The Dramatic Difference in How the Economy Performs Under Republican and Democratic Administrations

There is a dramatic difference in how the economy performs under Republican and Democratic administrations. The simplest explanation is that Republicans are committed to free markets and Democrats are activists, intervening to avoid or recover from recessions and more committed to making public investments in infrastructure, R&D and education.

The 1990s saw the rise of the internet and an economic boom. Al Gore – Senator from Tennessee before becoming Clinton’s VP - sponsored a National Information Infrastructure bill that passed into law in December of 1991, funding the development of the “information superhighway” with $600 million. The bill funded, among other things, the development of Mosaic, the first web browser. In 1990, only 15% of Americans even owned a computer. Between 1994 and 2000, the percentage of Americans online rose from 2% to 46%. Going online helped to make the 1990s better than the two decades before and after measured by wage growth and the creation of wealth and jobs.

George W. Bush took office after Clinton and quickly got to work deregulating the financial sector. Specifically, he made it easier to approve mortgages so that more Americans could buy homes. By 2008 the financial derivatives built atop mortgage loans equaled total global GDP and the bubble this created popped, leading to the worst recession since the Great Depression. The economy under Bush 2 was dramatically different than it was under Clinton and this wasn’t due to chance. Clinton and Gore pushed investments in the internet and other technologies and industries (the human genome was first sequenced towards the end of Clinton’s time in office). Bush bet instead on deregulation which blew up on him and the global economy.

Trump didn’t just undermine immigration and trade – big drivers for economic progress across the globe during Clinton’s administration. (It was not just NAFTA that became reality during Clinton’s administration; so did the World Trade Organization.) Trump refused to take any responsibility for fighting the pandemic beyond signing legislation for rapid development of vaccines, leaving each state and county largely unsupported in its efforts to test, treat and contain COVID. The pandemic hit the US harder than other OECD nations, killing more Americans and destroying more jobs. (And even after Biden took office, the vaccination rates were much lower and death rates much higher in the counties where Trump won a higher portion of votes.)

One of Biden’s first acts as president was to sign a $1.9 trillion bill to stimulate the American economy and more aggressively defend against COVID. This was a significant factor in the economy creating a record number of jobs in 2021. Not a single Republican voted for this stimulus bill; again, the simple uniting belief for Republicans is that markets don’t need interventions.

The key difference between Republicans and Democrats in office is that Republicans simply lower taxes and deregulate. By contrast, Democrats intervene with stimulus and investment bills.

The difference was not just dramatic last year but for the last half century. In the 24 years Republicans have been in the White House since 1977, the economy has created 17.4 million jobs. In the 21+ years since 1977 that Democrats have sat in the White House, the economy has created 52.7 million jobs. An average of about 60,000 new jobs each month a Republican is in the White House compared to about 209,000 jobs a month when a Democrat is. There are people who will tell you that this is not a meaningful difference; these are the same people committed to the proposition that policy makes no difference and would have you believe that George W. Bush simply had bad luck rather than bad policy and that Clinton and Gore simply had good luck rather than good policy.

Keynes believed that financial markets were marvelous and necessary inventions and that without the right kind of policy intervention could blow up an economy and create ruin. He’s still right on both of those points even though it is fashionable on the left to revile financial markets for their tendency to create wealth inequality and those on the right to revile regulations or the need for government intervention.

Biden is old. One of the big advantages to this is that he’s seen – and learned – a lot. He knows what policy slows recoveries and what policy accelerates it. Obama had tasked him with cleaning up the mess George W. Bush had left behind in 2009. We voters tasked him with the task of cleaning up the mess Trump left behind in 2021. Partly because of how different the downturn of 2021 was from 2009 and partly because Biden learned not to drag out a recovery in a way that would leave millions more unemployed, this recovery is much more rapid than the one after the Great Recession. Sadly, Biden now has experience twice helping to facilitate a dramatic recovery.

The many Americans who love the simple idea of unregulated markets means that we could easily end up with another Bush or Trump in 2025 signing legislation for deregulation and tax relief and veto legislation that regulates markets and makes public investments in the future. Weirdly, the choice between these two paths will have almost nothing to do with past numbers and everything to do with ideology formed earlier in life. There’s not much evidence that evidence changes minds, even half a century of evidence.

The Importance of Remembering the Horrors of War

Trigger warning: This is an account of horror about the close of WWII.

I've come to more often think of history as lifetimes. How far back in history was an event? Well, how old are people today who experienced that? I don't think it is an coincidence, for instance, that Americans became so enamored of the allure of markets as people who had lived through the Great Depression died off. In the 1950s, you could speak favorably of markets to an extent but if you were to say that the invisible hand of the market would correct all society's ills you would be laughed at as if you were talking about your invisible friend. By the 1980s, when the vast majority of people who had experienced the trauma of the Great Depression had died off, someone could rage at taxes and regulation as evils that kept us all from realizing our potential and people would nod along. A society is as defined by its past traumas as much as it is by its past triumphs.

Which brings me to Russia and central Europe's past traumas. In early 1945, Soviet troops began their offensive into Nazi-occupied territory. Here are a couple of excerpts from Anne Applebaum's Iron Curtain. The Poles and Hungarians, for instance, were first delighted to be liberated from the Nazis by Soviet forces but that delight soon changed.

"In part, the Soviet soldiers seemed foreign to Eastern Europeans because they seemed so suspicious of Eastern Europeans, and because they appeared so shocked by the material wealth of Eastern Europe. Since the time of the revolution, Russians had been told of the poverty, unemployment, and misery of capitalism, and about the superiority of their own system. But even upon entering eastern Poland, at that time one of the poorest parts of Europe, they found ordinary peasants who owned several chickens, a couple of cows, and more than one change of clothes. They found small country towns with stone churches, cobbled streets, and people riding bicycles, which were then still unknown in most of Russia. They found farms equipped with solid barns and crops planted in neat rows. These were scenes of abundance by comparison with the desperate poverty, the muddy roads, and the tiny cottages of rural Russia.

"When they conquered Konigsberg churches, Budapest apartments, and Berlin homes filled with antique furniture, "fascist" women living in what they perceived to be unimaginable luxury, the mysteries of flush toilets, and electric gadgets, then they were truly shocked: "Our soldiers have seen the two-storey suburban houses with electricity, gas, bathrooms and beautifully tended gardens. Our people have seen the villas of the rich bourgeois in Berlin, the unbelievable luxury of castles, estates and mansions. And thousands of soldiers repeat these angry questions when they look around them in Germany: 'But why did they come to us? What did they want?'"

This bafflement at German affluence combined with the desire for revenge against the Germans for the atrocities they'd committed in the Soviet Union. The Nazis killed about 26 million Russians during their invasion and occupation. (By comparison, Canada's entire population at this time was about 11 million.) Nearly every soldier had lost someone - a parent, wife, or child or all three - because of the Nazi invasion. One of the many ways their rage was manifest was in rape. Russian soldiers raping women in the areas they were liberating from Nazis was widespread. Applebaum again,

"The Red Army was brutal, it was powerful, and it could not be stopped. Men could not protect women; women could not protect themselves; neither could protect their children or their property. The horror that had been inspired could not openly be discussed, and official responses were usually oblique. In Hungary, the Budapest National Committee suspended the ban on abortions in February 1945, though without explaining exactly why. In January 1946, the Hungarian Social Welfare Minister issued an evasive decree: "As an effect of the front and the chaos following it there were a lot of children born whose families did not want to take care of them ... I ask hereby the bureau of orphanages ... to qualify all babies as abandoned whose date of birth is from nine to eighteen months after the liberation."

