Growthology

The Great Stagnation?

That's the title (sans question mark) of a new e-book by Tyler Cowen, economics professor at George Mason University and blogger extraordinaire at the wonderful Marginal Revolution. The thesis is summarized by the book's fashionably prolix subtitle: "How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better."

Tyler argues that, ever since colonial times, the American economy has benefited from "low-hanging fruit" -- i.e., bountiful opportunities for growth. He singles out three in particular: free land, technological breakthroughs, and smart but uneducated kids. "Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was stil there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That's it. That is what has gone wrong." Tyler identifies the exhaustion of easy opportunities for growth as the main culprit behind the slowdown in growth over recent decades, rising inequality, the nastiness of our present-day politics, and even the recent global financial meltdown.

It's a wonderful book: provocative, clever, full of surprises, accessibly written, and mercifully brief. And most of the constituent elements of his argument I wholeheartedly endorse. Indeed, in a weird coincidence, I have a new Kauffman paper in the works that touches on very similar themes. I agree with Tyler that growth has gotten a lot harder since the early '70s. And I agree that a great deal of political mischief has been caused by our collective failure to grasp this important truth.

But, at least for now, I can't buy into the idea of a "Great Stagnation." I just don't think the evidence supports Tyler's sweeping historical narrative that centuries of easy progress are now over. A lot of the force of his argument comes from contrasting the United States' glittering economic performance in the decades following World War II with the decidedly less impressive record in recent decades. But if you zoom out and look at the larger historical record, Tyler's Great Stagnation more or less disappears. And if you zoom in and examine recent trends in detail, the numbers likewise belie the claim that we have hit some "technological plateau."

Tyler correctly points out that median family income rose smartly after World War II only to fall off sharply in the '70s. GDP per capita figures reveal the same trend, albeit a little less dramatically (because of the rise in income inequality). Between 1950and 1973, the average annual growth rate of real GDP per capita was 2.5%; for the period between 1973 and 2007, the corresponding figure was only 1.9%

But look what happens when you put these figures in larger historical context (note: I'm using calculations by Angus Maddison for earlier periods and Census figures for post-WWII periods):

1820 - 1870            1.3%

1870 - 1913            1.8%

1913 - 1950            1.6%

1950 - 1973            2.5%

1973 2007              1.9%

From this broader perspective, what Tyler calls the Great Stagnation looks like a return to normalcy after the "Great Boom" of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. So yes, growth has cooled down since the postwar "Golden Age," and that fact poses real economic and political challenges. But the Golden Age was the outlier, not our present era; it just doesn't make sense to talk about the present period as stagnant after centuries of easy growth.

Now let's focus on trends in recent decades -- in particular, productivity growth. If we've reached some kind of technological plateau, that should show up most clearly in a fall-off in the growth of output per worker hour.  But look at the actual BLS labor productivity figures for the nonfarm business sector:

1947 - 1973            2.8%

1973 - 1995            1.4%

1995 - 2007            2.7%

Once again, there was a big dropoff after the postwar boom. But then look what happened: beginning in the mid-'90s, fueled by the IT revolution, productivity growth came roaring back, nearly equaling the record of the Golden Age. It's hard to look at these figures and conclude, with Tyler, that the trees in the orchard are becoming bare.

Granted, the productivity comeback offers no ground for complacency. The productivity figures look better than the per-capita GDP figures, in large part because the labor force participation rate peaked in the late '90s, fell during the dot-com bust, and only recovered to early '90s levels by 2007 (superior growth in output per worker was thus partially cancelled out by sluggish growth in the number of workers). Meanwhile, the per-capita GDP figures look better than the median income figures cited by Tyler because of the rise in inequality -- that is, because income growth has been concentrated at the top of the socioeconomic spectrum.

These facts point to real challenges for future growth. One reason the labor force participation rate has stalled is the aging of the population -- a trend that is going to cause all kinds of economic and political headaches in coming years. And rising income inequality is due in significant part to slumping human capital formation: we reaped big gains from sending Tyler's "smart but uneducated kids" to high school, college, and grad school, but educational attainment at both the secondary and postsecondary levels has stagnated since the '70s even as the demand for highly skilled workers has continued to climb.

I've focused on criticisms here, but I want to close by reiterating what an interesting, intelligent, and thought-provoking book this is. Growth has gotten harder, and there are mounting obstacles ahead. For pointing out these sobering facts, and doing so in such an engaging manner, The Great Stagnation deserves a wide readership.

The Entrepreneurial Army?

Today, the Atlantic magazine's January/February issue was published, which features an essay Why Our Best Officers Are Leaving by yours truly.  I'll share a snippet of the essay here, then follow with some comments about putting together the research and writing behind the 5-page article.

Why Our Best Officers Are Leaving

Why are so many of the most talented officers now abandoning military life for the private sector? An exclusive survey of West Point graduates shows that it’s not just money. Increasingly, the military is creating a command structure that rewards conformism and ignores merit. As a result, it’s losing its vaunted ability to cultivate entrepreneurs in uniform.

