28 December 2018

Scotland and How Identity and Economics Move in Opposite Directions

Scotland is weird. Scotland's First Minister Nicola Sturgeon has two goals that seem at odds with one another. She has already led one - failed - effort to break Scotland off from the UK. Now that the UK has voted to leave the EU, she has renewed that call for separation in order to ... [wait for it] ... be a part of the EU. Leave the UK but remain in the EU? If you are wondering how that makes sense and whether she's mad, stay tuned for an explanation of how it not only makes sense but helps to illuminate an important distinction (and no, Nicola is not mad but is instead delightfully wise).

The EU was formed as a means to create the largest economy in the world. People and goods can easily move across national borders within the EU, giving every employee in the EU access to more employers, every employer access to more employees and everyone access to more goods and services that can originate anywhere and be sold and consumed anywhere (else). 

Scotland was first made a part of the UK to unite kingdoms that shared a monarch. A nation-state is not just an economy. It lends an identity to the people within it. We can talk about the British or French or Americans and believe that we instantly know something about them. And more importantly, a child who grows up singing La Marseillaise or saying Pledge of Allegiance to the Stars and Stripes will believe something about who he or she is. "I'm an American," is a statement that is rich with meaning in spite of how very different Americans are from one another.

The EU is about economics and the UK is about identity. 

When our focus is on identity, we move towards something smaller. Identity distinguishes us from others. "You're tall but I'm short." "You're Canadian but I'm French." "You're straight but I'm gay." "You're a Lord of the Rings fan but I'm a Harry Potter fan." Identity does not stop until we reach the point of the individual. The fewer people with whom we share an identity, the better.

By contrast, when our focus is on economics, we move towards something bigger. What we can do as an individual is paltry compared to what we can do as community. If we have the specialization and knowledge and skills that come along with a set of 7 people, we live a life of poverty. If we have the specialization and knowledge and skills that come along with a set of 7 million - or even 7 billion - people, we have the potential to live a life of abundance. The more people with whom we can exchange goods and ideas, the better. 

Your Californian blog author meets
Scotland's First Minister in 2017.
It is dangerous to confuse identity and economics. Smaller worlds economically make us poorer and bigger worlds in terms of identity make us invisible. (To be one of a billion Muslims or Christians with no further distinction is to disappear.)

And now we return to Nicola Sturgeon who wants for her Scotland an identity more precise than UK and for her Scotland an economy bigger than the UK. Why? She's intent on giving her people a distinct identity in which they are more likely to make themselves visible and a broad set of economic opportunities in which they can find jobs, create businesses, and buy products from a broad menu of options. Why the abundance of choices that come from a bigger economy? In no small part because it gives the distinct individual a better chance of finding a distinct job or product that matches their unique history and aspiration, skills and passions. 

We're going to see more communities that look like Scotland in that they will - at first glance - seem to be moving in two, opposing directions. Look more deeply at this, though. What we will see is a process of identity creation that won't end until we are all individuals and a process of economic integration that won't end until this is a global economy.

21 December 2018

The Good that Could Come from Trump

Every month Trump seems to find a new way to turn the volume up to 11. He's such a cluster of cruel and stupid, confident and confused, bad instincts and indigestion.

As I write this on Christmas day, the country has
- No Secretary of Defense - No Attorney General - No Secretary of the Interior - No Chief of Staff - The S&P 500 is down 24.4% since 1 October - The federal government is shut down

And yet there is one thing good thing that could come out of his presidency.

Trump is Loki. He's the trickster god whose role is to disrupt the status quo. Trump is intent on blowing things up.

Given his continual assault on everything from notions of what it means to be polite to the basics of markets and democracy, he is leaving us with one gift. Once he is gone, no proposal that defies tradition will be immediately dismissed. His legacy could include an openness to new proposals that probably wasn't there before he came.

If I'm right that we are transitioning into a new economy as different from the information economy as it was from the industrial economy before it, then we will need to challenge some things from the status quo. I think that Trump will have made it easier for us to do that.

15 December 2018

Prosperity, Genetics, and Social Invention (And Over What Horizon Progress Lies)

I'd like you to predict which of these three people is fastest.

We have a middle-aged woman, a young man and a young woman.

You might speculate about whether the young man is an athlete. You know the young woman is. Some of you will recognize her as Allyson Felix, 3-time world champion short-distance runner (100, 200, and 400 meters) and Olympic medalist. You will likely predict that Allyson is the fastest, then the young man and then the middle-aged woman. Some people might suggest that saying that out loud makes you biased or prejudiced and some might say that it's just common sense. And if you had to choose between other groups you'd judge based on apparent fitness, sex and age. Data might be on your side and there would be all sorts of things we could say about whether you're unfairly excluding one person over another in spite of not really knowing them as individuals. And there might even be a debate about how silly it is to debate this when we have data to inform us who is faster and who is slower. 

But I'm not done with this question. I did not mention the distance they'd travel. I also did not tell you what inventions they have access to.

Now that you know the distance is 500 miles and you know what inventions they have access to - the young man has a bike, the young woman a car and the middle-aged woman a plane - you have absolutely no trouble predicting who is fastest. And in fact, there is no difference in their speeds running that even begins to compare with the difference in the speed they can reach in these different inventions. 

Usain Bolt was this phenomenon of speed last decade. It was mind blowing what he did. He broke the world  record for the 100 meter run in 2009 in the fastest recorded time. He ran roughly 23 mph, probably humanity's fastest time for that distant. 

He was not, though, the fastest person when he was running his race. That honor goes to Nicole Stott who was traveling at 17,150 mph while Bolt was setting his world record. Nicole and her crew mates on the Space Station were moving 745x faster than Bolt.

We're still fascinated by human potential and raw speed. But we don't depend on it as we go about our day. We use technology to get from place to place because it is so much faster. The incremental gains in speed from evolutionary advances are so tiny and slow in comparison to the incremental gains in speed from technology advances that they're not worth mentioning. The tiny and highly variable differences in genetics in determining speed are noise compared to the differences in technology in determining speed.

Now we move to part two of this pop quiz. Let's look at the same three folks and ask the question, Who is most affluent?

Again, you'd have your ideas. You may realize how subject your generalizations are to variation within groups. If you know Allyson is a star you'd likely think she was most affluent. If you didn't and thought she might just be a high school athlete it would be easy to assume that a young, black woman would be worth less than a middle-aged white woman. Probabilities support that guess. 

Let's now throw inventions back into the mix. This time, though, we're talking about which social inventions our three have access to rather than which technological inventions they have access to. 

If affluence is measured by how much one can spend, the young guy is now most affluent. Our young woman has only cash, the middle-aged woman has a credit card and the young guy has access to venture capital. The first can spend hundreds, the next ten thousand and the young guy millions. People with access to consumer credit have more money than people who have only cash, and so on. 

One of the best social inventions is a stable and prosperous country. If you have access to that you will live better than someone who does not. (I know. I know. There is variation in all things and there are people in poor countries who live better than people who live in affluent countries. Still, if you were talking probabilities you would want to bet on the Norwegian rather than the Syrian, At this point in history anyway; it would have been dramatically different a thousand years ago and could reverse again in a century or two.)

