10 April 2021

Given the Gap in Household Wealth of Folks With and Without College Education is Growing We Need Bolder Infrastructure Plans

The gap in wealth because of education is big and growing.

In 1989, the average wealth of high school dropouts was 21% that of college grads; by 2020 it was only 9%.

If the gap had stayed constant, households with high school dropouts would have $200,000 more in wealth than they now do.

Trump's big idea (and given it is now completely his party, the Republican's big idea) is to return to 1970 and the heyday of manufacturing and strong wages for folks outside the information economy. Put up trade barriers and bring back manufacturing jobs. A lot of people get really excited about this (im)possibility.

The Democrats' big idea has been to create better social safety nets for high school dropouts. Until now.

Biden's infrastructure plan is a reasonable approach to addressing this gap; big construction projects will create really good jobs for folks who haven't learned programming, enabling them to create wealth and some measure of economic security.

How much is Biden's $2 trillion plan that spills across a decade? A paltry sum. Last year, household wealth rose $12 trillion to $130 trillion. $200 billion a year (roughly what Biden's plan proposes spending per year) is less than 2% of the amount by which household net worth ROSE last year.

Spending $200 billion a year is too little but it is a start at the creation of good jobs for folks without college degrees. It doesn't do any of us any good to make the penalty for struggling in school so high.


08 April 2021

You Could Have Been Rich But You Had to Have That iPod - How Corporations Shifted Their Emphasis From Making Products to Making People Wealthy

A curious thing happened through the course of the 20th century: companies shifted their focus from making things to making money. This shift is important and still misunderstood.

In 1900, American homes did not have running water, electricity, a car, a radio, telephone, TV, computer, store-bought clothes, frozen food, takeout, aspirin, a refrigerator, microwave oven, canned goods, sneakers, safety razors, shampoo, or credit cards.

Fortunes were made by the various companies able to produce those goods at affordable prices. And people were largely focused on buying those things.

And then our curious thing happened: given these companies had gone public, they rather inadvertently created a new product. They created wealth. If you owned shares of a company that became successful, you could have one of the more curious products of all: financial independence.

On 23 October 2001, you could have been the first on your block to buy an iPod for $399. Call it $420 with tax. Apple was selling a product that made it easy to enjoy all your favorite songs on one slick device. (And of course, you’d have to pay another $1.29 for each song, so the $400 was just the admission price.)

On 23 October, 2001, for that same $420 you could have picked up 1,500 shares of AAPL – Apple’s stock. As I write this in early April of 2021, those 1,500 shares would be worth $194,325.

Apple was selling products that let you have private concerts at a whim. If you’re not amazed and delighted by that, you probably aren’t that impressed by music. The iPod was a fabulous product. But it likely pales in comparison to the other product for which Apple was becoming famous: its stock.

The person who spent $420 on Apple’s stock instead of Apple’s iPod back in 2001 has wealth to use for any of millions of products and services. The person who bought the iPod probably doesn’t know where it is now. Apple has made a lot of very impressive products. Perhaps none are as impressive as having made people rich.

Between 1900 and 2000, life expectancy rose from 47 to 77. (And no, this was not all due to infant mortality rates dropping. Your odds of dying at any age - from six months to 20 to 50 to 70 - steadily dropped during the 20th century.) People had always gotten old but old age was popularized in the 20th century and retirement was invented.

Pension plans and 401(k) accounts took advantage of decades of compound interest over these newly long lives to create enough wealth to fund retirements. People no longer had to work until they died or rely on the generosity of their children. And in 1900, that is what happened. The bad news is that people worked until they dropped dead. The good news is that they didn’t live that long. (Hmm. Or maybe that’s bad news too.)

At a certain point, more goods have less appeal. Your closet has more clothes than you'll wear, your freezer and pantry have more food than you'll eat, and your garage had more things than you can find. Eventually you realize that it is momentum from previous pursuits of happiness that are driving the purchase of more things. You realize that of all the things that corporations make, you are probably more interested in their ability to make you financially independent than you are whatever goods they’re selling. In fact, with the intense interest in startups, people are increasingly buying the stock in companies before those companies are even selling products. "What are you selling?" "Well, for now it's just stock but we do have a product launch planned."

An amazing, unprecedented economy emerged in the 20th century, providing goods that past generations could not have imagined. Of all the goods it made, though, perhaps the most alluring was its promise of financial independence. Of all the things that companies could make that people were eager to buy, the promise of wealth ranked highest.

It is difficult to properly understand modern companies if you still understand them as institutions focused on making things. That was largely true a century ago. Now, they are largely focused on making people rich. (What does Google "make?" Well, they've made a lot of people rich.)

Henry Ford became famous for making cars affordable for normal people. Previously, they were something only the very few, very wealthy could afford. The challenge of the early part of this century is to do something similar with companies' most interesting product yet: make ownership of wealth more widespread, more common. One of the keys to this will be creating more mechanisms that allow employees to use the company as a vehicle for creating wealth. As with the church and state before it, the corporation is to become a tool for the masses and not just the elites. The popularization of wealth will be a signal that we’ve overcome the limit of entrepreneurship and with it have moved beyond the limit of economics.

04 April 2021

COVID Has Made Everyone's World More Virtual - And Threatens to Make Even the Real World More Virtual for Some

Forced to social distance by COVID, we're online in greater numbers and greater frequency than ever before. Beyond that, COVID strangely simulates the virtual world.

In one study, 86% of people who had COVID lost their sense of smell and after 60 days, 24% still had not recovered it.

It is still not clear whether the folks who permanently lose their sense of smell - and with it often the ability to distinguish tastes beyond salty and sweet - is closer to 2% or 20%.

The five classic senses are sight, hearing, touch, taste and smell. A loss of one or two is disconcerting and I find it odd that more isn't said about this loss of smell and taste.

But it also makes COVID such a weird echo of the online experience. Online is all sight and sound but no taste or smell. COVID - weirdly - has the potential to make our real world seem that much more virtual, a place with sights and sounds but no aromas.

03 April 2021

The Big Penalty for Living in the Past - Or How People in Mississippi Pay $3,000 a Month to Live in the Past

There is a big penalty for living in the past.

Massachusetts was one of the first states to outlaw slavery, back in 1783. Washington and California entered the Union as free states. New York outlawed slavery relatively early - in 1799.

These four states have the highest average incomes in the country - about 25% higher than the national average.

The Thirteenth Amendment outlawed slavery everywhere in the US and was ratified in December of 1865.

Mississippi ratified the Thirteenth Amendment in 1995 - and certified that in 2013. 148 years after it was ratified nationally.

Mississippi has the lowest average income of any state in the country, 31% lower than the national average.

The difference between Mississippi and Massachusetts' average wages is $35,000 a year - nearly $3,000 a month. Folks in Mississippi make roughly half of what folks in Massachusetts make.

There is a huge penalty for worldviews that dismiss or limit the potential of any member of a community. The past is not a better place. You should move out of there daily.

Of note: had it not been for Mississippi, Kentucky would have been the last state to ratify the 13th amendment. The state that gives us Senators Mitch McConnell and Rand Paul ratified the 13th amendment in 1976 - a mere 111 years after the country as a whole. So, if you're ever wondering what kind of people think that McConnell and Paul would make great senators ... well, there you have it.

