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.

Donald Trump is the Republican Party's Better Version of Itself. Seriously

In a Washington Post poll from just four days ago, Donald Trump had nearly double the support of his two leading competitors.

Serious political commentators see the Donald as a side show, a troll, a clown who knows how to distract the audience from what's going on in the main ring of the circus. They argue that Donald knows how to tell voters what they want to hear, isn't seriously dealing with real policy issues, and is thus not a serious candidate. The theory behind this misses something, though. It assumes that the other candidates are more serious.

Scott Walker, the governor of Wisconsin, is second in this poll. Is he a serious candidate? Scott did not complete his bachelors degree and argues that such a degree ought not to be a requirement for teaching in public schools. This would hardly be a serious policy proposal in 1915, much less 2015.

Jeb Bush is next in the polls. Beyond the fact that Jeb doesn't actually seem to have revised his worldview or policy proposals based on his big brother's disastrous results, his "boldest" proposal so far is 4% GDP growth. "There is no excuse" for GDP growth lower than that, he says. This might be an incredibly subtle slam of his father and brother (who each presided over GDP growth of about 2%). What it is not is a serious policy proposal. Not only has GDP growth of over 4% never occurred throughout the whole of anyone's presidential administration (Clinton came closest but even he and Reagan did not have that kind of luck for long), but more importantly, Jeb is not actually making any policy proposals that would drive such growth. This is an important point that gets completely glossed over: a goal without a plan is a kind of fiction. Jeb offers no stunning insight into what flaw was made by each of the previous 43 presidents. He just says that he can do better. Than all of them. Every president in history is less able than Jeb. And we're to take this seriously?

Walker and Bush are considered serious candidates but it is not clear why. They are telling voters what they want to hear and they're not starting with facts (global temps are rising, for instance, as is income and wealth inequality). They are adept at politics even if they're poor at policy. How is this different from Trump?

Donald Trump is not a crasser version of many of the other GOP candidates. He's a better version of them. His outrageous claims are more interesting, said with more conviction and sincerity, and just as free from fact or nuance. He talks about Mexicans as rapists and criminals but is his distortion of facts all that different from the mainstream GOP? An article of faith among Republicans is that illegal immigration is a growing problem. The fact is that the number of illegal immigrants has been dropping since its peak in 2007. It's true that suggesting the Mexicans coming north are rapists is more offensive than suggesting that a growing number of illegal immigrants are coming from Mexico. It's not true that either shows much regard for reality.

Starting with the Bush Cheney administration under Karl Rove's guidance, the Republican Party showed its willingness to subordinate good policy to good politics. The Iraq war was a policy disaster but it helped with W.'s re-election. Great politics don't always translate into great policy. Donald Trump is not an aberration from the Karl Rove model. Instead, he is its natural outcome. If the Republican Party had serious conservative candidates like, say, the UK's Prime Minister David Cameron, they'd be right to take offense at Donald Trump's lead in the polls. Instead they have candidates who can't admit that economic policy might require more subtly than another round of tax cuts or that 98% of scientists might understand climate change better than talk show hosts. Once you choose to go down a path that shows a disregard for expert opinion and instead relies on gut instincts, you're heading down the path towards a Donald Trump. And getting that much closer to becoming to the 21st century what the Whigs were to the 19th century.

Pope Francis Continues Tradition of Papal Confusion

This week the pope apologized for the Catholic Church's role in the exploitation of the people of the Americas. That was nice. 500 years late but still nice.

Then he spoke out against a new colonialism. What is that? It's capitalism, which he believes is fostering inequality and exploiting the poor. His criticism of markets is something that some future pope will be left to apologize for. Hopefully it won't take centuries.

Popes seemingly make a habit of being wrong.

Markets are hardly perfect but they make life better for most people most of the time. This last decade has been a rough one. It included the worst global recession in nearly a century. But even then, markets made life better.

Between 2001 and 2011, the percentage of the world's population living in poverty - defined as living on $2 a day or less - dropped by half. Markets are not increasing the rate of poverty. They're lowering that rate. And it is this force that the pope speaks out against?

The pope is the world's last absolute monarch. The centuries when this power actually extended over most of Europe (and not just the Vatican, an area of land smaller than the average Ted Turner ranch) was called the Dark Ages. It was a time of misery, ignorance, intermittent starvation, abject poverty and a life expectancy of less than 30 years. Compared to today, it was a living hell. This is the kind of world you get without markets and the pope has the audacity to criticize the economic force that supplanted that system.