The differences in genes as a determinant of speed are noise in comparison to the differences in what technology we have access to. Similarly, differences in self-sufficiency as a determinant of affluence are noise in comparison to differences in what social inventions we have access to. Groups who have access to a peaceful, prosperous country and great education and dynamic companies to work for will be far more affluent than groups who have access to none of these things. That is as clear as the fact that a group in a plane is faster than a group with sneakers.

And once more, a nod to variation. When we get into a plane we all move at 600 mph. When we get into schools or markets or corporations we don't all move at $60,000 a year. There will always be variation in outcomes from systems like factories, schools, and markets. If you want to understand how to better manage such variation, you may want to search for "deming" on this blog or W. Edwards Deming more generally. The claim is not that all individuals benefit equally from these social inventions: the claim is that communities with different social inventions at different stages of development have very different outcomes. Take two populations of 100 or 100 million and put one in a society where social inventions like universities or financial markets are nonexistent or reserved for just the elite and put another in a society where such social inventions are accessible to a wide swath of people, and it is the latter that will be more affluent. Every time.

For at least the last 10,000 years - maybe the last 100,000 years - social evolution has done more to determine our quality of life than has genetic evolution. There is no conceivable genetic advance that will ever make us capable of running 17,150 mph. Nor is there any genetic advance that will ever enable us to live as well from self-sufficiency as we do in today's modern world. The point is to worry less about differences in individual ability within our current systems than to worry about how to make those social inventions and systems more useful for groups and the distinct individuals within them. Significant progress is never about pushing people harder within current systems; it is about the continual act of invention and reinvention - sometimes tiny and incremental and sometimes sweeping and grand - of those systems to result in longer lives and more autonomy, more choice about how to live a life. We don't live better than our ancestors from 1900 because we work harder or make bigger sacrifices. We live better because the systems we depend on and use - the social technology that makes us more or less affluent - are better. Focusing on the performance of our systems rather than the performance of individuals within them is the direction in which progress lies.

08 December 2018

A More Civil War Between Two Economies

The American Civil War was fought between two economies: the South’s agricultural economy and the North’s industrial economy. Today's more civil war is also a clash of two economies: industrial and information. In the industrial economy are factory workers threatened by globalization and traditional capitalists who want lower taxes and smaller government; in the information economy are knowledge workers and new entrepreneurs who depend on globalization and public investment in education and research. They live in different economies. They want different policies.
In a country as big and complex as the US, people don't vote for or against candidates for just one reason. Still, these two economies explain a lot.

People in congressional districts that voted Democratic in 2018 are more likely to have college degrees, twice as likely to work in digital services and almost half as likely to work in manufacturing.[1] In the 50 counties with the most college grads, Hillary Clinton won by 26 percentage points; in the 50 counties with the least, she lost by 31 points.[2] College grads are the simplest proxy for knowledge workers and have become one of the simplest predictors of how communities vote.
The classic knowledge worker – whether biologists and chemists developing new drugs, engineers designing new products or programmers creating apps – is working towards disruption. Their new product displaces an old one.
By contrast, factory workers and traditional capitalists dislike disruption.
If we define traditional capitalists as people who invest in physical factories or private businesses, it becomes clear that they are more threatened by disruption. They can’t quickly buy and sell their assets like day traders and two things will enhance their investment: lower taxes and protection from sudden obsolescence.
If factory workers are laid-off they could be forced to leave manufacturing – or even town - for lower paying jobs. A new product or technology – the very goal of information workers - could make an entire factory obsolete and that could mean a wave of layoffs that might devastate a small community.
Disruption threatens factory workers and traditional capitalists in the industrial economy but is a goal of the new entrepreneurs and knowledge workers in the information economy.  This drives conflict.
People in the two economies also experience the outside world differently.
Knowledge workers inevitably have immigrant coworkers and foreign customers and suppliers. (As the name suggests, the world wide web isn’t a local service.) About half of Silicon Valley’s startups are co-founded by first or second-generation immigrants. Information shows about as much respect for borders as do clouds and this information economy is a global economy. NAFTA, WTO, and the EU were defined in the 1990s along with the internet. Also, knowledge workers generally live in cities among neighbors, coworkers and family from around the world.
By contrast, factory workers are more likely to see the outside world as a threat. Imagine competing with factory workers from foreign countries who might make as little in a day as you make in an hour. If you live in a rural area you know fewer foreigners. (Foreigners are 27% of California’s population but only 1.6% of West Virginia’s.) West Virginia has 5.6X as many veterans as immigrants; California has 5.3X as many immigrants as veterans. People in rural areas are more likely to meet foreigners through war and occupation than work and dating. To folks in the industrial economy, foreigners are people who take your job or even your life. To folks in the information economy, foreigners are coworkers, neighbors and family.
Everyone wants security. People in the industrial economy want it in the form of protection from the rest of the world and people in the information economy want it in the form of social programs. Factory workers want walls for immigrants and tariffs for trade. Knowledge workers want good social safety nets like generous unemployment insurance, universal healthcare and great education and retraining programs to help them through what they see as inevitable disruption. Knowledge workers want strong government. Factory workers want strong borders.
Traditional capitalists want low taxes and small government. They are trying to maximize their return on investment and aren’t interested in high-taxes to create a strong government. By contrast, the new entrepreneur relies on healthy government investment. The quality of his employees depends on the quality of education. And the knowledge workers the new entrepreneur employs often develop products that depend on government research. Mariana Mazzucato argues that companies like Apple could develop products like the iPhone because of earlier government research into technologies like touch screens and satellites. Government funds the uncertain R (research) and companies invest in the shorter-term D (development). In the information economy, R&D is a collaborative affair between the public and private sectors.
The conflict between knowledge workers and factory workers does not come out of irrational thinking or tribal impulses. They are protecting the economy that defines them.
There is precedent for such a divide.
The American Civil War was fought in the 1860s. Between 1840 and 1890, agriculture’s share of economic output and employment fell by half while manufacturing’s share doubled.[3]
The industrial economy – and Republicans - emerged from the north. Lincoln was the first Republican president, elected just six years after the party was founded. Between 1861 and 1933, a Republican sat in the White House 72% of the time. In 1861 daily life would have been mostly familiar to someone from 1776; by 1933, the nation had automobiles, electricity, telephones, airplanes and radio. Republicans were presidents and capital was king. The industrial economy emerged in gales of creative destruction and the South’s agricultural economy and way of life – both dependent on slavery - were two of the things that it destroyed.
The agricultural economy employed 90% of the workforce at our country’s founding; it now employs 1%. The industrial economy is following its trajectory. From 1910 to 2015, manufacturing as a percentage of employment fell from 33% to 9%.[4] Meanwhile, between 1940 and 2016, the percentage of Americans with four or more years of college rose from 5% to 33%. The industrial economy, like the agricultural economy before it, has proven to be just another phase of economic development rather than its culmination. The industrial economy eclipsed the agricultural economy as a source of wealth and jobs in the late 1800s; about a century later, the information economy has eclipsed the industrial economy. If you define yourself as a farmer or factory worker, such disruptions are a personal threat and not just an economic phenomenon.
People in the industrial economy feel under attack. For that reason alone they rally behind the warrior chief Trump and care little about whether others see him as crude or combative; he’s protecting them from an attack on their lifestyle and livelihood.
But if a transition from an industrial economy is as inevitable as the transition from an agricultural economy, the question becomes, What policies help with the transition? Policies designed to protect jobs, industries or even economies are expensive and defer the inevitable. Policies that protect people rather than jobs, helping them to make transitions rather than resist them, are less expensive and yield a better return. The transition won’t be – has not been – trivial but here are just a couple of suggestions.
Treat career investment more like a common right than a special privilege. States invest about $40,000[5] in knowledge workers who spend five years at a public university. Factory workers (or anyone who doesn’t go to university) deserve a similar investment. The money could be spent on education (vocational or trades schooling, for instance), venture capital for startups or housing allowance to move them into more dynamic communities with better jobs.
Another policy initiative could better integrate rural workers into the information economy. People in cities are 40 to 50% more productive for host of reasons, most stemming from the fact that they are part of richer and more varied communities. It is worth exploring options for better connecting folks in less populous communities with folks in nearby cities or rural hubs so they, too, enjoy more of the economic benefits of living in cities where ease of connection and specialization makes people more productive. 
One step to ending the more civil war between factory workers and knowledge workers is to treat them the same: invest in both and make them part of the same, continually evolving economy. Because as it turns out, the economy is not any one thing: it is an evolving market that will change even more rapidly as it becomes more clearly an entrepreneurial economy rather than the agriculture, industrial or information economies that preceded it.

