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

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

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

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

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

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

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

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

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

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

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

Planning D-Day

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

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

P.S. Kuznets won the Nobel Prize for Economics in 1971.

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

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

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

Bush had great insight into the importance of research and how it is best conducted. Speaking of basic research that doesn't immediately translate into a new product, he wrote about how medical research could be supported within medical schools and universities.

Apart from teaching, however, the primary obligation of the medical schools and universities is to continue the traditional function of such institutions, namely, to provide the individual worker with an opportunity for free, untrammeled study of nature, in the directions and by the methods suggested by his interests, curiosity, and imagination. The history of medical science teaches clearly the supreme importance of affording the prepared mind complete freedom for the exercise of initiative. 

As the United States acted on recommendations such as Bush's, our country clearly took the lead in the creation of new technology, industries and companies. The National Science Foundation is both reality and symbol of our on-going support for research. Bush saw in research the basis for our economic progress as well: 

Where will these new products come from? How will we find ways to make better products at lower cost? The answer is clear. There must be a stream of new scientific knowledge to turn the wheels of private and public enterprise. There must be plenty of men and women trained in science and technology for upon them depend both the creation of new knowledge and its application to practical purposes.

As it turns out, support for research is non-partisan. Since its creation, leaders of both parties have steadily increased the amounts they've asked for to fund the National Science Foundation. Until now.

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

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

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

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

Annihilating Space

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

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 Most Underrated Inventions of the 20th Century?

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

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

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

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

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

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

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

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

What I Forgot to Tell my Son on His Wedding Day

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

Meditation magnifies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

---

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

Overeducated Workers in a Post-Information Economy

The simplest statement of effective economic policy is to create, get, or get more from whatever limits progress. As a community shifts from one economy to another (from, say, an agricultural to industrial economy), the limit shifts and so does effective policy.

All that as prelude to summarizing a report recently released by the UK's Office for National Statistics (ONS). 

Here are some excerpts of note:

Overeducation is a form of mismatch where a person can be overeducated if they possess more education than required for the job.

Levels of overeducation: completed  

before 1992: 21.7%; 

1992-1999: 23.4%;  

2000-2006: 24.8%;  

2007 or after: 34.2%

The wage of an overeducated worker is between 3.3% and 8.1% lower compared to the wage of a worker with a similar level of education who is matched to the right occupation. 

We find that overeducated graduates experience negative returns to overeducation.

Overeducation is becoming more prevalent and overeducated graduates actually get negative returns on their education.

I have not seen a similar report on American workers but have little doubt that it would tell a similar story.

We still imagine we're living in a world in which capital and knowledge workers limit progress and we put trillions into capital gains tax cuts and education funding .... even as those no longer limit. 

What a Shrinking Labor Force Means for the Job Market & the Economy

Since December, the labor force has shrunk by 770,000. This is one reason that the unemployment rate hit its lowest in this century in March. (It's been half a century since unemployment was at 3.6%.) This fall in labor force could be random variation but it may be a sign of a trend.

As you can see in this graph, the rate of growth in the labor force has been steadily falling in the last 5 decades.

Baby boomers and immigrants drove a big rise in the labor force. LBJ's Immigration and Nationality Act in 1965 ended the fairly racist quotas for immigration and increased the number of immigrants about the same time that baby boomers entered the job market. The birthrate for a stable population is about 2.1 births per woman. In 1960, the US had a birthrate of 3.65 and in 1973 it fell below 2, where it has stayed since.

The number of kids coming of age and the number of immigrants coming to our country have both steadily dropped since the 1970s. It is conceivable that in the 2020s, the labor force will actually stop growing.

This is good news for workers. Sort of.  It should be mean strong wage growth for the millennials whose careers started out in the midst of the Great Recession. Workers will have more power in negotiations with companies who are competing for a shrinking pool of workers. They deserve it and it could be good for their pocketbooks. This also suggests that house prices will increase at a slower rate as demand for housing eases.

The news is not as good for the economy for at least two reasons.

The most obvious is that the ratio of retired to those working will go up. That suggests more poverty among the retired than we'd otherwise have. (Baby boomers might care about this.) Elder care will be more expensive as wages rise.

Less obvious is what fewer workers mean for an economy.

Just today the New York Times published a story on how Hungary's economy is now limited by workers. Prime Minister Viktor Orban is, like Trump, an anti-immigrant nationalist.  Hungary is not the only European country experiencing lower birthrates, though. Demand for workers is up throughout much of Europe. Because of this, Hungarian workers are leaving for better paying jobs in big European cities. So Hungary's labor shortage is driven by two things: its own people emigrating to other countries and other people not immigrating into Hungary. As a result, businesses are turning away orders because they cannot fill them.

