When the Ignored Predictions Have the Best Chance of Coming True

Sometimes, your prediction has to be ignored in order to come true.

Someone predicts that a stock will skyrocket in price over the next few years. So, its initial price when it goes public is very high. Because it is so high when it is first available, not only does its price not skyrocket, it hardly goes up at all. The prediction that everyone acted on is made a lie.

Someone predicts that a company is over-priced, so few people buy it when it first goes public. Its initial stock price is very low. Because it started so low, its price rises over time as it performs okay and investors who bought when it first went public see a good gain. The prediction that everyone acted on is made a lie.

Experts warn that hundreds of thousands of Americans could die from a pandemic. They are taken seriously, special measures are taken (people stay indoors and interact with almost no one), and the experts' dire predictions do not come true. The prediction that everyone acted on is made a lie.

Advocates for life as normal argue that the pandemic is overblown and we should go about life as normal, ignoring the panicked advice of so-called experts. They are taken seriously and hundreds of thousands of people die from a pandemic. The prediction that everyone acted on is made a lie.

Predictions and policies here in the US will be volatile. To make it even more complicated, the predictions will change what happens - in the opposite direction of what was predicted.

What is my prediction? Our behaviors, policies and the predictions about it will look like a murmuration of birds.

In Which Your Blog Author Manages to Turn a Big Stock Market Prediction into a Very Small Gain

On October 13, I made a prediction about job numbers and a prediction about the stock market. 

Here is the prediction I blogged about the stock market.

"The S&P 500 is up only 1.4% from the start of the year. ...

I'd look for a sharp rise in the market before year end. I think between now and December 31, the market could easily rise 5% or more. The result will be a fairly unimpressive year but it will have gotten there in spectacularly volatile fashion."

I predicted a rise of 5% or more and the S&P is up 10.7%. I'd like to file that under accurate prediction but of course the market could still fall spectacularly before 2015, so let's mark that as tentative. 

Here is the prediction I tweeted about job numbers. 

"Prediction:

Job report for October (released 7 Nov) will be for over 300,000 new jobs."

I jumped the gun on this one. Even with Friday's upward adjustment to the numbers, it looks like the economy created only 243,000 jobs for October. It didn't break 300,000 until November. So, that's a miss on timing.

Finally, in spite of getting the market prediction right, my own portfolio limped along in that time. The S&P is up 10% since I made my stock market prediction and my portfolio is up just 2%. Pretty pathetic. So that's a big miss.

My final score on predictions:

1 right (so far)

1 right about magnitude, wrong about timing

1 major miss in applying big insights into personal victories (the sort of thing that might have happened to me once or twice before).

So, 1 for 3. That sounds better in baseball.

Households, Government and Businesses Are In Position for a New Boom

The economy is in the best position it's been for all of this century.

Households have paid down debt and increased wealth, now positioned to comfortably begin spending again. That will show up as additional tax revenues for governments and additional sales for businesses.

The government has brought spending and taxes back within the normal range. This doesn't just mean a lower deficit. It also means that the government no longer has to drag the economy down through austerity measures that raise taxes and lower spending.

As households and governments return to business as normal, businesses will boom as well, which will feed back to the other two sectors.

The Government Has Recovered

The deficit has come down one trillion dollars in four years. This deficit reduction during  the recovery has taken 1% out of GDP growth during that time through higher taxes and lower spending, but that drag is likely to stop. Remarkably, we've gone from record deficit to normal within just five years.

In the graph to the left you can see two straight lines representing the average tax revenue as a percentage of GDP (the lower of the two lines) and the average federal spending as a percentage of GDP (the higher).

The line that raises above the band shows actual spending. The line below the band shows actual tax revenues. In 2009, they were both at their most extreme, taxes at 14.6% of GDP and spending at 24.4%.

Since then, austerity measures and the recovery have changed  this. At 17.6% of GDP, taxes this year are projected to run just above the average of 17.4%. At 20.4%, government spending will be just below the average of 20.5%. And reports so far this year suggest the deficit will be even lower than this projection.

Government spending will - at a minimum - now be a stabilizing force on the economy rather than a drag on expansion as it has been throughout this long recovery. Government austerity is one reason it took 6.5 years for the economy to create the jobs lost during the Great Recession. (The other, of course, being simply the massive number of jobs lost during this financial crisis, as can be seen in the graph below.)