[1] https://www.cnbc.com/2018/11/15/charts-democrats-represent-modern-economy-republicans-left-behind.html
[2] http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/
[3] https://www.cambridge.org/core/journals/journal-of-economic-history/article/americas-first-great-moderation/E3217E2FA4B9D3CAD4AA23A67CDCDC62
[4] https://www.bls.gov/opub/ted/2016/employment-by-industry-1910-and-2015.htm
[5] https://www.usnews.com/news/best-states/slideshows/states-investing-most-in-higher-education-per-person

02 December 2018

You Dreamer You

Imagine a game show.

You find yourself on stage with 3 strangers.

You are told to vote on a proposal to send foreign-born, undocumented people back to the country where they were born. If a majority of you vote for this proposal, it will be immediately enforced. Whether brought to the country as an infant or a 14 year old, one cannot stay here unless one's parent or guardian had the proper paperwork. Such people will be immediately deported once the law is passed.

Now it gets more interesting.

You are then told that one of you is actually foreign born and undocumented. As you talk among yourself you realize that none of you have a memory of living anywhere but the US. There is a 25% chance that the "born in a foreign country but raised in the US" person is you. Meaning, there is a 25% chance that you are the one who will be deported to what is - to you - a foreign country.

How do you vote?


01 December 2018

Systems Optimization and a Life

I'm going to argue two seemingly contradictory points. First, a point about systems optimization.

You don't optimize a system by optimizing any one part of it. To optimize a system, you have to sub-optimize its parts. Let me illustrate what I mean by talking about a life.

Your life is a product of so many things: your physical health and fitness, your mental health and learning, your social life and psychological well being, your sense of meaning, your connection to the community around you and your sense of individuality in the community around you, your sense of legacy, individuality, belonging, your income and financial security, your cool shoes or cool car or cool taste in music, your hedonistic pleasures of food and sex, the hunger for stories that comes in the consumption of books and movies, or your tribal urges that find expression by cheering for your team and so many other things.

Here is the deal, though. If you optimize any one of those, you will sub-optimize your whole life. Do everything you can to be in peak physical condition and you'll likely have little energy left for something like plowing through great literature or keeping current on important new books. And if you do both of those things while working a full-time job, working out and reading all the great books, your social life will suffer. Life is zero-sum and if you optimize to any one piece of the myriad pieces that make up a life, you will sub-optimize the whole of your life. Oddly, the way to optimize any system - including and perhaps especially your life - is to sub-optimize every piece of it.

The punchline is perhaps cliche: a balanced life means moderation in all things.

Now the contradictory point.

This week there was some furor over Elon Musk's claim that to accomplish anything a person needs to work 80 hours a week. People pointed out that an 80 hour week is counterproductive. I totally agree. Long term. Short term? I think he's right.

A moderate, balanced life is not something that one achieves in any given instant. You don't split up each hour into 7 minutes for workout, 3 minutes for reading great literature, 8 minutes for building relationships, 4 minutes for eating, etc. Even within the course of a day or week we focus on just one thing at a time. So in any given instant, we're certainly not balanced.

There are times in life when you need to move forward. In those instances you look for the limit or obstacle to moving forward and you challenge that. You do optimize to the part that is the limit .... at least until it no longer is.

So then the question is, if you are going to optimize a life but not any one part of it, what does it actually mean to sub-optimize in a way that is best for your life?  It means that you have stretches of life that really do optimize for one part of it and subordinate everything else. Let's say that you have children. You don't want the entire rest of your life dedicated to doing what is best for your children, optimizing everything for them. But in those first few months? First few years? Maybe even first decade or so? You will optimize for them. Nobody with a newborn is running marathons or throwing big parties or reading great literature. They're sub-optimizing pretty much everything to that one thing: the newborn.

If you create a dissertation or book or symphony or business, pursue a gold medal or partnership in a prestigious law firm, you will probably go through something similar to what one goes through with a newborn. You're going to sub-optimize to that one thing. At least for a few years. New parents are not going to say that they'll only put in 40 hours each to care for their newborn; it would die in the other 88 hours of the week. A similar, but less dramatic thing, can happen with any of these ventures. Balance suggests that you never dive into anything: success suggests that you do.

And maybe you just keeping diving into things for the whole of your life. Or more realistically, at various times in your life that could be separated by six months to six years of "la de dah," days in which not a great deal happens. (That perfect storm of incredible opportunity for which you are incredibly well suited at the right time of life only happens one, two, maybe three or four times a life.) You throw yourself into things that result in sub-optimization elsewhere. You're immoderately out of balance at every stage and the end result is a full life that is balanced in that it lets you experience life as whole over the course of a whole life, but never in any one instant. Because in the end, a life takes a lifetime and if you're interested in a legacy of any kind, you don't even optimize for a window that small. (But that's the stuff of another post.)

21 November 2018

Ocasio-Cortez as the Right's New Bogeywoman

Alexandria Ocasio-Cortez became the youngest woman ever elected to Congress. At the tender age of 29 she has become a favorite target of the right. She's got everything they love in a target: a beautiful, energizing young woman of color is the exact opposite of the old, white congressmen like Mitch McConnell who they prefer.

With the recent loss of Mia Love in Utah, "Republicans will lose 43% of their women in the House, [dropping] from 23 to just 13. 90% of House Republicans will be white men," according to Dave Wasserman.  The Republican Congressional Black Caucus could meet in a phone booth: Mia Love was its sole member. Now that caucus can actually meet in an imaginary space.

Ocasio-Cortez represents everything the Republican Party is not. Exit polls tell us that race is a huge predictor of how one votes: 54% of whites vote Republican and 76% of non-whites vote Democrat. Age, too, is a huge predictor: two-thirds of voters under 30 vote Democrat and only 48% of voters over 65 do. Finally, gender is predictive: 51% of men vote Republican but only 40% of women do. A young minority woman, she is the embodiment of who Republicans cannot win and who this country is becoming.

