Acemoglu, Johnson and Robinson - A Couple of Key Ideas Behind Today's Nobel Prize in Economics

Today, Daron Acemoglu, Simon Johnson, and James A. Robinson won the Nobel Prize in Economics. That pleases me. I’ve mentioned Acemoglu in 20 of my Facebook posts, and I believe his two most popular books (one co-authored with Johnson, the other with Robinson) are profoundly important. For those who haven’t read his longer works, here’s a simple summary of his key ideas.

In Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Acemoglu and Robinson emphasize that the design of institutions is fundamental to economic outcomes. They illustrate this by contrasting British and Spanish colonies in the Americas. Why did one set of colonies lead to economic abundance, while the other led to relative poverty?
In the British colonies, institutions were more inclusive. This meant that not only did the sponsors back in Britain receive a share of the returns, but those actually living and working the land in North America benefited even more. If the colonial settlers worked harder or innovated, they reaped the rewards, fostering a culture of productivity and improvement.
In contrast, the Spanish colonies were designed as extractive. The Spanish elites back in Spain extracted nearly all the wealth from the colonies’ mines and plantations, leaving the native laborers destitute regardless of their efforts. These workers had little incentive to work harder, innovate, or improve their conditions since they wouldn’t benefit from any additional effort or creativity.

The extractive institutions stifled growth and innovation.

Acemoglu’s more recent work with Johnson - Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity - builds on this by examining the role of technology in economic outcomes. They argue that there is nothing automatic about technological advancements benefiting the majority. History shows periods where the elites captured the overwhelming share of productivity gains, and other periods when those gains were more broadly shared, improving the lives of workers as well as capitalists.

Focusing specifically on AI, Acemoglu is skeptical about whether its potential gains will be shared widely or remain concentrated among a few. He argues that the outcome—whether gains are broadly shared or narrowly held—will depend on deliberate policy decisions, not on the simple evolution of the technology itself or market forces.

I share Acemoglu’s sense that with economics’ small 1 to 3% annual changes, all the really fascinating progress plays out over generations and not months or years. Economic progress has deep causes and the design of institutions is even more important than the design of tools or products. It's gratifying to see that recognized by the Nobel Prize committee.

Well It Seemed Funny at the Time

 "He’s the kind of guy who’ll pee on your leg and call it trickle-down economics."

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"I'm cooking, Jerome! You said this hike would be shady!"

"Shady? No, I said this hike is hotter than Hades."

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What are the odds that Miss Universe actually is?

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I’m so tired of Southern California being overrun with illegals. You see them everywhere—on the freeway, where the speed limit is clearly 65 mph, and yet at least a third of the cars are driving faster than that! Illegals... shamelessly speeding in plain sight.

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They keep saying the stock market is booming, but I'm not convinced— the S&P has been stuck at 500 for so long that it's now reached the point of absurdity.

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Manny Machado.
Is there a name with a higher testosterone count?

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I've defined a new kind of economic cycle: Buliminomics.

In Buliminomics the economy undergoes a binge (excessive spending, often fueled by borrowing or credit) followed by a "purge" phase (where consumers cut back on spending to manage or pay off debt), before returning to another cycle of splurge.

Buliminomics: the splurge and purge that leads to dangerous economic excess.

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My economic plan is bold, visionary, and - with a positive attitude - achievable: get everyone into the top 1%. Because even the average person deserves to be better than average.

"Some are born great, some achieve greatness, and some... well, they vote for me."

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I get that the label "all natural" helps sell products, but honestly, if I saw something labeled “10% supernatural,” I’d probably buy it—at least once.

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Sobering to think that I’ve reached an age where if I say, “I’m literally dying,” people really would take me literally. Which is kind of ironic.

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But enough about me, he said. Now I'd like to tell you about my hobbies.

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"I was really surprised that our relationship didn't work out," he said.

"Oh? Why was that," I asked.

"Well we were both Geminis. I felt like we would totally understand each other. I mean, I've been reading her horoscope every day for years."

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It is all well and good to dream big but a chicken who never accepts the fact that he can't fly is just going to create a lot of squawking and mad flailing of wings and rob the whole barnyard of peace.

