Genetic Engineering and How Humanity Could Go The Way of The Dogs

In Hacking Darwin, Jamie Metzl writes that, "A BBC poll estimated that around half of all South Korean women in their twenties have had some type of plastic surgery." It gets more interesting when you talk about giving parents the ability to choose whether to edit their children's genes before birth to raise the probability that they'll be smarter, kinder, more athletic, more attractive, etc, Skillfully slicing genes rather than faces.

Metzl predicts that parents will adopt genetic engineering for their children and this could lead to a huge divide between those who can and will and those who can't or won't.

All dogs are the descendants of wolves, from chihuahua to Siberian Husky, dachshund to beagle. People began to breed dogs to exaggerate particular traits. Now these dogs hardly look related.

I wonder if the future of humanity will go to the dogs; so much variety among "us" as the genetic engineering becomes more creative that we're hardly recognizable as the same species.

Design of Work as Play - the Future Has Arrived

Studying flow - the psychology of engagement - decades ago, it occurred to me that the ultimate profitable business would be one that designed work to be as engaging as play and charged kids to do work they perceived as play. Imagine profit margins in that sort of world.

Well, that world may have arrived. Here's a kid playing the game of stocking shelves at a convenience store, controlling a robot from a distance.

https://soranews24.com/2020/08/29/japanese-convenience-store-chain-begins-testing-remote-controlled-robot-staff-in-tokyo/

Is the Future Non-Factory Jobs? (One Way to Understand the Jobs Numbers for Manufacturing)

Each month bls.gov releases the new jobs numbers. "The economy created 130,000 jobs last month." The technical title for this jobs number report includes the phrase, "nonfarm." Farming is such an insignificant and volatile portion of the nation's workforce that it is excluded from the official record of new jobs created or destroyed.

Once upon a time, farming was hugely important. Now it is not. We may eventually say something similar about manufacturing jobs.

The other day in the airport, I struck up a conversation with a guy from Wisconsin. He told me that his dad was one of 11 and his mom was one of 4. All 15 of that generation (we're talking about folks who started careers in the 1950s) were dairy farmers. There were 64 cousins in his generation. Of those, only one is a dairy farmer and he's going bankrupt. (This cousin has only hundreds of cows; the dairies that are surviving are big businesses with thousands of cows.) Nobody in that group of cousins is encouraging their children to prepare for life as dairy farmers.

Manufacturing jobs as a percentage of the total workforce are now where farm jobs were in 1963: 8.4%, suggesting that manufacturing is running about 60 years behind farming. Defining factory jobs is harder than defining farming jobs, though. I've seen a note at BLS.gov to the effect that an increasing number of jobs in manufacturing fall into the category of knowledge work. Programmers for the robots and process design experts are among the folks who now fall into the category of manufacturing; a decreasing percentage of the folks in manufacturing are not working on production lines as we classically envision it from pictures of the 1950s. They are as much a part of the information economy as are the programmers and analysts sitting in cubicles for software or service companies.

Of late I've seen an uptick in our consulting for projects that are production line transfers. The vast majority of our work is with companies developing new products. These production line transfers have literally gone from zero percent of what we do to about 10%.  What does it mean to transfer a production line? A factory line in, say, Pennsylvania is being transferred to Monterrey, Mexico. The savings are huge and irresistible and when the transfer is done, the US has fewer manufacturing jobs.

Trump has defined his presidency in large part by two things: radically slowing immigration and bringing back factory jobs. Immigration has dropped under his watch. Initially, factory jobs rose as well but there is a problem with that.

His sudden imposition of tariffs made domestic sources more favorable and seemed to have raised the percentage of jobs created in manufacturing to meet this uptick in demand. The problem is, though, that supply chains are complicated. If I bought cheaper steel from China to manufacture a car, say, a tariff on Chinese goods may cause me to shift over to an American supplier of steel within a month or so. Short-term, that would raise the number of manufacturing jobs. But given that ultimately I need to compete on the global market, this need to pay more for a key input might cause me to make a more dramatic change over the next year; I may shift my entire production line out of the US to where tariffs don't distort input costs and threaten my profit margins. Short-term, the tariffs may raise manufacturing in the US; longer-term, they may drive it out. And that seems to be what is happening.

When Trump was sworn in, manufacturing was 8.4% of the total workforce. As a percentage of new jobs created in the prior 12 months, that rose above 10%. For nearly a year. During the last twelve months, though, it has dropped to about 2%. During the last twelve months, manufacturing jobs as a percentage of new jobs created is about one-quarter of what it was when he took office.

This is not something to celebrate or to mourn. This is simply a fact. Once upon a time we were in an agricultural economy and children grew up expecting to work on farms. Decades later, that expectation shifted from farms to factories. A good society prepares its children for jobs that will keep them employed at good wages, though, and cares less about whether they will work on farms in factories or in cubicles or in the home office than if they are making good wages. A bad society forces traditions on its children and tries to prepare their children for jobs that were suitable for their grandparents but not for them.  It's not an agricultural or industrial economy any longer.

It is true that there are problems with the information economy and some evidence that we're getting diminishing returns from encouraging more children to get college degrees to prepare for work. That said, children are much more likely to grow up to work on a laptop than they are in a factory or on a farm. Promising to bring back factory jobs is like promising to make your skin look younger; it may work for a time but the long-term trend is against you.