A country-wide proclamation that children born during a particular window of time were to be considered, by default, orphans. The trauma of war lasts as long as the lives of people who have experienced it. Most of those adults who experienced WWII are gone now and we now have what may become the largest land war in Europe since WWII. History, particularly horrific history, should be read and remembered, if only to lower the chance that it is relived.

2021 - How a Record Year of Real GDP Growth and Job Creation Compares to Other First Years for Presidents

I'm intrigued by data but often the more data one gets, the harder it is to make it tell a story. It is easier to draw a line between two points than it is to draw a line through 13.

Here is data on how the economy did in the first year of a presidency for our last 13 presidents. The punchline is that how the economy does in the first year doesn't make any difference in how a president does in the reelection effort 3 years later.

One weird little graph I created simply shows the sum of first year real GDP growth plus millions of jobs created. (3% real GDP growth plus 2 million jobs created = 5.) You can see that the presidents who did worst by this measure - Eisenhower, Reagan and Obama - handily won reelection. Of the four who did best by this measure, one was assassinated, one was reelected, one lost reelection and one (the one who has easily done best by this measure) is still in office and might conceivably not even run for reelection. In other words, the economy doing poorly in your first year definitely doesn't hurt you and the economy doing well is absolutely no guarantee of any particular political outcome 3 years later.
Anyway, we will likely never again see a year that combines such high rates of real GDP growth and job creation as did last year. The pandemic was a unique economic event and because of (largely) bipartisan support for stimulus the temporary shutdown did not ripple into years of crippling recovery but instead has already largely ended, the economy (for the most part) recovering in record time. It was a year ago today that Congress passed a huge stimulus package and that is a big part of why this recovery has been so strong and rapid.

I still think that the degree to which it changed in 2021's "have you tried turning it off and turning it back on again?" year+ of sharp economic contraction and rapid economic recovery is being glossed over. There is a common misconception that millions of people just lost their jobs and then - months or a year later went back to those same jobs. A lot changed in that time and there was a lot of creating along with the destruction.

Obviously a lot of spending shifted from services (travel and eating out, for instance) to goods and may now shift back again. Less obviously, the economy created a record number of new businesses (venture capital double what it was in any previous year) and the level of quits - and people finding or creating new jobs - also shattered old records. To the extent that this level of creative destruction sustains higher wages, productivity gains and more entrepreneurial creativity, the amazing numbers of 2021 could ripple into the future, leading us into a time in which last year could look like prelude to a golden period of economic progress. If not, last year could just look like the economy quickly rebounding to where it was.

Anyway, here are some numbers for my two blog readers who also find such things interesting.

Trump Has Clearly Sided with the World's Dictators. How Confused and Angry Do You Have to be to Side with Him?

Russia is invading a sovereign nation in the biggest land war in Europe in decades and all Trump can do is praise Putin's genius.

Trump consistently shows love for dictators and contempt for democratically elected leaders (not just leaders like Biden and Merkel but even Bush or the former nominees of his own party like McCain and Romney) and of course contempt for our democratic process and elections.
At this point you have a clear choice. Support Trump and his party in the fight against democracies or reject Trump and his party. Be careful how you vote, though. The vote you cast for the guy who hates democratically elected governments and sovereign nations is the last vote you get to cast.

Transforming the Olympics - An Overdue Update after a Century+ of Artificial Scarcity

The first modern Olympics game in 1896 had only 14 countries compete. In this winter Olympics we now have 91 countries competing but still just the three medals made of 2 metals (gold and silver) and one alloy (bronze). This suggests a scarcity mentality unbefitting for modern times.

I'd like to propose the following metals for medals allowing a larger number of great athletes to say, "I got a medal at the Olympics!" even if the follow up is, "I tin-foiled in curling."

1st Titanium
2nd Gold
3rd Uranium
4th Silver
5th Copper
6th Iron
7th Bronze
8th Lead
9th Zinc
10th Tin
11th Steel
12th Aluminum

Enough of these self-imposed supply chain issues for the allocation of glory.

Maybe Tom Brady's Retirement From What He Did as Well as Anyone Is a Cue For You To Retire From What You Do As Poorly As Anyone

We live in a world of specialists. The bureau of labor statistics tracks 800+ jobs and even that is a small subset of all the jobs and occupations that generate income.

Tom Brady is retiring after 22 years. He's the most accomplished quarterback in NFL history, an amazing athlete. But let me point out the obvious because it is so easy to miss. Brady is an amazing athlete and yet he could not earn a living in any of hundreds of sports. He has no natural talent at riding race horses, wrestling, soccer, gymnastics, 100 meter sprints or high jumps, ice skating (speed or figure) or volleyball. (As a professional athlete he would likely be better at all of these than any of us but I guarantee you that he's not walking away with a gold medal or big contract for any of these.) I'll go further. Any GM would sign Brady as QB but Brady could not earn a starting place for any position other than QB. He couldn't work as defensive end, offensive guard, wide receiver, or cornerback. It's not just that Brady's specialty is football. His specialty is one position in football. He would flounder in any other position. And remember Michael Jordan's attempt to play professional baseball? He helpfully demonstrated that when we say greatest athlete we have to be very specific.

Yeah but the experts said at first that we didn't need masks, you say. What else might they be wrong about? Experts do make mistakes. Tom Brady threw more than 200 interceptions in his career. He's still better than you.

Why mention all this?

You and I are not experts in epidemiology. You just aren't. You might even be wicked smart about the things you're smart about but you also need what I'll just call a meta-intelligence. What is that? Smart enough to know what you are - and are not - smart about. And if you think that Brady would be great at figure skating or you would be great at epidemiology, you lack meta-intelligence.

Stop gargling with iodine and swallowing ivermectin. Burn candles and offer prayers AFTER you've gotten your vaccination. Listen to folks who study viruses. Don't think that you can play better than any 49er or Ram you're watching tomorrow, or that you have better understanding of how a community might lower its incidence of illness or death than the experts who rigorously study viruses for a living. You pretending that you understand viruses better than the experts is not just as silly as Tom Brady pretending to be as good at basketball as Steph Curry. It is as silly as you pretending to be Brady's equal at QB. Save yourself from embarrassment and your community from harm. Show a little humility and just defer to the folks who know what they're doing in the area in which you are not a specialist.

Brady is retiring from something he did as well as anyone in history. Maybe take that as your cue to retire from something you are doing as poorly as anyone in history. Stop giving the snake oil salesmen your attention and money. Stop pretending that you're better than the specialists.

How The Dynamic of Supply Chains and Inventories Could Create a Quick Drop in Inflation This Year

Here's a theory about inflation that you may not have heard. I could be wrong but this theory is based on a lot anecdotal evidence that seems to correlate with broad sets of data.

I've heard clients in Asia, Europe and the US complain about supply chain issues. Recently one told me about an item that used to have a lead time of 4 days that was recently quoted as having a lead time of 56 weeks.

