Thursday, June 23, 2016

Please Don't Pop My Bubble!

So ride your bubble of choice up--stocks, bonds, housing, bat guano, take your pick--but it's best to keep your thumb on the sell button.
One person's bubble is another person's "fair market value." What is clearly an outrageously overvalued asset perched at nosebleed levels of central-bank fueled speculative euphoria is to the owner an asset at "fair market value."
But beneath the euphoric confidence that valuations can only drift higher forever and ever is the latent fear that something could stick a pin in "my bubble"-- that is, whatever bubblicious asset we happen to own and treasure as a source of our financial wealth could be popped, destroying not just our financial bubble but our psychological bubble of faith in permanent manias.
Consider housing prices, which are clearly in an echo-bubble of the Great Housing Bubble of 2000-2007. (Chart courtesy of Market Daily Briefing.)
The psychological underpinning of all bubbles and echo bubbles is on display here. In the first bubble, those benefiting from the stupendous price increases are not just euphoric at the surge in unearned wealth--they believe the hype with all their hearts and minds that the bubble is not a bubble at all, it's all just "fair market value" at work.
In other words, the massive increase in unearned personal wealth is not just temporary good fortune--it is permanent, rational and deserved.
Alas, all bubbles, no matter how euphoric or long-lasting, eventually pop. All the certainties that seemed so obviously true and timeless to the believers melt into air, and their touching faith that the bubble valuations were permanent, rational and deserved dissipates in a wrenchingly painful reconciliation with reality.
The agonized cries of those watching their bubble-wealth vanish do not fall on deaf ears. The same central bankers that inflated the bubble with super-low interest rates suddenly see their much-loved wealth effect (i.e. the bubble-generated psychological sense of wealth that emboldens people to borrow and spend money they shouldn't borrow and spend) imploding before their eyes.
In the panicky haste of blind expediency, central bankers drop interest rates to zero and unleash unlimited liquidity to save the bubbles they inflated. Instead of flushing the system of bad debt and speculative leverage and allowing the market to reprice impaired assets, central bankers push the perverse incentives that inflated the bubble to new highs.
Should lowering interest rates to zero fail to reflate the bubble, central bankers then start buying assets hand over fist, creating trillions of dollars, yuan, yen and euros out of thin air to boost asset prices with direct and indirect purchases.
The relief of those saved from financial destruction by the heroic efforts of central bankers is palpable. Rather than retrace to pre-bubble levels, valuations are caught in mid-air and pushed higher by central bank liquidity and asset purchases.
But the naive faith of asset owners cannot be restored to its pre-bubble virginal state. The nagging realization that all bubbles are temporary and irrational, and that bubblicious wealth is unearned and undeserved, lingers in the traumatized psyches of the former true believers.
Sensing their vulnerability, every asset owner demands: don't pop my bubble!Go pop somebody else's bubble, but please please please leave mine intact.
This knowledge that all bubbles pop sooner or later generates a skittishness that finds voice in sell-offs. Once the skittish owners of a bubblicious asset sense the nail is pushing against the bubble and the inevitable popping is nigh, they sell sell sell.
No wonder the stock market has sold off hard three times in the past 18 months. Every punter who's not a sucker knows that 1) stocks are overvalued, 2) every bubble eventually pops, and 3) the survivors are those who sell at the first whiff of trouble.
So ride your bubble of choice up--stocks, bonds, housing, bat guano, take your pick--but it's best to keep your thumb on the sell button and your mind attuned to the many needles and nails pressing against the thin membrane of the bubble.


A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.
My new book is #11 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book's website.