How are we i the US doing with immigration as birthrates fall?

Foreign student enrollment in American universities has fallen two years in a row - essentially since Trump has taken office. The immigrants we should most want - those able to get into our universities - are choosing to go elsewhere, raising the probability they will go work elsewhere.

There is something else going on here that rarely gets mentioned. As population increases, so does per capita GDP. More people stimulate more ideas, more creativity, more products, more technologies, and more businesses. This is a big reason why productivity and wages are so much higher in cities than in rural areas. Our creativity is stimulated by interactions with people; and the more diverse that group, the more creative our response.

The good news about diminishing growth in the labor force is that it will mean that workers will likely get more of the pie, be able to negotiate higher wages this year. The bad news is that there will be less pie, less creativity, innovation and entrepreneurship than we'd have with a larger, more diverse population and wages - while taking a higher percentage of corporate revenue - could actually be lower than they otherwise would be. (And that, of course, suggests company earnings would be smaller for two reasons: smaller portion of revenues going to profit and smaller revenues.)

As birthrates fall across the West, smart countries will compete for immigrants, not shun them. Us? Well, apparently we're cashing in our lead in immigration and choosing to become more like Hungary.

Conservatives Very Odd and Highly Improbable Belief

Yascha Mounk has an interesting podcast on the BBC in which he traces the rise of populism along the old iron curtain in Europe.

A Polish conservative he interviews makes the most curious set of statements. First he talks about immigrants, pointing out that Poland took in a lot of Ukrainian refugees and saying that they have no problem with refugees but instead just with Muslims. The problem is, he says, that Muslims have beliefs that are too dated for Poland. Later he talks of Western Europe and how the Poles don't like their values. They're too modern.

Conservatives seem to get that norms and institutions change over time. What could get you burned at the stake in one century can become admired in another. They get that. Sort of. But in spite of the fact that they realize there are communities "behind" them in the progress of values and "ahead" of them in lifestyles and acceptance, they seem to believe that they are the only instant in time that has it just right. They don't want to return to the crude norms of the 1800s but they also don't really like these jarring norms of the 21st century.

The curious thing about conservatives is this: of all the times to be born in history, they were lucky enough to hit just the right time, the perfect mix of tolerance and tradition. It seems improbable - but obvious to them - that with thousands of years of history and thousands of years of future, they hit the evolution of society at just the right instant. It's almost like a miracle and they don't want to spoil it with change.

Fed Appointments and Trump's Tenuous Grip on Reality

Trump wanted to appoint his friend Herman Cain to the Fed. He's still pursuing the appointment of Stephen Moore.

As it comes out, Trump likes two things. He wants someone supportive of loose money policy even with unemployment under 4%. And he likes the gold standard. Those are not just two very bad ideas. They are also mutually exclusive. It's not enough that he's stupid. He's also incoherent.

How Podcasts Could Reverse the Influence of Talk Radio

During his thirty-year career, Martin Luther produced 544 separate books, pamphlets, or articles, slightly more than one every three weeks. He was responsible for over a fifth of the entire output of pamphlets by German presses in the 1520s, the master of the possibilities that the Gutenberg press had unlocked.

That changed religion in the West. The Protestant Revolution shifted power from church to state.

In 1987 the Reagan Administration repealed the Fairness Doctrine that meant broadcasters were no longer obligated to dedicate programming to public interest or to represent opposing points of view. This was a boon to conservative talk radio. Between 1987 and 1992, the number of talk radio stations in the country rose from 240 to 900, and Rush Limbaugh came along, the master of advocacy reporting.

That changed politics in the US. From 1931 to 1995, Democrats had controlled congress 30 out of 32 sessions. After the rise of talk radio, Democrats controlled the House in only 2 of 12 sessions. The 2018 election made it 3 out of 13.

The 2018 election was the first post-podcast election. It was a blue wave. Obviously there is a lot more going on than podcasts (in the same way that a lot more was going on in politics after 1995 than talk radio) but the long-form of podcasts might do for wonky politics what talk radio did for conservative politics, giving an edge to the folks who take longer than 4 minutes between commercials to make their point.

Stephen Moore and His Odd Belief in Gold

"I like the idea of a gold standard and, you know, restoring value to the dollar," Stephen Moore says in this clip.

Trump has appointed Stephen Moore to the Federal Reserve and his compliant Senate is likely to approve him.  This should worry you.

Moore has said that a gold standard for our dollar would be better than what we have now but what he really wants is a basket of commodities to drive the value of a dollar. This is to economics what the belief that the sun orbits around the earth is to astronomers.

Commodities. Sigh.

