Just Like Christmas (Daily Spending is Up)

Consumption is back - and GDP has no bigger component. Government spending, exports, and investment are all small by comparison to consumption's 70% of GDP. So as consumption goes up, so does GDP.

On September 15, 2008, Lehman Brothers declared bankruptcy. A month later, the S&P 500 had dropped by a quarter. Two months later, it had dropped by a third, wiping out trillions in value and triggering the financial crisis that would become the Great Recession. Jobs losses during the next 12 months would total more than 6 million - this in an American economy that had never ever created 6 million jobs in a single year. (Or even 5 million jobs, only once creating more than 4 million jobs in all of American history.)

The good news is that we're recovering. The stock market has bounced back. The housing market is bouncing back, up nearly 11% in the last year with its biggest annual gain in 7 years.

Now, it seems that everyday purchases are up. Gallup measures Daily US Spending, "not counting the purchase of a home, motor vehicle, or normal household bills."

In the three months before the Lehman Brothers' bankruptcy, Gallup's measure of daily spending averaged $96; in the three months after, the average dropped to $86. It got worse the next few years: in 2009, 2010, and 2011, it averaged $64, $65, and $68, about a third less than what it had been prior to Lehman Brothers. Given consumption matters so much, this dip in spending was a huge drag on the recovery. But that's changing.

So far this year, average daily spending is $85. That's still not where it was before Lehman Brothers, but it is up 30% from 2009 through 2011. Last year the 3-day moving average broke $100 only 7 times; already this year it has broken $100 15 times.

This far exceeds what it was in 2010 when daily spending broke $100 only twice - the 22nd and 23rd of December. In 2011, it broke $100 only on Black Friday.

It's only Memorial Day but already beginning to look a lot like Christmas. At least to retailers. And that could make the biggest difference of all.

A Ridiculously Delightful String of Saturdays

The high temps for Saturdays this year in San Diego, from January 5 to yesterday.
Average 69
Median 70
Max 84
Min 54

It's ridiculous but we'll take it.

Why Cutting Government Spending Does Not Grow GDP During a Recession

It is funny how the most obvious things have turned into arguments. It seems as though there are no claims to be made in economics, for instance, that won't be contested. 

Here's a simple definition from economics, for instance, that people contest all the time. 

Gross Domestic Product (GDP) = Consumption (C) + Government spending (G) +  Investment (I) + (Exports (X) - Imports (M)).

This doesn't depend on any theory. It simply states that total economic activity is equal to all the money households spend buying stuff (C), plus all the money the government spends on buying stuff (G), plus all the money people invest (I) plus what we make from selling exports (X) minus the money we spend on imports.  

For instance, in 2010, the equation for GDP for the US looked like this:

GDP = C + I + (X-M) + G

(all numbers in trillions)

$14.6 = $10.4 + $1.8 + -$0.5 + $2.9

If we had sold another trillion in exports or invested another trillion or spent another trillion on consumption or government spending, GDP would have been $15.6 trillion. 

Now this says nothing about whether you like how the money is spent. A dollar of consumption (C) spent on a strip club adds to the total as much as a dollar of consumption spent on ahip replacement for a 92 year old adds to the total as much as a dollar for new stained glass windows for the church adds as much as a dollar some little kid spends on ice cream. Economic accounting like this doesn't make any judgments on how people spend their money. 

In the same way, a dollar of government spending spent on defending the nation against terrorists is treated no differently than a dollar spent on educating the young is treated no different than a dollar spent on building a road for a corporation is treated no differently than a dollar spent on a welfare mother. Again, it's just different ways that the dollar gets spent in order to raises total Government spending (G), which in turn raises GDP.

Now it is true that a dollar spent on developing the Internet or solar power is likely to lead to higher GDP in the future. Investment is more cool than the other elements of GDP. But of course, only up to a point. If we only invested and didn't consume, we'd quickly die out, like people who turned all their corn into seed corn and starved to death. You can - and should -argue about how much to invest and in what. But I is just another component of GDP and the more we invest, the higher GDP that year. 

If you lower C or I or G or (X-M), you will lower GDP. This is not theory. This just results from simple definition.

