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We Ignored Keynes in 1919 – Are We Repeating the Mistake in 2019?

By Shlomo Maital

  Today’s New York Times has an Op-Ed by Boston College political science professor named Jonathan Kirshner.* He reminds us of a book published 100 years ago, by J.M. Keynes, that contained a precise prediction: the Versailles Peace Agreement, that imposed unbearably heavy war reparations on Germany, will create the new world war and facilitate the rise of the Nazis.

   It did.

   Keynes was then an obscure economist who advised British Prime Minister Lloyd George and who attended the Versailles conference. He returned home from it, greatly upset and worried, and wrote The Economic Consequences of the Peace, published by Macmillan on Dec. 8, 1919.

     Kirshner writes, “Keynes’s book is essentially correct with regard to its most important arguments. But it was, and remains today, largely misunderstood. The enduring contributions of the book are to be found not in Keynes’ first dissenting clause (his “objection to the treaty”), but in the second, about “the economic problems of Europe.” Keynes was sounding an alarm about the fragility of the European order.”

     Keynes’ book is relevant today as well. The current world economic and political order is exceedingly fragile. Very bad things can happen, unless we wake up.   Russians, Iranians and others constantly meddle in democratic elections, now in the UK, and in the US. Far-right racist politicians gain political power and representation. The US withdraws from the Paris climate accords, and engages in trade/tariff wars. The “left-out economy”, as TIME magazine calls it, finds new political voice, as demonstrations break out all over the world, facilitated by social media.

     The current world order was shaped in part by Keynes himself, at Bretton Woods, NH, in July 1944. It worked very well indeed, helping many nations in Asia especially become wealthy. But it also meant, by the same token, that many nations and many people, not skilled and wise enough to compete globally, became poor.

     Only one thing was missing from the Bretton Woods architecture – a way to tax the rich to help the poor. It was a fatal mistake. It took 75 years, but the left-out underclass are now rising up and are threatening the current world order, creating chaos in many countries.

       It’s time we read again Keynes’ little book and began to think about addressing the left-out economy more seriously.   What Keynes warned us of, in 1919, came about 20 years later, in 1939, with disastrous consequences.

  • Jonathan Kirshner. “The man who predicted Nazi Germany”. New York Times, Dec. 9/2019

The Educational Tower of PISA is leaning—dangerously!

By Shlomo Maital

The Leaning Tower of Pisa

   PISA 2018 (Programme for International Student Assessment) is a report on the educational attainments of 15-year-olds globally. As expected, China leads, followed by Singapore, in math, reading and other skills. Overall, scores declined. Israel especially did poorly, leading the world in the spread between top and bottom in schooling achievements.

     But one key point emerged, that is especially disturbing. A British educator, Kevin Courtney, made this observation:

       “…globally fewer than 1 in 10 students were able to distinguish between fact and opinion…[this] is extremely worrying in an era of fake news.”

        Fewer than one in 10 know the difference between fact and opinion. This means that more than 9 in 10 15-year-olds believe that when someone states, “I think that…”, that is indistinguishable from when someone says, “it is a fact that…”.  

         Fact and opinion.   This implies the death of truth, globally. And it indicates we are failing to teach our kids how to engage in critical thinking, which is simply the skill at knowing what is fact and what is not and hence needs checking and verification.

       We should not be surprised, then, when wild unsubstantiated rumors take on a life of their own, and fanciful conspiracy theories, once stated, are widely believed.

         Learning math, reading, science, these are all important. Telling fact from fiction is more important. It is time we taught this to our kids. If they don’t get it in school, perhaps we can give it to them at home?

The REAL American problem:

More Americans Are Dying

By Shlomo Maital

Rising US Morality Rates

     What is wrong with America?   Most news accounts focus on the US President, now featured on Twitter with the photo-shopped body of Rocky (check it out).

       No, that is far from the only problem the US has. According to a new study in the leading medical journal JAMA, “increased death rates in midlife extended to all racial and ethnic groups, and to suburbs and cities.”