01 April 2021

In Which Your Blogger Affectionately Mocks Baseball on Opening Day

I don’t know which came first: April Fool’s day or this being the opening day of baseball. In any case, fans from 30 different teams all believe that their team has a chance to win the whole thing this year. On opening day, every team has a perfect record. This encourages a form of foolishness.

In baseball, the pitcher tries to keep anything from happening and the batter tries to change that. Most of the time, nothing happens and then suddenly it does. That’s also how life works.

No matter how great a hitter you are, you have to wait for 8 other guys to go to the plate before you get another turn. Imagine that sort of turn taking in basketball or football. “Pass me the ball!” “No. It’s not your turn.” 

They call time out in baseball and yet no one pays attention to the clock or can tell you how many minutes are left in the game.

It’s a weird game, too, in that when a team goes on offense, they literally (well, most of them anyway) retreat into the dugout. On defense, you go out into the field and stand around. On offense, you go into the dugout and sit down. Possibly they first made baseball players begin to wear uniforms because given their penchant for sitting down to watch the game people were having a hard time telling the players and fans apart.

Baseball fans are obsessive about small differences in batting averages, pitching counts, etc. It’s a game with strict rules but the distance you have to hit a ball for a homerun randomly changes from park to park. Can you imagine a football stadium where an announcer says, “Defenders love this field. It’s 111 yards long.”

It’s hard to tell whether baseball players are overly optimistic about speed or very pessimistic about risk. In either case, it seems odd that they wear helmets when running the bases.

Players are constantly called out in baseball. It’s the thing that happens most. But the umps are nice about it. They give you a little thumbs up when they call you out.

I’m still waiting for the first baseball coach to abandon the traditional zone defense (“You play third base, you play right field …”) to pioneer a man-to-man defense (“I don’t care if he is on the bench, you stay on Jenkins …”).

Baseball encourages a philosophical bent. The most dominating teams still lose more games than the athletes in other sports play in a season. And your best hitter gets out twice as often as he gets on. To watch a game is to watch failure. That alone may be a reason it has held our attention for more than a century, another way in which it is less an escape from reality than a way to closely study it.

31 March 2021

LBJ and The Economic Reality That Had to Change Before Civil Rights Legislation Could Pass

In one of my earliest memories, I was sitting in a tree with my sister and neighbor Jeff, older kids I was apparently trying to impress. I said, “LBJ is a SOB.” I knew who LBJ was but didn’t know what SOB meant. When my mother found out she washed out my mouth with soap (for the first and only time in my life). She told me, “You don’t talk that way about a president.”

It left an impression. I’ve been fascinated with politics ever since.

American president Lyndon Baines Johnson (LBJ) averaged only 4 to 5 hours of sleep a day and worked most of the rest; his wife once said, “Lyndon acts as if there is never going to be a tomorrow.” He might sleep from about 2 am to 5 am, work until lunch, then take a nap around 2 pm, before working until the early hours of the morning. These “double days” were exhausting for everyone who worked with him but the man signed a lot of legislation.

He once called a congressman at 3 a.m. to discuss a piece of pending legislation. When Johnson asked, “Were you asleep?” the congressman responded, “No, Mr. President. I was just lying here hoping you’d call.”

One of the things he liked to do, at the start of formal meetings, is ask where the folks present had gone to university. As you may imagine in a meeting at the White House, he would hear answers like Yale, Princeton, Harvard - the usual suspects. Then he would pause and say "It looks like I'm the lone representative of Southwest Texas State Teachers College."

He was colorful. Once asked whether he might force J. Edgar Hoover out of the FBI (Hoover had abused his power more than once) LBJ quipped, “I’d rather have him in the tent pissing out than outside the tent pissing in.”

LBJ described himself as a protégé of FDR. His Great Society was a continuation of FDR’s initiatives that focused on labor – that is, on people - more than capital.

A video at the Johnson Library in Austin includes LBJ explaining a new bit of legislation that he’d signed to fund free school lunches. He recounted how as he watched the poor kids come into his classroom, unable to afford lunch – early in his career he taught in a part of Texas with a lot of poor Mexican-American kids – he vowed that if he ever had the power to change this fact of hungry kids at school he would. “Well,” he said, “I now have that power and I intend to use it.”

He also tasked Sargent Shriver – JFK’s brother-in-law – to lead the war on poverty. Shriver said that he had asked for data on who in America was poor and was shocked when he saw a pie chart: 50% of America’s poor in the mid-1960s were children. One of the programs that Shriver quickly scaled up was Head Start, funding and drafting volunteers to go into the country’s poorest neighborhoods to give these kids a head start with summer school and healthy food.

LBJ also got universal healthcare (at least for those over 65 in the form of Medicare).

His most defining legislation might have been his Civil Rights legislation that forbade discrimination in jobs and public services and then – after his overwhelming victory against Barry Goldwater in 1964 – the Voting Rights Act of 1965 that protected minority registration and voting, ending a century of denying Blacks access to the ballot. The courage of Martin Luther King, John Lewis and others had helped to shift American opinion; after peaceful protests in Birmingham, Alabama were made violent by local authorities, LBJ accelerated his agenda for Civil Rights. When he signed the Voting Rights Act Bill, he reportedly said, “We have lost the south for a generation.” As it turns out, the south that once reliably voted against the Republican Party that freed the slaves still reliably votes Republican two generations later. And counting. It is now the Republican base.

One of the rarely reported on reasons that presidents in the 1900s fought for and gave so many rights to women and minorities? If the US only invested in white, non-Hispanic males – only allowed these men to realize their potential and have full access to the institutions that are key to success - it would only let 30% of its adults realize their potential. Again, if a society is caught up in win-lose thinking and thinks that one person’s prosperity comes at the expense of another (a mostly accurate description of reality in an economy based on land), this matter of only 30% of adults being able to realize their potential is not a big deal. In fact, even 30% might be too many to compete with for scarce resources.

But once the limit to economic progress shifted to labor, progress became dependent on having more people solving more problems and creating more new possibilities. The economy grew as the portion of people fully engaged in it grew.

Only 30% of adults are white males. Add in all the minority men and we’re now engaging 49% of adults. Add in all the women and we’re now engaging 100%. The community that engaged and gave opportunity to 100% of its adults is obviously going to do better than a community that only engages 30%.

Slavery had always been bad morality; after the automation of manual work brought on by the industrial revolution and its machinery, slavery became bad economics. It was then that policy made slavery illegal.

Discrimination against women and minorities had always been bad morality; after labor – and particularly knowledge work – became the limit to progress, discrimination became bad economics. It was then that policy made discrimination illegal. It was then that men like FDR and LBJ could win by overwhelming margins and sign legislation that changed reality for millions.

And lest you think that discrimination doesn’t make a difference, it is worth pointing out that the Deep South that voted for segregationists into the 1960s still lags the nation in income. Average income in those states is 20% lower than the national average. There is a penalty for failing to invest in and include as many people in your community as you can.

The great thing about labor as the limit to progress is that a community intent on realizing its potential is going to be intent on investing in as many of its members as it can – regardless of their accents, eyelids, pigment, hair, genitalia or with whom they use it. By our standards, LBJ was racist, sexist and homophobic. He was – as a four-year-old in a tree once pointed out - an SOB. And yet he lived at a point in history in which progress meant investing in everyone because with labor as the limit, a community could not afford to exclude anyone and he was smart enough to know this and champion the policies that changed it.

We’re bigger for LBJ’s policies. “We” literally encompasses all of us now instead of just a portion of us. And we’re better for it.

