29 December 2013

California Orders Up a Spending Splurge on Education with a Side of Budget Surplus

Non-partisan legislative analysts are forecasting budget surpluses for the state of California on the order of $234 million for this year, $2.4 billion for next (2013-2014), and $5.6 billion for the year after (2014-2015).

But these surpluses are just part of the good news. Revenues are now expected to be nearly $5 billion higher than initial forecasts. And a disproportionate amount (about $3 billion) of that extra revenue is going into schools.

As if it is not good news enough that spending on education is going up and budget deficits are becoming budget surpluses, these optimistic projections are already proving too cautious. To quote,

Through the end of October, 2013-14 PIT [personal income tax]
estimated payments—tied in large part to capital
gains and business income—have exceeded
the administration’s monthly projections by
34 percent

Further, they've been cautious in the estimate of income from stock, wildly underestimating the increase in stock prices for 2013, so that, too, will cause revenues to be higher than these projections.

Classrooms have steadily been growing larger since the Great Recession. I'm not sure how typical it is, but I do know that at my wife's elementary school the class sizes grew by 20% to 100%. This year at her school, kindergarten classes were 37 for the first month or two of the year before being brought down to 27. At a minimum this infusion of money into education should help to stall that trend, perhaps even reverse it.

On a side note from the report about housing, investors came into California with cash in 2013, seeing bargains in the depressed prices apparently. And they paid cash.

In Los Angeles,
cash purchases as a portion of all home
sales increased from 5 percent in 2005
to 34 percent in May 2013, the largest
increase in the country. Other areas of
California have similarly high all-cash
sales rates

28 December 2013

Merry Christmas Shopping - Spending Up 29% From Last Year

Gallup tracks the daily spending of Americans in real-time polls.

Here's a graph of the 3-day and 14-day rolling averages leading up to Christmas for each of the last six years, from 2008 to 2013.

Their data suggests it was a good Christmas. The 3-days leading up to Christmas were up 29% over last year, up 68% over 2008 (the start of the Great Recession). Comparing the two weeks leading up to Christmas, spending was up 17% over last year, up 32% from 2008.

["Gallup tracks daily the average dollar amount Americans report spending or charging on a daily basis, not counting the purchase of a home, motor vehicle, or normal household bills."]

How We Squelch Individuality and Progress - or Why Intrinsic Motivation Matters

Nobody ever asks "Why would you want to travel?" or "Why would you want to walk along the beach to watch a beautiful sunset?" or "Why would you want to make love to that beautiful woman?" or "Why would you want to eat that delicious meal?" Some things - the best things - we do for their own reason. We're human and because of that there are certain things that we simply enjoy doing for their own sake.

As it turns out, work and learning are included among those things we're intrinsically motivated to do. Yet the way that we manage schools and work places suggest that we don't believe this, suggest that we don't believe that people would ever learn or work for no other reason than to simply experience doing it. The aha moment from learning or the gratification from a job well done can be at least as satisfying as a good meal or a stroll through the woods.

Last night we had dinner with old friends. Peter has a successful, small business. Of course everyone gets that, understands business success that lets a couple plan three big trips (Australia, Ireland, and Iceland) for 2014. We all applaud that. But while people understand Peter's success, they are clueless about how he became successful. Other people thought of him as inventor working on products they didn't understand (and of course, were dubious about) but he thought of himself as an entrepreneur. " His obsession with tinkering and creating just looked eccentric and inexplicable. And of course that is one of the problems with understanding intrinsic motivation: while we all love food and affection, most of us are intrinsically motivated to do at least one or two things that are simply inexplicable to anyone else. And that is Peter with his inventions. (And just to put things in perspective; the man who began designing and inventing parts for phone and data systems before the Internet is now at work - as a hobbyist - on nuclear fusion.) I love Peter's enthusiasm for projects and new inventions which I understand only at the most superficial level. Listening to him describe the problems he's solving on his way towards creating atomic collisions makes me happy.

Of course the most sane and probable bet is that Peter won't solve any new problems in the domain of nuclear fusion. As he says, though, his probability of doing that, while a long-shot, is above zero. And it is because of people who become intrinsically motivated to solve a particular problem or create a particular thing that we aren't just sitting around comparing different club handles and affirming old techniques for bringing down rabbits and mastodons. Progress is the product of people who take ownership of a task or project that has the potential of changing the world and probably will - in any case - change them. But of course that is nearly tangential to why they do it: they are intrinsically motivated.