Households Have Recovered

Last month the economy hit a milestone: total employment hit a new high, finally restoring all the jobs lost during the Great Recession. This is a big deal for so many reasons. Just as the government has finally brought taxes and spending to within normal bounds, this means that households are finally returning to something like normal as well.

For the first time since 2000, the economy created more than 200,000 jobs per month for four months in a row. These sorts of realities change how people feel about spending. Even people who have kept their jobs have been more cautious about spending or taking out loans when the economy was so bad. The improving labor market helps them to begin feeling more confident about spending. And households are, by some measures, in their best position to begin spending in a generation.

Last year household wealth rose by $10 trillion, finally restoring all the wealth lost during the Great Recession. The stock market is regularly hitting new highs. Home prices are up 20% in the last two years.  While assets have been appreciating, households have also been paying down debt. What households pay to service debt is the lowest it has been since the Fed began to track this in 1980, a generation ago. All of this suggests that households will begin to spend again and that is good news for everyone - from businesses to government to other households.

Businesses, Households, and Government Are Now Positioned to Boom

So imagine this combination.
Households feel emboldened by additional wealth and a healthier jobs market to spend again.
Government spending will begin to grow at normal rates again.
Businesses - facing increased spending from households and government - will begin to invest and expand.
The combination of household spending and business expansion will provide more tax revenues, allowing the government to spend more and to pay down more debt, putting more capital into financial markets.
The combination of household spending and government spending will mean more business for business, allowing them to hire more and pay out more to shareholders.
The combination of government spending and business expansion will provide more jobs and income to households.

For the first time this century, we will enjoy an economy in which all the pieces - government, households, and business - are moving towards full capacity without resorting to excessive debt.

It's been a long time.

And it could result in a boom that will be even more impressive than the ones we had in the 1980s and 1990s.

P.S. 10 June, I would add this graph of the ratio of unemployed workers per job opening from 538.

This shows that there are fewer workers competing for the same jobs, which is great news for job-seekers. That ratio is nearly back to pre-recession levels. Once it hits that level, I predict wages will again start to climb.

This Jobs Recovery Has Quietly Crept Up on the Record for Longest Expansion

Tomorrow's job report will probably extend the streak of months with uninterrupted job growth to 44, placing it 3rd among recorded streaks in these United States. (The data only goes back to 1939.) By the time July's numbers come in, this recovery should tie for second; by the time September's numbers come in, this recovery could hit its 4th anniversary and be tied for first.

The rate of job creation has been okay - only slighter better than the recovery in the mid-aughts. Everyone has been complaining about it the whole time. And of course it comes on the heels of the worst recession since we began collecting monthly data, making its gradual improvements seem paltry. But it is nonetheless quietly edging towards a new record. This recovery is not just long: it shows little sign of ending soon.

The global economy is steadily recovering from the Great Recession. Emerging markets from Africa to India show great promise. Europe's debt default talk has quieted. Abe's policies are waking Japan's economy for the first time in decades. All that will help the American economy.

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Unemployment here in the US is still moderately high and inflation relatively low: this recovery has yet to show the signs of overheating that we saw towards the end of the three other long recoveries. The unemployment rate at the end of the runs in the 80s, 90s, and aughts was 5.2%, 4.0%, and 4.6%. At the rate our unemployment rate is dropping, it will take us another year or two to reach those levels, suggesting that we won't run out of slack anytime soon. In fact, our unemployment rate of 6.3% may well rise to 6.4% tomorrow. 

Of course this run of uninterrupted job gains could end next month. One thing that every one of the three other recoveries share in common? They ended in summer, in June or July. Perhaps summer is the time when the beach looks more alluring than a cubicle. But I think that's a beach blanket that won't be spread out until next summer, when this recovery is closer to 5 years old.

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Yes, it's a fool's errand to forecast the movement of something as unwieldy as an economy a year into the future. But what's the use of blogging if you can't do fool's work?

Today's April Jobs Report Adds to the Promise of 2014

This is the jobs report I prematurely forecast last month for March. It took a month longer to happen than I thought, but this ~300,000 jobs report is good news.

288,000 jobs created in April plus the numbers for February and March revised upwards by 36,000 means that a total of 324,000 new jobs were announced this month. We may actually have a year in which monthly job creation numbers average more than 200,000; if so, it will be only the second time since 1999.