If you lower G (government spending) GDP goes down. This is the same thing that happens if you lower C or (X-M) or I. And yet we hear all the time that if only we lowered G, GDP would go up. I still haven't figured out the math on that.

It is legitimate to argue about what is the best mix of these. The question of how to increase exports and investments seems really important. The choice about what sorts of investments to make seems really important. But the strategies to do that need to recognize that such changes take time and will span business cycles. The right time to talk about lowering G is when C or I or X are rising. To lay off government workers or government contractors when unemployment is high just lowers GDP by lowering G and giving GDP no offsetting rise in any other component. 

Ron Johnson's Quick Trip as JC Penney's CEO - A Reminder About the Limits of Money

Ron Johnson was briefly head of JC Penney. Hired in November 2011, he was fired in April of 2013. Less than a year and a half. 

Now regular readers would likely expect me to make some point about how much money he made in that time (about $55 million) or the fact that his pay was outrageous in comparison to the typical JC Penney employee (his 2011 pay of $53.3 million was 1,795 times more than his average worker's $29,688 salary). I won't. I won't even mention that.

Instead, I'll criticize the board and major investors for thinking that money was a substitute for time. It is hard to imagine that people in charge of so much money are actually that naive. It could be that Ron Johnson would have been a bust but who could know after 17 months?

Ron Johnson was hired away from Apple. He'd been in charge of the stores. And Apple stores are a retail phenom. For instance, Apple's Stores had the highest sales per square foot of any retail stores. Johnson knew the formula for magic and could obviously bring that into JC Penney. Or so the board must have thought.

But if there is a formula for business success, surely time and inspiration are more important inputs than money.

Steve Jobs had secretly built a prototype Apple store near the Cupertino headquarters and would spend time in the place re-thinking the retail experience. He would get insights and send the architects and builders scurrying. As he had with the design of the iPod and iPhone, he was hands on, giving input and obsessing over details. He described design as having to hold 5,000 pieces of information in your mind and find ways to fit them together, information about the behavior of customers, plastic, and electronics and how they play together for instance. (Which, it seems to me, is a wonderful way to describe systems thinking.) This secret process of Steve Jobs (which did include Ron Johnson about one year) took about 2 years.

So let's review the numbers.

Steve Jobs was CEO about 4 years before opening his first Apple Store and had spent at least 2 years - probably all four years - finding time to redefine the retail experience for Apple consumers. So Jobs took about 24 to 48 months to change the retail experience.

JC Penney was founded in 1902, about 111 years before they fired Ron Johnson. JC Penney has been operating about 1,332 months

Ron Johnson was given 17 months as CEO. 17 months to turn around this company of 1,332 months.

Yeah. That will work.

There is an old cliche in project management about paying 9 women to have a baby in one month. Sometimes, you just can't pay your way out of a problem. The board at Penney's tried and cost their stockholders about 50% of the stock value.

Total Early-Stage Entrepreneurship Activity (TEA) at Record Levels.

Early stage entrepreneurship levels are at their highest levels since at least 1999.

Professors from Babson and Baruch Colleges have just  issued their 2012 Global Entrepreneurship Monitor (GEM). This report attempts to capture entrepreneurial activity on the ground - not just startups funded from venture capitalists or banks. And the news looks good. Entrepreneurship is on the rise.

You can read the GEM press release here, and the full GEM report here.

Some positives from their report 

• 13% of the US adult population is engaged in entrepreneurship
• First generation immigrants are even more likely - at 16% - to be engaged in entrepreneurship
• There are 7 female entrepreneurs for every 10 male entrepreneurs
• Three-fourths of entrepreneurs do it to pursue an opportunity rather than out of necessity
• 37% project a business with 5 or more employees in 5 years

A couple of negatives are the obstacles mentioned. Compared to similar countries, American entrepreneurs have more trouble with financing and struggle more with fear of failure. It seems to me that communities could do a lot to alleviate the first and corporations could do a great deal to alleviate both problems. 

