Why the Richest States Are Voting for Biden and the Poorest States Are Voting for Trump: A Study in Economic Policy Cause and Effect

Ranked by personal per capita income, 8 of the 10 highest income states will probably go for Biden and 7 or 8 of the 10 lowest income states will probably go for Trump. 

Why are the richest states so very Democratic? It is partly cause and partly effect.

First the cause. Intellectual capital has surpassed industrial capital as the source of wealth and income in this information economy. The communities around the various University of California campuses, for instance, have become host to a lot of exciting companies that have spun off from the staff, students and studies on those campuses. Democratic states invest more in the science and education that create jobs and wealth.

The only two states in the top ten by personal per capita income that Trump will win are Wyoming and Alaska. These are land-based economies, rich with oil, mines, livestock, grains, and forests. And of course, these economies are not the kind that create jobs; Wyoming's total population is 580,000 and Alaska's only slightly more at 730,000.

The economies in states like Connecticut and Massachusetts depend on a heavy public investment in schools and research, classic Democratic policy prescriptions. 42% of Massachusetts has a BA; only 26% of Wyoming does. By contrast, Wyoming and Alaska's economies depend on continued subsidies to oil and gas and lax regulation on greenhouse gases, classic Republican policy prescriptions.

Every year, more people can profit from technology advances in computing and genetics or new materials, the sorts of research and industries that spin off from universities. An oil well is zero-sum, though. If I own it, you don't. Meanwhile, knowledge builds on knowledge. You're going to hear more about AI and genetics in the next decade, the confluence of two research areas that promise products that might analyze patterns in your genetic code that make you more susceptible to Alzheimer's, for instance. This does not come at the expense of genetics or computing research but instead makes both more valuable. Oil wells and mines are zero sum but research and development literally stimulate more research and development; knowledge creates more knowledge.

Folks in places like Wyoming see the world as zero-sum because their economy actually is. The state can't even sustain a population the size of the cities in LA county that you've never heard of. Folks in places like Cambridge, Massachusetts tend to be more win-win because their economies actually lend themselves to that. If you give me an acre and I give you an acre, we leave the transaction unchanged. If you give me an idea and I give you an idea, we may both leave better off. You better understanding my AI technology and me better understanding your genetic analysis might enable us to collaborate to create a new industry with trillions in wealth and millions of jobs.

Zero-sum communities are also more susceptible to conspiracy theories that point them towards threats, that turn complex phenomenon into simple us vs. them narratives, a stark contrast to the pragmatic relationship knowledge workers in the information economy have to reality and theories about it.

So that's the cause. Wealth, income and jobs in the modern economy are increasingly the product of intellectual capital and the communities like New York and California that do the most to invest in it are the ones that will create the most jobs and highest incomes.

What is the effect? Well, richer people are less tolerant of low-quality of life. A poor person in West Virginia who lives near a mine doesn't have the resources to take on a business that endangers their child's health. Meanwhile, some mother in Santa Clara, CA - where per capita income is $106,000 a year - is not about to put up with risks to her child's health ... and she and her neighbors have the resources to fight a business that would put their children's health at risk. It is true that blue states have more regulations. Why? They are democracies and the residents of those states demand more regulations. There is little sense in making twice the national average income and then having to listen to the loud noises of a jack hammer at 4 AM or breathe noxious fumes from a factory.

Weirdly, though, the US rewards states unable to create jobs with more political power. The 21 least populous states have 42 senators and less population than California with its 2 senators. What does that mean in practical terms? If your policies can't create jobs to grow your population, your political policies have more influence. This may be the biggest design flaw in our current political system.

This design flaw is slowing the creation of jobs and wealth and improvements to quality of life. It is a weird thing to give more influence to less advanced communities, as if we were bringing in economic advisers from Afghanistan to decide what to do with Manhattan.

