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.

17 February 2021

How the Pill Changed What Was Possible For Women

Women were reinvented after 1960 when their biological and social options changed.

Edison tinkered in his lab, famously going through 3,000 iterations on the lightbulb before getting it right. In the early 1900s, scientific theory began to supplement and then replace trial and error, which transformed what was possible.

It was not until 1938 that Congress approved the FDA which, in turn, had to approve new drugs. About 10,000 new drug applications were submitted to the FDA over the next 20 years and an industry was born out of the advances in science that changed the human body.

Perhaps no drug changed the modern world more than the drug that would simply be known as “the Pill.”

In the early 1900s scientists began to understand how hormones – from the Greek word meaning “to incite activity” – affected bodies. “Over the course of a woman’s life, she produces barely one-fifth of an ounce of the hormones known as progesterone and estrogen, but that’s enough to guide her reproductive system – and keep the human race in business.”

The Pill – which manipulated these hormones to allow the body to evade pregnancy – was approved in 1959 just two days after Lady Chatterley’s Lover was approved for publication in the US.

As you might guess, this was met with resistance. In that same year, a Chicago vice squad had arrested 55 news vendors for selling girlie magazines. While a church group sat in the courtroom holding rosary beads and silently praying, the jury voted to acquit the defendants. After the verdict the judge seemed stunned, then slumped forward. He’d had a heart attack.

“In 1965, the Supreme Court ruled in Griswold v. Connecticut that the Bill of Rights included a right to privacy and the use of birth control was a private and protected act.”

Catholics argued with Margaret Sanger - the early proponent of birth control - that the rhythm method was superior to contraceptives because it did not interfere with the natural process of life. Sanger retorted that all sorts of things interfered with the natural process of life. Resisting temptation interfered with natural processes. Every time the pope shaved his whiskers he interfered with the natural processes of life. More broadly, this new world full of modern drugs and vaccines interfered with a hundred natural processes and these new drugs had become so prevalent that they came to seem, well, normal.

It wasn’t just conservative Christians who resisted birth control. Only after the Japanese government approved Viagra in 1999 did it finally make the Pill legal.

Since the Pill was approved, birth rates in the US have nearly halved. In 1970, 80 percent of women with young children stayed home to care for the children and 20 percent worked. Today, those numbers have reversed. Women now get more degrees than men. In 1960, women earned 35% of bachelor’s degrees. Today it is about 58%.

Many of these facts were gleaned from Jonathan Eig’s The Birth of the Pill

16 February 2021

How Jefferson Democrats, Lincoln Republicans and FDR Democrats Created Distinctly Different Economies By Focusing on Different Limits

Democrats from Jefferson (1801 to 1809) to Buchanan (1857 to 1861) treated land as the limit and acquired a stunning amount - 2.1 million square miles after the country's founding. How much land did the Democrats add? An amount roughly double the size of India or Argentina. That's what they added.

The Republicans did not acquire more land. Their plan was instead to develop it. (Although when the Democrat Andrew Johnson became president after Lincoln's assassination, he - in classic Democratic fashion - acquired some land: Alaska, which added another 663,000 square miles.) Republicans' homestead act of 1862 enabled settlers to acquire 160 acres of public land in the west. Aspiring farmers took advantage of this, claiming on average more than ten million acres each year between 1870 and 1920. The point of the Homestead Act was not to acquire new land but to develop the land already within the borders.

The innovation unleashed by Republicans in industry is well known - the oil, steel and factories of the late 1800s and early 1900s. What is less known is the innovation in farming. Republicans funded land lease colleges throughout the country; these were tasked with helping farmers to become more productive. And even there, innovation was rampant. Less than 10 percent of the acreage planted in wheat in 1919 consisted of varieties that U.S. farmers had sowed before Republicans took over. This biological innovation seems to have accounted for about half the gain in labor productivity in the last half of the 1800s. (The other half was driven by new machinery, capital being added to land to modernize farming.)