The unemployment rate, after being stuck at the same rate for four months, sharply fell. The unemployment rate for April in the last five years leaves little doubt that we're experiencing a real recovery. And it actually seems to be accelerating, 4+ years in.

Spending is Up But Debt is Down. This Might Be the Start of a Sustainable Boom

Last month consumer spending rose 0.9%, its largest uptick since April of 2009. That alone is good news. Even better, families are in a much better position to be spending now.

In April 2009, the economy was beginning to hemorrhage jobs and households were spending between 12 to 13% of their disposable income just to service debt (including mortgage and consumer debt). Just 4 quarters before, household spending on debt had peaked and it was only gradually coming down. Consumer spending was high, which was nice. But it was financed with a lot of debt, which wasn't sustainable.

The Federal Reserve reports the percentage of disposable income that households are spending to service debt here. Their numbers go back to 1980. As you can see, there has been a sharp and steady decline since 2007, just before the crash.

At its peak, households were taking on mortgage and consumer debt that their incomes couldn't justify. It's been hard on the economy as households paid down that debt - and as banks refused to offer credit so liberally - but the result is a much more stable position from which to launch a recovery. The bad news is that making this adjustment has been yet another drag on the economy since 2007. The good news is that now we're in a better place.

It's notable that in spite of households rapidly paying down debt and governments at every level shedding jobs, the economy has continued to create jobs during the last four years. Imagine that over the next four years households stop paying down debt and start spending again. Or even optimistically begin to take on more debt. That could be a huge boost to the economy. Consumption is 70% of GDP. Whether households are acting cautiously or spending optimistically makes a huge difference in economic growth.

There are have been a lot of mixed signals in the economy of late. Most notably, this week's report that GDP had grown only 0.1% was particularly disappointing. The economy has made a few false starts during its slow rise during the last four years, has posted a few quarters that suggest the possibility of a boom. It's hard to predict when it might actually take off but one thing is true: the conditions for combustion are the best they've been in nearly twenty years.

Households are spending again but at much lower levels of debt. This could be the start of something sustainable.

Two Reasons Why This Recovery Feels So Anemic (And Why Even Normal Could Create a Boom)

The economy is recovering but we've yet to feel a wave of optimism sweep across the country. The two biggest reasons are that the 2000s gave us a huge hole to dig out from and we're creating jobs at about half the rate we should be given our population.

At first blush, the first few years of this decade have been pretty good in terms of job creation. Assuming that the rate of job creation continues at the average of the first 4.25 years (2010 through March of this year), a graph showing job creation by decade looks like this.

At the rate it is going, the economy would create 19.4 million jobs - exactly what it created in the 1970s and not that much better than the 1980s or worse than the 1990s. That seems really good but I'll explain in bit why it isn't.

REASON ONE: MAKING UP FOR AN AWFUL DECADE
In this graph we see the first reason why our recovery seems so anemic. During the 2000s the economy actually destroyed 1.1 million jobs. Such a decade is unprecedented in the post WWII period. A disaster. And think about what it means for a running total. During the 1990s it wasn't just that the economy created nearly 22 million jobs: added to the 1980s, it created a total of 40 million jobs. For an equivalent job market coming off a decade in which no jobs were created, the economy would have to create 40 million jobs during the 2010s, an average of 4 million per year. During the entire period shown in this graph (1940 to 2014), the economy created 4 million jobs only one year (1978).

REASON TWO: A BIGGER POPULATION NEEDS MORE JOBS
It gets worse. These numbers of jobs created make no allowance for whether the population is 132 million (as it was in 1940) or 309 million (as it was in 2010). Obviously, though, a larger population needs more jobs. This graph shows the number of jobs created as a percentage of the population.

As a raw number, a rate of job creation that would give us 19 million jobs by decade's end is not bad in comparison to the previous seven decades. But creating new jobs for only 6% of the population is bad. The average for the decades up to 2000 was 9%. To create the equivalent number of jobs would mean creating about 30 million jobs in this decade instead of 20 million.

What would it take to party like it's 1999? To feel as flush with jobs, cash, and wealth? At least a few years of job creation at the rate of 3 to 4 million per year. If we come even close to this, it'll create a boom as impressive as any since WWII even though it will - in some sense - simply get us back to normal.

