This Message from the Internet - Now That Your Mind Are Belong to Us, We're Going to Blow Up Your Ideas of Normal

Next month, the Internet turns 25. It has laid the foundation for something extraordinary.

In 1439, Johannes Gutenberg invented movable type printing.

By 1464, 25 years later, the Gutenberg Bible had been created. Previously, only institutions could afford bibles because they were so labor-intensive to transcribe, requiring more than a man-year of labor. Now the bible was something the individual could aspire to own. (Although its cost, initially about three years of a clerk's wage, was closer in price to a house than a meal.)

It was nearly 100 years later (in 1534) that Martin Luther had completed his translation of the Old Testament into German. His translation of the Bible into the language of everyday German people helped to create a new kind of religion based on personal understanding and revelation, no longer reliant on the official pronouncements of the church that had monopoly rights to the Bible. The individual could now judge the church - any church - based on his understanding of scripture; this was a radical shift from the Medieval Church.

A century between the invention of a tool that changed how people thought to social revolution. It might not take that long this time.

25 years ago, as reported by PewResearch, ,

Sir Tim Berners-Lee. Lee wrote a paper on March 12, 1989 proposing an “information management” system that became the conceptual and architectural structure for the Web. He eventually released the code for his system —for free—to the world on Christmas Day in 1990. It became a milestone in easing the way for ordinary people to access documents and interact over a network of computers called the internet —a system that linked computers and that had been around for years. The Web became especially appealing after Web browsers were perfected in the early 1990s to facilitate graphical displays of pages on those linked computers. 

It's difficult to find any data on adoption rates for books produced by the Gutenberg press, but it's hard to imagine that it's been as rapid as the adoption of the Internet.

87% of Americans now use the Internet. Use is 99% in households with income greater than $75,000, and 97% for young adults and college grads. That's pretty close to saturation levels. In just 20 years, we've gone from only 14% of the population who use the Internet to only 13% who do not.

Smartphone ownership has jumped from 35% to 58% in just 3 years. (And curiously, ownership among Hispanics - at 61% - is significantly higher than among Whites - at 53%. I can't help but remember the story of the King of Portugal, present when Alexander Graham Bell first demonstrated the phone, being so amazed when he spoke to one of his people in the other room. "But how does it know Portuguese," he asked.)

By giving the Bible to everyday Germans, Gutenberg and Martin Luther unleashed forces that transformed how we thought about religion, government, knowledge, and ourselves.

Already the Internet has played a role in revolutions in places like Egypt, Syria, and the Ukraine. Does anyone really believe that once you've given everyday individuals access to the wide world that it won't eventually transform our notions of politics, business, education, community, and what it means to be an individual once again? Technologies that change how we think and communicate can't help but change how we live. If anyone thinks that the Internet isn't going to undermine the norms and structures of governments, corporations, schools, and churches simply hasn't thought very hard about it.

The Internet hasn't just re-wired our world. It's re-wired our brains. And you'll see increasing evidence of those newly wired minds restructuring the world around them.

Arizona SB 1062 - Looking for Government Support for Your Religious Beliefs

In the U.S., churches have the right to religious freedom. So do individuals. This great country was the first to institutionalize religious freedom and this has been the basis for the freedom of thought that has not only led to the religious entrepreneurship that has given us Scientology and Latter-Day Saints but the business and technological entrepreneurship that has given us Hooters and the world lead in patents.

Because religious freedom has so little opposition in this country, Arizona Republicans have wisely chosen to pass a new bill under that umbrella.

Arizona's state senate has passed SB 1062.  It makes only a couple of changes to existing law. For one thing, it extends the definition of "person" from "a religious assembly or institution" to "any individual, association, partnership, corporation, church, religious assembly or institution, estate, trust, foundation, or other legal entity." Everyone agrees that people have freedom of religion. Now the Arizona senate has said that businesses are also people.  And freedom of religion means that we can't compel someone - or some business - to do something they don't believe in.