For most of these clients, the price of any one item is of little consequence. They would pay double or quadruple for certain items that might mean the difference between being able to make their product or not. On site at one client making chips for cars years ago, I saw a sign reporting that the average new car has more than 100 chips. You only need a dozen of those chips to get stuck in a supply chain somewhere to delay production of the entire car. If paying more for a chip allows you to make the car, you will pay a lot more for that chip.

The other thing going on is that these folks are hoarding. If the supplies are available, they buy them. If delivery times have gone from 4 days to 4 or 40 weeks, they buy what they can now. And they don't care that much about the cost. The inventory is insurance against future supply chain issues.

To me, it sounds like the old beer game simulation that teachers of systems dynamics would run. In that, a one-time surge in demand in a system with lags could result in wild swings in demand and supply. I suspect something similar has happened here.

In the wake of the disruptions that hit with COVID, businesses are now buying more than ever. That is putting even more strain on supply chains that are working hard to produce more. Inventories are growing faster than sales. What could happen in this dynamic? Orders drop off as dramatically as they surged. People with excess inventory will halt orders.

What happens then? Prices drop.

Smarter people than me (folks like Paul Krugman and Larry Summers and Jason Furman) are arguing that inflation will take more than a year to drop. They're arguing for interest rate hikes to lower demand and thus slow inflation. They could well be right but I would trust them more if they even addressed what I see going on with clients.

ASML is one of the most complex companies you've never heard of. They make it possible to make the increasingly tiny chips that go into thousands of devices. They have a network of 4,000 suppliers. They are an extreme example of what I see everywhere.

25 years ago when I was first working with product development teams, about 10 to 20% of their work was outsourced, done by subcontractors and suppliers. That has doubled and tripled with most of my clients in the last 5+ years. Within the last year or two, I've had two clients who outsource about 90% of their development work. Discussing a subcontractor with one of them, I learned that the subcontractor actually had a subcontractor who was creating the item we were discussing. It's a world of supply chains and given the complexity of products it doesn't take much to disrupt them. Again, to protect against these disruptions they buy more to have inventory on hand, creating a surge in demand that could be a big part of what is driving up prices. To the extent that these various suppliers are ramping up production to meet these increase in demand for companies who are buying 100 for current production AND another 100 to create a bigger inventory to protect themselves against future disruptions, there could be a big drop in demand once companies feel safe enough to stop building up inventory. They might drop off on orders from 200 to 100 or - even worse - drop to ordering 0 and merely working down their inventory. In the first case, inflation would fall a little. In the second, inflation could drop a lot.

Lots of experts predicted there would be small gains in inflation from about 2% to 3 or 4% in this last year. Instead inflation hit 7%. Now experts are predicting persistent inflation in the range of 4.5% to 8% for another year or so. They might be right. They're the experts. But given the weird dynamic I hear in the stories from clients, I wouldn't be surprised to see inflation rates drop as dramatically as they rose in the last year as supply chains catch up or even overrun demand.

Investing in Children Who Have Shown Poor Judgement in Their Choice of Parents

More resources help.

Hopefully future generations will find it bizarre that we so richly rewarded and so severely punished kids for their choice of parents.

Here a study shows that simply giving mothers $300 a month in the first year of life for their child made a measurable difference in a child's cognitive development.

https://www.nytimes.com/2022/01/24/us/politics/child-tax-credit-brain-function.html

Elon Musk is the world's richest man. Elon Musk's grandpa was a leader of Technocracy Incorporated (TI) in Canada from 1936 to 1941. TI advocated for a world run by experts - engineers and scientists, not politicians - whose technology would solve the world's problems. Elon was immersed in the concepts and practice of seeking and developing technology solutions from before he could remember. He did not choose his grandfather.

Jeff Bezos was the world's richest man a short time ago. His grandfather was one of the founding members of ARPA who developed ARPANET - the obscure computer to computer network that evolved into the Internet. His grandpa also managed federal west coast labs that included Los Alamos and Lawrence Livermore, probably managing more scientists and engineers than anyone else in the world at the time. Jeff spent summers at his grandpa's and cites him as an important mentor. The man who helped to develop the internet and how to manage scientists and engineers was grandfather to a man who became the world's richest by developing a wildly successful internet company by managing a large technical team. Like Musk, Bezos did not choose his grandfather.

Bill Gates was the world's richest man for a long time. His father was a local hero in the Seattle area. For instance, Howard Schultz had an agreement with another Seattle area businessman to manage Starbucks and then buy it at a certain point. The man reneged on the deal. Schultz turned to Bill Gates Sr. for help and 6' 7" Bill Sr, a multi-millionaire and lawyer involved in numerous businesses in the area, marched across the street to browbeat the man who had reneged on his deal with Schultz, a young guy who at the time had little net worth. Thanks to this timely intervention, Schultz is now richer than all but about 200 people on the planet, worth roughly $4 billion. Imagine having Bill Sr. ready and able to intervene on your behalf from the time you were born. Bill Gates did not choose Bill Gates Sr. as his father.

Nor, of course, do babies choose to be born to poor mothers. We spend trillions on nonsense in this world. We can spend a trillion or three investing in the children who didn't show the good judgement to be born to powerful, connected, wealthy, and savvy parents. Partly we should do this because it is the right thing to do for the child, an act of grace towards an innocent new to this world. Partly we should do this because the demarcation between selfish and selfless has dissolved. If children grow up with opportunities closer to what Musk, Bezos and Gates had, we all will live in a world with more and better jobs, products, and wealth. To invest in a child is to invest in the community you are dependent on. It is both terribly selfless and selfish to help a child to realize their potential.

The Even More Truly Extraordinary Numbers Behind 2021's Truly Extraordinary Jobs Numbers

The BLS reports 2 numbers each month for new jobs. One is a result of household surveys. (Something like going door to door asking, "Did you get a new job last month?") The other - the official number - is a result of surveying firms. (Something like calling up businesses and saying, "Did you hire anyone last month?")

Last month the household surveys suggested 651,000 new jobs yet the official number was 199,000, a difference of 452,000. For the year, the household surveys suggest 356,000 more jobs than the official number.

Last year, we had a record number of new businesses start up. Significantly more. In 2021, 53% more businesses were started than in 2019. Those new businesses don't get surveyed because they're not yet on the list for BLS. [Per Austan Goolsbee]

On top of that, people who start unincorporated businesses aren't counted as having new jobs. They're not employees. So if you leave a job to start a business, you will actually show up as one less employee in the job count. [Per Jason Furman.]

One more item of note. When BLS reports 500,000 new jobs, that is a net number. Every month people quit, retire, get laid off or fired. So a month in which you might report 537,000 new jobs (the average for 2021), you may actually count about 4.5 million new jobs and 4.0 million jobs ended, for a net of 500,000.

Quits were at a record level last year. Compared to the rest of this century, quits are up by about 1.3 million. Per month.

So the economy is creating a record number of net new jobs in spite of the fact that 43 million people quit their job last year. (And that is just through November.)

Last year, the economy created and brought back a total of 6,448,000 jobs. Again, that is net. That shatters the old record (set in 1946, the year after World War 2 ended) by 2.2 million. And it may well prove to be an undercount because the rate of new business formation is up by 50%.

