A Time for Reason

My Hometown’s Future

I read Ken Miller’s recent op-ed piece in the Tacoma News Tribune regarding Tacoma’s economic future and thought I’d share my own vision for the city. With the country still struggling from the lingering effects of the balance sheet recession beginning in 2008, it’s the best possible time for Tacoma to have a conversation about the current economic state and how to create a path to prosperity in a rapidly changing global economy. The most important question to ask is: what will drive economic growth in the 21st century? Tacoma’s economy reflects a second industrial revolution era in decline. How do we adapt to a new century, a world of seven billion people with finite resources and a competitive global workforce operating in an increasingly knowledge-based economy? I enjoyed Ken’s analysis and I’m glad he started such an important discussion, however, Tacoma won’t thrive if we simply focus on the “wild cards” of cultural tourism and Uncle Sam’s joint base. Both make for good sources economic activity, but Tacoma has the ability to be “different somehow” as well as become a manufacturing hub by leveraging the wild cards as catalysts for growth.

The high number of museums and local artists represents an underlying creative class that will be vital in driving a culture of innovation. We need to tap Tacoma’s creative minds and inspire a next generation of digital entrepreneurs to develop technology companies here. With all of the smartphones, iPads and laptops I see at Starbucks, Tacoma has the makings of a good test bed for consumer technology.

Also, JBLM is a huge resource as a manufacturing catalyst. Not only does it pump millions of federal dollars into our local economy, the military base also provides service men and women with very useful skills. Our military is on the cutting edge of technology and personnel are developing quality skillsets along with a strong work ethic. Sounds like a great recruiting base for high end manufacturing jobs. If we work to develop local manufacturing in the area and recruit companies to Tacoma, we’ll have added a strong pillar to our economy.

A recent McKinsey study dissected GDP growth last year and found the internet was the largest driver accounting for 21% of 2010 GDP gains in the US. Without a doubt technology is going to play a huge role in the new economy and it’s important for Tacoma to develop a thriving startup environment combining a technology incubator with co-working space and networks of angel investors, venture capital firms as well as digital entrepreneurs from around the country. Many people don’t realize how much startup funding has changed over the past few years. It’s increasingly inexpensive to get an internet / digital startup off the ground with high quality free open source software, increased computing power from the cloud and numerous other free resources online. Y-Combinator is the best example of this change. The seed stage incubator, founded by Paul Graham, is designed to give a small amount of funding to a couple dozen startups every year. The funding (average was $18,000 for 6-7% equity stake) covered basic expenses for the hard working and resourceful startup entrepreneurs over a short-term incubation period. Paul’s team provided a great deal of value by giving product and business model advice, as well as connecting the founding teams with a network of investors, engineering talent and other companies for potential partnerships. Chances are you’ve heard of Y-Combinator company: DropBox (Value: $5 billion), AirBnB (Value: $1 billion), Hipmunk, Heroku & Cloudkick to name just a handful. Getting a similar effort off the ground in Tacoma will be a difficult task, but being located just south of Seattle we’re primed to become another tech hub in Washington and draft Seattle’s innovation drive.

In a knowledge-based economy, it all starts with education. Tacoma’s branch of the University of Washington represents the best opportunity for us to develop local engineering and computer science talent. We might not have anything close to a $400 million grant like NYC is offering to Stanford or Cornell for a science / engineering campus, but there are many changes we can make to promote education in these two areas. It starts with pushing computer science in local middle and high schools. Google recently launched CS4HS, “an initiative to promote Computer Science and Computational Thinking in high school and middle school curriculum. With a grant from Google’s Education Group, universities develop 2-3 day workshops for local high school and middle school CS teachers. These workshops incorporate informational talks by industry leaders, and discussions on new and emerging CS curricula at the high school and middle school level.” Guess which university is already on the list to host workshops for local teachers? The University of Washington. The country needs to reinvigorate its manufacturing / export base and Tacoma is in a prime position to capitalize. Anchored by a port and rail transport infrastructure, on paper the city has the potential to develop a manufacturing industry. With highly skilled labor coming from JBLM and UW-Tacoma churning out a hundred or so engineering majors every year, we should be able to make the transition providing we create the environment for success. Organized labor across the country has come to realize if they don’t adapt to new economic realities, it’s going to be harder for them to grow the local workforce and retain jobs. The answer is not for the state of Washington to participate in the “race to the bottom” as far as pay and worker-comp goes, however, smart reform will be needed to increase our attractiveness. Organized labor should be out front on this issue by working with local politicians, business organizations and education institutions to develop a comprehensive plan to provide training for highly skilled manufacturing jobs and a plan to attract manufacturers to Tacoma. Such a plan coupled with the promotion of our deep water port, rail transportation infrastructure, reasonable average cost of living, the continued pool of talented engineers coming out of the University of Washington and the skilled workers from JBLM is a solid foundation for Tacoma to attract manufacturers to the area.