       Suicides, drug overdoses and alcoholism were the main causes. But other illnesses, like heart disease, strokes, and chronic pulmonary disease, also contributed.

       According to the New York Times, “the increase in deaths among people in midlife highlighted the lagging health measures in the US compared withother wealthy nations, even though the US has the highest per capita health spending in the world”.

     And note: “fully a third of the ‘excess deaths’ (increased mortality) occurred in just four stats: Indiana, Kentucky, Ohio and Pennsylvania.

       It seems that Trump is unavoidable. Those are key swing states that elected him.   And his support there is still quite strong and resilient.

       The Democrats made a key strategic error, by focusing Congress’s attention on impeachment, while people are dying. Impeachment will end in futility in the Senate. Meanwhile the Democrats’ resounding 2018 win, in gaining a House majority, came about largely because of the healthcare issue.

         If Trump wins again in 2020, it will be the Dems’ own fault.

Why Pre-School is So Vital –

Make It a Public Good

By Shlomo Maital

     Head Start began as a catch-up summer school program that would teach low-income pre-school children in a few weeks what they needed to know to start elementary school – hence the name, head start. It was launched in 1965 by its creator and first director Jule Sugarman.   It was expanded in 1981, re-authorized in 2007..and continues. IT is one of the longest running public programs to tackle poverty in the US. According to Wikipedia,   as of late 2005, “more than 22 million children had participated.”   Economists have shown that the rate of return to investment in Head Start, and in pre-school in general, is astronomical.

   But apparently, this relatively limited program, with its astonishing impact, has not made much of an impact on America’s politicians. Head Start remains limited and is often attacked from the conservative right.

     In the New York Times, University of California (Berkeley) public policy expert David Kirp sends us a reminder: Pre-school is one of the very best ways to break the poverty cycle.   Start early!  (See his “How to break the cycle of poverty”, NYT Op-Ed).

  “How much good does a preschool experience offer children born in poverty? Enough to make their later lives much better, and they pass a heritage of opportunity on to their own children.”

   As readers of this blog know, I am a big fan of N=1 stories. Here is Kirp’s story about one great pre-school program and its impact:

In 1962, 58 African-American 3- and 4-year-olds, all from poor families and likely candidates for failure in school, enrolled in Perry Preschool in Ypsilanti, Mich. This was a novel venture, and parents clamored to sign their children up. Louise Derman-Sparks, who taught there, told me she “fell in love with the kids. They were so excited, so intelligent, so curious.” Because the demand could not be satisfied, 65 applicants were turned away. They became the control group in an experiment that confirmed the importance of a child’s first years.

Researchers who tracked these children say this experience shaped their lives. Those in preschool were more likely to graduate from high school and attend college. As adults, more have held down jobs, and owned a home and a car. Fewer smoke, drink, use drugs, receive welfare or have gone to prison.

Never mind those economists’ studies showing pre-school investment pays social returns of hundreds of percent!   Why do we not open our windows, flock to Ypsilanti, Michigan, and learn the lesson from this amazing program? Why not initiate a huge pre-school program, as a public service, to tackle systemic poverty, when so many other programs have failed?

   Notice that sad sentence:   “because the demand could not be satisfied”?.

    Parents of small children understand the value of great pre-school.

   Then – why don’t political leaders?

 

Why Don’t We All Become Estonia?

By Shlomo Maital

Estonia – digital society

      Estonia — the Republic of Estonia — is a small, clever country on the eastern coast of the Baltic Sea in Northern Europe, population 1.3 million. It is the most digital country in the world. People vote online, pay taxes (in 20 minutes) online, and the government has meetings online (for ministers who are abroad and travelling).

     Clearly, this is the future. You can provide quality services to your citizens by moving them online, saving queues, money and frustration.

       So – recently, at an entrepreneurship conference in Mexico, I asked the Vice-Minister of Economics, from Estonia, (who briefly presented how Estonia has digitized public services),   why don’t other countries beat a path to his door to learn how?