The introduction of national currency and more banking and securities regulation (for instance, companies listed on the NYSE had to file annual reports after the 1890s) emboldened investors to back new ventures. Corporations grew in size and number. By 1925, there were 20 times more corporations than there had been in 1870.

Financial markets grew as well. In 1865, bank loans were about $518 million; by 1920, they were $28 billion. On one day in 1831, 31 shares were traded. 31. Not 31,000. 31. On one day in 1901, 3,234,339 were. 100,000 times as many shares.
The metric for economic progress shifted from land to capital. Acreage exploded under Democratic governance and capital did under Republicans.

FDR’s Democrats shifted the focus again. This time, shifting from capital to labor. What metric grew at astounding and unprecedented rates as a measure of what these new knowledge workers could do that land or machinery could not? Invent. Create. Create and apply intellectual capital. And what was the simplest metric for intellectual capital? Patents. By 2019, the number of patents was 28X what it was the year FDR became president.

14 February 2021

The Stunning "Coincidence" That May Explain How Jeff Bezos Became the World's Wealthiest Man

You probably know that Jeff Bezos is the richest man in the world (worth $190 billion today). 

Here are a couple of things you may not know.

He spent summers at his grandpa's place. His grandpa was part of the founding team of ARPA (Advanced Research Projects Agency). ARPA was the agency that helped to advance and invent so many technologies, including the internet. In fact, back when only hundreds of people were on the internet it was called ARPANET. His grandpa ran the entire Western region for the U.S. Atomic Energy Commission, a network that included thousands of scientists at Los Alamos, Sandia, and Livermore Labs. Perhaps the only man on the planet to both manage a technical team of this scope and help to invent the internet was grandfather and mentor to the man who went on to become the world's wealthiest man by managing a huge technical team working on the internet. (That may not be a coincidence. Choose your grandparents wisely.)

As he debated leaving a lucrative Wall Street job to start Amazon, he created a "regret minimization framework" in which he simply asked himself whether he would regret having tried this when he reached 80. The answer was a clear "No."

It took him 60 meetings to raise his first $1 million from 22 investors. Amazon's market cap is currently $1.65 trillion. (Trillion. With a "t.")

Gleaned from Margaret O'Mara's The Code.

How University Education in the 21st Century Tracks High School in the 20th Century and What Comes Next

In 1920, 31% of American teenagers were in school, triple what it had been a generation earlier.
By 2020, 33% of Americans over 25 had a Bachelor's degree or higher.

Machinery took over manual work early last century, freeing (and forcing) us to work more with our brains than our brawn. This century, algorithms - intellectual machinery - will likely take over knowledge work at a similar rate, forcing another change in how we prepare for work. It's certainly possible that college education this century will roughly track high school education last century and by 2050 about 75% of folks over 25 will have a Bachelor's or more. (In Palo Alto today, 83% have a Bachelor's degree. It is conceivable that Silicon Valley is - in this as well - about 30 years ahead of the country. )

The question, then, is what trajectory will take the place of a university education? What will start out this century as capturing just a few percentage of Americans but steadily build to tens of percent by the end of this century?

I'd argue that it will be time spent in an incubator - a place where young people are engaged in public and private sector projects to launch new businesses and agencies, acts of entrepreneurship and social invention - or R&D lab where they can practice invention, coding, genetic engineering, terraforming, etc. (No. Sadly I won't be around to see the data on this.)

Rather than a dissertation or senior thesis that results in a new paper or model to explain data, young people will be sent directly into the world to generate data rather than analyze it. This could be based on a medieval model of the guild.

To enter a guild (whose members might work with metal or make knives or harnesses, or be doctors or money changers) one had to first apprentice, practicing under the guidance of a master. Then he had to visit other areas to learn from experts there, no longer an apprentice but a journeyman. Finally, the journeyman would have to produce his masterwork that would be evaluated by the guild who would then decide whether to honor him with the designation of master.