And conservatives who have convinced themselves that Obama and Clinton were socialists are alarmed to encounter a candidate who actually calls herself socialist. For many conservatives, simply believing that science is real is enough for them to conclude that you are a socialist. I've seen little evidence that my conservative friends can distinguish between pushing for, say, a 3% higher marginal tax rate for inheritances over $3 million and shifting 20% of GDP from the private to public sector.

And in this willing ignorance of the difference between the socialism of a Fidel Castro or northern Europe, today's conservatives are unable to process who Ocasio-Cortez is. From what little I know about her, she has this huge advantage over my libertarian friends: she can point to highly successful communities like Norway, Denmark and Sweden that do what she is advocating; libertarians still only have examples from Ayn Rand's fiction.

This, though, is what is most comical about how alarmed conservatives are by Alexandria Ocasio-Cortez. She is one of 435 House members. One of 535 congressional members. Her vote on policy represents less than 0.2% (not 2% but rather two-tenths of a percent) of Congress.

I was a big Hillary Clinton fan and while I'd have readily voted for Bernie Sanders rather than Trump, I don't get excited by politicians who distrust business as much as Republicans distrust government. (I think that both positions are not only naive but show one of the last, widespread kinds of acceptable bias in this country, groups who openly condemn bankers or government employees as if they were sub-human rather than people filling roles without which our modern world would collapse, and yes, I mean that literally.) Socialists* and libertarians strike me as generally smarter than the average person but generally more naive about how the world works. They're typically better at articulating concepts than pointing to any actual examples of what they're advocating.

All that to say that I would not naturally be a Ocasio-Cortez fan. But I'm becoming one for a host of reasons. One, she has shown such grace in the face of the right's paranoid and incessant attack on her. Two, she's too young to be president and if a person doesn't lean towards socialist or libertarian thought (or both) before the age of 35 they're probably either a really boring or really simple thinker. Three, the things she is fighting for are really important. As she put it in response to a Fox news alarmist piece about her and other new women of color in congress, "Oh no! They discovered our vast conspiracy to take care of children and save the planet."

I share this country with 325 million other people. I never expect to have a set of policies that perfectly capture what I believe. I will say, though, that for me it is such a no-brainer as to whether I'd rather live in Ocasio-Cortez's world where adults get free university than Trump's world where immigrant children get free cages. And that may be the final reason the right is so alarmed by her: she is as appealing as their champion is appalling.

* In this paragraph I refer to socialists are people who distrust bankers. Those I distrust and consider naive. At their worst, they give you a society like Cuba's. Socialist is also used to refer to folks who see bankers and business as vital but merely think that healthcare and education should be available to all. Those I trust. At best they give you a society like Norway or the Netherlands.

20 November 2018

Women, Hitler and the Inevitability of Progres

Progress is inevitable.

As someone who loves history I've come to believe that certain things are inevitable. Once the telegraph had been developed, someone would eventually find a way to push voices down the wires and allow conversation. Alexander Graham Bell was the first to file a patent for a telephone and then, hours later, Elisha Gray tried to file a patent for a telephone.  Had neither Bell nor Gray been born, we would still have had a telephone. It was inevitable.

Hitler was not inevitable. No one had to step into power in Europe and derail progress, tipping the world into so much madness and evil. Yet even Hitler illustrates the inevitability of progress.

Hitler killed 6 million Jews. It was one of the greatest horrors of the last century, this systematic killing of a people. But he made it even worse. By far. Hitler - in league with Mussolini and Hirohito - started a war of conquest that killed 50 - perhaps s many as 80 - million people. It was the mass manufacture of death.

Hitler's beliefs have still not completely died. Neo-Nazis are not done killing people, even if it never approaches a fraction of the scale of Hitler's madness.

Hitler was awful, not inevitable, and left behind a trail of destruction.

The Allies response to him? Accelerated progress. Technological and Social.

New products that came out of World War 2 include penicillin, the programmable computer, a jet engine, and radar.

Less obviously, production and quality methods came out of this that helped to raise productivity during the 1940s and probably for the rest of the century. Three of the business thinkers who most influenced my understanding of business and were heard and read by millions - Peter Drucker, Russell Ackoff, and W. Edwards Deming - all were involved in the war effort and carried lessons from that time into work with clients into the 21st century.

Hitler did not just accelerate progress in technology and production processes. He actually accelerated social progress.

In the US, men went off to war and women were brought into workplaces. (Management expected productivity to drop when this happened. Instead it rose. They investigated to understand why and what they discovered was .... when assigned to work on a new machine, women asked questions about how it worked. That was it. That was the difference that accounted for the productivity gain.)

To win the war, the US was eager to have as many able-bodied men as they could. This included minorities and this effort at integration did not end with the war. WWII ended in the Fall of 1945 and by the Spring of 1947, Jackie Robinson began playing major league baseball.

Hitler probably accelerated the development of medical care, aviation, computing, racial integration and women gaining more rights. He arguably caused more pain than anyone in the last century and yet .... even all that seemed to give progress more of a boost. (Let me be clear that we could have done this anyways and far less painfully. Probably not as quickly, though. Once we learn to follow the lead of intrinsic, rather than extrinsic, motivation progress will move along at a good clip and not be in reaction to crisis.)

Hillary Clinton came so very close to becoming our first woman president, losing a marathon race by half a second. Now, in the first election after her loss, there have been a record number of women elected to congress. (And still counting. It looks like the 116th Congress will rather fittingly have 116 women. One can only hope that their progress towards representing half of the 435 won't take another 200 years.) Many of these women were motivated by Trump's election and Clinton's loss. It is distinctly possible that the election of a man who bragged about just grabbing pussy because he was a star will actually lead to more women in power than we might have otherwise had.

Progress has a direction. More people have more freedom to live a life of their own choosing. They get access to inventions technological and social. We invent cool things like church and state, cars and planes. That makes life better. Then we figure out how to let more people use these cool things. Religious freedom and democracy, Ford's factory line and commercial air eventually give the everyday person access to these great inventions that once were tools reserved for the elites. Progress continues to create more  possibilities and then offer those to more people.

I'm more appalled at Trump than most people I know. I think he already has created so much unnecessary grief and could be responsible for far more. That said, if even Hitler could not derail progress, there is no way that a man as simple-minded and emotionally needy as Don is going to. All these women winning elections is just the first good thing to come out of his presidency.

12 November 2018

What if the Senate is Obsolete?

As economic power and population shifted from rural farms to industrializing cities in decades around 1900, Britain and Germany changed how their parliaments were defined. US legislature hasn't made that shift in representation and probably should. This is going to be contentious.

As Britain pioneered the industrial revolution, Manchester's population exploded. A center for industrialization, Manchester grew to become the UK's third largest city (after London and Glasgow) by 1901. Between 1700 and 1800 it grew from fewer than 10,000 to about 90,000.  Manchester's population doubled between 1801 and 1820 and then doubled again by 1850.

Yet when it began its growth, Parliamentary representation was granted to districts. Manchester did not even elect its own Members of Parliament (MPs) in the early 19th century. It was just part of the Lancashire district.

Meanwhile, in "rotten boroughs," a paltry few could elect two MPs. How few? In one borough, 7 voters got to elect 2 MPs. Dunwich had literally fallen into the sea, leaving just 32 voters clinging to land; they, too, got to elect 2 MPs. In a sense, this was representation by acreage.

