Wage Stagnation's Simple Cause

Household income is about where it was 20 years ago. This is attributed to slow wage growth. But wage growth may - in turn - just be a function of job creation.


In this graph, the blue line traces inflation-adjusted household wages. The red line is actually plotted upside down. When it falls, the number of discouraged workers goes up. When it rises, their numbers go down. It essentially tracks the conditions of labor markets.

From 1993 to 1999, wages rose 15%. During that same time, the American economy created 21.2 million jobs. From 1999 to 2004, the economy lost 192,000 jobs and wages fell 4%. From 2004 to 2007, the economy gained 6.6 million jobs and wages rose 3%. From 2007 to 2011, the economy shed 6.5 million jobs and wages dropped 8%.

It's not a hard equation. As demand for workers rises, their wages go up. When demand falls, so do their wages.

As we create jobs, wages should become less of an issue. Better education, stronger unions, and higher minimum wages will all help wages to grow but none of these matters as much as simple supply and demand in labor markets.

683,000 Jobs Created in October

Each month the jobs reports includes two numbers. The one widely reported is based on interviews of firms. This month that was 214,000. The one buried further in the report is based on interviews of households. This month the household survey reported 683,000 new jobs.

The household survey is more volatile and is thus discounted. Rightfully so. But it isn't just capturing volatility. It reports 3.8 million new jobs in the last twelve months - significantly more than the 2.6 million reported by firms. It's not just more volatile. It's higher. 

It's tough to capture reality in a dynamic, market-driven economy of 308 million people that destroys and creates about 20 jobs for every one job it keeps. So it is a good reminder that there is no precisely accurate number for job creation. 

But think about what it means for an increasingly entrepreneurial economy when households are reporting more new jobs than firms are. What if this isn't just an error but instead is a way of reporting job creation that has not yet come onto the radar? What if the firms helping to create these jobs aren't official enough - yet - to register for Labor Department surveys? That's an optimistic - and obviously unproven - interpretation of the difference between the two surveys. Still, it's worth considering.

Ben Casselman reports that 24% of the unemployed found jobs in October, the highest during the recovery.

The employment to population ratio - which fell from about 63% just before the Great Recession to 58% after has grown 1% in the last 12 months, above 59% for the first time since 2009.

Meanwhile, the really big news is that we've just hit a new record since the government began tracking monthly job creation numbers in 1939. Never before has the American economy had an uninterrupted streak of months with job creation for this long. The old record, set in the late 1980s, was 48 months. We're now at 49 months and could easily continue this streak for another 6 to 24 months. 

What Democrats' Domination of California Predicts About Which Faction of the GOP Will Control the National Party

On average, Democrats won California House races by nearly 19 percentage points Tuesday, winning 70%  of the districts and beating Republicans 2 to 1 (or more precisely, in 37 of 53 districts). It might be that California is out of sync with the nation. It might also be that it's still out in front. If the latter, this isn't necessarily bad news for all Republicans - just a particular kind.

We have an open primary for our Representatives in California. The top two vote getters face each other in the general election, whether one is Democrat and one is Republican or whether they're both from the same party. The idea is that even in districts that tilt strongly in one direction, the final representative of that district has to appeal to the whole district, not just those voting in her party primary. The result is that Republicans or Democrats can end up with zero votes in the general election in any one district. And this happened.

Democrats were completely shut out in 2 districts and Republicans in 9. (To that put that shutout in context, only 12 states other than California have more than 9 Representatives.)  In nearly 40% of the state's districts (21), Democrats won by at least 2 to 1.

Democrats get their support from odd places. Most of the nation would not be surprised to hear that the 44th district - an area of south LA which includes Compton and has only 7% white population - did not cast a single vote for Republicans in the House race. But they might be surprised that in District 17 - a region that includes Santa Clara and the headquarters for Apple, Intel, Yahoo, and eBay - Republicans were also shut out. The 14th district is in the heart of Silicon Valley, including legendary Sand Hill Road (home to the biggest names in Venture Capital), Stanford, and Facebook Headquarters. According to one 2006 report, it is the third wealthiest district in the nation. In this 14th district, the Democrat got more than 3X as many votes as the Republican candidate. The two most affluent districts in California - the 33rd that includes Malibu and the 18th that includes Palo Alto - are solidly Democratic. The average income in Democratic districts is actually slightly higher - $72,609 - than Republican districts - $71,274.

The Republicans get their support in a couple of different segments of California: the farming areas (particularly around Bakersfield, where the new House Speaker is from) and Stockton in central California, and Orange County and San Diego's East County in the south.

Part of the difference seems to come from source of income. Folks in Silicon Valley are products of universities. Menlo Park - in the 14th district mentioned above - has one of the most educated populaces in the country. 70% of the adults there have advanced degrees. These folks - whether or not they are rich - are biased in favor of supporting R&D and education and they aren't much bound to tradition. For them, same-sex marriage is just another innovation, like blue-tooth or wireless. (Tech-savvy San Diego nearly sent an openly-gay Republican to DC. It's safe to assume he would not have won the Republican primary in many states.) They aren't threatened by change. It's their business. Disruption might be one of the terms most bandied about in Silicon Valley.

