Category Archives: wealth

Underutilization: labor

The Bureau of Labor Statistics has six different ways to measure unemployment, and there are many more.  Here is a table of those six showing them for the states.  I was interested in how large the gap is between the measures.  So here’s a picture.  Notice that in states with a large supply of jobs the gap is small and as the supply weakens you get larger numbers of people who have had to settle for jobs they don’t really want.  For example part-time when they want full-time.

This includes two metro-regions (LA and NYC) and the 50 states is 51 because it includes DC.  The last four points are DC, Nevada, LA, and NYC.  The first four are North and South Dakota, Nebraska, and Wyoming.  I’m not clever enough to scale the points by population.   Puerto Rico is not shown.

Note that U-3 is the “official” number.  U-1 and U-6 are on the chart.

If you aspire to squeezing the most out of the pool of labor/talent then U-6 sets a goal.  But even that is low because these days a large segment of the population has dropped out of the labor pool entirely.  Presumably they would come back if the supply of jobs increased.

That 20% number in LA is amazing.  The 3.8 million people in LA is more than half the states.

Selling out your Friends

Robert Shiller: “It’s not the financial crisis per se, but the most important problem we are facing now, today, I think, is rising inequality in the United States and elsewhere in the world.”  And he won a Nobel Prize.

I have a theory about this problem.  Think of the set of all the world’s supply chains as a network.  I think we need to grow this graph so it’s a lot more bushy at the low-end.  Shrubbery!   I guess this theory shares a lot with Bill McKibbon’s ideas in Deep Economy; or the Prahalad’s ideas in Fortune at the Bottom of the Pyramid.

‘I don’t keer w’at you do wid me, Brer Fox,’ sezee, ‘so you don’t fling me in dat brier-patch. Roas’ me, Brer Fox,’ sezee, ‘but don’t fling me in dat brier-patch,’ …

I continue to harbor great optimism about the Internet,  It can help us with this.  The Internet has an amazing power to enable communities of common interest to form.  These communities are great of shubbery.  Precursors of commerce?  Maybe.

But, it’s worth chewing on the ideas in “how to lose friends and family via mult-level marketing” a posting that Andrew highlights.  Andrew introduces the idea that MLM schemes provide a way for people to liquidate (e.g. convert to cash) their social networks.  Liquidate is what you get when your done the monetizing a social network.  Lots of people are into that.  Monetize – what a word!  What can’t we monetize, my cat?

So while I love the Internet’s power as a host of community forming I must say I’m taken aback by how rapidly capitalism has evolved businesses models that feed on these tender shrubs.

Ironically my social network got infected by one of these parasites just today.   A friend signed up for Venmo, a p2p payment company, and they posted this exciting fact to Facebook on his behalf.  I admit to an unhealthy curiosity about these emerging currency systems.  For example, I think Bluebird is very interesting.  So I went and signed up for Venmo and installed the app.  A few moments later I was distressed to discover it was scanning the entire address book on my phone, maybe a few thousand entries.  If you want to use thier payment network you have to hand over your contacts.  No way to void it.  So I uninstalled, etc.  Who knows if that helped?

I totally get that building out “the network” is an existential issue for companies like Venmo.  Desperate need is an excuse in a starving man, is it an excuse for a start up?  Not that you need to worry about Venmo.  Venmo got bought, and the buyer then got bought by Paypal.  So they captured and sold a network.  That this is what most internet startups need to do worries me.

Returning to shrubbery as a tool to work inequality problem.  No doubt there are many much more ethical ways to convert the small communities into engines of economic activity.  It would be great to have a list.  No doubt looking at MLM business models would inform that search.

The Modern Gentlemen’s club

I inherited from my father an affection for cartoons.  I still have his books of Punch, and a complete set of New Yorker cartoons.  One of the standard tropes in these collections is set in a gentlemen’s club.  Two large cigar smoking elderly gentlemen recline in leather arm chairs.  One says something to the other.  Such as: “I think I’ve acquired some wisdom over the years, but there doesn’t seem to be much demand for it.”

old_fartsMen’s clubs seem to be rare in America.  We used to have lots of them.  The suburbs and television sucked the life out of the, or so I’m told.  And the term “gentlemen’s club” now has become a euphemism.

But, for the rich, the men’s club solved a problem.  It got them out of the house.  Which is a serious problem if your a type A over achiever, since chances are you married a type A over achiever.  Imagine the trouble.  You sell your startup and decide to spend more time with the family only to discover there isn’t really room at home for two over achievers 24×7.