The economy changed how population and power was distributed. Industrialization brought workers into cities like Manchester and left behind smaller populations in the little rural communities that - in part thanks to industrialization - needed fewer people to raise crops and tend livestock. While the population and economies of cities grew, their political representation had not.

This changed in the UK (the disparity between Dunwich and Manchester began to be addressed with legislation in 1832) and, later, in Germany, Austria and France through a series of parliamentary reforms starting in the early 1800s and continuing through the first world war. As the economy shifted from agriculture to industrial, as the important factor shifted from land to capital, these communities shifted political power to give voice to the members of this new economy.

The need for such a shift in the US is less dramatic. At least in the House. Divided into 435 districts by population (obviously a number that grows every decade), the US is not going to have anything as egregious as 7 people electing two representatives.

Nonetheless, the Senate is still structured around the notion that acreage deserves representation. Like the early forms of British parliament that found themselves antiquated by urbanization and industrialization, the US Senate gives disproportionate representation to owners of land rather than capital or knowledge. Two states, Wyoming and Vermont, have populations smaller than Washington DC. Those states have four senators and DC has none. 21 states with a population of 36 million get 42 senators; California with a population of 39 million gets 2 senators. In one part of the country, you are just one of 850,000 voices your senator must represent; in another, you are one of 19.7 million voices

California has helped to pioneer the information and entrepreneurial economies and that has made it successful in industries like aerospace, communications, silicon, software, biotech, and the internet. Of the 100 most valuable companies in the world earlier this year, the market cap of companies in California represented $4.2 trillion of the US's $14.1 trillion (and of the world's $21.2 trillion). California represents 12.4% of the American population and 30% of the value of the country's biggest companies. Like Manchester in the early 19th century, California's lead in creating jobs and wealth has not yet translated into commensurate representation.

In 1790, when the US was founded, 90% of workers were in agriculture. Acreage was a pretty good proxy for good representation at that time. Agriculture now employs fewer than 2% of American workers. Acreage is now a terrible approximation of how representation should be calculated. (And yes, I know that technically the Senate is a way to represent states not acreage but it does effectively do that. State representation does not follow people around as they move; states "govern" over a constant and stable area, not a constant and stable population. What this effectively means is that Senators represent acreage.)

As it now stands, the politics in the US is going to be disproportionately defined by the least populous and least affluent areas of the country because of how the Senate is structured. It's hard to imagine us ignoring that for too much longer or imagine that addressing this issue will ever be easy.

11 November 2018

The Lesson of World War One (That is too costly to learn twice)

Today is the 100th anniversary of the end of "the Great War." This war killed 15 to 20 million people but within a generation we had a second world war that killed 60 million. In between, the Great Depression caused so much economic misery that it gave power to communists and fascists throughout the world.

The decades after the first world war were a time of misery. The decades after the second world war were a time of peace and prosperity.

Between 1350 and 1950, there was at least one major military confrontation between European powers in every decade. What changed after 1950 is that we created international institutions.

There is a quip that nations either exchange goods or gunfire. Economic development and trade have been a boon to peace. The West also has institutions that link it together: NATO, the UN the IMF and the EU. These didn't really exist until after WWII and they do a great deal to explain why the time after the second world war was so starkly different from the time after first world war.

Just as the institutions of families, city councils, federal governments, corporations, churches and banks all deserve continual criticism and drive to improve them so that they adapt to changing realities and new possibilities, so do these post WWII institutions. They need improving. Without institutions we are like the other primates, though. We can't afford to neglect or discard them. And the West without these post-WWII institutions would be more like the world of Stalin, Franco, Mussolini, and Hitler than JFK and Reagan, Thatcher and Blair, Trudeau and Mulroney, de Gaulle and Chirac, and Kohl and Merkel.

The lesson of WWI is that without creating institutions that transcend nations we again slip into the the madness that goes by a variety of names (patriotism, nationalism, self-interest) and devolves into the worst kind of competition rather than raise us to the best kind of cooperation. It is a lesson too costly to learn twice.

06 November 2018

What is Certain in Today's Election

We live in a probabilistic, not deterministic world. The Democrats will probably win the House and the Republicans will probably hold the Senate but .... we don't know. Yet. Fivethirtyeight gives Republicans a 15% chance of keeping the House and the Democrats a 15% chance of winning the Senate.

Reality is choosing among possible paths as rapidly as it can but there are so many of them. We can simulate reality so much faster than reality can play out because reality does not simplify.

One of the things that we will learn is how unique is Trump. It is very normal for a Republican to win the presidency after two terms of a Democrat in the White House. In that sense, the 2016 election was boring and normal. But of course Trump is a bizarre character who seems to most of us to be hugely different than a typical Republican. If he really is, the backlash could be bigger than what is captured in current probabilities; if typical Republicans and swing voters think he is really no different than a normal Republican, there will likely be a swing towards Democrats but it won't be very dramatic; about enough to win the House but still be still be a minority in the Senate.

What is certain? 

Democrats could win by 6 points nationally (53 to 47) and still lose the House. Because of gerrymandering and the fact that individual voters in big cities have less influence even in House races, Republicans have about a 5 to 6 point starting advantage for Congress. That strikes me as the most remarkable thing about politics in this second decade in the 21st century.

Related, the counties that voted for Clinton represent two-thirds of GDP. It is the areas of the country that least understand how to create jobs and wealth that thought Trump's anti-trade, anti-immigrant, nationalist agenda sounded like a good idea.

As it now stands, our policy is being decided by minorities as counted by the number of voters and GDP. That's certain. And that is certainly weird.

What else is certain? The House will decide whether we learn what Mueller has learned about Trump. The House will decide whether Trump will - for the first time in his life - experience any negative consequences for any negative deeds. Voters today will decide whether we continue to have a Republican-led House that merely enables Trump or a Democratic-led House that checks his worst excesses. 

What is certain is that Trump will be more dangerous with a Republican-led House. I'm certain that I don't want two more years of a Congress that merely acquiesces to his every whim; I wish I could be certain we'll get that.

Finally, as I think about today's election, the words of Tiny Tim repeat in my head: God bless us everyone.

30 October 2018

Rise of Entrepreneurial Economy and Fal(tering) of the Information Economy

Here is the table from The Fourth Economy. One of the central arguments is that we're living through a shift from the information economy to an entrepreneurial economy.

Google Ngram is an interesting way to track the usage of various words and terms.

Here you can see the steady rise in the use of the term "entrepreneurial economy."

And here you can see how the use of "information economy" has begun to fall (even though it is still used considerably more than the term "entrepreneurial economy").

So apparently a long way to go but the fourth economy does indeed seem to be (oh so slowly) gaining on the third, information economy in terms of mention in writing. My argument is that it is emerging but we're still not quite attuned to it so it is becoming harder to ignore but still not completely appreciated.

Oh, and for bonus points, here are the three most recent intellectual revolutions. Given we build on each previous stage, and given that we've had centuries to become aware of the importance of the Enlightenment and Pragmatism, it makes sense that systems thinking is only now beginning to rise in general use and awareness relative to those.

29 October 2018

Saving the Nation with Poetry

Looking through my mail-in ballot and sad to see that there is still no proposition to tax pop songs to fund actual poets.

