different) in Our Politics

In late January of 2009, I got a call from mom. Dad was in ER. About 90 minutes later, after midnight, I got up there.

I was chatting with mom after we'd been in to talk to him. I could not figure out what was going on. Finally, mom said, "I think your dad might just be having a stress attack of some kind. He can't believe that we have a black, Muslim socialist in the White House." At that I said, "Oh." And promptly drove back home, leaving him to his self-induced drama.

Growing up, I don't remember hearing about politics much. My parents had a lot of drama in their life and politics wasn't part of it. I read a lot and, as I got older, wrote a lot. It turns out that the combination of reading and writing resulted in a set of ideas that are little connected to my parents'. My dad and I probably cancelled each other's votes 90% of the time.

And yet I have become like my father in how I think about politics. Sort of.

Dad worked for Caltrans in highway design. In his last 5 or 10 years, he worked in traffic safety. They would simply identify dangerous sections of roads and highways based on statistics. On one section of road, accidents are 2X more likely. In another, someone is 20% more likely to die. And so on. They would analyze the data and then the section and redesign it so that accidents, injury and fatalities were less likely.

Police would identify individuals more likely to get in an accident. Lawyers would determine blame. That was not dad's job. His job was to make a section of road safer for everyone.

In that way, my sensibilities are very similar. I have a lot of conservative friends and even recessions they are likely to blame on individuals. I remember one conversation with conservative friends at the height of the Great Recession when the unemployment rate was nearly triple what it is now and they were discussing how someone's brother-in-law had taken a week's vacation (from looking for work) with his family in the midst of his unemployment. As if an outbreak of laziness somehow explained this outbreak of unemployment. They were the cops and lawyers, trying to figure out who was to blame and who to arrest.

I know that individual differences do make a difference. I just don't think those differences are very interesting or relevant. People worked 60 hours a week in 1900 and made about 1/8th of what we do. You might get excited explaining why one guy made 30% more than another in 1900 but that is incidental compared to the difference between that guy and his grandson who makes 800% more. That's fascinating. And relevant. And something you can aspire to "design" with a set of policies and technological and social inventions.

The questions that intrigue me are not the questions of the police about why someone got in an accident. My question is how we design the economy to lower the incidence of those accidents while still letting people drive faster. It turns out that even while I felt such a huge wave of relief to have Obama and Biden in to replace Bush and Cheney and my father thought it was a sign of the apocalypse, our perspectives are similar. (Well, his perspective on highways and mine on economies anyway.) 

This Sunday will be my sixth Father's Day without dad. It is a curious thing how every generation knows what they'll reject from the previous generation but takes longer to realize the ways in which they are just like them.

08 June 2019

Planning D-Day

A little shout out to the economists for D-Day. We rightfully praise the brave men who stormed the beach that day. We pay less attention to the planners who set them up for success rather than tragedy. This from Michael Lind's Land of Promise.

In 1942, American policy makers were engaged in a secret debate about the feasibility of of a US-British invasion of German-occupied Europe in 1943. In a classified report for the War Production Board, two economists, Robert Nathan and Simon Kuznets, concluded that it would not be possible to produce the necessary material until 1944 at the earliest. The army's chief military supply officer, General Brehon Somervell was furious. He denounced "this board of 'economists and statisticians' .... without any responsibility or knowledge of production." He called for the suppression of the report, which should "be carefully hidden from the eyes of all thoughtful men." But the argument of Nathan and Kuznets prevailed, and D-Day was a success in 1944 instead of a disaster in 1943.
...
In 1944, the United States completed one plane every five minutes, launched fifty merchant ships a day, and finished eight aircraft carriers a month.
....
On D-Day, June 6, 1944, the Germans could deploy only 319 aircraft. The United States and its allies deployed 12,837.
P.S. Kuznets won the Nobel Prize for Economics in 1971.

07 June 2019

Trump's Most Baffling Policy (Or, yet another chapter in Trump's on-going battle with the future)

We beat the Nazis because we had better manufacturing and research capacity. We invented the atom bomb before they did. We made tanks and planes faster than they could.

Near the end of the war, FDR asked Vannevar Bush to explore how wartime research efforts could be transformed into peace time efforts to create new technologies and jobs and to increase life expectancy. Out of Bush's recommendations, captured in Science, the Endless Frontier, came the National Science Foundation which has steadily grown since, providing funding for the basic research that is life-changing over generations.