Monarchs (Butterflies, that is) and Millennials

I went on a business trip with my wife Friday. She calls them field trips. She teaches 2nd grade and Wednesday her 7 and 8 year olds reached the end of their unit on butterflies by releasing some they had watched transform from caterpillars into butterflies. Friday they went to the IMAX to watch a movie about monarchs.

It's cliche to express wonder at the transformation from caterpillar to butterfly but the wonder is deserved. If you saw the two creatures without any knowledge that they were related, you likely wouldn't even put them in the same category, much less realize they were two stages of the same life. There's more, though.

Every fourth generation is a super butterfly. For three generations the butterfly's life expectancy is about two to six weeks. This fourth generation, though, lives for six to eight moths. It's also bigger and able to fly from Canada into the heart of Mexico, thousands of miles. The transformation from caterpillar to butterfly is genetic code triggered each generation; the transformation from regular to super butterfly is genetic code only triggered every fourth generation.

Which made me wonder whether something similar is going on in our community.

If we define a generation as 25 years, four generations back takes us to those born about 1900. These people fought in World War 1 and then were the leaders during World War 2. Their inventions, speculations, investments and desires fueled the roaring 20s, tipped into the Great Depression, and then a hot war with fascists and then a cold war with communists. When they were born in 1900, the two most common jobs were farmer and household servants (families with fewer than 3 servants were considered lower-middle class); by the time they died in the 1960s through 1990s, men had walked on the moon, the internet was linking people across the world, and the discovery of DNA had evolved into genetic engineering.

The kids at Parkland so impressed me. Millennials and younger are aware, conscientious, and the best educated generation in history. They are informed by thousands of stories and have access to millions of lives through a media that includes TV, radio, podcasts, video, social media and every other permutation of the internet.

It is, of course, a whimsical idea, but what if those kids born about 2000 - who are 4 generations removed from the generation born about 1900 - are a super generation who will carry us farther than the generations before?

How Gaming Is Shaping a New Worldview

Mary Meeker delivered her annual Internet report Sunday. One of the points she made was about gaming.

• Entrepreneurs are often fans of gaming, Meeker said, quoting Elon Musk, Reid Hoffman and Mark Zuckerberg. Global interactive gaming is becoming mainstream, with 2.6 billion gamers in 2017 versus 100 million in 1995. Global gaming revenue is estimated to be around $100 billion in 2016, and China is now the top market for interactive gaming.

One question she and the team at Kleiner Perkins asked was what does gaming prepare us for? I think it is teaching simulation to a generation who will need to become more adept at systems thinking.

The more one can play with the variables of a system, the better one understands it. To use a simple example, our company has software that lets a business unit forecast project completion dates based on shared resources and project priority. As you change the number of resources, project priorities, and how you model the use of resources within projects, the projected launch dates for these product development projects changes. One of the senior managers I once set up with this capability drove from Philadelphia down to Delaware each day for work. He told me that on his commute he would think about variables to change in order to explore what was possible to accelerate product launches. "I always sort of understood my business unit," he says, "but doing these simulations I came to understand it far better than I ever had. I learned what happened when I changed this variable or that one, what made a surprisingly big difference and what made hardly any difference and in what conditions. I understood the dynamics of the system in ways I never had before."

A great deal of what we see today shows graphs and numbers. "India is growing at 8% a year." "Smart phone sales are growing by 10% a year." What we have less experience with is simulations that allow us to change recent trends. "What might happen to its growth if India's move away from paper currency results in more theft from hackers?" "What happens to smart phone sales if they become a replacement for credit cards?" 

A simulation lets us do a few things. One, it lets us play with policy ideas. Two, it lets us explore the implications of entrepreneurial initiatives. Three, it helps us to better understand the way variables might interact to create emergent behavior that is the result of a the interaction of the variables in the system rather than the actions of any one variable in the system. Simulations will never be accurate. They can, however, be informative.

We are at the infancy of systems thinking in the same way that Europeans in 1700 were in the infancy of Enlightenment thinking. We will get better at simulating and thus understanding systems, systems as varied as ecosystems, financial systems, and educational systems - the variety of systems on which we're so dependent for our quality of life.

What is gaming prepare us for? It gives people practice with countless simulations, learning how changing one thing can change another, how this strategy results in an early death and this one lets you conquer the kingdom. Gaming teaches us that systems never depend on just one variable and that outcomes can never be determined even though probabilities can be changed. Gaming will make systems thinking and systems simulation intuitive to a new generation. That's pretty cool.

The British as Social Inventors (or, the policies that could make the UK wildly prosperous again)

The UK will elect its next prime minister in just a few weeks, on 7 May.

As an American, I envy the fact that British politics is so much more humane. But judging from the political debate earlier this month between the UK's seven major party leaders, the British seem to have lost their sense of history. Why were they the world’s leading force for centuries? Why are former British colonies so much more affluent than former colonies of Spain or France? Why is English still the world’s dominant language when it comes to business, science, and innovation? Knowing the answer to that question provides the answer to how the UK could again make its economy vibrant, perhaps even a global leader.

The simple answer is that, from before 1534 when Henry VIII severed ties with Rome to help to create the nation-state to the time that the British invented the single-payer healthcare system in 1948, the British led in social invention. And not just any sort of invention. They led in the social inventions that helped overcome that period's limit to economic progress.

