The Truth About Addiction - Another Reminder that Context is Everything

Everything that follows is a quote from Johann Hari writing about research by Bruce Alexander, a professor of psychology at Simon Fraser University in Vancouver, BC.  I don't feel the need to elaborate.

Get a rat and put it in a cage and give it two water bottles. One is just water, and one is water laced with either heroin or cocaine. If you do that, the rat will almost always prefer the drugged water and almost always kill itself very quickly, right, within a couple of weeks. So there you go. It’s our theory of addiction.Bruce comes along in the ‘70s and said, “Well, hang on a minute. We’re putting the rat in an empty cage. It’s got nothing to do. Let’s try this a little bit differently.” So Bruce built Rat Park, and Rat Park is like heaven for rats. Everything your rat about town could want, it’s got in Rat Park. It’s got lovely food. It’s got sex. It’s got loads of other rats to be friends with. It’s got loads of colored balls. Everything your rat could want. And they’ve got both the water bottles. They’ve got the drugged water and the normal water. But here’s the fascinating thing. In Rat Park, they don’t like the drugged water. They hardly use any of it. None of them ever overdose. None of them ever use in a way that looks like compulsion or addiction. There’s a really interesting human example I’ll tell you about in a minute, but what Bruce says is that shows that both the right-wing and left-wing theories of addiction are wrong. So the right-wing theory is it’s a moral failing, you’re a hedonist, you party too hard. The left-wing theory is it takes you over, your brain is hijacked. Bruce says it’s not your morality, it’s not your brain; it’s your cage. Addiction is largely an adaptation to your environment.[…]We’ve created a society where significant numbers of our fellow citizens cannot bear to be present in their lives without being drugged, right? We’ve created a hyperconsumerist, hyperindividualist, isolated world that is, for a lot of people, much more like that first cage than it is like the bonded, connected cages that we need. The opposite of addiction is not sobriety. The opposite of addiction is connection. And our whole society, the engine of our society, is geared towards making us connect with things. If you are not a good consumer capitalist citizen, if you’re spending your time bonding with the people around you and not buying stuff—in fact, we are trained from a very young age to focus our hopes and our dreams and our ambitions on things we can buy and consume. And drug addiction is really a subset of that.

—	Johann Hari, Does Capitalism Drive Drug Addiction? (via beemill)

The Camry-Effect (or why inflation is actually even lower than its already low reported rate)

Inflation is under-reported because products are evolving faster than prices are rising. This should color the Fed's decision about raising rates this week.

There is no good way to adjust this year's incomes to account for the fact that you can buy things that didn't exist last year. Before 2000, drivers in the US couldn't buy a hybrid car, in-car navigation, or an iPod (or iPhone for that matter) to be used for playing favorite tunes while commuting.

How do you capture inflation or deflation on products that didn't previously exist? Imagine an inflation report in the year 2002: "The price of a loaf of bread went up 2% this year. The price of a camera phone either soared or plummeted, we're not sure which. The argument for its price soaring is that last year it cost nothing and now it costs something. The argument for its price plummeting is that last year you couldn't buy one for any amount of money and this year you can afford one for some amount of money. Our inflation-calculators aren't sure where to go on this one."

The rate of new product introduction even muddies the true price of old products. Cars, for instance, continue to accumulate new and better features.

Let me illustrate this with a Camry, one of the most popular cars sold in the US.

You can buy a 2015 Camry LE (their basic model) for $22,970. At the start of the century, you could buy that Camry LE for only $20,388. If you were to calculate inflation assuming that the 2000 LE and 2015 LE were the same product, you would say that prices were rising 0.8% - less than one percent - a year. That is a low-rate of inflation but even that estimate may be too high.

As a product, the 2015 LE is actually more like the 2000 XLE - Toyota's top of the line Camry. The 2000 XLE sold for $24,068. If that is the comparison, prices have actually been dropping at about 0.3% a year, not gradually inching upwards.

How does the 2015 LE compare to the 2000 XLE? Is the old fancy the new plain?

The 2015 LE engine gets better mileage and has more horse power than the 2000 XLE. The mpg has gone up. In 2000, the XLE got 30 mpg highway and in 2015, the LE gets 35 mpg, an uptick of 17%. It is not just more efficient. It is more powerful. The 2015 LE's horsepower is 30% higher than the 2000 LE. At its core - its engine performance - this year's base model is better than 2000's luxury model.

What about features?

The 2000 XLE has two features that you'd have to pay extra for on the 2015 LE: automatic climate control and a power moonroof.

By contrast, the 2015 LE includes eleven features that weren't even available on the 2000 XLE: MP3 compatibility, steering wheel mounted audio controls, delay-off headlights, outside temp display, low tire pressure warning, electronic stability, traction control, brake assist, dual-front side airbags, overhead airbag, and a knee airbag. What was once not even an option on the luxury car is now standard equipment.

If I could bring the 2015 LE back in time to sell alongside the 2000 XLE,  I could actually sell it for more. Today's standard car is more luxurious than 2000's luxury car. But let's be conservative and say that the XLE;s moonroof is enough to offset its less impressive engine and other features. Let's simply say that today's LE is worth the same amount as the 2000 XLE. To repeat, today's LE sells for $22,970 and the 2000 XLE sold for $24,068. If you could buy LE's today and - with a time machine - sell them in 2000, you'd actually make money. That's something but whatever it is, it's not inflation.

The Camry is not unique. Products are getting better faster than they're getting more expensive.

Since the summer of 2012, inflation has hit the Fed target of 2% only a couple of months. The Fed already knows that it is low. And obviously, the experts know about this Camry-effect but calculating its impact on the inflation consumers experience is tricky. Again, do you assume the prices of new products or features has soared or plummeted? This assumption makes a huge difference to your basket of goods.

Things that are scarce - like beach front housing or any urban housing with a reasonable commute - are going up in price. As long as incomes and / or populations continue to rise, so will the prices of such scarce goods. But things that can be mass manufactured are going down in price. And the twin forces of globalization and product innovation are going to continue to put downwards pressure on these prices.

Since the 1970s oil shocks jolted prices upwards, there have been jeremiahs predicting hyper-inflation. Every time the Fed engages in something like Quantitative Easing - QE - by pumping billions or trillions into the economy, people get nervous about inflation. But the inflation never comes.

Obviously, it is still possible to have inflation kick in because of reckless monetary policy. Less obviously, that possibility has never been lower.