Bush had great insight into the importance of research and how it is best conducted. Speaking of basic research that doesn't immediately translate into a new product, he wrote about how medical research could be supported within medical schools and universities.
Apart from teaching, however, the primary obligation of the medical schools and universities is to continue the traditional function of such institutions, namely, to provide the individual worker with an opportunity for free, untrammeled study of nature, in the directions and by the methods suggested by his interests, curiosity, and imagination. The history of medical science teaches clearly the supreme importance of affording the prepared mind complete freedom for the exercise of initiative. 

As the United States acted on recommendations such as Bush's, our country clearly took the lead in the creation of new technology, industries and companies. The National Science Foundation is both reality and symbol of our on-going support for research. Bush saw in research the basis for our economic progress as well: 
Where will these new products come from? How will we find ways to make better products at lower cost? The answer is clear. There must be a stream of new scientific knowledge to turn the wheels of private and public enterprise. There must be plenty of men and women trained in science and technology for upon them depend both the creation of new knowledge and its application to practical purposes.
As it turns out, support for research is non-partisan. Since its creation, leaders of both parties have steadily increased the amounts they've asked for to fund the National Science Foundation. Until now.

Trump is the first president to cut average funding from his predecessor. (Or more precisely, request that the average be lowered during his administration. Presidents make a request and Congress makes the appropriation.) Add to his list of leadership qualities, "Not a fan of scientific progress. Facts? I don't need research for that. I can make those up."

Among the institutions he's trying to erode is this most basic tool for progress. His desire to cut even research funding might be the most baffling of his attempts to retreat from the modern world.


Basic research matters. We rightfully pay attention to the Fed's policy when it comes to setting interest rates because that can change investment and spending. The National Science Foundation doesn't just affect investment but actually is an investment in intellectual capital, which is the basis for new technologies, industries, companies, jobs, and wealth. Research takes longer to work than interest rates, but has a bigger effect. I would argue that a slowdown in research funding results in a slowdown in productivity and wage growth. But of course something with a 20-year lag struggles to get much attention in this world of 20-second attention spans.

The amount we fund the National Science Foundation seems paltry to me. Even at its peak, it never even hit even one-tenth of one percent of GDP and it has averaged 4/100th of one percent of GDP in its lifetime. It seems to me that we could hardly err by making it larger each year. Much larger. But alas, the man who looks at our economy and concludes that the rich are not rich enough and the poor are not poor enough has also decided that we know quite enough already. That hardly seems the case to me. 

31 May 2019

Annihilating Space

"From Harrisburg to Philadelphia there was a railroad, the first I had ever seen ... In travelling by the road from Harrisburg, I thought the perfection of rapid transit had been reached. We traveled at least eighteen miles an hour, when at full speed, and made the whole distance averaging probably as much as twelve miles an hour. This seemed like annihilating space."
- Ulysses S. Grant, in 1839 as a teenager heading to West Point

27 May 2019

Predicting the 2020 Election: How the Popular Vote is Driven by the Ratio of Knowledge Workers to Factory Workers

In 1972, the Democratic National Committee (DNC) set quotas for women, minorities and students. Curiously, the party that had championed labor since before FDR, did not set quotas for representation from blue-collar or factory workers. To a degree, they turned their back on this group that Democrats had so surely represented for so many decades.

Instead of focusing on blue-collar workers, they shifted their attention to white-collar workers, the new crop of employees who created and used computers and other seemingly esoteric products.

The DNC shifting their attention from blue-collar workers in the industrial economy to white-collar workers in the information economy made for visionary policy and disastrous politics.

In the five presidential elections from 1972 to 1988, Republicans won four by an average of 11.2 million votes. Democrats won only once by 1.7 million, and that was in the wake of Watergate, the worst presidential scandal in more than a century.

If you look at this graph, you can see that in 1970, manufacturing workers were 26% of the workforce. By contrast, college graduates were just 11%. If all you knew is that Republicans had a coalition that focused on factory workers and Democrats focused on knowledge workers and that factory workers outnumbered knowledge workers by more than 2 to 1, you would predict a huge victory for Republicans. And that is, indeed, what happened. In 1972, Nixon won by nearly 18 million votes. It was a landslide. In 1976, after Watergate, Carter won as a Democrat but in 1980, 1984, and 1988, Republicans won the White House.