Compared to other innovation-driven economies, the US has twice the rate of "stops" stemming from financing failures. Venture capital markets are strong but only a few entrepreneurs qualify. This suggests to me that governments would do well to create something for entrepreneurs akin to college loan programs, a way to subsidize small entrepreneurs.

And as to fear of failure, that still suggests to me that corporations would be wise to harness the high-levels of entrepreneurial initiative in this country by creating more opportunities for entrepreneurship within their business. My guess is that many optimistic entrepreneurs who are now employees would think it a great deal to avoid the risk of salary loss in return for giving up something like half of their expected profits. Do corporations have money to invest in such ventures? Well, only if you count the $2 trillion in cash (by some estimates $5 trillion in liquid assets) held by the Fortune 500.

Total Early-Stage Entrepreneurial Activity (TEA) is up, according the folks at Babson and Baruch Colleges. And it will just continue to rise if my theory about our entering a fourth economy has any merit. If that is true, this TEA measure could become to the future what the Dow Jones Industrial Average has become. That is, a way to measure something terribly important that  has - nonetheless - eluded quantification until now. And as communities become more savvy about the importance of entrepreneurship, watch this index become as common as the Dow. 

That Mind Virus Wants to Suck the Attention Out of Your Brain But Has to Call Itself a Meme Before You'll Let it Do That

If I remember correctly, when Richard Dawkins coined the term "meme" he was not thinking about Facebook. Dawkins was trying to find a way to describe the cultural equivalent of a gene as a way to talk about practices that become a part of a culture. He thought it might add a little formality to the notion of social evolution as companion to species evolution, the mutation of memes changing peoples and cultures in the same way that the mutation of genes changes species. Practices that spread, like democracy and blue jeans, are memes. It's a great idea, and meme itself has become an incredibly pervasive meme. It's also radically mutated to look a bit like a virus.

Now, every bright shiny object on the Internet has become a meme. Or at least it gets called that. Of course a video of the world's smallest monkey eating elbow macaroni does capture consciousness, just like the Bill of Rights or the idea that we ought to drive on the right side of the road. But it doesn't actually inform behavior, doing less to inform who we are than distract us from that. Instead, it's just a distraction, a way to transform consciousness  into page views (which, in turn, can be transformed into advertising revenues). 

Consciousness is under assault. It's odd. Never before has humanity been more free to live as they wish and yet never before has the world offered so many alluring enticements from one's own thoughts, making it difficult for the individual to define novel ways to live. From movies and TV shows to books, art, museums, and lectures, the world offers thousands of options for structuring our consciousness for us, even outside of work. Worse, many of these same memes can become viruses, not so much structuring consciousness as distracting it. 

But I digress. To be distracted is to be human in this Information Age. We all do it. Trust me that I daily exceed the average quota of things found fascinating. But the notion that we're being distracted by something as sexy as a meme is a form of self-delusion. These aren't memes: they're badly mutated versions of Dawkins' original meme, something more akin to a mind virus than gene. I'm not suggesting that we stop being amused, intrigued, shocked, and entertained; I just that we owe it to ourselves to properly label the sources of all that.

[This blogger will leave you to determine if the preceding rant was a public service announcement, something akin to a meme, or was itself a mind virus, the blogging equivalent of a onomatopoeia.]

A Tempest in a Tea Party - the IRS Scandal

People have been fired. Mike Huckabee predicts that Obama won't complete his second term. At a minimum, Bloomberg Businessweek predicts, Obama's hope for gun legilsation, immigration reform, and a health overall are to be jettisoned. This IRS scandal is a big deal.

So what, exactly, is the big deal? The IRS targeted tea party like groups but not progressive groups. They were searching for folks who had formed groups around the notion of patriotism, tax relief, and anti-government sentiments. This much seems true and for that people have been fired. 

So then, what nefarious things did they do once they'd targeted these groups? They requested information. Specifically, they asked the following questions:

These questions were deemed "unnecessary." 

That's right. These groups had to answer questions they didn't have to. They weren't shut down. They weren't fined. Their members weren't subject to wire-tapping. Their leaders weren't imprisoned or targeted by drones. Nobody was water boarded. They were asked to provide information.

That's the big scandal. 