You think I'm being whimsical. If so you don't understand what nations are built on. The Grimm Brothers were nationalists and they wandered the country that was not yet Germany to find the stories Germans could tell themselves about who they were and were not. Focus too much on technology and not enough on the stories people use to inform them about what it means to be a particular kind of person and the technology will turn on you.

Imagine regularly hearing songs like this poem from Walt Whitman.

COME, I will make the continent indissoluble;I will make the most splendid race the sun ever yet shone upon;
I will make divine magnetic lands,
With the love of comrades,
With the life-long love of comrades.

I will plant companionship thick as trees along all the rivers of
America, and along the shores of the great lakes, and all over
the prairies;
I will make inseparable cities, with their arms about each other's

By the love of comrades,
By the manly love of comrades.
For you these, from me, O Democracy, to serve you, ma femme!
For you! for you, I am trilling these songs,
In the love of comrades,
In the high-towering love of comrades.

18 October 2018

Progress and the Marketplace of Ideas (or, how our love of villains and heroes is an obstacle to understanding systems)

There is a marketplace for ideas. It doesn't necessarily reward more effective ideas. It does seem to reward ideas that are easy to explain. Often, simple explanations that are wrong will triumph over more complicated explanations that are right.

One thing that is easy to understand it villainy. Bad guys and good guys, heroes and chumps. We love the movies that show the lone guy against the system, Bruce Willis taking on bad guys, bad officials and an entire skyscraper.

As it turns out, systems do more to define people than people do to define systems. I speak English. I never chose that. I was born into it and even the question of whether I would learn another language came to me in English. So much of who we are is not even our choice.

Much of what happens is the consequence of systems, not the people within them. Stories lend themselves to blame or credit to the people in these systems, though, and so those are the explanations we offer.


Progress doesn't really impress people. We make about 6 to 8 times what people made a century ago and can buy things that they couldn't even imagine. The thing is, nobody is really impressed with that. We don't compare ourselves with our great grandparents. We know that they didn't have smart phones. What matters is whether our smart phone is two years older than our friends. We compare ourselves with our peers. We have this tendency to care less about progress than status.

How we are doing relative to our grandparents is a variable sum game. It is possible for all of us to do better than all of them.

How we are doing relative to our peers is a zero sum game. It is impossible for all of us to do better than all of us.

The more we teach kids to focus on relative status the more unhappy and disengaged they will be. Not only is that a lousy way to walk through life in terms of happiness but even in terms of progress it is bad: unhappy, disengaged people will be less effective at making life better relative to their grandparents.

The politics of status will be fear-driven and angry. It promises villains, heroes and quick change.

The politics of progress is slow. It actually works across generations. It is less concerned with villains and heroes than the systems that throw people into such a role. It is a less engaging, less simple story. That doesn't mean that it'll always be rejected, though.


Progress is boring. I suspect that people are ready for that now.

08 October 2018

How Systems Thinking Will Define the Evolution of Democracy Within Your Lifetime

There is still a popular myth that our founding fathers fought a revolution in the late 18th century that - by the time they'd ratified a constitution in 1789 - culminated in democracy for all.

It was a much slower process than that. And understanding this process can give us a sense of how democracy will evolve.

Aristocracy were landowners. They inherited land and with it titles, privileges and power. Land was the basis of wealth during the emergence of nation-states and given that nation-states had borders it made sense that you'd look to the owners of the land within those borders (the king was often the chief landholder) and give political power to them.

In 1776 Adam Smith wrote Wealth of Nations and James Watt perfected the steam engine for use outside of mines. This birth of capitalism coincided with the birth of democracy across the Atlantic and what they represented was a shift in the basis of wealth from land to capital. The British had already seen a broadening of political power from landholders to capitalists even before the Americans designed a government that did away with royalty (the ultimate aristocrats) altogether.

At first, the vote in the United States was limited to landowning, Protestant, white men. It took nearly 200 years to guarantee the vote to minority, atheist, 18-year old women who rented. (A timeline for how democracy progressed from KQED is here.)

Commoners were allowed into the legislature throughout the West by about 1850. This dimension of democracy had to do not just with who could vote but who could craft legislation. About a century later, California gave voters even more power when the proposition allowed voters to completely bypass the legislature with a popular vote. By the time of Roosevelt's New Deal, voters weren't just able to vote for the folks who would craft their legislation but could actually craft their own legislation and put it before their fellow citizens for a vote.

Just like your car or computer, democracy has continued to evolve. And just like your car or computer, it has not yet reached its ultimate state. It will continue to evolve and I think that systems thinking will be a big part of what happens next.

Thomas Jefferson and our founding fathers understood how important education was to democracy. (Jefferson was apparently about as (more?) proud of founding the University of Virginia as he was in helping to found the United States.) Education still matters enormously to a functioning democracy but now it needs a new dimension.

Our lives are wildly dependent on systems. Ecosystems, financial systems, economies, healthcare systems, information systems, education systems, etc. If we get these wrong we get terrible outcomes; if we get these systems right we get wonderful outcomes. The most important political policy defines variables within systems and even the creation or change of systems. We can't make intelligent decisions about how to change or impact these systems without understanding their dynamics.

Systems often have lags and some causes explode to become a big deal and some causes dissipate into little or no consequence. Cause and effect in systems is complicated to understand and our systems thinking can be enhanced with the right kinds of simulations.

Cocaine makes you feel great but apparently isn't that good for your health longer term. Right now the American economy is phenomenal; 96 months in a row of uninterrupted job creation has doubled the old record (since records were kept in the late 1930s), unemployment at 3.7% is its lowest since 1969. Oh, and Republicans have doubled the deficit to one trillion dollars, its highest since the worst year of the Great Recession. We have a huge stimulus with unemployment under 4%. That makes for an interesting experiment but it also could be like cocaine binges that Trump's Economic Council Director Larry Kudlow was famous for in the 1980s. We may end up in rehab once the longer term consequences of this play out.

Even folks who study economies cannot say with certainty whether we're now creating a bad bubble (one like the bubble leading up to 2008 that raised home prices but didn't really create more economic capacity) or a good bubble (like one leading up to 2000 that actually created lots of new internet knowledge and capacity that would change what was possible). But we expect the average voter to make a judgement on policies and the politicians who support them without any real chance to play with simulations that would help them to understand dynamics.

Simulations can help to create new understanding. I think smart communities will tap into this.

Democracy will evolve to include massive online participatory simulations of the systems we depend on. One of the reasons I love history is that it lets us quickly - in the course of a book, chapter or even turn of the page - see how dominoes fall, even if those dominoes took a generation or two to fall. Like history, simulations don't require us to actually spend years or lifetimes to learn outcomes.

Simulations are not perfect but they do let you learn about dynamics in ways that you would not from prose. You can set up a model to capture what data and / or common sense tell you about cause and effect (e.g., raising interest rates will lower borrowing but increase the value of your currency on foreign exchange markets) for lots of variables and then run simulations to see what range of effects are possible as you tweak the knob on those variables. You're obviously hoping for a good model for predicting the future but almost as important as prediction (which is always hard and is at best probable, not precise), is learning more about dynamics that none of us are smart enough to keep track of ourselves. Simulations can sensitize us to cause and effect that isn't instantaneous and can be mitigated or exacerbated by other variables.