The gay community  feels that this is written to allow discrimination against them. You want a gay wedding at a lovely venue in Scottsdale? The owner of that venue can say "No" based on her religious belief that gay weddings are wrong. I suppose that gays are right that this is targeted at them but I don't see how - given how the law is written - it would prohibit a business from doing the same to someone wanting a Muslim wedding or inter-racial wedding or a wedding featuring a divorced Catholic ... or for that matter someone wanting to eat BBQ while wearing a Star of David.

For some people, the issue is never their exclusion of other people but instead, their right not to associate with those other people, whether they're gay or black or female. But for the most part, laws have evolved to the point that the minority's right for inclusion has greater power than the majority's right to exclude them. This, it seems to me, is a lovely thing and a sign of an evolved society.

But, you ask, don't religious fundamentalists who feel they're under attack for being forced to associate with publicans and sinners have a right to appeal to the government for laws that protect their right to exclude?

Our founding fathers wrestled with the question of when religious beliefs stopped and laws began. As you would imagine about men as brilliant as our founding fathers, they weren't exactly of one accord on the question. Some were traditional Episcopalians. Some were theists. Jefferson once spent time in the White House carving up the New Testament, expunging it of all instances of what he called magic - supernatural miracles that couldn't be explained by modern science. They had didn't opinions but they also didn't want their new country torn by battles over religious claims that were impossible to prove. They saw what that had done to Europe. They didn't believe that religion could be codified by laws. Jefferson and Franklin - admittedly two of our least traditionally religious founding fathers - felt that it wouldn't be much of a God to need the aid of a state.

Thomas Jefferson said, "Truth can stand by itself."  Whether it was the golden rule or the law of gravity, for him truth was something that could be proven by observation. He didn't want a declaration about what was true; he wanted proof.

Ben Franklin shared his sentiments. "When a religion is good, I conceive that it will support itself; and when it cannot support itself, and God does not take care to support it, so that its professors are obliged to call for help of the civil power, it is a sign, I apprehend, of its being a bad one."

You don't like Jews coming into your restaurant? You want the government to support your exclusion of them from your lunch counter? Well, you won't find much support from Ben and Tom or the government they established. Instead of appealing to the government, maybe you could just ask your God to strike them dead. If you can call down lightning to strike dead those you find morally reprehensible even a few times, I'm sure that eventually your community will agree to pass whatever laws you define. It worked for Moses. Of course that sort of thing is evidence that even Thomas Jefferson would acknowledge and not just based on someone's declaration about who is and who is not deserving of brisket.

The NFL Represents The Future of Our Legal System: Reviewing Life's Events Through Instant Replay

The NFL might offer a view into the future of our legal systems and baseball a look into our past.

The NFL has instant replay available for officials. Plays filmed from every angle allow officials to huddle below a hood that looks like a 150 year old camera, and emerge with confirmation of the call on the field or fresh evidence that it was wrong. Nobody argues. They just challenge and then the officials closely scrutinize the play with the benefit of multiple camera angles and slow motion replay.

Baseball still deals with contested calls  the old fashioned way. The manager goes out and hollers at the ump, intent on changing the call. Either this year or next, though, baseball is going to abandon this tradition of proof through persuasion and passion and adopt the NFL's review of the play approach.

Today, our courts resort to the tactics of baseball. You hire someone you hope is sufficiently persuasive and passionate to cause the jury to reverse the call made by the prosecution. If it works, you take your base. I mean, you walk.

Meanwhile, more and more of our lives are being recorded. It's not hard to imagine a civil suit being settled by review of the video. "Yes. Here you clearly assure my client that if there is a delay of more than a month you'll refund him the full amount." Or, "You can see that at this moment, with a look of pure rage, the suspect intentionally - and not accidentally - pushed him over the balcony."

Intel is already making small chips that are designed for wearable devices that could record image, sound, even heart rate and perspiration as indications of stress levels. It's perfectly conceivable that our lives will be recorded on the cloud, accessible by legal request in the event of civil or criminal charges.

It seems perfectly plausible that surveillance nation will lead to instant replay legal proceedings. Of course before that could happen, I'm sure that we'd hear a great deal of passionate and persuasive protests from litigators who do such a great job of persuading juries.

