Monday, December 23, 2013

The Good Life

Edmund Phelps of Columbia University, Nobel Laureate in economics, and author of Mass Flourishing appeared on EconTalk. Here's what I took away from the conversation:

Modern values and grass roots innovation

Phelps argues "that it was the birth of modern values that provided the fuel for the modern economies in Britain and America, and later maybe less fuel but nevertheless it was there in Germany and France." The manifestation of this was "grass roots innovation", propelling the rapid rises in living standards over the past two centuries.

Phelps believes that real prosperity consists of: rising wealth emerging from an individual's efforts to improve himself, work that is interesting, exercising initiative. Also, that differences in job satisfaction between countries are the result of differences in dynamism.

Phelps attributes the decline in innovation in the US since 1970 - "a narrowing of innovation to fewer industries" - to a rise of materialism, "an obsession almost with money", a rise of anti-modern values, such as conformism, and "the culture of entitlement rather than feeling that you've got to earn it yourself", along with rampant rent-seeking.

The grass roots innovation that should be going on continually has narrowed to a point where "most of the innovating that we see is that brilliant stuff going on out in Silicon Valley. And really up and down the West Coast, a fairly thin sliver of land along the West Coast."

Phelps raises the question of what kind of economy we'd want to live in, one that's more at rest and stable versus one that's more dynamic.

The Good Life

People really need to be engaged in doing things, doing rewarding things, and having the excitement of striving.
Aristotle's idea is the good life is a life that we admire in others and would like to imitate for ourselves.
In the Renaissance, people started talking about how human beings have creativity and human beings can think for themselves and should think for themselves. And people should be independent; they should have their own bank accounts and make their own living.
The good life is a life of adventure and discovery and exploration and meeting problems, overcoming hurdles. And creating. Creating stuff. For me, that's a good life. I'm sold on that.

Why might innovation cost jobs? a rough approximation we can think of consumer goods as being produced mainly with capital. And capital goods are produced mainly with labor. Now, if the innovation is in the consumer goods sector, then that's driving the price of consumer goods down relative to money wages. So real wages are rising and that pulls up employment. And that's great.
But once you start having innovation in the production of the capital goods, then you've got two things going on. One, labor is physically more productive in making capital goods. But the capital goods that labor makes are now going to be cheaper, in terms of consumer goods. So that's a bummer. And that lowers real wages...

Thursday, November 21, 2013

Are we back to the 1930s again?

Great financial crises bring chaos, but they can also give capitalism a much-needed jolt

The crisis we're still living with resulted from too much predation and not enough creation – a vast extraction of value from the real economy by finance that coincided with a failure to feed new sources of growth in science, entrepreneurship and creativity.
The last great financial crisis, in the 1930s, unleashed war and chaos. But it also led to an extraordinary period of social creativity [...] This was one of the many moments when capitalism was remade, its energies channelled, tempered and constrained in new ways [...].
Always the crucial driver has been to prevent the worst abuses of the predators [...] while corralling the creative, productive power of capitalism to improve living standards.
Today's position is no different. [...] Perhaps it's only when everything has been tried, and has failed, that we'll be ready to try something genuinely new.

...from Are we back to the 1930s again? Here's why we shouldn't panic

Geoff Mulgan
The Guardian, Monday 18 March 2013

Tuesday, November 12, 2013

Secularizing the Tech Debate
By Geoff Shullenberger
Dissent magazine

...we must decide the future of network technology and our relation to it through reasoned collective deliberation.


[The idea] that technological “disruption” is progressive and unavoidable has served to stifle or limit debate about the social, economic, and political effects of such developments.


Internet evangelists help consolidate the technocratic capture of democratic institutions and legitimize the expansion of corporate and state surveillance.

Monday, August 19, 2013

Differences between stocks and the economy

Why do stocks sometimes rise when the economy is in the ditch? They're not as tightly coupled as you might think.