Forecasting Job Numbers for Tomorrow and the Unemployment Rate for 2014 (and Beyond)

Tomorrow the Bureau of Labor Statistics unveils their job numbers for March, reporting job creation and the unemployment rate. My prediction is job creation numbers closer to 300,000 than 200,00 and an unemployment rate dip from 6.7% to 6.5%. Gallup's job creation index has risen sharply in the last couple of months and everyone is hiring - from stores and construction companies to manufacturing and governments.
[P.S. from 4 Apr 2014. Well, I blew this forecast. ADP was spot on, forecasting 191,000 when the number came in at 192,000. At this point the closest I can come is in the revisions that will come out over the next two months. The numbers for January and February were revised upwards, making the new jobs reported for this month about 220,000. There is a chance that the March numbers will be revised upwards eventually but probably not enough to get us north of 250,000. Mine is an optimistic bias. But my forecasts are also a reminder of how tepid is this recovery. In 1999, in 7 of 12 months the economy created more than 250,000 jobs.]

It gets even more interesting if you interpret the stock market as a leading indicator of the economic recovery. That perspective suggests 2014 will be a really good year.

From January 2008 to the worst of the recession, the S&P 500 fell by half and the unemployment rate doubled. The two markets moved in tandem.

The S&P 500 has since fully recovered. In fact, it's now 34% above what it was in January of 2008. Lest you get too excited about that, up 34% in 6 years equates to an annual return of 5%. That's not exactly amazing. In fact, given the (obvious) risk in the stock market, a 5% annual return would roughly equate to "back to normal."

So what about the labor market? Shouldn't unemployment be about normal by now?

Well, the markets don't move at the same speed. There is a time lag since capital moves faster than labor. During the Great Recession, the stock market hit bottom seven months before the unemployment rate peaked. You can sell stock much more quickly than you can layoff employees. And of course it takes even longer to hire than it does to fire, so if the labor market is lagging the stock market by seven months on the way down, it seems safe to assume that it would take about two to three times as long - 12 to 24 months, say, - to catch up during the recovery.

So if that's right, it means that the unemployment rate could hit "normal" in another 6 to 18 months.

That raises the question, What is normal for the unemployment rate? The obvious answer would be 5%, where it was before the Great Recession began. My prediction? The unemployment rate will dip below 6% by Fall and by this time next year will be somewhere between 5.5% and 6.0%. Whether it returns to 5% or even goes below 5% or 4% will depend on the extent to which governments and corporations get serious about popularizing entrepreneurship. Once we learn how to popularize entrepreneurship, unemployment could join starvation as something that people regularly worried about in the past.

Within hours, we will find out whether I'm right about the March job numbers. It will take years to find out if I'm right about the popularization of entrepreneurship.

Measuring the Future as Well as the Past - Adding Entrepreneurial Activity to Measures of GDP and Unemployment

In the wake of the Great Depression, the US began to measure GDP. Simon Kuznets, in 1937, presented his formulation of gross domestic product to the U.S. Congress for the first time. As obvious and as simple as it sounds, if economic growth mattered and was going to be a goal of economic policy, it had to be measured.

In the 50 years after GDP was defined, GDP grew about 50% faster than it had in the 50 years before. Management 101 is "measure what matters."

Which brings us to entrepreneurship, for which no simple equivalent to GDP exists. Making the rash assumption that it matters, it seems worthy of a Simon Kuznets for the 21st century, someone to create a measure that would - in a single value - capture the rise and fall in entrepreneurial initiatives.

The Global Entrepreneurship Monitor (GEM) offers a candidate for this measure. The good and the bad of their data set is that it is rich. You can compare Total Early Stage Entrepreneurial Activity across countries, investment rates, growth expectations, etc. This is a delightful database for serious students. It is less helpful for a simple report akin to "GDP rose from 2.3% to 3.3% this year." 

The OECD has developed International Metrics for Entrepreneurship (with financial aid - and presumably advice - from the Kauffman Foundation) that allow comparisons across countries and also guide in policy formulation. (Note how much better the UK's recovery has been than the US recovery in this regards.)

Stock market investors look for leading indicators, measures that predict what will happen to stock prices. (Weather prediction that would then influence crop yields was one of the original leading indicators.) That matters. But what matters more to a community are measures of activities that will create - rather than just predict - future prosperity. In this regards, it is hard to think of a more important measure than entrepreneurial activity.

