State & City Budgets:

Dangerous Hot Potato

By   Shlomo Maital

      US State and Local Budget Deficit/Surplus, 1960-2016

     Amazon has just announced it will split its new headquarters buildings between Long Island City, Queen’s, and Northern Virginia, and a smaller center in Nashville.   According to CNBC: “The company said it will receive up to $2.2 billion in performance-based incentives from the three areas: $1.5 billion associated with its investment in Long Island City, $573 million in Arlington and up to $102 million in Nashville. The incentives take the form of cash grants and tax credits, and some take effect over time.”

     The announcement highlights an interesting fact. As MIT Dean Lester Thurow noted once, companies once paid taxes to cities, and now cities pay taxes to companies (like the huge grants Amazon received). True, Amazon will invest substantially – but giving over $2 billion to a company whose stock is worth $800 billion? That made $3 billion in profit in 2017?   From city budgets that are already strapped? Amazon’s Jeff Bezos, of course, cleverly strategized by creating a competition among cities over who would give him the best deal.  

   And there is a much deeper problem, too.

   The U.S. federal government recorded a $100.5 billion budget deficit in October, an increase of about 60 percent from a year earlier. That is the gap between what the federal government spent and what it earned in taxes, in just one month!. On a yearly basis, the federal deficit is headed for a record 1 trillion dollars, or over 5 % of US GDP. The cause? Mainly, the massive Trump tax cut passed in 2017. Most of it went to businesses, and they in turn spent it on buying back their shares and on dividends. Very little went to capital investment.

     How will this deficit affect ordinary Americans? The press focuses on the massive $20 trillion US public debt that future generations will have to pay, as the federal government borrows tons of money to pay its bills. But there are deeper reasons for concern.

     Many experts predict an imminent slowdown in the US economy – perhaps, a recession. What happened in the last recession that followed the 2008 financial crash?

     According to Tracy Gordon, Brookings Institute, Washington, “More than in past economic downturns, state and local governments were a prominent casualty of the recent recession. States in particular saw their revenues plunge. Although state taxes have been rebounding, local property taxes have dipped, consistent with a two- to three-year lag between home prices and property tax rolls. These reductions coincide with state cutbacks in local aid, further squeezing local budgets.

       [See Figure: State & Local Government Deficit/Surplus 1960-2016]

   Why is this a potential serious problem? Gordon continues,    

     “These are critical issues because states and localities perform most of the activities we commonly associate with government. They undertake most direct spending on public goods and services (including their expenditures from federal funds), and they bear primary responsibility for investments in education, social services, and infrastructure that directly affect our national economy and quality of life. States and localities are also key economic players, comprising 12 percent of Gross Domestic Product (GDP) and employing 1 out of 7 workers – more than any other industry, including health care, retail sales, and manufacturing.”

   In other words, state, local and city governments supply the things that underpin quality of life – health care, education, transportation, infrastructure. They generate one dollar in every 8 dollars of GDP and employ one worker out of every seven.

     So, here is a scenario that is a cause for worry. The US economy goes into recession in late 2019. The trillion dollar federal budget deficit swells dangerously. The federal government slashes spending where it can – cutting financial aid to state governments. State governments (many are constrained by law to balanced budgets) in turn slash their grants to municipal, local and city governments.

     And these, in turn, slash spending on the things that make life pleasant, or bearable, for most Americans. Potholes? Traffic jams? Dangerous roads?   No money available to fix them.

     This is a dangerous game of ‘hot potato’.   And it’s not a pipe dream. It happened in 2010.   Deficit hot potato passes from the federal government to the state government, which in turn tosses it on to local and city government. The buck stops there, and that hot potato burns our fingers. It happened before – it will happen again.

     On a recent trip to the US, my wife and I made frequent use of WAZE. WAZE kindly told us about every pothole. And there were a whole lot of them.   I don’t recall that feature in other countries.

       Even in good times, city budgets are strained. Seeking re-election, mayors spend their money on the short-term, while costly long-term capital spending is neglected. (Why spend money to help some future mayor, maybe a rival, get elected?).  

