31 December 2020

Are Sports Win-Win or Win-Lose? It Depends. (or, how what we believe changes facts or how Phil Knight and Michael Jordan changed the NBA)

What we believe changes facts.

If we believe that the world is zero-sum (and many people still do), it will be. What I get comes at the expense of you (and vice versa) so I compete rather than cooperate. This belief creates a world of scarcity and competition. It's win-lose.

If we believe that the world is variable-sum (and fortunately a growing portion of people do), it will be. What we get is the product of our cooperation and planning so we spend more time cooperating than competing. This belief creates a world of increasing prosperity and cooperation. It's win-win.

You might point to sports and say, "Well, sports will always be competitive." True. Sort of. But that misses a larger point. Teams have to cooperate even to create schedules, playoff criteria (best of 3, 5, 7?) and an image in the marketplace. More than that, some actions create more revenue for everyone in a sport even if that sport never increases the number of annual championships beyond one.

Phil Knight was looking for endorsements to raise the profile of his fledging Nike in the early 1980s. Basketball was not an obvious choice. It ranked well below baseball and football in popularity but it offered an advantage over those sports: given sneakers don't have cleats, you could wear basketball shoes on the street. Fans could wear the same shoes their sports idols wore. Michael Jordan, too, was not the most obvious choice but Nike built an entire line of shoes around the "Air Jordan" model, paying the rookie Jordan millions. This endorsement was huge money; Jordan's first contract paid $2.8 million over four years and he got $2.5 million from the Nike contract in just the first year.

But the NBA enforced uniformity on NBA uniforms. Even though Knight loved the controversary and promised to pay any fines Jordan would be levied for wearing his Air Jordans, the NBA banned them. Commissioner David Sterns soon realized, though, that Michael and his Air Jordans could feed the popularity of the NBA and allowed Jordan and other stars to begin wearing shoes they'd endorsed on the court. In a world of win-lose, this sort of publicity was a win-win-win, helping the players, the owners, and the folks selling shoes and apparel.

This has worked out well for everyone. Last year, Jordan earned $130 million from his Nike contract. Phil Knight is now worth $50+ billion. And the NBA has surpassed football and baseball (those cleated shoe sports) to become the world's second most popular sport. NBA players benefit from this: Steph Curry was paid $40 million - and 28 player were payed more than $28 million - last year, multiplies of what Jordan's first contract paid.

Is the NBA win-win or win-lose? It depends on whether you're talking about the world on the court or off. And whether scarcity or abundance follows depends on which belief holds.

30 December 2020

Why 21st Century Republican Presidencies Have Ended in Disaster (or, the disastrous ideology that now governs Republicans when they govern)

It is no coincidence that after the last two Republican presidencies, our county has been left in ruin. Incompetent government programs and economic ruin defined the end of both George W. and Donald's presidencies. And for the same reason.

During the Cold War, Republicans and Democrats alike found communism appalling. Communists did not prefer government solutions to private sector solutions; they thought that the private sector should be abolished or made inconsequential.

Even today, people on their iPhones post on Facebook or Twitter about the evils of corporations. This is a decent definition of ideologue: someone advocating for policies in ways that their own advocacy would disable. We know that corporations can abuse their power and should be regulated; we also know that corporations enable us to enjoy a lifestyle unimaginable without them.

But sometime during the Cold War, a group of Republicans began to believe that you could never move too far to the right. That is, they knew corporations were good and they decided that government (beyond the small portion dedicated to protecting their property rights or granting them defense contracts) was evil in the same way that communists had earlier decided that corporations were evil. Those ideologues took over the party in this century.

And this is how we've come to a point where Trump wins a poll for most respected man in America even while regularly showing executive skills that would get him fired after two months of managing a local Walmart. To be a Republican now doesn't just mean that you prefer the private sector to the public sector. (There are very good reasons for such a preference.) To be a Republican now is to believe in the deep state and the inherent incompetence and evil of government. Communists' attitude towards corporations and Republicans' attitude towards government is roughly the same: they have contempt for its mission, don't understand how it works, and only want to see it shrunk down to a size where it can be drowned in a bathtub without regard for any real world implications.

There is no example of any community that has shifted its quality of life upwards without a collusion of entrepreneurial, strong government and entrepreneurial, strong business. None. (And if you think you know of one, tell me. I'd like to check it out.)

Donald Trump - who now represents the Republican ideal in a president - has done everything he can to prove Republican's contention that government is inevitably incompetent. COVID has revealed the cost of this ideology.

The US is one of the worst countries in the world on two counts: tests administered per COVID case and the number of deaths per million. This in spite of having the world's largest GDP and the largest number of scientists and researchers in the world. Republicans cannot admit that their ideology - their belief that governments can never be competent - has been proven disastrously wrong in this pandemic so instead opt for beliefs in conspiracy theories about how these deaths are not real and the pandemic is no worse than the flu. Meanwhile, other, more rational countries actually succeed with government programs to mitigate the damage this pandemic can do to lives and livelihoods.

Ideology lowers IQ like a blow to the head or a bout with a serious addiction. Until they decide that government agencies - like any private sector organization - can be managed well and add value, they will be forced to cling to conspiracy theories and deny that their ideology actually does make their world worse. Confronted with unexpected facts, we have two choices: change our minds or change the facts. Republicans simply deny those facts.

To have two opposing parties that lean in opposite directions towards either public or private sector solutions is healthy and seems almost inevitable. To have even one party that wants to attack either sector and make it inconsequential is disastrous.

Some problems require well run government agencies. Some problems require well run corporations. For all of their flaws, Democrats know this. For all their potential, Republicans do not. Until that changes, each time Republicans gain power we will be left worse off for it. Reality doesn't show much respect for your beliefs; in spite of that, your beliefs ought to show a lot of respect for reality.

29 December 2020

The Past and Future Rise in the Percentage of People Who Have (and will) Become Financially Independent

Before the Civil War, only 1% of households had a flush toilet. By 1989, 100% of households did.
In 1924, 0% of Americans had a refrigerator. By 1962, 99.5% of households had a refrigerator.
In 1994, only 10% of households had a cell phone; by 2019, 96% did.
Flush toilets, refrigerators, and cell phones were invented lifetimes apart and the adoption rates have accelerated over time. It took 130 years to go from elite few to everyone on toilets; it took 40 years for everyone to get a refrigerator; it took only 25 years for "everyone" to get a cell phone. Adoption rates for new products seem to be accelerating. 

[Adoption rates for these and other products found here at Our World in Data.]

All these products were adopted in a similar manner, though. Once upon a time nobody had it, then an elite few, than the average person and then everyone. 

Here's my bold claim: what we saw for product adoption in the 1900s we will see for financial independence in the 2000s. Right now it is few who have financial independence; by century's end, it will be most Americans.

Let's back up.

In 1900, average life expectancy in the US was 47. By 2000 it was 77.

By 1901, average daily shares traded on the New York Stock Exchange was about 3 million. This year, the average daily shares traded was about 4.5 billion.

These two - folks over 47 and shares traded - go together. As people lived longer, we needed a way to cover the expenses of more old people not working. We call it retirement. It is the most popular form of financial independence. In 1860, when an elite few were getting flush toilets, the vast majority of people worked until shortly before they died (well, the ones who made it out of childhood); today, the vast majority of people people don't have to work in the years before they die.

In the 20th century, we essentially popularized retirement, or financial independence. Pension plans and social security generally assume that you'll make this transition sometime between 60 and 70, from having to work to being "financially independent" for the remaining years or decades of your life. In 1880, the US population was 50 million, almost none of whom were retired or financially independent. Today, we have 50 million Americans over the age of 65, the large majority of whom are retired or financially independent. 

I know that not everyone over 65 is financially independent and free from work or reliance on family or friends. I also know that quite a number of folks under 65 are financially independent. (About 5% of Americans live in households with net worth of more than $3 million.)

In 1900, about 5% of the population was over 65 or financially independent. Today, about 20% of the population falls into those categories (and we now have programs like social security and Medicare, which folks in 1900 did not have).