It is a weird election. The 30 states in between the top and bottom 10 are debating whether to follow the lead of the country's richest states - states that include Silicon Valley, Wall Street and the nation's top universities - or rural Mississippi, West Virginia, Kentucky, and Alabama. You might think that such a debate would have an obvious outcome. It does not. And that may be the weirdest thing about this very weird year.

The Future of Work Lies at the Intersection of Flow, Income, Meaning and the Popularization of Entrepreneurship

Some thoughts on labor on this its day.

One of my heroes, Deming, used to argue that the worker deserved to take pride in her work. To feel proud of what you do you have to feel like it matters, it is valued, and that it represents your best.

One chief difference between work and a hobby is pay. One reason I like markets is that it is a way for the community to signal what it values. You may want to write another folk song but what the folks in your neighborhood will actually pay for is someone who can solve the problem of getting them food at lunchtime or to devise a better solution for running rainwater off of - or collecting solar energy onto - their roof. Pay is the community conspiring to vote on what would be valuable to them and not just to you. That makes us all a little more relevant, forcing us outside of ourselves.

One of my other heroes, Csikszentmihalyi, studied the psychology of engagement, what he called flow. It turns out that we're happiest when we're doing something that requires our full attention. When we're in flow we face clear goals, there is a balance between our skills and the challenge we face, we are free from distractions, we are animated by clear - rather than conflicted - priorities, there is a perfect overlap between what we're thinking about, wishing for, and doing, we are not worried about failure (one's mind has no room to simulate that outcome, so fully engaged is it in the task at hand), we lose track of time, the activity becomes worth doing for its own sake, and the self becomes more developed as the result of this state of flow, this absorption in the task.

Flow is a fabulous thing but for many it is easier to find in a video game than in work. A video game provides little meaning, though.

A task is meaningful if it serves a purpose bigger than that task. One guy might be cutting stone and the guy beside him - engaged in the exact same task - may be building a cathedral, be glorifying God. Sometimes meaning is simply a matter of framing your work as something bigger than the task at hand. More often it is being animated by what a difference your work makes in the lives of others, even in the lives of future generations.

As we become more affluent, we may rather paradoxically define ourselves even more by our work. Identity is often bound up in our job and in answer to the question, "What do you do?" we rarely say, "Stay current on politics," or "Read all of Michael Connelly's new novels." We tell folks what we do for a living. But as work becomes less essential to covering the necessary costs of life, we may expect that we not just get paid in money but in flow and meaning as well.

Faulkner wrote, “You can’t drink eight hours a day. Or make love. Work’s about the only thing a fellow has to do to keep from being bored” We have a number of examples of folks in the modern world who have made more money than they can spend and yet a great number of them continue to work. I suspect that we peons will follow their example and increasingly demand of our work these elements of pay, flow and meaning even as incomes rise.

Video game designers, TV producers, and designers of social media know how to capture and hold attention. What I suspect will define much of the modern corporation is that it will distinguish itself not by the products it designs - its employees will do that - but by its design of work so that employee efforts create income, flow and meaning. The founder of companies in the early 1900s became wildly successful by designing products like safety razors and automobiles. I suspect that we'll look back at the founder of successful companies in the early 2000s as successfully designing work to attract the best and brightest.

Keep in mind that Facebook, Twitter and Instagram aren't producers of any content in the same way that Newsweek, CBS or the New York Times are. They are platforms. I think that corporations in general will take on a similar relationship with employees in the future, focusing on creating great work rather than great products or services, positioning themselves as a platform rather than maker of products. This is part of what I mean by the term, "the popularization of entrepreneurship." Employees will create the new products, services and businesses that generate new jobs and wealth. The corporation will create the systems and roles that facilitate those outcomes.

Work matters. Profoundly. It has the potential to define us as much as anything else in life. Think of the people who stand out in history, people as different as Picasso, da Vinci, Marie Curie, Maria Montessori, Beethoven, Bjork, and Kurt Vonnegut. We know them through their work. Work is key to how we become who we are. And just like us, our labor continues to evolve. I suspect it will matter even more in the future than it does now.

Happy Labor Day!