       There is a solution. Let state legislatures require cities to build five-year capital expenditure budgets, to accompany the one-year operating budgets. Let the federal government help the states and cities pay for interest costs on debt that finances capital spending. Protect those five-year budgets zealously from ‘theft’ (shifting spending from long-term to short-term).  

       Conservatives will scream, socialism!   Five-year plans are used, for instance, in China. OK – ever looked at China’s infrastructure? Fast trains, brand new airports?

       Hot potato crises for city budgets make no sense. It’s time for a change.

        Half the world’s population now lives in cities. By 2050 that will rise to 75%.   How cities spend their money and raise their revenues will have a huge impact on the wellbeing of the people who live in them. And there is a ‘hot potato’ problem. It’s time to fix it.

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Divided America: In Pictures *

By Shlomo Maital

 

 

   How divided is the United States politically? An interesting graphic from the Washington Post tells the story.

   Top figure: % voting Democrat, mid-term (Nov 6) House of Representatives, by gender. Women: 66% (2/3).    Men: 50% (1 in 2). Huge difference.

   Middle figure: % voting Democrat, by age. Young (18-39)   66%. (2/3). 65 and older: 45% (less than 1 in 2).

   Bottom figure: % voting Democrat, by education (white people). College women: 66% (2/3). College men: 50%.   Non-college men: 37%.

     Other graphs will tell the same story: East Coast/West Coast vs. Heartland (Middle states).   North vs. South. City vs. Rural.

     A New York Times headline summed up the election: Election confirms America’s divisions.

     A close study of the 3 graphs shows: The divisions have been there since 2008 – but in 2018, they have grown substantially.

     Not all of this divisiveness and anger can be blamed on Trump. Some comes from the fact that a few have grown wealthy, many have grown poorer. This deep economic division was ignored – and America will now pay the price.

 

*   Source: Washington Post, Brian F. Schaffner, Nov. 10. “….these charts are based on data from the Cooperative Congressional Election Study (CCES), a large-scale academic survey conducted in every election year since 2008. For the 2018 CCES analysis, we used pre-election interviews with respondents weighted to be nationally representative of the adult population. We then applied a likely voter model trained on previous election cycles to create estimates for the 2018 electorate.”

Global Economy: Clouds Gather

By Shlomo Maital

Caption: In the EU, the current state of the economy, and expectations for the near-term future, have both turned down sharply since the beginning of 2018.

 

   I regularly respond to a questionnaire from Ifo – Institute for Economic Research, based in Munich. Ifo regularly surveys economists and business leaders around the world, to put a hand on the pulse of the global economy.

   Ifo’s latest report is worrisome. Here are some excerpts from their latest report:

   “Sentiment in the euro area continued to weaken this quarter. The ifo Economic Climate for the euro area fell significantly from 19.6 points to 6.6 points, plunging to its lowest level since mid-2016. Experts downwardly revised their assessments of both the current economic situation and their expectations significantly. The euro area’s economy is moving into rough waters.”

   There are major problems in Italy and Spain. Italy’s new right-wing government is quarreling with the European Commission. Spain is showing signs of instability.   In Germany, Chancellor Angela Merkel announced she will not run again for the leadership of her party, and may possibly resign as Chancellor by year’s end. Hungary is muzzling the press and its judiciary.

   The Ifo report continues: “Experts scaled back their export expectations for the euro area, reflecting beliefs that barriers to trade have grown higher. At the same time, a larger number of experts now believe that short and long-term interest rates will rise over the next six months; and that the US dollar will continue to strengthen.”

     China’s economic growth is slowing, and the renminbi (yuan) is touching 7 to the dollar. In tomorrow’s election, the US may find itself with a split Congress – Democratic House, Republican Senate.  The US stock markets had their worst month in years.

   The world is now paying for neglecting countries, and wage-earners, who were left out of global growth and wealth creation. Migration has destabilized Europe, the Mideast and to some extent, the US.   If wealth does not come to a country, and if it is not distributed well, many people in that country will flee toward the wealth.   And when they do, the resulting instability will put a deep dent in wealthy economies.