Curiously, in Obama's annual report, entrepreneur ( or entrepreneurs or entrepreneurship) is mentioned only 6 times in 410 pages. By contrast, the UK has done more than merely make mention of entrepreneurship. In November of last year, the UK announced its 10,000th startup loan. It doesn't seem like an accident that the UK's rate of new enterprises is up 40% since before the recession while the US's rate has yet to fully recover. The UK is laying policies for future economic growth that are already showing up in increased rates of business formation. Look for the UK's future GDP growth to outpace that of the US for this reason alone. 

Every good manager and policy maker knows that intentionality precedes results. Managers who want high performance don't just shrug and tell their teams, "Whatever." On a similar note, policy makers intent on creating economic growth are intentional about everything from infrastructure investments to tax policies to education and permits. Entrepreneurship is as likely to respond to government initiatives as is education. And one of the simplest way to communicate what matters is to begin talking about what desired results look like. For this, a measure can be a good thing.

As it is, the awareness of the rate of new business formation is paltry in comparison to awareness to the unemployment rate; and yet it is the first that will do the most to change the second. Unemployment rate is not a cause. It is an effect.

If you want to measure past economic performance, measure GDP and unemployment. If you want to measure future economic performance, measure entrepreneurship. That's reasons enough to standardize and publish easy metrics to explain our entrepreneurial performance.

Finally - an Ophiuchus Horoscope

Recently, a new astrological sign was announced. Sadly, no one seems to have updated the daily horoscopes with the inclusion of this 13th group. So, I've taken it upon myself to address this lack. Here it is - your Ophiuchus (Nov 30 - Dec 17) horoscope.

21 Feb - Monday

Today you find yourself celebrating president’s day – or protesting to get a president. In either case, you may want to try out that great little gelato shop close to all the activity. And you can’t help but notice that for all the apparent chaos, riots have a clear purpose whereas parades, for all their supposed order, have none.   

22 Feb - Tuesday

You’ll suddenly realize that life is like watching a foreign film so thick with subtitles you can’t both make sense of the film and watch it. Overwhelmed you, Ophiuchus, just choose to ignore life and surf the web instead.

23 Feb - Wednesday

You’re pretty much on your own here. Unlike other astrological signs, Ophiuchuses don’t tend to move in lock step. That said, you may still want to pack a lunch. I really can’t say more or it would ruin the surprise.

24 Feb – Thursday

At 11:53, your phone rings. It’ll be a friend who needs affirmation. Be generous and gush a little. If your phone doesn’t ring by 11:58, admit that you’re that friend. Just make the call.

25 Feb – Friday

Ride public transportation to work today. Read the newspaper aloud to those around you. As you depart, turn to the folks you’re leaving and say, “Please fill out your personal news commentary survey sheets that you’ll find in the seat pocket in front of you. Your feedback is important.”

26 Feb – Saturday

Ah, it’s the weekend. Or used to be. Before they broke all the unions and decided that until everyone – even the Chinese – get a two day weekend, no one gets a two day weekend.

27 Feb – Sunday

You suddenly realize you don’t know how many days are left in the month or even if this is a leap year. You had a great deal planned but this uncertainty sort of puts a damper on all your intentions. Frightened by the thought that the month may already be over and you still haven’t accomplished anything significant, you find yourself ironically disengaged.

28 Feb – Monday

Realizing that this is the last day of the month, you get a burst of productivity so great that these efforts will become the basis for your weekly activity report. Two hours later, you stop for coffee and never quite get back into that same zone. Pity, really, because you were on a roll.

1 Mar – Tuesday

It suddenly occurs to you that you can't even say the name of your new astrological sign. Baffled, you begin to question the validity of any of this before realizing that this very prediction of skepticism is proof that you've nothing to be skeptical about.

Time to Run & Scream! (or not)

The Hindenburg Omen IS Scary (read here)

I'm sorry. I should take this seriously. My portfolio is again lying on the tracks while a train may - or may not - be coming. But I have to confess that I find this kind of thing so many degrees of amusing.