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Sitting in Costco with 3 vaccinations freshly coursing through my veins wondering if medieval peasants would be more amazed by immunizations against plagues or a vast building with stacks of food 20+ feet high in every direction.

And progress isn't even done yet.

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All this talk about “utopia,” but what he really meant was “me-topia”

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After a few too many drinks, he tried to say he was a policy analyst, but what came out was "Pollyanna-ish." Given what we'd heard from him all night, it seemed like an apt confession.

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He woke up confused, having slept in latte and hastily splashed pumpkin spice cologne on his face. Fall always left him feeling a little disoriented.

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“The best material model for a cat is another, or preferably the same cat.”

- Norbert Wiener

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He was really excited to hear that the Fed was planning a hate cut ... until someone corrected him to point out that they were actually talking about a rate cut ... which somehow seemed less imperative to him.

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In 2025, Pluto goes into the public domain. In 2028, Goofy does.

I'm looking forward to a heartwarming story in about 2030 in which Pluto and Goofy look at each other soberly and Goofy says, "I don't know why we go through this charade. You're his pet and I'm his friend and nobody can explain why he treats us so differently and we pretend to be so happy about it. This has to stop. Either you join us at the dinner table or I join you at the doggy dish but we have to stop letting a manipulative mouse come between us like this."

It'll be a heartwarming story about rising above the scripts we've been handed and living life as our true self, of treating others as equals.

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Waiter or waitress has always connotated waiting. I think there was a time in history when it referred to the server waiting on the diner and not the diner waiting on the server. But I'm not sure. I'll wait for you to look that up.

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I'm going to call my AI model "elves on the Internet" and cater to the market of folks too savvy to fall for the notion that so-called algorithms are sufficient to generate such results.

I expect that I'll capture nearly half the market.

If you would like to be an early investor, there are two options:

1. Invest $100k into the startup.

2. Provide job references for at least 2 elves.

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I have strong opinions about everything. Except, you know, strong opinions. I'm not sure if it's a good or bad thing to have so many strong opinions.

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John Gray points out that Freud wasn't intent on transforming people or their potential or sense of self. Freud stated, “the goal of psychoanalysis is to turn neurotic misery into ordinary unhappiness.”

Probably harder to sell as a promise but ordinary unhappiness does sound like an attainable goal.

What are your goals for 2025, Fred?

I'd like ordinary unhappiness for a change.

Oh, well good luck with that.

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The promise of social security seemed both noble and absurd to him… until he discovered it was just about monthly payments, and had nothing to do with alleviating social anxiety or tackling the tougher issues of status, acceptance, or belonging.

Christian Nationalists - People Who Would Like You To Think They Understand Christianity More Than Christ and Government More Than the Founding Fathers

In the four Gospels, Jesus doesn’t mention abortion or homosexuality—not once.

But in three of the four, He gives the same advice to a rich young man who wants eternal life: sell everything you have and give it to the poor. Also, in three of the four, He says it’s easier for a camel to go through the eye of a needle than for a rich person to enter the Kingdom of Heaven.

The Bill of Rights has 10 amendments, and the very first begins with, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof..."

So, if you don’t want to sell all your possessions—despite the fact that Jesus explicitly taught it—the First Amendment suggests you don’t have to. And if you don’t want to lose your right to decide whether or not to have a child, not only does the Constitution forbid others from legislating their religion onto you, but the religion they want to impose on you isn’t one Christ taught anyway.

I suppose it’s possible that Christian nationalists who want to legislate their beliefs understand politics better than the Founding Fathers who gave us the First Amendment and understand Christianity better than Christ. Possible—but unlikely. Because if they did, the real Christian nationalists would be out here pushing for a 100% wealth tax. And I guarantee you, when that happens, these faux Christian nationalists will be waving the First Amendment faster than you can say, “seize the means of reproduction!”

How Trump Uses Nonsense to Distract From His Nonsense

Let's talk nonsense this morning. Or, more specifically, let’s talk about why Trump talks so much nonsense. He does it to distract reasonable people from his unreasonable policies.

Let's start with some facts.
The number of children living in poverty doubled from 5 million to 10 million between 2021 and 2023. Why? Because the expanded Child Tax Credit (CTC) expired at the end of 2021.
Meanwhile, the U.S. has 800 billionaires. This morning the five richest Americans are worth a combined one trillion dollars.