By contrast, the biggest city in the 25th district, where Democrats got zero votes in the House election, is Palmdale. It's biggest university isn't actually a university but is instead the community college and its two biggest employers are defense contractors. In such a community there is less support for disruption. There are other more affluent and educated places that support Republicans in the state. The 45th district - which includes UC Irvine - is in Orange County and conforms to some of the popular stereotypes about rich, white, conservatives.

California might represent the nation's future, both in terms of its reliance on education, its acceptance of individual choice (whether in gay marriage or women's choice) and its portion of minorities.

More regions are trying to replicate Silicon Valley's success. As they do, they'll learn that this encourages a disregard for traditions that libertarian Republicans will embrace more quickly than the party's social conservatives. And a real embrace of innovation typically encourages immigrants, something many of the GOP core get antsy about. A Kauffman Foundation study showed that a quarter of the CEOs or lead technologist in US technology companies founded between 1995 and 2005 were immigrants.

Also, California is one state where everyone is a minority. Blacks make up about 7% of the population, Asians 14%, Hispanics 38.4% and whites 39%. Every decade, fewer states will be as white as Vermont and Maine (the country's whitest states, each more 96% white).

The Economist once said that what the US was to the rest of the world, California is to the US. And what California is to the US, the Bay Area is to California. San Francisco mayor Gavin Newsom was the first official to legalize gay marriage. That's swept the nation. Palo Alto was granting business licences to Venture Capitalists before the rest of the nation had heard the term. That, too, has swept the nation. If California - and the Bay Area in particular - is the future, though, that isn't necessarily bad news for Republicans. It is, instead, just bad news for some segment of them.

While folks in the Bay Area pity social conservatives, lumping them in with folks who have rotary-dial phones, they take libertarians seriously. The notion of self-organizing complexity - the thought that markets could self-correct to regulate behavior - actually seems to them like a proposition worth considering, even if they aren't fully bought in.

At the national level, though, Republicans include folks who deny climate-change and evolution, people who oppose a woman's right to choose and same-sex marriage. Any party that includes such candidates will never win a majority vote in the Bay Area. Or soon, the country.

The Republican Party may already realize this. One stark contrast from the 2012 election is the fact that very few - if any - Republican candidates were caught making outrageous statements like, "If a woman has really been raped she can't get pregnant." The GOP seems to have silenced its social conservatives. And in that, too, the country is following California's lead. Republican governor Arnold Schwarzenegger was pro-choice. San Diego's new House Representative Carl Demaio is Republican but he's also gay. Voters around the country didn't just sweep in Republicans in record numbers. They voted to legalize marijuana and defeated anti-abortion proposals. This suggests a libertarian rather than traditionally conservative tilt.

It's the libertarians within the Republican Party who will increasingly define it. The face of this new Republican could be Rand Paul or outspoken libertarian Peter Thiel - the venture capitalist who co-founded PayPal with Max Levchin and Elon Musk who - of course - rose to fame in Silicon Valley.  This, of course, raises a whole new set of questions but for now I think it points clearly to a particular kind of future for Republicans.

America Looks at Republicans with Tears in Their Eyes and Says, "I Wish I Knew How to Quit You"

In 2004, George W. Bush was re-elected in spite of the fact that unemployment was up 30% from when he'd been elected.

Yesterday, voters' unhappiness with Obama and worry that the country was headed in the wrong direction led to a huge victory for Republicans. This in spite of the fact that unemployment is down about 38% in the last four years.

Voters say that they're unhappy with the direction of the country but it might actually be that they're unhappy with its location. When W. was re-elected, unemployment was up but it was still only 5.4%. (It took him another 4 years to nearly double that.) When Obama "lost" the mid-term election, unemployment was still at 5.9%. The location - just under 6% rather than close to 5% - seems to be more upsetting than the direction - dropping rather than rising.

It would be a beautiful thing if only the Republicans' policies were as effective as their politics. The default for this country is the GOP. Look at what it takes for Republicans to lose the White House. Watergate. The Great Recession. A once-in-a-lifetime politician like Bill Clinton. Barring disastrous performance by a Republican president or a phenomenal performance by a Democratic candidate, Republicans win. For whatever reason, the country trusts them. And oddly, it's the same country that is gradually legalizing same-sex marriage and marijuana. Perhaps the Republican ads should end with an American shaking their head at some silly thing their Republican candidate has said before putting their arm around him and saying, "I don't really like your policies, Jim, but there's just something about you."

How Voters Actually Judge Candidates (And It Has Nothing to do With Policy)

Here is an excerpt from Frans de Waal’s Our Inner Ape: A Leading Primatologist Explains Why We Are Who We Are.

Likewise, watching a group of people, one will quickly notice which individuals act with the greatest confidence, attract the most glances and nods of agreement, are least reluctant to break into the discussion, speak in a softer voice yet expect everybody to listen (and laugh at their jokes!), voice unilateral opinions, and so on. But there are far more subtle status clues.