We live in time when we're about to hit a big inflection point. Going one way, we could enter a time of prosperity that past generations could not even imagine. Going another way, we could enter a time of unfolding disasters. And in the face of that, the government with the most influence of any group in the world is focusing on an issue that is - depending on the angle from which you observe it - either inane or irrelevant. 

We don't really have to worry about what future generations will think of us, though. With judgment about real vs. trivial issues this faulty, we're likely to cause our own extinction before those future generations can show up to judge us. That will shut them up.

Scandals, Policy, and Fast & Slow Thinking (About that IRS Scandal)

Daniel Kahneman begins his book Thinking Fast and Slow with a picture and an equation.

In an instant, 90% of people know that this girl is mad. 

By contrast, 90% of people take at least a few seconds to calculate the answer to this equation.

37 X 4.

Some things we can do so quickly and effortlessly that we don't even think that we're thinking. Other tasks make us very aware that we're thinking.

The media - and by extension the political dialogue - is defined by the fact that we can instantly judge scandals but it takes time and effort to judge policy. (Not that we always resort to actual judgment for policy; once we know whether a particular proposal is considered liberal or conservative, we can judge it as quickly as we can this little girl's mood.)

The federal government has nearly 3 million civilian employees. When they do something wrong, the question is whether it actually stems from policy or - even better for the media - conspiracy. If they were just acting on their own - mavericks in the system - it may qualify as a scandal but it is no indictment of the White House. (Unless, of course, you have mavericks in the White House like McCain and Palin who would, presumably, encourage maverick behavior.) 

Abu Ghraib and My Lai were atrocious but don't seem to have been the result of either White House conspiracy or policy; neither Bush nor LBJ were ever indicted in these awful acts and it would be unfair to judge them by those events.

By contrast, it really is fair to judge LBJ and Bush by the wars (occupations?) of Vietnam and Iraq. Those are the result of policy, choices that emanated from the White House. It's harder to judge whether those were good decisions. My Lai and Abu Ghraib? We can all confidently criticize those as wrong.

Conspiracies never make as much difference as policies. Abu Ghraib and My Lai did not kill as many people or cost as much money as the Iraq and Vietnam wars, did not have as much impact on the region. 

Yet policy is boring. It requires slow thinking, the same plodding thought that solves equations. Scandals, on the other hand, are exciting. It lets us rely on fast thinking, letting us judge them almost instantly. They make us feel smart because they are easy to think about. 

Scandals rarely matter. Policy almost always does. And yet savvy media and politicians will continue to feed us scandals and largely ignore policy. Not because that's a smart thing to do when it comes to running a country. Instead, they do it because it makes us - and them - feel smart.

Arbitrary? Yes. Random? Not So Much. Or Why The Economy Will Get Better Than You Think

The random walk hypothesis is simple. Today's stock prices predict what we know today. Tomorrow we will discover new information and that information is as likely to be bad as good - it is random - so future changes in stock prices are random. Put simply, we can't predict the future.

I think that events are more connected than that, more likely to form a part of larger patterns. And because of that, news tends to come in the form of clusters, bad news bringing more bad news and good news bringing more good news.

Let's take a look at today's news.

Today the non-partisan Congressional Budget Office (CBO) made a huge revision to the near-term deficit projections. By 2015, they are predicting a deficit that is only 2.1% of GDP, an incredible drop from the 10.1% of 2009 in the wake of the Great Recession and comfortably below the 3.1% it has averaged during the last 40 years.
The Dow has closed at new highs in 10 of the last 23 trading days.
Inflation last month was negative.
Unemployment is steadily falling.
Car sales are up about 8% from one year ago.
Home prices in southern California are up 23% in the last year and home prices in the Bay Area are up 17% in just the last month, dramatic examples of similar - if less dramatic - changes around the country.

It is hard to argue that these events are unconnected. Most obviously, an improving economy will make the deficit smaller. But it would be hard to argue that any of the above events are unrelated. A better stock market gives people more confidence to buy things and gives companies more confidence to hire people; as more people get hired, they buy more things; as companies sell more, they hire more people. Effect becomes cause and pretty soon we don't so much see individual dominoes falling as patterns: news about home sales or hiring is slowly displaced by more general reports: the economy is strong. Better news means even more better news.