Perhaps the culmination of work in a lab or incubator will be a patent or viable business or new government service or agency that wins the approval of voters. The point of this would not be to have mastery in creating products or providing services or making an original contribution to research in the field (as we expect of folks who earn a PhD). The point of this will be to point to some new institution or service or product that you've brought into the world.

And this - a new phase of market economics - will in some sense echo Marx's words, "“The philosophers have only interpreted the world, in various ways. The point, however, is to change it." The objective of this new time in incubators and R&D labs not so much to demonstrate an understanding of the world as to demonstrate some ability to change it.

13 February 2021

What the Republican Vote on Trump's Impeachment Tells Us About Who Defines the Party

In 1968, Richard Nixon won the presidential election with 43% of the popular vote. George Wallace, a southern racist and segregationist, won 14% of the vote and 5 southern states. Nixon wooed and won the southern segregationists during his first term. In 1972, Nixon won 61% of the popular vote by winning the 5 states Wallace had won. It was only the second time in the GOP's 100+ year history that it had won those states. This changed the party.

Since welcoming southern racists to the party, there has been an open question about who Republicans are. Are they simply folks who strongly prefer corporate institutions to government institutions or are they the spiritual allies to the southerners who had to be forced to end slavery, segregation, and Jim Crow laws? That is, are these folks who have different values or folks who only do the right thing when forced to? Is it the party of staid businessmen who don't much respect politicians or the party of good ol' boys who don't much respect the law? In personal terms, is the party better represented by John McCain and Mitt Romney (the GOP's two presidential candidates prior to 2016, strong conservatives who valued honor and institutions more than personal or party interests) or the party of Trump?

With today's impeachment vote of 43 to 7 among Senate Republicans to acquit Trump, we got a clear count on how the party now breaks out. 14% honorable folks who prefer business solutions and 86% good old boys who aren't much offended by the occasional violent storming of the Capitol. This GOP is now more defined by the politics of George Wallace than Abraham Lincoln.

12 February 2021

Why Trade Surpluses Turned into Trade Deficits in 1975 (and why that is not such a bad thing)

The last time the US ran a trade surplus was in October of 1975. This after nearly a century of mostly running trade surpluses.

What else was going on in 1975?

Personal computers were emerging. In 1975, Bill Gates and Paul Allen founded Microsoft to support the first, popular personal computer (the Altair 8800). Steve Wozniak cofounded the “Homebrew Computer Club” as he began to play with designs that would become the engine for Apple’s success.

What was different about this personal computer industry? It was far less capital intensive than was the automobile industry that had so dominated and defined the US half a century earlier or the railroad, oil and steel industries that had defined industry a century earlier. This made it possible to create even more wealth: a small amount of capital could create a huge amount of equity. Hewlett and Packard was founded with $595 in capital. Gates and Allen didn’t need any venture capital to get started but did give away 5% of the company for a million dollars just to get a venture capitalist’s expertise on the board. What did Gates trade? Financial capital for intellectual capital, for what he calls “adult advice about various things.”

“That money sat in the bank, and it’s still in the bank today, so it was not for anything to do with capital, but rather just to join the team,” Gates said. [The venture capitalist] is still on the board of Microsoft and is still extremely helpful as a lot of important decisions get made."

This new information economy was creating capital rather than consuming it. This was of great interest to folks managing pension funds and retirement accounts. Because something else had happened by the time the US began to chronically run trade deficits. 

In 1880, life expectancy in the US was 39 years. By 1980, it was 74 years. In the century up to 1980, life expectancy rose 35 years, increasing by 4 months every year.

This meant that one of the most important products people could buy was a retirement. Retirement is very different from traditional goods. It comes in the form of purchasing bonds, stocks and other equity. And as people grew more affluent and lived longer, they spent a growing portion of their income on financial instruments and not just goods.