Are You Trapped in the Tunnel of Scarcity?

By Shlomo Maital

   Are you trapped in the tunnel of scarcity?   If you are, you may not be aware of it.

   In his wonderful National Public Radio podcast “Hidden Brain”, Shankar Vedantam discusses the “tunnel of scarcity” – a situation in which we invest so much mental energy in one thing, there is too little left for other essential things (family, rest, relaxation).

   Princeton University Professor Eldar Shafir and colleagues showed in 2013 and 2014 (in Science journal) how being poor affects negatively our cognitive functioning. [1]   If you are poor, you focus on your immediate needs, with little thought or energy left to plan for the long run. Ability to defer gratification, to acquire human and financial capital, is thus impaired. They find:

   A person’s cognitive function is diminished by the constant and all-consuming effort of coping   with the immediate effects of having little money, such as scrounging to pay bills and cut costs. Thusly, a person is left with fewer “mental resources” to focus on complicated, indirectly related matters such as education, job training and even managing their time.

   Vedantam expands on this phenomenon, and describes the “tunnel of scarcity”. If there is something that you feel you need very badly, your brain focuses on it exclusively, and crowds out other things that may be important. He interviews a former medical resident, who focused obsessively on excelling in her residency, and burned out.

   I co-host a course on Entrepreneurship at my university. I invited a former very senior Intel executive to share his life lessons, in a life filled with innovation. He began his “10 Lessons” with Lesson #1 – Family, and described the heavy toll that high-tech can take. He cautioned students to be aware of it, lest it consume their family life.  

   In evolution, 25,000 years ago, humans who entered the tunnel of scarcity and focused single-mindedly on immediate needs – food, water, shelter – tended to survive, and reproduce, more than those lacking it. So evolution has equipped our brains with “tunnel of scarcity” capability.

   But in modern life, unless we are keenly aware and mindful of it, and if our friends and family fail to alert us to it, we can all of us fall victim to entering a tunnel of obsessive focus – and destroy without intention things of value. And when we awake to the situation, it may be too late. A brain trapped inside the tunnel may struggle to escape.

     Are you in such a tunnel? Is there sufficient light at the end of it, to guide you out of it?

. . . .

p.s. In 1972/3, 45 years ago, my wife Sharone, a psychologist, and I submitted an article to the American Economic Review. In it we argued that because the poor are not proficient at deferring gratification, to build future income, poverty tends to be transmitted from generation to generation. The editor of the journal rejected our submission out of hand, quipping glibly that “in fact the poor are expert at deferred gratification – they do it every day”. Eventually we did publish the article. But it has taken decades for psychology to invade, and perhaps even capture, mainstream economics.

   Sharone Maital and Shlomo Maital, “Time preference, delay of gratification and the intergenerational transmission of economic inequality”. In Orley Ashenfelter and Wallace Oates, editors, Essays in Labor Market Analysis, (Halsted Press/John Wiley & Sons, New York: 1978, 179-199).

 

[1] “Poverty Impedes Cognitive Function” Anandi Mani, Sendhil Mullainathan, Eldar Shafir, Jiaying Zhao. 30 Science   AUGUST 2013.

Living Life As an Entrepreneur: Without a Startup

By Shlomo Maital

   A funny thing happened to me on my way to speak to a group of Canada’s York University engineering students on Monday. I did a “pivot”.

   In startup entrepreneurship,   startups “pivot” when they start by doing one thing, or one idea, and discover (by interacting with real people) that what is really needed is something different.

     I spoke to my students about “why startups fail – and how a few succeed”. But I also spoke to them about – when to become an entrepreneur?

   In five years? 10 years? After gaining experience and saving some money?

   No.

   Now. Today. Tonight!

   Because entrepreneurship is not a profession, it is a mindset. And we all can live fuller, more interesting, more meaningful, more creative lives, if we live them as entrepreneurs, with an entrepreneurial mindset.

   But what is it? What is an entrepreneurial mindset?

   I believe there are two parts.