Scientists used to consider the frequency band of 500 hertz and below in the human voice as meaningless noise, because when a voice if filtered, removing all higher frequencies, one hears nothing but a low-pitched hum. All words are lost. But then it was found that this low hum is an unconscious social instrument. It is different for each person, but in the course of a conversation people tend to converge. They settle on a single hum, and it is always the lower status person who does the adjusting.

This was first demonstrated in an analysis of the Larry King Live television show. The host, Larry King, would adjust his timbre to that of high-ranking guests, like Mike Wallace or Elizabeth Taylor. Low-ranking guests, on the other hand, would adjust their timbre to that of King. The clearest adjustment to King’s voice, indicating lack of confidence, came from former Vice President Dan Quayle.

The same spectral analysis has been applied to televised debates between the presidential candidates. In all eight elections between 1960 and 2000 the popular vote matched the voice analysis: the majority of people voted for the candidate who held his own timbre rather than the one who adjusted. In some cases, the differences were extreme, such as between Ronald Reagan and Walter Mondale. And only in 2000 did a candidate with a slightly subordinate voice pattern, George W. Bush, get elected. But this was not really an exception to the rule because, as Democrats will relish pointing out, the popular vote actually went to the candidate with the dominant voice pattern, Al Gore.
pp. 56-7.

Alan Watts On the Unpredictable Nature of Outcomes

Here's something profound for you this morning, a little reminder of the fact that life's outcomes aren't always obvious.

When Your Worldview is Literally Figurative: The Hereford Map and the Last Days of Mythical Living

The Hereford Mappa Mundi illustrates how inextricably linked was religion and myth to the Medieval worldview. The map is - literally - a map of the world and hence it clearly depicts their worldview. And while it is literally a map, it is full of the figurative.

Not only does this map miss entire continents like the Americas and Australia, but it adds to the world stories that are known to make sense of land that is unknown. East is at the top and anyone trying to map this map to known maps will be lost. This map is anchored in myth, not experience.

Cannibals detail from Hereford Mappa Mundi

The known world contains such creatures as a lynx in Asia Minor that sees through walls and urinates a black stone. Beyond the very limits of the known world the legend warns, "Here are all kinds of horrors, more than can be imagined: intolerable cold ... savage people who eat human flesh and drink blood, the accursed son of Cain."

Noah's Ark from Hereford Mappa Mundi

About this map and others like it, Jerry Brotton writes, "Hardly any of these maps provided new geographical material on the world based on travel or exploration. Instead, they fused classical and biblical places to project a history of Christian creation, salvation and judgment onto the surface of a map. On most of these mappaemuni, viewers could trace the passage of biblical time vertically, from its beginning at the top of the map in the Garden of Eden in the east, to its conclusion in the west, with the end of time taking place outside its frame in an eternal present of the Final Judgment. ... The essence of the Hereford mappamundi is contiguity, the proximity of one place to one another, each place charged by a specific Christian event.. It is a map shaped by its religious history connected to specific places, rather than geographical space. The map offers the faithful a depiction of scenes from the Creation, the Fall, the life of Christ and the Apocalypse in an image of the vertical progression of Christian history from top to bottom in which they could grasp the possibility of their own salvation."

This map was made about 1280 and captures the world before the age of exploration. The limit to progress in the first market economy - which emerged about this time and transformed the West from about 1300 to 1700 - was land. And as it odd as it sounds, this limit couldn't be properly addressed until it was properly seen. It wasn't what they knew that changed the world but instead what they discovered.

Muslim Extremists and Why the West Needs to Start To Take Meaning Seriously

Thanks to Thomas Jefferson, the US was founded not just with religious freedom but freedom from religion. Others wanted to have a church-member in good standing requirement for politicians that he dismissed.

There is, in the West, still a misunderstanding about religious freedom. You can hear it in this video when the Muslim extremist protests his lack of freedom to take away the freedom of another person. ("Why can't I tell you to cover up? Where's my freedom?") You get an insight into the minds of religious extremists in this remarkable piece of reporting from Clarissa Ward. What has fueled progress in the West is that we no longer bind people to the unproven - and unproveable - beliefs of others. The simpletons she interviews - whether intentionally or unintentionally - don't get that distinction.

60 Minutes: Recruiting for ISIS

One would hope that people in the West would gather at least two lessons from this video.

One - particularly for the US - we can hope that anyone who wants to impose laws on others because of their own religious beliefs will see how absurd that is. The simplest difference between good religion and bad may simply be whether it is imposed on others or on one's self. You believe that at the moment of conception a zygote is fully human? Fine. Impose that belief on yourself but not another who might feel that sperm and egg aren't human until weeks or months past the point of conception.

Two, it's long overdue for the West to offer young people an approach to life that gives their lives meaning even if they aren't the best, aren't great athletes, celebrities, or rich. We tell them the game is to become these things but don't tell them what to do when it looks as though they won't be winners in this game. That can lead to a crisis of meaning that neither markets nor elections can address. There has to be more to life than capitalism and democracy but in the West such matters are not part of the public sector. If you feel alienated from this system, you're vulnerable to extremists beliefs like the characters Ward interviews.

We need to take meaning more seriously, to help people to construct meaning even while insisting that beliefs that can never be proven never be forced on others. This is no trivial task. In fact, it might be as big a challenge as the work of John Locke and Thomas Jefferson to articulate and enact religious freedom. It's a project worth taking seriously but one that the  modern West has - so far - left to pop songs.

