31 March 2021
26 March 2021
What a Growth in Free Time Could Mean for Entrepreneurial Opportunities for Structuring Consciousness
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.
18 March 2021
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.
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
"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]
15 March 2021
Incubators Will Become to Corporations in the 21st Century What R&D Labs Became to Corporations in the 20th Century
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
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.
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.
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
NEW POLITICS -> HELPS TO CREATE A NEW ECONOMY -> THESE POLICIES EVENTUALLY OVERCOME THE OLD LIMIT -> THE LIMIT TO PROGRESS SHIFTS
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
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.
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.
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.
04 March 2021
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.
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.
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
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.
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.
King County: $327,236
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)
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.