   Part One: sharp eyes and ears. Be alert for things that you believe are simply wrong, and for people who have a pressing need that is unmet.   Entrepreneurs don’t seek to make money, they seek to make meaning, by filling unmet needs of people, to make people happier, smarter, wiser, more content, healthier, and more vigorous. Living a life by doing this, even in small ways, is full of interest and meaning. I myself discovered this rather late, but not too late.

   Part Two: solutions. Assume that for every challenge, every problem, every unmet need, there IS a solution. And if not a solution, an amelioration, a way to make things a bit better or a lot better. If you assume from the outset that really hard problems do NOT have a solution, then your brain will be unlikely to come up with one. If you assume from the outset that there IS a solution, or at least a partial one, your brain, including your subconscious brain, will work on the problem – and ideas will pop into your head at the most unexpected times.   I’ve known many people who recount such experiences – and I’ve had them myself.

     Want to become an entrepreneur?   Start now. Look for ways to make people happy. Then implement them.    

     Worth a try?  

    

 

 

Why Do Writers Write? Where Do Their Ideas Come From?
By Shlomo Maital
 
Amos Oz
   What’s in an Apple?  Six Conversations about Writing and about Love, about Guilt and Other Pleasures.  Amos Oz with Shira Hadad   (Keter – Hebrew, May 2018).

 I write and teach about  creativity.  The key question, where do ideas come from?, has always fascinated me.  This book (so far, only in Hebrew),  answers that question for one especially talented writer, Israel’s greatest novelist Amos Oz.  His editor Shira Hadad, who knows his books better than Amos himself, asked him hard questions and recorded the answers. 
   Amos Oz  is 79.  His work has been published in 45 languages in 47 countries.   He was short listed for the Mann Booker Prize and is purported to be a candidate for a Nobel Prize.   His latest work is Judas (2014).  His book A Tale of Love and Darkness was made into a movie.
Here are a few quotes, that I have translated…:
  Oz recounts that he was an only child, and his parents would bring him to a Jerusalem coffee shop, swearing him to silence, promising him that if he did not bother their conversation with friends, he would get a rare treat, ice cream.  So Oz recounts, he became a ‘spy’,  listening to conversations, and weaving stories based on them.   “My first motivation was to think, what would I feel, if I were they, If I were he, If I were she…  I was an only child, did not have friends…I simply began to ‘spy’ on the people sitting at nearby tables….”
    “[famous Israeli author A.B. Yehoshua] –  I have an issue with him.  He places the moral question, crime and punishment, at the center of his works.  I think about the moral issue in a different way —  I put myself in others’ shoes, for a few hours, or inside their skin… I believe that a curious person is even a better [marriage] partner than  a non-curious one…and even a better driver! (you are always thinking what the other guy will do!).   ..There is also ‘dark curiosity’.  About those who injure others, to see them suffer….”
“Usually I write out of anger.  I get angry about something. And curiosity is not only a necessary condition for intellectual endeavors, it also has moral virtue.”
    Oz recounts that he rises at 4 a.m.,  and even before coffee,  goes out into the dark streets of Jerusalem for a walk.  He returns at 4:45, has coffee, and then begins to write, for 3-4 hours.  Every single day.  Not a miss..  Sometimes he sees lights on in windows, and wonders about those inside…  He writes endless drafts, sometimes 10 or even 15 of them, by hand  …discards the bad ones, picks the best…and tears the rest into tiny pieces and flushes them down the toilet, lest someone discover them. (Kafka, he observes, ordered his executor and friend Max Brod to burn ALL his manuscripts. Brod, luckily, refused.  Oz says, if you want to destroy your work, do it yourself. If you ask someone else to do it, they won’t…). 
  Oz says that he writes about the past.. this is the natural time to write about, not the present, or the future.  “Story” he says, is part of the word “history”.  He does not like to read his own books.. because he always knows he could have done better. 
   One of his earliest books was My Michael (1968).  So Oz has been writing productively for over 50 years, and is still writing, at age 79. 