We can sell our cultural appeal and continue to pursue opportunities from JBLM in the near future, but how far can Tacoma go by focusing on these two pillars for growth? We must invest in our future and create the city we want our kids to grow up in. Nothing that’s worth doing is easy.

Yahoo’s Decline Mirrors the US

Being a product of the digital age, I’ve grown up with Yahoo as a household name. It’s been a company I’ve highly revered at times and had my doubts about at others. For the past decade, the company has been jotting along without a course and no visionary to guide the way. Terry Semel was such a dinosaur he had his emails printed out to be read every day, Jerry Yang refused to sell the company for $45 billion to Microsoft and Carol Bartz lacked the respect of the troops to make any significant changes to revitalize the company. Meanwhile, during the same time period the company saw its closest competitor, Google, skyrocket by embracing an engineering & innovation focused culture. 

Recently, when Google seemed to be losing its edge, the board appointed Larry Page to CEO. Larry has already made big moves with the Motorola acquisition and has shown Google’s employees a new vision for the company: Innovate or suffer a slow spiral downward. Yahoo couldn’t be a better wake up call for Google. I think Larry & Sergey understand that mobile is a huge threat to Google’s core business. Only a tiny fraction of mobile internet traffic searches when compared to desktop traffic. With smartphones becoming the dominant personal computer, the writing is on the wall. The company must get a foothold in mobile and become an innovation powerhouse. I think the company’s leaders have recently done a great job at explaining a vision for the company and why it’s important to innovate in four new categories: Mobile, Social, Local & Commerce.  This is by no means a guarantee for success, it will be an uphill battle for Google, but at the very least they are setting big goals and have a lot of very smart people to drive the company into the future.

The two stories couldn’t be more different. Yahoo simply lost its way and the company suffered greatly for it. They failed to understand the dynamics of a fast changing industry and are paying the price for not remaining an innovation engine.

When penning this article, the plan was to discuss the sum of Yahoo’s parts, the value left at the company and a strategy for the future, however, I couldn’t help but see a striking resemblance to our current state of national affairs. The last decade for the US has striking similarities to Yahoo’s demise during the same period.

The country has been on a seemingly slow decline post-9/11. Instead of using the catastrophe as a catalyst for creating a better country, we told our citizens to go shopping and buy bigger houses with their tax cuts while turning a blind eye to the two massive wars we launched. If we had taken the lessons of the Cold War and applied them right after 9/11, we would likely be in a much better position today. Post-WWII we understood that in order to win the battle against the Soviet Union we didn’t have to launch massive ground attacks, instead we could win by out-innovating, setting the foundation for a prosperous country at home and pursuing a global strategy to win the hearts and minds of people around the world. We pushed our brightest to get us to the moon, we built the interstate highway system and developed infrastructure to support economic growth and our leaders inspired our citizens to create a country that lifts all boats. The country has lost its way somewhere along the line and we’ve all suffered for it. We’re still failing to understand the dynamics of a fast changing globalized world and our leaders aren’t working to find innovative solutions to America’s biggest impediments to progress. The country is in a slow downward spiral. Sound familiar?

A Plan for the Future

The biggest questions facing Americans today are: what do we want our economy to look like in the 21^st century and how do we create incentives to get us there? The political gridlock in Washington has cast a dim light on our leader’s ability to solve big problems. I once thought that our two-party political system was designed to provide a balanced approach to policy. The progressives pushed us forward while the conservatives provided a pull on the reigns when necessary. Whenever the country faced big problems the parties would cast aside ideology and come together to find the best solution for the American people. The bold actions would come at the precipice, however, after watching the recent debt ceiling debacle it appears this is no longer the case. Forget what both parties tell you about how to move the country forward. It’s time to move past ideologies and develop a plan for the future based on cold hard facts.

Fact One: America’s infrastructure is crumbling. Besides WWII, what helped us get out of the great depression? Does Public Works Administration or Civilian Construction Corps ring a bell? Modern infrastructure is key for a prosperous economy. It allows for the free flow of goods, service, people and knowledge. Having the best infrastructure in the world will be a cornerstone of making the US competitive in the 21^st century. Building new roads, bridges, tunnels, developing high-speed rail and efficient public transportation will create jobs, improve economic activity and make our people more productive. We also need to be wired for the 21^st century. Developing and deploying a smart grid along with high will be essential to accommodate new energy technologies. In a recent GDP study, the internet is the biggest drive of GDP growth (providing nearly 20% of 2010 growth). It’s essential to make sure all Americans have access to high-speed internet connections.