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Wednesday, June 22, 2016

Where Are the Jobs? Mostly In Big Cities

Maintaining the status quo of red tape, high taxes, high junk fees and indifference to small business realities guarantees decline and failure.
It's well known that millions of the jobs counted in employment statistics are part-time or low-paying "gig economy" self-employment. Over 9 million self-employed workers make less than $10,000 per year, and 5.5 million earn less than $5,000 per year. Granted, many of these workers may have other employment, but the point is millions of jobs that are puffing up official job totals are not full-time or even close to full-time.
Nonetheless, employment and new small businesses are expanding in some locales. According to this new study, The New Map of Economic Growth and Recovery (eig.org), growth in jobs and new business has become increasingly concentrated in a handful of high-population metropolitan counties.
In the high-growth early 1990s, half of all new businesses sprouted in 125 counties nationwide. In 2002-2006, the number of counties that were home to half of all new enterprises fell to 64. In the "recovery" years of 2010-2014, half of all new firms arose in a mere 20 counties nationally--an astonishing concentration.
We can see the asymmetry in this chart. Where counties with 1 million or more residents were home to 13% of new businesses in the 1990s, now 58% of business creation occurs in populous urban counties.
Here are the counties with the largest increases in employment (I'm listing only those with a 9% growth rate or higher).
1. Los Angeles CA 9.9%
2. Harris (Houston) TX 14.7%
3. New York NY 11.2%
4. Orange County CA 11.7%
5. Dallas TX 10.6%
6. Miami-Dade FL 14.7%
7.Santa Clara (San Jose) CA 13.7%
8. San Diego CA 9.2%
9. King (Seattle) WA 9.8%
10. Hennepin (Minneapolis) MN 11.4%
11. Tarrant (Dallas) TX 12.5%
12. San Francisco CA 16.8%
13. Oakland County (Detroit) MI 13.2%
14. Travis (Austin) TX 15.6%
15. Kings (Brooklyn) NY 15.0%
16. Orange County (Orlando) FL 11.7%
17. Hillsborough (Tampa) FL 13.9%
18. Mecklenburg (Charlotte) NC 13.2%
Not all of the jobs created in these urban centers are high-paying, of course.Some regions have more low-paying service jobs, and others have relatively more high-paying jobs.
Some of these locales have insanely high costs of living, which skews wage comparisons between regions.
Other than the welcome leap in jobs in Detroit, the big urban centers of growth are congregated on the Left and Right coasts and Texas (Minneapolis benefits from a concentration of corporate headquarters, universities and R&D--a mix that characterizes many of the job centers.)
The authors of the report reach some sobering conclusions about this geographic concentration of new businesses and new employment:
The geographically uneven nature of the decline in new business starts implies that large swathes of the country will soon contend with a missing generation of firms — ones that should be providing employment opportunities and new foundations for economic growth in the years ahead.
The uneven geography of new business formation tracks very closely with that of access to capital — particularly venture and other forms of risk capital. Addressing the former challenge will surely involve tackling the latter. Without mitigating these disparities, the trend towards increasing concentration documented here may even accelerate, given that today’s largest economic centers are the few remaining places producing tomorrow’s new businesses.
The new map of growth and recovery points to very different futures for American communities. These findings suggest that the gains from growth have and will continue to consolidate in the largest and most dynamic counties and leave other areas searching for their place in the emerging economic landscape.
The good news is that smaller cities have some advantages (much lower costs, for example) and they can generate meaningful, stable expansion of jobs and new businesses if they organize their efforts to maximize those advantages--and if they welcome new enterprises with an uncluttered, low-cost pathway to starting up.
There are a variety of messages buried in this data. One is: the more dynamic the business environment, the greater the opportunities to build networks, disrupt vested interests and find niches for small enterprises.
Cities that think luring one big corporation to locate a factory or office park in their area is the answer are deluded; that one big employer can decide to relocate or shut down operations in a heartbeat.
Maintaining the status quo of red tape, high taxes, high junk fees and indifference to small business realities guarantees decline and failure. The motto of the most dynamic elements of our economy is: trust the network, not the corporation or the state.
The local government can help by eliminating statutes and requirements that serve to protect sclerotic vested interests (forcing people such as florists to get absurdly unnecessary professional licenses, for example) or it can hinder it by looking on small business as tax donkeys who should be grateful for a chance to open a biz in town.
Guess what, folks--the tax donkeys can go elsewhere, to places where they are either welcomed or celebrated.
It's all about networks and network effects: this may sound high-tech, but it's just as true for a bakery as it is for a software company.
All About Network Effects (85-slide presentation)
The author of the recent book The Geography of Genius: A Search for the World's Most Creative Places from Ancient Athens to Silicon Valley concluded that creative places share three essential characteristics: disorder, diversity and discernment.
In other words, the exact opposite of places designed to preserve the privileges of vested interests and a sclerotic status quo.


A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.
My new book is #11 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book's website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
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Tuesday, June 21, 2016

What Does It take to Be Upper Middle Class?