"Charlie!! Look!! The Hindenburg Omen is flashing!!"
"Oh! No!" Pause. "What is that?"
"It's a predictor."
"Of what?"
"Well, as it turns out, 25% of the time that it flashes, we run and scream like little girls."
"We do?" Pause. "Why?"
"Because the Hindenburg Omen is flashing!"
"So it flashes to warn us what we are about to do?"
"Yes!"
"Why would we run and scream like little girls?"
"Because the Hindenburg Indicator is flashing!"

And so it goes. Market indicators tell players in the market that they are about to buy or sell and ... ta da! ... accurately predict this behavior every time everyone takes them seriously.

I feel inclined to run and scream just knowing that such convoluted "predictors" exist.

A Little Reminder on the Limits of Prediction

Hank Paulson and Alan Greenspan were on Face the Nation today. The former Treasury Secretary and Fed Chairman may well represent as much as we know about economics.

After offering their opinion about what projected deficits will mean for the economy over the next decade, they both very sagely predicted that the Colts would win today's Super Bowl. This was, of course, a brilliant little reminder of the limits of prediction.

Of course, everyone knows that an economy over a ten year period, and the influence of the deficit over economic activity for good, bad, or indifference, is a much simpler thing to predict than a mere game. Because a game, of course, involves the actions of independent agents, the unexpected, herculean efforts, unpredictable strategies, and chance. By contrast, an economy of 300 million people in a world of 6.5 billion, in a time when there has never been more opportunity for innovation in technology or social institutions, has none of that.

Bernard's Super Bowl Prediction

Surprisingly, Bernard had a prediction over breakfast today.

"Somebody wins, somebody loses," he said matter of factly.

"That's it? That's your prediction?"

"It's designed that way."

"That doesn't really qualify as a prediction, Bernard. That's more of a tautology."

"Okay, you want a name?"

"Yeah. That's how this works."

"Steelers in 4."

"The Steelers will win in 4 quarters? This isn't boxing, Bernard. Of course they'll win or lose in 4." I paused to sip my tea. "So, why do you think that they'll win?"

"It's like they say after the game: it's the fans."

I laughed. "So you are saying that the people of Pittsburgh are so much better as people or fans that their team will win?"

"I'm saying it's winter. People in Pittsburgh have more incentive to go to Tampa than people from Phoenix."

"Hard to argue with that."

"The poor Cardinals won't even be able to hear their fans, they'll be so outnumbered. Or hear themselves call plays, for that matter." He leaned forward, "It's all in the numbers, Ron."

2009 Predictions That Are Safer Than a SubPrime Mortgage

It seems only proper that a blogger predict the future. I mean, what are you paying for if not some reassurance that 2009 will be different from 2008?

So, here is my attempt to write the news stories before they become news. Let me be the first to welcome you to 2009.

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June 11 (RW) Internet pioneer Leland Vaughn succeeded in sending himself through the Internet. The full appreciation for this momentous feat was somewhat muted by the time it took for this inaugural full body download. During the three years it took Leland to be fully downloaded into his fiancé’s living room, she married and gave birth to a child. The little family was “shocked and horrified” when Leland was finally, unceremoniously dumped onto their living room floor.

On a positive note, a great number of Wikipedia entries seemed to have gotten tangled up in Leland’s memory, although his eager attempt to share tidbits such as the ability of the crown cardinals of Austria, France, and Spain to veto papal appointments from the 16th to 20th centuries failed to calm his ex- fiancé’s new husband. Given that the tidbits downloaded into his consciousness during this time seemed random, Leland has lost all sense of time – his memory of the 3 years during which he was in transit are a curious mixture of ancient and modern history and current events based on what scientists are now calling proximate virtual memory events, or data nuggets that were co-mingled with his digital ghost.

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September 17 (RW) Unfortunate cookies become popular. Fortune cookies give vague promises about the future, whereas unfortunate cookies offer vaguely worded consolations for past injustice. “You have every right to feel slighted by your in-laws; they should have been more impressed.” Or, “In spite of your grade school’s teacher’s reassurances to the contrary, her punishment was excessive.”

Although wildly popular, these unfortunate cookies have created a new, awkward dating situation: first dates that break into tears after breaking their unfortunate cookie to suddenly find themselves consoled for an injustice that has been haunting them for years.

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November 11 (RW) Groovy makes a comeback in the American vernacular.