The phrase you are looking for is "strong job market."

Making Sense of the Monthly Job Numbers (and a little reminder about how blurry is our vision of reality)

Since 1970, there has been only one year that ended with a lower unemployment rate than 2021. That was 2019. In this century, the unemployment rate has been higher than December's 3.9% 90% of the time. So last month's unemployment rate is really good news.

Job creation of 199,000 was absurdly low for December and while the 6.4 million for 2021 is the most jobs created for any year on record, it still leaves us down 3 million jobs from December of 2019. So that's mixed news. We needed a big number for job creation and we got a fairly normal one (by the standards of this century.)

The variability in monthly job creation during the last 2 years has been incredible. We've had a month in which we lost 21 million jobs and another month in which we gained nearly 5 million jobs. In one month. Annual job creation jumps all over the place but 180,000 is pretty typical for a healthy, normal month. Since COVID hit, half the monthly jobs numbers represented a swing of more than 650,000 in one direction or another, so monthly volatility has been about 3 to 4 times what it normally is.

On top of that, there seems to be a lot of noise in the monthly measures.

How many new jobs were created in December?
The consensus expectation was for 450k.
ADP is a private company that tracks monthly changes in private employment. Their count for December was 807k.
BLS's household survey that - well, surveys households - arrived at an estimate of new jobs of 651k.
And the official number from BLS - which surveys employers - shows a gain of just 199k. 

This 199k is the headline number.

It's worth remembering that during the long run of uninterrupted job creation in the aftermath of the 2008 Great Recession, the jobs created in a a normal month was about 200,000. What is often forgotten is that this is a net number. Every month about 2 million people were fired, laid off, quit or retired. And about 2.2 million were hired. So, the net for the month was 200,000 "new jobs" but the fact was that there were millions of new jobs that offset the millions of jobs ended. If your measurement error on the 2.2 million new and 2 million ended jobs is just 5%, and the real net for the month was 200,000, you could double the reported new jobs or erase them. Let me repeat that. With an underlying reality of 200,000 new jobs and a measurement error of 5%, it is possible to report that as anywhere from 0 to 400,000 new jobs. The last 22 months have been so volatile that it's easy to imagine that measurement error has gone up. I don't know what actual measurement error is. I do know that it exists and that's just one reason to be cautious in interpreting numbers from one month - particularly before they've been revised. 

The BLS numbers will be revised twice more over the next two months, as they always are. Pandemic volatility makes it tough to track what is going in this labor force of 162 million Americans. The good news is that we're moving in the right direction. By one measure - the unemployment rate of 3.9% - the job market is already healthy. By another measure - the millions of jobs that we've lost over the last couple of years - the economy is still weak.

As with so much in life, you can choose your narrative. Job creation is strong? Cheer about that or complain about inflation. Unemployment rate is low in December? Cheer about that or complain about the rate of job creation in December.

Lots of early retirements and some long COVID disabilities are possibly depressing the number of folks looking for work, which would explain how the unemployment rate could be so low even while we are still millions of jobs short of where we were 2 years ago. Additionally, there seem to be lots of folks who simply haven't worked out issues like childcare or elder care to be able to work again. And while we're buying more goods than ever before, the service sector still hasn't fully recovered.  You might have better or more interesting theories about what is going on. The most robust theories still await more data, though, data that smooths out the monthly variations that sometimes seem nearly as big as the phenomenon they're measuring.

How Faith in an Invisible Hand has Made Republican Policies So Dangerous (And Made Biden the 21st Century Economic Repairman)

Caption for picture of regulators with chainsaw and bolt cutters from Jonathan Levy's brilliant Ages of American Capitalism.

"Increased residential mortgage lending was one route to President George W. Bush's promised 'ownership society.' Here, a number of federal regulators and banking representatives take a chain saw and pruning shears to the 'red tape' of government-lending regulations. Lax government oversight contributed to fraudulent lending practices during the 2000s."



How did the gospel of deregulation lead to the Great Recession?

As wages stagnated in the early 2000s, people tapped their homes for loans they used to maintain consumption. This was lightly regulated, lenders assuming that even if borrowers income didn't rise enough to pay the loans, the home prices would rise enough to cover the debt. Lenders bundled home loans as MBSs, mortgage backed securities. Between 2003 and 2007, there were $4 trillion in new MBSs. Then investors leveraged those into CDO (collateralized debt obligation), selling these on largely unregulated markets. Finally, these CDOs were leveraged into CDS - an insurance contract that paid out if the CDO defaulted. CDS were built on CDOs that were built on MBSs that were built atop actual home loans taken out by Americans whose incomes weren't going up but whose home values were.
How precarious were those CDSs at the top of the pyramid resting on the bet of steadily rising home prices? "Between 2004 and 2007, the value of CDS-referenced assets in the world increased from $6.4 billion to $58.2 trillion."

That's trillion. How much is $58 trillion in debt obligation? Global GDP in 2007 was $58 trillion. One type of debt was allowed to spiral into a paper value equal to the world's total GDP.

The crash was spectacular. By the time Obama took office, median household wealth in the US had crashed back to where it had been (adjusted for inflation) in 1969. All the gains during the presidencies of Nixon, Carter, Reagan, Bush 1, Clinton, and Bush 2 erased.

Gains in wealth, income, and jobs are not random. They flow from policy, from a collaboration of private and public sector initiatives.

In his final months in office, when Trump paid little attention to the pandemic that was killing more Americans daily than 9-11 had and instead obsessed over trying to invalidate the election, he essentially left COVID relief initiatives to states. At this point in the pandemic, there was little distinction between quelling the pandemic and reviving the economy. Economic policy was health policy but still he largely downplayed the risks of COVID. For him, the love of unregulated responses neatly aligned with his disdain for management responsibility. Bush's affection for deregulation led to a freefall in capital markets. Trump's affection for management neglect (its own kind of faith in the notion that government interventions were worse than no interventions) led to a freefall in labor markets. Trump is the first president since Herbert Hoover to preside over a drop in the number of Americans employed.

As he came into office nearly a year ago, Biden once again (as when he served as VP under Obama) was tasked with cleaning up a mess left behind by a Republican presidency's disastrous policies. The differences in the performance of capital and labor markets is not random.

Since the start of Carter's presidency, job creation rates under Democratic presidencies has run at 6.5X what it has under Republican presidencies; stock market returns are 3X higher. It might just be that no invisible hand is going to save your economy.

Four Dimensions of Progress and The Dramatic Setback to Progress in 2020

You all know that I'm fascinated by economic progress and development. Medieval serfs had very few rights, on average died in their early or mid-30s and had almost nothing in the way of income or goods (or certainly nothing in contrast to what we now have). The fact that the world gradually began to transform its technology - from equipment to institutions - to bring us to today's reality is for me the most delightful thing. Our freedoms, income and life expectancy gives us millions more options than our medieval ancestors had.

There are four simple measures of progress.

1. Did real incomes go up? Do you have a greater choice each year of goods and services to buy and enjoy? Do we have a choice of more great products for each hour of work?