The Middle Class is Shrinking - And That's a Good Thing

The middle-class shrunk between 1967 and 2016. And that's a good thing.

The middle-class, lower middle-class and poor made up 94% of the population in 1967. (Yes. These numbers are adjusted for inflation.) By 2016, they were only 65% of the population.

The upper middle-class and rich rose from only 6% of the population to 35%.

Nearly a third of the population (well, 29%) moved from middle-class and below to upper middle-class and above.

Class matters to class. Go to class if you want to move up in the income ladder. Knowledge workers - folks with a BA - have gained the most from advances in information technology in the last generation.

Income gains have slowed in the last generation. Between 1967 and 1981, incomes rose 27%; between 2002 and 2016, incomes rose only 8%. My theory is that by the end of the last century we had effectively broke the code on how to raise the productivity and incomes with the popularization of knowledge work but now at the dawn of this new economy we've yet to figure out how to popularize entrepreneurship to continue that trajectory.

All this suggests some simple policy recommendations. Invest even more in creating knowledge workers and entrepreneurs (investment that includes massive increases in R&D spending as well as policies like proliferating the number of incubators in communities as we did the number of libraries, schools and universities in past generations) and watch the percentage of rich continue to rise. Tax the rich and upper middle-class to both fund all those investments and to subsidize the poor so that they enjoy some of the fruits of this prosperity. So, make more people rich and the poor less poor. That seems like progress to me.

Stephen Rose's study Squeezing the Middle Class: Income trajectories from 1967 to 2016 is here.

Our Policy Penalizes Women for Creating the Next Generation

Given how much we tax women to give birth to and raise the next generation, women who have graduate or professional degrees are twice as likely to be childless as women who are high school dropouts. Women with a Bachelor's degree are 30% more likely to be childless than a woman with only a high school diploma. We penalize women for creating the next generation and the penalty comes in the form of lost income.

(You can find the data for these calculations here:
https://www.census.gov/…/de…/fertility/women-fertility.html… )

We could change these results with a change in policy.

Make the rash assumption that you want someone to give birth to and raise the next generation. Further, rashly assume that you'd like those people to reflect the current workforce - people from the 1st to 99th percentile of income. That is, you don't want only the poor or very rich to be able to afford to take the time and afford the income cut that comes with having babies.

A wise society might not just minimize the cost for having a baby but actually provide a bonus to women who choose to become mothers.

As it is, women's wages first fall when they have a baby and then begin to rise again. But, "While this recovery is encouraging, it is not large enough to return women to their pre-birth earnings path." That is, women not only lose income at the time a baby is born but never quite get back to the same income trajectory they were on. An economist might tell you that the more something costs, the less of it people will buy. As crude as it sounds, the data suggests that this is even true for babies.

https://www.census.gov/…/cost-of-motherhood-on-womens-emplo…

A Doubling of the Rich This Century (And We're Only 17% of the Way In)

I find it helpful to tease through data just to calibrate perception. You may as well, so I'm sharing something I was teasing through this week.

Between 2000 and 2017, the number of Americans reporting income to social security (so this only includes wages), making more than 

• $100k more than tripled (up 236%), going from about 3% of the wage earners to nearly 10%
• $1 million doubled
• $10 million doubled

In 2017, 147,754 wage earners made more than a million. Studies suggest that there is a lot of turnover in this group, though, more people with one-off transactions (selling a business, for instance) than Manny Machado type contracts for that much money steadily paid over years.

What does this mean for a place like San Diego? Assuming San Diego's portion is the same as the average for the country (and I think that given San Diego's median household income is 24% higher than the national average, that's pretty conservative), San Diego city's population would have about

70,000 individuals who make more than $100k,

644 who make more than a million, and

16 who make more than ten million.

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The social security data from which this comes is in current dollars, so does not adjust for inflation. That said, I don't think that people who reach one million in income in 2015 say, "Yeah but that is actually just $997,000 in 2014 dollars." 