Trump’s policy is simple: He sees 10 million children in poverty and believes we should cut their benefits. He sees 800 billionaires and thinks we should cut their taxes.

Trump believes that the rich and powerful should be richer and more powerful, and that the poor should be poorer.

That is nonsense.

So, how does he distract you from this nonsense? With other nonsense.

"I'm still gonna call them an illegal alien," JD Vance recently said about Haitian migrants who are in Ohio legally. This echoes Trump's rhetoric, who claimed during his one debate with Harris that immigrants were eating people’s pets —a claim that originated from a false Facebook post and has no basis in reality.

When Trump pushes this nonsense about Haitians eating pets, it does two things: First, it excites racists and fuels racial division. Second, and more importantly, it distracts voters from his agenda based on his conviction that poor children are not poor enough and the wealthy are not wealthy enough.

He spouts nonsense about immigrants eating your pets or claims that children are coming home from school to unsuspecting parents surprised to learn that their child has had transgender surgery between classes. He spouts nonsense to distract you from the fact that the combined wealth of the five richest Americans is one trillion dollars, and he plans to give these men even more tax breaks.

In short, he’s distracting you from his nonsensical policies with nonsensical lies - his hope apparently that we will be made numb, or senseless with all of his nonsense.

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Here fact checker Daniel Dale of CNN lists some of the completely fictional stories Trump has been recently telling.
https://www.cnn.com/2024/09/19/politics/fact-check-donald-trump-fictional-stories/index.html

2 Reckless but Potentially Valuable Forecasts for This Week

I'm going to make a couple of reckless forecasts for this week.

On Wednesday, September 18, Fed Chair Jerome Powell will announce a 50 basis point rate cut, signaling the end of an aggressive rate-hiking cycle that began in 2022. This will be the first cut in over four years.

As a result, the NASDAQ will rise more than 1%, maybe as as high as 3% by week's end. With inflation moderating and further rate cuts probable, investors could flock back to tech stocks, pushing the index higher. The NASDAQ has historically responded positively to rate cuts, with the index rising an average of 2.4% in the month following similar announcements.

2 Ways to Define Conservative and Liberal and How R&D Spending Predicts How Communities Vote

In America, we use "conservative" in two main ways. One, to describe those who want less government. And two, for those who protect traditions and reject change.
Similarly, "liberal" covers both people who distrust wealth and corporations, and progressives who want society to evolve and improve, prioritizing quality of life and individual freedom over tradition.

New data on R&D spending as a percentage of state GDP supports the idea that conservatives resist novelty while progressives embrace it. States investing more in R&D, aiming to change the world, voted overwhelmingly for Biden in 2020. Conversely, states spending less on R&D favored Trump. The contrast is striking: the 10 states with the highest R&D spending voted for Biden by an average margin of 19 points, while the 10 states with the lowest R&D spending backed Trump by 18 points.

Data on the 10 states with the most and least R&D spending below.

Source for data here:
https://www.bea.gov/news/blog/2024-05-09/experimental-rd-value-added-statistics-us-and-states-now-available

Trump of McCain - I Like People Who Weren't Captured. McCain of Trump - I Like People Who Weren't Shot

In July 2015, during a campaign event in Ames, Iowa, Donald Trump made controversial remarks about John McCain. Trump said, "He's not a war hero. He was a war hero because he was captured. I like people who weren't captured"

John McCain was not drafted during Vietnam. He enlisted.

McCain was held as a prisoner of war in Vietnam for 5 years and 10 months, from October 26, 1967, until his release on March 14, 1973.

After being captured and enduring severe injuries and torture, McCain was offered early release by his captors in 1968. This offer came because his father, Admiral John S. McCain Jr., was a high-ranking naval officer and had been named Commander-in-Chief of Pacific Command.

However, McCain refused the offer of early release, adhering to the military code of conduct, which stipulates that prisoners should be released in the order they were captured. McCain believed it was important to maintain solidarity with his fellow prisoners and to prevent the enemy from using his release for propaganda purposes. He insisted that those captured before him be released first​​. This decision resulted in McCain enduring additional years of brutal treatment and torture until his eventual release in 1973.