We do need someone to speak out for the poor. Markets don't make life better for everyone. Religion, charities, aid programs, and government programs can help the poor who markets ignore. Someone like the pope would seem like a natural spokesperson to speak out on their behalf. But to insist that the fruits of powerful markets be more widely shared is very different from criticizing powerful markets. It is one thing to ask for more porridge and another to spit in the serving bowl.

The pope has the authority to speak out on behalf of the poor. If the pope were an authority on economics, the time when popes ruled the West would be known as a time of Enlightenment and prosperity instead of the Dark Ages.

The Real Greek Tragedy - Europe's Stagnant Economy

"Most problems cannot be solved. And most problems are made irrelevant by success."
 - Peter Drucker

If the Eurozone had grown by an average of 2.3% since 2006, Eurozone GDP would be 3 trillion euro bigger than it is now. To put that in perspective, 3 trillion euro is about 18X Greece's total GDP.

Now obviously the Great Recession played havoc on economic growth, but even if you go back 20 years, to 1995, Eurozone GDP growth has averaged less than 0.4% (that's not forty percent or even four percent - that's four-tenth of a percent).

The real tragedy is not that Greece is struggling to pay back the loan that either they were foolish enough to borrow or the Germans were foolish enough to loan (if anyone is a fool not to have seen this coming, than surely everyone is a fool; if Germany wasn't foolish to loan the money than surely Greece wasn't foolish to borrow it). The tragedy is that Eurozone GDP has not grown enough that Greek debt would be a rounding error. Indeed, if GDP had grown at a healthy rate, the entire Greek economy would be a rounding error.

Greece's economy is only 1.3% of the Eurozone GDP. Sadly, everyone is fixated on the Greek debt as if solving this little problem of their debt matters even half as much as the really, really big problem of stagnant growth. Healthy growth of 2.6% would mean the Eurozone was growing by TWO Greece GDPs a year. This would be sufficient to solve any debt problem.

Instead, the best minds, politicians, analysts, and reporters are wasting their time, attention, and imagination thinking up ways to "solve" the Greek debt problem rather than solving the European growth problem. That is the real tragedy of this crisis.

Observations from Recent Trips Around the Country (Many Reasons for Optimism and One for Concern)

The media works hard to find the worst among us. They have thousands of employees whose job it is to find the corrupt bureaucrats, the cheating spouses, the crazed killers, and the simply peculiar. One advantage to wandering the country, able to meet people at random, is the realization that most people are delightful and good.

In the last five weeks I've been on business trips to Portland, San Francisco, Washington DC, Del Mar, California, and Boise, Idaho. We help companies to manage product development projects and when we're busy it is often a leading indicator of good things to come. When companies want to accelerate product development it means that they're optimistic about market potential and are willing to pay extra now for more revenue later. Often, our planning sessions result in their realization that in order to launch their product on-time or early, products often worth millions a day in revenue, they'll have to hire more of a particular skill set. They don't just pay us (we are typically a rounding error in their business in any case); once they see what they need to do to really accelerate, they pay more in hiring, subcontractors, and investment in equipment. All that to say that what our being busy suggests is that businesses are optimistic about future prospects. When they're worried, they focus more on trimming certain costs (that is, they don't hire us) than accelerating uncertain revenues.

We are Still in a Stage of Expansion and Hiring
It seems like we've entered a stage at which companies are less focused on getting more with less (which often means, "You'll do the work of two people for now, Joe, because we can't afford to hire anyone to replace Amelia,") than getting proper staffing. They're hiring.
When I start with a new client, I have to get processed for a badge so I can get in and out of their facility. On one of my trips, I found myself in the midst of a small covey of new employees, all looking baffled that they were just one of many starting that very Monday. "How many new employees do you hire on an average Monday," I asked the folks taking photos and making badges. "It's about 30 to 50 lately," came the response. For the one site.

At a conference for project managers in the pharmaceutical industry, about every break someone else was standing up to say that they were hiring. Then they did a little ad for their company, obviously working to make it sound appealing in their efforts to gain interest. It did not sound to me like an employers' market. On the negative, most of the jobs seemed to be in places like San Francisco and Boston, where cost of living is a big obstacle.