   How does he know if his work of fiction is ready to publish?   If, he says, his characters argue with him, dispute him, take on their own lives.  If I tell them what to do too easily, he says, it doesn’t work.  I refuse to write a certain scene. My character says, write it!  I say, No!  My character says, don’t tell me what to do!   This is when I know the work is going well, he recounts. 
     Oz is politically left.  So are David Grossman, A.B. Yehoshua and David Grossman, the other great Israeli writers.
      Why, I wonder, are great authors almost always liberal and left politically?  I guess the answer is simple.  Great writers have incredibly sensitive empathy for other people and for their suffering.  So they feel the suffering of their ‘foes’ and want to reduce or eliminate it. 

     Those on the right seem rather inured to this suffering.  Too bad.  

 

 

 

 

Who Are You?

By Shlomo Maital

William Revelle, Northwestern University

For years, psychologist William Revelle battled the idea that you can pigeon-hole people into “personality types” or traits. With colleagues, he did a very large study, believing he would find evidence contradicting the five-personality-trait idea. To his surprise, he found the opposite.  

   Martin Gerlach, Beatrice Farb, William Revelle & Luís A. Nunes Amaral   “A robust data-driven approach identifies four personality types across four large data sets”.   Nature –   Human Behaviour (2018)

   Here is a part of the abstract of this article,  published in the leading scientific journal Nature:

   Here we develop an alternative approach to the identification of personality types, which we apply to four large data sets comprising more than 1.5 million participants. We find robust evidence for at least four distinct personality types, extending and refining previously suggested typologies. We show that these types appear as a small subset of a much more numerous set of spurious solutions in typical clustering approaches, highlighting principal limitations in the blind application of unsupervised machine learning methods to the analysis of big data.  

And – here are the four types.

 Average

Average people are high in neuroticism and extraversion, while low in openness. This is the most common personality type.

Reserved

The Reserved type is emotionally stable but not open or neurotic. They are not particularly extraverted but are somewhat agreeable and conscientious.

 Role models

Role models score low in neuroticism and high in all the other traits. They are good leaders, dependable and open to new ideas.

Self-centered

Self-Centered people score very high in extraversion and below average in openness, agreeableness, and conscientiousness.

   Hand on your heart – which are you?   Or do you think this is just spurious research?

 

Yuval Noah Harari: 21 lessons for the 21st C

By Shlomo Maital

Yuval Noah Harari

   Historian Yuval Noah Harari has written two smash hit books: Sapiens (about the past – a huge bestseller, a vest pocket overview of human history and progress) and Homo Deus (about mankind’s future ). Now comes his third – about the present.

The book was reviewed by none other than Bill Gates, in The New York Times (Sept. 1-2).

   The structure of the book is very well organized: Part I. The Technological Challenge (disillusionment, work, liberty, equality), Part II. The Political Challenge (community, civilization, nationalism, religion, immigration), Part III. Despair and Hope. (Terrorism, war, humility, God, secularism)   Part IV   Truth. (ignorance, justice, post-truth, science fiction) and Part V. Resilience (education, meaning meditation).

   Harari writes in his introduction: What are today’s greatest challenges and most important changes? What should we pay attention to? What should we teach our kids?

     As Bill Gates notes, Harari does not really offer ‘lessons’, prescriptions or solutions in depth, but instead, helps formulate the key questions – far more valuable, I believe. And he is basically optimistic. True, globalization (the amazing system of cooperation among nations, in which goods, services, ideas, technology, money and people flow freely among countries, driven by opportunity) is under assault. But it is irreversible and Gates notes, “though we took two steps backward in the past two years [since Trump’s election in 2016] before that we took a thousand steps forward.”

     So why does it seem that the world is in decline? Because, Gates rightly observes, “we are much less willing to tolerate misfortune and misery”. And, he might have added, because the enormous resonating sound board of the media obsessively harps on the bad news, because it seems that is what brings them eyes and ears and ratings (and ad money).

   One prediction of Harari that I think is correct:  In the past, land was the source of wealth, then, machinery, then, technology and creativity – and today? It is, he says, data. It is as if social media mine our data (gold) for free, collect it (for free), then sell it directly and indirectly for a high price.