What's left unsaid is much of the upper middle class is prospering due to privileged positions that are increasingly at risk of disruption.
What does it take to be upper middle class? According to one analyst, the answer is: at least $100,000 a year for a family of three. The Growing Size and Incomes of the Upper Middle Class (Urban Institute).
The paper claims the upper middle class has grown from 12.9% of the population in 1979 to 29.4% in 2014--in essence, the shrinkage of the "middle class" is not just from households dropping down the ladder but millions of households climbing up to the upper middle class.
While the evidence broadly supports this secular shift--the concentration of income and wealth in the top 20% increases while the wealth and income of the bottom 80% stagnates--I think the claim that 30% of all U.S. households are upper middle class grossly overstates the reality, which is it's become increasingly costly to even qualify as middle class, never mind upper middle class.
I've explored these topics in depth over the past few years:
If we measure financial characteristics of middle class status rather than income, we find $100,000 is borderline middle class, not upper middle class.The above essay lists the baseline of 10 minimum metrics of middle class status. In high-cost regions, $100,000 barely qualifies a household as middle class; to be upper middle class, households must earn closer to $200,000.
A household income of $190,000 is in the top 5% nationally. According to the Social Security Administration data for 2013 (the latest data available), individuals who earn $125,000 or more are in the top 5% of all earners. Two such workers would earn $250,000 together. The 2.8 million households with incomes of $250,000 or more are in the top 2.5%.
I think it is reasonable to define the 12% of households earning between $125,000 (top 15%) and $350,000 (the cut-off for the top 1%) as upper middle class. This is around 14.5 million households, out of a total of 121 million households.
This is a far cry from 30% of all households qualifying as upper middle class.What we're seeing is the inflation of "middle class" to "upper middle class," just as a B grade is now an A, and jobs that don't require a university degree now nominally require a bachelors degree or higher.
The increasingly desperate effort to reach the upper middle class is evidenced by a slew of books and articles on what it takes to succeed in an increasingly winners-take-all economy, and on the anxieties of those trying to "make it": note that most of the articles are published in magazines/media outlets that appeal to the very upper middle class that's anxious about maintaining their tenuous hold on prosperity:
The Limits of "Grit" (New Yorker)
I've laid out my own bootstrap blueprint in Get a Job, Build a Real Career and Defy a Bewildering Economy (hint: don't cling to credentials and privilege as your strategy--acquire skills and entrepreneurial income streams).
What's left unsaid in all these articles is much of the upper middle class is prospering due to privileged positions that are increasingly at risk of disruption--a topic I discussed in If You Want More Jobs and More Job Stability, Disrupt More, Not Less (June 21, 2016) and How Many Law Schools Need to Close? Plenty (June 20, 2016).
And just a reminder: of the supposed 30% of households who are upper middle class, only the top 10% have significant wealth-building assets: that tells us in no uncertain terms that two-thirds of the supposedly upper middle class 30% are only middle class.
My new book is #11 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book's website.