Three Lies Politicians Are Telling You

Here are three lies politicians are telling you.

The Lie: I'm a successful businessman so I can be a successful politician.
The Truth: This is like saying, I"m a good dancer so I can play piano well. It's possible but the two are very different. You can't layoff bad citizens. You can't target market only certain taxpayers. And what's the equivalent of profit for a government? Surplus? It's a very different thing to make average people successful than it is to prove that you're special and yet - of course - campaigning is about just that: making the argument that you're special.

The Lie: The economy is like a household.
The Truth: This is like saying that the ocean is like a cup of salt water. This would just be a silly comparison if it weren't so dangerous and believed by so many. The economy is defined by dynamics that a household simply doesn't capture.

The Lie: I'll go to Washington and make a difference.
The Truth: Bill Clinton once said that being president is like running a graveyard: you've got a lot of people under you but no one is listening. And in this election, you're not voting for a president, easily the most powerful person in DC (and yet still not that powerful). You're voting for a senator or representative at the national level. Those people represent 1 out of 535, not even one percent of the people who influence legislation. The best bet is that the guy you vote for won't make a difference.

How Google Creates Income Disparity (Or How Google Has Confused Their Ability to Hire Great People With the Ability to Make Employees Great)

Jonathon Rosenberg and Eric Schmidt have just published "How Google Works." Recently Yahoo CEO and former Google employee Marissa Mayer interviewed them about it at the Computer History Museum.

They had some great insights about the direction of technology and how to give talented people a degree of autonomy to work on products they were passionate about. I nearly missed that, though, because they started out with completely inane advice that they didn't even realize was inane.

Their foremost advice was to hire highly creative, driven, passionate, smart people. And as proof that their approach works, Schmidt mentioned that the most interesting startups and Google projects were run by people hired under a program that Marissa Mayer developed to recruit and cultivate such people.

This is obviously impeccable advice. It is also - less obviously - irrelevant to most companies. It's like Harvard or Stanford telling other universities that they should only admit amazing students with the highest SAT scores and most interesting backgrounds.

On average, the average company is going to hire average people, just as the average university is going to accept the average student. Presumably, every company will try to hire the best employees they can and every university will try to enroll the best students they can. And because Google is in such an amazing space right now - flush with resources and a culture of the best and brightest - they find it easy to hire the next best and brightest person. That's not advice though, anymore than Angelina Jolie might advise an aspiring actress to be seen as the most beautiful woman in the world.

There is a huge difference between creating a company that would make average people accomplish extraordinary things and a company that will allow extraordinary things. To Google's credit, they seem to have created an organization that allows extraordinary people do extraordinary things. Not every company does that. That's a huge plus. But it's not obvious that they've created a company that average people can use as a template for creating something extraordinary.

It's easy to say that such a thing is not possible but if you compare the productivity of modern employees with that of employees from 100 or 200 years ago, it's obvious that progress depends on enabling the average person - that individual who is in the 50th percentile - to do something better and more remarkable than such an individual could 5 years earlier or 30 years earlier. Comparing things historically, we have enabled the average person to do extraordinary things. By the end of the 20th century, progress had enabled the average person to be six times as productive, even while reducing the average work week from 6 days to 5. More recently, though, that hasn't happened.

Median household income is no higher than it was twenty years ago. There are a lot of reasons for this but maybe an overlooked one is how companies like Google are doing so much to select out the best and brightest and mistake that for making the average person more productive. Our strongest institutions - from Google to Harvard - aren't just ignoring the bottom 10 or 20% but are actually ignoring those outside of the top 1%. It might be that because of this, it's no coincidence that the divide between rich and middle-class is growing.

From Lean Startup to Lean Schooling - What if Students Were "Graduated" Every 10 Weeks?

One of the central ideas of the Lean Startup by Eric Ries is the idea of Minimum Viable Product, or MVP. The purpose of a MVP is to release a product as quickly as possible in order to begin gaining market feedback. The biggest waste is making a "great" product for which there is no market, so the more rapidly a startup learns whether it should persevere or pivot (change key features, target a different market segment, etc.) the more likely its success. Product release and re-direction that might take traditional product development teams a year or two could be happen in weeks or months instead. A company practicing Ries' (and Steve Blank's) method could have made dozens or hundreds of release iterations in the time a traditional company might take to make its first release.

Think about that concept applied to education. Even just the education after high school. Our current university system - largely invented by Wilhelm Humboldt nearly 200 years ago - wastes billions in budget and costs graduates trillions in lost income. The waste is enormous.

As it now stands, an 18 year old chooses a major, a direction in which to take her life, based on some vague notions of joy in work, income, and their own interests and strengths. But for far too many students, they invest four to six years of their lives, pay tens of thousands in tuition and forego perhaps a hundred thousand in income in order to get a degree that ends up peripheral to their career. The first real feedback they get about whether this major is going to create opportunities to work with the sorts of people they enjoy, doing the sorts of tasks that engage them, creating value for markets able to reward them is after graduation. Some - many - go back to school for graduate or professional degrees after getting feedback on their bachelors degree but these, too, often result in unhappy careers. I recently had a lawyer tell me that, based on her experience, about 80% of lawyers hate their career but can't go into anything else because they are burdened with student loans that preclude a change.