Instead of discussing social inventions that redefine a century, though, political leaders are now arguing about changing tax rates or spending small percentages, each trying to find the right balance between fiscal responsibility and addressing needs. There is no sense of history now. Just a sense of responsibility. Rather than ask how to create jobs they’re asking how much unemployment and welfare they can afford. Rather than asking how to create wealth, they’re asking how much debt is reasonable. And rather than ask how to make the British once again world leaders in economic growth, they’re asking questions about how fairly government services are being shared among the poor and new immigrants. As an American I can only envy this delightful sense of fairness. In the end, though, it’s less about whether you share the mastodon kill fairly than whether you learn how to domesticate crops. If you want a great community, you don't choose between fairness and progress.

For centuries, the British were the world’s leaders at changing people’s minds about what was possible. Their social inventions were not just about what was fair or right. Their social inventions actually created wealth in ways that were unprecedented in world history.

The British National Health Service (NHS) is the oldest single-payer healthcare system in the world and is a wonderful example of social invention. The British set up a system that made healthcare a right rather than something only people above a certain income could access. Like so many of their social inventions, most of the West has since adopted some form of what the British created. (Even we Americans have taken steps towards following this example.)

But long before that, they also invented new institutions that made people more prosperous. 

In 1623, Edward Coke championed legislation - patent law - that rewarded inventors. By 1699, Thomas Savory had invented a steam engine. At that point, for the first time in thousands of years, per capita income began to rise. Because of social inventions like patent law that let people profit from the investment of time and money into new products, the British led in the industrial revolution.

The British were not just social inventors. They rapidly adopted what worked in other countries. The Dutch were the first to set up a corporation that could trade in a remote part of the globe on behalf of the state (the Dutch East India Trading Company), the first to set up a stock market (to trade shares in that one corporation) and the first to set up a central bank that could help to regulate currency and make loans on behalf of the state. The British were smart enough to adopt those inventions when they brought William and Mary over from the Netherlands in 1689 to become their monarchs, and that soon helped them to pass even the Dutch in per capita income. This was not just the kingdom that gave us the invention of the steam engine: it gave us Charles Darwin and the concept of evolution.  The British continued to innovate and tinker with these big inventions. It was the Bank of England that became the model for the world's central banks. And the eventual change they made to the corporation was even more momentous.

In 1862, the British Parliament passed the Company Act and invented the limited-liability, joint-stock company. That is, they invented the modern corporation, the best institution yet made for the creation of jobs, products, and wealth. John Micklethwait and Adrian Wooldridge called it “yet another quirky Victorian invention that changed the world.” Putting aside the fact that the Americans more fully subordinated themselves to this new institution, this transformative social invention was British.

Whether it is through patent law or the modern corporation, central banking or NHS, no people have done more than the British to make history by changing history. No people have been more ready to re-invent themselves or their institutions. 

So what could the British do now? What social inventions would shift their conversations from unemployment to job creation, from debating about how much debt they could afford to best strategies for creating wealth? It would be any social invention that would help them to overcome today’s limit to progress, which is different from the limit of a century ago – or two centuries earlier.

From about 1300 to 1700, the limit to progress was land and because the British people led in social invention and adoption that helped them to overcome the limit of land – from a nation-state and private property to standardized measurements and colonization – they became the world’s leading economy. 

From about 1700 to 1900, the limit to progress was capital and because the British people led in social invention and adoption that helped them to overcome the limit of capital – from patent laws that inspired invention to central banking policies that stabilized financial markets – they were the world’s leading economy.

From about 1900 to 2000, the limit to progress was knowledge workers. Even though the British people invented the modern corporation – the place where knowledge workers created products, wealth, and jobs through product manufacturing and invention – they lost their lead to the US, Germany, and Scandinavian countries because they were slower to realize the importance of public education. (In 1875, England’s illiteracy rates were about 10X higher than those in Germany and the Scandinavian countries.) In a world where English is the dominant language, it’s worth noting that kindergarten is a German word. The social and technological inventions that did the most to create knowledge workers and make them more productive were the ones that made communities richer and more powerful. One might argue that as the world's original capitalists, the British saw their invention of the modern corporation more as an investment tool than as a tool for making knowledge workers more productive, and lagged because - for a time - they made capital more important than labor.

The conversation the British people need to have now isn’t about how to get more land and make it more productive. Land is no longer the limit. The days of colonization and the British Empire are past. It’s not about how to get more capital and make it more productive. Trillions of pounds of capital wander the globe in search of returns. A massive infusion of capital now is as likely to sit idle in banks (or, in the form of industrial capital like robots, make labor sit idle at home) as to create jobs and wealth. It’s not even a question of how to create more knowledge workers or make them more productive. The good news is that - largely because of British social inventions - the West has overcome the limits of land, capital, and knowledge workers. The bad news is that more of those factors that no longer limit won't just fuel economic progress.

Period (roughly)	Market Economy	Develop & Acquire
1300 – 1700	First, Agricultural	Land
1700 – 1900	Second, Industrial	Capital
1900 – 2000	Third, Information	Knowledge Workers
2000 ~	Fourth, Entrepreneurial	Entrepreneurship

So what is the limit to today's economy that social inventions must help communities to overcome? Entrepreneurship. Last century, the West popularized knowledge work. Between 1900 and 2000, the economies of the West transformed from industrial economies dependent on child labor to information economies dependent on adult education. Now, it is time to popularize entrepreneurship. The first wave of this popularization will likely be like the British adoption of Dutch institutions. That is, communities able to adopt the policies of Silicon Valley, creating an entrepreneurial region, will make great progress. The next wave will likely come in the form of changing the corporation again. This will involve making more employees more entrepreneurial, allowing them to create equity and not just products. No one has yet taken the lead in this but the British (or for that matter, the Scandinavians, Germans, Canadians, Americans or the people of Singapore) could become leading innovators in this. And just as the British became prosperous in ways that past generations could not have imagined when they boldly overcame the limits of capital, so could this next generation.