In the five presidential elections between 1972 and 1988, Republicans won four by an average of 11.2 million votes and Democrats won one by 1.7 million.

By 1992, though, knowledge workers eclipsed factory workers. From then on, Democrats have convincingly won the popular vote.

In the seven presidential elections since 1992, Democrats have won four elections by an average of 7.1 million votes. Republicans have won three elections by an average of -133,444 votes. (Yep. That number is negative.) In those seven elections, Republicans won the popular vote only once and - like the 1976 election after Watergate - the 2004 election was in the wake of 9-11 and the invasion of Iraq. That is to say, like 1976, in 2004 voters thought something else mattered more than their economic interests. 

From a policy perspective - a question of what policies will create the most jobs and wealth - we had easily moved into an information economy by 1972. From a political perspective - a question of what will get you elected - we had moved into an information economy by 1992. 

I'm confident that Trump will not win the popular vote in 2020. I'm doubtful that he will again win the electoral vote. Too many urban residents who identify with and are a part of the global, diverse information economy dependent on knowledge workers will vote against him and not enough rural residents who identify with and are part of the national, industrial economy dependent on capital and factory workers will vote for him.

25 May 2019

The Most Underrated Inventions of the 20th Century?

Robert J. Gordon's Rise and Fall of American Growth includes some stunning statistics about the American workforce.

First, the 20th century saw an outbreak of fabulous inventions. The automobile, radio, and light bulb were among the inventions made in the 19th century that were popularized in the 20th century. Additionally, inventions like the airplane, the polio vaccine, and the computer originated in the 20th century. I don't think the best inventions of that century get enough credit, though.

In 1870, male labor force participation rate for those 65-75 was 88 percent. Before social security or the popularization of financial tools like pension plans and investment accounts, people essentially had to work until they died. 

30% of boys 10 to 15 (and 50% of boys 14 to 15) also worked. And this is a formal count. More would have helped on family farms and not been counted. Kids had to quickly help with family finances. By 1940, this had dropped. Kids were in school instead.

Work changed too. The percentage of the workforce engaged in blue-collar work classified as operators (largely factory workers) and laborers held steady from about 1870 to 1970. Between 1970 and 2009, the percentage was halved to 11.6%. Meanwhile, workers engaged in "non-routine cognitive" work steadily rose from 8% in 1870 to 37.6% in 2009. The ratio of cognitive work to factory work rose from 0.4 to 3.2.

Work that builds up our intelligence rather than breaks down our body is yet another great invention of the 20th century.

Along with all this, the workweek fell from 60 hours to less than 40.

Childhood and work are becoming more interesting and less grueling. We have retirement and two-day weekends. That is at least as cool as automobiles and smart phones. I would say that childhood, weekends, and retirement are the most underrated inventions of the 20th century.

20 May 2019

What I Forgot to Tell my Son on His Wedding Day


I gave a toast to Blake on his wedding Friday but managed to lose my list of bullet points. I reconstructed them about ten minutes before the toast, pocketed them, and then spoke. But it was only after an evening of strong emotions and great conversations with  old friends and friends freshly made that I remembered my main point.

Meditation magnifies.

Joseph Campbell said that we don’t need to learn how to meditate. We meditate all the time. We meditate on how tight money is this month or why she said that or whether they think we were foolish to wear this outfit or which celebrities’ life we covet.

Consciousness is like a radio dial that broadcasts a mix of fact and fiction, fantasy and memory, hope and resentment, passing scenery and national news. We can scan the dial and bounce from one thought to this perception to that memory to another thought all day. We can scan but we tend to land on familiar thoughts, our favorite stations. Those are our meditations.

Be aware. Don’t become a martyr for your mate. Your job isn’t to dedicate your life to suffering for them. So when awful or even merely annoying things come up, face them and deal with them. But resolve them and move on. (Oh, and resolution may be realizing “that is part of the package of her.”) 

Don’t meditate on the things that eat at you. Don't plug your ears and chant "I can't hear you," to them either. Deal with bad things. Do meditate on what it is about her that you admire, adore, or aspire to for yourself. Keep coming back to that happy station. This is not meditation as escape from the world but, rather, focus on and amplification of what is best in it.

Because whatever it is that you meditate on, whatever it is that you come back to again and again, that will be magnified. If it is good, that will seem bigger. If it is bad, that will seem bigger. Regardless of how wonderful or terrible it is, whatever you meditate on will seem like a much bigger deal than it actually is. And that will change what you talk about, how you act, and the ripple effect of your influence in life.

