Economics for the Muppet Generation

Mark McHugh of Across the Street provides a succinct summation of the problem America faces:

McHugh continues:

  • From 1947 to 1974 US income per capita grew more than National debt per capita 25 times.
  • In the last 30 years, National debt per capita has grown more than income per capita 24 times.
  • The last time income per capita grew more than national debt per capita was 2001.
  • Ben Bernanke arrived at the Federal Reserve in 2002.

So simple, even a muppet can understand what the problem is, right?

Not exactly. We know what the problem is: national incomes aren’t rising, even while we get deeper and deeper into hock trying to maintain our standard of living. We know that this pattern is totally unsustainable; unless incomes rise, that debt will become increasingly impossible to service. What is less clear is the cause of this stagnation.

So what changed between 1990 and 2005 that led the nation debt per capita to so quickly overtake national incomes per capita?

While I am mindful that correlation does not necessarily imply causation, that data fits pretty beautifully. The explanation for this trend would be that as America has become more and more consumptive, and less and less productive that more and more capital went offshore to pay for consumption, and thus less and less contributed to the national income, even as Bernanke ponied up trillions in new reserves, and even as the shadow banking system created trillions in pseudo-money.

So where’s America’s money?

Here:


So is this a criticism of free trade? Should America have been more protectionist of her industries and her domestic manufacturing? Not necessarily; what the Washingtonian elites refer to as “free trade” is heavily subsidised. The status quo that Washington has made seems to heavily favour China and disfavour America. Imports from China are subsidised by American military largesse; every dollar America pushes into its military-industrial complex pushes shipping costs like insurance a little lower. So while labour costs in the Orient are naturally cheaper (due to population density, and development level), that doesn’t necessarily mean that Chinese goods are naturally cheaper in the American market. Under a genuinely free system — where America was not subsidising shipping costs — would made-in-America be more competitive compared to Chinese goods? Would China have built up a less  mountainous supply of American cash? I think so.

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Genius is Not Educated

The WSJ published an interesting article entitled Educating the Next Steve Jobs:

Though few young people will become brilliant innovators like Steve Jobs, most can be taught the skills needed to become more innovative in whatever they do. A handful of high schools, colleges and graduate schools are teaching young people these skills.

In most high-school and college classes, failure is penalized. But without trial and error, there is no innovation. Amanda Alonzo, a 32-year-old teacher at Lynbrook High School in San Jose, Calif., who has mentored two Intel Science Prize finalists and 10 semifinalists in the last two years—more than any other public school science teacher in the U.S.—told me, “One of the most important things I have to teach my students is that when you fail, you are learning.” Students gain lasting self-confidence not by being protected from failure but by learning that they can survive it.

It’s nice to read about the value of failure, a topic that I have written a few words about.

But really, I don’t think that revolutionary thinking can be educated, and I think it’s foolish (and possibly even counter-productive) to try. School by definition inculcates systematic thinking, methodology and dogma. It inculcates competence. That’s generally a good thing; surgeons, medical researchers, lawyers, engineers, musicians and all manner of professionals need to be competent to function. Innovation is not necessarily inherent in any of those fields. But genius and revolutionary thinking is not really about competence and confidence.

Malcolm Gladwell is famous for formulating the idea that with 10,000 hours of practice, it is possible to master a skill.

The key to success in any field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours.

So is 10,000 hours of practice all that stands between incompetence and world-changing greatness?

Gladwell grandly theorises that many famous history-changers (“outliers”) like Bill Gates, Steve Jobs, and the Beatles got to where they did with 10,000 hours of practice. But that ignores a lot of silent evidence; for every Bill Gates programming over a mainframe for 10,000 hours, there is a housewife that we have never heard of who has done 10,000 hours of parenting, and (probably much more than) 10,000 hours of housework. There is a surgeon who has done 40,000 hours of operations. There is a truck driver who has driven for 100,000 hours.

Gladwell is keen to point out, of course, that people’s skills also flourish through the networks they cultivate, and the people they meet, and that (of course) it’s just a little more complicated than 10,000 hours of practice.

My view is that all 10,000 hours of practice (something which of course can be delivered within a traditional educational framework) does is lay down a bedrock of competency.

My theory is that revolutionary thinking is not simply a matter of persistence, but is instead attitudinal, and mostly comes out of people who are forced or who force themselves to take a radically different perspective to the rest of the world. They are — almost by definition — autodidacts, simply because their style of thinking has not yet been pioneered. They have to teach themselves, and iron out the kinks. Being an autodidact of course is not necessarily a matter of choice; very often it is a matter of necessity — people who don’t have access to traditional education, or who are forced to exist outside the system. This can be due to poverty, strong personalities, or a preference for self-teaching (very often expressed as a preference for doing over thinking).

The established system is often very useful for such people, because it gives them a framework from which to hang contrarianism. It gives them something to rebel against and kick out against.

On the other hand there are many examples of professional academics and those within the establishment who pioneer and innovate (although of course it should be noted that the overwhelming majority of academic papers today are masturbatory regurgitation). But such activity forces even the most staid into autodidactic learning; it forces them to make mistakes, and challenge themselves and learn their own lessons.

I suppose it is possible to try to inculcate a love of tinkering, of trial-and-error, and an understanding of the value of failure. It is certainly possible to encourage an interest in self-teaching. But it remains to be seen how many of us will really bite. It strikes me as if most of us do not really want to be innovators; I see far more who want job security, loving families, and plenty of leisure time.

I tend to believe that today’s education system is fit for its own purposes; it churns out competent thinkers, competent doers, people who can analyse to a framework and work to a deadline. True autodidacts and philosophers (in the most literal sense of the word — lovers of thinking, learning and wisdom) will find their own way.