The question for today’s economy is how to create more entrepreneurs and how to make more employees more entrepreneurial. As people find creative answers to these questions, they'll create jobs for knowledge workers and will fully employ the trillions in capital that people like Marin Wolf and Ben Bernanke warn is symptom of a savings glut (or investment dearth). Knowledge workers and capital are no longer limits. Entrepreneurship is.

The British people have proven themselves incredibly creative. For centuries. There is no question about that. The only question is whether British policy makers will decide to find creative answers to the question of how to create more entrepreneurs or how to make more employees more entrepreneurial. Last time they got serious about finding ways to overcome the limit to progress through thousands of small and large social and technological inventions, they gave us the industrial revolution. Who knows what extraordinary world lies on the other side of the myriad inventions that will help the West to overcome the limit of entrepreneurship?

GDP Grew 4.6% in 2nd Quarter (Politicians and Media, Committed to Bad News, Look the Other Way)

The final estimate is that the GDP grew by 4.6% in the 2nd Quarter of this year, according to today's report from the Department of Commerce.

Consumer spending on durable goods (things like cars and refrigerators) and business investment were up 14.1% and 9.7%. Consumers spending more on purchases that could be deferred demonstrates that they are feeling more confident about the economy, as does businesses spending more to invest in the future.

It's not just the best quarter since 2011. It matches the best quarter since before 2007.

But you won't hear much about it. Not on the news, not from politicians. It is in no one's interest to present positive news. A reporter on Bloomberg said, "There's no reason to look at GDP growth today." Other news outlets, apparently agreeing, simply failed to mention it in their top of the hour reports.

The Obama administration is still pushing for programs that would create more jobs and raise median income. To say that things are going great makes it harder to argue for those programs.

The Republicans move blithely from one irrelevant and bone-headed argument to the next, whether it's invading the Middle East or paying for two wars with a tax cut or screaming about how huge deficits during the Great Recession are going to blow up the economy or how Obamacare is going to create huge deficits and blow up the economy.They repeatedly show themselves completely tone deaf on policy and - sadly - in tune on politics, managing to win the attention of media and voters without ever actually being right about anything of substance.

Liberals think it's awful that the GDP is growing because corporate profits are going up and it is only the rich who are getting richer. So for them, the economy actually sucks and numbers to the contrary are misleading. Misery still exists and they'll focus on it. Liberals fail to see the humor in Woody Allen's quip, "I can't enjoy a meal as long as I know that someone, somewhere is starving."

Conservatives think it's awful that the GDP is growing because it suggests that Obama's and the Fed's policies might actually be sensible rather than disastrous. Today's most influential conservatives are ideologues who think that pragmatism is the worst kind of betrayal and wouldn't admit that government policies could have any positive impact even if the fastest growing economy of the last quarter century was communist.

The media think it's best to ignore mention that the GDP is growing robustly because it undercuts an incredibly lucrative narrative that brings up ratings. Whether they're trying to get ratings from liberals outraged at how only the 1% are benefiting from this recovery or from conservatives who are clinging tightly to their belief that the world is getting worse and has been since Adam and Eve's expulsion from the garden, and that any proof to the contrary is either fabricated or fleeting. Bad news is good news for news outlets. People stay tuned for news about hurricanes, not 70 degree weather.

It's an odd time. Never has technology and business innovation offered more potential and yet rarely have people been so gloomy about the future. If a huge swath of us get wiped out by Ebola, we'll look back chagrined at what petty things we whined about. If - as I think - we'll hit an inflection point that makes us more prosperous and privileged than any previous generation has dreamed about, then we'll look back chagrined at how incredibly pessimistic we were at the dawn of this change. In either case, the committed pessimism strikes me as absurd and increasingly takes a commitment to denial that hopefully fewer and fewer people will be able to muster.

Why They're Finally Legalizing Pot - Or How They're Preparing Us for When Robots Take Over

I had come to my favorite deli to dine with my octogenarian friend Bernard. He had his 20-something grandnephew Delbert with him. My initial discomfort with Delbert has melted as I realized he was a fount of odd conspiracy theories, which I have a weakness for collecting.

"Delbert," I exclaimed as I sat down. "It's been a long time. You've been keeping busy?"

"Dude," he exclaimed back. "You have no idea."

"It's certainly true," Bernard injected, "that I have no idea. This kid has been going on about programmable synapticons and the obsolescence of humanity."

"Programmable neurons and synapses, Bernie. There is no such thing as a synapticon."

"What are we talking about," I inquired.

"Robots! They are no longer on the other side of the globe. They are on the horizon. We can see them, dude, and they are going to make us obsolete."

"This sounds more like a 1970s sort of sci-fi than a 2010s reality," I countered. "People used to talk about robots but that is so passe."

"That's like a half century ago," Delbert pointed out, his math only slightly off. "That's like forever in robotics evolution. And that's the problem. They aren't just about to be smarter than us. They will be just picking up speed as they pass us."