My prediction? We will look back at the 2000s as showing an adoption curve for financial independence that looks similar to the adoption curves below for products.

Flush toilets, refrigerators, and cell phones have changed our lives quite a lot and it's wonderful that they are no longer reserved for just the elite few. It'll be fascinating to see what the world is like when we've done a similar thing with financial independence.

27 December 2020

How the Best Selling Non-fiction Book of the 1970s (about the Apocalypse, no less) Defined Policy in the 1980s and 2000s

The nuclear arms race offered the prospect of the annihilation of civilization. This created some stress that showed up in odd ways.

In 1970, Hal Lindsey's The Late Great Planet Earth was published. It had sold 28 million copies by 1990 and was adapted to film and television with an audience of about 18 million.

Lindsey thought that the formation of Israel in 1948 was prelude to major, apocalyptic events foretold in various books of the Bible. One can hardly underestimate the extent to which the USSR and US stockpiles of nuclear weapons made claims that the world was about to plunge into Armageddon credible. He prophesized chaos and war - end times that would include an anti-Christ ruling in Europe and the invasion of Israel by the USSR. Lindsey's sequel was titled The 1980s: Countdown to Armageddon. 1980 was the year Reagan was elected.

Lindsey's ideas were take seriously by many people. Reagan appointed James Watt as Interior Secretary. Like Hal Lindsey, Watt was a Christian millenarian. He thought that conserving resources for future generations was a waste of time because Jesus would probably return before most of those generations would return. This the man in charge of protecting the nation's natural resources.

George W. Bush was trying to enroll French president Jacques Chirac in his effort to oust Saddam Hussein from Iraq. Here is Chirac's account of their conversation as reported by Kurt Eichenwald.
Bush wasn’t listening to him, Chirac thought. Instead, he was jumping all over the rhetorical map in search of the magic words that would win him over. Saddam was lying; the UN had to prove itself; the allies had to work together. Perhaps, but all beside the point if illegal armaments weren’t found. What if, in fact, Saddam was telling the truth? …

Bush veered in another direction.

“Jacques,” he said, “you and I share a common faith. You’re Roman Catholic, I’m Methodist, but we are both Christians committed to the teachings of the Bible. We share one common Lord.”

Chirac said nothing. He didn’t know where Bush was going with this.

“Gog and Magog are at work in the Middle East,” Bush said. “Biblical prophecies are being fulfilled.”

Gog and Magog? What was that?

“This confrontation,” Bush said, “is willed by God, who wants to use this conflict to erase His people’s enemies before a new age begins.”

Lindsey's book The Late Great Planet Earth was the best selling nonfiction book of the 1970s. (Personally I find it odd that it gets categorized as nonfiction.) It was still influencing policy decades later.

26 December 2020

The Shocking, Opening Lines of Obama's New Memoir

I got Obama's new memoir for Christmas and was really surprised at the opening lines.

"Having been born and raised in Kenya, I was bedazzled on my first trip to America. I knew right then that I wanted to preside over this great country and would need a fake birth certificate from some part of the country plausibly distant and yet still acceptably American: Hawaii, I thought, a place even further from DC than the west coast of Africa.

"First, though, I would have to use every argument my five year old mind could concoct to convince my mother and grandparents to enroll me in an American school for kindergarten and raise me as if I were an American. Once I'd cleared that obstacle, my conquest of the Democratic Party and then the White House would be inevitable. I began daydreaming about the musical artists who might perform at my inauguration."

25 December 2020

A Brief Meditation on Christmas

I write about politics and policy a lot because I have to live with your vote and you with mine but write about religion hardly at all because our choices on that matter truly are separable and private. But today is Christmas, so here are some thoughts about Jesus.

The Roman Republic and then Empire spanned nearly 1,000 years, about 4 or 5 times as long as our American experiment, so any general thing one writes about them will be wrong and riddled with exceptions. That said, Roman morality was pretty much an answer to the question, "What can I get away with?" Power gave you license.

Jean Fouquet Madonna and Child, 1452

Arguably the core of Jesus's teaching was not just "do unto others as you would have them do to you," but "as you have done it to the least, you have done for me." Jesus' morality was not what you could get away with but was a question of how you treated the weakest, those least able - the woman you could overpower, the child you could berate, the poor person whose needs you could dismiss.

No one knows when Jesus was born but we pretend that he was born in the darkest week of the year, the time when the days are shortest.

Christmas. A time to think about how we'd be judged if we were only judged by how we treated the least among us and a time when we find comfort and joy even in the darkest days. That's a good day.
Merry Christmas!

24 December 2020

2020 - SPACs and A Year Defined by an Abundance of Capital and a Shortage of Entrepreneurs and IPOs

2020 was a great year for IPOs. That makes sense. Interest rates are incredibly low (which drives up the value of future profits), savings are incredibly high during the pandemic which has helped to create a relative glut of capital, and the business landscape has changed as rapidly in 2020 as in any previous year and that change means new opportunities that require capital to realize.

For me, the really clear indication that capital is abundant and entrepreneurship is scarce is SPACs: special purpose acquisition companies. What's a SPAC? Essentially it is a mutual fund for companies that haven't yet gone public or perhaps don't yet exist. You put money into a SPAC as an investor and the manager of that fund uses the money to go shopping for private companies, almost like a proactive IPO. The weird thing is, you don't know which companies the SPAC will buy - you're just giving them money to find deserving entrepreneurs.

How popular are SPACs? There were 183 traditional IPOs and 242 SPACs. And these SPACs are not trivial. One was valued at $4 billion, more than any of the 183 IPOs.

Article here.

21 December 2020

Bitcoin is Not an Investment or a Currency (and if you're in the mood for wild speculation, there is a much better way to do that)

Bitcoin has roughly doubled in the last couple of months.
The dollar bill is rather oddly adorned with a pyramid.

Bitcoin, by contrast, is a pyramid scheme.
People dismiss fiat money as "just made up" as if laws, governments, corporations, marriage and markets are not "just made up." Nearly everything that defines our social reality is "just made up." There is no reason that money should be an exception and it would be terribly suspicious if it were not.

Bitcoin is not money. Can you imagine trying to price any products denominated in bitcoin, a "currency" that bounces around so much that prices would surge or fall by tens of percent any given week? No currency does that. 

And bitcoin - unlike a rental property or stock - represents no stream of income.

An algorithm doesn't make bitcoin a real investment or currency and is probably evidence of some sort of neo-techno-theology, the algorithm some modern equivalent of "In God We Trust" inscribed on our currency for minds susceptible to the allure of vaguely understood technology.

Bitcoin serves no purpose other than a vehicle for speculation. It's not an investment. Even Tesla - with its absurd PE ratio of 1,200 - is a real investment in that you're actually buying the right to a future stream of profits for a real company with a real product, no matter how wildly optimistic is the price you're paying for those future profits. All that you are buying with bitcoin is an odd hope that tomorrow someone with slightly more money than you will come along and bid a higher price than you paid yesterday. That is the very definition of a pyramid scheme.

If you want to speculate like that, do it with art instead, buying it with the hope that it'll go up in the future. At least then you'll have something beautiful to look at in the interim.

16 December 2020

Politics, Polygamy and the GOP - a tentative theory about why there is a divide between men and women's voting tendencies

Spinster comes from a term used for a woman who spun wool. By some counts this was an occupation for a woman who couldn't get married. By other counts it was an occupation that freed women from having to get married. In any case, there was a connection between financial independence and being single.

Income changes the relationship between men and women and may explain some of politics in 2020.

Biden won in 2020 because of women. One, women voted for Biden by a margin of 15 points (men voted for Trump by a margin of 8 points). Two, women made up 52% of voters. Counting only the votes of men, Trump won by 6 million votes. Counting only the votes of women, Trump lost by 9 million - a swing of 15 million votes.

Why the huge disparity between men and women when it comes to politics? I'm sure there are lots of reasons but I'll throw out the possibility that it has to do with a big change in women working and how that has tracked with a change in marriage and relationships.