What if, instead, universities practiced a variant of Minimum Viable Product? Instead of rapidly releasing products for feedback - products that are continually revised based on real market response rather than speculation - universities could rapidly "graduate" students to enter the market? What if students were put into the work place within weeks of when they started university? Say at the end of a 10-week quarter? And then returned to university 2 to 10 weeks later with real data they could use to steer their education.

One huge difference is the difference between students and products. Products don't care about what market they land in or whether they enjoy their customers or not. Students do care and deserve real-world experience in a work place to learn whether the sorts of people they'd work with (and customers they would serve) are people they'd enjoy working with or for. They'd begin to collect data based on their own experiences, from the nature of the work to the experience of the paycheck. They begin to learn whether this work was more conducive to the experience of flow or frustration.

In the world of products, the releases never stop. Ries cites examples of companies that make dozens of software releases a day, A product is continually evolving, continually changing and (hopefully) improving. Students could do something similar, going through this continual process of "graduating" into the market every 10 weeks for 2 to 10 years, depending on the nature of their study and the direction their interests, passions, and market demand take them. Just as in today's world, some would walk away with the equivalent of an AA and some a Ph.D. But the difference - and it would be a huge difference - is that their degree would be the product of continual contact with actual work experience. The possibility of disenchantment with that career would be lower - or at least would be informed by actual experience of it rather than speculation about it.

It would be easy - and reasonable - to suggest that this is impractical or that internships already exist or that students can already work part-time jobs to get such experience. But the school system is not set up to ensure such on-going contact with the experience of work. Only a few students are able to create or find such experiences. A society willing to invest billions in education and expecting young people to invest years of their life should be able to systematically create such experiences. (And if there are not enough opportunities for working in a particular field, that could work as a brake on new students entering that major. Why invest another 2 to 10 years in a career for which you can't even get a few weeks worth of work now?)

Education matters too much to defer feedback on it to the very end. By whatever means, universities need to take more responsibility for letting students learn from the market and their own experiences and not just learn from professors and textbooks.

A Museum of What Has Been Lost - Starting With the Story of How After the Mona Lisa Was Stolen The Lines at the Louvre Grew Longer

The Mona Lisa was stolen in 1911. More people lined up to see the blank wall on which it had hung than had previously lined up to see da Vinci's actual masterpiece. It seems to say a great deal about human psychology that we focus so much on what is missing.

It seems fitting that Franz Kafka cut short his vacation to rush to the Louvre to be a part of this event that could have been described as Kafkaesque. Of course any reputable country music artist could tell you that songs focusing on what is missing hold our attention.

This suggests the possibility of opening a museum of lost objects. (For one thing, acquisition costs would be incredibly low.)

Within the museum could be rooms of empty space, each blank space a tribute to lost art or literature. The Greek tragedian Sophocles produced about 120 plays, only seven of which have survived into modern times. "The scholar Didymus of Alexandria earned the nickname 'Bronze-Ass' for having what it took to write more than 3,500 books; apart from a few fragments, all have vanished."* Of the seven ancient wonders, only the Great Pyramid remains. What we now have saved in traditional museums is just a fraction of the great works that existed once upon a time. There are hundreds of museums filled with items that have been "found." This museum of what has gone missing would be the one museum that could be labeled "lost."

Perhaps along one wall of this special section of what is missing could be a place where people - along the lines of PostSecret - wrote down some of their deepest losses, from opportunities to great loves to being able to run without aches. It might just be that people would line up to see that. 

* pp. 81-2 of Stephen Greenblatt's The Swerve: How the World Became Modern

Stupidly Predicting the Stock Market (Fools Rush in When Angels Dare to Sell)

If you want to look foolish, predict the stock market. Given I've just tweeted a jobs report prediction (over 300k for October, to be reported in early November), I may as well set myself up for a full prognostication pratfall and add the stock market as well.

The S&P 500 is up only 1.4% from the start of the year. For all the talk of an over-priced market, that's not exactly indicative of a bubble. And if you go back to pre-dot.com bubble, to Jan 1997, the annual return since then works out to fairly pedestrian 5.5%. Again, that's not exactly outrageous. From a long-term perspective, the market has plenty of room to rise.

Secondly, the Eurozone has serious structural issues. It is unlikely to hit strong growth in less than 1 to 5 years, so it won't be much competition for investment dollars.

Emerging markets are due to rise again - given their stage of development they could probably put capital to the most productive use - but it's going to be hard for them to begin exporting at the proper rate when southern Europe and the US are trying to work down their current account deficits.

Bonds are risky investment alternatives. The Fed can't lower interest rates any lower and with unemployment now under 6% it's just a matter of time before they start raising rates. Worse, the global economy is still flirting with deflation, something that would make nominal bond rates fall. Both - or either - of these events will just cause bond prices to fall.

