10 April 2021

Given the Gap in Household Wealth of Folks With and Without College Education is Growing We Need Bolder Infrastructure Plans

The gap in wealth because of education is big and growing.

In 1989, the average wealth of high school dropouts was 21% that of college grads; by 2020 it was only 9%.


If the gap had stayed constant, households with high school dropouts would have $200,000 more in wealth than they now do.

Trump's big idea (and given it is now completely his party, the Republican's big idea) is to return to 1970 and the heyday of manufacturing and strong wages for folks outside the information economy. Put up trade barriers and bring back manufacturing jobs. A lot of people get really excited about this (im)possibility.

The Democrats' big idea has been to create better social safety nets for high school dropouts. Until now.

Biden's infrastructure plan is a reasonable approach to addressing this gap; big construction projects will create really good jobs for folks who haven't learned programming, enabling them to create wealth and some measure of economic security.

How much is Biden's $2 trillion plan that spills across a decade? A paltry sum. Last year, household wealth rose $12 trillion to $130 trillion. $200 billion a year (roughly what Biden's plan proposes spending per year) is less than 2% of the amount by which household net worth ROSE last year.

Spending $200 billion a year is too little but it is a start at the creation of good jobs for folks without college degrees. It doesn't do any of us any good to make the penalty for struggling in school so high.

source:
https://www.stlouisfed.org/household-financial-stability/the-real-state-of-family-wealth/educational-household-wealth-trends-and-wealth-inequality

08 April 2021

You Could Have Been Rich But You Had to Have That iPod - How Corporations Shifted Their Emphasis From Making Products to Making People Wealthy

A curious thing happened through the course of the 20th century: companies shifted their focus from making things to making money. This shift is important and still misunderstood.

In 1900, American homes did not have running water, electricity, a car, a radio, telephone, TV, computer, store-bought clothes, frozen food, takeout, aspirin, a refrigerator, microwave oven, canned goods, sneakers, safety razors, shampoo, or credit cards.

Fortunes were made by the various companies able to produce those goods at affordable prices. And people were largely focused on buying those things.

And then our curious thing happened: given these companies had gone public, they rather inadvertently created a new product. They created wealth. If you owned shares of a company that became successful, you could have one of the more curious products of all: financial independence.

On 23 October 2001, you could have been the first on your block to buy an iPod for $399. Call it $420 with tax. Apple was selling a product that made it easy to enjoy all your favorite songs on one slick device. (And of course, you’d have to pay another $1.29 for each song, so the $400 was just the admission price.)

On 23 October, 2001, for that same $420 you could have picked up 1,500 shares of AAPL – Apple’s stock. As I write this in early April of 2021, those 1,500 shares would be worth $194,325.

Apple was selling products that let you have private concerts at a whim. If you’re not amazed and delighted by that, you probably aren’t that impressed by music. The iPod was a fabulous product. But it likely pales in comparison to the other product for which Apple was becoming famous: its stock.

The person who spent $420 on Apple’s stock instead of Apple’s iPod back in 2001 has wealth to use for any of millions of products and services. The person who bought the iPod probably doesn’t know where it is now. Apple has made a lot of very impressive products. Perhaps none are as impressive as having made people rich.

Between 1900 and 2000, life expectancy rose from 47 to 77. (And no, this was not all due to infant mortality rates dropping. Your odds of dying at any age - from six months to 20 to 50 to 70 - steadily dropped during the 20th century.) People had always gotten old but old age was popularized in the 20th century and retirement was invented.

Pension plans and 401(k) accounts took advantage of decades of compound interest over these newly long lives to create enough wealth to fund retirements. People no longer had to work until they died or rely on the generosity of their children. And in 1900, that is what happened. The bad news is that people worked until they dropped dead. The good news is that they didn’t live that long. (Hmm. Or maybe that’s bad news too.)

At a certain point, more goods have less appeal. Your closet has more clothes than you'll wear, your freezer and pantry have more food than you'll eat, and your garage had more things than you can find. Eventually you realize that it is momentum from previous pursuits of happiness that are driving the purchase of more things. You realize that of all the things that corporations make, you are probably more interested in their ability to make you financially independent than you are whatever goods they’re selling. In fact, with the intense interest in startups, people are increasingly buying the stock in companies before those companies are even selling products. "What are you selling?" "Well, for now it's just stock but we do have a product launch planned."

An amazing, unprecedented economy emerged in the 20th century, providing goods that past generations could not have imagined. Of all the goods it made, though, perhaps the most alluring was its promise of financial independence. Of all the things that companies could make that people were eager to buy, the promise of wealth ranked highest.