There are so many ways to highlight how absurd this is but I'll just use two.

One, commodities have marginal impact on the economy. (Obviously if we suddenly lost all grains or  water or precious metals or oil, the impact would be enormous. Our economy is built on a layer of commodities and credit and a sudden threat to either could crash the economy. There is a difference, though, between saying that we'd starve without food and saying that food production should be the basis for prices in all sectors.) In 2016, mining employed 0.4% of the population and "agriculture, forestry, fishing and hunting" employed 1.6%. So, between them, these professions that harvest commodities like silver, iron, corn, or elk employ 2% of our workforce. It would make more sense to base our currency on health care and social services (that sector employs 12.2%), letting our currency move in response to the price of medical devices or drugs rather than commodities.

Two, there is nothing more real about using "hard" objects to determine price levels than "soft" objects. It's true that gold is a solid object and, say, wages or the consumer price index (CPI) are softer, more abstract things. But the fact that you can weigh the gold to a precise amount is a very different matter than saying that we can peg its value to a gallon of gasoline or 50 minutes of a therapist's time or a year's supply of an engineer's career or a house in San Francisco or Detroit. When your currency is backed by gold, your economy will get an infusion of new "money" when new gold mines are discovered and be short of money when no new gold is discovered. There is NO correlation between when you discover new gold and when your economy needs to grow because of new population, new technologies or new products. The intuition that gold is "real" and that CPI is not is akin to the intuition that the sun orbits around us.

Trump is all folk tales and fear, loud noises and intimidation. For this, Moore is a perfect fit for his worldview and policies. For our modern economy, though? Not so much.

Entitlement without Taxation

The notion that immigrants are a threat to your job has a few elements, just one that I want to explore here.

If an immigrant is a threat to your job it means that if you were to swap places with that immigrant, you would lose money. That is to say, the immigrant has an incentive to come here to take "your" job because it pays more than "his" job back home. And if you moved to his town to replace him, you would make much less.

So that suggests that there is a wage premium for living here in the US.

Curiously, the voters who assume that they are making more money for living here are also the ones who don't want to pay additional taxes to live here because "they earned it." It's an odd kind of recognition of a system they're reluctant to support.

The Random Ten Percent

Universities have standards they use to judge whether applicants deserve to join.
We have elections to decide who should serve on city council or in state legislatures.
Venture capitalists and banks have criteria for deciding whether or not to fund a startup or business.

Given that all of those processes can be gamed and all of those processes depend on judgement against a set of criteria that may turn out to be a really poor predictor of success, we should set aside 10 percent of all slots for a randomly chosen group.

This would have a host of benefits.

One, given these people would be randomly chosen from the population, they would be more representative. Right now, more than 90% of money venture capitalists give is given to men. Blacks and Hispanics are under-represented at universities. The folks who win elections tend to be good looking. The processes we use are skewed and a random process would help to partially offset that.

Two, it would be a chance to test the null hypothesis. All of these institutions have theories about what predicts success. Inevitably those theories have flaws. One way to discover those flaws is to compare the success rates of those randomly chosen with those intentionally chosen. To the extent that unpredictable things happen, it will be a chance to update the choice algorithm, throwing out criteria that turn out to be unrelated to success and adding criteria that - surprisingly - turns out to be very predictive.

Three, it would be an experiment to test the notion that access to these institutions will improve anyone's life, and not just the lives of those carefully chosen. Perhaps 4 years of Harvard will improve the life of a kid with a 2.4 GPA at least as much as it will a kid with a 4.2 GPA. Perhaps the community will be improved as much by the startled bartender or civil engineer who learns she or he has been chosen to serve in the state legislature by lottery as any politician capable of getting big financial donations. Institutions are powerful and it is important to better understand how much of the benefit they yield comes from their careful selection of who gets access to them vs. who those people are. That is to say, we need to understand when the goal should be to widen access to these institutions as a means to improve everyone's life or when we should narrow access to make sure that only people with a certain potential should be given access.

Everyone Gets to Be Offended (even if we're only offended that people take offense at the things that strike us as innocuous)

"I'm [angry, outraged, offended] so you have to take my idea seriously."
"No. Your idea needs to be serious to be taken seriously."

Right now, there are folks getting upset because Joe Biden is too physical. I find this Biden (and before it the Al Franken) thing so frustrating. if you can't tell the difference between rape, molestation, sexual harassment, misogyny, a fumbling sexual advance, a dumb joke, and someone who is demonstrative ... or worse, if you can tell the difference but think they should all be treated the same, you should just leave society. Seriously. Because this world is not pure enough for you and never will be. 