By Tim Kane

John Nagl still hesitates when he talks about his decision to leave the Army. A former Rhodes Scholar and tank-battalion operations officer in Iraq, Nagl helped General David Petraeus write the Army’s new counterinsurgency field manual, which is credited with bringing Iraq’s insurgency under control. But despite the considerable influence Nagl had in the Army, and despite his reputation as a skilled leader, he retired in 2008 having not yet reached the rank of full colonel. Today, Nagl still has the same short haircut he had 24 years ago when we met as cadets—me an Air Force Academy doolie (or freshman), him a visiting West Pointer—but now he presides over a Washington think tank. The funny thing is, even as a civilian, he can’t stop talking about the Army—“our Army”—as if he never left. He won’t say it outright, but it’s clear to me, and to many of his former colleagues, that the Army fumbled badly in letting him go. His sudden resignation has been haunting me, and it punctuates an exodus that has been publicly ignored for too long.

 ... It would be easy to dismiss Nagl’s story, except you hear it almost every time you talk to a vet. In a recent survey I conducted of 250 West Point graduates (sent to the classes of 1989, 1991, 1995, 2000, 2001, and 2004), an astonishing 93 percent believed that half or more of “the best officers leave the military early rather than serving a full career.” By design, I left the definitions of best and early up to the respondents. I conducted the survey from late August to mid-September, reaching graduates through their class scribes (who manage e-mail lists for periodic newsletters). This ensured that the sample included veterans as well as active-duty officers. Among active- duty respondents, 82 percent believed that half or more of the best are leaving. Only 30 percent of the full panel agreed that the military personnel system “does a good job promoting the right officers to General,” and a mere 7 percent agreed that it “does a good job retaining the best leaders.”

The Research

Back in the spring of 2010, I started questioning the capacity of the Army to conduct expeditionary economics and/or counterinsurgency.  While I am an advocate of both missions (strategies), and also an advocate of the amazing talent in the U.S. military, I couldn't shake the suspicion that the military bureaucracy would frustrate such efforts.  Put simply, how does an anti-entrepreneurial organization reconcile entrepreneurial leaders and an entrepreneurial mission?  Not well.  Of course, the military isn't a failure by any stretch, but the hierarchical structure can be problematic, and over the years, I have seen too many good leaders leave in frustration to feel confident.

I remain thankful for the supportive climate at the Kauffman Foundation which gives us the freedom to ask deep, complex questions and champion entrepreneurship, wherever it may be (or may be repressed).

I began putting together a set of questions that I posed to friends and contacts in the national security space.  That quickly became an informal survey that was generating powerful, and shocking, responses from veteran friends.  By mid-summer, I knew this needed to be formalized in an unbiased way.  That is, I needed to find a way to survey officers that were representative of military opinion.  If the Army's officers themselves could be shown to have lost faith in the Army's personnel system, that was explosive.  It meant that any mission or strategy risked failure, any war risked being lost. It doesn't take much to connect the dots from good Human Resources to good execution. 

The challenge was how to get at the population of officers, active and retired/discharged.  I initially tried to get the survey in front of active duty troops, but that was a challenge on multiple levels.  It was somehow fitting that I couldn't pierce the bureaucracy to get the survey approved.  Then I had an insight, inspired by a friend of mine named James Sanchez.  James was a classmate from the Air Force Academy class of 1990 (Mighty 90 he would say) who was our class scribe.  He kept us in touch over the last 20 years, but passed away suddenly in late 2009. I suddenly realized that James would have loved this idea, and he would have gladly passed along a note to recruit our classmates to participate in a survey. So, I reached out to a dozen West Point class scribes, and six of them offered to help send out a blind survey recruitment email.

The result is a 250-respondent voluntary survey of West Point graduates, which I posted early this morning in the form of a working paper on SSRN.  Even now, the results shock me.  I just hope they shock enough people in the National Security establishment to generate action.  Ending the central planning of HR in 2011 isn't as sexy as ending the draft in 1973, but I am convinved that both are essential if we want our military to be innovative, to win wars, and to win the peace that follows.

It would be wrong to close this without acknowlding the hundred or more people who advised me as I worked on this project.  I can't name them all, but Jeff Peterson, Mike Meese, and John Nagl stand out.  These men allowed me to interview them without knowing the final product.  Maybe that's natural in the world of journalism, but not in my experience as an officer.  I made sure I quoted them accurately, but the final product they saw today along with the rest of the world.  Likewise, the team at Kauffman has been extraordinary, from Carl Schramm down to my research assistants, especially Alyse Freilich.  No words can thank Ben Wildavsky enough, as he surgically critiqued an early draft, leading to the revised draft that was ultimately seen and accepted by the editors at The Atlantic.  On that score, thanks to the editors and fact-checkers there, who made the piece stronger (and I'm not sure what protocol is here, but will leave them nameless for now).  The errors that remain, surely there are a few, are entirely mine.

"Wrongology"

Immediately drop everything you are doing and read this article. Then, shove aside the growing pile of books on your nightstand and read this book this weekend (doing so will also deflate any tension with your spouse over the appearance of your nightstand). Discussion questions:

1. How can we really "know" anything? These pieces only reinforce my belief that one of the most profound philosophical statements in all of history comes to us courtesy of Bill & Ted: "The only true knowledge consists in knowing that you know nothing. That's us, dude!" (And, yes, I know I have written about this before, but really, is there anything more fundamental than the question of how we can know whether we're right or wrong?)