The smart money has left housing now that prices made a big shift upwards last year. Mortgage loan requirements are still harder to get than during the mid-aughts boom and likely will be for years. Home prices should edge up for homeowners, which is nice, but it's not obvious they'll rise sharply enough to attract a lot of investors.

Commodities will be hurt by stagnating demand in Europe. Oil prices are already falling and prices at the pump promise to edge close to $3 by year end. Gold is less alluring as voices like Glen Beck's are no longer able to point to record deficits as (their) proof that gold will soon be the only safe refuge.

All that to say that American companies - who have proven their ability to generate record profits even during a weak recovery much less what now (in the States) promises to be a strong recovery - are probably the only serious investment alternative. It would be lovely if stock prices were lower but I think we are in a period in which returns to capital are simply lower. Part ownership in a company through the stock market will probably be the best investment alternative we'll have for a significant part of a portfolio.

So, I'd look for a sharp rise in the market before year end. I think between now and December 31, the market could easily rise 5% or more. The result will be a fairly unimpressive year but it will have gotten their in spectacularly volatile fashion.

The GOP's List of Spectacularly Wrong - But Sincerely Panicked - Major Predictions

You can tell a lot about a worldview by how well it predicts. Of course worldviews are weird tools that can more readily shape us than we shape them. Because of this, even if a worldview is proven wrong we are likely to defend it.

Mitch McConnell is the minority leader of the US Senate. If he and the Republicans win the November election, he'll be the majority leader of the world's most powerful legislative body. In a recent interview, he criticized Obama for presiding over a "jobless recovery." Mitch has been in the Senate since 1985 and this year's job total will be nearly double the average during his time. (Okay - 1.85X, but that's pretty close to double.) It used to be that the Republicans limited themselves to bad predictions. Now, emboldened by a decade in which voters have not held them accountable for a worldview that predicts nothing accurately, they have decided to simply lie about current reality. It's not obvious that voters care; Republicans will probably win the Senate.

The Republican Party McConnell helps to lead has made predictions on a series of issues during this century, and their record is nearly perfect and worth reviewing.

1. Tax cuts will create jobs and won't create a deficit because the economy will grow so much faster.
2. Iraq has WMD
3. Iraqis will greet us as liberators.
4. Iraq will become a beacon of democracy in the Middle East, a model for other countries and help to stabilize the region.
5. Financial deregulation will make the economy stronger.
6. TARP will cost taxpayers billions.
7. The deficit needed for stimulus, to help the economy recover, is growing out of control and will take down the economy.
8. Obamacare will raise medical costs.
9. Obamacare will cost us jobs.
10. Obamacare will drive up the deficit, a deficit already out of control.
11. Obama can't control the border.

All of these predictions were made with great certainty, alarm in their eyes and conviction in their voice. So how did they do?

1. In the three decades before the Bush tax cuts were enacted in 2001, job growth averaged 19.8 million jobs. In the decade after the Bush tax cuts (2001 - 2010), the American economy lost nearly 2 million jobs. And the deficit? When Bush won office there was a budget surplus of $236 billion. A decade later, there was a budget deficit of $1.3 trillion, a swing from positive to negative the size of Australia's entire economy. It would be hard to imagine a scenario in which Republicans were more spectacularly wrong. But they didn't stop there.
2. It turns out that not only did Iraq not attack us on 9-11 but they didn't even possess weapons of mass destruction with which to threaten us or our allies. Nothing was found during the decade in which US investigators and troops scoured the country.
3. Iraq is now a terribly divided country. About the only thing that the major parties could agree on recently is that they wanted America out. 
4. Iraq has become a model of corruption and minority oppression. Millions have been displaced and hundreds of thousands killed. Neighboring countries are ravaged by civil war and now ISIS threatens to further de-stabilize the region. Worse, the various forces battling in this region are better trained and better armed - now able to kill more efficiently and effectively - thanks to a massive infusions of American money, arms, and training.
5. Bush raised up a vision of increased rates of home ownership, praised financial de-regulation and free markets. The subprime market that emerged out of this deregulation helped to blow up the global economy. The Great Recession caused unemployment to spike into double-digits across most high-income countries and the banking rescues cost trillions of dollars. Trillions. 
6. TARP - the bailout program that was a joint product of Bush and Obama administrations - not only stopped banks from failing but paid back billions to American taxpayers. 
7. The deficit that was seemingly growing out of control is now well under control. No one even talks about it. It is now at 2.8% of GDP (which is below average), down nearly a trillion from the peak it reached during the Great Recession. Neither inflation nor interest rates spiked as alarmists warned. 
8. Before Obamacare was enacted, per capita spending on healthcare rose about 4% a year. In the most recent 3 years, it was gone up 1.3%, the lowest 3-year rise on record. 
9. Obamacare will cost us jobs, Republicans warned. They are right about this. People who used to take a job just to have healthcare coverage are now using Obamacare instead. But more broadly, last decade's loss of more than a million jobs is on track to become a job gain of 20 million in this decade. A drop in the rise of healthcare actually helps American companies to be more competitive.
10. Healthcare costs drive the deficit. Now that healthcare costs are rising more slowly, revised estimates for this - and future years' - deficits have dropped. If Obamacare has actually helped to lower prices, it has lowered the deficit. 
11. Net immigration from Mexico is roughly zero (there are about as many Mexicans returning to Mexico as coming to the US) for the first time in decades.