Few people can conceive of a world in which we depend on intrinsic motivation and feedback as the two ways to direct behavior, a world in which we don't grade or rate or use other methods to control people. In the Fourth Economy I speak of how business is perhaps the last domain for autonomy, work becoming as personal as religion is now. I don't think that I properly articulate or convey just how different that would be from the current model in which students starting in kindergarten and employees working until retirement have their tasks, projects and roles defined for them by others and are then extrinsically motivated towards those goals. The switch from extrinsic to intrinsic motivation as the expectation for work and learning is a huge shift, and it could give us more Peters in the world.

Deming's chart that shows the forces of destruction, the actions we take to kill off intrinsic motivation and, in the doing, a person's sense of self or what makes them unique, is captured in this chart he often showed in his seminars. It's worth reading and taking seriously.


27 December 2013

Redesigning Microsoft's Managerial Operating System in the post-Ballmer Era

Steve Ballmer steps down as CEO of Microsoft in 2014. It's a perfect opportunity for the company to change their managerial operating system and begin to again create equity for employees and stockholders.

First let's get something straight. Steve Ballmer is worth $18 billion, which is not only more than 7.1 billion other people on this planet but roughly $18 billion more than me. That alone may cause you discount my two cents about what he might have done in his 14 years leading Microsoft. He's rich. I'm not. But in my defense, I'd like to point out that I've created more wealth for my stockholders than he has. 

(I've created none. Ballmer has destroyed between $50 to nearly $200 billion in stockholder value, depending on whether you use the absurdly inflated, dot com bubble price that prevailed when he took over or some more reasonable amount from about a year earlier.)

Secondly, as a company becomes larger, it is more difficult to grow fast. You might grow 30% a year for decades and then - at some point - your size relative to your industry or even region will be capped by the growth in that industry or region. If Ballmer had grown Microsoft's value as much in the 14 years he worked as CEO as it had grown in the decade before, its net worth now would be more than global GDP. At a certain point - like it or not - growth gives way to predictable dividends. It may well be that Ballmer did as much with Microsoft as anyone could have and Bill Gates timing for ending his tenure as CEO may have been as wisely serendipitous as his timing for the start. But it's also true that while Microsoft was dead center in technology in 2000 - in possession of the defining operating system and most popular office software - all the significant innovations since (from smart phones to web-based everything) have come from outside of Microsoft. 

Simply put, Ballmer could have done more for stockholders.

The reason he didn’t is that he clung to an antiquated operating system in the form of a management approach that depended on competition and control rather than cooperation and freedom, a philosophy more interested in ranking people within existing businesses than in creating new businesses. Put differently, Microsoft was among the first to arrive at the new economy but then maintained the management approach from the old economy. 

Ballmer used a system of stack ranking for employees that forced outcomes. Regardless of whether a team was all great or all atrocious, there would be a few top ranked and a few bottom ranked employees, in every group, every six months. The result was that employees focused on competing with each other and focused on short-term results. It is hard to conceive of a system that does more to squash innovation. Teams create new products and those teams need to focus on competing with other teams, not each other. Knowing only this about Ballmer one might well predict that Microsoft would be profitable (competition can be good for creating efficiencies) but hardly innovative. 

Of course this emphasis on ranking mattered because rank in the organization matters. If you were CEO of Microsoft, your net worth could put you among the top 10 or 20 in the world. In this way, Microsoft was like the France of Louis XIV or Iraq under Saddam Hussein; it’s good to be king. Contrast that with more evolved forms of government; in the US last year, roughly 6 million Americans made more than Barack Obama earned as president. Corporations are still largely unevolved institutions where the reward for being at the top is closer to what Mubarak might get than what Canada’s Harper would be paid. (Estimates of Mubarak’sprofit from running Egypt range from $1 billion to a staggering $700 billion; Harper makes roughly $300,000 a year.) Ranking matters when position – rather than innovation – is the best predictor of wealth.

Ranking suggests something static. If you want to win the gymnastics competition, you have to be flawless; ranking suggests clear criteria.