2. Where is the John Ioannidis of economics or social science more broadly?

3. I often think that a helpful research strategy would be to write a "bizarro" paper for every "real" research paper that we do. But I can't decide if that would have any merit or even feasibility. As Being Wrong details in such a lovely way, the most pernicious and persistent type of confirmation bias is the failure to seek out contradictory evidence--omission rather than commission. If anyone tells you how open-minded and open to criticism they are, they're probably wrong. It would seem to be much safer and saner to walk around with the presumption that you are wrong about everything until proven otherwise, but this strategy would clearly strain the limits of human identity and, thus, plausibility. 

4. If much of our conscious identity (the stories we tell ourselves) is composed of memories, but if those memories turn out to be mostly mis-remembered, what does that mean?

Finally, out of sheer coincidence, I also happened to stumble across this terrific sentence earlier today: "Both rationalism and functionalism grossly exaggerate the capacity of actors to know what they are doing before they have done it." (See question 2 above.) (HT: Rogers Hollingsworth.)

From "Brain Gain" to Brain Circulation

[Cross-posted from Progressive Fix]

A recent post highlighted the importance of new and young companies to job creation in the U.S., implicitly raising an important question for policy makers: How can we increase the number of startups? Assuming it can be done, such an increase would not solve all of the economic challenges facing this country, but it would certainly help. New companies not only create millions of jobs across all sectors of the economy — they also introduce product and process innovations, boosting overall productivity.

Saying startups are important is one thing, of course; actually designing policies to increase their number is something else entirely. Before making any recommendations, for example, we need to know more about the universe of startups. Are they more prominent in some sectors than others? Does the impact of new companies differ across sectors or geographic regions? Should policy focus on encouraging more new firms, or on enhancing the growth of those already in existence? How would any such policies affect established companies, large and small?

Policymaking around entrepreneurship is evidently not clear-cut as there is still quite a bit we do not understand regarding startups. In the coming weeks we will try to explore these questions and illuminate the world of startups for policymakers. We’ll start with the lowest-hanging fruit of all, though one that may seem like poison to some in Washington: immigration.

It’s commonly accepted that the United States is a nation of immigrants, settled and populated by those fleeing persecution, seeking commercial opportunities in a new land or looking for a fresh start. We have always recognized the important contributions of immigrants to the U.S. economy, from entrepreneurs like Samuel Slater (textile mills) to Andrew Carnegie (steel) to Andy Bechtolsheim (Sun Microsystems) to the laborers and workers who built this country with their hands.

Recently, researchers have begun to paint a broader picture of the economic role of immigrant entrepreneurs. For example, Vivek Wadhwa and his research team have found that, from 1995 to 2006, fully one-quarter of new technology and engineering companies in the U.S. were founded by immigrants. In Silicon Valley, the figure was one-half. These firms constitute only a sliver of all companies, yet contribute an outstanding number of jobs and innovations to the economy.

It makes sense, then, that if we are seeking to increase the number of new companies started each year in the U.S., we might look to immigrants. It turns out that Sens. John Kerry (D-MA) and Richard Lugar (R-IN) are thinking precisely along these lines, introducing the StartUp Visa Act (PDF) in the Senate. This bill would grant a two-year visa to immigrant entrepreneurs who are able to raise $250,000 from an American investor and can create at least five jobs in two years. Without question, such a visa is a good idea and this legislation hopefully paves the way for future actions that would reduce the pecuniary threshold and focus more on job creation.

Quite naturally, however, the promotion of immigrant entrepreneurs arouses suspicion among those on the right who harbor nativist views, and those on the left who perceive progressive immigration policies as a threat to American labor. Such views take the precisely wrong perspective: immigration, as we have seen, is a core American value. Immigrant entrepreneurs, moreover, come to the U.S. to make jobs for Americans, not take them.

Further, many of those who promote immigration as a way to boost economic growth narrowly focus on “high-skilled” entrepreneurs, those who might start technology companies. Clearly, as Wadhwa’s research indicates, such companies are important to American innovation. But we exclude non-technology entrepreneurs at our peril — every new company, including those founded by immigrants, represents pursuit of the American dream. By closing our borders to immigrants in general or welcoming only those with certain skills, we leave out many who will start new firms in other industries. If not in the United States, they will go elsewhere to start their companies and create jobs.

Entrepreneurs are implicit in Emma Lazarus’ poem: “Give me your tired, your poor/Your huddled masses yearning to breathe free.” Entrepreneurs start from nothing and work endlessly to build their companies, expressing their individual freedom through commerce. Why should we want to exclude them from the home of entrepreneurial capitalism?