What We Americans Look Like to Europeans
Many of the teams I work with have a mix of nationalities. Just in the last month I've worked with folks making computer chips, medical devices, new drugs, and nanotechnology and as a general rule, the more specialized the technology skill sets, the more varied the accents. In particular, the teams I've worked with recently had more than a few Europeans. Out to dinner one night, I was sitting with a few guys from the Netherlands, one from Germany, and two from Czech. We were all eating burgers and about three bites in I felt like a barbarian. I was the only one not eating my burger with a knife and fork.

Chatting with a German from another client who had just moved to the US about four weeks earlier, I asked him what was most remarkable about the US in his brief time. "Just the waste," he said. "You buy four items at the store and they give you three bags. You order a meal and they give you enough for two people. It's amazing."

A British client has been living in the US for decades. He said, somewhat tongue in cheek, somewhat seriously, that every 4th of July he felt offended. Finally, one year he decided to take his sailboat up to Vancouver British Columbia. He was delighted with how British it seemed up there, even down to the red mail boxes. Plus he was avoiding the 4th. He felt almost giddy. Then he was driving somewhere and was shocked at how much traffic was there.
"What is going on," he asked.
"It's Canada Day," they told him.
"What's that?"
"We're celebrating our independence from Britain," they told him.
"Oh crap," he exclaimed.

Abnormal (Weather) is the New Normal
Of course everywhere seems extreme in comparison to San Diego, but even by the standards of locals the weather is extreme.
Boise got to 109 and was over 100 every day of the week I was there. Portland is setting records for hot. The grass along the runway in Seattle was uncharacteristically brown. From Seattle to Vancouver, BC, the summer has been hot and dry.
Meanwhile, the east coast and great lakes region is another kind of extreme. In four days, I had two big rain storms - complete with lightning - in DC, leaving puddles deep enough to submerge socks. Chicago set a new record for rainfall in June, getting nearly 9 inches.  In one month.

Every City is Getting Better
I love San Diego. I'm happy I live here. When I started traveling regularly, about 20 years ago, I rarely found myself anywhere that I felt I'd be happy to live, much less give up for San Diego. In the last five to ten years, though, every city I visit has become more interesting. Some I would even be content to live in.

Local government has created public works that make life better. For instance, Boise has a beautiful green belt area along the river through downtown. You can walk or jog through beautiful copses of trees. Families raft from one place to another. It's delightful.

And businesses have also upped their game. It used to be that you had to choose between local businesses with a lot of personality but bad prices, selection, and decor or mass manufactured chains that were consistent in quality but offered boring fare, products, and decor. Now, more and more local businesses have personality and quality, offer distinct products at good prices, and keep your attention. Cities are simply more interesting and safe and it is largely because of local entrepreneurs and social activists who have upped their game. The standard is high and getting higher.

The list of cities that I would be content to live in has grown in recent years. I still have no plan to move but as often as not, instead of coming home from a trip relieved that I don't live in the city I just visited, I feel like, "I could live there." Even Cleveland, Ohio, where I traveled about a year ago, left me feeling that way. (I know. I know. I wasn't there in winter. But even so, they sell heaters and jackets.)

No one will tell you this because it makes all the angry pessimists even angrier, but the country is getting better. It's a great time to be alive and - at this rate - will be even better for our grandkids. That's reason enough to have a happy 4th of July.

What the Acceleration of Product Adoption Means for Politicians Who Resist Social Change

"Dude," did you see how the gays just like, organized and got same-sex marriage legal, like, everywhere?"
Dude exhales. Giggles. "Yeah."
"We should, like, totally do that for weed."
Inhales. Long seconds pass. Exhales. Stares into space. "Yeah. That would be so cool."

Marijuana legalization has lagged same-sex marriage legalization for some reason, but both are trending upwards. Social norms are changing. And the rate at which they are changing is accelerating.

Friday, the Supreme Court made same-sex marriage legal throughout the United States. While Massachusetts was the first state to make it legal, it is worth remembering that San Francisco was the first government within the US to legalize same-sex marriage. San Francisco has also led the nation in entrepreneurship. Social innovation shows up as both entrepreneurship and as new norms and laws.