2. Did the community gain more freedoms? Can you be a practicing Protestant without threat of death or expulsion or exclusion from certain key positions and rights? How about Hindu? Or atheist? Are two men free to marry just as a man and a woman are? Can women hold positions of power? Do you have more choice about how to live your life and not just more products to buy?

3. Have life expectancies gone up? Do you have more time in which to live your life choices, to pursue happiness? Between 1900 and 2000, life expectancy rose from 47 to 77. That didn't just radically alter the life span. It meant that one of the coolest inventions of the 1900s was retirement, a period of life in which someone didn't just live decades longer but was free from the obligation of work for some portion of that added time.

4. Are your gains sustainable? Are you reliant on energy sources that your great grandchildren can also enjoy, energy sources that when used don't threaten ecosystems? Are you investing as well as spending so that your grandchildren have a good shot at continuing the progress that you're the beneficiary of?

Progress means progress on these four measures: income, life expectancy, rights and sustainability.

The drop in life expectancy of 2 years in men and 1.5 years for women between 2019 and 2020 is a huge setback to progress.

I'm optimistic enough to think that the advances this pandemic is forcing / facilitating in things like advances in mRNA technology that could actually result in a longer term increase in life expectancy. Setbacks do sometimes force changes that result in a later step function in progress. But that's speculative. The reality, for now, is that COVID, deaths of despair and our responses to both have translated into a setback to progress.

Comorbidities, COVID and the Excuse du jour for Dismissing a Dangerous Disease

"Well, comorbidities explain a lot about who is dying of COVID," say the same folks who have - at various times - dismissed COVID as no worse than the flu, then explained it as just a blue state or urban problem, then a hoax in that deaths from COVID are grossly over-reported because doctors are keen to collect special COVID premium fees from deaths by other causes like falling out of windows or microwave explosions and falsely attribute the cause of death to COVID. Now the argument is, "Well, comorbidities."

Comorbidity would include conditions like old, obese, or asthmatic. The argument du jour is that COVID isn't real because it is comorbidities that are the real cause, sort of a more subtle twist on the "doctors are falsifying documents" argument.
It's another wave of nonsense and misinformation. Allow me a comparison.

Imagine that you lived on the British Isles in the year 1000 or thereabouts. Vikings periodically invade to rape, pillage and kill. You're trying to discuss this problem.

"This is an atrocity. They killed Elwood and raped his wife and stripped everything valuable from his farm."
"Well of course they killed Elwood."
"What?"
"Comorbidities. You know how scrawny Elwood was. I mean, of course he couldn't stand up to a Viking attack."
"You're saying that he wasn't killed by Vikings but instead because he wasn't sufficiently buff?"
"Essentially, yeah. I mean, it's almost always the scrawny or old guys who are most likely to die."
"And the convent of nuns they attacked and raped?"
"Well, nuns. I mean. They have almost no upper body strength."
"Which explains why the Vikings raped and pillaged their convent?"
"Yes."
"And the problem isn't that Vikings are raiding our coast raping and pillaging?"
"Vikings are going to rape and pillage. Vikings are going to do what they do. You aren't going to change that."
"You don't think that maybe we could form some kind of coastal defense so that it isn't so easy for the Vikings to attack us?"
"That seems like a lot of hassle. And sounds very expensive. Just keep a broad ax handy. And do something to increase your upper body strength. You are not going to have much luck fending off Vikings."

Comorbidities is a fancy way of saying, "COVID is more likely to kill people who are vulnerable." It's self-evident nonsense presented as if it is insightful.

COVID raises the probability of death the same for everyone. It is true that different groups - young and fit high on that list - are less vulnerable and increasing their odds of dying still leave them highly unlikely to die compared to, say, an asthmatic 94 year-old who is incredibly vulnerable. (And of course death isn't the only bad thing that can happen. Long COVID can change your health for ... well no one really knows for how long.)

Saying that the vulnerable are more likely to die of any cause is not an explanation or an insight. It's just another way to dismiss COVID - a disease that has lowered life expectancy in the US for the first time since 1918 - rather than acknowledge its severity and impact.

They're Making Inflation Sound Worse Than It Is

Inflation after a year of sharp contraction followed by a year of record growth is about as shocking as squealing tires on a car that goes from 75 mph to 25 mph to 65 mph within a couple of minutes.

A couple of thoughts about inflation.

One, inflation is typically overstated. Here's why.

Let's say that you have a local grocery store called Smith's in your town of River Run. They sell eggs for $4 a dozen. Then a Walmart opens in town. They sell a dozen eggs for $2.50. Lots of folks start shopping there. So, obviously this means prices have dropped, right? Nope. For consistency, the folks tracking prices now track the change in prices at Smith's separately from the prices at Walmart. If Smith's lowers their prices to $3.50 to compete, the official price drop will be 13%. If they don't drop their prices at all, the official inflation will be zero. What the officials don't do is calculate the price of eggs as dropping by more than a third in River Run. And then they track price changes for eggs at Smith's and Walmart over time. Or if you find a great supplier online who sells something for half of what they charge at your local hardware store, inflation measures don't show a drop of 50%.

The pandemic has changed buying habits. People are seeking out higher quality, greater convenience or lower prices from any of a number of retail sources - local brick and mortar or online. To the extent that this involves them finding better bargains (higher quality at the same price or lower prices for same quality) from new retailers, that shift is not showing up in measures of inflation. The period from 2020 to 2021 may have involved the most change in who people buy from of any year. That change is not reflected in inflation numbers.

Also, prices measured do not allow for changes in quality. In Robert Gordon's magisterial economics history book The Rise and Fall of American Growth, he compares the TV of his youth with one available in 2014. Electricity costs dropped as they became more efficient. They were so reliable they no longer required a service contract of $50 a year. The 1950 set was $350 for a black and white, 9 inch. By 2014, for $418 one could buy a 40" high-definition with theater surround sound and internet streaming capability. He compared two sets from 1952 and 1983 to make adjustments for quality differences. The official annual inflation rate for TVs in this period was -1.0%, prices dropping by 1% a year. His adjustment for quality improvements suggested a more dramatic annual price drop of 4.3%, a huge difference.

What's the point? Inflation is almost always overstated. It doesn't track changes in sources over time as people seek out cheaper products of the same quality from a different vendor or better quality products for the same price.

Second, stagflation is highly unlikely.

It seems to me that the great period of stagflation in the 1970s always misses a really important event. Stagflation is the worst fear of policy makers. Before the 1970s, people thought that you could have the problem of inflation with low unemployment or the problem of high unemployment with low inflation. There was a tradeoff. But in the 1970s, we had both high unemployment AND high inflation. This was called stagflation.

There were a lot of theories bandied about but I've never heard that one that makes the most sense to me. Throughout the world, former colonies were being transformed by rising nationalism. As the British and French empires were being unwound after WWI and WWII, new nation-states were emerging. Places like Iraq and Saudi Arabia that had huge oil deposits had previously gotten a token fee for their oil as companies like British Petroleum and Standard Oil operated drilling rigs there and shipped the oil to the West. In the 1970s, rising nationalism included the notion that the peoples in a country should be the ones who benefitted from their own land. They insisted on keeping a much, much larger portion of the oil revenue. This amounted to a shift in GDP from countries like the US and UK to countries like Saudi Arabia and Iraq. What happened in the US? Prices went up. (Oil was used for making and distributing a huge portion of the goods we enjoyed and now we were paying more.) GNP stagnated. (A portion of GNP that counted "their" oil as ours was shifted from the US to foreign countries.) Stagflation - it seems to me - wasn't so much a change in the tradeoff between unemployment and inflation as it was an oil shock that came from a shift in international GNP.