It is difficult to properly understand modern companies if you still understand them as institutions focused on making things. That was largely true a century ago. Now, they are largely focused on making people rich. (What does Google "make?" Well, they've made a lot of people rich.)

Henry Ford became famous for making cars affordable for normal people. Previously, they were something only the very few, very wealthy could afford. The challenge of the early part of this century is to do something similar with companies' most interesting product yet: make ownership of wealth more widespread, more common. One of the keys to this will be creating more mechanisms that allow employees to use the company as a vehicle for creating wealth. As with the church and state before it, the corporation is to become a tool for the masses and not just the elites. The popularization of wealth will be a signal that we’ve overcome the limit of entrepreneurship and with it have moved beyond the limit of economics.

04 April 2021

COVID Has Made Everyone's World More Virtual - And Threatens to Make Even the Real World More Virtual for Some

Forced to social distance by COVID, we're online in greater numbers and greater frequency than ever before. Beyond that, COVID strangely simulates the virtual world.

In one study, 86% of people who had COVID lost their sense of smell and after 60 days, 24% still had not recovered it.

It is still not clear whether the folks who permanently lose their sense of smell - and with it often the ability to distinguish tastes beyond salty and sweet - is closer to 2% or 20%.

The five classic senses are sight, hearing, touch, taste and smell. A loss of one or two is disconcerting and I find it odd that more isn't said about this loss of smell and taste.

But it also makes COVID such a weird echo of the online experience. Online is all sight and sound but no taste or smell. COVID - weirdly - has the potential to make our real world seem that much more virtual, a place with sights and sounds but no aromas.

03 April 2021

The Big Penalty for Living in the Past - Or How People in Mississippi Pay $3,000 a Month to Live in the Past

There is a big penalty for living in the past.

Massachusetts was one of the first states to outlaw slavery, back in 1783. Washington and California entered the Union as free states. New York outlawed slavery relatively early - in 1799.

These four states have the highest average incomes in the country - about 25% higher than the national average.

The Thirteenth Amendment outlawed slavery everywhere in the US and was ratified in December of 1865.

Mississippi ratified the Thirteenth Amendment in 1995 - and certified that in 2013. 148 years after it was ratified nationally.

Mississippi has the lowest average income of any state in the country, 31% lower than the national average.

The difference between Mississippi and Massachusetts' average wages is $35,000 a year - nearly $3,000 a month. Folks in Mississippi make roughly half of what folks in Massachusetts make.

There is a huge penalty for worldviews that dismiss or limit the potential of any member of a community. The past is not a better place. You should move out of there daily.

Of note: had it not been for Mississippi, Kentucky would have been the last state to ratify the 13th amendment. The state that gives us Senators Mitch McConnell and Rand Paul ratified the 13th amendment in 1976 - a mere 111 years after the country as a whole. So, if you're ever wondering what kind of people think that McConnell and Paul would make great senators ... well, there you have it.

01 April 2021

In Which Your Blogger Affectionately Mocks Baseball on Opening Day

I don’t know which came first: April Fool’s day or this being the opening day of baseball. In any case, fans from 30 different teams all believe that their team has a chance to win the whole thing this year. On opening day, every team has a perfect record. This encourages a form of foolishness.

In baseball, the pitcher tries to keep anything from happening and the batter tries to change that. Most of the time, nothing happens and then suddenly it does. That’s also how life works.

No matter how great a hitter you are, you have to wait for 8 other guys to go to the plate before you get another turn. Imagine that sort of turn taking in basketball or football. “Pass me the ball!” “No. It’s not your turn.” 

They call time out in baseball and yet no one pays attention to the clock or can tell you how many minutes are left in the game.

It’s a weird game, too, in that when a team goes on offense, they literally (well, most of them anyway) retreat into the dugout. On defense, you go out into the field and stand around. On offense, you go into the dugout and sit down. Possibly they first made baseball players begin to wear uniforms because given their penchant for sitting down to watch the game people were having a hard time telling the players and fans apart.

Baseball fans are obsessive about small differences in batting averages, pitching counts, etc. It’s a game with strict rules but the distance you have to hit a ball for a homerun randomly changes from park to park. Can you imagine a football stadium where an announcer says, “Defenders love this field. It’s 111 yards long.”

It’s hard to tell whether baseball players are overly optimistic about speed or very pessimistic about risk. In either case, it seems odd that they wear helmets when running the bases.

Players are constantly called out in baseball. It’s the thing that happens most. But the umps are nice about it. They give you a little thumbs up when they call you out.

I’m still waiting for the first baseball coach to abandon the traditional zone defense (“You play third base, you play right field …”) to pioneer a man-to-man defense (“I don’t care if he is on the bench, you stay on Jenkins …”).