One of the most central drivers behind progress is social invention. We all know that the steam engine was central to the emergence of an industrial economy. People are less likely to realize that the emergence of the stock market and modern bank were just as important. The steam engine is an example of a technological invention. The stock market is an example of a social invention. The first lets parts do what they could not do before, resulting in new or different products. The second lets people do what they could not do before, resulting in new or different institutions.

During the last century, people have become more open to change. We expect technological invention and the parade of new products it brings. This chart from Pew shows how the time it takes for us to adopt new products has accelerated. It took 35 years for the telephone to be adopted by one-quarter of us, but only 13 years for the mobile phone. And the rate at which adoption is accelerating is accelerating. The PC took 16 years to be adopted by one-quarter of us, and once we had it took just 7 years for one-quarter of us to get online. We adopted the internet twice as fast as we adopted computers and four times as fast as we adopted radio.

This matter of accelerating adoption rates matters to anyone predicting social change. We don't just adopt new technologies. We adopt new norms. And, just like with technology, the rate at which we're adopting new norms is accelerating.

In no small part because what starts out as technological innovation becomes social innovation. The automobile drove the creation of the suburbs. Radio and TV drove mass consumption. The computer drove online trading. New products lead to new behaviors. As we become more accepting of new products, we become more open to new norms.

The rapidity of change in product adoption is echoed in a change in social norms. The rise in acceptance of same-sex marriage in the last 20 years has been remarkable. It has more than doubled since 1996, in less than 20 years.

A shift in product adoption can make or break companies. A shift in the adoption of norms can make or break political parties.

The Whig Party died in the US when Republican Abraham Lincoln passed the Emancipation Proclamation. The shift in norms from slavery being legal to being illegal was a greater shift than this week's legalization of same-sex marriage, and it took out a party when it hit. The Republicans continued to lead into the next century. Along with progressives like former-Republican Teddy Roosevelt, Republicans helped to legalize women's vote. 

But of course now, Republicans aren't thought of as disruptive social innovators. Instead, they are associated with resisting new social norms. They are the political equivalent of the ones who don't have a phone in the 1960s or don't have a computer in 2000. They don't lead the adoption of new social norms. They resist it.

Anyone who points to the fact that Republicans still have good numbers in most states needs to remember how quickly markets for products and political ideas can reach a tipping point and shift. Until the Republicans re-brand themselves as social innovators, they risk becoming the Whig Party of the 21st century.

The Stock Market as a Place Where Learning is Punished

One popular theory about the stock market is that its movement is random. This theory states that today’s prices reflect everything we now know. Only new information changes today’s prices. We don’t know if the new information will be good news or bad so we don’t know if prices are about to go up or down.

Maybe, though, there is a different explanation for stock movement.

Consider the possibility that the stock market is a place where - paradoxically – lessons are only beneficial up until the time they are learned. Once lessons are learned, they no longer apply.

That’s probably confusing but bear with me.

What happens during a bull market? First, a few investors who have purchased stocks after the bust experience great gains. Other people soon learn that you can miss out on big returns by not buying stocks, so they start to buy. Eventually, many people have bought stock.

Lesson that drives people’s behavior during a bull market?

If you buy stocks, you will make a lot of money.

What happens during a bear market? First, many investors who bought stocks at the peak lose a lot of money. Other people learn that stocks are a dangerous investment and best avoided.

Lesson that drives people’s behavior during a bear market?

If you buy stocks, you can lose a lot of money.

It is only once the lesson is learned that it no longer applies. Once people learn to be cautious, there is no reason to be cautious.  Once people see the benefit of risk, it is best to avoid risk. (Think about the 2008 financial crisis.)

It’s not that today’s information is reflected in today’s stock prices. If that were true, new information would change prices only incrementally and stock markets would not be so volatile. Instead, today’s prices reflect yesterday’s lessons learned. For a while. Once this lesson has spread to a critical mass of investors, though, it becomes obsolete. We reach a tipping point and at that point the lesson no longer applies.

This paradox of learning is not just a collective issue. It applies to individuals.

About 15 years ago, I bought a stock that I knew was high-risk and high-return. I thought that it had enormous potential but also knew it was really vulnerable. I told the kids that we would take a vacation on its value in a year. If it fell in value, we'd go camping for a weekend, If it took off like I thought it could, we would spend weeks in Europe. Well, it doubled. Then tripled. And then collapsed. The company went bankrupt and the value of my stock was not halved or reduced by 90%. It was zero.