ADDENDUM: Ben Wildavsky's new book, The Great Brain Race, will be released soon and I highly recommend it to anyone interested in higher education, globalization, and immigration. It is a fantastically written book and, as noted in the title of this post, Ben posits this wonderful notion of "brain circulation." When discussing globalization and immigration and job creation in the very recent past (and, for that matter, still in the present), we have usually spoken in terms like "brain gain" and "brain drain," implying a zero-sum contest between countries and regions. Ben's book makes quite clear that we are moving into a world of brain circulation, wherein people circulate among countries and institutions, starting companies, creating jobs, propagating innovations--adding to the economies of many countries at once. 

Breaking Through Barriers to Innovation

The search is on for ideas that will stimulate short- and long-term economic growth in the United States without further adding to the budget deficit. Here's a no-brainer: allow university researchers with innovations that are ready to be commercialized to shop around to different technology licensing offices. 

That's the idea advanced by Kauffman Foundation vice-presidents Lesa Mitchell and Bob Litan in the forthcoming issue of the newly revamped Harvard Business Review. This issue features the top "Breakthrough Ideas for 2010" and, happily, this idea comes in at number 6!

Currently, if you are a professor with a new technology or innovation, you typically must work through your own university's technology licensing office (TLO). This is inefficient for a variety of reasons. For one thing, not all TLOs are created equal: some have greater skill than others, while a handful excel. Several decades ago, federal funding of academic research was dramatically skewed toward those universities that engaged in the most commercialization: patents, licenses, spinoffs, etc. In the last twenty or thirty years, the distribution line of federal funding has flattened considerably, with a greater number of schools receiving money than before. This is not to say that the distribution is equal, but it's much less skewed than before.

Here's the kicker: the distribution of innovation output--patents, licenses, startups--has not changed. It's still skewed toward a handful of schools despite the huge increase in the number of universities receiving federal R&D money. We are not reaping the benefits of innovations that are presumably emerging from all that research and development. 

While some TLOs are more competent than others, moreover, it's also likely that such competence varies by area: one TLO may excel at commercializing life science discoveries while another may have a comparative advantage in computer science. Opening up the market for discoveries and commercialization should help iron out the inefficiencies and barriers that exist.

Kudos to Lesa and Bob for a fantastic article and for advancing a top Breakthrough Idea of 2010.

The Israel Model

Lo! What's this? A dispatch from our long lost co-blogger Bob Litan! Bob has evidently read a new book and, um, I can't really tell, but I think he likes it.

With the widespread concern about how the U.S. economy is going to generate new jobs and output on a sustained basis after the huge stimulus is withdrawn, the time could not be better to read a new book that tells one country’s remarkable story how it has done it. The country is Israel, and the book is appropriately titled Start-Up Nation: The Story of Israel’s Economic Miracle by Dan Senor and Saul Singer.

This is such a good book I don’t know where to begin with my raves. It is brilliantly written and chock full of great stories that have long deserved a wider audience, and they’ll now have it. Want to know who saved Intel? Read this book! Want to know how a country with deep socialist roots – the collective farms known as kibbutzes have long been a major symbol of Israeli society (inside and outside the country) – has been fundamentally transformed into one of the hottest entrepreneurial hotbeds in the world? Then read this book! Want to know how this all happened? Read this book!

And after you do that, or actually as you’re reading, questions will inevitably pop into your mind. Most important, at least for me: What can the United States learn from the Israeli experience? Knowing that we don’t or ever will have some of the most important keys to the Israeli success – the external fear of being encircled by hostile countries and thus the need to make-do with whatever resources are available, or compulsory service in a military where privates or lesser officers can tell their superiors they’re wrong – what can we nonetheless do to improve our own entrepreneurial networks and attitudes toward prudent risk-taking that the Israelis seem to have mastered?

Readers surely will not stop there. Many will be tantalized, perhaps upset, by the authors’ comparisons of the Israeli miracle with the struggles that its Arab neighbors have long had attempting to diversify out of oil. Others may wonder, as the authors themselves worry, whether the Israeli entrepreneurial machine will slow down now that the tidal wave of Russian immigrants has receded.

But I'll bet no readers come away from the book without being awed by what Israel has been able to do, and without being impressed by the authors' impressive way of telling this story.

--Bob Litan

The Israeli Dream: George Gilder Explains How Israel Become the World's Leading Entrepreneurial Economy

Guest post by Charles C. Johnson

There are some fascinating facts in a City Journal piece by technology guru, Geoge Gilder that warrant careful attention for anyone seeking to explain why it is that Israel, in Carl Schramm’s phrase, has become the world’s leading entrepreneurial economy. The entire article is worth reading, but some points stand out.

On how Israel’s economy used to be run.

In a general enthusiasm for public ownership of the means of production and finance, the government through the 1990s owned four major banks, 200 corporations, and much of the land. Israel’s taxes rose to a confiscatory 56 percent of total earnings, close to the highest in the world, stifling even those private initiatives that managed to pass through the country’s sieves of socialism. Erecting barriers of bureaucracy, sentiment, and culture, Israeli leaders balked the entrepreneurs and inventors who gathered there, creating a country inhospitable to Jewish genius.

On how Israel’s policy vis a vis immigration paid dividends and changed the culture.