One bit of evidence I use to argue that everything is made up but the consequences are very real is this matter of monogamy and polygamy. Can you have only one wife, only one wife at a time or multiple wives? That is totally made up and varies across countries and time but the consequences are very real. All 20 of the 20 least stable countries in the world allow polygamy. As the Economist notes, "Polygamous societies are bloodier, more likely to invade their neighbours and more prone to collapse than others are." Why? "Every time a rich man takes an extra wife, another poor man must remain single. If the richest and most powerful 10% of men have, say, four wives each, the bottom 30% of men cannot marry. Young men will take desperate measures to avoid this state." 

Unmarried men behave differently than married men and societies that sentence a portion of their young men to remaining single suffer more violence because of it. Women have a moderating influence on men's cruder instincts.

In 1948 in the US, men were nearly 3X as likely to have a job as a woman. Today men are only 20% more likely. As women are less dependent on men for income, they also seem less inclined to marry. In 1950, 32% of men were unmarried; in 2020, 47% are.

How does that change politics?

It is possible that women domesticate men. If men - like dolphins - stayed apart from women except during a breeding season, they might still be living in caves and regaling each other with the story of that time poor Gog was trampled to death by a mastodon and had the funniest expression on his face. We talk a lot about bubbles and how folks on the left and right live in such different realities and know so little about each other. It's possible those bubbles increasingly include men in one world and women in another, two very different groups who may be influencing each other less and less.

It is a good thing that increasingly women have financial independence and choice about whether to marry. Progress means increased autonomy. All progress has unintended consequences, though, and perhaps one consequence of fewer women having to marry is fewer men benefitting from their influence.

12 December 2020

How the Republican Party Won the Dixiecrats and Lost Their Soul

In 1968, Republican Richard Nixon beat Democrat Hubert Humphrey by half a million votes. They each got more than 31 million votes. George Wallace - a third party candidate - got 9.9 million and won the electoral votes from Georgia, Alabama, Mississippi, Louisiana and Arkansas. Wallace won what we call the "deep south," or what one might whimsically call "the deep states," the last third-party candidate to win any state.

In 1952, the Republican Eisenhower had won every state except for nine - including these five.
The deep south was solidly Democratic, then went to Wallace and then - in 1968 - went to Nixon and has been solidly Republican since. Trump won by his widest margins in the deep south.

In 1952, the deep south was the only region still Democratic (blue states above).

After Civil Rights, the Deep South went for Wallace and his desegregation policy.

In 1972, the deep south went to Nixon and has been Republican (red state) ever since.

The states in the deep south that were among the only Democratic states when Eisenhower ran are now the most Republican in the nation, giving Trump his largest margins of victory.

It is not too much of a simplification to think of the Civil War of 1860 as a war between the brand new Republican Party (Lincoln was their first president) and the Democratic Party that had dominated American politics from 1800 to 1860. The Confederates were Democrats and the Union were Republicans. After they lost, the former confederates remained Democrats who were no longer slaveholders but were still racists. Blacks were freed from slavery and quickly plunged into a second class, segregated status that left them largely without rights or economic opportunity. The Republican Party dominated politics for a couple of generations after.

When the Democratic party began its reinvention with FDR, it maintained its coalition with the Dixiecrats from the Deep South. The Democratic Party was an odd coalition of progressives from the north and good old boys in the south. Out of this odd coalition came some weird legislation. The GI Bill - which funded college for veterans and did so much to help move the US from an industrial to information economy - largely excluded blacks, for instance, a form of affirmative action for whites.
The Civil War had divided the country. Civil Rights divided the Democratic party. When the Texan Johnson signed the Civil Rights legislation that had been originated by Kennedy from Massachusetts, he said, "We are going to lose the south for a generation." It turns out that Democrats lost it for longer than that.

After Kennedy and Johnson's Civil Rights legislation, the Dixiecrats broke away from the Democratic Party. They did not immediately join the Republicans who had destroyed their way of life a century earlier, though. In 1968, the deep south voted for George Wallace and the Republican Nixon won the presidency with only 43% of the vote. In 1972, those southern states - and segregationists and racists throughout the country - voted for Nixon, who won 61% of the votes and 49 states.

With their new coalition, Republicans held the presidency for all but four of the next 24 years. Carter (D) in 1976 interrupted this run. Clinton (D) in 1992 ended it. Both were from the deep south, states that had supported Wallace. If you were going to win the presidency, you had to at least show some connection to the culture of the deep south.

Segregation and racism is immoral. That gets a lot of attention and rightfully so. What I think gets too little attention is how much misogyny and racism depresses economic development. The four states that voted for Wallace that overwhelmingly went for Trump in 2020 - Arkansas, Louisiana, Alabama, and Mississippi - between them have pathetically low average per capita GDPs.

Average per capita GDP
Wallace's Five states (the deep south): $45k
The United States: $57k
Five States that Voted Most Democratic in 2020: $73k.

The misogyny and racism of the deep south costs about $12,000 to $27,000 per person. For a host of reasons. (The most obvious simply being that you're excluding half your population (the women folk) and about 5 to 25% of your menfolk from opportunities to fully develop and contribute economically.)
After the Civil War, northerners went to the conquered south to dismantle slavery and the various things southerners tried to put in its place. Rather than accept that they and their ugly institution of slavery had lost, southerners hollered about states' rights and an intrusive federal government, something they've been whining about ever since.

Why mention all of this? Because the price Republicans paid to win back the presidency in 1972 was the absorption of the deep south.

Republicans used to be the capitalists and small business people and Democrats represented labor. The problem for the Republicans is that labor became a huge and prosperous group. In 1800 - when the country was founded - only 20 percent of the work force worked for someone else. By 2000, 90 percent did. For most Americans, working meant working for someone else - you were an employee. The Democrats had done the best job of winning and representing that group and in the years from FDR to LBJ, being the representative of labor meant that Democrats were the dominant party.

How did the Republicans win back voters? It's complicated but a big part of it was simply to win over the segregationists angry at the Democratic Party for forcing them to let the blacks sit in their classrooms and at their diner counters. The virus of the deep south's weird beliefs and culture has now infected the whole of the GOP, though.

This week included talk of secession from Texas' attorney general, Rush Limbaugh's claim that conservatives cannot peacefully coexist with liberals and the madness of Trump's insistence that he won an election he lost by 7 million votes. The Republicans who defeated the south in the Civil War have been taken over by the losers of that war.

A virus has infected the Republican Party that once stood for capitalism and small business owners. The party that - at the time of Lincoln - was defining a world that would take generations to unfold now clings to a world that was already obsolete in 1968. It is a sad end to a once grand old party.

09 December 2020

What The Coming Facebook Breakup Could Mean for Your Friend Group

This is quite the headline:
"U.S., states sue Facebook as an illegal monopoly, setting stage for potential breakup"

I wonder how they will break us up. Will it be by region, politics, family, neighborhood, school, church or coworker groups? Will we be broken up into groups that obsess over weird things like economic numbers and everyone else?

Post breakup, you might overhear this conversation from the side of customer support.

"No, Ron."

"No. You were not kicked off of Facebook. Facebook has been broken up. You'll be in a special group with Bill Abendroth where you two can obsess all you want about policy without boring everyone else to tears."

"No. Don't think of it as eviction or deportation from a virtual nation or shunning. Facebook has been broken up and you are in a special group."

"Well, yeah. I guess if you put it like that, it feels like a breakup because it is a breakup. Sure, I can see how you two might see that it's unfair that you are on one platform and everyone else is still on the original platform and still in contact with each other."

"We had to appease the courts and create a break somewhere. I'm sure your friend Bill could explain that to you. Perhaps in a series of posts."

"What do you mean that Abendroth said that for all its flaws the old Facebook never before felt like a prison cell until he got stuck with you? I agree. That does seem unnecessarily hurtful."

"I guess you could unfriend him. Yes."

"Right. It would be weird to be on Facebook without any friends but Bill is your designated friend so, if you can't resolve your differences with him ..."

"We get that you're upset. We feel your pain. In fact, we're really broke up about it."