What is the punchline in regards to the Fed's decision next week to raise interest rates? Inflation isn't just low: it's lower than you think it is. Monetary policy is not too accommodating. If anything, it is not doing enough to allow for the rate of innovation and progress in products. If we want that progress to continue, there is no reason to start fighting inflation with higher interest rates.

I think the word that you are searching for is ...

Kim Davis bookended by Mike Huckabee and her third husband

I think the word that you are searching for is neo-theocrats.

I am honestly not offended by the fact that Davis considers herself a good Christian in spite of the fact that she ignores the words of Jesus prohibiting re-marriage after divorce.

I am honestly not offended that she thinks that same-sex marriage is wrong in spite of the fact that Jesus never once said a thing about homosexuality. (And if you think that homosexuality wasn't present in the ancient world of Greeks and Romans, you might consider reading Plato's Symposium, for example, a work that holds up as a model of mentoring a curious mix of pedagogy and pederasty.) 

Kim Davis and Mike Huckabee are part of a religion that calls itself Christian but only loosely aligns with Christ's teaching. I don't have a problem with that. It's pretty normal.

I do have a problem with the fact that Huckabee doesn't dress more like Davis's husband. It would better signal what to expect when he talks.

From Marriage to Currency to Countries and Ownership - It's All Made Up (and that's why it's so important to get it right)

Marriage is made up. Some religions practice polygamy and some practice monogamy. King Louis XIV had a wife through whom he had children who were heirs to the throne. This was business. He also had a mistress who he turned to for love. At one point in history, Inuit men considered it good manners to offer a wife to a overnight guest traveling through. A people in southern China are curiously matrilineal. Once a young woman reaches a particular age, she is given a room that opens directly to the outside world. She is free to never take a lover, pair with one lover for the rest of her life, or take two different lovers every night. These lovers are not really a part of her family, though. She raises the children with her mother and siblings and her lover(s) is presumably back home helping his sister(s) to raise their children.

Money is completely made up. Money has been clam shells, tobacco leaves, cigarettes, bank notes, gold coins, a magnetic strip on a piece of plastic and blips stored on a server. Central banks like the Fed can create or destroy a trillion dollars with a change in policy. One day a certain pile of currency is worth enough to buy a house and the next it is not enough to buy coffee.

Government is made up. In some governments, only spokesmen for God decide what is legal. In other governments people profess to trust God but follow the advice of pollsters. In some countries, a dictator makes every decision. In other countries, the fate of a person or piece of property is subject to review by a myriad of councils, committees, and government branches so convoluted that even experts can't be sure what is legal.

Even nation-states are made up. Civil wars are reminders that the decision about where to place a border is the product of (sometimes violent) agreement. In an alternate reality, the Kurds have a country that spills across the northern part of Iraq and southern part of Turkey and the United States includes parts of Canada but not the former confederacy.

So much of what we experience of life falls into the category of social construct or social invention. Work, school, religion, business, markets, marriage, family, and government are all made up. It is not that companionship or learning or transactions don't occur spontaneously and "in nature." They do. But agreement between two people who can shake hands is not the same as having laws, markets, and jobs that let even total strangers cooperate. One of the reasons that the modern world is so much better than the ancient world is because of this ability of strangers to collaborate to create products and services, and that rests on layers of social invention.

To say that all of this is made up is not the same as saying that it doesn't matter. A 747 is made up. It is the product of imagination, engineering, art, design, and manufacturing. And if you are sitting in a 747 about to fly, you are not casual about whether this "just made up" jet can actually fly. The 747 is just made up but how it is made up matters enormously. It determines whether it is safe, whether it is affordable, whether it can fly across only a lake or an entire ocean .... Your experience as pilot or passenger is defined by how well it is made up. And as we get better at making up things like cars and jets and air conditioning, our experiences get better. It is the same with governments; the government that casually allows slavery creates worse experiences than one that insists that even children have legal rights.

If you just watch someone from 100 yards away work, you might not be able to tell if they are working as a slave, a contractor, an employee, or a part-owner. Slave, employee, and part-owner are just social inventions but the reality experienced by people in those roles, the consequences in terms of quality, creativity, and engagement are very different. These roles are just made up. The consequences of one or the other are not.

If you re-make something like government, you can unleash unprecedented levels of creativity, wealth, and autonomy. Government in the West was most notably re-invented by Enlightenment thinkers of the 18th and 19th century. Today, we in the West see government as a tool that is to be used by the common person. It is no longer the case that we have kings and subjects, people who are tools for the king's will. Instead, we have public servants who are tools for the commoner. The result of re-making government is that we live in a world that people of 1775 could not imagine, much less experience.

Which brings me to the corporation. It is time to re-make it. The fact of default ownership being a product of the financial capital of outside investors instead of the intellectual capital of employees is just made up. The fact of CEOs having the power to create and change the business while knowledge workers within it are given specific roles is just made up. The fact that the corporation spends so much effort trying to enhance the customer's, the user's experience of a product but so little effort to enhance the employee's, the producer's experience of making or designing the product is just made up. The fact that we think of employment as "doing time," paying someone a monthly wage instead of thinking of employment as creating wealth is just made up. The fact that the Fortune 500 will send back a trillion dollars to investors instead of investing it into intrapreneurial ventures from within the firm is just made up. The fact that we expect employees to do a job rather than create a business is just made up. The fact that we make employees accountable for areas of fairly narrow responsibility instead of diversifying investments of time and money into multiple, parallel ventures to capitalize on what we've learned about portfolios to maximize returns not by minimizing risk but by diversification is just made up. We want employees to feel a sense of ownership. The easiest way to do that might be to give them ownership. Once upon a time, employees mostly did manual work. Today many do knowledge work. Next in the evolution? More employees will become more entrepreneurial.

Everything is made up but the consequences are very real. Having trouble creating enough jobs? Popularize entrepreneurship, making more employees more entrepreneurial (in addition to simply creating more traditional entrepreneurs who are employee to no one). Having trouble creating more wealth than debt? Task employees with creating businesses rather than just creating products. Suffer from income inequality? Stop giving only CEOs the authority to orchestrate businesses in ways that are lucrative.  "We are all priests," Martin Luther said when he decided to re-make the church. It's time to make everyone an entrepreneur or CEO. Does all of this sound foreign, like the talk of democracy probably did to people in the 17th century? Re-make education to teach entrepreneurship and social invention, changing the expectation of children before they even come to the stage of questioning how to fill these new roles. Through education and the media, make these expectations part of the new norm.