Once Upon a Time, We Had Small-Town Bankers

The 3 Big Lies About The Deficit

The deficit has  rapidly fallen from its peak of $1.4 trillion in 2009. This year the CBO is projecting the deficit to be $514 billion, and I think it could easily come in at $400 billion. Essentially, the deficit is down nearly a trillion dollars in 5 years and to about where it has been as a percentage of GDP for half a century.*

There are three big lies about the deficit that are rarely exposed. The first is that Republicans shrink and  Democrats explode deficits. Data from 1975 through 2014 easily refutes that. The second big lie is that the deficit is something conservatives dislike. And the third big lie is that our deficit is more important than half a dozen other economic questions.

Lie Number 1: Republicans Shrink the Deficit and Democrats Explode It

The blue lines in the following graph show the change in deficit as a percentage of GDP. For instance, in 1975, the first year in this graph, the deficit rose by nearly 3% of GDP. In 2014, the last year in this series, the deficit fell by 1.3% of GDP.

I've used the red state / blue state distinction to indicate whether the Oval Office is held by Republicans or Democrats. When the colored overlay is red (as in the 1975-76 period) the president is a Republican; when it is blue, (as in the 1977-80 period) the president is a Democrat.

As you can see, for this period of 40+ years, most of the blue lines above zero (that is, years when the deficit grew) coincide with Republican presidents, and most of the blue lines below zero (that is, years when the deficit shrunk) coincide with Democratic presidents.

In fact, on average the deficit grew by 0.8% of GDP when Republicans were in office and shrunk by 0.9% of GDP when Democrats were.  (As a percentage of this year's GDP, that's between $100 and $150 billion.)

You may have good reasons to vote for a Republican president but fiscal discipline should not be on that list. 

Lie Number 2: Conservatives Dislike the Deficit

The first regular use of government debt in the West after the fall of the Roman Empire was probably in Venice. The wealthy who could afford to support the government were given two choices: pay enough in taxes to fund Venetian government (specifically, a costly war was the big catalyst for this choice), or loan the government money. If they loaned the money, they'd get paid interest AND get their money back. If they paid taxes, they would simply lose the money. By buying bonds, worst case the government would be unable to pay back the loan and the rich would end up paying the sum in taxes anyway, but at least at a later time and after collecting some interest. Unsurprisingly, wealthy Venetians said yes to buying bonds instead of paying taxes. And soon a secondary market emerged that let Venetians sell those bonds to each other. This was a huge boon to the evolution of financial markets and government bonds were instrumental to first the Venetians and then the Dutch and then British becoming leaders in finance and the wealthiest people of their day.

Wealthy people like debt, like bonds, because they - quite rationally - would rather get their money back than lose it completely.

Government bonds - the debt - of modern democracies make for pretty safe investments. The US government has never defaulted on its debt. The Dutch have been regularly paying on bonds first issued centuries ago.  As long as inflation remains low, government bonds make an ideal investment if you're already rich and simply don't want to lose your wealth. Stocks and real estate are great investments but they're risky; if you are already wealthy, there is no sense in going for a double or nothing investment when the doubling would not change your quality of life but the nothing would. At a certain point it is rational to invest less for change, progress, and high returns than for a continuation of the status quo.

Lie number two is that conservatives don't really like government debt. They do. It's worth remembering that just before Clinton left office, projections suggested that the federal debt was going to disappear in about a decade. Alan Greenspan - the former Federal Reserve Chairman who dislikes social security and welfare and likes Ayn Rand - testified at the time about the dangers of not having any debt. Government bonds are, he said, a key part of investment choices. And he's right. Modern financial markets - that is, markets since before 1700 - have always offered investment choices that included government debt. That stability is a nice anchor to other, riskier investments.

Lie Number 3: The Deficit Is One of the Top 5 Economic Issues We Face
Still, politicians and reporters all talk about the deficit as if it something new and dangerous and more important than questions about how to stimulate economic growth, lower healthcare costs, protect the environment or create jobs and more engagement for workers. When the deficit was 10% of GDP it rightfully deserved some attention; now that it's back within historic norms, it only deserves some attention. The deficit has been fairly constant for centuries and whether economies have thrived or stagnated during that time rarely had anything to do with the deficit but instead had to do with things like innovation, problem-solving, and finding new ways to make people more productive. The deficit is not that important and real discussion about it is occluded by lies anyway (specifically these three lies). Focusing on the deficit allows everyone - reporters, politicians, and citizens - to avoid the real and creative thought that would be required to address significant economic issues.