08 December 2020

Investing in Rather than Loaning to Startups - What Tesla Can Tell us About the Popularization of Entrepreneurship

People don't need lower taxes once they're successful in order to have proper incentive to create wealth. But they can use help to get started.

In 2010, the Department of Energy gave Tesla a loan of nearly that amount: $465 million. The problem with that is that this was a loan. If Tesla failed (as did Solyndra, which got a loan of $535 million at the same time), we American taxpayers would have lost $465 million. It would have been much smarter to offer the financing for this fledgling company the same way that a venture capitalist would: by taking a share.

Given the rate at which Tesla's stock has gone up since 2010, US equity of $465 million in TSLA would now be worth $61 billion. A portion of that could be recycled into funding for new innovation and entrepreneurship (again, with us taxpayers taking our share in shared equity rather than making loans or grants).

Popularizing entrepreneurship is different from glorifying it. Once upon a time, freeman who farmed their own land were rare. Then it was machinists who worked in factories who were rare. Then knowledge workers who worked with computers who were rare. All were popularized to become more common and normal. If you think we can't do something similar with entrepreneurship, you're probably underestimating human potential.

In related news, the US now has four centa-billionaires (folks worth more than $100 billion).

You may not recognize the name Bernard Arnault but you probably know the name of his company: Louis Vuitton SE, the world's largest luxury goods company. As more people have more money, he gets more money. These are good times for him.

04 December 2020

The Good and the Bad News: We Have an Abundance of Labor and Capital (or, how you can hardly spend enough on the coming recovery)

The American economy created 245,000 jobs in November. That's woefully insufficient.

The economy has destroyed 9.4 million jobs this year. In the 2010s, the economy created about 2.2 million jobs per year. A negative 9.4 million leaves us down 11.6 million from a normal year. What does that mean in practical terms? We are still in worse shape than any recession you've lived through.

There are a couple of things to do.

One, accelerate vaccine deployment to return to normal as quickly as possible. Globally, (per an OECD analysis) the difference between a rapid or slow vaccine rollout is $7 trillion (by the 4Q 2022). Of the 180-some countries in the world, only the US and China have economies larger than $5 trillion.

The risk of global governments - including the US - spending too much to too rapidly vaccinate its population is zero. The risk of them spending too little and moving too slowly to vaccinate their population? Very high. 9 million unemployed is incredibly costly for so many reasons. (And that is just the economic cost and doesn't even acknowledge the emotional devastation of sustained unemployment - which breaks up families and leads to deaths of despair. You don't even need compassion to realize that the economic cost of this many unemployed is unacceptable.)

In 2021, the US economy needs to create nearly 14 million jobs to return to its pre-COVID trendline. Spoiler alert: that will never happen. So why mention the need to create 14 million jobs in 2021? Because the average American and their political representative still has no idea how deep is the hole we're standing in and is terribly timid about deficit spending, even in a time when the price of money - the interest rate - is negative. Money is cheaper than free. They're paying you money to borrow money.

We are at a unique spot in history.

1. Real interest rates are negative. The five-year treasury rate is NEGATIVE 1.3%. Ten-year is NEGATIVE 0.89%. If you borrow $1 today, you will have to pay back less than 99 cents in five years. Even if your investment only breaks even - the dollar you invested today is worth only a dollar in five years - you come out ahead.

2. We need huge investments in transitioning our economy from a reliance on fossil fuels to one reliant on alternative energy. Shifting the economy - from research to development to manufacturing to building these innovations into our infrastructure - is a massive project. It will cost an enormous sum and require that we employ millions of people. That is, these projects require a lot of people and money and right now we have an abundance of both.

The difference between whether we find ourselves on a train ride or in a train wreck is simply a matter of acting boldly rather than timidly. Bold action begins with the realization of how deep is the hole we're standing in and that nothing could be more costly than doing nothing.

What is the cost of doing nothing? If we continue to create only 245 thousand jobs a month, it will take us more than a decade to get out of this hole. That we cannot afford.

30 November 2020

Why Harvard Might Not Be So Great (Or, one reason median wage gains have slowed since 2000)

Imagine that someone had come up with a vaccine or health supplement or drug that they claimed had incredible health benefits. They shared data that showed how people taking this were more fit, higher performing, and far healthier than the average American. Looking at the results, you would have to be impressed.

You ask to take it as well. At that point you're told that you can't just take it. You have to qualify. And when you learn the qualification criteria, you're blown away. They only let Olympic athletes take their product. And you suddenly suspect that their incredible results have more to do with their screening than the product itself.

Higher education does at least two things. One, it educates. Two, it is a signal to potential employers.

Harvard has about 22,000 students, roughly 17,000 from the US. Last year, about 3.6 million American kids graduated from high school. If Harvard's incoming class of freshmen is one-fifth of its total enrollment, slightly less than 0.1% of American high school graduates go to Harvard.

Is Harvard a fabulous place to get an education? I think it must be but we won't ever know how much better it is than other schools because Harvard will never run a randomized trial of simply letting any kids in from any school or neighborhood. It is possible that the list of America's top universities would change if we collected data from a decade of randomized trials rather than data testing the health benefits of a supplement only given to Olympic athletes.

The American economy has made the transition from an industrial to an information economy. (Which simply means that new jobs and wealth are not being created by folks standing at factory lines manipulating things but instead by folks sitting at computers manipulating the symbols of things.) Once upon a time, white collar workers were a subset of our workforce. They were the managers and analysts who constituted only a small portion of the many factory workers, the men (it was always men) who could wear a tie without worrying about it getting caught in machinery. Now, knowledge workers outnumber factory workers about 4 to 1. What this means is that an education system designed to signal to the market, "These graduates are the best and brightest and you should hire them for your key management and analyst positions" is less helpful. The point of education is not to identify the top 5%. 
The point is to make the median graduate more valuable. 

How have we done at improving the productivity of folks at the median since the turn of the century? Not as well. Between 2000 and 2015, real median personal income was unchanged. In the previous 15 years, it rose 28%. In the last 15 years of the 20th century, we could raise median wages by making factory workers more productive and moving a higher percentage of new workers from factories to cubicles. Productivity gains in factories continued as they had for nearly a century; the shift from lower productivity in factories to higher productivity behind a computer accounted for the rest of the gains. 

Now, though, gains in productivity have to come from making the median knowledge worker more productive. We still don't know as much about that.

As knowledge work becomes more common - that is, as a greater portion of our workforce moves into the information economy - signaling to markets which graduates are our best and brightest will be less important and our ability to make all of these graduates more productive becomes far more important. The latter will rely on a different set of strategies.

[to be continued]

28 November 2020

The Future Has Never Been More Affordable: Why a Record Low Discount Rate Means We Should Be Investing at Unprecedented Levels

The discount rate answers the question, "How much should we discount future cash flows or profits?"

In 1981, the discount rate was 14%.
In May of last year, it was 3%.
It is now 0.25%.

Why does this matter?

The discount rate tells you how much to discount future revenue. It tells you how much a million dollars you get a decade from now is worth today. 

If your discount rate is 26%, it is worth only $100,000. You wouldn't want to invest more than $100k for the one million in a decade.

But if your discount rate is only 0.25%, that million dollars in a decade is worth $975,000.

The discount rate answers the question, "How much should I discount the future?" Or, put differently, "How much should I invest now in the future?" 

The discount rate essentially tells you whether the future is expensive or cheap. Do you have to pay a million dollars now for $100,000 in a decade? That's an expensive future. Do you have to pay a million dollars now for nearly a million dollars in the future? That's an affordable future.

We should invest a huge amount because of this low discount rate. This means making a few changes to our current deficit.

We now have an outrageously high deficit. This is for two reasons. The massive tax cut Trump passed in his first year gave us a trillion dollar deficit. Then COVID added $3 trillion more to that deficit. 

So what should we do next year? 

First, we lower the deficit in two ways. The first cut will occur naturally. Subsidies for COVID will be paltry by yearend compared to this year. That will automatically lower the deficit from 2020.