Later, when I bought another stock that I thought had tremendous - but uncertain - potential, I used the lesson I'd learned.  The stock doubled. Then tripled. At that point, I cashed out my initial investment AND the amount by which it had doubled, leaving me with just a third of the shares I had initially purchased. Pretty smart, right? As of today, though, that stock is  up 15,585% from when I bought it and its management has announced that it will soon do a 7 for 1 split for this stock. (Yes. This is Netflix.) The lesson I learned from the earlier stock didn't apply to the next stock. Or more accurately, once the lesson was learned and changed my behavior, it was no longer a good lesson.

I’ve learned other lessons. I waited for Google’s seemingly inflated stock price to fall after the hype around its IPO in 2004. It rose steadily after its IPO and has never returned to that initial price since. I missed out on that ride by refusing to pay what I thought was a temporary blip in price.

So I learned the lesson that when a stock goes public with great potential it will open high and the keep rising just in time to apply it to a stock that opened high and then fell. Because of the lesson learned from Google, I plugged my nose and bought Lending Club at what seemed like a high price. Lending Club fell about a third from that initial, inflated price. Presumably other people had learned the lesson from IPOs like Google, a lesson that didn’t apply once people used it as a basis for paying what seemed like too much.

The next time I then decided to wait for the hype to fade, the high initial price of the IPO just kept climbing, rising 25% before I finally bought it. 

You might argue that stock movements are random and you might be right. But it might also be that the stock market is one place that punishes learning by changing in response to what we've learned the instant we've learned it.

You might even say that the real lesson learned is to do exactly the opposite of what worked last time but beyond the obvious problems (how do you actually define the last time? What is the opposite?), to the extent that this is actually learned, it will already be reflected in today's price and no longer be an applicable lesson. 

It is only the lessons not yet learned that work, which may be one reason that hedge fund managers like Jim Simons at Renaissance Technologies Hedge Fund have done so well by creating algorithms that detect patterns too subtle for us to learn. Even Simons couldn't explain why his algorithms found the relationships it did: he only knew these relationships (e.g., the link between yesterday's hog bellies price and tomorrow's value of the yuan) existed. Simons personally made $6 billion in income in just a few years using algorithms that broke the code on these obscure relationships that - apparently - he could never articulate in simple English. Why? Because in the stock market, it is only what hasn't yet been learned that is worth knowing.

Herbal Economics: Economic Policy in Modern Democracies

About half of Americans believe at least one medical conspiracy theory. The most popular belief is that the FDA is "deliberately preventing the public from getting natural cures for cancer and other diseases because of pressure from drug companies."

What we know about medicine now is incomplete but it is based on studies. I have worked with drug companies and while they are interested in profits, the people in these companies really do want to create products that improve lives. And they can't just make up data. After a variety of animal and human studies, they have to prove the efficacy of their drug over a three year window. It is not enough to have a story or two to illustrate this. They need data. From a lot of people.

The standard of proof for FDA studies is high. The guy selling bee pollen for your cold is telling you a story. It may well be that bee pollen shortens colds by 3 days for 80% of the people who take it. There are no studies to prove that. Instead, the guy selling this product tells you a story. It's not scientific but it is appealing. No dangerous side effects. All natural. And it'll cure you.

It's a beautiful thing that people can buy bee pollen even though it hasn't met with FDA approval as a remedy for colds. But of course bee pollen isn't covered by medicare. Unless you are talking about boycotting vaccines and thus putting the population around you at risk, your medical choices are individual choices. Popular opinion is not binding on medical experts.

Which brings me to economic policy.

In a modern democracy, economic policy is ultimately the product of popular opinion. Sort of. Voters respond to candidates' stories and either vote for them or not. The candidates who get in are the ones who help to shape economic policy. And while doctors don't shape their advice to align with popular misconceptions; politicians who hope to get elected must.

And this is the problem. "Bee pollen," is easier to understand than, "based on the protocol defined by our doctors in conjunction with our institutional advisory boards, we saw an improvement of 53% of the people in our clinical study, as opposed to an improvement in 28% who took the placebo ..."

When it comes to economic policy, "we should run the government like a household," is easier to understand than, "the multiplier for government spending during a recession is somewhere between 0.9 and 1.7."

It's a wonderful thing that we have a democracy. It does mean, though, that we're subject to herbal economics, home remedies that make for appealing stories even in the absence of actual studies.