As democracy evolves to include simulations we participate in, it will make us smarter. Very few of us can calculate mortgage rate changes to reflect 20 vs. 30 year mortgages or a 3.2% vs. 4.1% rate but with a computer we can all easily discern that ourselves without reliance on an expert. Very few people can get across town in 15 minutes by running but with a car most of us can. Tools enhance our capabilities. Systems simulations seem like the most important tool one can imagine for any democracy that needs to navigate and manage the systems that so define our lives.

Whether it be tax rates or emission levels or research funding, in the future such important decisions will be accompanied by systems models that simulate these phenomenon. Will these simulations be perfect or even great? Definitely not and probably not. Will they be immeasurably better than reliance on prose and statistics to make the same determinations? Undoubtedly. And will future generations wonder how we could pretend to vote on such issues in the past without the aid of simulations, in the same way that we wonder at how people got around without cars? Definitely.

Progress isn't done yet. Democracy will continue to evolve, just as it has for centuries. The popularization of systems thinking will be a big part of that.

04 October 2018

The Most Important - and Largely Uncovered - Lesson from the New York Times' Article About How Trump Got His Wealth

This New York Times story about tax schemes used by the Trumps is a story of 3 things, only 2 covered by the media.

1. It clarifies how dependent Trump is on his father for his wealth. His father gave him over $400 million in various ways (Trump was a millionaire before he was out of grade school.) Trump is definitely not self-made and his net worth is not much different than what it would have been had he simply invested his life time of gifts into a stock index fund.

2. It itemizes the various ways the Trumps cheated to avoid taxes. A massive amount of tax. In one instance, they turned about $900 million worth of real estate into an estimated value of $40 million in order to avoid millions and millions and millions in tax.

All that the media covered. What they don't cover is item 3.

3. This is really a story about origins. Trump became who he is because he hasn't known normal consequences. The most succinct way to illustrate how his father covered his bet is this: Trump owed a bond payment on his failing casino in 1990. He did not have the money. Fred Trump - his dad - sent a trusted employee down to the casino to buy $3.5 million worth of chips simply to infuse Trump's business with enough cash to enable him to make the bond payment. (And even that was not enough; he also wrote a check that day to Donald for another $150,000.) Donald could take risks knowing that his father would cover that risk, do what he could to protect his favorite son. A pundit once quipped of George W. Bush that he was born on third base thinking that he hit a triple; Trump, by contrast, stands triumphant at the plate simply because his dad owns the stadium.

We teach our kids consequences. They learn that if they are rude to someone, they could lose them as a friend. They learn that if they spend all their money for the week by Wednesday they are penniless until Friday. We do things and sometimes good things follow and sometimes bad. We use that feedback to adjust who we are, to learn how to survive or even prosper within our world.

Trump never had to do that. His father protected him from normal feedback and thus normal learning. Trump never had to adapt to the world; he had money enough that it adapted to him. Here, from the story, is how Donald was raised:
By age 3, Mr. Trump was earning $200,000 a year in today’s dollars from his father’s empire. He was a millionaire by age 8. By the time he was 17, his father had given him part ownership of a 52-unit apartment building. Soon after Mr. Trump graduated from college, he was receiving the equivalent of $1 million a year from his father. The money increased with the years, to more than $5 million annually in his 40s and 50s.
For our purposes, the biggest problem with this is that it insulated Trump from normal consequences. He could be rude. He could be crude. He could spend money lavishly or invest it recklessly. And in the morning he would still have more income than 99% of the adults around him.

Fred Trump is now dead and gone. He's not around to cover his son's bad bets. Who now does? I think it is us, the American people. Donald has yet to suffer any negative consequences for anything he has said or done. We already do and we're not even done with the payments.

28 September 2018

The Simple Reason Kavanaugh Does Not Deserve to Be on the Supreme Court

If you wondered what people mean when they talk about white male privilege, you have to look no further than Kavanugh's testimony yesterday.

I was sick yesterday and was sleeping all but a few hours of the day, so my impression of Kavanaugh was gleaned from just twenty minutes or so of his testimony. (I saw nothing of Dr. Ford.) He made me think of Navy Seals who train here in San Diego. 

There are 2,500 Seals. It's a real honor and it is incredibly tough to become one. They are (rightfully) so proud when they make it and nobody thinks they deserve it. You have to earn that and the program is designed to weed out people. Designed to. And when they've made it they feel this combination of pride and honor when they realize what they've achieved. A friend of mine broke a bone in the training / audition process and was thrown out. Nobody owes you a place in the Seals. It's like making it into the NBA. It's not enough to be athletic, tall, calm in the face of adversity, fit, driven, a team player, competitive, a great shooter, etc. You have to be all of those to varying combinations. And there is no inside track; Michael Jordan's sons did not make it to the NBA and nor did his best friends from college.

The Supreme Court is so much more elite than the Navy Seals. Only 9 members, not 2,500. And it is an appointment for life, not just a few years. It makes sense to me that qualifying for the Supreme Court would be an incredibly demanding process. Any little thing should be enough to throw one's nomination into question in the same way that someone would be thrown off a list of top 10 NBA players for being a great player except not able to consistently hit a 3-point shot. It doesn't take much to keep you off the starting team and even less - far, far less - to be kept off the top 10 list.

So people questioned whether Kavanaugh really deserved to be there. They threw in one extra round of questioning. For a lifetime appointment.

Kavanaugh couldn't make it through one extra round of questioning without becoming rude (to senators?), angry, and crying? Really? This is how tough he is? And he was obviously outraged that anyone would dare to question whether he deserved to be on the court. Really? Not honored to be included but outraged to be questioned as to whether he should be included. That sense of entitlement baffles me. White male privilege, if it is anything, is this sense that I deserve this and you have to convince me why I don't. It's the opposite of, "I'll do everything I can and it still may not be enough. Oh, and if I do make it I'll feel so incredibly honored." Maybe it is a product of having never gone to public school. Maybe it's the product of being connected his whole life. He demonstrated none of the wisdom, the self awareness, or ability to remove his emotions from his judgement that one would expect of the most powerful judge in the country. If this was a tryout for a team, he missed all the 20-footers after making his layups the week before. We should expect more of someone supposed to be in the top 10.

Bill Clinton and George W. Bush put up with 8 years of steady criticism. Some of it highly personal. Some of it unfair. Attacks on character, their past, their intentions, their judgement, their intelligence, morals, etc. 8 years and I never saw an emotional outburst like this. Kavanaugh did not make it through 8 minutes of being challenged without expressing a real outrage that anyone would question whether he was qualified to hold one of the most powerful positions in this country. For life.

I felt like he should be eliminated for his obvious contempt for being questioned as to whether he deserved this incredible honor of a lifetime appointment to the highest court in the land.  He doesn't have the emotional intelligence to deserve that much power. I was aghast.

And then I went back to sleep.

After posting the above, I saw this from my Senator.


22 September 2018

From Gates to Bezos - What the Change in World's Richest Man Tells us About a Shift From an Information to Entrepreneurial Economy

On America’s west coast there are examples of what the popularization of entrepreneurship could look like at the regional and company-level.

Silicon Valley continues to attract more venture capital and to create more wealth than any country in the world. The folks in the Bay Area have created an entrepreneurial economy.

Further north in Seattle, Jeff Bezos has created an entrepreneurial company.