So why stress the fact that civilization and its institutions is just made up? Because if we believe that this is just the way that things are, we're simply prisoners of these social inventions. They are, for us, not social inventions but instead social reality. One consequence of the realization that these are inventions just like our cars and can openers is a sense of possibility. And while the beliefs that these are social realities or that these are social inventions is just made up, there are very real differences in the consequences of such beliefs. If we think that all of this is just social reality to which we must conform, we feel helpless. If we think that all of this is social invention that we can participate in defining, we feel responsibility and engagement. Because while this view about things just being made is itself just made up, the consequences of holding such a view is not.

I Still Believe in the Bible's Definition of Marriage

Yesterday a couple of friends posted this:

You can hardly blame a person for wanting some constancy in a world in flux. It's not enough that he suffers from job uncertainty or that he has to ask his kids to teach him how to use his new phone: even the institutions that define families are changing. It's disconcerting.

So what is the bible's definition of marriage?

Abraham married his father's daughter by another mother and sent his servant to find his son Isaac a wife from among his kin. The servant came back with Isaac's cousin, who Isaac married.

About 4 or 5 centuries later, in Leviticus, God forbids marrying half-sisters, which would make Abraham's marriage illegal. There is no prohibition against marrying cousins, so while his parents would have been in a forbidden relationship, Isaac would have still been fine under Levitical law.

Later, King David had either four or five wives (it's not clear) and sometime after he died, God is quoted as saying, "Have you considered my servant David? He is perfect." Polygamy was perfect (well, for a man) in Old Testament times. David's son Solomon certainly seemed convinced of this. He had 700 wives (and somehow still found time for 300 concubines).

A man could also get a divorce and re-marry. Jesus speaks out against that practice in the New Testament. Curiously, he doesn't speak out against the practice of polygamy, although this somehow seems implied, It would make little sense to ban someone from re-marrying if they could marry more than one woman at a time.

Paul went further than Jesus. Jesus thought it was wrong to re-marry and Paul thought it was wrong to marry.  He wasn't exactly a champion of family values, holding that it made little sense to marry given the world was about to end. But he seemed to grudgingly accept that some people would be unable to live without companionship and intimacy and thought that marriage was the best place to find such solace.

What, then, is the bible's definition of marriage? Something that was evolving. Just like it is today.

Labor Day Weekend Special: Republican Candidates Come Out in Strong Support of Workers Tired of Being Told What To Do

Kim Davis is a county clerk in Kentucky who has refused to issue marriage licenses to same-sex couples. Republican candidates Marco Rubio, Ted Cruz, Mike Huckabee, Bobby Jindal, and Rand Paul have all said that they support her.

I like this. I'm glad to see Republicans coming around to the side of labor. We should do more to support any employee who is just tired of doing what their boss says she should do.

So I imagine one of them - Rubio? - will soon release a campaign ad that opens in a diner, the camera panning pass various impatient looking customers. It finally stops at a weary waitress sitting with her back to them.

"Oh yeah! Well I'm tired," says Iowa waitress Belinda Myers. "Those customers can just stand up and get their own damn coffee while I sit here for a bit."
"I'm going to fire you," retorted her boss Brian who - to be fair - was tired from his own long hours.
"I object," Marco Rubio jumped out of his booth to say. "I don't think that you should get in the way of her personal freedoms by making her do work she doesn't like."
"But it's her job," Brian retorted.
"That's not the point," says Rubio, turning to the cameras.
"It's not?"
"No!"

And like that, Marco Rubio would sagely turn the Kim Davis situation from a partisan issue into something that would unify workers everywhere who are just tired of being told what to do.

I just hope that he gets his campaign ad out in time for Labor Day. If he does, I think this could tip the primary in his direction.

Bad News Drives out Good (Why the Trade Deficit Improved While You Were Busy Panicking About China)

Last month, China's economy appeared to slow. The stock market promptly lost about $2 trillion in value in a few panicked days.  What happens in China matters, but there are about 6 billion other people on the planet and there was some good news from Europe that was drowned out by all the shouting about the apocalypse.

Unemployment in Europe fell to its lowest level in about 3 to 4 years. Europe's economy is warming up. This is good news to offset the bad news from China.

Today the Commerce Department reported a drop in the trade deficit of 7.3% for July. One reason cited? An increase in exports to the European Union. As more Europeans get jobs, they buy more American goods.

It is odd that Europe's good news was so thoroughly drowned out by China's bad news.

China's is the second biggest economy in the world, at $9 trillion. Well, second if you rank by countries. The European Union's economy is actually twice as big, at $18 trillion. (Even though its population is about half as large, at only 500 million.)  If Europe begins to grow at healthy rates it will be more than enough to offset the fact that China's growth levels are dropping from extraordinary to just great. Today's drop in our trade deficit is just one reminder of that.

There is always bad news somewhere and when it comes to media coverage, the bad news will drive out the good. Pessimists aren't much fun but they do hold our attention. Bad news gets thrown in your face. Good news you have to go look for. Europe's change from no recovery to slow recovery isn't particularly exciting news but it should be.

The Popularization of Entrepreneurship Continues: Google Becomes Alphabet and Entrepreneurship at Record Levels

In The Fourth Economy, I argue that last century we popularized knowledge work and now we will popularize entrepreneurship. Google's recent announcement that they are restructuring the company to become Alphabet and the new Global Entrepreneurship Monitor (GEM) Report offer more evidence that we're making progress in the creation of a new, entrepreneurial economy.

The popularization of business entrepreneurship will play out in two ways. One is that we'll see more entrepreneurship as normally conceived: more people starting more businesses. The other is that within companies, more employees will become more entrepreneurial. Last year, both kinds of entrepreneurship rose.

Yesterday, researchers at Babson and Baruch Colleges released their annual GEM Report. This is as important as the jobs report released each month by the BLS that is (rightfully) tracked and analyzed by an entire industry of analysts and pundits. The jobs report tracks how many new jobs have been created. GEM tracks entrepreneurial activity, which tells us how many jobs will be created.

Levels of entrepreneurship are their highest since the report began in 1999 and are rising within organizations as well. Here are a few key findings.