Second, we reverse the Trump tax cuts for the rich. Trump's tax cuts created an absurd situation in which the folks in the top 2% are actually paying less than folks in the bottom 20%. At no previous point in history have the bottom 20% and the top 2% paid the same tax rate, much less have the top 2% paid a LOWER tax rate than the bottom 20%. That has to change for so many reasons not the least because it is just so stupid.

So, these first two steps will lower the deficit. Then we invest heavily in the future, raising the deficit back up again. Why? Because of our very, very low discount rate, those investments promise record returns. Never have future investment returns been worth so much.

What kind of investments should we make?

Childcare. Invest heavily in the development of the kids who - as adults - will be the ones working while us old codgers collect social security.
Infrastructure. Freeways (our investment in freeways as a percentage of GDP was twice as high between 1950 and 1979 as it has been since), airports, trains, sewage and electrical grids that have a smaller carbon footprint.
Alternative energy. Nuclear fusion. Solar grids. Windmills.
Healthcare. Not only money spent to keep everyone healthy but money spent to improve our level of care through research, development and money spent to increase the productivity of our healthcare workers.
Education. In the early 1900s, we made high school normal and free. Time to do the same with university. Additionally, we need to invest comparable sums in every 18 to 23 year old, whether in the form of an education at something like a state university, trade schools, capital equipment they could use for work, or even simple investments that began paying a dividend to supplement income for low-wage workers.
R&D. It's time to invest about $3.5 billion into each cabinet level department within the federal government. Why $3.5 billion? That's about what we invest in DARPA, which accounts for a big amount of DoD's R&D. Time to match those investments for the Departments of Energy, Education, Interior, Agriculture, etc.

We've never had more cheap capital or more great opportunities for investment. Running up a deficit to make these investments will not only be a great boon short-term (imagine how many jobs we'd create by upgrading our infrastructure or hiring childcare workers or employing researchers in a variety of fields) but would give us record returns in the future.

Because the discount rate is so low, the future has never been worth more. With a future that cheap, we should buy as much of it as we can afford. It's a great time to stock up on future possibilities. 

22 November 2020

Protesting COVID and Other Realities

I saw a headline this morning, "Crowd gathers in Huntington Beach in protest of COVID" and wondered how many crowds gathered in 1906 to protest the San Francisco earthquake.

So many possibilities down that path.

"Old people gather downtown to protest ageing!"
"6 year olds gather downtown to protest bedtimes!"
"People in t-shirts and sandals gather at the base of snowy mountain to protest the onset of winter!"
"Couple who've newly met and fallen in love gather at sunset to protest the end of a perfect day!"

There's a pandemic. Things have changed. You want people to know that you find this upsetting. Fine. Go do that and then once you're done protesting reality, perhaps you could join the rest of us who are over here adapting to it

21 November 2020

How the Republican Teddy Roosevelt Helped to Define the 20th Century Democratic Party

In 1860, the US elected its first Republican president. Abraham Lincoln and the presidents through the end of that century helped to make the US an industrial economy that created a proliferation of amazing products (from telephone and radio to lightbulbs and automobiles to … well hundreds of products) and wealth. Nothing like it had happened in the history of the world.

Then in 1901, Teddy Roosevelt became president by accident. Or more precisely, by assassination. He actually adopted policies that might have helped the Republican Party to evolve to keep pace with the economy they’d helped to create but his changes were ultimately rejected.

As governor of New York, Roosevelt made a change really popular with voters but less popular with other politicians. Rather than give out government jobs as a reward for political support, he awarded government jobs based on merit. The Republicans knew they had to give this man a position but they didn’t want to give him power. So, they made him Vice-President to McKinley. The people loved him but as VP he could do no harm.

Unfortunately for those Republican party elders, the anarchist Czolgosz assassinated McKinley and suddenly the man they were trying to control was president. Roosevelt’s policies – including his efforts to regulate business, help labor and to conserve nature - put him at odds with the Republican party elders but they made him popular with regular Americans.

At the close of his presidency, Roosevelt endorsed Taft as his successor and then left. He first went on a safari in Africa where he and his group killed 11,000 animals before heading north to Sweden to collect a Noble Peace Prize, as one does after that much shooting.

It took him a while to get back to the US and by the time he did, he was appalled with what Taft was doing. Rather than build on Roosevelt’s policies, Taft was returning to Republican policies from the 1800s, reversing many of Roosevelt’s hard-earned gains for labor.

So, even though he’d already served two terms, Roosevelt ran against Taft in the Republican primary. And he won. Sort of. Back then the party candidate really was chosen in smoke-filled backrooms and deciding that they couldn’t afford another four years of Teddy’s policies, the party elders chose Taft to again run for president as the Republican nominee.

So, Roosevelt formed his own party, defined by causes that meant so much to him. My favorite political story is about how passionately Roosevelt believed in these causes. Imagine how much coverage the following would have gotten in today’s media landscape.

On October 14, 1912, Roosevelt, en route to the Milwaukee auditorium to speak, rose to wave at the crowd and was shot in the chest. As you might imagine, this created some commotion. His assistants insisted that he go to the hospital. He spit into a handkerchief and, seeing no blood, concluded that he would live long enough to deliver his speech and ordered them to take him to the auditorium instead.
The audience - this was 1912, a time before cell phones, TVs, or even radio - had no idea that Roosevelt had just been shot until he dramatically opened his suit jacket to show the spread of blood. When his aides saw this, they panicked at the sight and again insisted that he rush to the hospital. He again shook them off. (Aspiring public speakers who see in this great potential for gaining audience attention are advised to stay with the more traditional opening joke.)

Roosevelt explained to his audience that his speech was more important than his safety. (And, fortunately, it was a long speech. The sheaf of papers, fifty pages folded over, in his breast pocket was so thick that it slowed the bullet. Had he been delivering a speech as succinct as the Gettysburg Address, he may have died. Fortunately for him, he had a lot to get off his chest.) He stood up for those who could not defend themselves— women, children, minorities, and even nature. Roosevelt’s platform continued his defense of natural beauty (as president, Roosevelt had protected huge swaths of land like Yellowstone and Yosemite from development) and argued for progressive taxation, old-age insurance, regulations on business, an end to racist practices, the abolition of child labor, and woman’s suffrage. There were probably no issues that better defined the difference between 1900 and 2000 then the ones that he championed. No third-party candidate before or since got more of the vote and perhaps no candidate better defined politics for the coming century. He lost his bid for a third term, but his issues - his ideas about how the world should be - eventually won.

But he split the Republican vote and lost to Woodrow Wilson – a man regarded as the father of public administration. The reforms that Roosevelt initiated as governor of New York that would turn government officials into professionals rather than political cronies were reforms that Wilson pursued as an academic, defining the modern state in the process. Wilson was regarded as the father of American public administration, but he was only the first Democratic president who would be so defined by causes dear to Teddy Roosevelt.

As it turned out, all of the things that Roosevelt advocated were to become political realities … but under Democratic presidents, not Republican presidents.

Roosevelt was trying to evolve the Republican Party to adapt to the new realities it had helped to create. The next President Roosevelt (FDR) was a Democrat and he was the one who continued his fifth cousin’s initiatives. The Republican Party resisted the changes that Teddy championed while presidents like FDR, Truman, Kennedy, and Johnson made them reality.

In November of 1859, Darwin published Origin of Species. In November of 1860, Lincoln was elected as our first Republican president. Sadly, it seems as though no Republican other than Teddy Roosevelt ever took Darwin's idea of evolution seriously. It could have been a wonderful party if only they'd evolved as much as the realities they had helped to create.

19 November 2020

How Culture and Not Policy Might Explain the Vast Difference Between the US and East Asian Nations COVID Outcomes

East Asia has done really well with COVID. We’ve done horribly. This might stem from who our culture has trained us to be.

An Asian friend had shared about the importance of respect in her culture. She was expressing dismay at an American friend who she felt had repeatedly been disrespectful. Asian culture leans towards respect and American culture towards the notion of freedom or individuality. There is a tension between these two. 