First, GDP is a trailing measurement whereas stock indices are a speculative leading indicator, with all the uncertainty that implies.

Secondly, the interests of the general US economy and those of largish corporations are imperfectly aligned at best, with a number of factors impacting each unequally and at times in opposite directions.

This comes from an excellent discussion on Quora: How does QE translate to all-time highs of equity indices?

Tuesday, July 2, 2013

Restless Empire: China and the World since 1750

At some point during this century, China will become the world's largest economy, while the US will still be the largest military power in a multipolar world. These transitions are historically dangerous.

The relations of China with the rest of the world will be a critical part of this swing in the balance of power. China, through the lens of its foreign relations, is the topic of “Restless Empire: China and the World since 1750” by O. Arne Westad, a Professor of International History at the London School of Economics specializing in the Cold War and contemporary East Asia.

The past couple centuries have traumatized China - humiliating concessions to the European powers, civil war, terrifying abuse at the hands of the Japanese, and the self-inflicted disaster of the cultural revolution. These events shape Chinese world-views today. The book is about China's search for a workable hybrid between modernity and Confucian tradition, between eastern and western political and social thought, among its diverse interior regions and between China and the outside world.

What I take to be the main messages of the book are these:

  • China has always been an empire and still is.
  • The traumatic events of the past couple centuries are the drivers of modern Chinese relations with the outside world.
  • Ongoing change in China is fast, sweeping and the outcomes are unpredictable but sure to have a huge impact on the world.

The cycle of empires

There is a sense of centrality deeply ingrained in Chinese thought. For centuries, the place of the middle kingdom was at the center of a tributary system encompassing most of east Asia.

A regular cycle seems to have repeated over millenia in which a dynasty holds the center of power for a as little as a few decades or as much as a few hundred years. Over time, regimes weaken through corruption or infighting and fall followed by messy and prolonged periods of chaos from which a new rulling class would eventually emerge.

At the height of the Qing Dynastry, China's economy was growing with trade links to Southeast Asia, Japan and Europe, and a merchant class was rising along with it.

The Treaty of Nerchinsk (1689) established the boundary with Russia and is the oldest treaty in which China dealt with a foreign power on a equal basis. But, the Qing adopted the tributary model when faced in the 1700's with the first emissaries from the expanding trade empires of the Portuguese, Dutch and British. This was a critical mistake.

The Qing were slow to realize the threat posed by the industrialized economies backing the foreigners. Preoccupied with the rules and rituals of court, convinced of their cultural superiority and the centrality of the middle kingdom, the Qing failed to see any need for change.

There followed a series of increasingly disastrous confrontations with European powers. While colonial powers enforced treaty ports and extraterritoriality by gun-boat diplomacy, China was further debilitated by internal uprisings, bloody successions, and loss of territory to Russia and Japan.

The opium wars of 1840 and 1860 ended with the destruction of the summer palace in Beijing by the British. Unable to repel the foreigners, the declining Qing could only appeal to tradition to prop up their sagging legitimacy.

The failure of the Boxer Rebellion (1898-1901) under the slogan “Support for the Qing and extermination of foreigners” left the dynasty in an untenable position. Partition of China into colonial possessions was only narrowly avoided.

Modernization delayed

Japan's emergence as a modern industrialized nation during the Meiji Restoration (1868-1912) served as a model for many Chinese reformers including Sun Yat-sen. This inspiration was not well received in the centers of power, perhaps due to the Japanese view of the Qing with their Manchurian ancestry as barbarian conquerers, a view that may have had sympathy within China itself. Further complicating matters, the Sino-Japanese War of 1894-1895 extended Japanese influence over Korea, formerly a Chinese tributary.

The Republic period began with great hope for modernization. In 1911 the Republic of China was declared with Sun Yat-sen as provisional president. If events had not taken several turns for the worse, China might have begun its modernization at this point, rather than the 1980's. But, the republic never stabilized, degenerating instead into the Chinese civil war between Kuomintang forces led by Chiang Kai-shek and those of the Communist Party.