   Harari thinks social media create political polarization, because they help people build cocoons, interacting only with ‘friends’ who share their views and consume only information they like and agree with, even if false.

   Gates, still a hard worker, wants Harari to address THE fundamental question – when machine learning, artificial intelligence and other technologies give us longer, happier, wealthier lives, with little or no human labor – where will we find meaning in our lives? Why get up in the morning?  

     Perhaps that world is hard for us to imagine today. Perhaps we will have to deal with it in real time – if and when it happens.           

Walter Mischel: Marshmallow Man

By Shlomo Maital

Walter Mischel…

..and the marshmallow

 

On Sept. 12, psychologist Walter Mischel passed away, in New York City. He was 88.

Mischel became famous for what was known as the Stanford Marshmallow Experiment. He designed a series of studies, on “ability (or willingness) to defer gratification”.   In them, a child was offered a choice between one small reward provided immediately (a marshmallow) or two small rewards (two marshmallows) if they waited for a short period, approximately 15 minutes, during which the tester left the room and then returned.  

   Mischel and colleagues, in follow-up studies, found that children who were able to wait longer for the delayed rewards tended to have better life outcomes – better SAT scores, educational attainment, body mass index (BMI) and other life measures. The logic here is simple. Achieving good results later in life demands investing effort, sacrifice and pleasure now, today. Those good at this will excel.  It is a skill imparted, in part, by parents, and improves with practice.

     Mischel fled with his family from Austria, with the rise of the Nazis, at age 6. He taught at Stanford for years, and later at Columbia.   He joined the legions of scholars who came to America as immigrants and made huge contributions to America’s scientific research and academic excellence.

       Mischel’s research is hugely relevant for today’s society. Western nations have as a whole become unable and unwilling to defer gratification. Gas lines explode in Massachusetts; bridges collapse in Genoa, Italy. Western countries seem unable to save and invest in the future, preferring present gratification.   A majority of Americans could not scrape together $400 in cash, in an emergency. The Great Divide between have-nots and millionaire/billionaires is spurring a rise of anti-democratic extreme right-wing political parties and leaders. It is ironic that the forces that led Mischel to America, have in part followed him there.

        

Free Range Parenting: The Opposite of Helicopter Parenting
By Shlomo Maital   


   
  So, I guess I am more or less a dinosaur.  I was born in November 1942, grew up in Regina, Saskatchewan, in a quiet neighborhood, and I spent hours and hours outside, playing with friends and looking at bugs and frogs in the creek that ran through the neighborhood, a couple of hundred yards from my home.  I came home only toward dark, and in the long summer days   twilight lasted for hours.   
   My mother and father were concerned parents, and made me wear long scratchy wool underwear in the winter.  But guess what.  They let me play outside, unsupervised.  And that’s what all the kids did.   And it made childhood delightful.
    Today, this behavior is regarded as an aberration, and in some cases, illegal. On WBUR public radio, a mother reported being accosted by a police officer, for leaving her small boy in the car for a few moments while buying something in a store.  
    The approved parenting model is in many cases that of a helicopter parent, who hovers over children and protects them from any possible risk, injury, scrape or problem.    Children have arranged structured play-dates and activity circles.  
    A decade ago,  Lenore Skenazy wrote a  book,  Free-Range Kids: Giving Our Children the Freedom We Had Without Going Nuts with Worry.   An organization by that name today helps parents fight back against helicopter parenting, and make their children sturdy and independent.   One simple approach:  Give kids assignments or projects, and turn them loose to tackle them, after teaching them safety rules for using tools.  
    The world today is dangerous – probably more dangerous than in prehistoric times when I was a kid.  It is natural to react to it by trying much harder to protect our children. But in doing so, we are taking away a vital crucial life skill – independence, self-confidence, self-assurance. 
    There must be a way to keep kids safe, without robbing them of this skill.  And there must be a way of avoiding having police arrest parents who do this.   

 

Blog entries written by Prof. Shlomo Maital

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