The GOP's major prognostications of the last decade have been wrong. Spectacularly wrong. It isn't hard to get predictions wrong. Anyone who tries to predict makes mistakes. It is hard to so consistently be this wrong. Now, of course, the next line of defense against actually changing a worldview is to claim that the facts are wrong, to change labels, to simply deny. (It's hard to know where McConnell's "jobless recovery" claim falls among these categories. Is he denying the facts reported by the BLS? Does he have a new label for a recovery that creates jobs? Is he denying that the economy is creating jobs?) This mix of denial and dismissal seems to be the direction McConnell wants to lead Republicans in now. Sadly, I think they'll have a pretty good following. 

5 Reasons Boehner's Tweet Called Our Attention to 5 Points He Couldn't Make

Today, Boehner sent out this odd tweet, a "5 points for jobs" plan

The twitterati were quick to notice that he'd left these five points blank and filled them in for him. Rather than provide 5 points, I'd like to suggest 5 reasons he may have released such a list.

1. The GOP, the party of self- reliance, has finally adopted a "do-it-yourself" platform, inviting everyone to come up with their own jobs plan and filling in the blanks themselves. ("You better have a plan to get your own job.")
2. Boehner held up his hands to his staff, fingers splayed, and said, "My jobs plan has five points ..." and then, like Rick Perry listing government agencies that he would shut down, got stuck. Unlike Perry, Boehner was unable to even start his list.
3.   It is a surreal nod to laissez-faire capitalism, assuring voters that no matter how long the list, nothing will be on it.
4. It is a list of the legislative achievements of his 113th Congress. (This same list works for jobs, crime, environment, foreign policy, healthcare ... well essentially everything. No Congress has done less in terms of legislation.)
5. Boehner types out his own tweets on a modified IBM Selectric and accidentally hit one too many carriage returns as he was still composing his list.

It's Time for a True Patriot in the White House

Instead of the obligatory American flag lapel, it's time for presidential candidates to show they love every state and not just the country. I'd like to see them with a chest full of flag lapels to prove that they love Wyoming AND Vermont.

The puny little American flag could be replaced by a chest full of state flags, like medals on the chest of a general.






It would be great to have a medals race during the debates, each trying to out patriot the other. It might look something like this:

The Economy May Have Hit a Tipping Point for Wage Growth

It won't be until employees have choices about where to work that we will see wage growth, a key to progress. Ben Casselman reports at fivethirtyeight.com on a statistic that could signal a turn in labor market conditions.

Some people are unemployed because they lost their job. Others left their job or decided to rejoin the labor force and are looking for one. For the first time since the Great Recession began, the number in each group is roughly the same.

People don't leave a job unless they believe can do better. (Even if doing better means living closer to someone they love, working at a lower income.) Generally speaking, as more people leave jobs of their own choice, they head into better jobs. By contrast, when they are laid off, they often have to take lower-paying jobs. This difference in how they leave - of their own volition or because they are forced - could be the first strong signal that wages are about to start rising faster than inflation.

So many problems that people (rightfully) fret about, problems like stagnating wages and income inequality, might simply be the product of woefully inadequate job growth. It make take a decade of normal job growth to ameliorate these. The good news is that we're on track for creating about 20.5 million jobs this decade. The bad news is that we're coming off a decade in which we lost a million jobs and so far, we've gained only 9.7 million this decade. We're still coming out of a crater.

But with unemployment finally below 6% and still heading down, the labor market is healthy enough that it can start putting upwards pressure on wages.

Today's Jobs Report Sets a New Record for Consecutive Months of Job Creation

Last month the economy gained 248,000 jobs but today's announcement is for 317,000 new jobs since July and August numbers were revised upwards by 69,000.

The total for the year is already over 2 million with one quarter to go. Better yet, the fourth quarter has been one of the strongest during the recovery.

We're on track for the best year since 1999. 

This is now the longest uninterrupted streak of positive monthly jobs reports. For exactly four years BLS has reported net gains in job creation, matching the streak in the late 1980s. And this streak is almost certain to go longer. This in the midst of the Tea Party's near-government shut-down last year, Ebola panic this year, repeated Eurozone crises, Arab Spring, Russia's invasion of the Ukraine, and the fact that during no other recovery has the federal government been shedding jobs. There have been, in the parlance of the field, some strong headwinds. And during this volatile period, the American economy has created 9.1 million jobs, more than Japan, Western Europe, Canada, and Australia combined.

At 5.9%, the unemployment rate is below 6% for the first time since before the Lehman Brothers bankruptcy in September of 2008 that - for many - marks the beginning of the Great Recession. (In the 14 months after Lehman Brothers, the economy lost 7.2 million jobs, a staggering number.) Better yet, the rate at which the unemployment rate is dropping is accelerating. Accelerating at the point at which the longest previous recovery on record stalled. 

Perhaps the best news about this has yet to play out. For more than a decade, the jobs market has been weak. Imagine a rope that pulls up wages. If that rope is slack - if the unemployment rate is 6% or higher rather than 5% or lower, say - wages stagnate. We are entering a period in which the job market is finally strong enough to not just create jobs but to bid up wages. 