And that more general pattern is driven by the emergence of simple consensus more than folks care to admit.

Economics is a bit like fashion: it gets defined as much by agreement as "real" issues.

It seems as though communities around the US have begun to build agreement that the economy is good and it is again time to buy homes and stocks and to hire people. That will make it so for months - probably years - to come. That may seem arbitrary but it is not random.

Judge Incarcerates 4,000 Children (Some as Young as 10) for Profit and Is Fined Less Than His Profit

US judge receives 28-year jail term for his role in kids-for-cash kickbacks

Mark Ciavarella Jnr ordered to pay $1.2m in restitution after he was found to be a 'figurehead' in the conspiracy

This poor excuse for a human being, Judge Mark Ciavarella, was putting kids as young as 10 years old into prison. Not for the crimes they'd committed but instead for kickbacks from the for-profit prison system into which the kids were sent.  Hard to imagine a more vile piece of humanity than Ciavarella. The Pennsylvania Supreme Court overturned 4,000 of his convictions. 4,000. I guess it's easier to do such things when you've already sold your soul.

His sentence was not harsh enough. A 28 year sentence to a 61 year old man might be enough, but a million dollar fine for a million dollar profit is not. For other judges and for-profit prisons, this could just be seen as a cost of doing business, and not even a high enough cost to stop such practices.

The reason it is not enough is because the odds of getting any sort of fine are so low.

The odds that Ciavarella would be caught were less than 100%. There was maybe a 20% chance, say. The odds that the DA would decide to prosecute were less than 100% - perhaps about 50%? And finally, the odds that he'd be found guilty were less than 100% - again, maybe 70%? (And yes, I'm making up these numbers; the only thing that I know for sure is that the odds of his making it to each stage are less than 100% and by 10's of percent.) So by these calculations, the odds that Judge Ciavarella would be caught, prosecuted, and found guilty were about 7% (20% X 50% X 70%). 

So if you are another judge who is amoral enough to look at the incarceration of the young as a for-profit venture, you could easily make the following calculation. "I could make a million dollars by giving out the maximum sentence to these kids. Money I'd get in kick backs for the cost of their incarceration. Money paid by taxpayers to the for-profit prison company." Then you'd have to ask about possible costs. By the above calculations, the probable cost of this venture would be about $70,000 (7% of the million). Now you can make your own calculations about probabilities but no matter how you do it, you'll find that a fine equal to the reward for criminal behavior is inadequate. It would only make sense if the odds of being caught, prosecuted, and found guilty were 100%. They're not. 

I'd suggest that the judge's fine should have been at least $15 million, not merely $1.2 million. And who could make up the difference? The for-profit prisons. 

Have You Noticed What's Missing?

After the Mona Lisa was stolen in 1911, the lines to see the space where it had once hung were longer than the lines had previously been to actually see the painting.

Of course any reputable country music artist could tell you that absence is a great way to be noticed. Curiously, and rather fittingly, Kafka was among the folks who cut short a vacation to rush to the Louvre to see this blank piece of wall upon which the Mona Lisa had once rested.

Should ever happen again, I think that it would be all the more reason to have a museum of forgeries. (Such a museum would provide an identical art experience to the real art and yet acquisition costs would be much lower, no?) I'll have a blank wall in my museum of forgeries with a sign that says, "It's not here either."

So, I've discontinued my experiment to determine whether the lines to see - or rather, the hits on the blog - were greater with missing posts. 

Sorry for that Commercial Interruption

Before you leap to the conclusion that this blog has been abandoned, I would like to point out that I've been busy. In the last five weeks I've been in four states (not counting this one) in three different time zones (trips of 2 to 5 nights), been able to visit a new major league ballpark and the rock and roll hall of fame, driven through a snow storm, looked after my elderly father, and started work with two new clients. 

Stay tuned. The opinions will continue.

More Evidence for Optimism About 2013 - Car Sales

Reported in the Atlantic's new Quartz, it is not just stocks and homes that Americans are again buying.