Baseball encourages a philosophical bent. The most dominating teams still lose more games than the athletes in other sports play in a season. And your best hitter gets out twice as often as he gets on. To watch a game is to watch failure. That alone may be a reason it has held our attention for more than a century, another way in which it is less an escape from reality than a way to closely study it.

31 March 2021

LBJ and The Economic Reality That Had to Change Before Civil Rights Legislation Could Pass

In one of my earliest memories, I was sitting in a tree with my sister and neighbor Jeff, older kids I was apparently trying to impress. I said, “LBJ is a SOB.” I knew who LBJ was but didn’t know what SOB meant. When my mother found out she washed out my mouth with soap (for the first and only time in my life). She told me, “You don’t talk that way about a president.”

It left an impression. I’ve been fascinated with politics ever since.

American president Lyndon Baines Johnson (LBJ) averaged only 4 to 5 hours of sleep a day and worked most of the rest; his wife once said, “Lyndon acts as if there is never going to be a tomorrow.” He might sleep from about 2 am to 5 am, work until lunch, then take a nap around 2 pm, before working until the early hours of the morning. These “double days” were exhausting for everyone who worked with him but the man signed a lot of legislation.

He once called a congressman at 3 a.m. to discuss a piece of pending legislation. When Johnson asked, “Were you asleep?” the congressman responded, “No, Mr. President. I was just lying here hoping you’d call.”

One of the things he liked to do, at the start of formal meetings, is ask where the folks present had gone to university. As you may imagine in a meeting at the White House, he would hear answers like Yale, Princeton, Harvard - the usual suspects. Then he would pause and say "It looks like I'm the lone representative of Southwest Texas State Teachers College."

He was colorful. Once asked whether he might force J. Edgar Hoover out of the FBI (Hoover had abused his power more than once) LBJ quipped, “I’d rather have him in the tent pissing out than outside the tent pissing in.”

LBJ described himself as a protégé of FDR. His Great Society was a continuation of FDR’s initiatives that focused on labor – that is, on people - more than capital.

A video at the Johnson Library in Austin includes LBJ explaining a new bit of legislation that he’d signed to fund free school lunches. He recounted how as he watched the poor kids come into his classroom, unable to afford lunch – early in his career he taught in a part of Texas with a lot of poor Mexican-American kids – he vowed that if he ever had the power to change this fact of hungry kids at school he would. “Well,” he said, “I now have that power and I intend to use it.”

He also tasked Sargent Shriver – JFK’s brother-in-law – to lead the war on poverty. Shriver said that he had asked for data on who in America was poor and was shocked when he saw a pie chart: 50% of America’s poor in the mid-1960s were children. One of the programs that Shriver quickly scaled up was Head Start, funding and drafting volunteers to go into the country’s poorest neighborhoods to give these kids a head start with summer school and healthy food.

LBJ also got universal healthcare (at least for those over 65 in the form of Medicare).

His most defining legislation might have been his Civil Rights legislation that forbade discrimination in jobs and public services and then – after his overwhelming victory against Barry Goldwater in 1964 – the Voting Rights Act of 1965 that protected minority registration and voting, ending a century of denying Blacks access to the ballot. The courage of Martin Luther King, John Lewis and others had helped to shift American opinion; after peaceful protests in Birmingham, Alabama were made violent by local authorities, LBJ accelerated his agenda for Civil Rights. When he signed the Voting Rights Act Bill, he reportedly said, “We have lost the south for a generation.” As it turns out, the south that once reliably voted against the Republican Party that freed the slaves still reliably votes Republican two generations later. And counting. It is now the Republican base.

One of the rarely reported on reasons that presidents in the 1900s fought for and gave so many rights to women and minorities? If the US only invested in white, non-Hispanic males – only allowed these men to realize their potential and have full access to the institutions that are key to success - it would only let 30% of its adults realize their potential. Again, if a society is caught up in win-lose thinking and thinks that one person’s prosperity comes at the expense of another (a mostly accurate description of reality in an economy based on land), this matter of only 30% of adults being able to realize their potential is not a big deal. In fact, even 30% might be too many to compete with for scarce resources.

But once the limit to economic progress shifted to labor, progress became dependent on having more people solving more problems and creating more new possibilities. The economy grew as the portion of people fully engaged in it grew.

Only 30% of adults are white males. Add in all the minority men and we’re now engaging 49% of adults. Add in all the women and we’re now engaging 100%. The community that engaged and gave opportunity to 100% of its adults is obviously going to do better than a community that only engages 30%.