26 March 2021

What a Growth in Free Time Could Mean for Entrepreneurial Opportunities for Structuring Consciousness

Between 1900 and 2000, life expectancy rose from 49 to 77 and the average workweek dropped from 53 to 37 hours.

If retirement remained constant at age 65, the additional life expectancy gave a person 12 new years of free time - years that never had to be - never got to be - filled before. The shorter workweek gave a person in 2000 an additional 16 hours a week.

We rightfully get kids thinking about what they are going to do for work from an early age. It's a big decision and should be given a lot of consideration.

I wonder, though, if we don't do enough to get kids thinking about who they want to be in their free time. It's a nontrivial question and could do as much to define you and your quality of life as your work.

Csikszentmihalyi notes that in studies of free time most people lapse into things like watching TV. It's easy to do but people generally report feeling less than engaged or happy doing it. The problem is, activities like tea parties, building cars, and group hikes that are more engaging are also more work; it takes a lot to set up the activities that create flow. Setting people up for more flow-inducing activity may become one of the big growth industries as growing affluence means that more people will be retiring before 65, adding even more free time to lives.

The good news is that we have more hours and years of free time than ever before; even better news for aspiring entrepreneurs is that this suggests more demand for someone to structure the activities that structure our consciousness. Retirement planning will become much bigger than cash flow management.

23 March 2021

How the Success of the University of California System Has Created a Crazy Obstacle to Higher Education in California

These poor kids trying to get into UCs. It's not enough that the average GPAs for the kids they admit are over 4.0. The success of these campuses as a hub for activity, research, new businesses, and - of course - education has made them some of the most expensive areas to live in California.

The median home price in California is $635,000. Home prices in some UC neighborhoods are about 2 to 3X that.
Median home prices are
$1,850,000 around UC Berkeley
$1,500,000 around UC Los Angeles
$1,875,000 around UC San Diego
$1,050,000 around UC Irvine
$1,300,000 around UC Santa Barbara
$1,100,000 around UC Santa Cruz
My mother moved from Montana to Berkeley in the 1950s. She told me about one guy she'd met who had inherited money, tried work but found that boring, so he'd just been going to UC Berkeley for years and years. They don't let you do that now but what a lifestyle. And what an income you'd need to do that even if they did let you.
In 1968, the UCs first began charging tuition ("to keep out the riff raff") of $300 a year. Back then median home prices in Berkeley were $23,000.
Last year at UC Berkeley, tuition, health insurance, and room and board was $35,000. That's if you could get a place on campus.

18 March 2021

The Counterintuitive Approach to Raising Average Wages

A minimum wage is necessary but it won’t do much for raising average wages. If you want to raise wages, shift from policies focused on labor to policies focused on entrepreneurship. It may sound counterintuitive but there is precedent.

By Lincoln’s presidency, America’s conquest of land was largely done. Lincoln and the New Republicans shifted the focus from acquiring new land to creating new capital. As a result, the value of land rose. Dramatically.

When Lincoln took office, New York City still had farmland and single-story housing. In 1910, the average price per square foot for an apartment was $8. It is now $1,300. That is even more dramatic than it sounds. If your average building is 2 stories high, $8 per square foot works out to about $700,000 per acre. If your average building is 10 stories high (and more than 7,000 buildings in New York are at least this high), $1,300 works out to over $500 million per acre.

Capital made land more valuable. Steel and elevators made it possible to build skyscrapers. Trains and cars made it possible to draw workers from a wider circle. All of these require capital and as cities created more capital, the value of land rose.

From the start of Lincoln’s presidency in 1861 to the end of Herbert Hoover’s presidency in 1933, Republicans focused on creating capital. After that, policies shifted to the problem of keeping labor fully employed and making labor more valuable. The result for capital was very similar to what happened to land after 1860.

The Federal Reserve has a simple charter: keep unemployment and inflation low. There is nothing there about ensuring that capital gets a high return. Financial markets are no longer subordinate to capital; they are subordinated to labor.

So, what happened to capital after the Fed found tools to better fulfill its charter? In 1945, household net worth in the US was $11.5 trillion. (Adjusted for inflation.) At the end of 2020, household net worth had reached $130 trillion, 11X more.

When the limit shifted from capital to labor, capital did fine. At the risk of hyperbole, you might even say it has done spectacularly. One of many reasons is that a growing number of employees are also capitalists: through pension funds, 401(k) accounts, and home ownership most workers also have a stake in the country’s assets.

Want to increase the value of land? Create more capital.

Want to increase wealth? Develop labor.

Want to raise wages? Make more people more entrepreneurial.

What evidence do we have of this? Well, for now it is anecdotal but the wages in Silicon Valley and Seattle are absurdly high by national – much less global – standards.

Do we need minimum wage laws? I think so.

Are minimum wage laws a good way to raise wages for folks outside the bottom 20%? Probably not.

The way to drive up average wages is to create so much demand for labor through startups that the limit to the number of startups has far less to do with capital than labor. And if that is the case – the priority by which startups get funded is determined by which key people they can get and not which investors they can find (and spoiler alert – that is already happening in places like Seattle and Silicon Valley) – it will drive up wages. Silicon Valley is not just the region with the highest wages in the country; it is the region where wages are growing the fastest. Based on weekly wages in the third quarter of 2020, the average wage in the US is $61,000, up 7.4% in the last year. In San Mateo, San Francisco, and Santa Clara, California, average wages are $148,000 – up more than 20% in the last year. Silicon Valley not only gets more venture capital funding than any other region in the US but more than any other country in the world. One of the many ways that Silicon Valley leads is that it is a place where a relative abundance of entrepreneurship is driving the demand for knowledge workers and raising wages to record levels. In King County, Washington, home to Amazon and Microsoft, the average wage for information workers in the third quarter of 2020 was $327,000. That’s five times the national average for all workers, which means that these workers are making each day what the average American worker makes in a week.

You may be inclined to dismiss these high wages as something reserved for only knowledge workers, arguing that these wage premiums only go to college graduates. It actually raises wages more broadly. Enrico Moretti, in his The New Geography of Jobs, writes, “Compare San Jose, number five from the top [by the measure of percent of workforce with BA or more], with Merced, at the very bottom. Both cities are in California, less than 100 miles apart, but their labor markets belong to two different universes. San Jose, in the heart of Silicon Valley, has more than four times the number of college graduates per capita as Merced and salaries that are 40 percent higher for college graduates and a whopping 130 percent higher for workers with a high school diploma.”

A barber cutting hair for folks making $30,000 a year will make less than a barber cutting the hair of folks making $300,000.

Wages in a region go up with levels of entrepreneurship. We raised the price of land with more capital. We will raise wages by making more people more entrepreneurial which will create more demand for labor in the same way that New York's financial markets, subways and skyscrapers created more demand for land.

16 March 2021

British and French Alternatives to Jefferson's Pursuit of Happiness

Thomas Jefferson insisted that the phrase "the pursuit of happiness" be kept in the Declaration of Independence.

"The Declaration of the Rights of Man of August 1789 was largely the work of Lafayette, Mirabeau and Jean Joseph Mounier, 'but it derived philosophically from the American Bill of Rights." (While he had been in Paris, Jefferson was constantly consulted in secrecy by Lafayette: the 'pursuit of happiness' became in Lafayette's French, la rescherche du bienentre.)"
[from Peter Watson's Ideas]

John Locke - the British Enlightenment philosopher wrote that natural rights included "life, liberty and property." Jefferson revised that to "life, liberty and the pursuit of happiness." Lafayette - the French aristocrat who fought with Washington to help the Americans win their independence before returning to France to spark revolution there - turned Locke's property and Jefferson's pursuit of happiness into "the search for well-being."