       Of course, he did not know…and the question really was directed at my own country, Israel, and other countries, including the US.

       This is a mystery. Countries have closed their windows and doors. They do not practice best-practice benchmarking, when the benefits of using it are huge.

     Well-run businesses regularly and systematically benchmark their key business processes against the best practices of other organizations, both within their industry and outside it. Countries, too, are businesses. Countries should also practice best-practice benchmarking, as a fundamental policy tool, by asking two simple questions: What do other nations do better than we? And how can we adapt and adopt what they do, to improve the wellbeing of our citizens? Knowledge of best practices is in general not privileged or secret, is widely available, yet is significantly underused by countries, including Israel, even though the benefits of using it can be striking.

   Israel has spent fortunes on a plan to digitize public services – but typically, we seem to have reinvented the wheel, rather than benchmarked other nations like Estonia, who are light years ahead of us.

     Why? When our ministers go on junkets abroad regularly and spend fortunes on them, why do they not visit places where they can learn?  

     A small suggestion: When the Prime Minister and other ministers return from forays abroad, make this a Law —   stand in front of a camera and tell us what you learned, what your take-home was, and what you intend to apply here at home, to make life better for your voters and citizens.   Bring us valuable take-homes, not just suitcases stuffed with things from Macy’s.

“Business Does Better With Love”

By Shlomo Maital

So let’s be clear. Friendships do better with love. Marriage does better with love. Religion does better with love. Love does better with love. Obvious, right?

   Everything does better with love. Even war. Respect your enemy and retain your humanity even when fighting for your life.

   But – business?? After several decades of teaching MBA classes, in business schools that preach hard-core bottom-line business warfare, I am reading Moshe Engelberg’s new book, first of a series, The Amare Wave, with a combination of delight and perhaps, amusement – at how those who preach fierce capitalism will respond to it. *  (Amare means ‘love’ in Latin).

     Engelberg is a successful business consultant, founder of ResearchWorks; he has a Ph.D. degree from Stanford University.

     Business does better with love, Engelberg shows. Love for whom? Love for your stakeholders – your workers, managers, clients, shareholders… all those who have a stake in your success. It’s a mystery why so many businesses purposely exploit and squeeze their workers, when long-term, respectful love given to them drives long-term loyalty and motivation. If everything does better with love – why then have economists sold the idea that business is the exception – and business does well only with knife-in-the-teeth competition, perhaps the only human endeavor that is a no-love zone?

     How is company success measured? By short-term operating profits? How about, Engelberg writes, how well people are treated?   By how much real value is created for clients?   Imagine, Engelberg writes, that love is not only “the new necessity in business, it is simply how business is done in the 21st C and beyond”. And guess what? Because business is done better with love, it is also, in the end, more profitable. Engelberg knows; he has long years of experience as a consultant.

     Imagine — business acts to become kind, green, socially responsible, philanthropic and good for society. Imagine. All business.

   I eagerly await Engelberg’s second book in the series – a set of stories about love in business. I kind of wish Engelberg had started the series with the stories – narratives are, I think, far more powerful than polemics.

     Show us, Moshe, how business really does work better. You have a tough road ahead – Amazon, Facebook, Google are not exactly Mother Teresa. Google’s “do no harm” has done loads of harm, and Facebook doesn’t even pretend to do good, while Amazon ruins many small retail businesses and squeezes workers.

     Here are today’s market cap figures for these three companies: Google $894 b., Amazon $869 b., Facebook $551 b.   In contrast: Exxon’s market cap is only $67 b.

       Could Google, Facebook and Amazon have even bigger long-term market caps, if they practiced Engelberg-style love?   Well, I believe they could – but right now, very few agree.

     Alas.

= = = = =

  • Moshe Engelberg, with Stacey Aaronson. The Amare Wave: Uplifting Business by Putting Love to Work. Angel Mountain Press, 2019. 359 pages.

 

Gary Vaynerchuk – People, Wake Up!

