Understanding the Republican and Democratic Party Divide Today as a Divide Between an Industrial and Information Economy

The last time I was on Google's campus, I was training 7 project managers. At one point it came out that 6 of the 7 had gone to Saturday school for years to study language and get religious / cultural education. Mandarin, Hindi, Hebrew, Nubian-Muslim (the Nubian tribe is divided by the Egyptian / Sudanese border) and Korean are five of the six that I remember. Another time, I was in a room with about a dozen engineers at Intel and every single one had a story about green cards.

That sort of diversity is pretty normal for the tech and pharmaceutical companies I work with. If you are hiring and want the best and brightest, you hire from around the world. Even if China and India's universities turn out great engineers at half the rate of US universities, they will still turn out two times as many given their populations are four times ours.

One thing that I've concluded from decades of working with engineers and scientists is that creating a team able to win in a global market without first or second-generation immigrants on your team is about as tough as trying to win MLB, NBA or NFL championships without players of color. Given how talent shows so little regard for race or nationality, you’d be a fool to exclude any group if you’re serious about conquering a global market or world championship. You’re not going to find the talent you need within your local zip code.

Anti-immigrant and free-trade nationalists inevitably argue for the importance of an industrial economy. Why? Industrial capital is in a place. By contrast, intellectual capital is in people’s heads and hands. You can put up walls around industrial capital. Look at a place like North Korea to see that walls are an obstacle to the creation of intellectual capital – something created through the exchange of ideas rather than their suppression.

The two economies - industrial and information - have been created by two kinds of politics. And that brings us to the divide we have today.

The Republican Party under Trump is championing a set of policies that are fitting for an industrial economy. People who consider themselves part of this economy feel threatened by immigrants, free trade and universities.

The Democratic Party - as it has been since about the time of Kennedy or Clinton - has a set of policies that are fitting for the information economy. People who consider themselves part of this economy see immigrants, free trade, and universities as essential.

To not understand the sharp divide in American politics is to not understand how much of the cultural war actually comes out of a perception of which economy livelihoods depend on. Whether something is essential or a threat is a question of which economy people consider themselves members of. And these two groups bring about as much passion to the topic as one might expect of people who see their livelihoods caught up in a particular set of policies.

Progress does have a direction, though.

William F. Buckley was one of the Republican Party's most respected intellectuals. He wrote, "A conservative is someone who stands athwart history, yelling 'Stop!'" To attempt to undermine the universities, immigration and trade that causes our information economy to thrive in order to protect the industrial economy is to do exactly that: yell stop to progress.

Republicans are fighting to protect the past, not create it. Since 1950, factory workers as a percentage of the workforce has dropped each decade and college grads a percentage of the workforce has gone up. Whatever economy we create in the future, it will be beyond the information economy, not back in time into the industrial economy.

How Compound Interest Made the Industrial Economy Obsolete

We don't have good intuition for compound interest over time.

Imagine that two families each started with $100 in 1900.
One family enjoys a 4% return every year.
The other family enjoys a 12% return every year.

After a decade, the 12% family has $311 compared to the 4% family's $148. They have twice as much.

After a century, the family getting 4% has $5,050.
The family getting 12% has $8,281,797,452.

12% is only three times 4% but over a century it is the difference between having thousands or billions of dollars.

This return doesn't come from magic. The returns on financial capital come from the same dynamic of compound returns on industrial capital. And it explains why there have been fewer factory jobs every decade since about WWII.

I was working with a management team for a mine in Michigan. When those guys - most in their 50s and 60s - had started their career, the trucks pulling ore out of the mines could carry about 25 tons of ore. Now those trucks carry more than 350 tons.

Assume that when they began their careers, that mine employed 100 truck drivers. Today, to carry the same amount of ore, they would need only 7 drivers.

The productivity of industrial capital - like financial capital - compounds over time. The original $100 you invested in 1900 will be making more money in 2000. The original factory or mine you setup in 1900 will be producing more product in 2000 with fewer workers.

Given our intuition for compound interest is so poor, it is little wonder that we fail to understand how a growing economy might actually need fewer and fewer factory workers even as it makes more and more stuff.