"When will that be," I asked, expecting some vague answer from Delbert. I was surprised by his precise response.

"2042, dude. I'll be like your age."

"How do you get 2042?"

"This guy James Barrat has studied artificial intelligence and he says that the average of the experts' estimate of when we'll finally have a computer as smart as, say, a recent college grad is 2042. And of course then they'll be able to re-design themselves, intentionally evolve in ways that we can't. But everybody is working on this computer. It'll be like having smart college grads who don't get distracted by hunger or relationships or Facebook or bathroom breaks. These things will really be able to work 24/7. IBM, DARPA, Israel, Google ... everybody is racing to create this first because they'll make monster money from it."

"So these are real experts. Not sci-fi?"

"Dude, that's just it. It was sci-fi in 1865 when Jules Verne wrote about going to the moon. 100 years later, in 1965, it was actual science that NASA was just a few years away from making real. Now, you think robots smarter than us are sci-fi in the 1970s and again, about a century later, it will be actual science."

"Wow." It was an inane response, one that would probably take all of two lines of code to turn over to a robot. Still, it was all I could think to say. I suddenly felt like it would take a pull-string doll and not a robot to replace me.

"Which is why they're finally legalizing pot, dude."

"Wait. What?"

"Think about it. They subsidize drugs that make us productive, right? We have prescription drugs that help us to feel less anxious, help us to focus at work. We have drugs that help us to sleep at night so we're productive the next day at work. Those drugs aren't just legal. They're subsidized. They want us to have them. Because they need us to be productive for the economy to work. But drugs that just make you happy without forcing you to first be productive? They've been totally illegal dude. And now they're changing that."

"Sorry to be so slow, Delbert, but what's the connection?"

"The robots are going to do all the work. We won't need to. So we don't need to be productive anymore. And it'll make it easier for them to take over because if we're happily stoned, we won't care so much."

"So we won't have a role anymore?"

"Well, maybe they'll keep us to buy the stuff they make. Robots are just as happy to work. What do they know about recreation, right? Or going to the mall," he chuckled at the vision of robots with shopping baskets on their arms as they shopped for shoes or ripe pears. "So maybe our role will be consumers.You know," he shrugged, "to keep the whole cycle going."

"Or they'll keep us as pets," Bernard interjected caustically.

"Dude," Delbert turned excitedly. "Exactly. There's a guy whose only goal in life is to teach robots empathy so that when they take over they'll be kind to us and keep us as, like, pets or maybe servants. Because this guy - and he's an expert - he's convinced they're taking over in just a couple more decades."

"So what does a person do in this brave new future if he doesn't care for pot," I asked.

"I don't know, dude. Maybe you could play video games?"

---------------------
Oh, and lest you think that Delbert is making everything up, here's an intriguing video that my friend Damon sent me, suggesting that we will, indeed, be made obsolete about the time today's babies would enter the workforce. If indeed it takes that long.

Growing Up to Be a Professional Inventor

How could you not adore this bright eyed inventor?

Households, Government and Businesses Are In Position for a New Boom

The economy is in the best position it's been for all of this century.

Households have paid down debt and increased wealth, now positioned to comfortably begin spending again. That will show up as additional tax revenues for governments and additional sales for businesses.

The government has brought spending and taxes back within the normal range. This doesn't just mean a lower deficit. It also means that the government no longer has to drag the economy down through austerity measures that raise taxes and lower spending.

As households and governments return to business as normal, businesses will boom as well, which will feed back to the other two sectors.

The Government Has Recovered

The deficit has come down one trillion dollars in four years. This deficit reduction during  the recovery has taken 1% out of GDP growth during that time through higher taxes and lower spending, but that drag is likely to stop. Remarkably, we've gone from record deficit to normal within just five years.

In the graph to the left you can see two straight lines representing the average tax revenue as a percentage of GDP (the lower of the two lines) and the average federal spending as a percentage of GDP (the higher).

The line that raises above the band shows actual spending. The line below the band shows actual tax revenues. In 2009, they were both at their most extreme, taxes at 14.6% of GDP and spending at 24.4%.

Since then, austerity measures and the recovery have changed  this. At 17.6% of GDP, taxes this year are projected to run just above the average of 17.4%. At 20.4%, government spending will be just below the average of 20.5%. And reports so far this year suggest the deficit will be even lower than this projection.

Government spending will - at a minimum - now be a stabilizing force on the economy rather than a drag on expansion as it has been throughout this long recovery. Government austerity is one reason it took 6.5 years for the economy to create the jobs lost during the Great Recession. (The other, of course, being simply the massive number of jobs lost during this financial crisis, as can be seen in the graph below.)

Households Have Recovered

Last month the economy hit a milestone: total employment hit a new high, finally restoring all the jobs lost during the Great Recession. This is a big deal for so many reasons. Just as the government has finally brought taxes and spending to within normal bounds, this means that households are finally returning to something like normal as well.

For the first time since 2000, the economy created more than 200,000 jobs per month for four months in a row. These sorts of realities change how people feel about spending. Even people who have kept their jobs have been more cautious about spending or taking out loans when the economy was so bad. The improving labor market helps them to begin feeling more confident about spending. And households are, by some measures, in their best position to begin spending in a generation.