One of the first signs that a child is maturing is that they become aware of situations and adapt. At church? Be quiet. At a playground? Run and yell. In theory, we adults are also able to adapt to situations and change but in practice we often either end up being the patient one or the funny one or the one who wants to solve a problem rather than take up a fight. We have a particular way of being that we default to even when it isn’t appropriate. We end up as the kind of guy who laughs at a funeral or cries on the playground.

As a group, culture becomes a default that we turn to even when it’s not appropriate.

After World War II, Japanese policy makers scoured the world for examples of constitutions they might adapt to their country. In that process, Western advisors learned the most remarkable thing. Per Francis Fukuyama
"the Japanese language had no word equivalent to the French droit, German Recht, or English right. There was no concept, so basic to European and American law, that rights inhered in individuals prior to their coming together in society, and that part of the role of government was to protect those individual rights.”

A culture that didn’t even have a word for rights is less likely to protest simple things like wearing masks or test and trace programs that allow officials to quickly isolate a small number of people who might spread COVID. Respect for the lives and health of others is obviously more important than someone’s right to have their nose out and in other people’s business in the midst of a pandemic. That culture is a gift in the midst of a pandemic, their economies doing better than ours and their death and hospitalization rates a fraction of ours.

There are huge benefits to American cultures’ disregard for offending others in order to create something new or be someone different. The early rappers weren’t worried about offending popular sensibility any more than the early rockers or jazz musicians before them. A startup doesn’t wait for permission from vested interests in the community and may even put them out of business. The American tilt towards freedom has its moments of genius and utility, helping to create the next thing. 

But like a kid who only knows how to behave on the playground, we Americans have now found ourselves in a situation for which our default cultural setting is inappropriate.

Thomas Jefferson wrote, “The mass of mankind has not been born with saddles on their back nor a favored few ready to ride them legitimately by the grace of God.” We love the notion that we are our own person and no one will tell us what to do. We are not sheeple. Our default setting is the guy in Die Hard who is simultaneously fighting bad guys and bureaucracy and beats them both. Our culture has led us to become the country of the "You can't make me wear a mask," masses. And yet now may not be the appropriate moment for that.

Is it better to make respect for others a priority or freedom to be an individual a priority? Well, it depends. In our current situation, respect seems like a distinct advantage.

I wonder if there is such a thing as situational culture. It could be handy.

18 November 2020

How Pent-Up Savings Could Fuel an Economic Boom in 2021

You look like you could use some good news.

We're poised for a strong recovery next year.

It will get worse before it gets better. Unemployment benefits are unnecessarily running out soon and the most vulnerable will be hurt the most. Hopefully a divided congress can still act to protect these households from unnecessary grief but if not you'll hear me decry the obstinate politicians who think those folks should suffer more.

But there are reasons to feel optimistic about 2021.

One, we could have multiple vaccine options by Spring. This would shift the bottleneck from the supply of vaccine to administering it. (If only one vaccine was approved, supply would be the constraint. If three or five are approved, it is conceivable that the supply of vaccines will ramp up quickly and the logistics of getting people vaccinated becomes the challenge.) April - June of 2021 could look more like 2019 than 2020. 

Two, households will have money to spend once things do open up. Paul Krugman shared these graphs showing the surge in savings rates during this pandemic. People generally save about 7%. In April, savings rates spiked up to 33% and at 14% it is still running at about double its normal level. As a result, liquid wealth is up about $3.5 trillion from a year ago, accumulating at about double its normal rate.

Consumer spending is about 70% of GDP. Given GDP is about $20 trillion a year, even if households spend $1 trillion more of the (by then) $4 trillion in extra liquid wealth they've accumulated, that alone would mean GDP growth of 5%. I don't think there has been a year in recent decades in which so much liquid wealth has so quickly built up.

Households came out of the 2008-9 recession with debt and GDP growth was slow to recover. Post-vaccine 2021 might be more like the recovery after WWII when households were done with war rationing and ready to buy new products. In 1950 and 1951, real GDP growth was 8%. It would be spectacular if our GDP grew at even half that rate. And given the numbers and the situation, that's perfectly conceivable.

17 November 2020

How Trump's Plan to Send a Slate of Faithless Electors Could End the Electoral College

The official count of the 2016 election: Trump won 304 electoral votes and Clinton won 227, for a total of 531.

This is not what they won on election night, though. Trump actually won 306 and Clinton won 232, for a total of 538.

What happened to the missing 7? They were stolen by faithless electors.

A faithless elector is someone who is supposed to cast votes for the presidential candidate who won their states' electoral votes but chooses instead to cast votes for someone else. The official number of electoral votes Trump and Clinton received was diminished by 2 faithless electors who chose not to vote for Trump and 5 who chose not to vote for Clinton. Curiously, this didn't change the outcome and thus got little attention.

One of the strategies Trump has explored in his desperate desire not to be a loser is to have Republican legislative bodies in states he lost send a slate of faithless electors to vote for him rather than Biden. He's exploring that option, essentially a veto of the state's voters.

We've had weird electoral vote outcomes before.

The 1800 election came down to a tie between Thomas Jefferson and Aaron Burr. Each won 73 electoral votes. Over the course of seven days the House cast 35 ballots but each failed to break the tie. Before the 36th vote, Alexander Hamilton intervened on Jefferson's behalf (Hamilton disliked Jefferson but despised Burr), tipping the House ballot towards Jefferson who then became the nation's third president. Burr, who took this personally, challenged Hamilton to a duel and (spoiler alert) killed him.

If faithless electors did vote for Trump after a majority of the voters in their state voted for Biden, it could trigger a crisis.

But it could be a crisis that triggers change. (Or effectively ends democracy. One takes one's chances in times of momentous change.) Once people realize that it is not their vote but the electors' that determines who becomes president, once they're shown so clearly that the electoral college is only by tradition - and not by law - expected to vote for the candidate their state has voted for, it could be just the catalyst needed to amend the constitution again to change how we vote for president.
After the 1800 election in which Jefferson beat Burr, the US passed the 12th amendment. This changed how presidents were elected so that a fiasco like the one that led to Jefferson and Burr's perpetual tie would not happen again. The kind of crisis that Trump is trying to trigger could be yet another catalyst for a change, this time to change the rules so that voters directly elect the president without electoral college intermediaries who - as it turns out - are bound by faith and not by law to vote for the candidate they were sent to vote for.

Is this a far-fetched scenario? Most definitely.

Could it nonetheless happen? 2020 is nothing if not a reminder that reality is unbounded by our expectations of normal.

15 November 2020

Globalization and Self Actualization: Economic Development is Not Done Until We Have a Truly Global Economy and Personal Development Is Not Done Until You are Unique in All the World

I take exception with much of what falls under the umbrellas of nationalism or identity politics. I know that puts me at odds with the hardcore Republicans and Democrats but here's why their positions baffle me.

I don't think economic development is done until we have a truly global economy and I don't think that personal development is done until you are unique in all the world. Thus, I don't see how either nationalism or identity politics could ever be the basis for communities, economies and people who realize their full potential. I believe that your personal development gets retarded by conforming to the group rather than pursuing self actualization and your economic development gets retarded by clinging to national (or any regional) interests rather than global economic possibilities.

Serious question: are the parties just playing on people's ignorance or am I the ignorant one here? What am I missing?

14 November 2020

What Lay Behind Freud's Obsession with Sex

"Sometimes a cigar is just a cigar."
- Freud, the guy who smoked about 20 of them a day.

A waitress probably has a distorted notion of how important food is to us. People talk to her a lot about food.

I loved visiting Freud's first office (and apartment) in Vienna. It turns out that most of his theories were wrong but his notion that our motivations are subject to scientific inquiry turns out to be valid. In the office (now sort of museum) you get a sense of the exciting possibility of better understanding what haunts us and what makes us happy. I felt tickled in the same way that I was when I got to be at Stanford Research Institute where the first node of the first internet connection was. To be at the origin of something that momentous was very cool.