US auto sales in March hit their highest level since 2007, showing American consumers are indeed in a mood to go shopping.... luxury Cadillac brand was up by almost 50% compared to the same period last year.The sales numbers show the US auto industry is in a sustainable recovery.  The news is even better for luxury brands, which posted stronger gains than their mass market counterparts. BMW, Audi, and Lexus all reported double-digit percentage growth in sales.

As mentioned previously in this blog, economists were oddly cautious in their forecast for 2013. I think they should have been optimistic instead. This, it seems to me, is further proof that GDP will grow by more than 3% in 2013. (That optimistic prediction is explained here, The Wealth Effect Will Boost 2013 GDP.) 

In Which a Mere Blogger Questions Warren Buffet's Investing Philosophy

Value-investing was developed during the Great Depression. Since then, the percentage of households holding stocks has at least tripled, radically increasing demand for stocks. Because of that, it is too hard to find under-priced stocks to ever systemically apply value-investing. It might be akin to a high school kid holding out for a Sports Illustrated swimsuit model for a prom date. If he can do it, great. But if he wants to go to prom, he might want to lower his standards. So it is for folks who want to retire.

There. That's the gist of my argument. You can click on to another of the web's nearly 15 billion pages or you can read further.

First the caveat. I'm no Warren Buffet. Thursday of last week, Buffet's net worth rose $557 million. Yeah. Half a billion. My total net worth is a rounding error in the amount his wealth fluctuates during a trip to the bathroom. Buffet recommends value-investing, so you would probably be wise to ignore my concerns and listen to him instead.

But you're still here. Good. That means you've got an open mind. So for you I'll elaborate.

Ben Graham and David Dodd developed their ideas about value investing in 1928 and then released a textbook defining it (Security Analysis) in 1934. In its simplest form, the idea is to find stocks that are under-priced and then buy those when investing. Buffet has since defined this as buying outstanding stocks at sensible prices. I'm not foolish enough to argue with this. While it's a great ideal, it's just not a practical idea. Not anymore.

Both the percentage of households owning stock and the percentage of wealth represented by this stock ownership have gone up dramatically since Graham and Dodd wrote their book. As demand has risen for stocks, it is harder to find under-priced stocks that meet their criteria. While you wait for cheap stocks, you could miss out on decades of decent gains.

In 1929, when the stock market crashed and triggered the Great Depression, only twenty-some percent of Americans owned stock.

Gallup reveals that about 54% to 67% of households now hold stock. This percentage probably under-reports the actual percentage since so many Americans are invested in the stock market through pension funds they're unaware hold stocks.

Further, the portion of household wealth has gone up. In 1984, only 9% of household wealth was in the form of stocks (either directly or through mutual funds or IRA accounts). By 2011, that had risen to 46%. (401(k) accounts did not take off until about 1984.) As a percentage of household wealth, stocks rose about 5X in a quarter century.

This demand for stocks has driven up their price. And it is only getting worse. It's a cliche (and possibly even accurate) to say that about 20 years ago 80% of retirees depended on fixed pensions whereas today it is 80% of retirees who depend on their own investments. Demand is high for stocks and that alone drives up prices.

So, if you can find a stock that sells for cheap, a stock that's a great investment, do it. But that's like saying buy a good house for less than market price. It's tough to do. If you want to retire, you'd probably do well to get your money out of your savings account and into the market. If you can find cheap stocks, great, but don't wait because that may never happen. Buffet may represent the last generation able to systemically find under-priced stocks. You and me? We may have to pay retail.

The Beginning of the Zombie Apocalypse

The zombie apocalypse began so subtly, so seductively even. Of course now, in retrospect, it seems so obvious.

Portman's Reversal on Gay Marriage - or, the failure of imagination in policy formulation

Ohio Republican Senator Rob Portman changed his mind about gay marriage once his son came to him to announce that he was gay and had been as long as he could remember. It seems to me illustrative of the GOP's general lack of imagination when it comes to policy. Aid for the poor and homeless? Can't imagine this ever happening to me, says the GOP, so let's not worry about it. Aid for AIDS victims? Can't imagine this ever happening to me, says the GOP, so let's no worry about it. Same-sex marriage? Can't imagine ever wanting to marry someone of the same sex, so let's not worry about that.

