09 November 2021

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?

21 October 2021

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.

15 October 2021

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 ]

13 October 2021

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?

12 October 2021

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.

11 October 2021

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.

08 October 2021

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.

07 August 2021

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.

27 July 2021

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.

26 July 2021

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.