• Entre­preneurship levels among the U.S. working age popu­lation edged upward to 14 percent in 2014 (an estimated 24 million Americans) - reaching the highest level recorded in the 16 years GEM has assessed entre­preneurial activity.

• Optimism is at the highest recorded level. More than half the U.S. population (51 percent) believes there are good opportunities for starting businesses.

• 6.5 percent are starting businesses within organizations; an indication that entrepreneurial initiatives within a larger corporate environment coexist alongside independent startups.

Tomorrow, bls.gov will announce another month of job creation. This will make 59 months in a row, breaking the old record of uninterrupted job creation by 11 months. (A record set in the late 1980s.) This GEM Report suggests that this streak could easily continue for years. Years. As if breaking the old record of 4 years by a year is not extraordinary enough.

But this last bullet about the millions of Americans who are starting businesses from within organizations ties to Google CEO Larry Page's announcement that Google will become Alphabet. This is just as promising. Obviously, Google is a search engine that sifts through petabits of information and brings back cash. Less obviously, it is a giant incubator that could give us the first self-driving cars and innovative medical products like glucose-sensing contact lenses, unleash an army of service and delivery drones, and extend the human lifespan. Founders Larry Page and Sergei Brin now plan to create a parent company called Alphabet that will have beneath it various companies, the most obvious of which is Google itself. I think it's a brilliant idea because it offers a new model of the corporation, a sort of conglomerate / incubator hybrid. It is a great example of social invention, the necessary partner to technological invention in the dance of progress.

Venture capitalist Marc Andreessen pointed out in a recent interview that CEOs have become very conservative, with really small investment horizons. This year, the Fortune 500 will give back a trillion dollars to investors through buy-backs. Rather than invest profits into new ventures, they will send the cash back to investors. These investors - who have communicated to CEOs that they want returns now - then take this money into private ventures and tell those founding CEOs, don't worry about profits yet: we want to build a business.

There are some advantages to this. It suggests a division of labor between established companies and startups. But it is fraught with waste as well, assuming as it does that really smart, driven young people who often don't know how to operationalize the difference between, say, design and performance qualifications should get investment dollars to create the next generation of products rather than employees within a company. A startup has to create so much from scratch whereas an established company has so much knowledge about the important nuance of customers, products, process and technology. A model that makes more employees more entrepreneurial could tap into that knowledge and may even do it more efficiently and effectively.

Fortunately, the GEM Report confirms that millions of entrepreneurs are working within organizations and Alphabet suggests a way such entrepreneurship could be institutionalized. Years before Larry Page announced that Google was becoming Alphabet, I wrote this in The Fourth Economy. 

One compelling example of a company that does blur the boundary between running the business and creating a new business is Google. Google has a curious rule that allows them to promote entrepreneurship from within the company: they ask programmers and engineers to devote about one day per week - on average - to pursuing a project of their own. This is not the classic R&D that managers approve and fund centrally. These are projects conceived and pursued by individuals without going through central boards for approval. This is Google management showing the same kind of confidence in individual initiative as do capitalist governments. Gmail and Google Earth are among the initiatives that began as individual projects.
One of the fascinating things about this is that Google is treating the resource of knowledge workers like venture capitalists do money. That is, Google is using a scarce resource - its programmers and engineers - and investing a portion of their time into new ventures that have a very high probability of failure. This seems like a silly short-term policy. Odds are good that they are just diverting precious attention into projects that will not pay back. Long term, however, this seems brilliant. They need only one spectacular success every five to ten years in order to maintain a growth trajectory that even corporate giants like GM and Microsoft have been unable to sustain. And in truth, Google may not pull this off. Yet if this meme catches on and many companies try this, we will have more entrepreneurial ventures and as a result will have more products, services, jobs, and wealth. It seems a fact that any one venture like this is destined to fail and any larger community that regularly invests in such ventures is destined to thrive.
The important question in the eighteenth and nineteenth century was “how do we create and attract more capital and make it more productive?” At that stage of development, all other advances followed from smart and creative answers to that question.
The important question in the twentieth century was “how do we create and attract more knowledge workers and make them more productive?” At that stage of development, all other advances followed.
Now the question ought to be, “how do we create and attract more entrepreneurs and help them to be more successful?” At this new stage of development, all other advances will follow.

It's a beautiful thing when people as sharp as the ones at Alphabet (nee Google) are asking that question because you can bet that theirs will be creative answers that could help in the transformation of work and business. And that is the business of the fourth economy.

Stock Tip

I've found that if I want to look foolish, I predict short-term movements in the stock market. Or long-term movements.
Still, if you are like me and the real reason you're buying stocks today is the anticipation of having retirement money in a decade or so, I do have some advice. You know that stock that you were, about a month or two ago, wistfully thinking it would be nice to have bought a year before? Buy it this week. I'm not sure if it will go down even more or will bottom out this week. All I do know is that it is selling for less than it was when you wished you owned it. And that might just qualify as a bargain.

Why the Longest Run of Job Creation in History Still Gets no Respect

Updated to reflect actual August job numbers and revised argument.

Today’s job report makes 59 uninterrupted months of job creation. Judging from the talk of pundits, politicians and your friends on Facebook, though, you might think that we’re still in a recession.

Here are the numbers for the four longest, uninterrupted periods of job creation since record keeping began in the 1930s.

Period	Months of Uninterrupted Job Gains	Number of Jobs Gained (Millions)	Average Number of Jobs Gained per Month
Late 1990s	33	9.0	273,000
Mid-2000s	46	7.9	172,000
Late 1980s	48	10.7	223,000
Current (still going)	59	12.0	203,000

This streak is already 11 months longer than the old record, set in the late 1980s. It has also created more jobs than any other and it is not done yet.

Capital markets, too, have done well. During the 8 years that Clinton was in office, annual market returns averaged 15.2%, as measured by the S&P 500. In the roughly 6.5 years that Obama has been in office – even with the turmoil through 3 September – the annual returns on stocks has been 14.2%.

So why has the media and even the public been so blasé about this recovery?

There are three possible reasons. One, the aughts left a huge hole to fill. Two, wages have been mostly stagnant throughout this recovery. Three, during this entire recovery there is rarely a quarter that goes by without some alarming event. Even while the economy has been improving, people have been aware of how it could de-rail.