I was surprised to learn, though, that Freud's famous "couch" was actually a bed. Freud wanted his patients to have a comfortable place to lie as they engaged in free association or responded to questions. So, he heard a lot about sex from people lying in bed. And then concluded that sex is behind so much that motivates us. Perhaps in the same way that a waiter or waitress could tell you how obsessed people sitting at a dining table are about food.

But I'm no analyst.

13 November 2020

How Trump Keeps Escalating His Loyalty Test for Republicans - and the question the rest of us are left with

When she got onto the plane, she looked dazed. I thought she might hate flying. Shortly after take off she put her head on the tray and appeared to doze. When she lifted her head she looked really distraught. I asked how she was.

She was about 20. And she told me a story for which I had no good response. She'd met a guy and traveled out from San Diego to be with him. They had a wild and wonderful weekend. And then - without telling her what he was doing - he drives up to the entrance of a pharmacy, pulls out a gun, and runs in to hold the place up. By the time it is over, they are both on the ground in handcuffs and by the time she got out on bail (the day she got on our plane), she was facing a court date that could leave her in prison for years. She was still in disbelief and wept as she told me this story. I was shocked just listening to her and couldn't imagine how full of fear, confusion, and disbelief she must feel. I don't know what happened but hope that a good lawyer was able to establish that she was another victim of this guy and not an accomplice.

Which brings me to Republicans.

When Trump ran in 2016, Republicans got kind of excited about a candidate who spoke his mind. Suddenly, tired of the pressure to be politically correct, here was someone who gave them license to call Mexicans criminals, reject the idea that anyone captured by the enemy and held in prison was a war hero, and cheer for the guy who bragged about the size of his dick in a presidential debate. Here was a billionaire celebrity so shameless that he made them feel like his equal. Maybe even a little superior.

The loyalty tests have escalated. Very quickly Republicans had to choose between believing news reports that the president was lying or the president himself. By 2020, they had to choose between believing QAnon conspiracy theories and actual scientists.

And now? Now, Republicans are still supporting their guy as he attempts a coup. He and his administration have no plans to peacefully or willingly transfer power and they are ignoring the results of a fair election.

What began as the thrill of thumbing their noses at politically correct stances from self-righteous liberals has become the frisson of overthrowing the political system itself. What I still don't know is what percentage of Republicans love the idea of doing away with elections that give an unfair advantage to the majority and what percentage are wondering who this guy is to have decided that his feelings are more important than the will of 78 million Americans. That is, what percentage are wondering how it has escalated to this and what percentage are thrilled at the prospect of a shootout.

Because we have bigger problems than Trump if 72 million Americans have grown tired of a constitutional democracy. If that's the case, we're the ones who've found ourselves lying in the ground in handcuffs wondering how the guy we've been driving around with turns out not to have been a conservative at all but is actually a fascist.

11 November 2020

What Economy Are We In? That's Not Defined by the Sector that Did Employ Your Grandpa But Rather the One that will Employ Your Kids

A successful society has to teach its children how to make a living.

If you're in an agricultural economy, you had better teach kids how to farm rather than teach them hunting and gathering.

If you are in an industrial economy, you better teach them about machinery and production rather than how to farm.

How do you know which economy you are in? Answer the question, Where are we creating jobs? Farming is still noble and critical to our economy and way of life. If the US shifted all of its educational resources into preparing all of its children to grow up to become farmers, we'd have hot mess in the job market. In 1800, 90% of the workforce was in farming. Today, about 1% are.

Industrial capital is automating more factory work. 85% of jobs lost in manufacturing since 1980 have been lost to automation and only 15% have been lost to jobs being exported to places like Mexico and China. If we educate all our kids for jobs in factories, we will - again - have a hot mess in the job market.

So here's the thing: we are automating knowledge workers jobs with software and AI. Yet we are still raising kids to take jobs as knowledge workers.

We need to teach kids entrepreneurship and innovation the way that past generations taught kids farming, factory work, and knowledge work.

How do you know when you have shifted from an agricultural to industrial economy? When new jobs and wealth are being created in factories and not farms.

The transition into a post-information economy has already begun. Our policies need to catch up.

The Economic Divide That Trump and Biden Represent and What That Has to Do With Culture

Culture determines whether you tend to play zero-sum games (I have to beat you) or variable sum games (we might both win, both lose, or anything in between).

When land is the basis of wealth, it makes sense to play zero sum games. If I get that oil well, you don't. I'm rich and you're out of luck and if I hadn't beat you, I would be the one out of luck and you'd be rich.
If you're fighting over scarce resources, you're going to have a very different attitude towards "others." They may be here to take what is yours and it is best to protect yourself from them.

Once ideas and innovation become the basis for wealth, though, your attitude towards others changes. That new woman with the slightly odd ideas might have the insight you've been looking for to change the design of your product, or inspire an advertising campaign that could open up new markets. Or that company's app may be the very thing you need to complement your own, allowing you to add a messaging capability to your collaborative design tool, increasing the value of both apps.

What changes culture? Economic progress. A land-based economy will have a very different culture and potential for progress than an economy based on knowledge workers.

One simple way to explain the cultural divide in the US is through attitude towards others - whether those others are immigrants or gay, people of color or atheists. And this attitude very much relates to the stage of economic development.

If you look at the electoral map as it now stands, the country is largely divided. Or so it looks. Why? Maps show acreage and by that measure the two parties have roughly equal shares of the country.

If you look at a map of the country in which counties are sized by GDP rather than acreage, though, a very different picture emerges. The counties that Biden won represent 70% of GDP. [Map from Brookings Institute.]

Compared to the whole country, the five counties with the largest GDP (LA, NY (the Manhattan borough), Cook (Chicago), Harris (Houston), and Santa Clara, CA have double the percentage of foreign born, and nearly half the percentage of white non-Hispanic. These are diverse populations that welcome others. This attitude is both cause and effect of why these communities have created so many jobs and so much wealth.

By contrast, the counties that Trump won tend to be rural, their economy based on land. We're not creating any more land and others simply represent a threat to what they already have. The tendency to play zero-sum is more pronounced in these counties because it makes sense of their world.

Trump horrifies people in urban areas because his rejection of science, others and dialogue with others who think and believe differently is an approach that would destroy value in their economy. By contrast, he delights people in rural areas because his willingness to fight and offend and protect them from others is exactly what they need to feel secure in their zero-sum world of limited resources. Trump strikes folks in one economy as destructive and in the other as a protector.

If you give me an acre and I give you an acre, we walk away from the exchange with the same value. If you give me an idea and I give you an idea, we might walk away with more value. If you work with me to create a new product or business, the odds that we both walk away with more value go up even more.
How do you change a culture from zero-sum to variable-sum? How do you create a culture welcoming of others? You shift from a game of who gets more of a limited resource to the game of creating more through innovation and entrepreneurship.

10 November 2020

The Game That Reveals the Common Culture That Defines the Cities That Attract the Most Venture Capital and Vote Most Democratic

One description of culture is what most people do most of the time. (And by this description you throw out the miscreants and the saints, left with your typical person.)

Cities have very different personalities or cultures. I was trying to articulate why I was so charmed by Austin, TX when a trip outside the city to the suburbs clarified it for me. I drove by a mall that had a Costco and an Applebee's and seeing these suburban constants made me suddenly realize that downtown Austin had signs and businesses as distinct as I'd seen anywhere. The communities I love the most have that same sensibility, a dynamic and a personality that suggests they're creating their own place rather than renting it out. And as it turns out, a culture that nurtures individuality attracts venture capital.

Venture capital flows to communities that nurture differences and invest in longshots, not to protect people and startups but to help them to adapt and eventually succeed. Failure isn't feedback that you shouldn't have tried something; it's feedback that you have to try something different.

To make a startup work you need lots of things to go right. If you are distrustful of people you will inevitably find someone among the senior staff, employees, other investors or suppliers or competitors who you don't trust with your money. People and communities that make money investing in startups err on the side of investing too freely, not too cautiously. If you make home loans, you expect most of the loans to be paid back; if you invest in startups, you expect most to fail. Venture capital is very different from other forms of capital in its tolerance for failure and encouragement of individuality, for creating something new and disruptive. Making home loans is something a conservative investor would do; you can't be conservative with your money and invest in startups.