Creativity doesn't measure against old criteria: it creates new criteria. Rather than rank people, Ballmer might have done well to encourage entrepreneurship by giving employees the chance to create wealth, just as he and Gates did. Microsoft is large enough that it could have created internal markets that allowed employees to create new businesses, using its $80 billion in cash to finance startups from within the company. Microsoft has attracted phenomenal talent that has the advantage of having seen generations of technology rise and fall. The potential for entrepreneurial activity within Microsoft could rival that of most states. But the incentives are not designed to encourage the creation of new businesses but instead are designed to rank performance within the old business.

The process for creating wealth within Microsoft could take many forms. Imagine employees being able to bet on different proposals because of their faith in a particular technology or team, essentially R&D and new business development being conducted more along the lines of entrepreneurs vying for venture capital. This would spur the right kind of competition, a competition between alternate businesses and teams rather than competition within them. The company might match - dollar for dollar - investments made by employees in various startups within the firm, internally publicizing various technology breakthroughs and ideas. The wisdom of crowds could guide management allocation of resources and the emphasis would be on actually creating equity, not just products. People would then cooperate to create this value they'd invested in, working to create equity rather than competing with one another for a fixed pool of equity.

In his foreword to Robert Beyster's book about SAIC, William Taylor makes a really important distinction, one that might be useful for Microsoft as they enter a post-Ballmer stage.

“Much of our business culture is infatuated with power - amassing it, holding on to it, using it to vanquish competitors and dominate markets. In contrast, much of Dr. Beyster’s leadership philosophy is about spreading freedom. And freedom, it turns out, packs a bigger wallop than power. Power is about what you can control; freedom is about what you can unleash.”
—William C. Taylor

If Microsoft can let go of a ranking system that they feel gives them control over teams and instead adopt a system – any system – that gives employees more entrepreneurial freedom, they might begin again to create equity for their stockholders and their employees who feel less controlled and more like entrepreneurs free to create their own future. Microsoft is such an inescapably big and important part of tech that one can only hope they decide to evolve the company and not just their products. No company has done more to prove the importance of operating systems; its time they looked at the operating system they use to manage their employees.

23 December 2013

Why the Evolution of Technology Necessitates NSA Spying on Individuals

I don't mind the NSA having special powers to collect data, powers that could be abused. The police and army also have special powers that could be abused, but the danger of them not having such powers is greater than the danger of having them.

I simply think that too much is at stake for us not to be able to monitor communications at a level that (for the most part) lets people communicate privately yet (for the most part) alerts authorities to potential threats. Soon, individuals will be able to do what only institutions could previously do. This is the pattern of technology that, sadly, will likely hold for not just computers and sewing machines but even powerful bombs.

At one point in history, we could sew only manually. Later, factory owners with lots of capital could afford the machinery that automated this work. Even later, any woman with credit good enough to make monthly payments of $1 could buy a sewing machine to have in her own home. First the task is automated and then it is privatized.

At one point in history, we could compute only manually. Later, only countries or large corporations had money enough to afford the computers that could automate computation. Even later, anyone with a credit card could buy their own personal computer. First the task is automated and then it is privatized.

Which brings us to killing. At one point in history we could only kill people manually. Later, armies developed bombs that could kill thousands at once. It is lovely to imagine that bombs with such power won't ever become affordable for individuals, but that would make them the exception in the evolution of technology. There is simply too much at stake to assume that everyone with the freedom to communicate with anyone about anything will value peace more than mayhem.

If we were only talking about the possibility of guns or even small bombs, one might reasonably argue that the cost of risking privacy is not worth the value of lives protected. But when we're talking about the ability to create widespread destruction - something that would make 9-11 look like a preview - the cost-benefit calculation is far more simple.

I think there should be civilian oversight for the NSA. I think that their processes should be known. I think that they should be subject to outside audits periodically. It's right to be a little paranoid about so much spying capability. But it's wrong to assume that if we simply stop the spying that we citizens will remain safe as technology for destruction follows the same arc as every other technology. As technology for destruction more easily gets into the hands of individuals, the spying on foreign nations for national security has to be supplemented with spying on individuals. Looking for patterns in meta-data seems like the best means available for balancing that need with our need for privacy.

The Late Sublime

Andrew Marr engages Clive James in a wonderful conversation this week. Here's an excerpt.

Andrew Marr: You use this phrase, "the late sublime," in a poem. What is the late sublime?

Clive James: I wouldn’t want to sound too pious or too much as if I were Saul or Paul who fell off his horse and his life changed. But I must say that in this late phase since I’ve grown ill and really have to realize I’ve grown old, I do see things with a clearness, almost a radiance, that I never did before. Unless you’re very, very careful, you begin to call it religious. It’s a bit pretentious to call it that.