Curious how the code that defines one's social norms can lead to such different outcomes.

The British got an empire that spanned the globe - an abundance of property.

The Americans got sitcoms and standup comedy.

The French got existentialism.

15 March 2021

Incubators Will Become to Corporations in the 21st Century What R&D Labs Became to Corporations in the 20th Century

In the decades after World War I ended in 1918, more than 500 American companies established Research & Development Labs. R&D was too important to a company's future to be left to chance or outside startups. Now, a century later, companies regularly update old products and release new ones. The iPhone just gets new model numbers in the same way that the French used to get a new King Louis - a succession of iPhones, the 3, 4, 6 ... 12 ... released at a more rapid rate than the King Louis but named no more creatively. But I digress.

 By far the most famous to emerge from that era was Bell Labs, from which sprung touch tone dial, the transistor, communication satellites and information theory.

In 2017, Walmart founded Store No8 - an incubator tasked with starting new businesses that will define the future of retail. 

Walmart has topped the Fortune 500 8 years in a row, generating $4 trillion in cumulative revenue in that time. Other companies pay attention to what they do.

My own prediction is that a growing portion of the Fortune 500 will follow this example: business incubators will become to the mid-2000s what R&D labs were to the mid-1900s.
Innovation - creating new products - that so defined 20th century businesses as prelude to entrepreneurship - creating new businesses - will increasingly drive and define 21st century corporations.

06 March 2021

My intro to the new book: New Politics for the Next Economy

Patterns let you predict. The sun will come up tomorrow at 6:18. This spring it will get warmer. Because the drummer is predictably playing 4/4 time, the guitarist has a platform upon which he can build a solo. Your toddler eventually becomes a teenager and who you have to – get to – be as a parent changes as they do.

I’m writing this in 2021. Early this year a mob stormed the Capitol to overthrow democracy. Thoughtful people were rightfully outraged but this is part of a pattern of change, a pattern of progress. The US has gone through three earlier transformations that were wrenching, violent and frightening affairs. Out of each one came something better. Optimist that I am, I think that this current transformation will never get as violent or tumultuous as those past transitions and out of this will come something great.

I’m predicting this based on a pattern I see in history. Once I point this out to you, a few things will happen. One, you’ll see even more than I do. That is, given what you know and have experienced, you will be able to see things that I’ve missed. Two, you’ll have a big picture for making sense of these events that take years and decades to play out but are reported on daily. Three, you’ll have a better sense of what you can do. It gives you an option to become a participant and not just a spectator in helping to create what is next.


So, what is the pattern?

A political party champions a set of economic policies that drives progress. Until it doesn’t. And then a new political party comes along to repeat that pattern with a new set of policies.




That’s it. This pattern that has played out three times is about to begin again. The limit to progress has already shifted.

The first time this pattern played out in the US was in our founding. It’s hard to think of a politics more dramatically new than the world’s first modern democracy.

NEW POLITICS: American Democracy, particularly Thomas Jefferson’s Democratic Republicans (eventually just called Democratic) Party’s policies

HELPS TO CREATE A NEW ECONOMY: An Agricultural Economy dependent on land

THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this first economy was land and Democrats were focused on getting more of it. They did it by purchase (Jefferson’s Louisiana Purchase from Napoleon), war (most notably the Mexican War that greatly expanded the US) and some combination of genocide, war and simply pushing the first tribes and nations into marginal regions of the continent. By 1860, the US was roughly its current size. (Save for Alaska.) Land was no longer the limit.

THE LIMIT TO PROGRESS SHIFTS: If you’re on a farm in Iowa or Minnesota in 1860, the value of your crop would be less likely to go up with more acreage than it would with a tractor to work your acreage or a train to take your crop to market. You already have more land than you can work on your own. What adds value are tools that help you to work more land and tools that give you access to markets, letting you sell your crops or livestock to towns and cities where people would pay good money. That is, the limit to progress has shifted from land to capital.

NEW POLITICS: Lincoln’s Republican Party

HELPS TO CREATE A NEW ECONOMY: An Industrial Economy dependent on capital

THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit of this second economy was capital and Republicans were focused on creating more of it. They did it by creating a national currency that made it easier to buy and sell. They did it at the state level by creating a new kind of corporation that made it easier for investors to provide corporations with capital. They did it with the most ambitious infrastructure project – a massive investment in the midst of the huge expense of the Civil War – in the young nation’s history, the transcontinental railroad. They did it by unleashing a flurry of inventions and investments that led to a proliferation of new products like tractors, radios, lightbulbs, cars, and telephones – each transforming reality and the imaginations of the next generation of inventors.

THE LIMIT TO PROGRESS SHIFTS: These capital markets were incredibly volatile. Between 1900 and 1933, the American economy was in recession 48% of the time. Each recession plunged workers into unemployment and ruined families. Labor was at the mercy of capital and no one quite seemed to understand the volatility of capital markets, how they would soar and crash, creating and destroying wealth and jobs. Eventually, communities made louder demands for protections for labor than they did for more capital. 10-year-old children working 12-hour days in factories. Families making just enough each month to buy groceries and pay rent suddenly facing layoffs. The next generation of politicians to win elections would offer policies that made life better for labor.

NEW POLITICS: FDR’s Democratic Party

HELPS TO CREATE A NEW ECONOMY: An Information Economy dependent on labor

THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: The limit to the third economy was labor and progressives first focused on the rights of workers to form unions and strike for higher wages. Curiously, getting children out of factories led to a new kind of labor: the knowledge worker. Instead of going into factories, children went to school and that investment in minds combined with continued investment in machinery meant that labor was less about applying our brawn to tasks (it was increasingly nonsensical for labor to compete with machines when it came to tasks that required strength) than it was about applying our brains to tasks. Also, by the second half of the twentieth century, the magic of machinery was being applied to processing information. From this combination of education and evolving machinery came the knowledge worker who manipulated the symbols of things rather than actual things, working at a computer rather than factory line.

THE LIMIT TO PROGRES SHIFTS: By the early 2000s, there were various signs that we had overcome the limit of labor. As more young adults invested in college, student debt went up. This was partly a failure of governments that shifted an increasing portion of the investment in education onto teenagers. It was also partly a signal that the marginal returns to this investment in labor was dropping. A growing percentage of college graduates were working jobs little different than what they could have worked with only a high school education; those low wages coupled with student debt payment meant that college education was worsening, not improving, their economic prospects. Returns on information technology, too, were reaching their limit. By 2020, households were consuming 344 gigabytes of information per month, 38X more than they had been in 2010. The trickle of information that was so small and vital when the telegraph first emerged had become a flood that did less to inform us than distract us. In 2020, studies suggest that attention spans are about 8 seconds long, the time it takes before we distract ourselves with the next text or swipe of the internet’s infinite scroll. Additional education and information promise far less in increased prosperity than it did in 1933.