The influx of Soviet Jews into Israel represented a 25 percent population increase in ten years, a tsunami of new arrivals that would be equivalent to the entire population of France being accepted into the United States. Largely barred in the USSR from owning land or businesses, many of these Jews had honed their minds into keen instruments of algorithmic science, engineering, and mathematics. Most had wanted to come to America but were diverted to Israel by an agreement between Israel and the United States. Few knew Hebrew or saw a need for it. At best, they were ambivalent Zionists. But many were ferociously smart, fervently anti-Communist, and disdainful of their new country’s bizarre commitment to a socialist ethos that punished achievement.

On the successes of Israel’s reforms:

In under 25 years—starting from those first modest tax reforms of the mid-1980s—Israel has accomplished the most overwhelming transformation in the history of economics, from a nondescript laggard in the industrial world to a luminous first. Today, on a per-capita basis, Israel far leads the world in research and technological creativity. Between 1991 and 2000, even before the big reform of 2005, Israel’s annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800; and Israel’s information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. And it led the world in the share of its growth attributable to high-tech ventures: 70 percent.

On the growth of Israel’s economy

Germany, ten times larger, roughly tied Israel. In 2008, Israel produced 483 venture-backed companies with just over $2 billion invested; Germany produces approximately 100 venture-backed companies annually. The rankings registered absolute performance, but adjusted for its population, Israel comes in far ahead of all other countries, including the United States.

Do We Really Need Daily Doses of News?

There must be an ongoing tally somewhere of the number of stories in newspapers about the future of newspapers. In the grand scheme of things, the number is no doubt tiny, but there is an aura of self-pity (inflated by self-importance) about it.

I don't mean to suggest newspapers aren't important or interesting; compared to my peers, I might be characterized as a dinosaur for still having--what?!--print subscriptions. But the demise of news in general (many individual newspapers will survive) might actually be a good thing for us in terms of perspective. Let's start, first, with the present and future of newspapers: media aren't going away, but everyone seems to have a singular concern about newspapers. Why? The usual course of things is that if an industry can't give people what they want (and the desperation move by many mid-size city newspapers to have lots of short stories with three-inch headlines is pretty ridiculous), it will either adapt or die. 

Such a fate is unthinkable to many regarding newspapers, however, because newspapers--we're told--have a special place in democratic self-rule. It's the Fourth Estate, after all. This would indeed be the overarching concern if it were the case that the government itself was shutting down newspapers. It has before, and newspapers quite literally died. But not this time. This time it's the market. And yet it's also not the case that the demise of newspapers means the demise of news and information. Quite the contrary--it's sufficient to say here that the future of news and information is quite bright. 

OK, fine--most blog readers will agree up to this point, but note that I haven't adequately addressed the question of newspapers and democracy--aren't we losing an essential piece of democratic self-rule? Is the ruthless market destroying democracy? Not really. The nature of daily news is probably more corrosive of democracy than it is supportive. I'm not suggesting that daily news coverage is totally corrosive and totally non-supportive of democracy, simply that it's probably a little more of the former. 

How can I say this? What about Watergate? The Pentagon Papers? What about the ties that bind us together as democratic citizens? The main reason daily news, as manifested by newspapers but also by other sources, might corrode democracy is that it telescopes our gaze almost completely on the here and now. The media has long been obsessed with exploring the present-centered weltanschauung of modern life--a state of affairs that the media, including newspapers, largely helped create. If newspapers are to be believed, each day is simply worse than the day before. Daily helpings of news distort one's perspective because they focus your eyes and brain on the moment, largely composed of detritus that will in time wash away and mean nothing to your life or to history writ large.

There is little room for reflection in the daily news, notwithstanding the superficial weekly attempt in the Sunday editions to reflect on the prior week's event and what they might mean for the future. The daily news is, by and large, superficial. This doesn't mean journalists are superficial--it's the nature of the subject matter, not the interlocutors. And there are exceptions, of course: in-depth stories, long features, etc, are all more helpful and more interesting than the daily news.

A democracy doesn't depend on constant, up-to-the-minute news any more than it depends on 100 percent voter participation. But don't we need newspapers to hold our elected officials accountable? If that's the primary raison d'etre of newspapers, then it's (a) a thin reed, and (b) they've done a pretty poor job of it during the Bush and Obama (so far) administrations. But what would we talk about at cocktail parties and conferences if not for newspapers? Maybe the demise of newspapers will prevent people from thinking they're smart simply because they read that day's Times or Journal. In fact, they might be smarter for having ignored them. And look, if something really big happens, you'll find about it.

Oddly, for all these reasons, blogging might offer a much better epistemology in terms of the flow and digestion of news. (I'm speaking generally here, about blogs qua genre--not all individual blogs will fall into these generalizations.) Bloggers often take the daily or weekly news and piece it all together in a larger narrative that is much more informative and useful than newspaper coverage. Because blogs can focus solely on a niche, they can offer much deeper analysis, which is the true stuff of democracy, not the story itself. Again, I'm speaking generally here, and a quick glance at my Google Reader demonstrates innumberable items that passionately dissect the minutiae of what Speaker Pelosi or Rep. Boehner said this morning. Still, on a possibly frivolous level, I have little doubt that sites like Fangraphs and Baseball Analysts are far more helpful for baseball fans than SportsCenter or the daily sports page. The same principle applies for more serious news.