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March 16 (RW) Iceland succumbs to a takeover bid from Citibank. Pundits are divided as to whether this transforms finance or politics. Cynics claim that it just formalizes the old arrangement between the two.

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June 9 (RW) Budget cuts and a weakening economy lead to the first genuine innovation in education since kindergarten: the 3 year Bachelor’s degree. By reducing education costs by 25%, this move brings college education within reach of millions more Americans.

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October 14 (RW) Universities around the nation are issuing recall notices to graduates, ordering them back for additional courses or risk losing their degree. This move is seen by some as a desperate attempt to replace revenues lost by cuts in government spending and the sudden popularity of 3 year Bachelor degrees.

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April 19 (RW) Bionic limbs are suddenly the most obvious and popular of the new solutions to the transportation problem. Rather than move 3,000 pound vehicles in order to transport 160 pound people, the limbs will add only a few pounds to the total person weight and create less congestion on roadways while dramatically lowering annual fuel costs and carbon footprint. (Catchy slogan of the year? “Instead of a carbon footprint – why not just leave your own? Bionic legs – one charge will take you 40 miles …. in about an hour.”)


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December 23 (RW) Happiness becomes the new black, the fashionable alternative to gloom and doom that is popularized in the news. Sadly, it is back out of style by year’s end.

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August 28 (RW) Newspapers, continuing to lose market share and revenues, will begin to auction off celebrity. Taking a page from the Paris Hilton saga, they will create buzz for a million, and coverage that can’t be missed for only ten million. After the most closely watched election in decades, this will be one of the few growth areas for beleaguered papers. The news will benefit twice: once by selling their services this way and again by reporting on this trend in tones of outrage.


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All year long (RW) Blogging will go through a year of mergers and acquisitions. (Given that there is no money in blogging, it seems only natural that the M&A activity will move to the blogosphere in a year when there is no money in financial markets.) Some of the mergers will be unsurprising - Huffington Post's takeover of Daily Kos seemed terribly obvious in retrospect. Others, however, caught even the most savvy analysts off-guard. June Cleaver Nirvana takeover of Cosmopolitan, for instance, shocked everyone in traditional media and no one in the blogosphere. (Holly told reporters that after giving sex tips for decades, it was time for Cosmo to begin offering advice about how to raise the children that are the natural consequence of following such advice. "It is time to move with our readers, offering stories that they would now find relevant - advice on potlucks and being seen in public in chicken costumes, for instance.") R World will, sadly, be bought out by a Ukrainian poet who insists on rhyming everything BEFORE translating it into English. Living Next Door to Alice will be the first to pioneer the application of a new claymation software that makes all of his posts look like they are narrated by lava lamp blobs morphing into talking heads that vaguely remind people of celebrities in the same way that clouds remind people of horses or sea shells. This media form will so captivate audiences as to entirely replace TV - for the third week in May.

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And best of all, in 2009, people will begin to take silliness seriously. It is not obvious that there will be any other way to make it through with our sanity intact. Have a wonderful year.

The Three Stages of Understanding (Or, Why We Don't Trust Experts)

In this country, we have a distrust of experts. I have one theory about why that might be.

Systems are defined by interaction. Worse, the influence of any ONE element depends on at least one other element. For instance, two children who are continually undermined by their mother will experience this differently. The impact of the mother will depend upon at least one other element - from differences in personality to fashion daring between the siblings. Systems - from markets to people - are hard to predict.

This is one reason why experts in any domain become tiresome. As people learn more, they become harder to understand. Imagine you are asked to predict the behavior of a system - from an economy to the effect of summer cold on wheat production. There are three levels of understanding that will generate three different answers to the question, "What will happen when ...?"

1. "I don't know." At this level you might be able to define the system but you can't predict it.

2. "I know! It will ...." At this higher stage, you've seen the system respond to this variable before. You can predict based on the example or two from the past.

3. "It depends." At this, the highest stage of knowledge, you know that the influence of any one variable will depend on at least one - maybe dozens - of other variables.

And once an expert launches into his list of variables upon which the system depends, the average person begins to hear, "blah, blah, blah ..."

This is one reason that liars and people at stage two are more likely to be trusted than experts at stage three. They are easier to understand. They sound more confident. This preference is not certain, of course. Because whether or not people will prefer someone at level 2 to someone at level 3 depends on ... blah, blah, blah. But of course, I'm no expert.