The reason McCain was unable to lift his arms over his head was due to the torture and harsh treatment he endured during his captivity. After being shot down and captured, McCain was subjected to severe beatings, torture, and was often kept in solitary confinement. His injuries included broken arms and a broken leg, and the inadequate medical treatment he received exacerbated his condition. The physical abuse led to lasting damage, particularly to his shoulders, which is why he had difficulty lifting his arms above his head.

Imagine dismissing all that with the comment, "He's not a war hero. He was a war hero because he was captured. I like people who weren't captured" It would be as if McCain were still alive and said of Trump, "I like candidates who weren't shot." The idea that someone would dismiss an assassination attempt should horrify you - nearly as much the idea that any candidate aspiring to be Commander of Chief would dismiss the ordeal of a POW.

For the MAGA crowd, enduring years of torture by a military enemy is to be dismissed. Shot at by a deranged teenager is to be reverenced.

And of course when you're in a cult, you can't trust your own judgement about whether something is to be ridiculed or reverenced until you know what the cult leader thinks. So now Republicans know - one is supposed to dismiss the suffering of a Prisoner of War but show sympathy and outrage for someone attacked by a would-be assassin. Well, they are half right. Pity that echoing Trump's mood and philosophy doesn't quite allow someone to be fully human.

Kamala Harris, Immigration, Progress and Trump's Internment Camps

Kamala Harris is a product of a very different immigration policy than the one that came before LBJ and the one that will come after Trump.

Prior to LBJ, immigration was essentially proportionate to countries already represented in the US. Lots of Americans of British and German descent, for instance, was matched by lots of immigrants from Britain and Germany. LBJ changed that, making immigration increasingly dependent on academic achievement or potential, understanding the importance of knowledge workers and diversity in the information economy.

Kamala Harris's parents met at grad school at UC Berkeley - he from Jamaica and her from India. Once they graduated they became part of the academic and research professionals who define the leading edge of progress in developed nations. Her father taught economics at Stanford. Her mother was a cancer researcher at UC Berkeley and Lawrence Berkeley National Laboratory. The Bay Area where they worked and Kamala lived before moving east for work has an immigration rate that is nearly triple that of the US as a whole. (And, of course, plenty of children of immigrants as well.)

Quite a few Americans were thrown by the fact that these immigrants were less likely to look like the folks who'd previously immigrated here from places like Northern Europe. LBJ's new immigration policy also resulted in immigrants who are generally more productive, innovative, and entrepreneurial.

The Bay Area, for example, has levels of entrepreneurship that has led to the creation of more wealth than anywhere else in the world - a rate of entrepreneurship enhanced by the portion of immigrants it has. The 12 most valuable companies in the Bay Area alone have a combined value that is 6X the value of Germany's entire stock market, 4X the value of France or the UK's entire stock market, and 2X the value of Japan's. There is no place or time in history that has even come close to the Bay Area's ability to create wealth, an ability enhanced by its diversity.

Of course most Americans are far more interested in taking power from women over their own bodies and lowering the portion of immigrants in their communities than they are in creating wealth and prosperity.

And the American leading in the polls for president thinks that state legislatures rather than individual women should have control over women's bodies, and actually thought that the country's first African-American president was literally from Africa ... and because of that won the affection of nearly half of Americans for whom such a claim seemed sensible and brave. In the eyes of some, Kamala Harris is a wonderful success story: in the eyes of most Americans she is alarming.

Biden - and presumably Harris - will win the Bay Area by a 4 to 1 vote but will lose rural Mississippi and quite possibly Ohio, Georgia and other states that value "tradition" more than progress, places that find immigrants alarming.

How alarming? Trump is leading in the polls, a majority of Americans delighted with his promise to deport about 15 to 20 million immigrants. To put the scale of this roundup, internment and deportation in context, only 4 states have populations greater than 15 million. Trump has expressed a willingness to to create internment camps to hold these immigrants. We could have a total internment camp population greater than the population of all but 36 states. And Americans who got angry about wearing face masks are very excited by the prospect of armed immigration officers busting into homes and businesses across the US to roundup people without proper documentation. (And of course this will mean millions of children born here, with citizenship, who presumably have a choice between orphanages or being deported from a country in which they have citizenship, causing the numbers who will be rounded up to swell.)