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*The 2014 deficit is projected to be 3.0% of GDP. The average from 1974 to 2013 was 3.7%. The average from 1974 to 2008 - the year just before the Great Recession - was 3.1%.

We'll Learn Whether Obamacare Was Worth it in 2018

We'll know whether Obamacare is worth it at the next Winter Olympics when our athletes can compare their surgery results with those of athletes from all these countries that offer universal healthcare, enabling their athletes to make 2, 5, and 8 comebacks from multiple surgeries for injuries from sports like downhill skiing. If we can approach the per capita medal count of countries like Norway or Canada, then we'll know it's all been worthwhile.

Gaming the System - How Corporations Will Change Work

Philosophers talk about goods to have and goods to do. In terms of the good life, what you do has more impact than what you have. Economic progress in the last century has been about more and more economic goods to have, from cars and shoes to toys and electronics. Economic progress in this century will increasingly be about economic goods to do. This challenge won't be about drawing out our inner consumer but instead will be about tapping into our inner creator and problem-solver. This will mean taking the design of work as seriously in this century as we took the design of products in the last.

Gallup reports that only 13% of employees across 142 countries they've surveyed are engaged in their work. Their definition of engaged is that employees are "emotionally invested in and focused on creating value for their organizations every day." Worse, their 2009-2010 survey of global workers found that twice as many employees are "actively disengaged workers — i.e., those who are negative and potentially hostile to their organizations — continue to outnumber engaged employees at a rate of nearly 2-1."

Levels of disengagement cost companies and their communities twice. It costs because disengaged employees are less likely to take ownership of their results and thus less likely to problem-solve, create, or simply roll up their sleeves and work to get great results. That is, it costs businesses because they're creating less value, making it harder to reward shareholders, employees and / or customers. It also costs communities because when we are disengaged in our work we are less alive.

In her book Reality is Broken: How Games Make us Better and How They Can Change the World, Jane McGonigal argues that it isn't a problem that games (typically video games) are able to suck us in and can be so addictive. (Recently, Flappy Bird creator Dong Nguyen pulled the game because he said it was too addictive.) Rather, she says, the problem is that work and learning are NOT similarly designed.

If your company has more than 20 people whose job it is to design and redesign your products, you ought to think about having at least one engaged in the design and redesign of work - from work environments to the definition of tasks and finding the balance between process and creativity. There has been so much emphasis placed on six sigma, on higher quality products. It is time to put emphasis on measures of employee engagement.

Corporations could do worse than hire game designers to come in and analyze the work employees do and begin to redesign their tasks to engage in ways that more closely resemble games. The bad news is that work is so far from games that this will be hard to do. The good news is that companies have been so negligent in even thinking about work this way that early progress could be as easy as simply trying. It will take some time before companies have done such a great job at gaming work that there is little in the way of returns left.

For more on engagement in work, here are some of my earlier posts on the topic:
Tailoring Self to Fit a Job
Flow as the Compass for Social Invention
Flow & the Pursuit of Happiness

Taylor Pearson recently wrote this:
Redefining Work in the 4th Economy

Gallup offers their report on employee engagement here:
State of the Global Workplace

Does Your Musical Taste Influence Your Politics (or is it the other way around)?

Pandora now reveals your political leanings to advertisers based on your musical taste.

I kind of like that the Beatles and Johnny Cash are artists who bring us together (meaning Democrats and Republicans alike are fans) but what does it say about our country that so many of the bands whose appeal cuts across party lines are metal bands? Isn't that proof of a coming apocalypse? (Marilyn Manson appeals to Republicans and Democrats?)