Up to 1975, the US was exporting products and often ran a trade surplus. After 1975, the US began to be a net exporter of capital. This shows up as purchases of equity and bonds by people in other countries. The US was no longer getting richer by selling products to the rest of the world; it was getting richer by selling investments to the rest of the world. Given how we account for trade, this shows up as a chronic trade deficit, one that has been sustained for nearly half a century.

The business of the US is no longer just about mass manufacturing goods. Increasingly, it is about mass manufacturing wealth.

10 February 2021

Palo Alto as Prelude to America More Broadly - When the Limit Shifts from Knowledge Workers to Entrepreneurship (the transition from an information to entrepreneurial economy)

Today, about one-third of Americans over 25 have a Bachelors degree.* In the mid-1950s, more than a third of the men in Palo Alto did (and - remarkably for the time, so did 20% of the women). Palo Alto was about 65 years ahead of the US in terms of education levels.

Economies have limits. The limit to the information economy is knowledge workers and their information technology. Once you've overcome that limit, the next limit you face is entrepreneurship.

Overcoming the limit of knowledge workers both enables and requires you to then address the limit of entrepreneurship. Universities at this stage, for instance, don't just work to create new graduates but new knowledge, technologies, companies and industries.

Stanford carved out space on campus in the 1950s for an industrial park that had high-tech companies leasing space that could hire its graduates and collaborate with its professors. It also leased space to venture capitalists who could fund startups - some of which were spun off by Stanford graduates and professors. Palo Alto was a highly-educated region that was a magnet for venture capital and entrepreneurs.

This suggests that the US might be within about a decade of seeing the sort of entrepreneurial activity that characterized Silicon Valley late in the 20th century. (Why just a decade rather than two or three behind? Following is always faster than leading.)

Latest numbers for Palo Alto? 83% of the population over 25 has a Bachelor's degree or higher. In about 50 years, the rest of the US might have similar education levels - and a similar proclivity towards entrepreneurship.

* From Margaret O'Mara's The Code

09 February 2021

Lincoln's 1860 Election and Transcontinental Railroad by 1869 and Kennedy's 1960 Election and 1969 Moon Landing as Catalysts for Next Economy

On any given day, the transition from the industrial to information economy was negligible but like capitalism’s dynamic of compound interest, the transition over a century was huge. 

In the century between when the two presidents Johnson were sworn in after an assassination (Andrew Johnson in April of 1865 and Lyndon Johnson in November of 1963), the source of progress had shifted from industrial to intellectual capital.

It was Lincoln’s vision and signature that launched the project to build the transcontinental railroad. It was Kennedy’s vision and signature that launched the project to land on the moon. Neither lived to see their bold vision realized.

Lincoln won the presidency in 1860 and by May of 1869, the transcontinental railroad was completed. Kennedy won in 1960 and by July of 1969, NASA had landed men on the moon.  Lincoln’s railroad was catalyst for a period of huge gains in industrialization and invention, a huge boon to the emergence of the industrial economy. Kennedy’s space program was catalyst for a period of huge gains in information technology and invention, a huge boon to the emergence of the information economy. Policies more broadly, but these projects specifically, were part of the foundation for advancing the next economy, great examples of new politics for the next economy.

Curiously, the surface of the moon is oddly similar to swaths of America's Midwest

The shift from the industrial economy Lincoln helped to advance and the information economy that Kennedy helped to advance was characterized by so many things but this is one of the simplest: the shift from an industrial economy dependent on child labor to an information economy dependent on adult education.

08 February 2021

The Difference Between Entrepreneur and Knowledge Worker - Or the Many Roles and People We Could Be

“ … so many peaceable citizens contain lethal soldiers, so many criminals contain choirboys, so many monogamous women contain promiscuous young things. An adult human being consists of sedimentary layers. We shed more skins than we can count, and are born each day to a merciful forgetfulness. We forget most of our past but embody all of it.”
- John Updike

The ideas we have of people are gross simplifications – often caricatures – of who they are. Mother Teresa is known as this saint who helped poor people but in fact she suffered from a prolonged crisis of faith and advocated policies that sustained poverty. Freud burst onto the scene as a therapist unafraid to explore how our minds were shaped by sex and later in life he was completely disinterested in sex – as a topic or act. Meanwhile Gandhi, who was revered as a saint, went through a period later in life of sleeping with naked, young women.