Jeff Bezos recently emerged as the world’s richest man and is the world’s only triple-digit billionaire. Bezos is an entrepreneur. He has also created a platform that has popularized entrepreneurship. Not only does Amazon have more than 500,000 employees, it has "2 million sellers, hundreds of thousands of authors, [and] millions of Amazon Web Services developers.”  And, Bezos reports, "In 2017, for the first time in history, more than half of units sold on Amazon worldwide were from third-party sellers."[1] 

Bezos isn’t doing all the entrepreneurial lifting at Amazon; he’s got millions of co-entrepreneurs and the result is that as they struggle to become rich they inevitably increase his net worth. People who create, make or ship products hope to get rich by selling through Amazon. Jeff Bezos is just one of the millions of entrepreneurs who use the platform that his team has built.

Knowledge workers turn raw data into knowledge in the same way that factories turn raw materials into products. A computer makes knowledge work far easier and during the 1980s and 1990s, the personal computer became ubiquitous as knowledge work evolved and became more common. Microsoft provided the PC’s operating system and software like Word, Outlook, and Excel and for Microsoft it was like having a patent on forks and spoons when people stopped eating with their hands.

In 1995, Bill Gates became the world’s richest man by creating tools that enabled knowledge workers to do their work. In 2018, Jeff Bezos became the world’s richest man by creating tools that enabled entrepreneurs to do their work. From the last couple of decades in the 20th century to the first couple of the 21st century, the source of new wealth was shifting from making knowledge work easier to making entrepreneurship easier.

Sometimes what is most obvious deserves the closest scrutiny. A region that has created record amounts of wealth. The world’s richest men? Those might just hold clues as to how the economy is changing. Successful economic policies in this century will popularize entrepreneurship.

Three categories of successful 21st century economic policies will be “follow the lead of Silicon Valley,” create an entrepreneurial track in education, and make it easier for employees to act - and be rewarded - like entrepreneurs

[1] https://www.sec.gov/Archives/edgar/data/1018724/000119312518121161/d456916dex991.htm

18 September 2018

Trump Hikes Taxes - How Tariffs Really Work and Why They Rarely Do (work, that is)

Here in mid-September, Trump just announced tariffs on $200 billion in goods from China.

This is a tax on American consumers that works out to about $60 per American. Americans will pay that much more for items.

Who gets that money? American companies that have already proven themselves incapable of competing. American companies who need protection in the form of tariffs.

There are times when it makes sense to have trade protection in the form of tariffs. If your national policy is working to move from an agricultural to an industrial economy, or from an industrial to information economy it makes sense that you may want to protect some sectors or companies from foreign competition as they establish themselves against global competition. For awhile.

Companies that benefit from trade protection have a few options about what to do with the added revenue. They can increase the wages of hard-hit employees who have been competing against cheaper foreign labor. They can use the extra revenue to invest in new capacity or technology so that they are more competitive. Or they can payout the profit to stockholders and executives in the form of bonuses, using this subsidy from American consumers as a reward for having the political clout to do what they could not do through the market.

Tariffs are essentially a tax but not a tax that go to the government. Government spending can actually help displaced workers by funding unemployment and retraining. Government spending can finance infrastructure building that makes regions more competitive because of better rails or roads or cheaper energy or water. Government spending can go into the basic research that companies can develop into products.

Apple is now the most valuable company in the world, worth more than a trillion. It's most profitable product is the iPhone. The iPhone represents product development that incorporates research advances like touchscreen, satellite, and small chip technology originally funded by government research. (This is well documented in Mariana Mazzucato's The Entrepreneurial State.) Government research can lead to breakthroughs that not only help citizens but that can be the basis for new products that companies develop into highly profitable markets. A few billion in research spending can help to create trillions in value.

Tariffs don't help to finance basic research, infrastructure, education, or the creation of new industries and companies. Tariffs often subsidize companies that have not kept up, doing more to reward executives who have made campaign contributions than executives who have invested in the future. Within the last year, the GOP passed a tax cut that makes it harder to do any of these things. With Trump's new tariffs, it has just reversed that tax cut for the typical American and will now give that tax or tariff revenue to uncompetitive companies instead. 

16 September 2018

When Trial by Jury Costs Too Much

I had jury duty the other day. Along with 40 others, I was called into a courtroom to be considered to serve on a trial. Simply put, an individual felt that a car dealership had misrepresented a car to him and he was suing. I wasn't chosen. (Juror 22 of our 40 ended up on the jury; I was juror 23.) Given that, I never learned what he paid for the car but the average price paid for a used car is about $15,000. Taking such a case to jury strikes me as absurd.

Median income in San Diego is about $50,000 a year, which works out to $1,000 a week or $200 a day.

40 of us jurors spent a day on that trial. (Most of that time was spent waiting before being called into the courtroom to be screened.) So, day one of that trial cost us or our employers about $8,000. (40 people at $200 a day.)

The judge and attorneys chose 14 people (jury of 12 plus 2 alternates). The judge had estimated that the trial would be done the following Monday, which meant 5 more days for those 14 jurors. That's another $14,000. Combined with the $8,000 for the 40 jurors on day one, that means $22,000 for jurors.

That does not include the salary for the judge, bailiff, court clerk and various administrative folks we briefly dealt with. Let's say that collectively those folks make the same $200 a day and that there are only 4 of them (assuming that all the administrative folks behind the scene average out to one per courtroom). So this trial costs another $4,800 (let's call it $5,000) in salaries for them, for a total of $27,000 for actual or lost wages / productivity of the folks needed to support this one trial.

$27,000 in salaries for the folks involved in litigating a case that probably had to do with what portion of a $15,000 car purchase a buyer should be reimbursed. As a society, we're spending at least twice as much to settle a grievance as the grievance is worth.

I completely support the right of individuals to sue companies and for companies to sue individuals. Bad things happen and injustices deserve their day in court. It's a great thing that we have our court system and that we're free to sue anyone (within reason). I simply think it's absurd to treat so many of these civil cases as deserving of a jury trial given the labor costs involved.

During a football game, there are set rules and there are referees who penalize teams for breaking the rules. Within the NFL it is about 14 penalties a game, (given the ball is in play only about 11 minutes a game (and no, I'm not joking: you can read the explanation behind that stat here )), that works out to more than one penalty per minute. We do this because we want games to be fair. I think that the world of everyday business and employment is at least as important and while I don't think that we should have penalties levied every minute, I do think that such penalties should be standardized, cheap and common. If you rough the kicker, the penalty is 15 yards and an automatic first down. If you fail to tell a buyer that a car has been in an accident, the penalty is $5,000 or 20% of the purchase price, whichever is more. (Or whatever we decide as a society.) As with referees who know the game and can quickly adjudicate the penalty, these business issues that fall under the bailiwick of a civil suit should have default penalties that expedite the process. Many such incidents should be judged within an hour or at worst half a day and then levied a penalty (or thrown out) by an individual expert or two. It should not cost $30,000 to litigate a case on a $15,000 purchase; at most it should cost a couple of thousand dollars.

If trials were cheaper, we could have more of them, in the same way that cheaper computers or cars have meant that more people can have them. More of a good thing is better and cheaper trials would make life more fair. 

Our court system is too expensive and this notion that every petty case deserves a jury trial is one reason. As with so much in life, experts can do a better job for less and should.  We should have justice. It should not cost society more than it is worth.