NEW POLITICS: In 2021, the divide in American politics is between Trump’s Republican Party still promising to bring back the industrial economy and the Democratic Party still promising to protect and invest in the labor, investing in the R&D and education that has helped to create the information economy. A choice between an industrial economy reliant on fossil fuels or an information economy reliant on knowledge workers is easy to make but it is the wrong choice. The question about what sort of economy we need to create should start with the issue of what now limits our economic progress. No party has yet defined themselves in this way but the transition would be much easier for Democrats than Republicans. It’s also conceivable that this new limit creates a new party.

HELPS TO CREATE A NEW ECONOMY: An entrepreneurial economy dependent on the popularization of entrepreneurship

THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT: And here the pattern could end. If we successfully address the limit of entrepreneurship, we will be at the end of communities defined by market economies. Or more to the point, economics will no longer be our limit. There are only four factors of production in economics: land, capital, labor, and entrepreneurship. If we successfully overcome the limit of entrepreneurship, we will have successfully overcome the last limit of economics.

In the West, we shifted from traditional to market economy around 1300. That sounds like an arbitrary date but one of the reasons to choose that is that before 1300, organized trips east from Europe were literally religious crusades into the Holy Land that ended in 1291. The purpose was partially political, partly economic but mostly religious. Marco Polo traveled from Venice along the Silk Road to Cathay – now China – and the accounts of his adventures were captured in a book that was released after he was released from prison in 1299. Columbus had a copy of The Travels of Marco Polo when he sailed across the Atlantic. Marco Polo and 1300 mark a shift from organized expeditions for religious reasons to organized expeditions for business reasons. That is, the shift from communities organized by religious forces to communities organized by market forces.

Even though markets have done so much to define humanity in the 7 centuries since, there is no reason to believe that they will always be what defines us. Overcoming the limit of entrepreneurship suggests it won’t be economic limits but instead economic abundance that defines our policies, options, and lives. That changes everything. Even more dramatically than the first three economies have.

05 March 2021

The Mona Lisa's Eyes, Trump's Lies and the Nazi's Worldview Warfare

Just look at her face. Mona Lisa - painted about 500 years ago - looks so contemporary, like any other face you might see on social media.

We now look at the world with the same eyes but very different worldviews.

As Lisa sat for this portrait, Europeans were just beginning to realize that they’d discovered new continents. The people in the Americas were people with very different worldviews that nonetheless included kings, priests, calendars, and economies.

During Mona Lisa’s life, the view of the world changed more dramatically than it ever had before. The very notion that we lived on a globe was new. Martin Luther was a member of the first generation of Europeans to grow up aware of the Americas. It is easy to imagine that living through such a radical shift in worldview gave him the courage to lead a revolt against the Catholic Church that had a monopoly on the authorized worldview of his childhood. View of the world .... worldview … it all collapsed into one during Mona Lisa’s lifetime.

The Nazis realized the power of offering new myths in a world where the old world of aristocracy and church had proven obsolete and the new world of technology and markets had failed so spectacularly with a world war and Great Depression. What others called propaganda the Nazis called Weltanschaunungkrieg, or worldview warfare. They knew that the first battle they had to win was in German minds, a battle of worldviews.

The economists might have it wrong. They attribute political unrest to economic stagnation, to median wage growth not keeping pace with the accumulation of wealth by the new generation of entrepreneurs. Perhaps instead it is the fact of economic progress that has created so much stress and discontent, has created demand for worldviews that aren’t upended by continual change.

Trump's continual lies dismayed so many of us. The volume of blatant lies seems to so clearly disqualify him for leadership. How can any group that denies reality survive, one can’t help but wonder. But maybe that misses a larger point.

As reality changes it forces continual updating to our worldviews. And of course, this is never a clean process. Updating worldviews creates new divisions, a continual competition between new versions. The Europeans who discovered a world of Mayan gods didn’t become Mayan but the reaction to this was one cause of the fragmentation in Christendom. When worldviews update, wars break out, national borders shift, families split and accepted philosophies revered in one generation aren’t even considered in the next. Facts force constant updating of our worldviews which can lead to the anomie (or loss of norms) that Durkheim claimed in about 1900 was a cause for suicides. Social progress that destroys worldviews can feel like anything but progress to people who feel their sense of self bound up in it.

In the wake of World War One, Yeats wrote, 
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

A world of rapid change drives demand for a worldview that doesn’t. Change, that is. If it takes lies to protect it from constant change and updates, that is a small price to pay.

And in this we may have one of our more frightening conflicts, the conflict between our psychological need for stability and the imperative of progress that demands constant change. "The centre cannot hold." There is no easy resolution to this conflict. Our eyes, unchanged for generations, close at the thought of yet another change to our worldview, another change too much to bear. Lies are a price we are willing to pay to keep the old worldview.

04 March 2021

The Price of Attention as We Reach the End of the Information Economy

Among the many signs that the information economy is reaching its limit? The price we pay to those able to focus in the midst of its distractions.

A couple of years ago I was talking to the principal of a school in King County, where Microsoft and Amazon are headquartered. I asked her, “What is it about that area that in the decades around 2000 it would produce two men who are the world’s wealthiest?”

She ended up telling me about how much trouble they have with children with some variant of autism spectrum disorder (ASD). So many of the programmers who are so productive come to Seattle to work, meet each other and marry. Their kids are sometimes even deeper into the issues brought on by ASD. Given how differently they process information and notice signals around them, some will experience a distressing social life.

I’m a big fan of flow, the psychology of engagement. When you are in flow, you are absorbed by a task and not only are you at your most productive and creative but are happy.

One of the big obstacles to creating flow is the steady flow of information, of distractions. Information consumption in households in 2020 was 38X higher than it was in 2010 - the average monthly consumption hitting 344 gigabytes per month by 2020. Some of this is because we’re consuming videos that push so much more data into our homes than text ever does. Some of this, though, gets to an odd truth: we have multiple tabs opened to multiple things. Now someone watches a video while texting with a couple of friends and playing an online game. To consume this much information, we multitask.

Attention spans have shortened to allow us to consume all these various sources of information. The new, online human brain has an attention span about the same as a goldfish. Seriously. Measured by how long we stay focused on one thing, our attention spans have dropped to 8 seconds. 8. With so much information streaming in, we cannot afford to stay focused for long on any one thing. To get lost in any one thing is to miss out on all the other things.

They call it an information age for good reason. We live in a sea of information.

So, what does this have to do with the folks Amazon and Microsoft are hiring to create the software that drives work and commerce? As it turns out, some forms of ASD – being on the spectrum – are a gift in a world flooded with distractions. Some folks with ASD are capable of becoming hyper-focused. One way that is described is as if one were in flow – but for hours. All other priorities and distractions dissolve. To be this focused with the tools of the information age makes one incredibly productive.

How productive?

This week, the Bureau of Labor Statistics (BLS) released one of their regular reports on income. They track weekly wages but of course simply multiplying that number by 52 suggests a good approximation of what Americans earn annually. In the third quarter of 2020, the average pay for American workers was about $61,000. In Silicon Valley, New York, and King County average pay was about double that. But BLS breaks down the sectors. In King County, information workers’ average pay was $327,000. Average. This for a group of 130,000 people. $327,000 is great salary for anyone; it’s kind of a stunning to think of a group this large averaging that much.

How much does it pay to be able to focus in the midst of an information economy seemingly doing its best to distract us? Pretty good money, as it turns out. And think about this. Gates and Bezos can pay wages this high and still accumulate hundreds of billions in wealth. You could argue that even at a third of a million a year in salary, these information workers are not paid enough.