In the last two decades of the 20th century (the 1980s and 1990s), the American economy created 40 million jobs. In the 2000s (the aughts from 2000 through 2009), the economy actually lost 1 million jobs. This means that in order to create as many jobs in the first two decades of this century as it did in the last, the economy would have to create 41 million jobs between 2010 and 2019. The most it has created in any previous decade is 21.9 million. The fact that the economy is on track to create more than 22 million jobs this decade should be impressive: instead, it is about half of what it would take to offset the lost decade of the aughts.

Another reason that people remain unimpressed with this recovery is anemic wage growth. Household wages aren’t much higher than they were 20 years ago. The reasons for this are complicated but ultimately show up in a simple relationship. The price of labor – like any good – goes up when demand is strong and down when demand is weak. From 1993 to 1999, the economy created 21.2 million jobs; demand for labor was high and wages rose 15%. From 1999 to 2004, the economy lost 192,000 jobs; demand for labor was weak and wages fell 4%.

During the first half of this decade, the economy created 12.4 million jobs, which should have been enough to bring wages up. The trouble is, only recently has unemployment approached 5% and only recently have wages begun to rise much.

Finally, we tend to miss the facts of this extraordinary recovery because we have never been so attuned to threats from around the globe. During the last six years, a partial list of the things that have shaken confidence include stalled budget negotiations in DC, Arab Spring, Russia’s invasion of the Ukraine, the threat of Greece’s exit from the Eurozone, youth unemployment throughout southern Europe approaching 50%, China’s slowdown, widespread hacking of private companies and public agencies and votes on separating Scotland from the UK and the UK from Europe. A rare quarter passes without some real threat to economic stability.

Nor are the threats clear. When oil prices fall, we feel good. When the oil industry begins laying off, we feel concerned. When China’s economy is booming, we feel threatened by the competition. When China’s economy slows, we feel threatened by the drop in global demand. The extent of our sensitivity to global events has never been so obvious or so confusing.

Meanwhile, the American economy’s streak of job creation continues to set a new record each month. It’s obvious that we – indeed, the whole world – still have problems to address. Even so, it seems overdue to celebrate the fact that this recovery is not just – by some measures - the most impressive in history but is still far from over.

I'm Thinking About Starting a Parade

I'm not a fan of parades but I have an idea for one that I'd like to see.

Imagine an intersection that brings traffic from the north, south, east, and west. That intersection is empty. Suspiciously so. A parade permit has been given that clears traffic from this route for the next hour.

A large crowd forms a block north of this intersection. Another crowd mills about a block south. A third is congregating a block east and a fourth a block west of this intersection.

At an appointed time, all four crowds grow silent. They form a row, like the scene out of Braveheart. Each of the four crowds is facing the intersection. For what seems like a longer time than is comfortable, the crowd staying silent but growing antsy, the crowd just waits. And waits.

And then, music blasts the silence. The crowds surge forward, running pell mell towards each other as though intent on harm and conquest. But as they converge into the intersection, they run past, rather than into, each other. The music segues into something with infectious rhythm. The four crowds become one happy, dancing mob. This only lasts for the duration of one or two songs. And then the crowd dissipates, filing back into stores, restaurants, alleys, libraries, coffee shops, and the suburbs.

That's it. The parade is over. And a new kind of parade has begun.

It Will End Badly - and that's the worst reason to not do it

Yesterday was my 32nd wedding anniversary. One comedian's quip often comes to me in this context. "50% of all marriages end in divorce. But you don't know. You could be one of the lucky ones. Your marriage could end in death."

Marriage is going to end badly. You may well fall out of love and continue to stay married, fall out of love and divorce, stay in love and have him or her walk away or stay in love and watch them die. Once you're in a marriage, there is no good way out.

But that is the worst reason not to get married. Whether it is marriage or romance, a business venture or Saturday adventure, worrying about how it will end is probably a great way to miss the whole point.

Putting This Wild Stock Market in Perspective

This last week has been brutal for markets, The S&P 500 has been jumping around by as much as 4% a day, and a great deal of it down.

So is the market in trouble? Should you flee to the hills to buy gold?

If your investment horizon is years or decades - as it is for most of us saving and investing in hopes of someday retiring - probably not.

While the market is moving as much as 4% a day, it is only down 2.3% from a year ago as of today's close. (And with the market so volatile, there is a very good chance that this will round to zero by tomorrow's close or be down by double or triple that.) That's pretty close to no change for the year. Still, it is 19.3% higher than it was two years ago, and 76.6% higher than it was five years ago.

Up 76.6% in the last five years works out to about 12.1% average annual return. Up 19.3% for the last two years works out to an average annual return of 9.2%. That's right. Even with the last week's "mini-crash" and this last year's negative return of 2.3%, annual return is still 9.2%.

That's nice. And not outrageous. Most studies show long-term returns of 6 to 8% for the markets. It makes sense that returns in the last 5+ years would be slightly higher than average given it came off a market that had fallen by half.

If you are saving for a retirement that is still five to 35 years off, 9 to 12% is a pretty good return. And with returns that consistently high for the last 5+ years, it really is no wonder that the market is pausing in the midst of what has been a steady upwards trend to have a year in which market movement is close to zero.

Is this a bubble bursting? More likely it is a strong return being adjusted downwards slightly. Short term, markets behave irrationally, jumping up and down like over-sugared kids at a party. Long term, though, they tend to make sense. And with employment, GDP, and profits steadily growing over the last 5+ years, it makes sense that the market has moved upwards. Given how slowly all three have moved upwards, though, it also makes sense that investors wouldn't bid up the price of stocks every year, hence, this year of uncertain returns.

Ben Carson Would Like to Put an End to Career Politicians. I Would Like to Put an End to Career Surgeons

Health care costs are ridiculous, devouring 17% of GDP. And an often overlooked fact is that more experienced surgeons make more than inexperienced surgeons. My own guess is that if we set up term limits for surgeons - limiting their careers to, say, 5 or maybe 10 years, we could lower health care costs by tens of percent. Worse yet, experienced surgeons get cozy with pharmaceutical companies and medical device manufacturers, often wantonly spending patients' money on products of dubious value but outrageous cost. Plus everybody knows that no one is as arrogant as an experienced surgeon.