What does all this mean? Inflation is not as high as you think. And it is highly unlikely that we'll experience anything like stagflation over the next few years. As we start lowering unemployment less dramatically, measured inflation will probably drop.  Prices are higher now but job creation is at its highest rate on record. Monetary and fiscal policy stimuli have been huge - and rightfully so. That's going to taper off and as new job creation / reinstatement rates lower, the rate of inflation will likely taper off as well. There is still a relationship between inflation and unemployment and the 1970s don't seem to me proof that the relationship has changed.  

Keynes on How We Tend to Save More and Invest Less Than We Should (And on how old ideas should be exorcised by new)

From John Maynard Keynes' General Theory of Employment, Interest and Money.

"... there has been a chronic tendency throughout human history for the propensity to save to be stronger than the inducement to invest. The weakness of the inducement to invest has been at all times the key to the economic problem. To-day the explanation of the weakness of this inducement may chiefly lie in the extent of existing accumulations; whereas, formerly, risks and hazards of all kinds may have played a larger part. But the result is the same. The desire of the individual to augment his personal wealth by abstaining from consumption has usually been stronger than the inducement to the entrepreneur to augment the national wealth by employing labor on the construction of durable assets…."

Meaning? The impulse to save is greater than the impulse to invest, to put capital to work to create something new. To me that is affirmation that we need initiatives to invest more than people naturally do.

He continues,
"One recurs to the analogy between the sway of the classical school of economic theory and that of certain religions. For it is a far greater exercise of the potency of an idea to exorcise the obvious than to introduce into men’s common notions the recondite and the remote…"

Meaning? The ideas that exorcise obviously bad practices are more powerful than ideas that are esoteric.

How can you not love Keynes?

20 October 2021 We Lost Csikszentmihalyi, Who Taught Us About Creating a Life of Engagement and Meaning

“A joyful life is an individual creation that cannot be copied from a recipe.”
― Mihaly Csikszentmihalyi

One of my heroes died yesterday.

Mihaly Csikszentmihalyi wrote two books that hugely influenced my worldview. One day over lunch he agreed with my characterization of the first as an answer to the question of how to find engagement and the second an answer to the question of how to create meaning.

Freud explained great accomplishments as sublimation of cruder instincts like sex and violence into socially accepted activities. Skinner explained great accomplishments as all done in response to rewards and punishment. As a young psychologist, Csikszentmihalyi didn't think either explanation was particularly tied to real people doing real things. For instance, he interviewed a lot of folks who were painting. The thought that they were doing this as some odd diversion of energy that would otherwise go into sex and violence struck him as nonsensical. Nor did any of the painters seem to believe that they'd be rewarded as if they were a Picasso for their efforts or punished if they didn't paint. As Csikszentmihalyi talked to these people, they would often use the term "flow," as in, "I began to paint (or write or rock climb or whatever) and just got into the flow of it." His great insight was that the psychology of engagement was not only one that made us happy but was a route to productivity, creativity, and self development. Being fully engaged not only makes us feel better; it actually makes us better.

His Evolving Self never sold as well as Flow but strikes me as even more important. (Apparently I bought it as a gift for my son-in-law at least twice.) Flow was a very successful book and concept but missed something revealed to him when one day he asked a student how his summer was. The student’s eyes lit up as he told Csikszentmihalyi about his amazing job of clubbing baby seals for their fur. More innocuously, video games are a marvelous example of tasks that fully engage us – provide flow – but have dubious value outside of the experience of flow they provide. In Evolving Self he explored how lives – how our actions – have meaning. His conclusion wasn’t wildly different from Sartre’s, building on the notion that we have to create our own meaning, creating and finding flow in tasks that contribute to some greater good that lies outside of ourselves. Our lives have meaning as we connect to something bigger than us.

Csikszentmihalyi helped me – and probably millions of people – to better understand how to find and create engagement and meaning. Now that’s a life.

A Tentative Theory About Why 30 Year Old Children from the Richest Families Are Less Likely to Work

Curiously, poverty and wealth alike seem to lower employment rate for the children of the poor and wealthy.

This first graph shows that as parental income rises, so does the probability that the children are in jobs. Until you reach about the 94th percentile, after which further increases in income actually lower the odds that your children have jobs at 30.

[from https://fivethirtyeight.com/features/rich-kids-stay-rich-poor-kids-stay-poor/ ]

I'd be curious to better understand this. One of my tentative explanations is based on the fact that the median wage in the US is just under $35,000. Kids raised in the top 5% of households would probably recoil at such paltry wages and thus are less likely to accept half the jobs out there - which might make it tough to get started.
Social security wages just includes income from a job. It doesn't include rental income, money from dividends or business income.

In 2020, the number of people with social security wages over $50 million rose 61% from 2019 - ten times the rate of increase of the number of people making more than $100k. The number of people making a million dollars or more rose 14%. (And yes. There was a pandemic underway and still wages rose this much.)

[social security data from https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2020 ]

Beware of This Neighborhood Scam

The doorbell rings this morning and I open it to an 8-year-old in costume. “Trick or treat!” he hollers at me.
“What is this,” I ask. “It’s 13 October. What are you doing trick or treating?”
“I’m going as a dyslexic,” he says. “13 October. 31 October. It’s all the same to me.”

I look him over, admiring his costume and his scam. And then I say, “Ha! If you were dyslexic, you’d have said, ‘Treat or trick!’” And then I close the door, pleased with myself that I wasn’t outsmarted by a kid.

About 30 minutes later, he comes back with a taller kid in a suit.
“Now what,” I ask.
“This is my older brother. He’s going as my lawyer and he plans to sue you for insensitivity and discrimination.”

So that’s how I ended up driving two kids to Costco this morning, buying them each a huge bag of candy. How was your morning?

Interest Rates are at Their Lowest Rate in 5,000 Years (Or Why Biden's Investment and Infrastructure Plan is Too Timid)

The Dutch have interest rate records that go back 500 years. Interest rates never once went negative in that entire period ... until just a few years ago.

It gets better. Adam Tooze recently shared a graph showing that interest rates are their lowest in 5,000 years. [Adam Tooze's tweet and graph are here: https://twitter.com/adam_tooze/status/1446437719283060753/photo/1 ] That's a long time.

Biden wants to invest $350 billion a year in infrastructure and other public sector investments. That works out to about 1% to 2% of GDP during the next 8 years. Democrats are defending it and Republicans are attacking it. It is indefensible. With interest rates this low, we should be investing 2 or 3 times as much. Imagine someone making $100,000 a year saving and investing only $2,000 out of their salary. That would be irresponsible and yet that is Biden's bold plan. 1.8% of this year's GDP and probably about 1% of what GDP will be in 8 years. Now imagine that for every $100 you invested, you had to pay back less than $99 in 30 years. (And that is, indeed, the price of 30-year bonds now.) Why would you not invest to at least match past generations, imitate the great Lincoln and FDR?