Hitler's was the last administration in the West to attempt internments at this scale.

But Joe Biden is old so we'll have to go with the much younger (by more than 2 years) Donald who promises us chaos and violence that will dwarf his last presidency. (How violent was his last presidency? His own VP had his life threatened on January 6 and now refuses to endorse the president he served with. Only one other time in all of American history has a VP turned against the president he served under. In 1832 - nearly a century ago - Calhoun resigned as Jackson's VP.)

It is doubtful that we'll have Harris as VP next year - and certainly won't have a minority woman as president. Not in a country where nearly half of Americans are convinced that if only history gave some nation a second chance at internment camps they could get it right. We have millions of angry Americans because, you know, egg prices went up last year. Polls now suggest that most Americans prefer the prospect of immigrant roundups and internment camps with populations greater than Ohio's to a president who stutters. It's a curious set of values we have.

Americans. We're not interested in creating wealth or in progress. We just don't want to be around people who look different.

The Transformation in Trade Has Made Tariffs More Terrible Since the Time of David Ricardo in the Early 1800s

I don't think that enough is made of the inflation impact of Trump's tariffs.

When David Ricardo introduced the concept of comparative advantage in trade in 1817, he explained it using the example of Portugal trading wine for England's cloth. He demonstrated that even if one country could produce both goods more efficiently, it still benefits from specializing in the good it can produce at a relatively lower cost and trading for the other.

Today, trade is much more complex. Products like cars, computers, smartphones, and TVs involve hundreds of parts and multiple production steps across different countries.
In Ricardo's time, tariffs would typically be applied once to a simple finished product, like a bottle of wine. Today, with global supply chains, each part of a product might cross several borders before the final product is assembled. Each crossing could incur a tariff, leading to multiple tariffs on a single product.

With multiple border crossings for complex products like TVs, cars, and smartphones, a world with tariffs could mean prices 10 to 100 percent higher. In Ricardo's world, a tariff would impact a single product once. In our world, tariffs can affect each component multiple times, significantly increasing costs. This makes modern tariffs a much more expensive proposition, as they add up with each border crossing.

High tariffs in such a world are a curious proposal from a party that has incessantly complained about inflation that is now about 2 to 3 percent and quickly falling.

AI Writes About My Book The Fourth Economy and The Transformation of Church, State, Bank and Corporation

The concept from "The Fourth Economy" posits that since the Dark Ages, major societal transformations have been driven by shifts in defining institutions, shaping how these institutions serve individuals. Here’s an evaluation and explanation of this idea:

Historical Transformations of Defining Institutions:

The Protestant Reformation:
Transformation: The Protestant Reformation in the 16th century fundamentally altered the religious landscape of Europe.
Outcome: It challenged the authority of the Catholic Church, leading to religious freedom and pluralism. The church's role shifted from a monolithic authority to a tool that individuals could use to explore their faith.
Impact: This laid the groundwork for individual rights and freedom of conscience, influencing modern concepts of religious liberty.

The Democratic Revolution:
Transformation: The democratic revolutions of the 18th and 19th centuries (e.g., the American Revolution, the French Revolution) redefined the role of the state.
Outcome: These revolutions established democracy, transforming the state from a sovereign entity into a mechanism of governance that serves the people.
Impact: This shift empowered individuals with political agency and rights, institutionalizing concepts of citizenship and representative government.

The American Dream:
Transformation: The notion of the American Dream in the 20th century democratized finance and credit.
Outcome: Access to credit and investment opportunities expanded, allowing a broader segment of the population to participate in economic growth and wealth creation.
Impact: This economic democratization contributed to a burgeoning middle class and widespread prosperity, emphasizing the individual's potential for upward mobility.