Face reality and deal with issues - both delightful opportunities to seize and ugly issues to resolve. And in between, magnify what you want more of by meditating on what delights you.

15 May 2019

The Real Economic Debate (is not about socialism or capitalism)

The big debate isn’t about whether we should have a socialist or capitalist economy. 

Depending on how you define those terms, socialism and capitalism are either essential or absurd. 

Do you define capitalism as no different than a market economy? By socialism do you simply mean some mix of social security, public funding for healthcare, public education, and unemployment insurance? By those definitions, capitalism and socialism are essential. 

Or by capitalism do you mean that we should be rid of social security, healthcare, public education and unemployment insurance? And when you say socialism do you mean that we should do away with markets? By those definitions, socialism and capitalism are absurd and harmful. 

It’s a valid thing to argue where on the spectrum between cruel market or controlling government we should be, but that can easily distract us from a more vital, more concrete debate about how normal people are going to create new jobs and wealth. 


The debate about whether we're in an industrial or information economy is the more relevant and productive one. Put more simply, do we think that jobs and wealth are going to be created in factory work or knowledge work?

*********************


College education has become one of the better predictors of how people vote. In the 50 counties with the highest levels of education, Hillary Clinton won by 26 percentage points. In the 50 least educated counties, she lost by 31 percentage points.[1] Those knowledge workers are also more affluent than factory workers. Clinton won only one-third of the counties in the US but those counties represent about two-thirds of the country’s GDP.

By contrast, Trump won by nearly 16 percentage points in the ten states with the highest percentage of manufacturing workers and lost by 9 points in the ten states with the lowest percentage.

In 1972, the Democratic Party shifted its focus from factory workers to knowledge workers. In 1972, the Democratic National Committee had set quotas for women, minorities and youth but none for blue-collar workers. In terms of policy, that was visionary. Since that time an information economy has clearly driven economic growth. In terms of politics, it was disastrous. Knowledge workers still made up only 11% of the population in 1970. Democratic nominee George McGovern lost by 520 to 17 electoral votes in 1972 and in 1984, Mondale won only 13 electoral votes. 

Since 1992, college grads have outnumbered factory workers and since 1992, Democratic presidential candidates have won the popular vote by an average of 4.1 million votes (and only lost the popular vote once in the last seven elections). In the Democrats’ last three presidential victories (Obama 2012 and 2008, Clinton 1996), they won the popular vote by a total of 22.7 million. In the Republicans’ last three presidential victories (Trump 2016, Bush 2004 and 2000), they lost the popular vote by a total of 400,331. Because of the quirk of the electoral college and knowledge workers’ tendency to cluster in cities, Republicans and Democrats have split the last six elections in spite of Democrats dominating the popular vote.


***************

Trying to bring back manufacturing jobs makes about as much sense as trying to bring back farming jobs. And for a host of reasons it simply isn't smart policy. Ours would not be a better economy if we still had 90% of the workforce engaged in raising crops for us nor would it be a better world if we still had 36% of the workforce making stuff. We can now be fat and our houses be cluttered with less than 2% of the workforce raising our food and 8% making our stuff.

The question is not "How do we get more people back into factories?" The question is, What work will add value, what work will actually improve our quality of life, what work would voters value enough to fund with government spending or consumers value enough to fund with cash or credit? That is the question entrepreneurs ask.

The answer to the question of whether we think that jobs and wealth are going to be created in factory work or knowledge work has two parts. Short-term, none will be created in factories but many will be created in knowledge work. (And by none I mean net. New jobs will emerge in factories but not as quickly as they are destroyed.) Long-term, all will be created by entrepreneurs.

We don't exactly have all our problems solved as yet. In every direction we turn there are problems to solve and possibilities to explore. How do we create affordable housing in big cities without creating more congestion? How do we increase the quality of life of people over 80? (The fastest growing group in the world.) How do we create institutions that encourage the intrinsic motivation that makes us happy, creative, and productive? How do we automate more of the tasks that have become boring and simply reduce our quality of life and create the tasks in their place that both create value for customers and flow for workers?

Wasting effort on returning to the past is like a 60 year old dressing like a 16 year old. What was once exciting has become disconcerting, what was great becomes caricature. 



[1] http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/