Meanwhile, a country like China that began industrializing decades - probably close to a century - after we did is still at the stage of compound interest that it needs 100 workers in the mine or factory rather than the 7 we in the US need.

People who don't understand how compound interest works could look at this and think that "our factory jobs are going to China." China's per capita GDP is one-sixth ours and one horribly crude way to think about that is to assume that their level of industrialization means that they need about 6 factory workers (or truck drivers) for every one we need. Our jobs are not going there; they simply need more workers given how much less capital they have.

Returns to capital eventually give a country such an abundance of capital that capital no longer limits. At that point, a community has transitioned from an industrial economy into an information economy. New jobs and wealth will not be created in factories or industrial companies but instead in cubicles and information economies. US Steel and General Motors fall in value and the number of employees and Microsoft and Google rise.

To fight to get back all those factory jobs from 1950 is to fight to get back to a time of less capital, less wealth, less productivity. It is like fighting to return to a time when 90% of the population still farmed just to feed us all. Progress leaves behind earlier stages of development as it takes us into new stages. The miracle of compound interest is one big reason why.

Kent State and a Half-Century Conflict Between Two Economies and Two Kinds of Labor: Factory Workers and Knowledge Workers

On May 4, 1970, the National Guard opened fire on student protesters at Kent State, killing 4 and wounding 9.

On one side of campus were guardsmen - most of whom had not considered going to college until ordered to go that day - and on the other side were students who were preparing for careers that neither they nor their professors could imagine. A divide that would define the next half century.

Economic change creates new identities which changes politics. Before 1970, white collar and blue collar workers shared the identity of labor and tended to vote similarly. After 1970, a divide began to emerge between the college educated who saw themselves as part of a global, information economy and non-college educated who felt more a part of an American, industrial economy. Labor split into factory workers and knowledge workers and they voted differently.

Between 1933 and 1969, as the party of labor the Democratic Party had the White House and a majority in the House and Senate 72% of the time. They dominated. After 1969, labor identities split between factory workers and knowledge workers and the vote - too - was split. Since 1969, power has been shared between Republicans and Democrats 70% of the time, and each has had control of government only 15% of the time. That could change.

In 1972, the Democratic National Committee set quotas for women, minorities and youth but not union members or factory workers. After that point, feeling ignored by the Democratic Party, factory workers tended to vote Republican and knowledge workers to vote Democratic.
When there were more factory workers than knowledge workers, the Republicans won the popular vote for president. When the number of knowledge workers began to eclipse the number of factory workers, the Democratic Party began winning the popular vote for president.

In the 1970s and 1980s, factory workers outnumbered knowledge workers. In five presidential elections from 1972 to 1988:
- Republicans won 4 by average of 11.2 million votes
- Democrats won once by 1.7 million (and that was after Watergate)

Since 1990, knowledge workers have outnumbered factory workers. In the seven presidential elections since 1992:
- Democrats have won 4 by an average of 7.1 million votes
- Republicans have “won” 3 by an average of -133,444 votes (the one time a Republican presidential candidate actually won the popular vote was after 9-11)

Factory workers as a percentage of the population continues to fall and the percentage of folks with a Bachelors degree continues to rise. While Trump has a shot at winning the electoral college, his odds of winning the popular vote are close to zero. Trump has finalized the Republican Party's identity as the anti-knowledge worker party. Since he has become head of the Party, Republican's trust in universities has dropped and a willingness to defy experts has become key to the identity of Trump's Republicans.

That day at Kent State dramatized a dividing line between two groups with very different identities that considered themselves part of two very different economies. It is a conflict that has continued to define our politics for half a century and is finally waning in importance as the percentage of factory workers falls to the level that knowledge workers were at the beginning of this divide.

It's Time to Stop Pretending That Both Sides are Equal: Trump's Parade is Leading Backwards on Progress

From about 1830 to about 1900, the Democratic party was all madness and defense of the agricultural economy and the Republicans were the progressives. While Democrats were defending slavery, Republicans were figuring out capitalism. Now the Republican Party under Trump has gone full bore mad, fighting for the waning industrial economy the way Democrats once fought for the waning agricultural party. While Trump is fighting trade wars, Democrats are trying to figure out how to finance education and R-n-D for projects like global warming.