I get to meet a lot of folks in my job and I’ve learned that their current role is often one of the least interesting things about them. We’re always more complicated than any simple role, label or reputation can capture.

A knowledge worker asks “How do I do this?” An entrepreneur asks, “Who could do this?” One of the great things about the information economy reliant on knowledge workers is that it allowed us to focus on developing a specialty, to become an expert that other people could trust. One of the problems with popularizing entrepreneurship is that we will need people to take on – to create – new roles for which they may not have been formally prepared. Sometimes they’ll find another person who does have expertise and other times they’ll have to become that person who takes on a new role for which they are mostly an amateur and only partly an expert.

This is great problem, though, making explicit what is – in fact – already happening. That is, making explicit that we evolve in small increments and big leaps, becoming someone other than whoever was first hired for our job. Following the technology and market demand – chasing after what is possible – is inevitably a creative act and one of the many things it means is that we get the chance to be more of the various people we could be and are less likely to be defined by just one role or job title.

06 February 2021

How Institutions Are Like Software - And What That Means About Our Approach to Improvement and Progress

The tweet

We have to become as good at social invention and improvement as we are at product invention and improvement. We are too reliant on our institutions to either blow them up or try to preserve them in their original condition. We need them and need them continually improving.

The post

Everything is made up but the consequences are very real.

Because we have this tendency to conflate institutions with their buildings, it's easy to forget that institutions are actually processes. Church in the new testament is used in reference to a group of people in fellowship, not a building. "Online" banking is worded to remind us that the bank is not a place or building but instead a process. Kids in this pandemic are "going to school" without leaving their bedroom.

Institutions are processes and processes can be described as code. You write code, debug code, and open source library has free code that you pull down.

You write code.
George Washington was the world's first president. (Well, first president for a country; a few universities and colonies had someone with that title.) Our founding fathers just made that up.

You put code into and pull code out of free libraries of open code.
The name and concept of president got adopted elsewhere. More than 60 countries now have presidents. What our founding fathers created has benefitted countries around the world.

Programmers rushing to release software to deadline can incur tech debt. The software has the promised features but the code to support that is rushed and performs poorly. To pay down tech debt, programmers refactor, rewriting code so that it does what was intended but better.
The constitution missed some important issues. Four years after the constitution was signed, the Bill of Rights was added to it through ten amendments, clarifying important provisions like freedom of religion, the press, and speech.

You also have to debug code.
The 18th amendment banned alcohol. The 21st amendment banned the 18th amendment, repealing it to again allow Americans to drink like common savages.

And you have to add features.
The 19th amendment gave women the right to vote more than a century after the constitution had granted that power to (some) men.

Institutions are descriptions of how we interact. They are that simple and that complicated.

Dee Hock – the man who largely invented the modern credit card and the national (and now international) information system to support it – is a source of great insights. My favorite quote of his is this.
“Every system has intended and unintended consequences. You always get the unintended consequences.”

Our country was founded by Enlightenment thinkers who were trying to create something timeless. As it turns out, imaginations fail to anticipate progress. Even Newton got upgraded by Einstein.

After World War 1, about 500 companies started R&D departments. Why? They knew that creating new and improving old products had to become as normal as making original products. The folks working in these R&D labs were not Enlightenment thinkers; they were pragmatists, continually tweaking and improving, never believing they’d made a perfect product but always believing they could make it better.

More than 10,000 years ago, Clovis people roamed North America. Curiously, we know them by their technology – the stone tools they used for thousands of years. By contrast, our tools and products are changing all the time. One year we send letters, another year we send telegrams, then we make telephone calls and then video conference calls. Perhaps some day we will teleport, or cast our consciousness into telepresence robots on the other side of the globe.