Anyway, I probably sound pretty curmudgeonly here, and I'm certainly not the first one to make these points. Nassim Taleb reserves a special place in his diatribes for newspapers. The point is that life will go on even when newspapers as we know them are gone. And life and democracy would still go on if the daily news disappeared or was greatly reduced in size. (But keep the op-ed pages--they're the best part.)

A Few Thoughts on Tyler Cowen's New Book

[Another guest post from Charles Johnson, one of our summer interns.]

Tyler Cowen's new book, Create Your Own Economy: The Path to Prosperity in a Disordered World is one of the more engaging books I've read recently. It rests comfortably in the niche between books about behavorial economics and social technology. Careful readers of this blog will note that Tyler Cowen was a participant in the Kauffman Economic Bloggers Forum in February. We prepared videos of the participants. You can see him on video discussing blogging here. Cowen is a seasoned blogger at his blog, Marginal Revolution. 

The thesis for Cowen's new book is that technology is allowing many of us to become autistic-like in our processing of information and consumption of entertainment and culture. We've moved into a "bits" culture where we can constantly be orienting and re-orienting our culture. This remix culture is evident in everything from iPods, to blogs, to delicious, and to Facebook. In a way, I took this part of the book as a kind of demonstration that we can all become renaissance men because the costs of such renaissance have plummeted. We don't need Jefferson's library when we have a worldwide web with easy information at our fingertips. 

Cowen's book can be read as an appeal, that, for the sake of society at large and the individuals in particular, we should embrace neurodiversity, or the different ways in which our brain is wired. (You can hear him discuss the book in an interview with John J. Miller of National Review here.)

I was struck by this paragraph about autism and the foundation of companies. We know that dyslexics tend to have high rates of firm creation. (See here for more details). But what about autistics? 

Here Cowen points to the work of Simon Baron-Cohen, who is a researcher of autism at the University of Cambridge. (Simon Baron-Cohen created an AQ test -- or autism quotient -- that you can take here to see if you might have autistic-like tendencies.) Cowen recounts that Baron-Cohen believes that there may be a lot more autistic high achievers than most people realize. On p. 24-25, Cowen writes about some of these high achievers. [The bolding is mine.] 

Craig Newmark, founder of the web forum Craigslist, has written on his blog that his history as a "recovering nerd" is connected to Asperger's. It is perhaps no accident that autistics are known for their attachment to lists as a means of processing, recording, and ordering knowledge. Bram Cohen, creator and former CEO of BitTorrent, also describes himself in terms of Asperger's syndrome. He founded the company at age twenty-nine and BitTorrent has been a pioneer in exchanging digital information over the web; one of his key insights was how BitTorrent could break up files into smaller bits and send through the bits rather than the whole file at once. Cohen mastered three programming languages by the age of sixteen and his work on BitTorrent is regarded as brilliant. The best-known example of an autistic high achiever is Temple Grandin, a woman who has pioneered commonly used improvements in animal treatment and slaughterhouses; her unique cognitive perspective has helped her understand when animals are afraid and how they can be made to feel more secure. 

I've yet to see a scientific paper or serious clinical discussion of the autistics who hold political office, work in Hollywood, start web 2.0 companies, or run major U.S. corporations or hedge funds.

If Baron-Cohen is right that there is the huge reserve of highly successful autistic achievers, I wonder why there hasn't been some kind of online, Craigslist-type sorting website that seeks to place autistic people with the things in which they specialize or some kind of wider texting that seeks to identify and help autistic people find their niches.  

I came upon this idea when I was spending time with my next door neighbor, who has Asperger's. He has an obsession with clocks and with taking them apart and putting them back together. Imagine the societal benefit if he could be placed with a clock making company. 

Indeed, if I could fault Cowen's book for one thing, it's that it doesn't take the ideas he's advocated and move towards policy. Still, perhaps policy is not one of those things for which Dr. Cowen is wired and I ought to respect his neurodiversity. 

When Education Becomes an Economic Burden

In their new book and in their prior work, Claudia Goldin and Lawrence Katz have convincingly demonstrated the enormous boost the U.S. economy received in the last sixty years from increasing investments in education. For the last two decades, anxiety has risen that the United States has reached some sort of education plateau or decline and that economic growth will accordingly suffer.

A new McKinsey report, highlighted by Thomas Friedman the other day, appears to prove that this is indeed the case. Had the United States kept pace with our own prior achievements and more recent stars like Finland and South Korea, our GDP today would be $1 to $2 trillion larger. That might seem like a drop in the bucket in a $14 trillion economy, but how much has the Federal Reserve spent thus far on its various firefighting moves? Oh, right, $1.2 trillion. And bailouts? Um, $1 to $2 trillion. 

OK, so what: surely we can make all this up through faster growth? Well, right, about that, see economic growth has become increasingly dependent on education over the past three decades. That knowledge-based economy everyone's always talking about? It's for real, and it requires concomitant investments in not just knowledge creation, but the ability of people to codify and, most importantly, use that knowledge. I just happened to be reading Dominique Foray's fabulous Economics of Knowledge when I ran across this McKinsey report. The juxtaposition is like finding out when McDonald's breakfast ends: "total mind blow." 