In my opinion, good policy is a product of a good imagination. Ultimately, being able to imagine that the situation in which others find themselves is one that you could find yourself.

Finding our Future in the Past - There is Brain Research to Support my Conviction (he says, a little defensively)

From the WSJ article "The New Power of Memory" by Shirley S. Wang,

"Memory allows for a kind of mental time travel, a way for us to picture not just the past but also a version of the future, according to a growing body of research.""The studies suggest that the purpose of memory is far more extensive than simply helping us store and recall information about what has already happened.""Brain-imaging studies have demonstrated that when people are asked to imagine the future as they recall past experiences, many of the same regions of the brain—the hippocampus and the medial prefrontal cortex—show increased activity. "

The person who only knows the now has no clue about what else could be. Knowing what else has been in the past immediately triggers the imagination for what else could be in the future. 

Memory of the past seems to be the first step towards mental time travel. Those who learn history have an easier time imagining the future. 

Or maybe, as a guy who wrote about patterns of change that played out over 700 years of history in order to predict the next 50 years, I am reading too much into a little brain research to support my notion that we can find the future in our past. 

The Popularization of Entrepreneurship is Already Underway

Shark Tank is reality TV / drama / comedy / technology / business advice show mash up. Each week various entrepreneurs make a proposal to investors. It is the highest ranked Friday night show and its viewers have grown from 4.2 million in the first season to 6.4 million in this, its fourth season. Tim Sae Koo, founder of Tint, writes about how what he learned from watching Shark Tank helped him to get his startup funded.

I don't doubt that there are a number of stories like Tim's. As entrepreneurship becomes more visible, more people will consider it as a choice. McDonald's spends nearly a billion each year in advertising because they know that we only choose from the menu we're aware of: if you don't know about something as an option, you simply don't pursue it. Shark Tank is just one of the more obvious ways that entrepreneurship is entering the mainstream as a choice for the average person.

Meanwhile, outside of TV land, the Internet is abuzz with entrepreneurial stories, resources, and organizations. Shark Tank lets viewers vicariously experience what it means to pitch ideas or be a venture capitalists. By contrast, Kickstarter lets actually lets people actually be venture capitalists, funding projects they believe in.  Susan Jones from Melbourne has the blog Ready Set Startup! that shares stories and strategies of successful startups. Startup Social has created a platform that allows entrepreneurs in LA to connect. Paul Barron, at rethink  is offering videos on business innovation. And these are just a few of the folks who have begun to follow my twitter account in the last week. (And of course there are folks who continue to hone their skills in this new economy, folks like Cody McKibben and Dan Andrews who are simultaneously creating and being created by a new generation of location-independent entrepreneurs, in the process creating a new economy that transcends both old practices and national borders alike.)

The internets are alive with stories, strategies, collaborations, plans, small businesses about to become huge, ideas about to become real, and people who are teaching each other things that no one even articulated decades ago. The obscure is becoming common and the unknown is getting mapped. We are at a stage of entrepreneurship akin to the stage of exploration when Columbus was taking inspiration from Marco Polo's book of adventures.

What people don't realize is that the success rate of these efforts only has to be in the single digits to transform the world as we know it. Imagine this scenario: 100 entrepreneurs try startups. One goes on to create a company with 10,000 employees. The result? We end up with 100 employees for each entrepreneur - even with a success rate of only 1%. And as social entrepreneurs can tell you, business entrepreneurship is just part of the story: there is not a segment of society that will emerge unscathed from the  popularization of entrepreneurship: education, religion, and government will all be changed - indeed, transform is not hyperbole in the context of what will happen in the next couple of decades.

Most people are still wandering the mall unaware of the tsunami of change that will follow from the popularization of entrepreneurship. (A recent article of mine about this here and my book, The Fourth Economy, here.)