Slavery had always been bad morality; after the automation of manual work brought on by the industrial revolution and its machinery, slavery became bad economics. It was then that policy made slavery illegal.

Discrimination against women and minorities had always been bad morality; after labor – and particularly knowledge work – became the limit to progress, discrimination became bad economics. It was then that policy made discrimination illegal. It was then that men like FDR and LBJ could win by overwhelming margins and sign legislation that changed reality for millions.

And lest you think that discrimination doesn’t make a difference, it is worth pointing out that the Deep South that voted for segregationists into the 1960s still lags the nation in income. Average income in those states is 20% lower than the national average. There is a penalty for failing to invest in and include as many people in your community as you can.

The great thing about labor as the limit to progress is that a community intent on realizing its potential is going to be intent on investing in as many of its members as it can – regardless of their accents, eyelids, pigment, hair, genitalia or with whom they use it. By our standards, LBJ was racist, sexist and homophobic. He was – as a four-year-old in a tree once pointed out - an SOB. And yet he lived at a point in history in which progress meant investing in everyone because with labor as the limit, a community could not afford to exclude anyone and he was smart enough to know this and champion the policies that changed it.

We’re bigger for LBJ’s policies. “We” literally encompasses all of us now instead of just a portion of us. And we’re better for it.

26 March 2021

What a Growth in Free Time Could Mean for Entrepreneurial Opportunities for Structuring Consciousness

Between 1900 and 2000, life expectancy rose from 49 to 77 and the average workweek dropped from 53 to 37 hours.

If retirement remained constant at age 65, the additional life expectancy gave a person 12 new years of free time - years that never had to be - never got to be - filled before. The shorter workweek gave a person in 2000 an additional 16 hours a week.

We rightfully get kids thinking about what they are going to do for work from an early age. It's a big decision and should be given a lot of consideration.

I wonder, though, if we don't do enough to get kids thinking about who they want to be in their free time. It's a nontrivial question and could do as much to define you and your quality of life as your work.

Csikszentmihalyi notes that in studies of free time most people lapse into things like watching TV. It's easy to do but people generally report feeling less than engaged or happy doing it. The problem is, activities like tea parties, building cars, and group hikes that are more engaging are also more work; it takes a lot to set up the activities that create flow. Setting people up for more flow-inducing activity may become one of the big growth industries as growing affluence means that more people will be retiring before 65, adding even more free time to lives.

The good news is that we have more hours and years of free time than ever before; even better news for aspiring entrepreneurs is that this suggests more demand for someone to structure the activities that structure our consciousness. Retirement planning will become much bigger than cash flow management.

23 March 2021

How the Success of the University of California System Has Created a Crazy Obstacle to Higher Education in California

These poor kids trying to get into UCs. It's not enough that the average GPAs for the kids they admit are over 4.0. The success of these campuses as a hub for activity, research, new businesses, and - of course - education has made them some of the most expensive areas to live in California.

The median home price in California is $635,000. Home prices in some UC neighborhoods are about 2 to 3X that.
Median home prices are
$1,850,000 around UC Berkeley
$1,500,000 around UC Los Angeles
$1,875,000 around UC San Diego
$1,050,000 around UC Irvine
$1,300,000 around UC Santa Barbara
$1,100,000 around UC Santa Cruz
My mother moved from Montana to Berkeley in the 1950s. She told me about one guy she'd met who had inherited money, tried work but found that boring, so he'd just been going to UC Berkeley for years and years. They don't let you do that now but what a lifestyle. And what an income you'd need to do that even if they did let you.
In 1968, the UCs first began charging tuition ("to keep out the riff raff") of $300 a year. Back then median home prices in Berkeley were $23,000.
Last year at UC Berkeley, tuition, health insurance, and room and board was $35,000. That's if you could get a place on campus.

18 March 2021

The Counterintuitive Approach to Raising Average Wages

A minimum wage is necessary but it won’t do much for raising average wages. If you want to raise wages, shift from policies focused on labor to policies focused on entrepreneurship. It may sound counterintuitive but there is precedent.

By Lincoln’s presidency, America’s conquest of land was largely done. Lincoln and the New Republicans shifted the focus from acquiring new land to creating new capital. As a result, the value of land rose. Dramatically.

When Lincoln took office, New York City still had farmland and single-story housing. In 1910, the average price per square foot for an apartment was $8. It is now $1,300. That is even more dramatic than it sounds. If your average building is 2 stories high, $8 per square foot works out to about $700,000 per acre. If your average building is 10 stories high (and more than 7,000 buildings in New York are at least this high), $1,300 works out to over $500 million per acre.