The political climate of Japan became increasingly militaristic, nationalistic and aggressive. Japanese inspired reformers were betrayed by Japan's brutal pursuit of imperial ambitions.

The civil war continued right on through the Japanese occupation, seeding conditions for an ineffective response to the invasion and discrediting the republican government. As WWII dragged to a close, any semblance of a united front broke down and fighting soon resumed. In 1950, the communists finally defeated the KMT forcing a retreat to Taiwan.


In China and other colonial enterprises, the banner of Capitalism was used as a cloak to wrap around exploitation. Instead of free and open markets, exclusive rights were granted to colonizers with gunboats. The local elite was allowed to retain a measure of privilege conditional on cooperation, while the lot of the common native was to be cheap expendable labor.

An ideology that presented itself as an alternative to this one-sided arrangement, unsurprisingly, looked pretty good. In contrast to Mao's unhinged obsession with finer points of doctrine, the appeal of communism to the average Chinese has to be simply as a means of opposition to exploitation and occupation by foreigners.

The post-colonial era played out in similar ways in Burma, Korea, Vietnam, Laos and Cambodia - the rise of communism accompanied by civil war and pathological spasms of violence like the cultural revolution and the purges in Cambodia.

The transition from Marxism to whatever China is today - market socialism, state capitalism, socialism with Chinese characteristics, obfuscated by the need to fundamentally change policy with minimal admission of error, forces party theoreticians into awkward and convoluted rationalizations. Even so, Chinese adoption of market methods has been an amazing success. For most Chinese, central planning and collective ownership were never as important as an end to independence and prosperity.

USSR / Russia

Relations between China and Russia have been at least as bipolar as those with America.

Soviet troops fought the Chinese to maintain control of the Manchurian Chinese Eastern Railway in 1929. The Russians had designs on Xinjiang as far back as Czarist times with troops stationed in the region between 1934 and 1942.

In the 1950's, Russia was the center of world communism. Mao, unhappy in a secondary role, incited nonsensical ideological battles with the Soviets and grew to mistrust the intentions of Russian involvement in Vietnam, though still fighting together against the common enemy as they had in Korea.

That the Chinese leadership of that time let such an obvious alliance go so far wrong raises questions about their grasp of the situation and level of paranoia. The countries nearly came to war in 1969 over control of a handful of islands in the Amur and Ussuri rivers.

In recent times, China has pivoted politically back towards improved relations with Moscow, even while trade with the U.S. has boomed. The transition to markets was handled very differently in the two countries. The controlled pace of change in China is in deliberate contrast to shock therapy. After following very different trajectories in the post-cold war era, the two countries have converged on models that are in some ways similar, with a strong central state, and in some ways complimentary, becoming an exporter of commodities on the one hand and of manufactured goods on the other.

The Russian far east is vast, empty, and rich in resources but economically stagnant, while China is crowded, resource hungry, and booming. It's logical then that the region is seeing a rapid influx of Chinese. The Shanghai Cooperation Organization forms the basis for China to become a huge market for Russian energy and military exports.


Complicated can be the only word for the relationship between America and China. For China, America is equally a model and a rival. Both countries share a belief in their own exceptionalism. The countries have been alternately partners and enemies over the 20th century.

The US holds a noticeable chunk of the Chinese diaspora. The 2010 census counted 3.8 million Chinese Americans. This is in spite of the Chinese Exclusion Act of 1882 which banned immigration from China, due to a perceived threat of cheap Chinese workers. The act remained in effect until 1943.

As a former colony, America could plausibly claim to sympathize with China's mistreatment at the hands of colonial powers. Rather than see China carved up, President William McKinley supported an independent China. Post-colonial brotherhood aside, maintaining American trade access was an important consideration. In 1900, McKinley sent 5,000 American troops to help quell the boxer rebellion, an expansion of presidential powers that would later be echoed in the Korean and Vietnam wars.