That said, I suspect this is one of those instances in which we're the victim of algorithms. The algorithms that maximize attention and response drive these sort of stupid issues up to the top of the list because they do offend everyone: from the purists who think that Joe being demonstrative is offensive to the rest of us who think that taking offense at that is offensive. Everyone is offended and the "how do I maximize hits?" algorithm wins. Even blog authors write a post about it.

Dee Hock, the Creator of Digital Money Is Now Generating Digital Thoughts

Dee Hock fascinates me. He knew that money had been many things over time, from tobacco leaves to gold bits to pieces of paper - and realized that with the advent of the computer it could be digital bits. As VISA's founding CEO, he dreamed up a system that could turn digital bits into money. VISA became the first organization to ever hit a trillion dollars in transactions in a year. A trillion. Dollars.

He understands business and finance as well as anyone and he's quite the critic of it.

He turned 90 a couple of weeks ago. And I just found out that he tweets. He sounds at turns like some mystical guru and old curmudgeon, self-righteous at times and insightful at others. But always provocative.

Here are a few of his tweets:

• Watching Trump trying to play President is like watching a walrus trying to play a piano.  
• Simple purpose and principle give rise to complex, intelligent behavior. Complex rules and regulation give rise to simple, stupid behavior. 
• When observing the rich and powerful, take care not to confuse cunning with intelligence, avarice with ability, and notoriety with merit.
• 1st manage yourself, 2nd manage superiors, 3rd manage peers. Hire good people and induce them do the same. Only then do you become a leader.
• Capitalists invest their money in commercial corporations. Employees invest their lives. Which deserves the greater return?
• Philosophy of unrestrained capitalism:
• As few as possible, should take as much as possible, from as many as possible, as often as possible. 
• Dogma has this to recommend it; the believer is relieved of the struggle for knowledge, understanding and wisdom.
• Every life is subjectively epic and objectively trivial.
• The universe is constantly wanting to play with us. Why we greet it with such a grave demeanor, long face, and furrowed brow is difficult to fathom.

You can scroll through his tweets here. It's a deep well.

https://twitter.com/deewhock 

Age is Just a Number. Then Again, So Are the Votes You Need to Win

Our last four presidents were all baby boomers.

Clinton, Bush, and Trump were all born within a year of when Japan's surrender ended WWII. Fittingly, the impulsive Trump was born a mere 9.5 months after.

Obama gets lumped in with that generation by demographers but was born 16 years after WWII ended. Less boom than echo.

Clinton, Bush and Trump time traveled together, hitting all the major events at the same age.

It is not just that the 2020 candidates include what could be the first Jew, black, woman, black woman, or gay to be president. It also includes members of the silent generation, baby boomers, gen x, and a millennial. These candidates have hit major events at very different stages of life and would bring a very different perspective to them. Bernie Sanders was 4 when Japan surrendered and the horrors of World War II would have been relayed to him as fresh stories by family members when he was a little boy rather than as distant history as it would have been for Pete Buttigieg who will be younger when he's sworn in than Sanders was when Buttigieg was born.

Here is a way to think about the age of the candidates in terms of where they were when historic events happened. (And obviously for the candidates, the age when "sworn into office" assumes that they would actually win the 2020 election.)

Oh, and yes. I know that Ocasio-Cortez is too young but I thought it was interesting to put her there for comparison. And she's too young for 2020 but she'll be old enough by 4 months to run in 2024.

Trump the Roman Leader - Sacrifice is For Suckers

With Trump's on-going attack on dead John McCain last weekend one thing is clear: the GOP has officially become the anti-sacrifice party.

Trump's criticism of McCain for his failure to thank him for the funeral Trump "authorized" is another instance of Trump's lack of civility. It's worse than that, though.

I used to marvel that the GOP who readily called on soldiers to make the ultimate sacrifice of a life for the country were so outraged that they might be called on to pay 40% tax rate on income over $250,000 rather than 35%. "You're upset about sacrificing another 5% of your income over a quarter of a million but think it both natural and good to sacrifice a life for one's country?" I wondered.

Well, apparently the GOP heard that and decided that I was right. But they resolved that in a direction I hadn't predicted. They continue to believe that only suckers pay taxes and now also believe that only suckers go to war to be shot or captured. Accused of not paying taxes, Trump claimed "That makes me smart." Questioned about his criticism of John McCain, Trump said that McCain was not a hero. "I like people who weren't captured," he said, casually dismissing POWs as people we should respect.

Frans de Waal has written extensively about our closest relatives, the chimpanzees and bonobos. Terry Gross interviewed him recently and here's a fascinating excerpt about alpha males within chimpanzee communities. I suspect that group support for leaders in human societies is not that different.