Andrew Marr: Well if it is not religious, what is it?

Clive James: Well, that’s a good question. It’s a revelation. You get to the stage where everything looks like a revelation. Perhaps it should always have done, but one was simply too obtuse to have seen it.

21 December 2013

The Real Reason that Guy in China Can Do Your Job: Container Ships and Globalization

Rose George writes about a world that hardly anyone sees that provides us goods that everyone uses. In her book Ninety Percent of Everything: inside shipping, the invisible industry that puts clothes on your back, gas in your car, and food on your plate, she focuses on modern ships that have driven down costs and made the vast distances between continents (economically) meaningless. It's a fascinating book that explains much of what you take for granted.

George rides on a container ship to get a first-person experience of being out to sea transporting goods between continents and her stories offer a window into a world with pirates, shipwreck, and shore leave of only two hours after months at sea. But from a perspective of markets, it is what she reports about containers that matters most.

The container was invented by the American businessman Malcolm McLean, who thought that standardized containers could make it easier to ship goods. He was right. "There are at least twenty million containers crossing the world now."

"Before containers, transport costs ate up to 25 percent of the value of whatever was being shipped. With [container ships], costs were reduced to a pittance. A sweater can now travel three thousand miles for 2.5 cents; it costs 1 cent to send a can of beer."

"The biggest container ship can carry fifteen thousand boxes. It can hold 746 million bananas, one for every European on one ship. If the containers of Maersk alone [one of the largest shipping companies] were lined up, they would stretch eleven thousand miles or nearly halfway around the planet. If they were stacked instead, they would be fifteen hundred miles high, 7,530 Eiffel Towers. If Kendal [the ship Rose George reports from for most of her book's narrative] discharged her containers onto trucks, the line of traffic would be sixty miles long."

"At her most laden, Kendal carries 6,188 boring TEUs, or twenty-foot-equivalent unit containers. TEU is a mundane name for something that changed the world, but so is the 'Internet.'"

These TEUs shorten the time at dock. A quantity of cargo that once took weeks to unload can be transferred off the ship in less than twenty-four hours.

What's the result? Globalization on steroids. It is now cheaper to ship Scottish cod 10,000 miles to China to be filleted by Chinese filleters and then sent back for use in Scottish restaurants and shops than to pay Scottish filleters. The marginal cost to ship goods has been reduced to the point that geography is hardly a consideration. 

Curiously, one characteristic of ships is that they are, to a certain degree, free of laws. Only 1% of ships are registered to the US, ship owners choosing to register with the least-demanding country in terms of regulations and enforcement. Ship captains often have power that land-based rulers lost decades or centuries ago. 

Even though modern nations have trouble influencing these ships that work in international waters, these ships have huge influence on modern nations. It could easily be that these ships - crossing vast oceans with trillions in goods - are silently doing what the Internet has done more conspiciously. These are the agents of globalization that deliver the promises - the orders - made by modern communication. To risk a strained metaphor, these ships that are subject to waves and storms are making communities everywhere more vulnerable to the waves and storms of a global economy. The reality of shipping that few beside Madame George have bothered to contemplate has made changes to our economies and labor markets that we've all been forced to consider.

20 December 2013

GDP Growth Will Break 3% for 2013

In early March, Rworld posted this:

Economists were incredibly aligned on their 2013 forecast, which is ridiculous given the amount of uncertainty in the economy. In a typical year, the gap between economic forecasts is about 2% (predictions ranging from, say, 0% to 2% for growth). For 2013, the gap was only .4%, predictions ranging from 2.1% to 2.5%. I'm going to separate from the herd on this one. My prediction is GDP growth of over 3% for the US economy in 2013.
In spite of a slow start, it is looking increasingly probable that GDP growth will top 3% for the year. Even if growth in the fourth quarter drops by 0.5% from the third quarter, it will be at least 3%.

There are some interesting numbers in the Commerce Department's report on the third quarter. For me, it's worth noting that GNP is 4.4%. GNP includes income that Americans receive from foreign production; the fact that it is slightly higher than GDP suggests that the rest of the world is beginning to boost rather than drag down the domestic economy. With Europe slowly pulling out from under the shadow of imminent collapse and China recovering, the global economy may start helping.