Markets reward what is scarce. What is scarce in this information economy pumping 344 gigabytes a month into our homes? Attention.

Pay attention? It turns out that we pay a lot for it.

02 March 2021

How the Pandemic Drove a Huge Gain in Average Wages and the Extraordinary Wages for Knowledge Workers in Seattle

New data at BLS on wages for 3Q of 2020.

Average weekly wages in the US were up 7.4% from 3Q 2019. That's a big raise.

Two reasons.
The good: areas with information workers saw demand rise for their services as the whole world went online.
The bad: lower paid workers tend to be in service jobs that were lost in the pandemic, thus dropping out of the calculation of average wages.

Silicon Valley and King County - home to Microsoft and Amazon - saw big gains.

California's Bay Area had six counties in the top ten by percentage increase, four in the top ten by average wage. San Mateo (the heart of Silicon Valley) has the highest average wage of any county in the US ($152k a year) AND had the highest wage increase in the last year (23.2%). Highest wages and highest percentage increase. It's a crazy combination.

California had 9 counties among the top 25 counties with the fastest growing wages; on average, those counties' COVID mortality rates were half the national average.

Average weekly wages in King County, Washington are fifth highest in the nation. Everyone knows that King County residents Bill Gates and Jeff Bezos have - between them - spent decades as the world's richest man. Fewer people are aware of how many folks they've made wealthy and what kind of wages they pay.

Calculated annual wage for information workers in 3Q 2020 in:
US: $133,796
King County: $327,236

Hitler, FDR, Keynes and The Shift in the Limit to Progress from Capital to Labor

The new Republican Party created a new national currency and national banking system. Before they took power, thousands of banknotes circulated around the country – each discounted a little differently based on the risks to that particular bank. It wasn’t possible to verify each one and counterfeiting abounded. Imagine what an obstacle that would be to simple transactions. With 90% of the country in farming though – as it was in 1800 – money wasn’t a big part of too many folks’ lives. As specialization and the early move into automation lowered that percentage of self-sufficient farmers, though, more people needed money even for something as simple as buying groceries. Money became more important and having a stable, government-backed currency made it easier to buy, sell and invest. What would have been nice in 1800 - a national currency - had become vital by 1861.

But there was something the world didn’t quite understand about money and financial markets: capital markets could reach equilibrium before labor markets did.

In 1922, Russia became the Soviet Union and Mussolini took power in Italy. Communists and fascists had seized power. These new ideologies that were easy to dismiss in the roaring 20s became a threat in the early 1930s when the global economy collapsed. Communists and fascists began proliferating in the US in the 1930s.

When Hitler and FDR took office in March of 1933, capitalism was in crisis. More specifically, labor was in crisis. In the US, unemployment was about 25%. In Germany it was 30%.

The full name of the Nazi Party was National Socialists German Workers’ Party. There had always been a tension between the interests of labor and capital. The Great Depression seemed to prove that capitalism had failed labor.

It had, but not in a way that communists or fascists could address. For that we needed Keynes.

John Maynard Keynes’s General Theory of Employment, Interest and Money created macroeconomics. One way to think about his theory is simply this: capital markets could be at equilibrium before you got to full employment. When you talk about market equilibrium, you have to be more specific. As it turns out, labor and capital markets don’t necessarily hit equilibrium at the same time. The industrial economy that Republicans had helped to create was wonderful in so many ways but it had made labor dependent on capital. Even farmers had tractors. The economy was built atop a layer of financial and industrial capital and if that collapsed, the floor for labor dropped. The labor markets could not treat capital markets as a sideshow; it was the foundation.

What did Keynes suggest? Simply put, anything you could to get people back to work. Fiscal policy like spending and tax cuts. Monetary policy like lowering interest rates so that businesses would be more likely to borrow to hire and expand and households would be more likely to borrow to buy. Move the levers in the capital market to bring the labor market back to full employment. Get aggregate demand up and get people back in jobs. Don’t assume that capital markets will automatically move to fully employ labor.

As it turns out, FDR’s imagination was not wild enough to imagine just how much government spending it would take to again reach full employment. Weirdly, it took a massive war with the fascists to fully employ people. The battle of ideologies turned out to be a literal war. Weirdly, the massive spending needed to defeat Hitler and Mussolini brought the economy to full employment.

One other odd thing. Conceptually, everyone knew that things like GDP or GNP and unemployment mattered. There was no systematic way to measure those things, though. The unemployment numbers we use to track jobs created and unemployment rate? They only go back to 1939. We didn’t invent the measures until after we had the theory. And those measures have become essential to modern policy.

Not only have Keynes’ ideas made ours a less turbulent economy. From 1900 to 1933, the economy was in recession 48% of the time; since 1933, it has been in recession less than 14% of the time. Keynes’ ideas have been good for capital as well. In 1945, the wealth of households and nonprofits was $800 billion; last year it hit $124 trillion. When capital markets were subordinated to labor – the limit of the information economy – even capitalists prospered. People in communities that treat the limit as a limit always do, even if it takes global depressions and world wars to signal the shift in the limit. We can only hope that we make this next shift more smoothly, with less pain, unemployment and carnage.

01 March 2021

Humor, Railroads and the Internet Have Changed Who "We" Are (or what technology has to do with nationalism and globalism)

Technology – from humor to railroads to the internet - changes our definition of “us.”

Germany became a nation-state in 1871, the same year as Italy and only one year after the United States.

In 1865, the American Civil War ended. By 1870, three constitutional amendments would change the United States from a collection of states into a nation-state, literally changing the label we gave to the United States from plural to singular. Before Lincoln, people said, “The United States are” in references to the many states. After Lincoln people said, “The United State is,” in reference to the one nation. The historian Eric Foner calls these three amendments that ended slavery, defined American citizenship and protected the right of citizens to vote “the second founding,” because they so changed our notion of who we were.

Among other things, these amendments gave congress the right to enforce them. These rights gave the national government power to protect citizens from states, making individual rights more important than state law. The nation became more important than the state.

So, is it just a coincidence that Italy was consolidated from a collection of kingdoms and Germany a collection of states at the same time as the United States? I don’t think so. I blame the railroad and telegraph.

Between 1840 and 1860, the miles of railways in the US grew from 3,000 to 30,000. This web of interconnections changed who we were. New factories sold goods across states lines. Goods, contracts, communication and corporations spilled across state borders as easily as clouds. Laws and governance that did not travel with this exchange of goods and ideas were increasingly ineffective. The Republicans who led this second founding were capitalists who needed national governance to properly manage the scope of their new, industrial economy.

Which brings us to this 21st century.

The war from 1860 to 1865 was between folks who wanted their world to remain a collection of states to those who wanted the world to merge into nations. The war today is between nationalists and globalists.

Once again, a confluence of technologies has made us bigger. The world wide web sort of gives itself away in its name. It has become a hotbed for nationalists all across the world but they are reliant on the very technology that undermines their nationalism. The notion of nationalists – BREXIT folks in the UK, Le Pen’s National Front (now National Rally) folks in France and Trumpbros in the US, among others – connecting around the globe to fight globalism tells you a great deal about how futile is their battle. Everything is global now. Why? In no small part because of the technology. A container ship has dropped the cost of transporting a can of beer or soda across an ocean to one cent. When transportation and communication costs near zero, national borders become less meaningful.