Artists whose fans are most correlated to Republican

• 1. Kenny Chesney
• 2. George Strait
• 3. Reba McEntire
• 4. Tim McGraw
• 5. Jason Aldean
• 6. Blake Shelton
• 7. Shania Twain
• 8. Kelly Clarkson
• 9. Pink Floyd[7]
• 10. Elvis Presley

Artists whose fans are most correlated to Democrat

• 1. Rihanna
• 2. Jay-Z
• 3. Madonna
• 4. Lady Gaga
• 5. Katy Perry
• 6. Snoop Dogg
• 7. Chris Brown
• 8. Usher
• 9. Eminem
• 10. Bob Marley

Artists whose fans are hardest to predict for either Democrat or Republican

• 1. The Beatles
• 2. Marilyn Manson
• 3. The Rolling Stones
• 4. Johnny Cash
• 5. Pantera
• 6. Alice in Chains
• 7. Paradise Lost
• 8. Moonspell
• 9. Fleetwood Mac
• 10. Tiamat

One other interesting note. Democrats are harder to categorize. This is partly because they're more likely to listen to a wider variety of music. 

Here's the blog post about the relationships in the data.

http://notes.variogr.am/post/26869688460/how-well-does-music-predict-your-politics

The Buy! Tweet That Came Just Before the Market Rose 6% in 10 Days

On 3 February I sent out this tweet:

Since then, the market has moved from 3996 to 4241. That is, the NASDAQ is up 6% in the last 10 days. As it turns out, the tweet was sent out at a (local) low.

It's funny. People will buy shoes when they mark them down 20% but they run from stocks when they get discounted. I guess nobody gets nervous when they lower the price of shoes.

Anyway, I'd be lying if I said that I was convinced that the market was about to jump up. My only conviction was that stocks would eventually go up and this, then, represented a nice discount. It was sort of a lucky call. It was sort of a product of my feeling like I'll probably be dependent on market returns for a long time and any short term drop just represents an opportunity.

My tweets, past and future, are here.

Boom without the Bubble? 2014 vs. 2000 IPO Activity

Initial Public Offerings (IPOs) are on track for their best year since 2000, the end of the dot-com boom. It's only February and already 31 companies have gone public, a 72% increase over last year. And they've raised $6.5 billion, which is up 22% from last year. And 39 companies have filed IPO intentions, up from 21 for the first two months of last year.

This bodes well for business expansion. IPOs are the simplest indication that new businesses are succeeding, and expanding businesses more jobs, more wealth, and more interesting new products and services.

Of course given the stock market has been steadily trending upwards for years now, it's easy to find as much warning as promise in a year that promises to be "as good" as 2000, the last year of the dot-com boom before it become a dot-com bust.

Which brings us to P/E for the S&P 500 - the simplest measure of how much people are paying for profits. (To be clear, this is the ratio of today's price to earnings for the last 12 months; when a business is growing, it makes perfect sense to pay a high P/E ratio given that you expect future profits or earnings to be considerably more.)

As of January 2014, P/E for the S&P 500 was about 19. By contrast, in January of 1999 and 2000, the P/E ratio was 33 and 29. In 2000, the P/E ratio was 1.5X as high as it is now. It was 19 in January of 1997, when the S&P 500 was at 757 - a low it has not dipped to since, even at the depth of the crash in 2008. By January 2000, it had nearly doubled to 1498.

So it seems to me that this IPO Boom is more solid than what we had at the tail end of the dot-com bubble. IPO activity could be as high but it isn't driven by over-priced P/E ratios that reflect irrational exuberance. Instead, these IPOs are coming into a market that is fairly reasonably price. This might be a boom rather than bubble. And if it is, these next few years could make everyone revise their forecasts upwards.

Taxes and Girlfriends - Two Fairly Minor Reasons Entrepreneurs Choose a Particular City to Start a Business

Interviewing entrepreneurs about why they chose the city they did, tax policy got mentioned only slightly more than girlfriend. (Interesting article by Richard Florida at Atlantic Cities, What Cities Really Need to Attract Entrepreneurs, According to Entrepreneurs.) What mattered in their choice was finding a city they wanted to live in themselves and that had a large enough population that they felt they'd be able to find and attract talent.