Also, cuts in government spending are becoming less of a drag on the economy. While federal spending is down for the quarter, state and local government spending is up. As Ben Bernanke pointed out in his press conference yesterday, fiscal policy has been a real drag on the economy. At this point in the last recovery, he said, government employment was up 600,000; for our recovery, it is actually down by 400,000; this difference of 1 million would be enough to noticeably lower unemployment and increase spending. If state and local governments are no longer adding to the downturn, this is good news for GDP.

Another thing worth noting is how the economy has seemed to take off faster than expected. A lot of economic prediction is based on past trends so it misses inflection points. As you can see here, the initial estimates for the last two quarters missed by nearly 1 percentage point. That's a lot. Nearly 50% (0.8% is nearly half of the initial estimate of 1.7%).

                   1Q                                   2Q                   3Q
final est. 1.8 2.5 4.1
initial est. 2.5 1.7 2.8
gap -0.7 0.8 1.3

It could be that the economy is taking off faster than even current estimates are capturing. As I've said, the Great Recession reminded everyone that bad things can happen. And it's always true that forecasts should consider this. But good things can happen as well and those come more readily to mind to folks in 1999 than folks in 2009. Still, the unexpected is - by definition - unexpected. Good is likely to blindside forecasters as bad. It may be that the economy has already taken off.

My bold prediction? 4th Quarter GDP growth comes in at 4.6%, putting 2013 well over 3% for the year. And then next year gets really interesting.

19 December 2013

From an Economy of Mass Consumption to an Economy of Mass Investment

Economy Market found or created Start
1st, Agricultural Market created for goods made by individuals ~1300
2nd, Industrial Systematically produce or manufacture goods ~1700
3rd, Information Market created for equities made by individuals ~1900
4th, Entrepreneurial Systematically produce equities ~2000

It was in about 1300 that Trade Fairs - essentially intermittent malls - had become normal for some Dutch and Italians. In the first economy, goods were rare and sold infrequently.

It wasn't until about 500 years later - in the late 18th century -that textile mills began manufacturing goods in large quantities, and more than a century after that that factories began to produce goods as varied as bicycles, canned goods, cars and radios. In the the second economy, goods were made on a large scale rather than just harvested and brought to market or custom made by artisans. Goods were produced systematically and for far more people.

During the 20th century, access to equity markets was democratized and the stock market grew. First elites and then knowledge workers bought stock in the growing number of corporations. After the stock market crash of 1929, it took quite a while for the average person to get back into the market. Equity markets developed much more quickly than product markets but still  slowly by the standard of the average lifetime.

Early in this century, in the emergent fourth economy, we're witnessing something with equity products that parallels consumer goods in the second economy. Equity goods are now being made for consumption, for equity markets, in the same way that manufactured goods began to be made in the second economy. What was once rare - an IPO or the creation of a new company - has become increasingly common.

Venture Capital IPOs have hit their highest level since 2000, up nearly 40% this year. Even so, it seems as though venture capital fund raising is down over the last couple of years. In 2012, global VC investment was $41.5 billion, down from $51.7 billion in 2011. In 1975, VC funding totaled only $10 million. By 2005 it had reached $21.7 billion, an annual increase of nearly 30% a year. And now, less than a decade later, it is more than double that. Year to year variation aside, VCs have transformed business. In spite of variation, venture capital is now a force and there is an entire industry intent on creating equity from scratch. The creation of products or companies is almost incidental to the intentional creation of equity. Just as business innovators found ways to create factories that could regularly produce new products about a century ago, today's business innovators are experimenting with ways to regularly create equity.

One reason for the popularization of entrepreneurship is that markets for equity have evolved, just as markets for goods evolved centuries ago. This suggests massive potential for the creation of wealth for innovators able to pull off this next round of social invention, creating the ecosystem of VCs and startups, incubators, corporations, and investment bankers able to mass manufacture the creation of equity products.

It's possible that what happened to goods in the first two economies will happen to equities in the last two.

In the first economy, trade fairs sold goods made by individual artisans. Products were rare. In the second economy, stores sold goods made in factories. Products were abundant.

In the third economy, equity goods were made by individual entrepreneurs. Equity - new equity -was rare. In the fourth economy, ecosystems will emerge that are able to systematically create equity. We could move from an age of mass consumption into an age of mass investment. That could make things interesting.