Last year household wealth rose by $10 trillion, finally restoring all the wealth lost during the Great Recession. The stock market is regularly hitting new highs. Home prices are up 20% in the last two years.  While assets have been appreciating, households have also been paying down debt. What households pay to service debt is the lowest it has been since the Fed began to track this in 1980, a generation ago. All of this suggests that households will begin to spend again and that is good news for everyone - from businesses to government to other households.

Businesses, Households, and Government Are Now Positioned to Boom

So imagine this combination.
Households feel emboldened by additional wealth and a healthier jobs market to spend again.
Government spending will begin to grow at normal rates again.
Businesses - facing increased spending from households and government - will begin to invest and expand.
The combination of household spending and business expansion will provide more tax revenues, allowing the government to spend more and to pay down more debt, putting more capital into financial markets.
The combination of household spending and government spending will mean more business for business, allowing them to hire more and pay out more to shareholders.
The combination of government spending and business expansion will provide more jobs and income to households.

For the first time this century, we will enjoy an economy in which all the pieces - government, households, and business - are moving towards full capacity without resorting to excessive debt.

It's been a long time.

And it could result in a boom that will be even more impressive than the ones we had in the 1980s and 1990s.

P.S. 10 June, I would add this graph of the ratio of unemployed workers per job opening from 538.

This shows that there are fewer workers competing for the same jobs, which is great news for job-seekers. That ratio is nearly back to pre-recession levels. Once it hits that level, I predict wages will again start to climb.

A Tempest in a Tea Party - the IRS Scandal

People have been fired. Mike Huckabee predicts that Obama won't complete his second term. At a minimum, Bloomberg Businessweek predicts, Obama's hope for gun legilsation, immigration reform, and a health overall are to be jettisoned. This IRS scandal is a big deal.

So what, exactly, is the big deal? The IRS targeted tea party like groups but not progressive groups. They were searching for folks who had formed groups around the notion of patriotism, tax relief, and anti-government sentiments. This much seems true and for that people have been fired. 

So then, what nefarious things did they do once they'd targeted these groups? They requested information. Specifically, they asked the following questions:

These questions were deemed "unnecessary." 

That's right. These groups had to answer questions they didn't have to. They weren't shut down. They weren't fined. Their members weren't subject to wire-tapping. Their leaders weren't imprisoned or targeted by drones. Nobody was water boarded. They were asked to provide information.

That's the big scandal. 

We live in time when we're about to hit a big inflection point. Going one way, we could enter a time of prosperity that past generations could not even imagine. Going another way, we could enter a time of unfolding disasters. And in the face of that, the government with the most influence of any group in the world is focusing on an issue that is - depending on the angle from which you observe it - either inane or irrelevant. 

We don't really have to worry about what future generations will think of us, though. With judgment about real vs. trivial issues this faulty, we're likely to cause our own extinction before those future generations can show up to judge us. That will shut them up.

The Simple, but Sweeping, Answer to the Question of How to Create More Jobs

We can continue to try repairing the old economy or we can create a new one.

Financial crises, stagnant wages, persistently high unemployment, protests, and growing government deficits coinciding with a loss of government jobs are all legitimate problems in their own right, but they are more likely symptoms of something deeper. We’re living into one of the four biggest economic transitions since the Dark Ages.

Since about 1300 CE. a pattern of social invention and revolution has created three economies:  an agricultural, an industrial, and an information economy. And that pattern is now repeating to create a fourth, entrepreneurial economy.

These changes we’re experiencing are different from normal business cycles. This is bigger.

The last shift in the West – beginning around 1900 - took us from an economy led by advances in capital to one led by advances in knowledge work, a transition from an industrial to an information economy.

Progress from about 1700 to 1900 came from dramatic increases in capital: steam engines, factories, stock and bond markets, and banks were invented or recreated and the communities that increased capital the most advanced the most.

Progress from about 1900 to the present followed from the rise of knowledge workers: inventions like the modern university and corporation, and radical advances in information technology helped to create an information economy in which companies making virtual products often became more valuable than those making “real stuff.” Communities that ignored the question of how to create more knowledge workers and make them more productive, and just focused instead on capital, were left behind. When the limit shifts so must the focus.

The emergence of each new economy has forced a revolution in the dominant institution. This is no small thing. The power of elites over the institution is dispersed outwards. People once used as tools by the institution begin to use the institution, instead, as a tool. “We are all priests!” Martin Luther declared, overturning the notion that religion was something to be defined by the pope. The first economy, from about 1300 to 1700, was catalyst to the Protestant Revolution. The second economy, from about 1700 to 1900, brought us democratic revolutions. The third economy, from about 1900 to 2000, democratized finance as knowledge workers’ pension funds and 401(k) funds came to define investment markets.

This new fourth economy will likely transform the corporation – today’s dominant institution - in similar ways. Most obviously, the role of the employee will become more like that of an entrepreneur.

The simple, but sweeping, answer to the question of how to create more jobs is that we need to become more entrepreneurial. The question of how we become more entrepreneurial will first be answered within the corporation. 

Depending on how one measures it, corporations make up between one third to two thirds of the 100 largest economies in the world, yet very few of them encourage entrepreneurship.

Developed countries are considered lands of opportunities where people can expect to make more than heads of state. (About 6 million Americans make more than Obama.) By contrast, corporate employees are about as likely to make more than the CEO as past citizens of Iraq, Libya, or 17^th century France were to earn more than Saddam, Kaddafi, or Louis XIV. Such restraints to opportunity and autonomy suggest huge gains could follow from democratizing corporations and creating more entrepreneurial opportunities for the employees within them.