The alpha male has many duties. ... A good alpha male breaks up fights and defends the underdog — not the winners, usually, but the losers. And the alpha male also is the consoler in chief, [who] goes to individuals after a fight to console the ones who have lost and sit with them and groom with them and hold them and things like that. And so the consoler-in-chief role is extremely important, and an alpha male who is good at that, he is also usually kept in power for longer.
In a chimpanzee society, [there are] always ... challengers to the top male. And it's almost as if the group is waiting [to see] if the male is a bully [or if] they don't like him. ... If it's a good alpha male who keeps order and is protective and is not abusive, then they try to keep that male in power.

And curiously, the chimps are considered violent in contrast to the bonobos and yet this matter of empathy is so crucial to their acceptance of leadership. In this sense, a chimp troop is probably more developed than is the US right now.

What has happened to the Republican Party under Trump? They have made official the position of contempt for sacrifice for others. Trump is less anti-Christ than pre-Christ, a man whose morality is very Roman. For him the question of morality is a question of what one can get away with, his sense of civic duty defined by a quest for power rather than any sense of service. Greed is good and sacrifice is for suckers.

Oh Those Greedy Rich and Lazy Poor

I like Elizabeth Warren. Until she lapses into the reasons for raising taxes on the rich. "A government that caters to the rich is corrupt," she says.
I like certain friends who find Elizabeth Warren appalling. I like them until they get tight-lipped and talk about "You think it's right to take money from people who worked hard enough to get rich? That's wrong!"

Taxing the rich more than the poor is not a morality issue. The rich are no more likely to be rich because of corruption than the poor are to be poor because they are lazy. It's true that some people are rich just because of their grandpa or because they know how to game the system. It is also true that some people are poor because they have no common sense or because they chose not to work when they could have.

But here is the thing: morality has nothing to do with tax and welfare policy. We tax people making $10 million a year at a higher rate because they have more money and we give aid to people making only $10,000 a year because they don't have enough. It's no more complicated than this. You don't have to make claims about how the poor are lazy or the rich are greedy or how the poor are so incredibly unfortunate in spite of their noble efforts or how the rich who are worth 10X as much put in 10X as much effort. You don't have to morally impugn or praise the folks who are in tails of the distribution of wealth and income. Their morality is no more an explanation of where they are in the distribution than is the location of folks in the middle.

But maybe politics depends on a sense of outrage at someone's greed or laziness to work.

One Thing I'm Looking for in a 2020 Candidate

It hit me that the candidate who could win me over in 2020 could do that with a promise to fund our public broadcasting at the same rate that the UK funds their BBC. So I looked it up. 

Adjusted for GDP, the BBC gets 100x what the Corporation for Public Broadcasting gets. 100x.

Now I don't know the extent to which the CPB makes up total public budgets. ('m guessing it is closer to 50% than 5%, which suggests that the contrast between the UK and US is still stark but perhaps closer to 50x?).

The numbers:

UK GDP $2622 billion. (Less than California now.)

BBC spending $6.42 billion.

As % of GDP 0.245%

US GDP $19390 billion

CPB spending $445 million

As % of GDP 0.002% of GDP

Ratio: 107 to 1.

I would be relieved - but surprised - to learn that the CPB budget is only a fraction of what we spend around the US for public TV and radio, which would make this contrast less jarring. Perhaps even make it comparable. That seems optimistic, though.

It would be great not to be subject to fundraisers or "sponsor mentions" that are essentially bad ads while listening to public radio. It would be nice if we took public broadcasting even half as seriously as the UK.

A Doubling of the Rich This Century (And We're Only 17% of the Way In)

I find it helpful to tease through data just to calibrate perception. You may as well, so I'm sharing something I was teasing through this week.

Between 2000 and 2017, the number of Americans reporting income to social security (so this only includes wages), making more than 

• $100k more than tripled (up 236%), going from about 3% of the wage earners to nearly 10%
• $1 million doubled
• $10 million doubled

In 2017, 147,754 wage earners made more than a million. Studies suggest that there is a lot of turnover in this group, though, more people with one-off transactions (selling a business, for instance) than Manny Machado type contracts for that much money steadily paid over years.

What does this mean for a place like San Diego? Assuming San Diego's portion is the same as the average for the country (and I think that given San Diego's median household income is 24% higher than the national average, that's pretty conservative), San Diego city's population would have about

70,000 individuals who make more than $100k,

644 who make more than a million, and

16 who make more than ten million.

-----------

The social security data from which this comes is in current dollars, so does not adjust for inflation. That said, I don't think that people who reach one million in income in 2015 say, "Yeah but that is actually just $997,000 in 2014 dollars." 