By Shlomo Maital

Gary Vaynerchuk

   I am attending, and speaking at, an entrepreneurship conference in Monterrey, Mexico, sponsored by Tecnologico de Monterrey, Mexico’s leading science and engineering university.   The opening keynote speaker of the conference, known as INCmty, was Gary Vaynerchuk.  

   Here is Vaynerchuk’s story, and a short version of his powerful message. Happy birthday, Gary – he will be 44 years old on Nov. 14.

   He was born in Babruysk in the former Soviet Union – Belarus today — and immigrated to the US in 1978 as a child. Vaynerchuk’s family was very poor – he lived in a studio-apartment in Queens, New York, with eight other family members.     Vaynerchuk was a child entrepreneur – he operated a lemonade-stand and earned money on weekends trading baseball cards. At age 14, he joined his family’s retail-wine business, and became known as a wine critic who expanded his family’s wine business – he did it, some 20 years ago, by moving part of it online, long before such a strategy was known and implemented.   I first noticed him, when I watched his viral YouTube video, Do What You Love!

Here is the crux of his message to all of us. It’s only 500 words.

   “Everyone in this room underestimates the power of the Internet. Everyone! Once economic power resided with those in the middle – the distributors, retail stores, etc. Today, the value chain is different. The ‘middle’ is gone. YOU have the power and ability to leverage the Internet. YOU need to become a communication media expert. Every single person can be their own communicator. Audio, video, text. If you are not creating 50-100 pieces of content daily – you are missing the boat.   YOU need to start a podcast! The key – it’s free. You do not have to pay for distribution (of information), you don’t have to pay to make contact with people.

   “Everyone in this room needs to create an online journal. This is REQUIRED. It is not a luxury. Today, those aged 13-22 have remarkable online talent and create amazing content.   Unless you produce content you (and your business) will be outmaneuvered!   Are you a salesperson? Or a marketer?  

     “Raising capital – the idea that you DESERVE investment capital is laughable. You can build a business without raising capital.

     “Responsibility — the best part of being an employee is, you can always blame someone else. And it is done all the time. But as a founder, an entrepreneur?   100% of your problems are YOUR fault. When those you hire screw up – it’s your fault, YOU hired them.   As parents, we blame everyone else for our kid’s problems – social media, government. IT is OUR FAULT. We must take responsibility. WE are the parents, not they.

   “There has never been a better time to be alive, despite all the pessimism. No world wars, no black plague…   so we need to eliminate excuses and take responsibility.   …. My career is based on ‘underpriced attention’.   Be “in the dirt” not “in the clouds”…. Be in the world….

   “I “day trade” attention (see his best-selling book Crushing It!). You need to understand where attention is!     There are two key issues. A. your product. B. your ability to tell people about it. Which is more important?   B is!!   Your ability to tell people about it!

   “Artificial intelligence poses a danger. Alexa, Google Assistant, etc. are powerful. In the next 10 years, when Alexa tells us what to buy, your brand will be all you have — will Amazon’s Alexa be objective, or advise you based on what’s best for Amazon and its clients?   Everything we talk about today did not exist 10-15 years ago. This will be true in the future as well. “You ain’t seen nothing yet!”.

   So – stop thinking. Start doing. Think about what you want to say [about your product or service or business]. Then say it. Say it well! Learn to say it well. You are not effective in video? Get better!

Is There Hope for Economics? Yes – At Last!

By Shlomo Maital

Kremer, Duflo, Banerjee

   Almost eight years ago, in November 2011, I wrote a blog about, among others, two MIT economists named Duflo and Banerjee, who FINALLY were asking the right question (why are so many people in the world so poor, and what can be done about it?) and FINALLY answering it, by doing field-based experiments with real money and real people, instead of building mathematical models of Alice in Wonderland. *

     Together with Harvard University Professor Mark Kremer, they have been awarded the 2019 Nobel Prize in Economics. Duflo is the youngest economist ever to win it (she’s 46) and only the 2nd woman. She and Banerjee are spouses. Banerjee is of Indian ancestry. Duflo is French. (President Trump: Still think all immigrants are drug dealers, murders and rapists?)