I'm not usually disposed to let one report or one apparent trend scare me, but considering the nature of knowledge in the abstract, the history of American education and growth, and the sorry state we find many of our schools in today--well, it's a tad daunting.

I make no claims to be an education expert, and I know I keep coming back to this, but I simply can't help thinking about the "high school movement" with regard to these issues. Goldin and Katz are again the authorities here. The nature of knowledge, in general terms, hasn't really changed in the last century, but it's economic importance, the way we use it, and the way we propagate it, have changed radically. This should have clear implications for our educational system.

What those are, I'm not in a position to say, but it becomes more obvious every day that we need some serious institutional innovation in the realm of education, akin to the rise of secondary schools that arose with the industrial economy. Technology has a role to play here; alternative models like KIPP, too.

Any brilliant ideas out there?

Then Again, No Thanks

Interesting developments in New York City today: teachers at the KIPP Infinity and Academy schools have asked that they be dissociated from the United Federation of Teachers, the union. From the press release:

We, the undersigned teaching staffs of KIPP Academy and KIPP: Infinity, feel the success we have attained to this point in our schools is largely because of the close relationship between all those interested in our students' well-being, from students to families to school staff.  While we have nominally been unionized, the collective bargaining agreement has never been a prominent factor in deciding what is best for our students, our team, and our family.  Rather, we solve problems using communication among staff members and working collaboratively with administration to best serve the needs of our students and families.  We have found that this method of problem solving has fit our situations well, and we plan to continue following this model of open, positive communication among students, families, and staff in the future. 

KIPP schools are on the cutting edge of education all over the country, and these two schools have been among the best-performing schools in New York City. Given that one hundred percent of the teachers signed this petition, this could get very interesting. As I said the other day, we seem to be either on the cusp of or in the midst of a vast education transformation. The thing about such shifts, however, is that they rarely occur along the conventional avenues of power and activity.

Short-term Backstop, Long-term Transformation

Out here in suburban Kansas, enrollment at the local community college has been increasing: Johnson County Community College (a fantastic institution, by the way) is experiencing its highest totals ever for a spring semester. The most popular fields of study? Health and entrepreneurship.

That, in and of itself, is unsurprising: higher education often sees a spike in times of recession. Yet in a larger sense, JCCC and other similar institutions around the country may augur a broader shift in the higher education landscape. At least, I hope they do. Enrollment at JCCC is now around 20,000, comparable to some of the country's best state universities--include continuing education, and the number rises. The school expects to benefit, too, from the Johnson County Education and Research Triangle.

In the early decades of the twentieth century, the "high school movement" transformed the relationship between the citizenry, the education system, and the emerging industrial economy. Undoubtedly, a similar transformation is taking place today--community colleges like JCCC, the increasing use of technology in education, completely new ways of teaching, etc etc.

The nature of these transformations is such that, while the federal government will play an unavoidably large role (just given its size and sway in education these days), we won't even be able to coherently outline the future of education until it's already upon us. The only things we can say for sure is that it will be a far more structurally diverse system than today, and it will be much more substantive than simple calls for more money.

This Sounds Familiar . . .

"When you go to the United States or Europe, there isn't much opportunity. You are going to get a menial job, with barely enough to send home. But here we don't have jobs. We set ourselves up."

That's one of the thousands of African immigrants generating massive amounts of entrepreneurial energy in Guangzhou, China.

There's been a lot of noise about the U.S. losing (and turning away) high-skilled immigrants, a highly unfortunate turn of events. Just as important, however, are the thousands of migrants who probably wouldn't qualify as high-skilled but who have been no less important to the American tradition of entrepreneurship. 

Leadership and Growth

In Why Globalization Works, his fabulous book on political economy, Martin Wolf quotes Nobel-laureate Kenneth Arrow: "truly among man's innovations, the use of organization to accomplish his ends is among both his greatest and his earliest."

Numerous elements, and the innumerable interactions among them, go into generating economic growth. Some, like population growth and demographic change, contribute to what Joseph Schumpeter called the "circular flow." Others, such as technological innovations, war, and institutional change, are more discontinuous in their impact and, at least according to some schools of thought, are what really drive progress.

Per Arrow above, it seems logical that the quality of a society's organizations--their effectiveness, their structure, their growth--should also be an important growth factor. To the extent this is true, it would mean that the way these organizations are managed or lead is a key ingredient in growth. 

This is what an astute colleague pointed out to me yesterday, and that, therefore, a site about economic growth should also cover leadership. According to her, our economic future depends on our ability to produce effective leaders and that the extant leadership literature is of, um, marginal relevance. 

Let this post thus initiate a continuing dialogue on the subject of leadership and growth. I don't quite know what that means yet, but it seems fruitful, so I invite Tim and Bob and readers to weigh in. Conjecturing, this dialogue might end up covering Max Weber, philosophy, Warren Bennis, behavioral economics, and much, much else.