Robin Dunbar has studied the groups we feel part of. Other primates spend hours grooming one another to sustain the bonds that make them feel like an “us” who cooperate and interact to create a community of chimps, bonobos or gorillas. Grooming releases the endorphins that connect them. One of Dunbar’s theories is that as the number of humans in a group expanded to 150, grooming was no longer sustainable. It simply took too long to do this with 149 other humans. So, humor emerged as a way to do the same thing. Grooming gave way to comedy. And to this day memes are a big part of the online communication within groups.

Technological innovations change our community and our notion of self has to keep up. Whether it is humor, railroads or the internet, as our world is made bigger so must our sense of us. Benedict Anderson called a nation “an imagined political community.” In some sense, so is a family, a tribe, nation, or even a world. But the technology we have changes our ability to make real what we can imagine.

28 February 2021

When Life Will Return to Normal

Exactly a year ago, the nation's first COVID death was reported. Since then, half a million Americans have died. Life expectancy in the US dropped by 2 years in 2020 and the percentage increase in deaths (15%) was its highest since 1918.

It's been a tough year but we're getting a better sense of when life will again be normal.

Figure that it takes two Moderna or Pfizer doses - and only one J&J dose - to vaccinate each person against COVID. Here is the rate at which we're vaccinating people.

Last week's average: 800,000

Yesterday (Saturday): 1,200,000

By early April: 2,300,000

The punchline? As Nate Silver points out, by April we will be fully vaccinating 70 million Americans per month which would equate to about 70% of all adults (16 and older) by the end of April.

So, what are your Memorial Day plans?

25 February 2021

Religious Entrepreneurs, Utopians and Progressives

 The American revolution obviously transformed government. It less obviously transformed religion. One of the reasons Americans are still more prone to be religious than people in other developed countries is because religious entrepreneurship has meant more choices than simply the state religion or apostacy.

It was not until 1951 that Swedes had the option to legally quit the Lutheran Church and stop paying 1.1% of their annual income. About 25% of Swedes claim to be religious, in contrast to about 75% of Americans who face far more popular options. One explanation for how religious are Americans is that as you provide more options for how to be religious, more people will take that option.

The Amish, Mormons, Seventh-Day Adventists, Jehovah’s Witnesses and Black churches like the National Baptist convention were among the better-known Christian churches that began in the 1800s. And of course, those were just the ones you’ve heard about. As with so many varieties of startups, most faded into obscurity.

The proper contrast for the creative liberties Americans took with religion is not our modern world in which cults have moved from the domain of religion to the domain of politics. Rather, it is Europe from where so many immigrants came. Pope Pius IX (who was pope from 1846 to 1878) condemned ideas of religious freedom, of freedom of speech and of the press, and of the separation of church and state as incompatible with Christianity. It was only in the 1960s, with the Second Vatican Council, that the Roman Catholic Church fully rejected the notion of the divine rights of kings – and with it accepted the notion of democracy. In 1870 – a decade after Darwin published Origin of Species - the Vatican ruled that the pope’s pronouncements were infallible. Pius declared that “Religion is immutable; not an idea, but the truth. Truth knows no change.” All Catholics, he declared, were bound to reject the view that “the Roman Pontiff can and should reconcile himself to progress, liberalism, and modern civilization.” The pope prior to Pius IX had banned railroads and insisted Catholics not participate in scientific conferences or elections. [Most of that information from David Kertzer’s The Pope Who Would be King.)

Tangled among these novel expressions of religious freedom, some Americans tried their hand at creating utopia. Folks creating new religions were preparing their congregants for a better afterlife; the utopians were working to create a better beforedeath.

Nashoba in Tennessee, for instance, was a utopian, interracial community whose members were working to end slavery. Some utopians had communist principles of joint ownership, or were transcendentalists who believed in the divine experience inherent in the everyday and not some distant heaven.

These utopians' casual disregard for social conventions is quite whimsically captured in Chris Jennings’ Paradise Now in his description of one.
The Fruitlandians lived in single red farmhouse that, aside from a bust of Socrates, contained few creature comforts. They abstained from all animal products and animal labor, refusing even to bridle a horse. (One woman was supposedly ejected for nibbling a bit of fish.) The community included a nudist and a man who refused to eat tubers because any vegetable that grows downward displays questionable ambitions. A Fruitlandian named Joseph Palmer spoke out against the practice of shaving and advocated spiritually cleansing obscenity. “Good morning, damn you,” was his preferred salutation. At a time when long beards were not in style, Palmer’s bushy whiskers provoked such an outrage that he was denied communion and rocks were thrown at his house. When two men tried to shave him by force, Palmer fought back, ending up in jail. (His gravestone, which depicts him with immense facial hair, reads: “Persecuted for wearing the beard.”) The most famous alumna of Fruitlands was Louisa May Alcott, eldest daughter of the community’s founder and the eventual author of Little Women. Dressed in miniature linen bloomers, she and her three younger sisters represented most of the commune’s youth population.

Curiously, it was a group that blended the aim of creating an ideal community with religion that first sent women to the polls. In 1870, Utah became the first state where women voted.

Nationally, it was a bit of a footrace between the post-utopian progressives and pre-utopian religious entrepreneurs to realize their goals through legislation. In early 1919, the 18th amendment outlawed alcohol. In 1920, women gained the right to vote.

The notion that you could worship your own God in your own way was a private matter. The notion that you could create utopia now was a matter for a small group. Progressives were the most practical of all these groups in terms of policy – pushing for efforts like ending child labor, regulating food and drugs and the length of the workweek and giving women the right to vote. Progressives were the most practical but also the most intrusive; in a democracy you need a majority of the community to align with you. They were not separating themselves from the community but instead insisting that it come along with them to a better place.

The progressive movement is less curious than the creation of new religions or utopias. It is obvious that you’re not promising salvation. Still, while a 40-hour workweek and kids in school rather than factories may not be utopia, it does free up weekends to simulate living in one.

22 February 2021

How the Shift From Traditional Management Could Create More Value: A Model of Control, Abandonment or Autonomy Supportive

William Deci made a distinction that has greatly influenced me.
He argues that parents, managers and teachers have three options: control, abandonment or autonomy supportive.

Control is when you dictate, monitor and manage goals and process for your student, child or employee. Abandonment is when you simply say, "Do what you'd like." You give them freedom but not support. Autonomy supportive suggests that you defer rather than dictate goals but then offer support - teaching, processes, resources - that enable them to achieve those goals.

My sense is that every decade there are more parents who are autonomy supportive. The parent who says, "He wants to be a skateboarder. We're doing what we can to get him to tournaments and fund lessons," is considered interesting today whereas in the 50s they'd be considered crazy. (But to be fair to folks in the 50s, skateboards were so bad back then that you'd be right to be outraged.)

Among the many things meant by the popularization of entrepreneurship is this notion of autonomy supportive. Rather than dictate processes, you support their goals. What might this look like?

Ricardo Semler - in Brazil - had a fascinating model in his factory. He would have half a dozen workers side by side, each with their own arrangement. One was getting paid by the hour, another by the month and another by piece. Yet another was working in the same area but paying for access to the machinery and then selling the product on her own. It was not haphazard. Each was working to a negotiated arrangement. The person who wanted less risk also had less opportunity for rewards. The person who could get what she could sell the product for had to - of course - find the market for what she was making. Given where they were in their life, their skills and goals, different arrangements might advantage them differently. As so often is the case, as the employees did better, so did the company. As is so rarely the case, employees had a variety of ways to do better.