     I am an economist. And I was born too soon (in 1942). If I had been born in, say, 1982, I would have caught the wave of behavioral economics, which applied psychology to understanding how people really behave, instead of using abstract math. (My wife, a psychologist, and I published papers on behavioral economics as early as 1972 – but at that time, nobody was listening). If I had been born in, say, 1997, I might have done meaningful research in the field that helped build evidence-based policy.

   Here is an example of powerful field experiments that change millions of lives, that I wrote about in my 2011 blog (based on an NYT column by Nicholas Kristof):

     “Prof. Michael Kremer, a Harvard economist, helped pioneer randomized trials in antipoverty work. In the 1990s, Kremer began studying how to improve education in Kenya, Africa, trying different approaches in randomly selected batches of schools. One intervention he tried was deworming kids — and bingo! In much of the developing world, most kids have intestinal worms, leaving them sick, anemic and more likely to miss school. Deworming is very cheap (a pill costing a few pennies), and, in the experiment he did with Edward Miguel, it resulted in 25 percent less absenteeism. Even years later, the kids who had been randomly chosen to be dewormed were earning more money than other kids. Kremer estimates that the cost of keeping a kid in school for an additional year by building schools or by subsidizing school uniforms is more than $100, while by deworming kids, the cost drops to $3.50. (In a pinch, kids can usually go to “school” in a church or mosque without a uniform.)”

     p.s. The Government of Kenya, impressed by Kremer’s study, supplied deworming medicine to nearly all Kenyan children, vastly improving their lives.  It is incredible that in the West, we give deworming pills to our puppies and pet dogs regularly — but only Kremer thought to try giving it to African kids!

     In the 1880’s the Economics profession made a terrible mistake. Two leading economists, Alfred Marshall and William Stanley Jevons, were rivals. Marshall had a practical, behavioral evidence-based approach. He defined economics as the “study of people as they work and live in the ordinary business of life.” Jevons? Well, he was a failed mathematician and physicist. He slapped together a few equations, to create an abstract model of economics – and economists loved it! They swallowed it! They dumped Marshall.

     Why? Because the queen of science at the time was physics, and physics was highly mathematical. Maybe…economics could be as prestigious and ‘scientific’ as physics? Problem is – people are not electrons. You study them, not by quantum mechanics, but by observation and experiment. But it took economics 130 years to figure that out. And in the meantime, wrongheaded math-based pie-in-the-sky economics detached from reality did huge damage to the world – lately, in 2008, when we reaped what free-market greed-is-good economists had sowed..

     Banerjee was born in Calcutta, India, to Nirmala Banerjee, a professor of economics and Dipak Banerjee, a professor and the head of the Department of Economics. Duflo was born in 1972 in Paris. She is the daughter of Michel Duflo, a mathematics professor, and his wife Violaine, a pediatrician. According to Wikipedia, “during Duflo’s childhood, her mother often participated in medical humanitarian project”.

     In acknowledging her Nobel, Duflo noted that far too few women choose economics as a profession, and expressed the hope her Nobel would inspire more women to enter the field.   What will you do with the money? journalists asked. She responded that when Marie Curie won her Nobel, she used the money to buy one gram of radium. Duflo said she too hoped to use the resources to further field research on poverty.

     As Esther Duflo said herself, the importance of her Nobel, is that it will inspire other young economics students to follow in her footsteps, and ask real questions and find real field-based human answers on which effective policy can be built.

     I wish I could start my career again. You have to know when to be born.

       * Abhijit Banerjee & Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. PublicAffairs (2011). Their new book: Good Economics for Hard Times, will be published in November 2019.

 

 

At Last, A Nobel – At Age 97!

By Shlomo Maital

John Goodenough

This year’s Nobel Prize for Chemistry has been awarded to three scientists: John B. Goodenough, M. Stanley Whittingham and Akira Yoshino share the prize.