Our media and attention is fixated on political – and sometimes financial – changes we could make to create jobs, but it may turn out that such changes are merely incidental to the scope of the changes needed within corporations.

Despite initial appearances, we’re living in a time of incredible opportunity. Shifting our focus to overcoming the limit of entrepreneurship will mean advances as dramatic – and at times as disorienting – as those of the last three economies. (And if you’re a student of history, you realize how very dramatic that is.) An entrepreneurial economy is ready to emerge. Millions of new jobs depend on today’s communities redefining the corporation as dramatically as past communities redefined church, state, and bank. The fourth economy is ready to emerge but it’s not something we’ll see as long as we stay focused on trying to repair the third economy.

Ron Davison has consulted to some of the world’s largest corporations and is author of The Fourth Economy: Inventing Western Civilization, available on amazon.com. 

Secretary of the Future

I wouldn't mind having this job:

This is from the mind of the late, great Kurt Vonnegut.

The Difficulty of Predicting History

Apparently it is as hard to predict history as it is to predict the future. History is a story we tell about the past to make sense of it to our own lives.

Westminster Abbey is a burial place for some of the greats of England, and some who are by now, completely inconsequential. I was struck by how arbitrary is the inclusion and exclusion of certain figures of history. As near as I can tell, Jethro Tull is not there - the man whose agricultural inventions helped fight hunger and increase wealth. Yet mere servants to royalty are included there - people whose only contribution to history was to please or befriend the most powerful person in England at the time. But most curiously, Westminster Abbey captures history in real time, revealing how little we understand how lives today will be made important or rendered trivial by subsequent events.

Part of this is a matter of popularity. It seems probable that Vint Cerf will be considered more important to history than, say, Mussolini, and Robert Beyster will be more important to business history than Larry Ellison or Jack Welch, but of course Cerf and Beyster are far less known than the others. Current popularity matters.

But the bigger problem may be the problem of knowing what immediate history will make things different tomorrow. We know that GM was laying off lots of people in the late 1990s but were unaware that Brin and Page were starting Google. Sometimes years later – sometimes decades later – we finally realize the importance of certain events. History is as hard to predict as the future in part because history depends on a prediction of the future.

History from the Future: The Burger Craze of 2014

It was hard to know exactly when futures markets had begun to drive commodities prices. Oil, obviously, was one place where speculations on financial markets drove the everyday price at the pump - causing prices to rise and dip like seagulls in a squall. And then the same thing began to happen to wheat, rice, beef, chicken .... And before long, the prices at restaurants and grocery stores began to move in tandem with these commodities prices, like prices at the gas pump. And then somebody got the really bright idea of pricing food like stocks and the real fun began.

The pushing and shoving in line at the fast food joints as the first indication that something profound had changed. Customers were bidding for burgers like traders on the floor of the stock market. Prices were bouncing up and down like the price of Yahoo stock. From the time someone got into line to the time they ordered, the combo meal they wanted might have gone up or down a dollar. But that was just at first. Soon, this market, like so many before it, began to be defined by derivatives and speculation.

In 2014, there was the great quarter pounder craze. As the pace of social change quickened, demand for comfort food surged. Coupled with a bad wheat harvest that year, savvy speculators realized that beef prices would soon be going up. A day trader who'd become rich speculating on gold around the time of the Great Recession, Chaz Mingus, tried to corner the market on quarter pounders and the folks at Goldman Sacs began to bid against him. It was surprising that quarter pound burgers rose to $10. What was more surprising was that this actually created a resurgence of interest in quarter pounders. Worried that this American classic might soon be priced out of reach, Americans lined up to buy it before prices went higher. This, of course, made prices go even higher. Commentators were soon explaining that it only made sense that quarter pounders would cost $120. Hadn't Americans been paying exorbitant prices for fine dining for decades? And what was more classic than the burger? And then prices hit $500 and as had happened decades before at Ford and GM, the new credit and financing divisions of Burger King and McDonald's began to make more profit than the actual restaurants. Stories abounded of people who were paying the equivalent of monthly mortgages for their quarter pounder habit.

The derivatives market began to trade in the concept of the hamburger. How could you price something so iconic, people began to ask. And then the prices got really out of hand.

Curiously, the market bust about a year later when Wendy's introduced the fifth-pounder. Prices plummeted and millions of Americans were left holding the bag on $2,000 hamburgers.

Excerpt from a Future History Book, or "whatever happened to shopping?"

The popularity of shopping depended on the ancient urge for the modern, that old wish for something new.

No one had considered the possibility that this urge for the new might actually be turned on shopping itself, or that fashion might go out of fashion.

Yet people gradually decided that they had too much stuff and clutter and turned away from the malls. Consumption never again drove the economy like it had throughout the 20th century.

For generations, economic goods had implied economic goods to have. Early in the 21st century, communities realized that people were ready to focus more on economic goods to do. The stuff of life was replaced by experience, and having became less important than doing. As communities adjusted, it was not just philosophers who saw this as positive. Even economists eventually realized that this was progress.

A New Kind of Manager

I suspect that in the future, work teams will increasingly be coordinating their activities through the Internet and be less reliant on companies. And this will set the stage for a new kind of manager.