Change in Deficits From Reagan to Trump

Here is a chart showing the change in deficit from the first year of a president's term to the first year of his successor's term, the difference between what he inherited and what he left. It covers a span of 36 years. A negative number means that the president made the deficit smaller and a positive number means that he made it larger.

Reagan inherited a deficit of $419 billion and left George H. Bush a deficit of $252 billion. The deficit was $167.2 billion smaller by the time George took office, hence the -$167.2 in the graph above for the first bar.

Bush 1 turned the $252 billion he inherited into a $365.8 billion legacy for Clinton, increasing the deficit by $113.8 B.

Clinton turned this deficit into a surplus for his successor, reducing the deficit by half a trillion.

George W. Bush turned that surplus into the biggest deficit in history, a swing of nearly $1.6 trillion.

Obama whittled down the $1.4 trillion deficit he inherited into a still sizable $590 billion.

Trump is projected to increase that $590 billion into nearly $849 billion this year.

3 of the last 4 Republican presidents have increased the size of the deficit and both Democratic presidents have reduced it, suggesting that if you actually care about deficit reduction, you would not vote for Republicans. You can hate big deficits or love Republicans but you can't honestly do both.

Cohen's Testimony On the Penultimate Day of February

I watched parts of the Cohen hearing. The theme with Trump always seems the same: someone who once defended or worked with or was married to Trump suddenly realizes that he's a train wreck of a human being. Only years after normal people had that same realization. Like when someone is surprised that the guy with the "Poor Impulse Control" tattoo on his forehead turns out to make bad decisions. "I was so shocked."  

The other weird thing is that the Republicans didn't seem to realize that Cohen was them in the future. They were attacking the guy who said that his attacking people to defend Trump was the worst thing he ever did. It's like the ex trying to warn the new wife. For now the new wife simply has too much invested in the ex being wrong.

The most telling thing in that opening statement was the claim that Trump never expected to win. He makes clear with every utterance what idiots he thinks we Americans are and yet even he didn't think we'd be stupid enough to vote for him.

My Argument For an Inheritance Tax And Against a Wealth Tax

It’s hardly surprising that in the wake of the first billionaire’s presidency we would have a backlash against billionaires and talk of a wealth tax. 

Trump transforming the White House into a home theater dedicated to Fox News is less indictment of billionaires, though, than an affirmation of the need for a much higher estate tax. 

Trump’s pride in having turned a half a billion from his father into $3 billion in half a century is like a rabbit breeder taking pride in having transformed a herd of two rabbits into a herd of three in a year. He's not good with capital. He's no Warren Buffet. There are three ways be an old rich guy.  The first is luck. The second is to start with little or nothing and earn and invest well. The other is to start rich and then end rich. Trump chose the third door, which as it turns out doesn't so much open onto a path as a lovely room.

One (of many) advantage(s) the US had over the USSR is that it left the allocation of most capital to individuals and institutional investors (like mutual fund managers or private and public corporations). The way that wealth works is this: the better you are at getting a return on capital, the more of it the market gives you. If Warren Buffet gets 13% return on a billion, he has two billion to invest in 6 years. The guy who gets a -2% "return" on his billion will have only $890 million in 6 years.

It is true that variation in the ability to invest leads to wealth inequality. It is also true that the market ruthlessly gives more capital to the folks best able to create more capital and takes capital from those who destroy it through bad investments. It's true that luck plays a role in returns but it is also true that - just as with ability to play basketball or write poems - different people have different levels of ability in investing. A smart community likes the idea of good investors having more capital than bad investors.

I don't think the kind of wealth tax that Elizabeth Warren is proposing is a bad thing, I'm just not real excited about it. I'd much rather see an inheritance tax of 50% (or more) for amounts over $10 million than a wealth tax. Why? I don't believe in aristocracies.

Michael Jordan was an amazing player. His sons also played basketball but did not make it to the NBA. It's rare that a child inherits the gifts of the parent. This is likely true of Warren Buffet's children as well; it is highly unlikely that they have their father's genius for investment. Just as there is no reason to give Michael Jordan's sons the ball to play in the NBA, there is no reason to give Warren Buffet's kids billions to invest. They can't do anything special with it.

Just from a perspective of "How do we create the most wealth," question, we should let great wealth builders keep their wealth and then tax that wealth when it passes from one generation to the next. Obviously the next generation might preserve a fortune if they get it, but it's not obvious that the next generation will get returns any higher than average. There is no argument for accumulating great wealth over generations. That is the definition of an aristocracy, and one of many reasons that aristocracies are associated with stagnant economies is because they are about protecting wealth, not creating it. Entrepreneurs have an impulse to disrupt the status quo; aristocrats have the impulse to protect it. 