Some of my more radical colleagues in this "term limits for surgeons" movement don't even think that surgeons should be required to study medicine. The study of medicine makes them biased towards, well, traditional medical thinking, and tends to close their minds to options like herbal remedies or faith healing. Plus it raises the costs for entering the career, putting pressure on surgeons to stay in the career longer. The problem is, of course, patients grow alarmed when surgeons unclear about where to cut or what to do come into the consulting room smiling and shaking hands. That could easily be overcome by earlier administration of anesthetic.

Ben Carson has a similar initiative for putting an end to career politicians. His argument is fairly simple.

Government costs are ridiculous, devouring 18% of GDP just for the federal government. Career politicians become too insular, too cozy with lobbyists. They tend to spend voters' money on policy initiatives of dubious value and outrageous cost. And politicians who stay in the field longer raise more money than novice politicians. And no one is more arrogant than a career politician. Carson's own guess is that if he were to limit political careers to, say, 5 to 10 years, he could lower government costs by tens of percent.

I don't know about this. I'm not sure that I want a novice stumbling into negotiations with Iran or Wall Street lawyers, or like the idea of forcing someone out of office just as they gain some experience and knowledge of the job. It seems to me that this would give lobbyists a huge advantage in negotiating any deals between industry and taxpayers; taxpayers would be represented by people who are not only paid much less than the lobbyists they face (that is, of course, already the case) but people who would have far more experience.

Carson's idea for term limits for politicians shows incredible naivete about the complexity of modern policy, the need to balance economies and ecosystems, safety and freedom, progress and fairness, and private and public initiative. He's a surgeon more than willing to walk into the Oval Office to make policy, even though he's had no political experience. That's silly. It would actually make more sense for a career politician to walk into a operating room to perform surgery; at least that only involves the fate of one person - not millions - and there is a clear consensus about best practice for surgeries.

So ignore Ben Carson. He's just a surgeon. I do hope you listen to me, though, and join me in this move to establish term limits for surgeons. It's way past time to bring down health care costs and we should start with the highest paid in the field.

The Internet is Making us Politically Smarter

I used to bemoan the fact that political coverage wasn't policy coverage. All the focus on personalities seemed to ignore the larger, more important question of how policies might actually change quality of life for real people.

Then it dawned on me: this political process we have actually does get us talking about policy. It seems at first blush to be about "Trump!" or "Hillary!" but the real meat of the discussion about these people is less about who they are than about what they would do. The candidate becomes a shorthand for the sort of policies they represent.

Mike Huckabee, for instance, came out as a national figure in the 2008 Republican primary, having been governor of Arkansas for the decade prior. He was folksy and seemed affable. I kind of liked him. Now this year, he clarifies that if he had his way, a 10 year rape victim would be forced to give birth to her rapist's baby. (Paraguay actually did just this. Huckabee thinks that is good policy.) It doesn't matter that Huckabee seems likable. He has become the face of an extremist position on abortion. This is not a personality issue. This is a policy issue.

The internet has seemed to divide labor in an interesting way. Traditional media gives us people. The internet gives us arguments.

The media tells a story about a person: "Trump says that 14th amendment is wrong. It's not enough to just grant citizenship to anyone who is born here." The media tries to pin him down on this but Donald being Donald largely refuses to elaborate, usually just reiterating what he said before. (And Donald isn't particularly unique on this. No candidate seems to stray far from talking points during interviews. And really, you can hardly blame them. One simple mis-statement that characterizes most interesting conversations can be enough to define them.)

Then Facebook and blogs and tweets become the forum for actually digging deeper into the policy that makes some people love Donald and some people hate him. People end up substantiating their seemingly visceral reactions to a person with arguments about their policy. "Putting aside feelings, it would be nearly impossible and incredibly expensive to find and deport millions of illegal aliens." "Oh yeah. Well why do we make things worse by letting illegal aliens sneak over our border to give birth to children who are automatically given citizenship?"

People's initial reaction might seem like a knee jerk reaction to a particular personality, but knowing that they could be challenged they often go do homework. They look up a claim at Politfact. They read a piece from one of their thought-leaders. They learn arguments from their favorite talk-show hosts. What starts out as a claim about a person often gets substantiated with arguments about their policy.

It may well be that we all just become more entrenched in our beliefs but it also seems that even that comes with more knowledge. Our cousin's husband will call us out on a false claim. Our old frat friend will throw facts at us that ... well, really do challenge our position. Even the most tightly managed social group includes people who think differently from us and those people have access to all kinds of facts and arguments that we might need to refute. This forces us to become smarter.

Steven Johnson argues in Everything Bad is Good for You that even TV plots are becoming more complicated, requiring more brainpower. So many different things - from video games to the vast array of choices that we face at the grocery store - are making us smarter. The same test results that would give you a score of 100 on an IQ test in 1950, would give you a score of 85 today. The difference between 100 and 85 is not the difference between an A and a B. It is the difference between scoring higher than 50% of the population or scoring higher than just 15%.  It makes sense that political arguments could contribute at least as much as game shows to our growing intelligence. And that can't help but bode well for future policy.

Donald and His (Surprisingly Large) Base

To the consternation of America's pundits, Trump still has a commanding lead in the Republican primary.

Someone interviewing Trump supporters at the Iowa state fair - where the pork chop on a stick is getting as much coverage as Mike Huckabee - asked them whether their support is for specific policies of his or more based on their gut. All of his supporters freely admitted that this was coming from their gut.

Before you glibly dismiss his chance to actually win this thing, just think about that. Because if there is anything you should be careful about underestimating, it's the American gut.

What You Might Be Doing Wrong as a Parent, Teacher, or Manager (Deci's Three Models)

One of the books to greatly influence my thinking was William Deci's Why We Do What We Do. Deci makes a distinction between three styles of parenting, management, and teaching. For simplicity, I'll call the parent, manager or teacher the mentor and the child, employee, or student a mentee. (As the person making this distinction, I'll be like a manatee, like a referee who defines the game between mentor and mentee. But I digress.)

1. Control. 
This is the classic model we'd expect in a Hollywood movie that included a father who was a military officer. He's commanding. He has clear expectations for his children and those expectations don't just define what time they should get home. The children are expected to follow a certain course in life, to worship a particular way, even to provide a particular number and type of grandchildren.
With this mentoring model, the mentor clearly defines the goal, agenda, and process. Your job as mentee is to follow their script.
This is easy to criticize but it creates a predictable environment. Well, until it doesn't.