During the republic period, the United States strongly supported the Kuomintang forces, in continuity with its present day support of Taiwan.

U.S. and Chinese troops fought in Korea and China supplied equipment and transportation engineering during the Vietnam war.

As the U.S. presence in Vietnam ramped up, China was still recovering from the disastrous great leap forward and wanted to avoid another direct confrontation with the U.S. but also wanted to be seen as the vanguard of worldwide communist revolution. The extent of Chinese involvement in Vietnam has been a source of debate. But, it's clear that China committed significant resources at a time when their own economy was in tatters, their relationship with the U.S.S.R was falling apart, and even the Vietnamese were coming to mistrust them.

According to China's Involvement in the Vietnam War (Chen Jian 1995):

From early August 1965 to March 1969, a total of 16 divisions (63 regiments) of Chinese anti-aircraft artillery units, with a total strength of over 150,000, engaged in operations in Vietnam. ... The Chinese statistics claimed that these troops had fought a total of 2,154 battles, and were responsible for shooting down 1,707 American planes and damaging another 1,608.

After the Sino-Soviet split, Nixon and Kissenger initiated rapprochement with China in the early 1970's as a cold war tactic against the USSR. With the ascendance of Deng in 1979, China began adopting market economics and export-led growth.

From almost nothing, trade between China and America grew to the level where the U.S. exports 110 billion in goods to China while importing 425 billion (2012 numbers from the U.S. Census Bureau). The arrangement by which America provides a huge market for China's exports and China soaks up American debt was named Chimerica by Niall Ferguson and Moritz Schularick.

Henry Kissenger, wrote in 2011 in the WSJ,, "China and the U.S. could easily fall into an escalating tension," and told a reporter:

"Is it possible to achieve enough of a cooperative pattern to avoid sliding through a series of mutual misconceptions, of stepping on each other's toes, into a situation where an ultimate confrontation becomes inevitable? And looking at the fact that we have not known how to end our little wars, I have no great hope that either side would know how to end such a conflict. ...Am I optimistic that it's going to be done? No."


Thinking about China as a unit can be deceptive. Its structure is decentralized, with the center weilding powerful but supervisory authority. China is broken up into 23 provinces and 5 autonomous regions, which are further subdivided into prefectures, counties, districts and villages. The largest 4 cities are municipalities. Hong Kong and Macau are special administrative regions. In addition, there are several special economic zones and the truly special case of Taiwan.

The country is divided along several axes: regional, ethnic, religious, rural/urban, coastal/interior. China is rapidly urbanizing, but has a substantial population in the countryside. Corporate power centers have developed since privatization.

In some ways, China is divided from it's own history:

"To quite some extent, young Chinese today are cut off from much of their past. They are cut off linguistically, because they do not know the classical Chinese and, therefore, they are not able to read, in effect, anything that was written prior to the 1910s."

Riding herd over this sea of divisions, the central government has something in common with transnational bodies like the EU or neighboring ASEAN.


With this in mind, China is in many ways still is the empire it has always been, encompassing a vast and varied geography, many distinct races and cultures, and ruled by a comparitively tiny elite in Beijing. Westad argues that its political structure is unlikely to remain as it is.

China may slowly follow a path similar to Korea, Singapore, Japan and Taiwan, with government led economic growth followed by an increasingly participatory political system. Or China's hyperspeed industrial revolution may stall out with aging demography into a middle income trap.

Just as cold-war era Eastern Europeans could see the better material conditions in the west, mainland Chinese are increasingly aware of the prosperity in Taiwan, Korea, Hong Kong, creating intense pressure on the regime to deliver equally a high standards of living.

China does not want to destroy the US-led global economic system under which it has done so well and has no desire to end up like the Soviet Union. This makes cold war between US and China less likely. The Chinese doctrine of non-interference is a defensive posture focused on securing China's gains of the last 50 years and sustaining the flow resources necessary for economic growth.