Daniel Kahneman explained the psychology of loss and gain through one study of risk aversion. One group was given a coffee mug with an insignia from their old university. The researchers then offered to buy it from them and the average price at which they agreed to give up their new mug was about $7. Another group was offered a coffee mug with an insignia and asked to bid for it; the average price was about $3.5, about half as much. From these sorts of results, Kahneman concluded that people put a higher price on losing what they already have than on gaining what they don't yet have. This aversion to loss has a profound impact on our choices.

In recent decades, policy to encourage entrepreneurship has been about adding to the reward: lower taxes for the rich or for investors. Since Eisenhower, the marginal tax rate on top income people has been halved.

But if Kahneman's studies and Florida's report is any indication, that's pretty expensive and it would seem that most entrepreneurs feel like if they're successful they'll get rich anyway. The more interesting question that cities should ask is, How do we lower risk of failure? People apparently put twice as much value on what they have as what they have yet to get; policies that lower the chance of loss could do far more to induce risk takers to start businesses than tax breaks.

Incubators that distribute the costs of start ups, licensing processes that are affordable and easy to navigate, mentoring programs, and any policies that make the up front costs less onerous would seem to offer more psychological inducement than the promise of lower taxes once entrepreneurs have been successful.

Marc Andreesen's 7 Leadership / Management Maxims

Marc Andreesen and a team at the University of Wisconsin had this crazy idea years ago to put a graphical interface on top of the Internet, enabling millions of people to use it. His idea sort of caught hold, which - at least for me - means that his ideas deserve consideration.

Today he sent out 7 powerfully succinct maxims, rules, principles .... tweets? In any case, whatever they're called, you'd do yourself a favor by taking a few minutes to read these now and then coming back to them a few more times over the next few months.

1 Vision--If "difference between vision & hallucination is others can see vision", then critical to articulate bright future w/clarity.

2 Scrappiness--tough challenges call for resourcefulness, pragmatism, staying close to ground, in the details, all over opportunities.

3 Experimentation--May not have all the right answers up front, but running many experiments changes arguments to tests, data, correctness.

4 Adaptability--"Would you rather be right or successful?" top of mind at all times--the times change, we change--strong views weakly held.

5 Focus--As we gain clarity from experiments & adaptation, then we focus on small # of ultra-clear goals; all wood/arrows; all hands/deck.

6 Deferral of gratification--stomach (and resources!) to reject near-term rewards for enduring success; in journalism=refuse race to bottom.

7 Entrepreneurial mindset--both in new co & existing co--we own the company; we make the business; we control our future; it's on us.

Michele Bachmann vs. Janet Yellen - The Fed's Struggle Between Ideology and Reality

Michele Bachmann and Ron Paul want Congress to be able to challenge - and thus influence - Federal Reserve policy. This would be a disaster. Fed Chairs have to deal with the complex reality of a modern economy; members of congress, by contrast, need to worry only about whether their ideology aligns with most voters in their district. For this reason it is easier to trust - even if harder to understand - a Fed Chair than a Congressperson.

It's possible that members of congress have incredibly simple models of economic reality; it's also possible that they just think their constituents have such simple mental models. In either case, they seem to focus on the simplicity of principles rather than the complexity of reality, focused on ideology while relegating reality to their peripheral vision.

20th century politics in the West is pretty simple to understand. At the one extreme are communists who don't trust traditional capital markets and at the other extreme are robber barons who don’t trust any regulations on markets. Few in the West believe in such extremes now, but everyone leans one way or another. One question that determines whether you become a conservative or liberal is, How much - if at all - do you think governments should intervene in capital markets to do what is best for labor markets?

Which brings us to Keynes. He did not take a stand along this spectrum between extremes. Instead, he said that the right policy depends on economic conditions. Fed Chairs - our central bankers - have generally continued in his tradition; by contrast, members of congress seem convinced that it's more important to avoid nuance and take a stand instead, proving that you have principles by never changing your stated reliance on either markets or intervention.