In the good old day’s you’d join a good club.  And added bonus: you could sit around and whinging about who the youth of today are going to hell in a hand basket.

But of course capitalism is very good at filling demand, particularly when those who have the need happen to have disposable income.  And thus we have the venture capital firm.  It’s actually better than the classic gentlemen’s club.  You can still have the comfortable digs, the high end dinning room, the subscription to all the daily rags.  But it’s better!  Instead of complaining about the young you get to invite them in and give them advise!

That’s an old joke of mine, though it’s not entirely clear if it’s a joke or a deep insight into some aspect of the venture capital firm’s value proposition for it’s partners.  Memory is an untrustworthy beast, but I’m pretty sure I came up with this joke after hearing of a VC firm in the valley that had a wall down the middle; one one side it was pure luxury and on the other it was standard spartan office space.  As I remember the story the partners would always meet the entrepreneurs on the spartan side of the wall.

And so, it was with great delight that I read an article in today’s paper.  A friend of mine, having recently exited from his last of a series of successful entrepreneurial activities appears to have taken my insight to heart.  He is setting up a startup incubator here in Boston.  And make no mistake: that’s is honorable work.  But this was the sentence that delighted me:

English says he’s planning an “outrageous” workspace that will transform into a club at 6 PM, with regular events that “celebrate creative people” like dancers, sculptors, and clothing designers.

That is definitely an improvement on my original insight.

Equality and Opportunity

The US is no longer the land of opportunity.  If you want that, move to the Nordic countries.

The vertical axis on this chart is a measure of how likely you are to have an income that differs from that of your parents.  The horizontal line is the usual measure of income inequality.  So if you live in the UK or the US I recommend picking good parents.


Economic growth v.s. social well being

Over the years I’ve spent a lot of time thinking, reading, etc. about economic inequality.    This talk (ted)  is amazing, and in a sense it comes down to this chart, which answers a key question: what is income inequality correlated with?

So we now know that income inequality has high social costs, or to say it in a more technical way inequality is negatively correlated with social welfare.  I don’t know that would surprise most people.    A society where the lower classes are more distant from the upper classes is going to have greater social stress – at least I don’t see that as surprising.

But what else is income inequality correlated with?    There is a very scary possibility:  That inequality drives greater economic growth.  Not hard to make up an insta-theory for that: e.g. that the social gradient drives people to strive, and this drives significant economic growth.  Or, that economy’s of scale assure that larger systems will lead to higher growth, and those large systems are naturally inclined to concentrate wealth in their owners.

That would be really horrific.  A Hobson’ choice: pick one economic growth or social well-being.  If you don’t pick the norms that lead to highest growth other nations will then run grow you.  That’s not good, because with growth and scale comes power.   And, societies that grow faster carry their social norms carried along with them.  They become the standard.

So, it’s a very important question.  And you’d think there would be libraries full of research on this question.  There are not.  Pick your insta-theory for why that is.  As far as I can tell the data seems to suggest that growth and inequality are inversely related.  Which is a relief.  It is very frustrating that this is not a settled question.






where the money is

A useful chart:

Income is never distributed uniformly.  What matters is how severe that becomes.  Since what the top 10% want from their tax payments is fundamentally different from what the other 90% want this leads directly to class warfare.  Denying that isn’t insane.  The top 10% don’t need the government to provide: health, schools, etc. etc. — at least not outside their increasingly isolated enclaves.  Which in turn is why your schools, your healthcare suck, your safety net suck.

Income Inequality

Some nice illustration of income inequality pulled together at Visualizing Economics.  For example this shows a fine grain map of US income inequality.  Oh I’d love to see a video of that over time!


Or this scatter plot nations showing the height of inequality v.s. their per-capital GDP.  The US, an outlier, is highlighted.


Lots of thought provoking stuff over there, for example this fine grain map what real estate is productive.  I wish this was GDP/capital.


The original sources can be found in the postings I pulled these from; though sadly many of the links are broken.

Inequality: Differing Norms on Transaction Boundaries

I’ve not read this paper yet, but I’ve thought about the issues it raises a lot since the very beginning of the housing bubble’s collapse. To summarize the summary this paper is about the different ethical frames around mortgage holders v.s. mortgage lenders.  The lender is expected to act in a purely rational – accountant like – manner, if those actions have the horrible unintended consequences that’s the price of rationality.  We will not think poorly of the lender since his behavior is entirely in conformance with the perverse effect embedded in Adam Smith’s invisible hand.  Meanwhile the mortgage holder is expected to act in a purely honorable manner, and if those actions have horrible consequences on his situation in life we expect him to take it like a man.  If he doesn’t we will feel to lay waste to his honor.  One of the key reasons it’s become popular to label senior executives as psychopaths is how society encourages them nurture a disconnect between what is maximally beneficial in an accounting sense and the effects of their actions on the lives of individuals.