Speaking on his book, Westad says, "What China wants at the moment is not to change the international system. It simply wants more for China within that system."

"China's focus is on its role as a regional power." China's foreign policy is immature, shaped by China's troubled recent history, alternating between a lingering sense of victimization and a temperamental nationalism. "The Chinese belief, held by every Chinese that I know, that China has been treated very unjustly over the past century, that China has been victimized."

Risk is concentrated in several potential flash points:

  • North Korea, Taiwan, the South China Sea
  • Xinjiang and Tibet
  • Border conflicts with India
  • problematic allies like North Korea and Pakistan

China is not in a "revolutionary situation", as long as the economy continues to work well. But, "Those who think that China will remain the way it is today for a very long period of time are certainly almost entirely wrong."


Thursday, February 28, 2013

Code for America

Jennifer Pahlka leads Code for America, which she calls something like a Teach for America or Peace Corp for geeks. The organization pairs techies, coders, designers and data wranglers with municipal governments to build apps that help connect citizens with public services and with each other.

The project starts with the premise that both technology and government are platforms for collective action. In that light, updating government's traditionally lagging approach to digital technology might have a big impact in terms of engagement with grassroots community projects.

The hope is that government can learn a few tricks from Internet and start-up culture - being permissionless and open, crowd-sourcing. Pahlka spoke at the conference Strata yesterday on helping government become more data-driven (Moneyballing Government).

Code for America seems to like trying lots of quick experimental projects to see what sticks. Some of these include:

Rebooting government

Politics may be broken beyond any individuals ability to fix. technology can lower the barrier to entry letting more people lend a hand to help the day-to-day business of government run better. In Pahlka's vision, this involves setting aside politics and contempt for bureaucracy and realizing that we are not just consumers of public services. By using our hands rather than our voices, we end up strengthening civil society.

Our contempt for bureaucracy keeps bureaucracy working against us. Maybe it's better to occupy the SEC than Wall Street.

She concludes her 2012 TED talk Coding a better government with the observation that “We're not going to fix government until we fix citizenship.” and asks, “Are we just a crowd of voices, or are we a crowd of hands?”

Saturday, February 23, 2013

The Politics of Data

However objective data may be, interpretation is subjective, and so is our choice about which data to record in the first place. ... data, no matter how “big,” cannot perfectly represent life in all its complexity

The Problem with Our Data Obsession, by Brian Bergstein writing in the MIT Technology Review

Privacy vs. transparency

There's been a flurry of news about openness and data.

Cartoon by Rayma.

David Brooks' New York Times pieces on The Philosophy of Data and What Data Can’t Do explore whether data can overcome human bias and what biases get introduced in the process, where to draw the line between data-driven decisions and organic judgment, when values, context and causation trump mere correlation. Flawed models helped bring about the 2008 financial crisis, but the underlying causes had more to do with deeply flawed incentives.

On one hand, data from social networks are making social science more scientific. On the other, do we want Facebook to make us more open and transparent to advertisers? I'm dreading 5 or 10 years from now when pictures of my kids will be used to advertise to me. The masters of click-data keep are sure to keep getting better at pushing our buttons.

The collection and exploitation of personal data remains a largely unregulated open frontier. But, on some fronts, policy is moving in a positive direction. The public was able to effect the demise of SOPA, but the special interests expect us to give up. The government is looking out for its own pocketbook when it mandates Open Access.

Open access in science

White House says government-funded research should be more public and has moved to expand public access to the results of federally funded research by directing that published results be made freely available to the public within one year of publication and requiring researchers to better manage digital data.

Open questions

What's needed is, a “rethinking [of] how our legal system affects technology, and how it allows crony capitalism to stifle innovation”.

There are trade-offs to be made: privacy against transparency; open access against proprietary business models. Can we trust what the data is telling us and how that knowledge will be used? Will the benefits will be gated and captured or open and distributed?

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...