Keynes' signature work - the one that essentially invented macroeconomics - he titled General Theory of Employment, Interest and Money. I'd suggest that the title could have been General Equilibrium because a large part of his theory rests on the notion that capital markets can reach equilibrium before labor markets do. Simply put, investors might rationally choose to stop investing in industrial capital and new businesses before everyone looking for a job has one. What is optimal for capital markets may be sub-optimal for the economy as a whole. His interest was not in the equilibrium of capital markets but a more general equilibrium that included labor and capital markets.

Keynes generally trusted capital markets (he got rich by starting his day in bed reading stock reports and issuing trades before getting on with his day), but also knew that their interests weren't perfectly coincident with labor markets. He argued that capital markets can - for extended periods - reach an equilibrium that isn't good for the economy. (The Great Depression that resulted in 25% unemployment caused a lot of people to agree with him.)  If investors don't see good business prospects, they will hold off on investments. If they hold off on investments, jobs won't be created. If jobs aren't created, consumers buy less. If consumers buy less, investors won't see good business prospects. When that happens, Keynes said, good policy would increase demand through fiscal policy (some combination of additional spending and tax cuts) and monetary policy (making money cheaper by lowering interest rates, thus encouraging borrowing and spending). Fiscal policy is the job of Congress. Monetary policy is the job of the Fed. (Oh, and when unemployment is low and inflation is high, Keynes would suggest tax hikes, lowering spending, and / or tighter monetary policy, reversing the policy needed for dealing with unemployment. Good policy depends. Bigger or smaller government? Depends. Higher or lower taxes? Depends.)

Fed Chairs are pretty consistently Keynesian, choosing to deal with inflation with tight monetary policy (as Volker did in the late 70s and early 80s) and unemployment with loose monetary policy (as Bernanke has done more recently). There are differences of opinion about tweaking policy in between the extremes of 10% unemployment and 18% inflation but no Fed Chair doubts that the answer is, "It depends." In that sense, Fed Chairs are all Keynesians now.

Members of congress, by contrast, seem to reject such nuance. While Yellen tries to focus on economic realities, glossing over ideological differences, congress instead focuses on ideology and glosses over the complexity of reality. And while there are exceptions to this broad brush characterization within Congress, Michele Bachmann and Ron Paul are not these exceptions.

As you listen to the questions Congress asks Yellen (and in many cases they don't ask questions but instead do little ideological advertisements before asking her to affirm their beliefs), it is pretty simple to decode. Republicans ask about the impact of Fed policy on capital markets and the threat of debt and inflation. Democrats ask about the impact of Fed policy on labor markets and the threat of unemployment. Republicans are never quite convinced that the Fed is doing enough to reduce debt or fight inflation. They worry that policy will erode returns to capital with inflation or low interest rates. Democrats are never quite convinced that the Fed is doing enough to reduce unemployment or to make money looser, thus lowering unemployment rates for the nation's poorest. 

Janet Yellen, fortunately, is drawing from a broad array of data, more interested in general equilibrium. She's dealing with investors who can be spooked, people looking for work who can be discouraged, and currency exchange traders who will literally turn on a dime from buyers to sellers of the dollar. She has to consider a number of variables when formulating policy. Yellen feels responsible for moving towards a general equilibrium; Many members of Congress, by contrast, appear responsible only for proving their ideology. (And that might be the simplest reason their approval rating has only recently risen out of the single-digits.)

 Ideology makes it easy to win elections but hard to formulate economic policy. To turn Fed policy over to Congress would be like buying a car that only turned right or left rather than one that could be steered in either direction depending on the curve of the road ahead. And that kind of car is guaranteed to crash.

Does This Economy Make My Stuff Look Thin? Quantifying the Diminishing Weight of GDP

In his new book, Greenspan quantifies the degree to which ideas and not stuff are driving a rise in GDP in recent decades. I'll translate Greenspan-speak into something slightly less precise but (hopefully) easier to comprehend.

The weight of stuff bought and sold since the 1970s hasn't changed, suggesting that most of the economic gains since then have come from ideas - design, application, ease of use - rather than the materials this stuff is made of.

The weight of imports per dollar has, since 1955, steadily declined by about 3.1 percent per year. Since 1977 it has accelerated even more, declining by 4.6 percent per year. Simply put, the price per ounce of imports as varied as cars, electronics, and sweaters is dropping at an accelerating rate.