Billionaires help to create - and are created by - dynamic economies. As they build companies and invest capital, they add to a communities wealth. Billionaires are a natural companion to dynamic and healthy economies. Aristocrats are not. And that is the reason I think inheritance tax is a good idea and a wealth tax is only a mediocre one.

Randomly Fascinating Economic Numbers on 2 19 2019 (a number that looks like a repeating series, which is kind of randomly fascinating)

Looking for numbers to help inform a few arguments, I've run into or created the following recently. I know I obsess over these kinds of things more than most but you might find these useful as more data points for painting a picture of this continually evolving, messy, massive economy.

In December the US economy created 5.9 million jobs and destroyed 5.5 million. Protecting jobs isn't really an option but as long as the entrepreneurship and innovation that creates jobs runs at a faster pace than the automation that destroys them, we're good.

In 2018, the American economy passed two big milestones.
Annual GDP is now over $20 trillion.
Federal Spending is now over $4 trillion (although with current tax laws and projections, it won't be until 2022, when spending passes $5 trillion, that govt receipts will pass $4 trillion).

If you're interested in median incomes rising, you should do what you can to attract immigrants and create billionaires. Median household income and the percentage of immigrants and billionaires seem to move together. I think one reason people are threatened by immigrants and billionaires is because they represent a threat to the status quo. And that's true, of course, but the same thing can be said about progress.

And finally, this interesting and (I think) important quote.

“Capitalism has hundreds of parameters that you can change like the estate tax [and] the capital gains tax and it is still capitalism as long as you have market-based pricing, let people create new companies very easily and intervene where you don't see competition."
- Bill Gates

Two Questions That Drive Economic Progress

Creative answers to these two questions drives progress.
1. How do we automate jobs in order to obsolete lower-paying jobs and increase productivity and profits?
2. How do we create new, higher-paying jobs through entrepreneurship and innovation?

The answers to this question include money spent on research and development, education, healthcare, and incubators, policies that enhance financial markets and private property rights and encourage investment and savings, and a culture of win-win rather than win-lose. There are layers to the creative answers to these questions pursuing such answers would drive a great deal of progress.

We are All Uprooted Now

Anomie, noun Sociology. a state or condition of individuals or society characterized by a breakdown or absence of social norms and values, as in the case of uprooted people.
from dictionary.com

The new, entrepreneurial economy is disruptive. It is not just entrepreneurship that will be popularized, the emergence and disappearance and transformation of companies and entire industries destroying, creating and relocating jobs, careers and people. Social invention - the emergence of new kinds of marriages, schools, businesses and government - compounds the feeling of dislocation.

"The past is a foreign country: they do things differently there," wrote L.P. Hartley.

Anomie is the sense that what you knew of social order has been reset. It's like what happened to American natives after the European arrived with his devastating diseases, weaponry and culture.

Anomie is what an uprooted people feel. We are all uprooted now.

Income Inequality and Income Growth - Fairness and Progress

There are two dimensions to improving lives. The first has to do with income transfer from rich to poor, the second with raising real median wages. Those initiatives are not at odds with each other but they are separate.

There is so much talk about income inequality and stagnating median income in ways that suggest the speaker thinks they are the same thing. They are not.

Alleviating Poverty
Most people agree that the rich should help the poor. There can be arguments about who is rich, who is poor and how much help they should provide. Those are important arguments.

For instance, I believe it's absurd for someone in the top 49th percentile to help someone who is in the bottom 49th percentile. Someone making $60k shouldn't have to give $500 to someone making $55k. There has to be a middle ground of 30%, 50% or even 80% of people who are neither expected to help others or expect to be helped. (At least formally through income transfer in the form of taxation and welfare. Obviously everyone helps and needs help just to get through the day.)

Should only people making $200k help only those making less than $10k? Or should even households making $100k help households making less than $35k? The first choice would leave about 87% in the middle class who neither got nor gave help. Do you make more than $10k a year? Don't expect any help. Do you make less than $200k? Don't worry about being taxed to help the poor. The second (tax above $100k and subsidize below $35k) would leave about 43% in the middle class who neither got nor gave help.

In the last 100 years, the top marginal tax rate has ranged from a low of 28% to a high of 94%. Even within the same country, the consensus about what constitutes a fair rate of taxation varies over time. To illustrate how unsettling this change is, Starbucks founder Howard Schultz came out this week to say that he was running for president. One reason? He hate this absurd talk of a 90% marginal tax rate. Asked who is favorite Democratic president was, he said FDR. Under FDR, marginal tax rate was 94%.)

[You can find data on median income and what percentage of Americans make more or less than certain amounts here.]