2. Abandonment.
This model arises out of a reaction to the control model. In this model, the "authority" figure doesn't pretend to set the agenda. Or define your behavior. You're pretty much on your own. The good news is that you have freedom. The bad news is that you don't have much guidance. Kids who grew up with this model could very plausibly become the parents who adopt the above model of control. In the Hollywood movie of cliches, the character representing this model would be the hippie who just says, "Cool," to most anything the child suggests or tries.

Given that circumstances can define when one of the above is more appropriate than another, it is easy to toggle between them. This can make the cliched military or hippie father actually seem more coherent than you. At least they are consistent. There is a better way.

3. Autonomy-supportive.
This third way is the hero of Deci's story and the one that won me over. The notion here is to shift the locus of control from the mentor to the mentee. As prelude to coaching the mentee on how, the mentee coaches (or perhaps more accurately, coaxes out of) the mentee what sort of goal would be appropriate given their own preferences, skills, aspirations and the context of the time they are living in. The mentor is not the locus of control, does not define the goals. In this it is similar to the abandonment model. But unlike the abandonment model, the mentor stays around to help the mentee to translate those goals into processes, into how.
The implications of this model are sweeping. It suggests a creative response from each mentee. This is highly disruptive to the status quo. It means that the mentee may define a goal that the mentor has little experience with and quickly turn the mentor into a co-learner rather than a person who can knowledgeably inform the mentee about what to do next or how to do it. It turns the two into collaborators rather than sage and student. It disperses power over others and instead emphasizes power to accomplish.

My next post will be about what the adoption of this third model suggests for institutions, from government to schools and corporations. Because if this really is the best model for most circumstances, it suggests a real change in how we define institutions.

We're Close to Cuban Cigars (Why Trade Embargoes are Bad Ideas)

After we'd taken over, we were sitting around a table defining the new government. Castro asked "Who is an economist," but I thought he'd asked, "Who is a communist," so I said, "I am."
"Good," he said. "You'll be in charge of the economy."
 - Che Guevara

I was standing on the steps of the Hanoi Opera House when I first heard that Richard Nixon had died.

I was with a group hosting the first trade show to feature American companies since the fall of Saigon. We were told that it was the first time that the American and Vietnamese flags had flown side by side over the soil of North Vietnam. One of my highlights of that fascinating year was what I learned just as I was to announce our upcoming trade show back in the US, in Chicago. I was to speak just after the man who was the closest thing to Vietnamese ambassador given that stage of normalization. And just before he went on, Clinton announced from the White House that the US was moving towards trade normalization with Vietnam. That felt like an historic moment.

Since then, Vietnam has prospered. According to at least one forecast, it is the economy expected to grow the most rapidly in the next decade. And Vietnamese have the most favorable impression of Americans of any Asians. When I was in Hanoi in 1994, you could still see the scars of war in the city. Buildings were still pock marked from American attacks. And yet the Vietnamese could not have been more friendly or more happy to see us there. One group told us that they would rather do business with Americans than Europeans, Chinese, or Japanese. They claimed that the Japanese and Chinese were only interested in their own profits whereas the Americans seemed interested in setting up relationships that both made the Americans a profit and their Vietnamese partners.

Which brings me to today's embassy opening in Cuba. The trade embargo against Cuba that is older than Obama is about to end.

From everything I've read of history and development, one thing seems true: if you want to disperse power, encourage widespread economic development. When the early merchants began to gain wealth at the dawn of capitalism in the 16th and 17th centuries, they successfully challenged the landed aristocracy for political power. People with economic options demand political options.

Trade embargoes sound like a nice alternative to war. No bombs are dropped but regimes feel pressure to change. Or so the theory goes, but I don't buy it. Inevitably, when an economy is isolated from global markets and stagnates, the powers-that-be lock their control over the people. No new resources are flowing into the country to enable new groups to make new demands. Economic progress inevitably begets political progress. If you are sincere about wanting the democratization of a political system, you should work towards opening up the economy, not shutting it off. The Taliban realized how dangerous trade is to autocratic regimes; it was no coincidence that they flew planes into the World Trade Center. You buy a computer to automate your accounting and the next thing you know your daughter is learning Beyonce dance moves. Trade transforms.

Since Nixon visited China, that country has gone through an amazing transformation. In 1990, 60% of China's population was categorized as extremely poor; today it is only 4%. It is true that China's government shows less regard for human rights than, say, Sweden's. It is not true that the average Chinese citizen is worse off than they were when Nixon visited in 1972. Progress is not an on / off switch; progress is a dimmer switch.

Opening up Cuba is a wonderful thing and will mean that the country will make more progress in the next decade that it has in the last half century. That's good for everyone. a

Jeb's Bold (But Vague) Plan for 4% GDP Growth (which we can only hope isn't the same one he had for Florida)

Jeb Bush is promsing 4% GDP growth. That would put him in the company of presidents FDR, LBJ, Reagan, and Clinton.

I've heard him say something like, "There is no reason we can't have 4% growth. We did it in Florida." He's fairly vague about how he'll do this, though. His big brother George W. promised to make Iraq a beacon of democracy in the Middle East but didn't seem very clear about how that would happen or why it wasn't already so. At first glance it would seem that Jeb has a similar problem of offering platitudes rather than actual policies but in his defense, Jeb has actually accomplished his goal. While he was governor of Florida, the state did hit 4% GDP growth.

FDR hit 4% GDP growth with a combination of New Deal and WWII spending. LBJ hit it with spending on Vietnam and the Great Society. Reagan outspent the Soviets on the Cold War arms race. Clinton rode a wave of dot-com innovations and investments.

It takes something historic to sustain 4% growth in a country as big as the US. 4% GDP growth for a full four years would result in GDP that's $3 trillion bigger than it is now. That's huge. Only four countries (US, China, Japan, and Germany) have an annual GDP greater than $3 trillion.

So what remarkable thing did Jeb do in Florida to hit 4% growth? Real estate.

George Packard, in The Unwinding, captures the dynamic of growth through real estate speculation in Tampa, Florida during Jeb's time as governor.