The Industrial Revolution was transformative. Starting in 1700, for the first time in 6,000 years, incomes began to rise. One reason for this is the math of capitalism. As Benjamin Franklin put it, "Money makes money and the money money makes also makes money." Compound interest is powerful. Wealth that increases by 1% a year will double in 70 years; wealth that increases at 7% a year takes only a decade to double. This math represents the phenomenal rise in wealth since the birth of Franklin in 1706.

The math of the entrepreneurial economy is even more impactful. It is the 1 in a 100 that leads to a 1,000. That is, the one successful entrepreneur out of 100 aspiring entrepreneurs who goes on to employee 10,000. We've never seen anything akin to the popularization of entrepreneurship, a force that could make this sort of math more common.

If you are a young parent, it is likely that your child will grow up to consider entrepreneurship as seriously as you considered college. Wrap your head around the impact of that. But that is the essence of progress: what was once rare becomes common.

Stay tuned. The world is just going to get more interesting.
ABC's promo here:

The Gap Between Wall Street and Main Street - real, rational, and reason for policy

Pundits like to pundificate about the odd disconnect between Main Street and Wall Street. They're aghast that the stock market could rise while the "real" economy as represented by job growth and unemployment is still doing so poorly. There is nothing irrational about this.

A stock goes up with the value of future earnings. At least three things make that rise: lower interest rates, higher sales, and lower costs.

A bad economy will lead the Federal Reserve to lower interest rates, so on that count a bad economy actually does drive up the stock market. While a bad economy drives down sales, it is worth remembering that many of the big companies sell more of their product abroad than domestically. So, even a bad national economy may have limited impact on overall sales.

Finally, and most importantly, a company's senior management is committed to profits. They are not committed to any particular product line or market or work force. They want to make a profit. If they have to layoff people to sustain profits, they will. If they have to outsource to sustain or raise profits, they will. If they have to shift their marketing to foreign countries, they will.If they have to create new products or discontinue old ones, they will.  Profits can rise in good times or bad and there is nothing irrational about that.  And it is good. It is wonderful that companies focus on creating profits: profits are the measure of the gap between the value of things we use as inputs (from raw materials to labor and capital) and the value of what we produce as outputs (the products and services the community is happy to buy).

It is easy to dismiss this as evil but it's worth remembering that an entrepreneur who starts a business and doubles his profits to $200,000 from the previous year has no obligation to anyone to hire another $50,000 a year employee (who will cost him roughly all his $100,000 gain in profits). It is not the business of businesses to create jobs. That is a side effect of creating value (valuable products and services for customers and equity value for owners).

Which is why it is silly to think that businesses will create jobs and lift an economy out of a recession. This is just one reason that Keynes was right about the need for government intervention. It is not just in bad times that governments need to spend to stimulate the economy. Only governments - as representatives of the community - can be depended on to make the investments necessary to make employees more valuable. Businesses are simply - and rightfully - focused on making their stock and their products more valuable. Communities and the individuals in them have to focus on making their people more valuable and productive.

Breaking the Congressional Commitment to Dysfunction (on budgets anyway)

I could understand a standoff in Congress over, say, war or abortion. You can't sort of be at war or sort of legalize abortion. Those are all or nothing propositions and it would make sense that opposing sides would reach a stalemate, unable to move forward on negotiations. But budgets? Really?

10 year old kids know that if somebody wants to buy something that another person wants to sell, you negotiate. You want $20 but I only want to pay $10? We compromise on $15. Numbers lend themselves to averages, to middle ground.

For two sides to be unable to negotiate a budget requires a serious commitment to obstinance or a genuine belief that the folks on the other side of the negotiating table are either stupid or evil.

I say that each of the 435 members of Congress put numbers into a spreadsheet that they share with their constituents as "their budget." Congress then simply adds together all these budgets and then sends the averages off to the Senate (who has perhaps done the same thing to arrive at their budget). Negotiations ensue and no three or four powerful or stubborn congresspeople have any more power than anyone else in Congress. Then, no matter how committed you may be to what other folks would consider madness, your influence would only be .25% - a quarter of a percent. If the idiots still get to define the budget in that system than we’ll know it’s only because – on average – congress and their constituents are idiots. And for all the ranting about Americans and their Congress, I just don’t think that’s the case.