We know that in a generation or two our current technology will seem quaint. So will our current institutions.

Without institutions, we are such scrawny primates that we might struggle to survive. With institutions we live long, prosperous lives. But institutions are just processes and it is impossible for any generation to get their code just right. Software can be released multiple times per day and – done right – it continually gets better. Given institutions define how we interact, they can’t be constantly changed. They can, however, be continuously changed. We need to write, debug, refactor, jettison, and add to the processes that define our institutions, making it as easy to continuously improve the processes we use that we call institutions as it is to improve the processes that we call software.

And given how reliant we are upon our institutions, this also changes us.

Shout out to Blake-o , my programmer son who helped me to define these steps in creating and sustaining code.

04 February 2021

What Made Lincoln and the Roosevelts Great Leaders (and what is key to creating a better society)

Abraham Lincoln grew up in poverty. He was born in Kentucky but his father left for Indiana (and then Illinois) because he could not compete with the slaveholders. Abe wanted to go to school but had to work, clearing land and farming for his father. Once he left home, he eventually moved from a log cabin to a frame house, working his way up from poverty to influence.

Lincoln's vision of the Republican Party was that it would enable the poor - even slaves - to make a better life and felt that policies should enable this rise. It should be hard work and not birth that determined one’s fortune. This was in contrast to southern Democrats view of how an economy worked, a place where only 1% deserved to be truly wealthy.

South Carolina Senator Hammond delivered a speech in 1859 that captured the southern, pro-slavery view that there were gentlemen and mudsills and that the economy did not need to provide opportunity for all for the simple reason that so many didn’t deserve it.

"Hammond described an America that sounded a lot like an oligarchy. When things were ordered correctly, he explained, the bottom of society was made up of drudges: stupid, unskilled workers who were strong, docile, and loyal to their betters. He called these workers “mudsills,” a reference to the timbers of a building that were driven into the ground to support the loftier structure above. Members of this mudsill class would never rise. They were too stupid, for one thing, and they were happy where they were. On this mudsill, according to Hammond, rested higher civilization—those gentlemen who led 'progress, civilization, and refinement,' men like him. It was right for southern slave owners to control the country, he said, because they were the wealthiest men in the nation, proving that they alone had figured out a true system of political economy. The southern system was the only safe one, Hammond explained. Members of the mudsill must have no say in government, for if they did, they would demand a redistribution of wealth. So long as they had no political power, their stupidity—and cupidity—could never challenge the system that Hammond insisted worked so well. The North, he warned, used white men as its mudsill and thus courted disaster. Northern workers had a terrible potential to destroy society because, unlike black slaves, they could vote. Indeed, they made up the majority. If they worked together, 'Where would you be?' he asked. The government would be overthrown and property redistributed."
- from Heather Cox Richardson's To Make Men Free

Because Lincoln and the new Republican Party rejected this nonsense, it not only overturned slavery but put in place policies that helped to create millionaires and change the lives of everyday people with a plethora of new products. Never in history had there been more progress felt more widely more quickly. Only 1% could be served by slaves; a growing percentage could be served by the machinery of the industrial economy.

Curiously, though, the folks who made it to the top of this new economy ended up with very similar feelings about how their accumulation of wealth in contrast to the poverty of others was simply evidence that some people were superior (that would, of course, be them) and that society was made better – not worse - by income and wealth disparities.