As long as more people came this year than last year, and next than this year, there would always be more houses to build, and more jobs in construction and real estate and hospitality. Property values would continue to go up, and the state could continue to do without an income tax, financing its budget with sales taxes and real estate fees. ... In the exurbs going up around Tampa Bay, property taxes could remain low, with new schools and fire stations funded by bond issues floated on the projection of future growth. ....
A few local critics pointed out the strategy's resemblance to a Ponzi scheme. But everything kept growing and no one paid attention. ...
The growth machine became the employment agency. Other than minimum wage jobs at restaurants and big-box stores, it was hard to find work outside the real estate industry. In the hierarchy of the boom years, the poor were Mexican day laborers on construction sites; the working class had jobs in the building trades; the lower middle class were bank tellers; the middle class were real estate agents, title insurance agents, and civil engineers; the upper middle class were land use attorneys and architects; and the rich were developers. ....
At the peak of the madness, in 2005, a house in Fort Myers sold for $399,000 on December 29 and $589,900 on December 30. Flippers were the ones driving prices to crazy heights. ..

What sort of culture promotes such growth? Packard writes that, "auto insurance was higher in Florida than elsewhere - insurers called it 'a fraudulent state.'" The demand for housing was not because of some booming industry. The demand for housing was the booming industry. During the peak of Jeb's governorship, about half the houses selling so rapidly around Tampa were going to investors. Speculators.

The real engine of this unsustainable growth was the banks' willingness to write mortgages for nearly anything, for nearly any amount, issued to nearly anyone. It didn't really matter who had the mortgage for two reasons. For one thing, these mortgages were now being re-packaged into securities and sold in global financial markets. The banks issuing the loans didn't hold the loans. For another, even if someone defaulted on a loan and the holder of the loan repossessed, what was the worst that could happen? With rising home prices, whoever owned the loan could easily end up making money by taking possession of a home now worth more than when they first financed it. A critical number of these mortgages were never going to be paid for with income; speculators merely needed short-term loans that would enable them to sell the home later for more.  No one really thought about what would happen to the equity behind those loans if huge swaths of households defaulted on their loans and home prices fell.

It took awhile for the boom to bust. For years it made for ... well, it made for 4% growth. Happy times.

Then, in 2007, Allied Van Lines started to move more people out of the state than in. "Between 2007 and 2008, the number of electrical hookups in Florida decreased for the first time in the forty years that records had been kept. And for the first time ever, the state's net flow of immigration, the engine of the growth machine, dwindled to zero," Packard writes. This could not end well. Given the mortgages were no longer owned by local banks, the wreckage was not going to be contained to the state. It would ripple across continents.

When these mortgages blew up, they blew a hole in the side of credit markets that nearly sunk the global economy. When the foreclosures came, they flooded into Florida's courtrooms. Judges in their 70s were called out of retirement and given as many as three thousand cases at a time, working through 20 an hour, each case another home foreclosed, leaving more people homeless and more investments written off than any hurricane in the state's history.

Jeb Bush was governor of Florida from Jan of 1999 through December of 2006. As it turned out, his timing was perfect for claiming economic boom and avoiding economic blame. When Florida's real estate market blew up, he had moved out of government housing - er, the governor's house - in Tallahassee.

The month that he left office, January of 2007, things were great. The unemployment rate in Florida was only 3.5%, impressively lower than the nation's healthy 4.6%. With a booming housing market, wealth was high and taxes were low. A year later, though, the unemployment rate in Florida was the same as the rest of the country; 3 years after Jeb had left office, when unemployment in the US was at a painful 9.7%, Florida's unemployment rate was a disastrous 11.2%.


4% GDP growth is a great goal. It is double what Jeb's father and brother achieved during their time in office and would put Jeb in the company of FDR, LBJ,  Reagan, and Clinton. History suggests, though, that a president intent on such growth needs to have a grand plan like fighting Nazis or building a welfare state. We can only hope that Jeb's plan is something other than another mortgage-leveraged real estate boom. So far, though, he hasn't explained it. If that doesn't worry you, I've got a beacon of democracy to sell you in the Middle East.


Update on 14 Sep 2015 - a month later.
fivethirtyeight ran an article about governor's records here and include a similar set of stats in the section about Jeb.

Nothing is More Dangerous than Bored Americans

There is a price we pay for living in an information age. With access to unlimited music, movies, tweets, essays, cat videos, and opinions, nobody wants to be bored. Americans will go to great lengths to avoid boredom. They will, for instance, elect bombastic fools to office just to mix things up.

We are coming up to 5 years of uninterrupted job creation. It's been 58 straight months of positive job numbers. The country has never had such a long streak of positive numbers. Nobody even talks about this any more. It elicits a yawn. The second longest streak was 48 months, a 4 year streak that concluded in 1990. We're about to pass that by a full year and still no one comments about this. It's boring. The same thing, month after month. "The American economy created jobs. Yada yada, yada."

What did Americans do last time the American economy performed spectacularly, in the late 1990s? Hired a really nice, but not particularly bright fellow to sit in the Oval Office.

What are Americans doing now that the economy has finally recovered from his spectacularly failed management? Now that the unemployment rate is finally close to healthy? It turns its attention to Donald Trump, a man who makes no apology for being sexist, dishonest, selfish, and offensive. Oh, and having no clue about effective policies.

It's easy to believe that President Donald would spice things up. Not just by saying stupid things but by starting wars and crashing the economy. It would be miserable, resulting in the death of noble soldiers and innocent civilians, the financial ruin of good Americans and confused foreigners ... but at least we won't be bored. And that's really all that matters.

Ted Cruz Knows Precisely When Life Begins (And You're Either a Religious Zealot or Murderer if You Disagree)

The problem with anti-abortion policies is simple. Folks like Ted Cruz believe that anyone who would outlaw contraceptives is a religious zealot and anyone who would opt to terminate a pregnancy the instant after conception is a murderer.

And for this insistence that the whole country embrace their precise definition of the start of life, we may well have a government shutdown this fall. Not because anyone is killing babies but instead because most Americans don't agree with their definition of when sperm and egg becomes a baby.

It's not unreasonable to think that "life" begins at conception. It's not unreasonable to think that it doesn't actually start until months later when a woman first realizes she is pregnant and long before the fetus has any self awareness or ability to survive outside the womb. It's not even unreasonable to think that life begins when a couple, well, couple and when all it takes to end a "life" is spermicide. You could reasonably disagree with all of those positions or hold any one of them. What current law says is that you cannot force your definition on anyone else until the second or third trimester. Ted Cruz and company would very much like to change that. Not because they are unique in having a conviction about when life starts but instead because they can't imagine that anyone else could possibly be right. This is not about defending their own view. It already is. This is about attacking everyone else's view.