14 December 2013

If Your Mind is a Computer, Who Programs It?

A friend posted this odd juxtaposition of Gun Show ad and article about a school shooting today.

I think the more relevant juxtaposition is the one between news coverage of the 1st anniversary of the Newtown School shooting and this recent school shooting in Colorado. People are susceptible to suggestion and I find it easy to believe that at some level the frequent mention of "school shooting" gets lodged into the consciousness of someone already leaning in that direction and pushes them over the tipping point into horrific action.

In the US, advertisers spend about $150 billion a year in various media. (~$65B on TV, ~$38B on Internet, and about $50B on all other forms combined (radio, newspaper, guys with sandwich boards, etc.)). Why? Because consciousness is susceptible to suggestion. McDonald's knows that everyone has already heard of cheese burgers but they also know that at different times of the day our actions can be tipped from one possibility to another. It's absurd to think that the average person hearing so much about Newtown would grab a gun and act on the "school shooting" suggestion but of course it is not the average person who does such a thing. Businesses would not spend billions a year if suggestions did not work.

Charles Tart, in his book Waking Up, makes an interesting point. A hypnotist with access to our consciousness for just minutes can plant suggestions we act on. How much more advantage does our media have? How susceptible must we be to the thousands of daily examples and suggestions that come from the culture around us? A hypnotist gets minutes. Culture has decades.

There was a time in the 70s when cults seized the popular imagination. One thing I found fascinating about the phenomenon was the idea of de-programming. Families paid experts to extract their loved one from the close confines of a cult and then wash away the brain washing (which means they return them to their original state of a dirty mind?), loosen the hold of the cult. I couldn't help but wonder if this approach would work not only for former members of sects but for the Catholic Church (or any church), soldiers, patriots, people who insist on paying a premium for Apple or BMW products or anyone who thought they should buy Lord of the Ring merchandise. To a certain degree, our minds are computers; they can be programmed. And you have to wonder how much of the programming that defines us is intentional and what percentage is accidental, the product of chance encounters with billboards, charismatic teachers, persuasive parents, and continual bombardment from the media.

Perhaps schools are already doing more to teach students to understand the effects of programming in the form of instruction, advertising, and example. More likely, schools just use programming tricks as means to more effectively teach. At some level, teaching is just a form of programming, no?

I don't know if it would do anymore to protect schools from the tragedy of shootings, but it would likely make school more interesting if education did more to reveal the mystery behind cultural programming and our minds' susceptibility to suggestion.

But that's just a suggestion.

11 December 2013

Social Evolution Is Not Done Yet

Sainte-Chapelle in Paris is only a short distance from Notre Dame. This Gothic Cathedral was commissioned by King Louis IX to house relics such as Christ’s Crown of Thorns and completed in 1248. Upstairs, the architecture and the stained glass in particular is awe-inspiring, somehow managing to be commanding and delicate at the same time. The stained glass tells a story, starting with Genesis and culminating in the story of the king bringing the relics to this very Cathedral. Even today – seven centuries later – a visitor standing in the midst of this magnificent space is awe-struck by the art, the beauty, and this story. But what the modern visitor knows is that this exquisite space does not depict the end of history but is instead just another chapter. 

Someone worshipping in this space in the 13th century would have found it difficult to ever imagine how the future – at least any future on this earth – might be more impressive than this instant in time. The king bringing the relics to this place represented the final panel of the story, everything else just afterword while they awaited the judgment day. The idea of men walking on the moon or women starting high-tech companies would simply have too many layers of incredible to imagine, much less believe.

Our own time is just another step in the evolution of civilization, our skyscrapers, Internet, democracies and multinational corporations not the final chapter but instead just another chapter in the story of what it means to be human. Our inventions will change and so will we. Social evolution is not done yet.

07 December 2013

Desert Island Disco

I quite like desert island discs on BBC. Kirsty Young is a brilliant and emotionally attuned interviewer and additionally there is something about letting people punctuate their life story with praise for their favorite songs that seems to open them up. Guests choose 8 songs and then one book and one luxury item that they would want with them.