Just 30 years after Hammond’s mudsill speech, after Republican policies had helped Americans to move into the industrial economy,

"steel magnate Andrew Carnegie published an article titled, simply, 'Wealth,' in the popular Republican magazine North American Review. Carnegie’s view of a good economy sounded much like James Henry Hammond’s. Great disparities of wealth benefited everyone, he wrote, for they enabled some men to cultivate the highest and best in literature and arts and 'all the refinements of civilization.' If such wealth were scattered to the masses in higher wages, it would undoubtedly be squandered on food and small luxuries. Carnegie parted from Hammond by defining society’s elite class not by race but rather by its members’ ability to work hard. This is what the Republican vision of every man being able to work his way up to comfort had become: all men had a chance to work. The talented ones would make a fortune; the rest would be society’s mudsills."
- from Heather Cox Richardson's To Make Men Free 

Beliefs like Carnegie's would divide the Republican Party. Some embraced the progressive agenda of Teddy Roosevelt. Some embraced the conservative policies of his successor, William Taft. Roosevelt argued for the federal regulation of business, inheritance tax, and a revival of Lincoln’s income tax that had enabled grand infrastructure projects and the creation of universities throughout the country during Lincoln’s presidency. Taft’s views were much like Carnegie’s.

By 1933, Teddy’s progressive vision had been adopted by his distant cousin Franklin Delano Roosevelt, a Democrat.

To this day you can tell a great deal about a person’s worldview and politics by whether they believe differences in wealth and income are better explained by natural superiority or social inventions. Those who believe that such differences are inevitable and there is nothing a community can do to change those outcomes are right, of course. They create a world with growing income and wealth disparity that proves their point. But as Lincoln and FDR have shown us, those who believe that there are things that a community can do to change income and wealth disparities - to change opportunities for those who were not born into the manor - are also right. They, too, create a different world, one that gives a growing number of people higher incomes and more wealth.

Whether a community believes that wealth is destiny or believes that it can be created for a growing percentage of people, that community will be proven right. Given that, the belief that a large chunk of us should simply be mudsills seems like a terribly odd belief to hold, much less defend.
To throw up your hands to say that the system we now have is the best we can imagine and that poverty must be proof of inferiority is less testament to what is inevitable than the limits of our imagination. What makes great leaders like Lincoln and our two Roosevelt presidents? They find the world they imagine even more compelling than the one they're born into.

03 February 2021

The Clear Cost and Uncertain Benefit of Creating the Future - We Still Haven't Experienced All the Benefits of Lincoln and FDR's Policies

I was listening to Kensy's latest podcast and his guest was talking about the tradeoff species make with brain size. Brains use a lot of energy and while a big brain might be advantageous, it is also costly: it takes more calories for a brain cell than other cells. But I thought, well, a smaller brain might be able to calculate the cost of a larger brain but wouldn't be able to properly assess the benefit. The smaller brain by definition could not conceive of what a bigger brain could do, what possibilities would open up.

One of the things that made Lincoln and FDR such great presidents is that they created a new world full of new possibilities.

Lincoln introduced something the country had never before experienced: income tax. He also set in place legislation that made it easier to create big, successful corporations and invested in universities and infrastructure like the transcontinental railroad and state universities. Lincoln's policies helped to enable the progress that put electricity and running water in homes and gave us radio, automobiles, and thousands of other products.

The folks outraged at Lincoln's policies could assess the cost. "Income tax! That is unconstitutional!" folks protested. But while they could easily count the cost, they could not count the returns on this investment. Progress takes us to a future different enough from our present that we can never properly assess it.
Politics has plenty of folks who lobby for existing industries. Coal, for instance, still has strong lobbying efforts to change public opinions, block legislation and divert public money into the support of this old industry that employees very few people. (How old? The commercial coal industry dates back to the 1700s - the same era that gave us powdered wigs. How few people? Yoga employs more people than coal.)

The past still has folks who fight for it. It is not clear who is lobbying for the future, for possibilities still unrealized. We know the costs. We can't imagine the benefits.

02 February 2021

How the Republican Party Made Slavery and the Agricultural Economy History And Created a New American Economy

“The Republican party is the ship and all else is the sea.”

- Frederick Douglass

One of the reasons for the invention of the Republican Party was to outlaw slavery. One of the reasons they were successful in this was because an industrial economy was already emerging to gradually displace and transform the agricultural economy slavery was part of.