You can argue about the cutoff point for who pays additional tax for the poor and who is poor enough to benefit from that tax. Ultimately, though, voters will decide what is fair. There is no magic formula for that.

By definition, though, you can never raise the average wage through income transfer. In theory you can raise the median wage through income redistribution but that strikes me as funky; it essentially means that you would tax enough people in the top 49th percentile at high enough rates to lift the income of everyone in the 50th percentile on down.

To define someone making the median income as poor is odd. It's like defining a 5'10" man as short. Income transfer is compassionate, practical and yet does nothing to raise median income. For that you need a completely different set of policies.


Raising Median Income
The usual suspects to raise median income? Investments in infrastructure and education, research and development, childcare and healthcare. These all help to raise incomes. These are essential. We're not doing enough of them or even doing them enough. That said, the biggest boost to an economy is moving into a new one.

In the century after the US was founded, median wages rose as we created an industrial economy that gradually supplanted the agricultural economy. Last century, median wages rose as we created an information economy and workers moved from factories into cubicles. This century, median wages will rise as we create an entrepreneurial economy. The median wage in Santa Clara County - home to companies like Google, Intel, HP, and Apple - is $107k, nearly double the $58k for the US. This will become a norm as more regions adopt and adapt the entrepreneurial culture that defines Silicon Valley. And there is so much more we can do to popularize entrepreneurship. Redefining work to become more entrepreneurial will do as much to raise productivity and wages as any previous change.

The question of how to alleviate poverty through income transfer is an important one and needs to be defined in a way that voters think is fair. The question of how we move into a new economy to create more for everyone is even more important. How a community answers the first one defines how they pursue fairness. How a community answers the second one defines how they will pursue progress.

The Fundamental Reason Politics Will Become Kinder to the Poor

One reason that rich may be more willing to support the poor is because they are more able. I think this will change politics.

Between 2009 and 2017 the ratio of households making more than $200k a year to those making less than $10k a year rose from .54 to .94. Put differently, in 2009 each rich family would have to adopt nearly 2 poor families (1.85) whereas by 2017 they would only have to adopt 1 (1.06). (And by 2018 that was probably less than 1.0.)

In San Diego - and likely most big cities - the ratio is even better. In 2009, each poor family could get 1.18 rich families to help. By 2017, the ratio was 1.94 to one, meaning that each poor family could get 2 sponsors. It's obviously easier for two rich families to help one poor family than it is for one rich family to help two poor families. 

What does this mean? Not only are programs to help the poor more financially viable than ever, they're probably more politically viable. 

Wage Growth After the Great Recession

In numerous posts I've argued that the first half of the teens (the years from 2010 to 2019) would repair the unemployment rate and the second half would repair wage growth. Stats on wage growth 2009 to 2017 help to illustrate that. First we have to get unemployment down and then wages start to grow.

From the end of 2009 and 2015, unemployment fell by half, from 9.9% to 5.0%. Since then it has continued to drop but 5.0% gets unemployment within fairly normal boundaries. (This century, unemployment has been over 5.5% about as often as it is below 5.5%, so 5.0% is pretty good.) At that point the labor market has tightened enough that employers have to offer higher wages and can't simply hire folks from among the unemployed.

You can see the sharp rise in the rate at which incomes began to rise since 2015 here.

Last week with a client in Orange County, I was with an executive team. The head of HR told me that two big changes in the last year are passive recruitment and a new California law that bars employers from asking what you made in your last job.

Demand is high enough for employees that companies increasingly recruit people who are not looking, a process they call "passive recruitment." A lot of this recruitment happens within LinkedIn.

Also, last year California made it illegal for employers about to offer you a job to ask what you made in your last job.

The consequence of these two phenomenon are that there are a chunk of people who are getting very cool raises by changing jobs. Across the country, household incomes are rising at their fastest rate since the Great Recession.

More broadly, though, low unemployment rate simply means more upward pressure on wages. And wages are now rising at a healthy rate and will continue to rise as long as the economy continues to create new jobs at this rate.

That's very cool.

Take note, though, that politicians trying to make the case for change will point to older data and argue that wage growth is not keeping pace with inflation. Senator Kamala Harris argued this week that wages are not keeping up with the cost of living. That was true early in the decade when the unemployment rate was higher than average but is no longer true.

We're going to hear a lot of nonsense about what policy changes we need but we need to be clear about why wage growth was so sluggish. We had a Great Recession. What are the implications? Regulate financial institutions so that they do not blow up the economy. The problem is not the economy the problem is its vulnerability to financial mischief. Just like sports competition is enhanced by good officiating, so is business and finance competition. The American economy is still a great game; it's just that we can't expect good results when we've put blindfolds on all the refs.