It's a curious exercise, downsizing all the songs I love into 8. The list I arrived at is absurd. It doesn't contain any Dylan or the Band, no Springsteen or Natalie Merchant. Not a single thing from Motown or Stax records wonderful soul and pop collections. No country music from either George (Strait or Jones), and no Who or The Rolling Stones. The quirky geniuses Camille and Bjork are not here. No Genesis or Peter Gabriel. I could go on. Beyond that, while I do love classical and jazz, I simply don't listen to those enough to include any such songs on the list and have it feel authentic; plus, there is something about naming 8 songs that makes me think of pop music. So no Glen Gould playing Bach or Suk Trio playing Dvorak or Oscar Peterson playing jazz. Far more is missing than present and if I did this in a few months I'm sure the list would be different.

All that said, here are my 8. As of today.

1. Elvis Costello, (What's So Funny 'Bout) Peace, Love & Understanding
Costello is a brilliant lyricist and songwriter but this is not even his. Still, Elvis owns this Nick Lowe song.


2. Tom Waits, Step Right Up
Tom went to my high school. He dropped out. I stayed in. He's in the Rock n Roll Hall of Fame. I have a blog. If you can't stay in school, at least be this cool. This song is a perfect little ode to consumerism.


3. Gillian Welch, Time (The Revelator)
Gillian went to my university. This song - her style - seems to me to capture one of the elements I so loved about Santa Cruz, a modern rendering of Americana, neo-folk decades before neo-folk was cool.


4. Michael O'Domhnaill & Kevin Burke, Lord Franklin
After UC Santa Cruz I married Sandi and, while looking for work, hosted a Celtic Folk for Celtic Folk and Other Folk Show. This song captures the poignancy that I still love in this style of music.


5. Talking Heads, Once in a Lifetime
David Byrne emerged out of the mix of one-hit wonders, second generation classic rockers, disco, and punk rockers to create music that would still seem fresh decades later. "You may ask yourself, well, how did I get here?"


6. Little Feat, Fat Man in the Bathtub
Lowell George was a genius song-writer who Frank Zappa quite rightfully kicked out of his band for mentioning drugs in a song; years later, George killed himself with an overdose. Little Feat is southern California rock and roll at its best.


7. Beatles, Oh Darling
When I first heard Abbey Road playing in a record store, I assumed it was just for the store. I honestly didn't think that they'd let people just own music like that. And now, decades later, this refrain, "I'll never do you no harm" has become something Sandi and I sing to each other.


8. Van Morrison, Days Like This
I toyed with the idea of simply choosing my 8 favorite Van Morrison songs for this list. This song celebrates life's promise and what more could you ask of a song?


The game played at the BBC is to give everyone a copy of the Bible and the complete works of Shakespeare and then choose one more book. I think that would want to bring along a full version of the Oxford English Dictionary, getting the history of thought and words in the form of definitions and etymology.

My luxury item? Botticelli's Birth of Venus. (Assuming I couldn't bring along the Sistine Chapel.) I would bring it for a host of reasons: I love it, no piece of art better captures the Renaissance and our emergence from the Dark Ages, and because if I had that the world would be far more likely to organize a search to rescue me (and the Botticelli). (My son thinks it would only make sense to choose a yacht, a luxury item that would be practical for a deserted refuge.)

The Problem is That People Don't Even Agree What the Problem is

Judith Innes and David Booher open their book Planning with Complexity with an account of a water situation. In Sacramento, CA, the population has been steadily growing, placing a burden on their water system. Worse, the agencies involved have competing goals (some represent agricultural, some fisheries, some housing developments, some southern Californians outside the Sacramento region who need their excess water delivered by aqueduct, etc.).

This constitutes a wicked problem, a situation in which there is no agreement on the definition of the problem or even the goals. (Is the problem that cities aren’t capping development, letting the population put a strain on water supplies? Should the goal be to keep water affordable for rice farmers who need water enough to submerge their crops?) The problem is that people don’t even agree what the problem is.

And in that, Sacramento’s water problem might be a metaphor for the modern world. What is the goal of our economy? What is the problem with our education system? One of the biggest problems with economic or educational policy is that people don’t agree what the problem is. Social conservatives have very different ideas about the goals of education than do progressives. The elderly on fixed pensions have different ideas about economic problems than the owners of small businesses. 

Maybe we could, at the very least, agree that this is a problem. But then again, if it's a truly wicked problem, probably not.

06 December 2013

Great Job Numbers for 2013 and a Happy New Year for 2014

Depending on how you measure it, this is the best year for job creation in 8 to 30 years. That bodes well for 2014.