Ohio Senator Ben Wade was one of the country’s first, most influential Republicans. “Once you might work the galley slave with profit,” he reminded his Senate colleagues on one occasion. “[But] how is it when you pit the galley slave against the steam engine? Every labor-saving machine is an abolitionist. Every pull of the engine upon a railroad is an abolition sermon.” (From Fergus Bordewich's Congress at War.)

Republican policy represented a massive shift in economic policy, shifts so big that we can hardly imagine the world as it was before.

For instance, before Lincoln and other Republicans swept to power in 1861 (power made even greater when the southern Democrats all seceded, leaving Republicans to largely govern unopposed), the country had more than 10,000 different banknotes floating around in circulation. Republicans introduced a national currency – greenbacks - and this alone was enough to boost the economy. Imagine a world in which counterfeiting was widespread and each banknote had to be exchanged, some discounted at one rate and others at another rate. A national currency ended that.

One of the few reasons that a world with 10,000 different banknotes was tolerable was because early Americans were self-sufficient. Cash transactions were the exception. You grew your own food, made your own clothes, built your own cabin. But as the country gradually began to industrialize, money became the norm for acquiring goods and not the exception. Rather than the exception, it became the norm to work for someone else for pay. 10,000 different banknotes were an obstacle to this new economy. The Republican’s new, national currency was one of the reasons the economy began to boom.

Desperately needing money to wage war against the South, Republicans turned to New York’s big banks for loans. Those banks said no. Republicans did another thing that was so revolutionary at the time but now seems so very common: they sold bonds directly to everyday Americans. Americans had a way to invest, to become a part of this new industrial economy, to become capitalists. To be a political movement, it has to be popular. Republicans helped to popularize capitalism by making every day Americans bondholders.

Republicans at the state level invented the modern corporation. Railroads were among the first investments that demanded more capital than a single family might have. A railroad needed a number of investors, shareholders. But one big obstacle to my investing in your company (particularly in a time when information was so scarce that it was hard to get good, timely data) was liability. What if I invested $1,000 in your railroad and you were sued for a train wreck that suddenly left me liable for $1,000,000? The proper response to such risk is to avoid it, which made it tough to raise the capital needed to create the new industrial economy of railroads, factories and department stores. So Republicans adopted a clever British invention from the time: the joint-stock, limited liability corporation. We could join forces, dozens or thousands of us each buying a share (the joint-share) and yet our liability was limited. If we invested $1,000 we could lose $1,000 but not $1,000,000. This made investment safe. Like the bonds, this turned thousands more Americans into capitalists and was part of an unprecedented wave of wealth creation.

Finally, the Republicans invented income tax. Before that, the federal government one big source of federal income was land sales. The federal government essentially waged continual war against the first nations, taking land that they would in turn sell to speculators who then sold it to settlers. Income tax did a couple of things. One, it signaled a big shift from the land-based economy of the Democrats that had defined economic policy since the founding of the country. Two, it enabled the government to invest in the economy. Republicans didn’t just subsidize the construction of a transnational railroad that helped to transform the continent into a nation (a union rather than a confederation of states). Republicans funded universities, an investment in people that pays off to this day. The University of California, MIT, Ohio State, and so many universities that have a name like “University of Minnesota” or “Michigan State University” trace their origins back to Republican legislation from during the war. Income tax didn’t just help fund the hugely expense Civil War; it enabled Republicans to create universities throughout the country during this war. Income tax enabled them to invest in economic development.

The Civil War marked the emergence of the Republican Party that would define and be defined by capitalism, by the industrial economy that made the agricultural economy in which slaveholders thrived seem as obsolete as a world of kings and queens. By 1900, the Republican Party would – like the Democratic Party before it – be defenders of elites rather than champions of the common man. The Democratic Party of 1860 had been defined by slaveholders; the Republican Party of 1900 was defined by robber barons. By the early 1900s, the Republican Party would need to be displaced in the same way that it had displaced southern Democrats.