As it turns out, there is a high correlation between how much venture capital a city attracts and how liberal are its politics. The ability to attract venture capital and liberals comes from the same culture that depends on a willingness to pool an investment into an uncertain future.

On this list of the ten cities that attract the most venture capital are some of my favorites. (I'd replace Redwood City with Boulder, CO but ...) Culture is a big reason why and can be explained by a curious game that's been played as an experiment in cities around the world.

The game
Four people start out with $20 each. They put $0 to $20 into a common pool. Money in this pool is doubled and then divided equally between them, each one getting 1/4. If nobody puts any money into the pool, everyone starts with $20 and ends with $20. If everybody puts all $20 into the pool, everyone starts with $20 and ends with $40.

Freeloaders screw up the game. If two guys hold back their $20, they still get 1/4 of the common pool. So imagine two guys put their $20 into the pool. That combined $40 is doubled to $80 and then divided between the four players. So everyone gets $20 back. But the freeloaders still have their original $20 ($20 they never put into the common pool), so they end the game with $40 while the folks who put money in only get $20. Freeloaders come out ahead.

Is it best to hold back from the common pool or put your money in? It depends on what other people do. That is, it depends on the culture of the group you're in.

If you think that others will hold back, you had better hold back because they're just taking your money. If you think that others will put everything in, you should put everything in because then you all enjoy more. You do best by doing what other people are doing. (And you, of course, do best of all when everyone is putting everything into the common pool, when there are no freeloaders.)

In Boston and Copenhagen, the average amount that people put in is about $18, or most of their $20. These are places that have great public sectors (wonderful schools, aesthetic communities, and strong social programs) and thriving investment and business sectors that support high incomes. The culture encourages shared investment and the community enjoys a shared return.

By contrast, in Athens the average amount people put into the common pool is $6, or very little of their $20. Greece had foreign rule for a long time and it seems to have bred a culture of distrust of government (or more broadly, the common good). Greece has poor schools and social programs and a struggling investment and business sector.

Boston has higher income, Copenhagen higher levels of reported happiness and Athenians report low levels of happiness and income. (Copenhagen was the fifth happiest city in the world per a recent report, and Athens 121st. Boston was 23rd on the list of 186 happy and not so happy cities.)

The cities that thrive the most are cities with win-win cultures where people in both the private and public sectors are willing to invest to create something new. They are open to new people, new ideas and new business ventures. They are comfortable with creative disruption because their goal is not conformity. They know that some investments (whether investments in people in the form of education and social programs or in businesses in the form of venture capital and R&D) will become miserable failures but also know that investment is how you generate returns. These communities are willing to invest more money into startups and the children of poor, single mothers, funding more startups and voting more Democratic than other parts of the country.

I know that cultures that share respect for the common good have higher quality of life and incomes. I don't know how you change cultures, though, once people within them are rationally doing what makes sense given what everyone else is doing. That is, strong support for investing in uncertain outcomes seems instrumental to prosperity and that - in turn - depends on trusting your neighbors. But if you live in a community where that culture doesn't exist it isn't clear how you change. The question of how you do seems like a really important question.

Trump's Next Move: Negotiate to Become President of the Former Confederacy


Before Trump finally leaves the White House, he'll send Giuliani out to negotiate Trump getting to still be president but just for the six original states of the former confederacy (South Carolina, Mississippi, Alabama, Florida, Georgia, Louisiana).

09 November 2020

We Make Our Institutions and Then They Make Us: The Popularization of Social Invention and Entrepreneurship

We make our institutions and then they make us.

An American in 2000 was more productive and higher paid than than one in 1900. Not because they worked harder or made bigger sacrifices for their future. It was because their systems - the institutions, culture and technology - they relied on were better.

In 2020, an American in San Francisco is more productive and higher paid than one in Kentucky. Not because they work harder or make bigger sacrifices for their future. It is because they are - themselves - products of better systems, culture and institutions.

When Muslims began to expand out of Saudi Arabia, they largely turned east along the silk road rather than head north to conquer Europe. Why? Europe was a backwater, far less developed economically and culturally than the lands along the Silk Road. There were people then who thought the people along the Silk Road were simply superior to Europeans just as there are people now who believe that Europeans today are superior to people along the former Silk Road in countries like Syria, Iraq, Iran, and Afghanistan.

W. Edwards Deming said, "A bad system will beat a good person every time."

Within every system there is variation, people who thrive and people who flounder.. Often we get caught up in that but the more we focus on the distribution within the system (am I at the top or bottom?) the more we question our own performance within the current systems rather than raise the more important question: how do we change this system so that more people can thrive?

These systems - that include our institutions and cultural norms as well as our scientific and technical ability - determine whether we live in the squalor of 1700 or the modern comfort of the West in 2020. They obviously create us, giving us very different lives. Less obviously, we create them.

Around 1900, the world was transformed as people begin to break the code of inventing, mass manufacturing and improving products. I still have this vision of people in 2100 looking back on the decades around 2000 as the period when people began to break the code of entrepreneurship and social invention, the ability to more intentionally create the institutions that in turn create us.

People in 1700 largely inherited products and made the best of them. Between the time of Homer and Shakespeare there was little gain in real incomes or productivity. By 1900 communities in the West were continually modifying existing products and inventing new products to make their lives better. They didn't just work harder with the products they inherited; they invented new ones. Today we have this tendency to make the best of the institutions and systems we inherit. I suspect that our grandkids will be more adept at continually modifying existing and inventing new institutions to make their lives better.

For now, one big theme you'll hear is inclusion. How do we in the US get more women and people of color into positions and institutions that give them power and make their lives better? Think of this as the social invention equivalent of mass manufacturing. At one point, the car was invented but only the elite could afford it. Then we began to mass manufacture it so that the masses could afford it. This period in which cars, computers or healthcare options spread from something reserved for the elites to something enjoyed by the crowd is a time in which great fortunes are made and widespread prosperity enjoyed. This matter of inclusion is very similar: access to childcare (something most men had in 1950 in the form of wives who look after the kids), venture capital markets, great education, knowledge about how to choose careers or start a business are all things that need to be made more broadly available. We need to include more people in their benefits. Just like cars were mass manufactured in the early 1900s, these efforts to give wider access to the institutions we currently have will create great prosperity.

Coincident with getting better at social inclusion, we will get better with social invention, creating things like schools and workplaces that make us more able to create value for others and ourselves. One of the more obvious ways we will change work and learning is to borrow from video game designers who know how to create experiences that provide flow and engagement to design and redesign work and learning so that we can couple the engagement of video games with the meaning and social impact of work and learning. 

There is more, of course, but that's enough for a Monday morning. The 2020s started out pretty rough but we still have 110 months left in which to turn the decade into a most excellent adventure.

07 November 2020

How Voting Margins Changed from 2016 to 2020 Across All 50 States

Colorado had the biggest blue shift since 2016 of any state at 8.7%, increasing the margin by which it voted for Trump from 4.9% to 13.2%. After voting Republican in 14 of 17 elections, it has now voted Democratic in the last 4 elections. It is becoming more like Boulder and less like Colorado Springs, more venture capital, granola and environmentally aware hikers and bikers and less James Dobson's Evangelical Focus on the Family and Air Force Academy.

Alaska had the biggest shift towards Trump at 14.1%.

The US shifted blue by 1%, from Clinton's 2.1% winning margin in 2016 to Biden's winning margin of 3.1%.

The 15 key battleground states shifted blue 1.8%.

As a percentage of their vote, only 9 states gave Trump a higher percentage of their votes in 2020 than they gave him in 2016.

40 states gave him a lower percentage of their votes.

And only Ohio watched Trump for 4 years and then decided not to change a thing, margin-wise, the one state completely unmoved by his presidency.

[Yes. More numbers are still coming in. Yes this could change - likely by increasing the national margin as California lackadaisically counts its votes over the next few weeks between trips to Whole Foods and the beach.]