The paper by Brent T. White is  “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis” (pdf) and it’s abstract:

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater.  This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

It isn’t surprising that these two groups would have very different perceptions of what the rules and ethics of the situation are.  Maybe what is surprising is that people tend to deny that; or having admitted it they then pick a very firm opinion about what the right position is about this.  I.e. bank smart, borrower stupid, consequence is borrower’s fault; or bank ethical, borrower ethical, consequences be damn’d.  You could setup three spinners and use them to assign a position to your high school debating club.

I love those sociology terms ‘social control agents,’ and ‘norms.’  I observe a lot of management cultism and it’s less black and white fellow travelers, e.g. MBA training, is focused on how engineer and manipulate such levers.  Most practical men are indeed in thrall to the ideas of some long dead sociologist and current events are proving him nearly correct.

Bonus video:

Phase Changes in the Factors of Production


The Newcomen fire water pump consumed vast amounts of coal, but waste coal was free at the mine head.

I enjoyed this video (ht Brad) of Professor R.C. Allen outline the theory he presents in his recent book.  The question at hand is what triggered the Industrial Revolution.  Why Britian and associated questions.  To hear him tell it the existing theory seems to be that they finally stumbled into the right institutional frameworks; reasonably good governance, property rights, etc.  That theory has always struck me as suspect since it smells too much like what everybody says about the others.

His alternative theory is, roughly, that Britian was pregnant with possibility when something happened and the resulting babe thrived.  Why it thrived is another story.

The fertile context amounted to two things.  Northeastern Europe’s rising standards of living had created a consumer/commercial economy with urbanization, literacy, and consumer demand.  He suggests that had happened before, say during the Roman era.  Secondly a few key general technologies had emerged.  Computers are the modern exemplar of a general, i.e. extremely widely applicable, technology.  In this story a good example of a general technology was precision gears and rollers an outgrowth of clocks.  Clocks emerged for navigational purposes and consumer demand goosed up the supply.

The trigger was a sky rocketing cost of labor in Britain, it happened thru out North Eastern Europe but was most severe in Britain.  Rising labor costs always the calculus of production.  If labor is expensive then substituting capital equipment becomes more attractive.  Actually there is a more general statement.  If the cost of any input rises or falls that changes the shape of how best to configure your production.  So if labor gets horribly expensive, and fuel gets really cheap then you get a shift to production techniques that reduce labor, increase capital equipment by using fuel.  And that’s the trigger.  The Brits started building equipment which traded coal for labor costs.

He has a nice example.  The French were making plate glass and cheerfully helped the Brits setup a production facility.  It was obvious to the French that given the cost of labor in Britian there was no way they could become a serious competitor.  What they miscalculated was how cheap coal was.

He highlights a key point about how these shifts in the factors of production play out.  The new forms of production need only clear a minimal profit.  Such schemes can survive only in the new niche; they can not be exported to the rest of the planet.  If early in the industrial revolution you visited England, admired their cool new machines for spinning cotton, you might be tempted to head home and try the same trick.  But it wouldn’t work out; absent a high cost of labor the numbers just don’t work for you.  Casual observers back home will pen editorials about how your falling behind.  But there is something else: learning curve.  New production scheme but a babe, it has a lot to learn.  That’s because it’s new.  So while you get started with a minimal profit as you climb the learning curve those profits grow.  Which sets up a virtuous cycle, particularly for the owners of the means of production.  We used to call these guys capitalist mill owners, but now we call them VC.  And as that plays out the scheme becomes exportable to countries of progressively lower and lower labor costs.  The late adopters don’t get to capture the benefits of climbing the easy part of the learning curve; they don’t even get learn how to climb it.

How the Brits climbed the learning curve is another story.  Having a literate urban population was good.  It may have been important that the rich had fallen into a fad of amateur science and taken up hobbies involving the building of mechanisms; but this was engineering, a craft of tedious hill climbing.

It is fun, and useful, remixing this model with other models of innovation.  It is surprising how often the trick of juggling the means of production into some patently inefficient, but yet slightly profitable, repeats it’s self.  We are seeing a lot of that in cloud computing these days and that card was played when FPLAs where invented or in the invention of Ethernet.