Decades ago, if you had told a new recruit that people would pay for the (admittedly kinder and gentler) experience of boot camp, would HIRE someone to push them beyond what they'd do on their own, they would have laughed at you. And yet (probably) millions of people hire personal trainers.

One of the biggest differences between the personal trainer who pushes you and the drill instructor who pushes you is whether the experience is voluntary. The person who is drafted - or even volunteers - has no choice about the experience, however "good" it may be for him. And in this I think that we potentially have a new model of management.

Imagine a future where managers are brought in by teams who realize that they need someone to coordinate their efforts, even to push them at times, in order to realize their potential. Such a model is not so very odd, really. Personal coaches are very common, but personal coaches work with individuals.

Management is a really crucial skill. More so as our world and projects become more complex. It's probably not enough to leave tasks to individual initiative, even if we have more natural (e.g., market) consequences and inducements for such tasks. Able managers will probably always make a good living.

But one of the big problems with current institutions is their reliance on extrinsic motivation - the use of carrot and stick to make things happen. Employees, like the boot camp recruit, have little or no choice about what to do or any ability to define goals or the tasks they want to try. These are assigned. This is good enough in a world where products are scarce and the definition of economic goods is generally limited to goods to have.

Philosophers talk about three kinds of goods: goods to have, goods to do, and goods to be, each higher and more meaningful than the last. Economic progress will shift soon from an emphasis on economic goods to have to economic goods to do. Work is an essential part of this. (We know that Darwin, Jonas Salk, Galileo, Michelangelo, and Andrew Carnegie were historic figures. We tend to forget that they defined themselves - and our civilization - by their work.) And as people come to work more often as a way to (in part) create goods to have and (in part) create for themselves goods to do, a management that is based on intrinsic rather than extrinsic motivation will be essential. The drill instructor you have no choice but to obey is replaced by the personal coach you hire to help you to realize your potential.

Of course the paradox is that as we focus more on intrinsic motivation and goods to do, we'll actually get more and better goods to have than in the old system. People who are intrinsically motivated are typically more creative, more productive, and do higher quality work. Call me an optimist, but one reason that I'm convinced that such a model will eventually emerge is because it gets better results.

Management as a service rather than form of control. Think about it.

What if Free Markets Really Were Free?

“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”
- Warren Bennis

Increasingly, the digitized world is making products free: movies, music, articles, books ... even the software that lets "customers" get these products for free.

Perhaps it is no coincidence that as the portion of free goods we consume rises so does unemployment.

Maybe in the future there will be good news and bad news. The good news will be that everything is free. The bad news is that no one will have jobs.

In such a world, conspicuous consumption will take on a new urgency. Economically, there will be little else to distinguish us.

Processed News in its Purest Form

On a flight home the other day, I put down my book (Michael Connely's Scarecrow) about an investigative reporter losing his job to watch a movie (Russell Crowe and Ben Affleck in State of Play) about an investigative reporter being demoted before coming home to read an article about the death of investigative reporting(The Story Behind the Story by Mark Bowden in this month's Atlantic).

Where the individual was once left to form an opinion about well researched stories, the news outlets have seemed to leap past all that nuance and boring litany of facts and endless prose. Instead, the modern media just provide you with an opinion with minimal time spent investigating or actually reporting.

Well, I've lived on the coast long enough to know that it's easier to ride waves than fight them. So, if investigative journalism is dead, maybe it's time to just go with this trend and offer media 3.0: all opinion, no news.

The point would be to simply provide the reader with their reaction to the news events, without hassling them with all - or any, really - of the facts. Like processed food that skips the actual food to simply provide you with fats and sugars, this news would skip directly to opinions. It might work like this.

Obama's Health Care Plan: you're outraged. (And it's true, really. Whether you can't believe what he is proposing or the opposition he's facing, you're outraged.)

Asian typhoons and tsunami earthquakes: you are so saddened by this.

Iran's plutonium enrichment program: outraged.

Toyota's recall of 3.8 million cars: shocked!

Potential reversal of Jon and Kate's divorce: outraged

.

These would not be headlines that are followed by stories. These would be the stories.

You get the idea. The one real weakness, of course, is that people may begin to realize that they have a fifty percent chance of not needing the service if they simply choose to be outraged at all the news. But for those readers who want to spend 30 seconds finding out just what ought to outrage them today, it would be an invaluable service.

This might just be the future of journalism. [Oh, and for the record? You should be outraged.]

Sorry Sir, the Status Quo is No Longer on Our Menu

"What is the soup du jour?"
"That's the soup of the day."
"Oh, that sounds good. I'll have that."

On the plane today, I was talking with a delightful doctor who, in reference to health care, said, "The status quo is not an option."

This seems to me the argument, inevitably, against choosing not to do anything. The status quo is never an option for the future. Things will change. The only question is in which direction we want them to change.

For instance, we won't double our population in cities and keep the same roads and reliance on cars, we won't be able to use the same carbon-emitting technology, etc., etc. If we try, we'll feel grief. But if we get the changes right, we'll emerge with something much better.

I get excited about the future in no small part because I think that this is not generally believed. My own sense is that the future - and not just of health care - will be either much worse or much better than people believe. If we try to stumble through with some patched up version of the status quo - it'll be worse. If we pull off the right kinds of inventions - technological as well as (and even more importantly) social - our grandchildren could be living in an amazing time.

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And for those of you wanting a great piece of commentary about the status quo, look at Jonathan Alter's piece in Newsweek.