And finally, in Alan Greenspan's own words:

The correlation between growing economic activity and growing weight of real GDP apparently peaked in the late 1970s. In recent years, the conceptual contribution to economic activity has reflected importantly the explosive growth in information gathering and processing techniques, which have greatly extended our capability to substitute ideas for physical volume.

And if you're dubious about the idea of ideas having more value than products you can hold in your hand, consider this: Google recently passed Exxon as the world's second most valuable company, a purveyor of information now worth more than an oil company.

From pages 181 - 183 of Alan Greenspan, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting [The Penguin Press, New York, NY, 2013]

Unemployment Rate as Leading Indicator for Total Employment?

The unemployment rate is down 1.3 percentage points in the last 12 months, its biggest improvement in this century. It is particularly impressive that its made this gain after 46 straight months of job creation. This recovery is not exactly fresh.

The negative explanation is that the unemployment rate is dropping because people are dropping out of the labor market. The positive explanation is that its dropping because people are finding jobs.

Here is a graph to trace the change in total employment (the blue bars) against the change in unemployment rate (the orange line). Unsurprisingly, these two move together well; more jobs mean a lower unemployment rate.

Recently, the unemployment rate has dropped sharply even as job growth has faltered. (Look at the sharp upturn in the orange line in the just the last few months.) The simplest explanation is that people are leaving the work force, bringing down the unemployment rate not because of an increase in the number of people with jobs but because of a drop in the number of people still looking for work. That could be the biggest explanation of what is now happening, but I think the odds are better that this is actually an indicator of what's to come.

Because it is curious to see that - for whatever reason - the unemployment rate seems to move ahead of changes in total employment. Note that the unemployment rate worsened ahead of a drop in job creation in 2001 and 2006 and then improved ahead of job creation in 2002, 2004, 2008 and 2011. More often than not, unemployment rate changes have been a leading indicator of job creation during this century, changing direction more quickly than the net change in jobs.

Given household debt is down and the deficit is one third what it was at the height of the recession, consumption and government spending are more likely to expand than contract this year. Confidence is up. Household wealth is up. All indications are that domestic and international drags on economic expansion are behind us for now. There are good reasons to believe that this sharp improvement in the unemployment rate is indeed a leading indicator of good things to come.

And if it is, 2015 could be the first year since the 1990s to feel like an economy firing on all pistons.

US Defense Spending - More Than Next 11 Countries Combined

10X what the UK spent. 42X Israel.

Tailoring Education for Jobs - Changing Education for a Changed Economy

There is, in educational fields, an on-going tension between the idea of education to prepare our nation's youth to become the employees that companies want to hire and education that creates a whole person. On the one extreme, education is merely job training for the corporation turned into public investment. On the other extreme, education is some lofty examination of history and the human condition in ways that shows disdain for the grubby reality of making a living.

There is nothing like a Great Recession and high levels of unemployment sustained for much too long to tilt public opinion towards the first of those extremes: schools should create the workers that companies need, pundits say.

I know I risk sounding like a broken record, but if in this century we are to popularize entrepreneurship as we popularized knowledge work in the last century, it suggests a different take on what it means to tailor education for jobs.The new education should not just focus on creating skills that would get them hired; it should also focus on the skills that let them hire.

An entrepreneur creates jobs rather than prepares for one. An education that raises the probability that someone will become an entrepreneur seems like the right kind of tailoring of education for jobs.

Let existing companies compete not just in the market for products and services they offer but in the labor market for the quality and potential of the jobs they offer. Obviously we don't have enough competition there; if we did, wages would be high and unemployment would be low rather than vice versa.We are short on jobs because we are short on the entrepreneurs who create new ventures that need new employees.

Policy makers remain stuck in a world in which they think our limits to economic growth are still capital and education to create knowledge workers. If the last 10 to 20 years of economic performance in the West have not brought that into question, I'm not sure what will. Our new limit is entrepreneurship, the ability to create jobs and wealth and to tailor institutions to who we are rather than some abstract ideal. It's time our educational system began to prepare students for that reality.