If work is going to look more entrepreneurial, by definition it will be less defined by someone else and more defined by the worker. And yet the array of resources, skills, and knowledge needed to be successful in any endeavor suggests that there is a huge gap of possibility in the large gap between a traditional entrepreneur who creates a new business and the employee who simply takes a role in such a business. To allow individuals to slide the scale between conformity and autonomy rather than toggle from 1 to 10 suggests all sorts of intriguing possibilities in the relationship between employer and employee, a redefinition of work. Chief among the shifts is moving into a relationship that lets employees define the goals and then supporting them in that.

There was an old quip that customers of the Model T could have any color they wanted as long as it was black. Ford's dominance of the American auto industry was eclipsed by General Motors who offered a wide array of car models and prices. And colors. The notion that you would accommodate the various desires of various customers was revelatory and also resulted in a huge gain in value.
One of the more stunning stats of the modern world is that Amazon offers more than 300 million different products to America's 300 million people.

The notion that those same customers as workers might similarly want variety in their work and how they create value is something we still haven't embraced quite ye. We're still in the "any process or objective you want as long as it is our processes and objectives" stage of employment. My prediction? The shift into autonomy supportive relationships with employees will create even more value than corporations shifting from dictating consumer choices to broadening them.

19 February 2021

How Systems Thinking Is Necessary to Further Progress in a Time of Suicides and Global Warming

As Russell Ackoff points out, we began to treat understanding and analysis as synonymous as the West came out of the Dark Ages. To better understand something, we analyze it, take it apart. Medicine has pursued this approach to the point that nearly 90% of physicians become subspecialists of some kind.
Analysis is not, however, the only way to understand something. Systems thinking is another and it yields very different insights.
From the American Journal of Medicine

Analysis may tell you what changes take place in the body when someone is aroused or afraid, full of joy or dread. Systems thinking doesn’t try to understand you better by understanding the parts of you; it instead looks at the larger wholes of which you are a part. The quality of your relationships. The sense of meaning and inclusion that gives you drive and comfort. To understand those we cannot take you apart, cannot open you up to look at your parts. We have to look outside of you.

As a measure of the extent to which we’ve succeeded at analysis (and indeed analysis yields fabulous insights), life expectancy has steadily gone up as more specialists have entered the medical profession. 

Until recently, that is.

Even before COVID, life expectancy began to stall. Why? It is what economists Anne Case and Angus Deaton call “deaths of despair.” The intentional and unintentional suicides from drug and alcohol abuse that are widespread in economically dislocated areas. Here individuals feel unvalued and disconnected. It is a market failure that reminds us that markets are where transactions take place, where people make a connection and walk away with value, the vendor with the revenue and the customer with the goods. Cut off from this, people begin to feel cut off from a sense of purpose.

Suicide is now the second leading cause of death among those 10 to 34 and the fourth leading cause of death among those 35 to 54.

You cannot analyze the cause of suicide, open someone up to find what is missing in them. It is not a piece within them but instead their feeling part of some larger whole that is missing or marred. It is the perspective of systems thinking and not analysis that yields the important insights in this situation, insights that points to the path of healing.

The medical world is not the only one in which we’ve repeatedly applied analysis to better understand the parts of the parts of the parts to the point of microbiology and genes so small that they cannot be seen. There is more to learn down this path but as we adopt systems thinking more fully and in more facets of life, our attention will be less focused upon the parts and more focused on creating new wholes, new relationships, connections, markets, institutions and purpose.

One of the many failings of analysis is that it ignores the environment. Aristotle thought that an 8 pound rock would fall twice as fast as a 4 pound rock. Galileo - about 2,000 years later - conducted some experiments and concluded that weight had no influence on that. But he had to do something special to learn that a feather and rock fall at the same speed. He had to remove the environment, put the objects in a vacuum where air resistance was not a factor. This told us more about gravity (and laid the groundwork for Newton's marvelous insights) but less about reality. We've continued to pursue analysis into the 21st century. It is that powerful. However, we are now facing an environmental crisis. As it turns out, you can only ignore what lies outside us, the environment, for so long before we have an environmental crisis.

Systems thinking could change how we think and organize our world as much as analysis did. Or so we can hope.

18 February 2021

How the Worst Recession in the United States Transformed Risk-Taking From the Stuff of a Dickens' Novel to Prosperity and Innovation

After its worst recession, the United States abolished debtors’ prison and created a more risk-taking society.

James Wilson signed the Declaration of Independence, helped to draft the Constitution, and became one of the original jurists to serve on the Supreme Court. Scottish, he studied at Glasgow University and learned from Adam Smith, who published the Wealth of Nations to define capitalism in 1776 as Wilson was signing the Declaration of Independence that would define democracy. All that and Wilson landed in debtors’ prison.
When someone as august as Wilson could end up in debtors’ prison, it served as a brake on risk-taking.
Andrew Jackson the populist hated banks. He particularly hated the Bank of the United States which offered a degree of regulation for the burgeoning frontier economy of the early 1800s. Jackson acted on his contempt for bankers by vetoing a renewal of the bank’s charter in 1832. It took years to realize what a disaster this was.
Free of the regulatory influence of the Bank of the United States that Alexander Hamilton had conceived, individual banks all pursued policies that were fabulous short-term but created more and more instability. 347 banks opened up between 1832 and 1837. They issued a flurry of bank notes that stimulated the economy. Between 1832 and 1836, paper bills in circulation rose from $59 million to $140 million. The economy first heated up and then blew up, just five weeks after Jackson left office.
The recession that began in the second month of Van Buren’s presidency (and led people to refer to him as Van Ruin) was the worst in the nation’s history. (The Great Depression of 1929 would prove worse but of course no one in 1837 knew about that.) By the fall, nine out of ten eastern factories had closed. The poor broke into shops, only to find their shelves empty. The recession lasted seven years and hordes landed in debtors’ prison. The common man was certainly not going to avoid the fate of a Supreme Court justice.
In the wake of this tragedy, Congress passed a law in 1841 that offered bankruptcy protection. Meanwhile, in Britain, France, and all of Europe people were still being thrown into debtors’ prisons.
Charles Dickens’ father was thrown into debtors’ prison when Charles was only 12. Charles had to work at a boot-blacking factory, living on his own. The contrast between the US and Europe led Tocqueville - visiting the US from France - to marvel at the strange indulgence shown to bankrupts in the US.
That indulgence encouraged the risk-taking that an emerging industrial economy needed.
In this, the tragedy unleashed by Jackson’s disdain for a banking system helped to inform the policies of the Republican Party that would form just a decade later. After ridding itself of debtors’ prison, Americans took more risks than did folks in Europe. When Republicans took control in 1861, they regulated banks and issued a national currency to replace the thousands of different banknotes in circulation. Coupled with massive increases in government investments, Americans' new willingness to take risks led to the most innovative period of economic investment, innovation and growth in world history. From Van Ruin’s fated presidency and great recession came lessons on how to better create a prosperous economy. Getting rid of debtors' prison changed the business culture of the US.
There were two important lessons gleaned from the recession Jackson triggered.
1. Treat the financial system as a system and not a set of independent banks. Don't let banks take risks that could trigger a great recession.
2. Treat risk as essential to returns in an industrial economy and not imprison people who take those risks.
These seem like obvious lessons now. Obvious now but not obvious to James Wilson’s peers who thought him both worthy to define a new nation and deserving of debtors’ prison.