Weight Loss (Aversion)

Economists and psychologists are making amazing discoveries, and one of the most interesting is the cornerstone of "prospect theory" based on research by Nobel prize recipients Kahneman and Tversky. This theory suggests that people tend to have a greater aversion to losses than they have attraction to making gains. And now we see more policies and programs rooted in good theory.

To wit, if someone paid you to lose weight with your own money, would that get you to pump iron? Beter phrased, what if they withheld payments if you gained weight, would that affect you? The latest research says yes.

"[Researchers] said weight-loss programs that reward people with money -- and remind them of the cash they stand to lose if they fail -- provided a powerful incentive to lose weight compared with more conventional approaches.

. . .

[Volpp the main researcher] said many weight-loss programs fail because people are being asked to make sacrifices now for rewards in the future.

"We wanted to create a reward system which gave them rewards in the present," said Volpp, whose study appears in the Journal of the American Medical Association.

Volpp and colleagues studied two kinds of incentive programs for weight loss. One was a lottery-based design in which participants played a lottery and were allowed to collect their winnings if they met their weight-loss target.

The lotteries were running daily, and people were told what their winnings would have been if they had met their weight-loss target.

"There is a very strong sense of loss aversion," the theory that people are highly motivated to avoid losses, Volpp said in a telephone interview.

"The idea was to create a mechanism where loss aversion would help drive people's motivation," he said.

Ph.D. migration reveals innovation patterns

This may be old news, but a paper by Dr. Paula Stephan in NBER's Innovation Policy and the Economy, Vol 7 (2006) just came to my attention. I count at least two very interesting observations derived from the analysis of Ph.D. migration patterns in the U.S.

1. Confirmation of what I call the Broadway Joe Problem. (i.e. QB Namath was not from New York)

Indeed, seven of the top 20 institutions education PhDs to work in industry are located in the Midwest. ... The state stay rate for PhDs working in industry is now 37 percent. ... Purdue's PhDs now overwhelmingly leave the state [of Indiana] to take employment elsewhere .... It is risky as a nation to continue to rely on the "kindness" of Midwestern states to publicly educate the high-quality S&E workforce that heads out of state upon graduation.  ... [A]lmost one out of ten new PhDs going to work for industry heads to San Jose.

2. R&D focus underemphasizes entrepeneurial innovation.

Only ten of the top 20 R&D firms appear on the top 20 hiring list.

Finally, our data suggest that small firms play a larger role in innovation than R&D data would suggest. For example, while the top 200 R&D firms expend more than 70 percent of all R&D in the U.S., they hire only 39 percent of all new PhDs.

Pay Teachers More!

We have an incessantly shallow debate about education in America - one side calls for more money, the other calls for structural reform. Whatever you believe, one central breakdown in public schools is the quality of teachers: bad ones can stay indefinitely while good ones often (not always) get frustrated and leave the profession. The heart of the problem is articulated in this New York Times essay by teacher Christine Gralow:

When I see promising teaching colleagues quit because they simply can’t afford to live in Manhattan on their salaries, and I see staff shortages and inexperienced teachers at the city’s highest needs schools, it’s clear a new model is needed. So far this school year, I’ve seen one good teaching colleague quit to pursue a higher paying job. Teachers realize we’re not going to become wealthy when we choose this profession, and low salaries may in some way be a test for those truly committed to the job, but there’s no doubt that low pay also keeps a lot of well-educated, talented Americans out of the classroom. Good teachers also regularly leave the city for higher paying jobs in nearby counties, and low teacher pay has created serious teacher shortages in math, science and special education, particularly in low-income communities.

Christine's essay is inspired by a wonderful initiative to pay teachers $125,000 at a new charter school in New York. The principal will make just $90,000 and there will be no vice principal. So refreshing.

After visiting the school’s Web site and reading a New York Times article about the school, I realized it was not only legit, but potentially revolutionary in terms of education reform. So this school year, in addition to my regular special education teaching job, I’ve decided to get involved in the creation of this new school.

The Equity Project Charter School (TEP) will open in September 2009 in Manhattan’s Washington Heights community, and it will aim to enroll middle school students at risk of academic failure.

We should remember that if we want to pay teachers more then we have to ask where the money will come from.  What are the opportunity costs? Cutting down on counselors, trainers, district administrative staff is the most likely answer. Are there any examples of schools that have tried the high-pay for teachers approach?

Rhee's education incentives

The mayor of Washington, DC, Democrat Adrian Fenty, appointed a policy innovator to run the DC school system. DC is famous for having some of the worst performing students and schools in the nation, while also spending more per pupil than most other districts. Rhee has overcome huge bureaucratic obstacles to implement some exciting incentive-based reforms:

Last week, D.C. Schools Chancellor Michelle A. Rhee unveiled a pilot program in which middle school students will be paid to meet academic and behavioral goals. Starting in October, 3,000 students -- half of the middle school population -- will be able to earn as much as $100 every two weeks (officials expect the average will be $50 every two weeks) as part of a $2.7 million program being offered with Harvard University. 

Hat tip: WaPo.

My question: Why aren't there more experiments like this?  Whether it works or not, it seems to me that the path to progress in education is having entrepreneurial districts not national standards, or to have empowered teachers not accredited teachers, or to have education markets not education mandates.