Income Inequality and Income Growth - Fairness and Progress

There are two dimensions to improving lives. The first has to do with income transfer from rich to poor, the second with raising real median wages. Those initiatives are not at odds with each other but they are separate.

There is so much talk about income inequality and stagnating median income in ways that suggest the speaker thinks they are the same thing. They are not.

Alleviating Poverty
Most people agree that the rich should help the poor. There can be arguments about who is rich, who is poor and how much help they should provide. Those are important arguments.

For instance, I believe it's absurd for someone in the top 49th percentile to help someone who is in the bottom 49th percentile. Someone making $60k shouldn't have to give $500 to someone making $55k. There has to be a middle ground of 30%, 50% or even 80% of people who are neither expected to help others or expect to be helped. (At least formally through income transfer in the form of taxation and welfare. Obviously everyone helps and needs help just to get through the day.)

Should only people making $200k help only those making less than $10k? Or should even households making $100k help households making less than $35k? The first choice would leave about 87% in the middle class who neither got nor gave help. Do you make more than $10k a year? Don't expect any help. Do you make less than $200k? Don't worry about being taxed to help the poor. The second (tax above $100k and subsidize below $35k) would leave about 43% in the middle class who neither got nor gave help.

In the last 100 years, the top marginal tax rate has ranged from a low of 28% to a high of 94%. Even within the same country, the consensus about what constitutes a fair rate of taxation varies over time. To illustrate how unsettling this change is, Starbucks founder Howard Schultz came out this week to say that he was running for president. One reason? He hate this absurd talk of a 90% marginal tax rate. Asked who is favorite Democratic president was, he said FDR. Under FDR, marginal tax rate was 94%.)

[You can find data on median income and what percentage of Americans make more or less than certain amounts here.]

You can argue about the cutoff point for who pays additional tax for the poor and who is poor enough to benefit from that tax. Ultimately, though, voters will decide what is fair. There is no magic formula for that.

By definition, though, you can never raise the average wage through income transfer. In theory you can raise the median wage through income redistribution but that strikes me as funky; it essentially means that you would tax enough people in the top 49th percentile at high enough rates to lift the income of everyone in the 50th percentile on down.

To define someone making the median income as poor is odd. It's like defining a 5'10" man as short. Income transfer is compassionate, practical and yet does nothing to raise median income. For that you need a completely different set of policies.


Raising Median Income
The usual suspects to raise median income? Investments in infrastructure and education, research and development, childcare and healthcare. These all help to raise incomes. These are essential. We're not doing enough of them or even doing them enough. That said, the biggest boost to an economy is moving into a new one.

In the century after the US was founded, median wages rose as we created an industrial economy that gradually supplanted the agricultural economy. Last century, median wages rose as we created an information economy and workers moved from factories into cubicles. This century, median wages will rise as we create an entrepreneurial economy. The median wage in Santa Clara County - home to companies like Google, Intel, HP, and Apple - is $107k, nearly double the $58k for the US. This will become a norm as more regions adopt and adapt the entrepreneurial culture that defines Silicon Valley. And there is so much more we can do to popularize entrepreneurship. Redefining work to become more entrepreneurial will do as much to raise productivity and wages as any previous change.

The question of how to alleviate poverty through income transfer is an important one and needs to be defined in a way that voters think is fair. The question of how we move into a new economy to create more for everyone is even more important. How a community answers the first one defines how they pursue fairness. How a community answers the second one defines how they will pursue progress.

How Trump Won (yes won) the Shutdown and What We Can Conclude About Immigration, Income and Crime

The general consensus is that Trump lost the government shutdown. I think he won it. Before I explain why, let's look at some data.

There is nothing like data to undermine certainty.

Donald Trump and Ann Coulter believe that more immigrants means more crime and higher unemployment and / or lower wages. Let's take a look.

First, let's look at a smattering of cities with a population between 200,000 and 300,000. 

Median household income varies greatly, from about $34k a year in Buffalo, NY to $96k in Irvine, CA. Irvine's population is about 40% foreign-born, 10X Buffalo's 4%. Irvine's income is nearly 3X as high.