Goodenough is American, Whittingham is British and Yoshino is Japanese.

The three won the prize for their work in developing lithium-ion batteries, which are ubiquitous in our lives, including in all our cell phones.

Goodenough has the best story. According to the Wall Street Journal,

“At age 97, Dr. Goodenough of the University of Texas in Austin, who was born in Germany of American parents, is the oldest person ever to receive a Nobel Prize.

   “I’m extremely happy that the lithium-ion battery has been able to help communications through the world,” Dr. Goodenough said during a call with reporters from London, where he is receiving the 2019 Copley Medal for his contribution to materials technology. While there, he learned he had also won this year’s chemistry Nobel.

“It’s been a very eventful day,” he added .”

   The three have been touted for a Nobel for over a decade. Thank goodness, Goodenough lived long enough to win it (Nobel’s are never awarded posthumously).

       Don’t you love his wonderful understatement, about an “eventful day”?

   A member of the Nobel Chemistry committee noted: “Lithium-ion batteries can be combined with energy sources that fluctuate over time, such as solar power, to provide a seamless power supply. The batteries have also enabled a switch from fossil-fuel transportation to electric transportation.”

      p.s.  Some weeks ago, I wrote a magazine column about “Snow-Capped Idea Volcanoes” — senior citizens who have creative ideas and implement them.  In it I mentioned Goodenough: “John Goodenough and his team at University of Texas (Austin) “has just set the tech industry abuzz with his blazing creativity”, wrote Pagan Kennedy, in the New York Times, in April 2017.   “He and his team filed a patent application on a new kind of battery that, if it works, as promised, would be so cheap, lightweight and safe that it would revolutionize electric cars and kill off petroleum-fueled vehicles.”    

 

 

Labor Unions’ Last Stand

By Shlomo Maital

   Some 50,000 General Motors workers, members of the UAW United Auto Workers, are striking; the strike is over 3 weeks old, and each side has now hardened its position.

   Strikes were quite rare for two decades or more in the US. But last year, half a million workers went on strike. So – what is going on?

     GM workers face a bleak future. Car producers are shifting to electric vehicles (including in China) and producing those takes far fewer workers. Moreover, car production today is highly roboticized.  GM, which was bailed out by the US government during the 2008 financial crisis, is now highly profitable; but it has no intention of getting locked into an expensive labor contract, when it plans to shed thousands of workers and close plants.

     In the 1950’s a third of all workers belonged to unions, in the US. Today it is just about one in ten. As manufacturing migrated to Asia, and services dominated, unions shrank. Service jobs are mostly non-union. Moreover, employers switched to hiring temporary or contract workers, who have no social or pension rights, to cut costs. Google, for instance, employs more such ‘temps’ than regular employees. (Recently, a group of Google contract workers in Pittsburgh organized themselves into a union – a trend that may spread).

     GM workers get minimal strike pay – but they are determined. So is GM. In a global economy, GM can produce anywhere – in Mexico, or even in China. So labor has become a commodity whose price is cheap and getting cheaper at times. This has devastated the middle class, where once UAW jobs paid $24 an hour and more. Those jobs are disappearing.

     The impoverishment and commoditization of labor in the US– one of the negative consequences of globalization – have been largely ignored, even by Obama and the Democrats.    One result, I believe, was Trump’s election. Trump’s promise to bring manufacturing back to the US is utterly empty. But his voters, blue collar workers, choose to vote for someone who voices their pain, even if they know his promises are utterly hollow.

   At the Battle of the Little Bighorn, Custer’s last stand, the Lakota, Cheyenne and Arapaho tribes defeated the US Army’s 7th Cavalry. The underdogs won.

     I’m afraid that in the UAW’s last stand against GM, the labor underdogs will lose. And the only Democrat presidential candidate who seems to notice is the dark horse candidate Andrew Yang, who wants to pay workers a guaranteed income. Sooner or later, we may all come to realize that there is no other choice.

 

      

 

 

 

Blog entries written by Prof. Shlomo Maital

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