This divide between defending an old economy and trying to navigate a new one is why Democratic support is so high everywhere that the economy is strong and Republican support is so strong everywhere the economy is weak. (In the regions with the highest wages, Hillary Clinton won twice as many votes as Trump. (See below for details.)) Communities whose policies support the information economy are more prosperous than those still defending the industrial economy.

One of the many things absurd about this current battle between information and industrial economies is that rather than engage in a really great conversation about policies that better support an information or entrepreneurial economy and how to transition into the latter, we're debating something settled decades ago ... whether we should give preference to policies to support an information or an industrial economy. It is a complete waste of time to defend Trump's 1950s vision of the world and yet that is exactly what you have to do if you're a Republican. It's the political equivalent of selling rotary dial phones. There was no legitimate "both sides are equal" argument in 1870 and there is no both sides are equal argument today. 

Progress is heading in a particular direction and that's not the direction Trump is leading his parade.

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The claim that the most prosperous areas voted most strongly against Trump's call to defend the industrial economy is based on facts. Among them is this fact: the 15 counties with the highest average weekly wages voted 2-to-1 for Clinton and against Trump.

The average vote for Clinton in these regions was 66% . (Details here.) 

Contrasting the Districts that Supported and Opposed Trump: It Comes Down to a Divide Between Industrial vs. Information Economies

Nerd that I am, I collected some data on the 15 congressional districts where Trump won the largest percentage of votes and the 15 districts where he won the lowest percentage of votes. 30 districts out of the 535 lets us look at the contrast by looking at extremes.

The biggest difference is the ratio of folks with Bachelor's degrees or higher to the folks employed in manufacturing. (I still don't know of a simpler proxy for knowledge worker than a Bachelor's degree.)

In the least Trumpian districts, the ratio of folks with college degrees to folks working in manufacturing is 6 to 1. These are districts in the information economy. Not only are they more likely to be knowledge workers than factory workers but they create more jobs. There are 43 jobs for every 100 people living in such districts, 1.5X as many as found in the most Trumpian districts. The information economy is still growing even as the industrial economy shrinks. This not only explains the fact that districts in the information economy have more jobs but likely explains why they're 4 years younger, on average. The regions creating the most jobs are going to attract more people starting their careers.

In the most Trumpian districts, people are 3X more likely to work in manufacturing and household income is $22k lower. These are related. Generally, folks with a degree make about $22k more than folks without one.

Trump is the warrior chief for the folks in the waning industrial economy. It is just one of the ways that he is the opposite of Lincoln, the GOP's first president. In 1860, the industrial economy was cutting edge. Today it is on the wane, being eclipsed by the information economy just as the industrial economy eclipsed the agricultural economy during the time of the first Republican presidents. 

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.

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?

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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.

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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. 

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

Trump as Trickster

Lewis Hyde's Trickster Makes This World  is a brilliant look at how trickster gods from cultures on every continent seem to be a constant, the gods whose mischief and disdain for the systems that order daily life disrupt those systems. Sometimes the chaos they unleash is destructive, sometimes creative, and sometimes merely affirms the need to restore the status quo.

Loki

The tricksters Hyde cites include Krishna and Coyote, from two different Indian cultures; Monkey,  and Eshu from two different African cultures; Hermes from the Greeks and Loki from the Scandinavians. Hyde calls them boundary crossers whose disdain for norms both help to change norms and to define them.

Hyde writes that prophecy is not about prediction in the sense that it predicts that the stock market will fall in October. Rather, prophecy reveals truths that will still be true in the future.  This section of his book from 1998 is prophetic about Trump.