The correlation between these two variables - income and immigration -  is not perfect but is positive through most of the cities. Immigration and incomes rise and fall together.

What about violent crime? Surely it will rise as the percentage of immigrants goes up, no?

Well, in the above table we can again look at the two cities with the highest and lowest percentage of immigrants to see how crime and immigration are correlated. In Buffalo, violent crime is 179% higher than the national average. That is nearly 3X higher. By contrast, in Irvine violent crime is 86% lower than the national average. (It could only be 100% lower for the simple reason that once violent crime drops to zero it cannot go any lower. 86% lower than the national average is kind of amazing.) We can, again, look at a graph to see a line that is the best fit through all those points.

It is obvious that factors other than immigration change crime rates but as the percentage of immigrants in a community rises, crime falls. 

What about the ten biggest cities in America, you ask. Immigration might be good for mid-size cities but what about cities of millions? (And as it turns out, only the country's ten biggest cities have populations of more than a million.) Well, I have a table for that as well.

Of America's ten biggest cities, Philadelphia has the lowest income and San Jose has the highest. And as it turns out, Philadelphia also has the lowest percentage of immigrants and San Jose has the highest. Immigrants make up only 13% of Philadelphia's population and 39% of San Jose's. Median household income in San Jose is nearly $100k and in Philadelphia is just over $40k. San Jose has 3X the immigrants and double the income.

Above is the graph plotting the relationship between these two variables for the cities over a million. 

Finally, we take a look at the relationship between the percentage of foreign born and violent crime rate in America's biggest cities. Chicago is the most violent of America's biggest cities and 21% of its population was born outside the US. San Jose is the least violent (its violent crime runs 6% lower than the national average) and has 39% immigrants.  The graph looks like this.

Now there are a few arguments you could make when faced with this data. One, you could say that immigrants move into more affluent or peaceful cities but don't help to create affluence or safety. Perhaps the best cities would be even better if not for the percentage of immigrants who move there. The data moves together but immigration doesn't cause higher incomes or lower crime, you say. Perhaps. The fact that the median home price in San Jose is over one million dollars and in Philadelphia is only $158k suggests that it is harder - not easier - to move into these safer, more prosperous areas. 

Or you could argue that immigration has a fairly weak correlation to income and crime, even if it is in the right direction for pro-immigration arguments. The R-squared measure is a simple measure of how well a line fits through the data; at best (median income and foreign-born % in cities of ~250,000) these move together about 40% and at worst (the relationship between violent crime and immigration in America's ten biggest cities) about 24%. So you might say, "Well sure, it seems positive but obviously other factors are a bigger determinant than immigration." And you are right. Education, infrastructure, research and development investments, culture, and social connections are all factors that matter. Immigration is just one dimension of what makes a city great. But the data nonetheless suggest that it IS one dimension of what makes a city great.

Those are valid - but fairly weak - arguments that you could make to discount the relationship between immigration and incomes or crime.

What is not valid to conclude from this data? Higher rates of immigration lower household income or raises crime. That simply does not fit the data. Given the data you could (sort of) challenge the claim that immigration makes a city better but you could not argue that it makes cities worse.

What does this mean? It means that Congress should ignore Trump's demands that they take immigration more seriously. Why? Because immigration is - at the least - a non-issue and - at most - is actually a huge positive that we should encourage rather than discourage. And in spite of that, Trump has forced House and Senate members to treat immigration as if it is an important issue to address. (They have three weeks to "resolve" the issue before another shutdown could hit.) It simply is not. And this is an argument that I've made recently here. Trump has won the shutdown because he has forced Congress to take a non-issue seriously. He has won because he has managed to change the focus of DC onto what he imagines is real, like getting your parents to lose sleep in order to fight the monster under your bed. It is such a waste of leadership potential to solve imaginary problems rather than real ones. (And more generally, a waste of leadership potential to fix old problems rather than create something new. Every successful company puts more money into new product development than it does product repair.)