Measured by job creation, this is the best year since 2005, when the American economy created 2,484,000 jobs. (The best year making the reasonable assumption that during this month of December the economy creates at least 131,000 jobs.)

Measured by a drop in unemployment rate, this is the best year since 1983. The drop of 0.9%, from 7.9% to 7.0%, is the steepest in 30 years.

What is most notable about this is that it comes on the heels of three years of steady growth. Depending on December's numbers, the four year moving average for job creation could finish at its highest since 2000, at the close of the dot-com boom.

But of course the unemployment rate is still high by historic standards, although the lowest it has been since just after the Lehman Brothers collapse 5 years ago. (The September bankruptcy of Lehman Brothers remains the simplest point of origin for the Great Recession. Although unemployment had been steadily rising throughout the year leading up to Lehman Brother's collapse, in the 12 months after that the American economy shed 6.8 million jobs. How much is 6.8 million? It is twice as many jobs as the American economy has ever created in a single year. And of course those twelve months were just part of a larger string of 25 months during which the economy shed a staggering 8.7 million jobs, the hole from which we've been digging ourselves out ever since.)

What is most remarkable about this performance is that it has come in the face of on-going troubles in Europe, steady erosion in the number of government employees, and continued uncertainty about debt ceilings and sequester cuts from Congress. Many local governments have been contracting even while the private sector has been recovering. This recovery has been hurt as much by international markets and government policy as it has been helped.

Next year will be even better. Wanting to get re-elected, the House GOP will stop threatening the economy. Europe is steadily improving and as the threat of defaults recedes, markets should become more stable. Companies will start worrying as much about missing out on the boom as they have been worrying about getting hurt by the bust; they'll begin to invest and hire more aggressively.

This year has been good. Next year will be better.

There is a good - although less than 50% chance - that unemployment will drop below 6% by the end of 2014. GDP growth will be closer to 4% than 3%. And the stock market will continue to do well (double-digit gains at least, perhaps as high as 25%) but will get hit hard at least a couple of times by changes in monetary policy (tapering QE)  from our new Fed Reserve Chairwoman Janet Yellen.

There are a lot of reasons for this improvement but the biggest may be simple optimism. In just the last two months, the percentage of people who are thriving has gone up 3 percentage points, from 50% to 53%. In that same time, Gallup's confidence index has gone up 17 points.

For years, every bit of good news has been met with the caveat that something bad could happen to reverse it. Of course this is true - it is always true. But it is also true that the next thing to happen could be good, could make things even better. Part of what makes a boom a boom and a bust a bust is whether the average person is more likely to be optimistic or pessimistic. Next year people will steadily shed their worries  and hesitations about the economy, increasingly ready to buy rather than wait, charge it rather than pay down debt, hire rather than layoff, and invest rather than stay on the sideline.

At least that is my prediction. I could be wrong.

05 December 2013

The Stark Contrast Between the Reagan and Obama Recoveries (A Story of Government Spending)

Media stereotypes can be comically wrong. Republicans have the image of being more warlike but Democrats start wars more often.  Reagan has a reputation as a guy who cut the size of government and Obama as a big-government guy. The truth? The Reagan recovery was led by big increases in government spending and the Obama recovery was slowed by big cuts in government spending. Facts are disconcerting.

GDP growth for the third quarter of 2013 surprised economists, coming in at a robust 3.6%. One component that helped is government spending, which grew for the first time in 5 quarters.

In the four years since the end of 2009, government spending has grown in only 4 of 16 quarters (and in one of those four quarters it came in at a paltry 0.3%). 

Consumption - the biggest portion of GDP - has been fairly stable through this (slow) recovery. The private sector has had its foot on the gas while government has had its foot on the brake. No recovery since WWII has been more oddly resisted by government policy. 

During the recovery in the early 1980s, Reagan led a surge in government spending. In the 16 quarters after the recession's end, government spending went up at an average rate of 5.4%. By contrast, during our most recent 16 quarters, government spending has contracted at an average quarterly rate of 1.6%. That difference of 7% is huge.

Note that during the Reagan recovery (approximated here with data from 4Q82 to 3Q86), government spending actually pulled GDP growth up, exceeding the rate of growth for the whole economy. More recently, our government spending has been significantly lower than GDP growth, causing a drag on the whole economy and this recovery. 

The private sector may be doing as well as it has in past recoveries; it is the government sector that has made the difference. And given that is something elected officials can directly control, that is a shame.