Prediction: Transformation of the Corporation:
The Fourth Economy:
Prediction: The book predicts that the next major transformation will involve the corporation, shifting it to become a tool for individuals who work within it.
Rationale: This prediction is based on emerging trends where employees seek more autonomy, purpose, and a stake in their organizations.
Possible Outcomes:
Employee Empowerment: Corporations could evolve to offer more democratic work environments, profit-sharing, and collaborative decision-making processes.
Corporate Social Responsibility (CSR): A greater emphasis on CSR could align corporate goals with the broader interests of society and the environment.
Innovation and Flexibility: Empowering employees could lead to greater innovation and adaptability, essential in the rapidly changing global economy.
Evaluation:
Historical Continuity: The notion aligns with historical trends where transformative periods redefined major institutions to better serve individual needs and rights.
Current Trends: There is evidence supporting this prediction. For instance, the rise of employee-owned companies, the gig economy, and increased focus on workplace culture and values suggest a shift towards more inclusive and employee-centric corporate models.
Challenges: The transition may face resistance from entrenched corporate interests and require substantial changes in corporate governance, legal frameworks, and cultural attitudes towards work and employment.
Conclusion:
The Fourth Economy’s notion is a compelling framework for understanding societal transformations. By drawing parallels with historical shifts, it provides a coherent narrative for the potential future evolution of corporations. If corporations do transform as predicted, the change could herald a new era where businesses not only drive economic growth but also enhance individual well-being and societal progress.

Is the Fourth Economy Still Valid? - What Chat GPT Has to Say About My First Book, the Fourth Economy (Part One)

Part One:

"Is the Fourth economy still valid?"

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The validity of the "Fourth Economy" theory can be evaluated based on its relevance to current economic trends, technological advancements, and societal impacts. Here’s an analysis of its ongoing relevance:

*1. Technological Advancements*
- *Still Relevant:* The theory's emphasis on technology as a key driver of economic change remains valid, particularly with the rise of AI, machine learning, blockchain, and other cutting-edge technologies.
- *Current Examples:* AI is transforming industries, enhancing productivity, and creating new markets, consistent with the Fourth Economy's focus on innovation.

*2. Innovation and Entrepreneurship*
- *Still Relevant:* The importance of fostering innovation and entrepreneurship continues to be a cornerstone of modern economies.
- *Current Examples:* Startups, especially in tech, continue to disrupt traditional industries, and innovation hubs like Silicon Valley remain vital economic engines.

*3. Globalization and Competition*
- *Still Relevant:* The interconnectedness and competition on a global scale, as highlighted in the Fourth Economy, are more pronounced than ever.
- *Current Examples:* Global supply chains, international trade, and multinational corporations thrive, driven by technological advancements and digital platforms.

*4. Impact on the Workforce*
- *Still Relevant:* The shift in skill requirements, job displacement, and creation of new roles align with current trends.
- *Current Examples:* The need for digital literacy, AI expertise, and continuous learning are evident in today’s job market.

*5. Flexible Work Arrangements*
- *Still Relevant:* The trend towards remote work and gig economy jobs predicted by the Fourth Economy has accelerated.
- *Current Examples:* The COVID-19 pandemic has further entrenched remote work and freelance opportunities, supported by digital tools.

*6. Education and Training*
- *Still Relevant:* The call for changes in education systems to prepare for a rapidly evolving job market remains pertinent.
- *Current Examples:* Increasing emphasis on STEM education, coding boot camps, and lifelong learning programs.

*7. Urban and Rural Transformation*
- *Still Relevant:* The growth of tech hubs and the transformation of urban and rural areas continue.
- *Current Examples:* Smart cities, tech parks, and digital infrastructure projects are expanding globally.

*8. Income Inequality*
- *Still Relevant:* Addressing potential income inequality remains a critical issue.
- *Current Examples:* The disparity between high-skilled tech jobs and low-skilled jobs is growing, necessitating inclusive policies.

*9. Sustainability and Inclusivity*
- *Still Relevant:* The focus on sustainable and inclusive growth is increasingly important.
- *Current Examples:* Growing emphasis on green technologies, corporate social responsibility, and inclusive economic policies.

*10. Proactive Measures*
- *Still Relevant:* The need for proactive measures by governments, businesses, and individuals to navigate economic changes remains crucial.
- *Current Examples:* Regulatory frameworks for AI, public-private partnerships, and individual reskilling initiatives.

*Conclusion*
The "Fourth Economy" theory remains a valid and insightful framework for understanding contemporary economic trends and preparing for future challenges. Its emphasis on technology, innovation, globalization, workforce transformation, and proactive measures continues to resonate with the current and evolving economic landscape.