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Monday, June 20, 2016

If You Want More Jobs and More Job Stability, Disrupt More, Not Less

Reducing disruption to protect the privileged status quo is akin to poisoning the patient to "protect them from harm."
Two recent studies reflect the ongoing rapid transformation of the U.S. economy: The New Map of Economic Growth and Recovery (eig.org)
I've addressed the dynamic mix of technical and entrepreneurial skills, social and financial capital and infrastructure of opportunities required to successfully navigate this transformation in my books Get a Job, Build a Real Career and Defy a Bewildering Economy and The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.
Here's the problem in a nutshell: job growth, new businesses and wage gains are becoming increasingly concentrated in a small number of geographic regions and a narrow class of workers / entrepreneurs while the overall economy struggles to maintain productivity gains, which are ultimately the only sustainable source of prosperity.
the productivity growth rate has been slumping since 2005.
Longer term, productivity gains have flowed to the top 5%--those workers and entrepreneurs with higher levels of education, ownership of assets and access to cheap credit:
This chart shows the concentration of income in the top tier: the top 5% have garnered the gains while the incomes of the bottom 95% have stagnated.
The overall employment picture has changed for the worse: the percentage of the populace that's employed has fallen from peak periods.
The number of workers with full-time jobs has stagnated in the 2000s, breaking a 50-year trendline of steady growth of full-time jobs.
The growth of new businesses (annual change in the number of firms) has also cratered: business creation never recovered in the "recovery."
Growth in jobs and new business has become increasingly concentrated in a handful of high-population metropolitan counties. In the high-growth early 1990s, half of all new businesses sprouted in 125 counties nationwide. In 2002-2006, the number of counties that were home to half of all new enterprises fell to 64. In the "recovery" years of 2010-2014, half of all new firms arose in a mere 20 counties nationally--an astonishing concentration.
The point of The U.S. Labor Market Is Far More Stable Than People Think is that disruption generates more stability in the job market, not less. The obvious stagnation of employment and wages for the majority of workers has created a feeding-frenzy of potential explanations and causes, and this has led to all sorts of proposed policy tweaks.
The point here is: if you want growth and stability, disrupt more, not less. The vast majority of policy tweaks are ultimately aimed at protecting privileged classes from disruption and reducing disruption of the status quo--in government, higher education, healthcare, defense, etc.
Reducing disruption to protect the privileged status quo is akin to poisoning the patient to "protect them from harm." The only way to successfully navigate a rapidly transforming economy is to embrace disruption by making it easier and cheaper to disrupt the protected status quo.
In my book The Nearly Free University and the Emerging Economy: The Revolution in Higher Education, I lay out a blueprint for reducing the cost of college by 90% while greatly improving the value of that education.
One reason why jobs and entrepreneurial are increasingly concentrated in counties with high densities of population and capital is these locales possess the infrastructure of opportunity I describe in my book Get a Job, Build a Real Career and Defy a Bewildering Economy-- the traits author Eric Weiner explored in his book The Geography of Genius: A Search for the World's Most Creative Places from Ancient Athens to Silicon Valley.
I have often discussed the cultural capital and decentralized, dynamic models this great transformation favors, for example: Flexible Labor Is the Future (June 1, 2016)
In essence, we have a choice: 1) try to freeze history in its tracks, so those who are currently privileged remain privileged. This will slowly strangle the economy and increasingly concentrated gains in the hands of the few. Or 2) embrace disruption of the status quo as the only path to widespread prosperity and stability.


A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.
My new book is #5 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book's website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
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Sunday, June 19, 2016

How Many Law Schools Need to Close? Plenty

The only solution for the surplus of workers with law degrees is a massive, permanent reduction in the issuance of new law graduates.
America is in the opening stages of a massive surplus of over-credentialed workers. The default setting for 50 years has been: if you want a secure upper-middle class salary, get a law degree, MBA, PhD or other graduate-level professional degree.
The massive surplus is now apparent in J.D.s (law degrees) and PhDs. The writing is already on the wall: there aren't enough jobs for law school graduates, and this scarcity of high-paying legal jobs will only increase going forward. These two articles provide the context:
The only solution for the surplus of workers with law degrees is a massive, permanent reduction in the issuance of new law graduates. The only way to achieve this result is for a significant percentage of law schools to close their doors.
What's the percentage that must close to restore some balance? An unfettered market would discover the price of attending law school and the number of schools needed to fulfill diminishing demand for workers with law diplomas.
But we don't have an unfettered market--we have a government-sanctioned system of debt-serfdom. Law students can borrow up to $200,000 for a three-year law program, and so surprise, surprise, the cost of that three-year program is--yup, $200,000.
This gargantuan state-supported debt-serf machine enabled prices to soar without regard to the value of the education, its utility in the marketplace or its market cost.
The glut in over-credentialed workers is not limited to law: The PhD Bubble Has Burst: Graduating 'Doctors' Are Having Trouble Finding Work (Zero Hedge).
As I have often noted, graduating 50,000 PhDs in chemistry annually does not automatically create 50,000 jobs for the graduates.
Our system of government-sanctioned debt-serfdom has created perverse incentives for colleges to raise prices and for students to become over-credentialed, a process that has enriched universities and their administrative legions while impoverishing students who are dumped into a job market saturated with over-credentialed but underskilled workers.
This reality is visible in the declining pay for all classes of workers, including the most highly educated:
It doesn't have to be this way. Radically improving our higher education system while reducing the cost of that education by 90% is the topic of my books Get a Job, Build a Real Career and Defy a Bewildering Economy and The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.
So how many law schools need to shut down to restore the balance of supply and demand? It depends on how fast technology reduces the demand for legal expertise. A 20% reduction in the number of law schools and law school graduates would be a good start, but if technology and outsourcing start eating jobs, the eventual number of law school closures might have to exceed 50%.
One quick way to discover price and demand would be to eliminate all student loans. Once students could not borrow money, the cost of higher education would collapse to a cash-value level. The number of colleges and universities would plummet, and supply and demand would soon find a new equilibrium, minus the debt-serfdom.
My new book is #5 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book's website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
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