It might just get better. 

Entrepreneurship Can Be Taught - And Might Someday be Taken as Seriously as High School Football

A new study by Kathryn Shaw of Stanford provides data supporting the notion that entrepreneurship can be taught. 

I would assume that like art, football, or accounting, there are people with a natural aptitude for it and that anyone can become better at it with the right coaches and experience. 

Every high school student knows about successful, high-paid athletes in the country and has a team of coaches at their high school who can help them to become better at football or basketball. In 40 of the 50 states, the highest paid public employee is a football or basketball coach.[1]  Even though everyone knows that only a fraction of the kids playing football in school will go onto become pros, the ones who do are all the more adept at it for all the time they "played" in school.  There are one million kids playing high school football. 1,700 men play for the NFL. 

Imagine taking entrepreneurship even half as seriously, making sure that students weren’t just aware of high profile entrepreneurs like Gates and Zuckerberg but actually had coaches at school who could help to develop them. Even if just a fraction of the kids who "played" entrepreneur in school went onto become professional entrepreneurs, it could make a huge difference in rates of job creation.

Gallup CEO Jim Clifton, who has led the analysis of millions of bits of data on this topic, argues that “from all of Gallup’s data and research on entrepreneurship, what will most likely tell you if you are winning or losing your city … [is] 5^th to 12^th graders’ image of and relationship to free enterprise and entrepreneurship.”[2] 

Just as students now play sports, they could compete on business plans and they could launch startups as varied as for-profit businesses, social movements and bands. A community could work to team up aspiring entrepreneurs who have business savvy and new business models with aspiring innovators with technical skills and new inventions. There are already a smattering of people pioneering and advocating policies such as these; what they need to make an impact is a community primed to realize the importance of developing such strategies and programs. Who knows? Perhaps in 20 years the top paid public employee in, say, 4 states will be an entrepreneurial coach who has helped to launch dozens of successful startups, creating jobs and wealth in the process.

Here's a really exciting example of people taking this idea seriously coming from the thought leader Steve Blank.
http://www.inc.com/steve-blank/teaching-students-entrepreneurship.html

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[1] http://deadspin.com/infographic-is-your-states-highest-paid-employee-a-co-489635228

[2] Jim Clifton, The Coming Jobs War, Gallup Press, 2013. 

In Just 2 Years the Economy Lost 8.6 Million Jobs, Erasing 8.5 Years of Job Creation. It Took Only 5.5 Yrs To Recover

It was only six years ago that the Great Recession began in the Fall of 2008. Lest you yawn at this Friday's announcement of tying the record for consecutive months of job growth (9 million jobs created over 48 months) and last week's announcement of 2Q GDP growth of 4.6% (annualized rate), it's worth reviewing how awful things were such a short time ago. It could have been worse than the Great Depression. It certainly started out worse.

"Between March and September 2008, eight major US financial institutions failed - Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Washington Mutual, and Wachovia - six of them in September alone. And the damage was not limited to the US. More than 20 European banks, across 10 countries, were rescued from July 2007 through February 2009."

The failures and near-failures weren't limited to just the banks in question. This rippled out. Credit dried up.

"The seasonally adjusted value of commercial paper outstanding in the U.S was $2,150bn at the end of June 2007. A year later, this had shrunk to $1,741bn. A year after that, in June 2009, it was down to $1,229bn. It had still not recovered in June 2013, when the outstanding amount was just $998bn. Asset-backed commercial paper, which is used to finance mortgages, shrank even more dramatically, from $1,200bn in June 2007, to $523bn  two years later and a mere $276bn in June 2013."

The result was a contraction in international trade, purchases, and hiring. Without financing, people don't buy cars and houses, start businesses, or hire employees. Financing is the support structure for the modern economy. Without it, GDP collapses.

"The volume of world trade fell by close to 20 per cent in the twelve months from April 2008, against around 10 per cent over the twelve months from June 1929. World equity markets fell by around 50 per cent over twelve months this time, against around 20 per cent in 1929-30. ...
Between the third quarter of 2008 and the first quarter of 2009, the annualized rate of decline in GDP in the six largest high-income countries ranged from 6.4 per cent in France, 7 per cent in the UK and 7.1 per cent in the U.S. to 10.2 per cent in Italy, 11.7 per cent in Germany, and 13.8 per cent in Japan."

In just two years - from January 2008 to December 2009 - the US economy shed 8.6 million jobs. To put that in context, in the seven prior years of George W.'s presidency the economy had created only 5.6 million jobs. In just two years, we lost 3 million more jobs than we had created in seven. It was as if every job created from October of 1999 forward had disappeared, 8.5 years of job creation erased. Fortunately, it took only 5.5 years - not 8.5 years - to recover those jobs.

The fact that in the wake of this financial crisis - a financial crisis worse than what triggered the Great Depression - we have tied the record for consecutive months of job creation is truly remarkable and worth celebrating.


Quotes taken from Martin Wolf's The Shifts and the Shocks: What We've Learned-and Have Still to Learn-from the Financial Crisis