Capital made land more valuable. Steel and elevators made it possible to build skyscrapers. Trains and cars made it possible to draw workers from a wider circle. All of these require capital and as cities created more capital, the value of land rose.

From the start of Lincoln’s presidency in 1861 to the end of Herbert Hoover’s presidency in 1933, Republicans focused on creating capital. After that, policies shifted to the problem of keeping labor fully employed and making labor more valuable. The result for capital was very similar to what happened to land after 1860.

The Federal Reserve has a simple charter: keep unemployment and inflation low. There is nothing there about ensuring that capital gets a high return. Financial markets are no longer subordinate to capital; they are subordinated to labor.

So, what happened to capital after the Fed found tools to better fulfill its charter? In 1945, household net worth in the US was $11.5 trillion. (Adjusted for inflation.) At the end of 2020, household net worth had reached $130 trillion, 11X more.

When the limit shifted from capital to labor, capital did fine. At the risk of hyperbole, you might even say it has done spectacularly. One of many reasons is that a growing number of employees are also capitalists: through pension funds, 401(k) accounts, and home ownership most workers also have a stake in the country’s assets.

Want to increase the value of land? Create more capital.

Want to increase wealth? Develop labor.

Want to raise wages? Make more people more entrepreneurial.

What evidence do we have of this? Well, for now it is anecdotal but the wages in Silicon Valley and Seattle are absurdly high by national – much less global – standards.

Do we need minimum wage laws? I think so.

Are minimum wage laws a good way to raise wages for folks outside the bottom 20%? Probably not.

The way to drive up average wages is to create so much demand for labor through startups that the limit to the number of startups has far less to do with capital than labor. And if that is the case – the priority by which startups get funded is determined by which key people they can get and not which investors they can find (and spoiler alert – that is already happening in places like Seattle and Silicon Valley) – it will drive up wages. Silicon Valley is not just the region with the highest wages in the country; it is the region where wages are growing the fastest. Based on weekly wages in the third quarter of 2020, the average wage in the US is $61,000, up 7.4% in the last year. In San Mateo, San Francisco, and Santa Clara, California, average wages are $148,000 – up more than 20% in the last year. Silicon Valley not only gets more venture capital funding than any other region in the US but more than any other country in the world. One of the many ways that Silicon Valley leads is that it is a place where a relative abundance of entrepreneurship is driving the demand for knowledge workers and raising wages to record levels. In King County, Washington, home to Amazon and Microsoft, the average wage for information workers in the third quarter of 2020 was $327,000. That’s five times the national average for all workers, which means that these workers are making each day what the average American worker makes in a week.

You may be inclined to dismiss these high wages as something reserved for only knowledge workers, arguing that these wage premiums only go to college graduates. It actually raises wages more broadly. Enrico Moretti, in his The New Geography of Jobs, writes, “Compare San Jose, number five from the top [by the measure of percent of workforce with BA or more], with Merced, at the very bottom. Both cities are in California, less than 100 miles apart, but their labor markets belong to two different universes. San Jose, in the heart of Silicon Valley, has more than four times the number of college graduates per capita as Merced and salaries that are 40 percent higher for college graduates and a whopping 130 percent higher for workers with a high school diploma.”

A barber cutting hair for folks making $30,000 a year will make less than a barber cutting the hair of folks making $300,000.

Wages in a region go up with levels of entrepreneurship. We raised the price of land with more capital. We will raise wages by making more people more entrepreneurial which will create more demand for labor in the same way that New York's financial markets, subways and skyscrapers created more demand for land.

16 March 2021

British and French Alternatives to Jefferson's Pursuit of Happiness

Thomas Jefferson insisted that the phrase "the pursuit of happiness" be kept in the Declaration of Independence.

"The Declaration of the Rights of Man of August 1789 was largely the work of Lafayette, Mirabeau and Jean Joseph Mounier, 'but it derived philosophically from the American Bill of Rights." (While he had been in Paris, Jefferson was constantly consulted in secrecy by Lafayette: the 'pursuit of happiness' became in Lafayette's French, la rescherche du bienentre.)"
[from Peter Watson's Ideas]

John Locke - the British Enlightenment philosopher wrote that natural rights included "life, liberty and property." Jefferson revised that to "life, liberty and the pursuit of happiness." Lafayette - the French aristocrat who fought with Washington to help the Americans win their independence before returning to France to spark revolution there - turned Locke's property and Jefferson's pursuit of happiness into "the search for well-being."

Curious how the code that defines one's social norms can lead to such different outcomes.

The British got an empire that spanned the globe - an abundance of property.

The Americans got sitcoms and standup comedy.

The French got existentialism.