These threats on both sides, to the shameless person and to the world around him are, I think, what sometimes lead people to ask if the trickster isn't really a psychopath. Certainly there are parallels. Psychopaths lie, cheat, and steal. They are given to obscenity and, as one psychologist puts it, exhibit "a confusion of amorous and excretory functions." [Think pee tape.] They're not just antisocial, they're foolishly so (they "will commit thefts, forgery, adultery, fraud, and other deeds for astonishingly small stakes and under much greater risks of being discovered than will the ordinary scoundrel"). While they are often smart, they have a sort of "rudderless intelligence," responding to situations as they arise but unable to formulate any coherent, sustainable, long-term plan. They are masters of the empty gesture, and have a glib facility with language, stripping words of the glue that normally connects them to feeling and morality. Finally, they lack both remorse and shame for the harm and hurt that trail behind them. One way or another, almost everything that can be said about psychopaths can also be said about tricksters. [p. 158 of Hyde's Trickster Makes This World, 1998, Farrar, Straus and Giroux, New York, NY.]

Why, if this definition of trickster so aptly describe him then, is Trump so popular?  That's like asking why are the trickster gods so compelling that they have shown up in so many cultures? Perhaps it is because tricksters like Trump mock what people reverence. You can't really hope that a trickster will abide by norms. He defies them. Hyde quotes another author, Rickets, who shows how trickster stories can be read as parodies of shamanism.

In shamanic initiation, for example, the spirits kill and resurrect the initiate, often placing something inside the resurrected body - a quartz crystal, for example - which the shaman can later call forth from his body during healing rituals. If someone in your group claims such powers, you might find wry humor in stories which have Coyote, when he needs advice, calling forth (with much grunting) his own excrement. ... Trickster's failure implies that shamanic pretensions are daydreams at best, fakery at worst. [p. 294 of Hyde's Trickster Makes This World.]

If experts are our modern shamans, then Trump is continuing with this tradition of mocking shamans in a hundred ways that are variants on his appointing Rick Perry as Energy Secretary; Rick Perry who - in a debate - could not even remember the name of the Energy Department he wanted to eliminate. Only a trickster would make a person who thought so little of an agency that they both wanted to eradicate it and couldn't remember its name as the leader of that agency. Trump thumbs his nose at the experts who pretend to understand and predict the systems - from weather systems that define our climate to the financial systems that create booms and busts or even the government agencies he is supposed to manage - that define our world. He thumbs his - well, whatever - by bragging about the size of his penis in a presidential debate. He's shameless and his supporters love him for this for at least a couple of reasons. If the experts deserve mocking rather than reverence then even the non-experts can feel superior - or at least equal - to those experts. And once the standards have been mocked by the trickster Trump - whether when he has sex with porn stars while his wife is home with a new baby or when he shares conspiracy theories with Alex Jones - there is no longer a credible basis for calling them deplorable.

That said, past generations paid a great price for the transition to something new. Trump may be the price we pay and if so, he may be a bargain by contrast.

In 1860, Abraham Lincoln became the 6 year-old Republican Party's first president. The new Republicans laid in place a set of policies that helped the country catch the wave of the industrial economy.  After the Great Depression, the modern Democratic Party - from FDR to Kennedy and Clinton - created a set of policies that helped the country to catch the wave of the information economy. Waves don't come out of calm seas and the chaos of the Civil War and the Great Depression and the second world war seemed - in retrospect - to mark a transition from an old to a new economy. During Lincoln's time we had a literal battle between Union soldiers and Confederates, two groups with very different ideas about whether we lived in a world contained by states or nations.  The transition ushered in with FDR's engagement in the second world war and Clinton's signing of NAFTA and WTO trade agreements was from national to international economic and political realities. Republicans made us bigger than states; modern Democrats made us bigger than a nation. Chaos in the form of bloody wars and assassinations marked these messy transitions into something new.

I think that we're now moving from an information to entrepreneurial economy and such a transition seems inevitably messy. It is unsurprising that a trickster has shown up at this time of transition. Tricksters are boundary crossers, creating and thriving on the chaos that marks transitions. Trump might just be the trickster who is disrupting the status quo enough to make it easier to create the next, new thing. We always pay a price for moving into the new; we still don't know the final tab for the Trump presidency but it could be one of the lowest we have ever paid, which seems to me just one more sign that we're making progress even if Trump - who as trickster belongs to earlier, more archaic worlds - is not.