Lincoln made massive investments during the Civil War: a transcontinental railroad, and Agricultural and Machinery Colleges all over the country, among other things. After the Civil War, the economy boomed. FDR made massive investments during WWII: huge infusion of capital investments and R&D that first went into the war effort and then into peacetime production. Additionally, the country plowed huge sums into universities, research and highways right after the war. The result? The decades just after WWII broke the record for productivity gains that were set by Lincoln. Investments drive productivity and wage growth. And that was before capital was free.

I keep banging on this drum but rather than invest in creating a great future, both parties seen intent instead on fretting about the future. Don't be sucked in by Democrats' timid plans for the future or Republicans' showing such a lack of faith in the future that they refuse to invest in it. Tell everyone you know, "But interest rates are the lowest they've been in 5,000 years! We'd have to be fools not to invest truckloads of money right now." Even if you don't believe in the future, talk and invest as if you did. It'll make you look like a better person. Pessimism and fear just makes you look small.

Columbus Day and How Our Descendants Might Look At Us

We've gone from making Columbus out to be a brave hero who sailed over the horizon to discover our home to making Columbus an amoral opportunist who brutalized Americans and unleashed forces that devastated first nations. Is a hero or a villain? 

At the time of the dinosaur, our ancestor was essentially a rodent. "We" have evolved greatly since then but it raises an interesting question: how are we to judge that ancestor's morality?

And while that's a dramatic example, I think the same general complications apply in any attempt to judge generations from centuries earlier. If climate change does irreparable harm to coastlines and their cities, makes species of plants and animals extinct and forces political turmoil and violence with climate refugees, do you really think that your descendants aren't going to be horrified that you took joy rides driving up the coast or that you flew to other continents just to play tourist?

It's the rare individual who constructs their own morality separate from what they see around them. We tend to share language and worldview with the people we consider us.

If we're making progress, we will be aghast at the technology - and worldview and morality and behavior - of our ancestors. It doesn't mean we can't acknowledge when they did things that changed the world - and call out the the things they did that were so casually brutal.

And then rather than decry the treatment of others from that period, champion policies that narrow the gaps between "others" and average Americans. We can't judge a rodent's behavior from the time of the dinosaurs but we also don't have to accept the consequences of that behavior as if we're helpless to change history. We're no longer the rats in the maze; we're the ones in the lab coat who can now change the maze.

What September 2021 Job Numbers Suggest About the Recovery to Follow

Last month (Sep-2021) the economy created less than 200k jobs, which is far short of what's needed. The good news is that monthly variation is high and with adjustments to prior months, the American economy is still averaging 561k jobs per month this year. This one month dip is less likely a sign of things to come than normal variation within this very weird year.

Unemployment is down sharply for the month, dropping from 5.2% to 4.8%. 

We are still down 5 million jobs from pre-pandemic peak. The breakdown of those jobs raises some questions.

Leisure and hospitality jobs are down 1.6 million. This is for obvious reasons and one can hope that as COVID cases subside so will this number. Meanwhile, tip your server generously.

Health care employment is down 524,00 . About 400,000 of those jobs are in nursing and residential care facilities. My question? How much of this reflects the population drop in these places due to COVID? Between hesitancy to live in such places and the drop in elderly population (official count is 700,000 dead in the US and the Economist estimates this misses about 30% of COVID related fatalities, which would put the total at about 900,000), there is less demand for these services. Given 24 hour, 7-days a week care in these facilities, there is about one job for every 3 residents. The COVID death toll alone could account for 300,000 of those 400,000 jobs lost in nursing and residential care facilities. 

Those nursing home jobs may not be coming back for some time.

Another big source of job loss is in education. Here, jobs are down 676,000 from their pre-pandemic peak. Given the Delta variant is so contagious and that kids are both unvaccinated and coming back into the classroom in large numbers, there is a COVID outbreak among school-age children right now. Some parents seem to be choosing to simply keep their kids at home. It's not obvious what is happening with those kids (private education employment is down about as much as public education). If elderly are not going into nursing homes they may be staying with their children who have school-age children; I'm sure a number of kids are being kept out of school to protect grandparents. Studies suggest about 3 million kids have "disenrolled" from school. Presumably the kids will come back at some point and these jobs in education will be restored. Timing seems like a huge question.

The only sector with higher employment than the pre-pandemic peak is transportation and warehousing, where there are 72,000 more jobs than there were last February. This sounds negligible. And as a portion of the workforce it is. But those supplies that they are shipping and storing flow into factories and retail stores, representing downstream jobs in manufacturing (which is now down 353,000) and retail (now down 202,000). The growth in transportation could be prelude for more general growth in employment. Every one of my clients of late complains about how delays in supply chains is impacting their ability to make product they can then sell; as that problem is addressed, it could mean great things for downstream sectors and employment. It makes sense that transportation and warehousing would lead a recovery.

Meanwhile, it looks like we won't hit something akin to full recovery until next year. The unemployment rate, though, is rapidly dropping as befits an economy creating an average of half a million jobs per month.

 

Finally, the unemployment rate is so much higher for those with less education. Market forces are less likely to address this than is legislation to fund infrastructure projects and subsidize sectors like childcare, for instance. Funding jobs for less educated people is better in dozens of ways than either ignoring their plight or giving them welfare rather than work.

The Modern Republican Party and the March of Folly

Barbara Tuchman's March of Folly was published in the mid-1980s. She wrote about how Renaissance popes lost northern Europe to the Protestant Revolution and British royalty lost the American colonies.

One thing she never really addressed was how Renaissance popes lived better than any popes before or since. Did that hurt the church? Yes. Did it hurt them? No. Popes Alexander and Julius had - well Renaissance artists decorating their living quarters, mistresses, ate better than royalty and had enormous power. If Raphael has painted your personal living quarters, can things really be so bad? A similar thing was going on with British royalty. The real issue was that personal possibilities and goals were at odds with the institutions they had control over.

What's going on now in the Republican Party shows a similar kind of divide. Matt Gaetz and Marjorie Taylor Greene have no interest in becoming powerful legislators. Members of congress make only $174,000 a year and need to have homes in their district and in DC. That's hardly conducive to building wealth.
Rush Limbaugh died with $600 million and was making $85 million a year. Alex Jones is demonstrably nuts and yet even he is worth millions from his broadcasting.

Will new Republicans who spout conspiracy theories be to the Republican Party what Renaissance Popes were to the Catholic Church or British Royalty was to American colonies? That is, will they cost the institution enormously? Yes.

Will they make enormous sums if they pull off the transition from serious legislator to media personality? Definitely yes.

Perhaps the biggest problem Trump's Republican Party has right now is that the money to be made by promoting conspiracies and odd beliefs is so lucrative that there is little incentive for GOP politicians to play it straight and do the hard - but hardly lucrative - work of crafting policy that could add 0.5% GDP growth each year for the next generation - the stuff of steady progress. Instead they are incented to create controversy that can make them rich now.

Some mix of history and whimsy and a proposal for rebranding Silicon Valley

Silicon Valley got its name because of employee law that California inherited from Spain. In states back east, if you worked for a shoe cobbler and then left to start your own shoe cobbler business, your former employer could sue you for illegally taking knowledge he'd given you to use in competition against him. In California, he could not.

