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.)