In the minds of Ann Coulter and Donald Trump, you could predict unemployment rates based on immigration rates. Immigrants steal jobs, they tell us. So, if one city of two million had no immigrants its unemployment rate would be zero and if another city of two million had a million immigrants, its unemployment rate would be 50%. And of course this is an inane way to think about an urban economy, almost as if you thought that brown bodies and white bodies were affected differently by gravity. When a person buys gas or groceries, the market hasn't a clue whether they were born within a block of that place or half a world away. 

There are any number of issues that congress should consider if they are intent on raising income, lowering crime and making life better. Immigration is not one of them. If anything, the data suggests that Congress should do what it can to increase immigration, not decrease it.

We're suffering from the worst recorded case ever of an old man talking back to his TV. Terrifyingly, making his narcissism seem justified rather than delusional, his TV then talks back to him. Trump is on a closed-circuit loop with Fox news. Facts have little influence on his thinking. He gets his talking points from Fox and then they report on what he has talked about. Like Hendrix's guitar, the feedback just increases the volume and the distortion as Trump talks to FOX (Frightened Old Xenophobes) and FOX talks back to him and Trump's story escalates from a campaign to a presidency to a Monty-Pythonesque tragedy.

My two cents? Congress should ignore his insistence that they treat immigration as a real problem and instead either insist on studies as prelude to policy or even celebrate immigration as a positive. It's time to de-escalate the feedback with facts before we are all made as crazy as Trump or waste anymore time chasing his hallucinations.

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Quick note: this data is for foreign born. It makes no distinction between legal and illegal immigration; the two move together.
https://cis.org/Report/Connection-Between-Legal-and-Illegal-Immigration

George Carlin's Driving Test Applied to Income and Politics

"Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?" - George Carlin

What he might have said about household income.

"Have you ever noticed that anybody making less than you is lazy and anyone making more than you is lucky?"

After an interesting exchange with a stranger about household income it occurred to me that this person judged people making more or less than her. She seemed really resentful of people who made more AND less than her. The ones making less were at home slacking off and pumping out babies. 

It was curious that she felt that people making less than her could have easily applied themselves - just by working hard - and increased their income but she apparently didn't think that if only she would work harder that she, too, could double her income.

Here is the thing about income distribution: 20% of your population will always be in the bottom 20% and 20% will always be in the top 20%.

This stranger said she made about $40,000. That means that she makes more than 40% of American households. Households that make under $20,000 are in the bottom 20% and households that make over $100,000 are in the top 20%. When you are talking to a random American there is a 50% chance that their household makes less than $50,000. You should be no more shocked or judgmental about discovering the person you talking with makes less than $50,000 than you are that a coin you flipped was tails. 

Or you could make it all mean something about a person's work ethic and morality.

2016 Distribution of Household Income

The aha I got from the exchange with this woman making about $40,000 is that we do have a tendency to believe that if only the people making $20,000 were to work as hard as we have, they too would make $40,000. And if only the people making $80,000 had fewer lucky breaks, they would be making no more than we are. In this worldview, incomes of the people making less than us would rise if only they worked harder and incomes of the people making more than us are so high only because they are lucky. 

History suggests that hard work doesn't change incomes as much as progress.

In 1900, people worked harder than us. The average work week was 60 hours, not the 37.5 it is today. Yet people in 1900 made an average salary of about $9,000 ($450, actually, but adjusted for inflation of things like groceries and housing), less than one-sixth of what they do today. Not only did they make less but their money could buy less. No one in 1900 was buying an airplane or movie ticket.

At any given point in history there is a distribution of income and half of the households will find themselves in the bottom half of that distribution. Maybe at some point in the future the people in the bottom 10 to 30% will be perfectly comfortable and able to afford housing and food and healthcare but that time isn't now. We can act like those people are in those bottom percentiles because they work only half as hard as people in the 40th or 50th percentiles and are meeting their just reward. Or we can acknowledge that incomes vary and some simply aren't enough.