William Shockley worked for Bell Labs and managed John Bardeen and Walter Houser Brattain, the two guys who did the research on semiconductors that led to the transistor. Shockley, Bardeen and Brattain shared in a Nobel Prize. (Bardeen went on to share in a second Nobel Prize involving the theory of superconductivity.)
Shockley left Bell Labs, moving close to his aging mother in Palo Alto. He started Shockley Labs and hired some uber-bright people. Turns out that Shockley - who was a crackpot whose theories included an embrace of eugenics - was a terrible manager and one day, eight of his best employees left Shockley Semiconductor Labs to form Fairchild. Curiously, given you could easily leave an employer who you felt you could outperform, people left Fairchild as well, and the companies that sprouted up from those exits were referred to as the Fairchild(ren). The most famous of those was easily Intel, founded by Gordon Moore (of Moore's law fame) and Robert Noyce who proved much better managers than Shockley, who died a bitter and committed conspiracy theorist.

The string of silicon companies led to the nickname Silicon Valley, a description of a new, transformative technology that twice democratized information. Once by its unprecedented processing power and its effect on information technology evolution, an exponential rise in computing power that we've still not fully realized the consequences of. And secondly by creating cultures responsive to the fact that great employees could leave to become competitors so better to give them leadership influence and even equity rather than leave them with incentive to leave your employ to become competitors. This, too, is a consequence we have yet to see the culmination of, a democratization of management and leadership within the corporation.

Silicon Valley is a description that now applies to companies in Seattle. Microsoft, Amazon, Redfin, and Zillow are companies that are casually lumped under the label of Silicon Valley. They - of course - are software companies and rely on, rather than make, silicon. It seems as though Silicon Valley is the wrong label for King County, home to two successive, "richest man in the world" entrepreneurs, Gates and then Bezos.

Perhaps the new label should be Algorithm Alley, a nod to the early 21st century rise of the software that so exploits the potential of the silicon of the late 1900s. Silicon Valley gives way to Algorithm Alley.

My (and your) Belief in an Afterlife

 I post all the time about politics, policy and stats that seem to describe our world because I have to live with the consequence of your vote and you with mine. There is nothing private about the consequences of politics so I love the notion that we can at least better understand what thinking (or instincts) lie behind particular models of the world. Shared stats and perspectives can make those worldviews - and thus our votes - better.

Religion, though, is a private matter and so I stay away from that. Unlike your choice to vote for someone, your choice to be Catholic or atheist or Scientologist doesn't impact me and is none of my business. But I do want to talk about the afterlife.

I have developed this theory that morality is enhanced by a belief in an afterlife.

"A man finds himself, to his great astonishment, suddenly existing, after thousands of years of non-existence; he lives for a little while; and then, again, comes an equally long period when he must exist no more. The heart rebels against this, and feels that it cannot be true."

- Arthur Schopenhauer

By afterlife, I don't even mean that if you live a good life you'll be playing harp on a cloud or be reincarnated as someone's spoiled dog. By afterlife I mean something more simple: after your life, the world will go on and the lives in it will be just as important as those of you and the ones around you that you love. Perhaps even more important because there will be so many more lives.

Years ago I read a fascinating thought experiment. Imagine that you knew with great certainty that at the moment you died, life for all humanity would end. Giant meteor, terrible pandemic ... whatever. Everyone gone. How does that change your own life?

I think for a lot us, honestly believing such a thing would tend to gut you. It would make so much of what animates you suddenly seem laughable. "What does anything matter?" you might ask. And that thought experiment seems to me proof that our lives are generally animated by a belief in an afterlife and a sense that it's important.

Morality is certainly about now, about caring how we harm or help others. I think it's also about later, making provision for the future we'll eventually be excluded from. Believing that an afterlife matters allows us to take actions on what has the highest impact: things that take years, decades, or even lifetimes to play out.

I don't even think that a belief in an afterlife is a religious matter; it seems to me a demonstrably moral one based on a simple premise: what matters most in the world is so much bigger than me or my lifetime.

We Invent Products That, in turn, Reinvent Us: Lincoln and the Hirsute Republicans

Abraham Lincoln rather famously grew a beard just before he was elected president, apparently inspired by an 11-year-old girl who suggested it would help him to get elected. He was the first president to have a beard.

He was followed by a succession of Republican presidents with facial hair.

Lincoln and the hirsute Republicans championed policies that made America host to an industrial revolution that triggered a parade of new products.

The list of product inventions from around 1900 includes central heating; stainless steel implements; the electric toaster, iron, and oven; the sewing machine; the dishwasher; the electric elevator; the dial phone; the portable typewriter; radium treatment for breast cancer; heart surgery; the psychiatric clinic; contact lenses; toothpaste in tubes; motion pictures; musical comedy; the gramophone; volleyball and basketball; the Ferris wheel; the jukebox; the striptease; breakfast cereals; milk delivered in bottles; packaged produce; Coca-Cola; margarine; the ice cream cone; the refrigerator; the correspondence course; the full-range department store; the chain store; the shopping center; the coin telephone; the traveler’s check; fingerprinting; the automatic pistol; the electric chair; the automobile and the airplane; the underground city subway train; the pneumatic tire; color photography; rayon and other artificial textiles; and chewing gum.

These products changed the human experience in thousands of ways we can hardly describe.
In 1901, King Gillette invented the disposable safety razor that made it easy for men to shave. It took a while to catch on.

President William Howard Taft, who served until 1913, had a mustache, in keeping with the theme of facial hair for presidents. But by 1915, Gillette sold 70 million blades to a public who had adopted the clean-shaven look. This product changed how men looked.

No president since Taft has had facial hair. (Well, other than eyebrows.) We invent products and then they reinvent us.

1980s Insubordination at Apple - the Curious Team Dynamics Between Jobs and His Engineers

Excuse the language but this is simply too good not to share.

In 1980, Apple had gone public. This meant that Steve Jobs had more money but less power. The engineering team developing the Lisa computer essentially exiled him from their team. At this time, a woman Jobs had been dating claimed he was her child's father. He denied this. The woman named her daughter Lisa; the engineering team decided to name the computer they were developing Lisa, in the hopes that Jobs would also walk away from them.

So Jobs, lurching about for a project to engage in, found Jef Raskin, who was obsessed with making a friendly computer. Raskin didn't want Jobs encroaching on his Macintosh project but, of course, Jobs did, eventually making it his own.

Here is their relationship as recounted by various Apple people, including Jobs.
Andy Hertzfeld: The Mac was initially a skunkworks. At this time it was not an important project at Apple. It was a very minor thing.
Randy Wigginton: And Steve went over to Macintosh where Jef Raskin was, and he and Jef did not mix well.
Steve Jobs: Jef's a shithead who sucks.
Jef Raskin: Steve would have made an excellent king of France.

Apple may have done well to bring in junior high teachers to help with team dynamics. Or maybe that would have defused all the creative energy. Who knows? You live on a weird planet. Apple is the most valuable publicly traded company in the world, now worth $2.1 trillion. It's hard to know how much of this is because of and how much of this is in spite of men who took projects so personally.

These comments are from Adam Fisher's Valley of Genius.