Fact Two: America needs short term stimulus and medium term entitlement reform. We’re not bankrupt yet, but it’s time to stop kicking the can down the road. How do we summon the collective will to rebuild our country for the 21^st century? Let’s dissect short and long term problems. First and foremost, our economic growth is slowing to a snail’s pace and we’ll be lucky to have 2% GDP growth. A double dip recession is becoming more and more likely. What are we doing about this politically? Republicans claim the Keynesian model of fiscal stimulus doesn’t work and we need more tax cuts along with huge reductions in short term discretionary spending, while Democrats claim the recent stimulus package wasn’t big enough. The focus in Washington as of late has been on reducing the deficit, however, nearly every respected businessman and economist thinks it will be devastating to the recovery to cut spending in the near term when it looks like the economy is about to fall back into a recession. Why do you think the stock market dropped 600+ points after the debt deal was passed? The market realizes we have a near term growth problem. Did you also notice that treasuries rallied after the S&P downgrade? Obviously investors don’t see the US as a credit risk.

Let’s look at Japan’s lost decade. I’m a big fan of listening to Richard Koo on the subject of balance sheet recessions. They experienced a similar recession in which the private and public sector was debt tremendously high and led to massive economic problems. What got their country moving again? Fiscal stimulus. Seems a bit counterintuitive to propose more government spending when we have such a big debt problem. Remember, our debt problem is longer term and cutting spending now while the economy is hemorrhaging will only exacerbate the problem. You also might say we’ve tried fiscal stimulus and it didn’t work. Well, the bill passed in 2009 wasn’t well designed at all. A large portion of the stimulus was tax cuts. Instead of putting cash into the pockets of people and corporations who are simply stock piling their war chests, let’s focus our government stimulus spending on a new infrastructure system fit for the new millennium, support research and development for new technologies that will drive future growth and completely reform our education system to focus on math and science. A well educated, mobile populous leads to economic growth. This won’t happen overnight, these are long-term projects that we must start now.

As for the long-term debt situation, it’s essential that we have entitlement reform. At their current rate, social security and Medicare will bankrupt the country. The underlying foundation of the two programs was designed around an infinite growth paradigm. When first implemented, the creators projected steady population growth to support the baby boomers and annual stock market growth of 11% like clockwork. Today, the situation couldn’t be farther from the predictions. We have an increasingly aging population; there are only a few workers to support every retiree instead of the double-digit number predicted. The stock market is increasingly volatile and has experienced two massive bubble collapses in the last decade alone. It’s important for us to have some basic form of a social safety net and to address the problems with our increasingly expensive yet ineffective healthcare system, however, the solutions created last century need to be adjusted for modern day realities. Expect a reasonable plan to increase taxes for the wealthiest one percent, set a higher retirement age for social security recipients and create shorter timelines for prescription drug patents to expire.

Fact Three: We need tax reform and to develop a system that encourages innovation and risk taking entrepreneurs. Currently, 41% of GDP consists of financial services activity. I recently read a brilliant blog post from Mark Cuban on the business of Wall Street. They used to be in the business of capital creation, allowing investors to inject capital into companies with the best long-term growth prospects. Today, the market looks completely different. It’s driven my algorithms and traders looking to extract as much capital as possible by driving up trade volumes. The “buy and hold” era Warren Buffet embodied is long gone. If you’ve been buying and holding for the last 15 years you’ve probably been killed in the market. How can we fix this? Tax reform. Design a system that rewards long term investors and put a penalty on short term trading. This is just the tip of the iceberg and by no means the most important component of tax reform. It’s simply an apt example of how poorly our tax incentive structure is designed. 

Fact Four: Our education system sucks compared to the rest of the world. We recently ranked 25^th in math and 17^th in science (out of 34 countries). Can you guess who was at the top of the list? China.

I mentioned earlier that the quality of our education will make our break the country in the long run. Study after study has shown an educated population will generate a greater amount of prosperity over time. Having a top notch public education system that focuses on math and science will keep America on the cutting edge of what is an increasingly knowledge based global economy.

Democrats support teacher unions to a fault. If you’re a shitty teacher, you should be fired no matter how much tenure you have. Sorry unions, I fully support your right to collectively bargain, however, you’ve proven to be completely incapable of running a system that develops and promotes our best teachers as well as school administrators. Republicans are pushing through ridiculous curriculum. If you don’t believe in evolution, you shouldn’t be teaching our kids math and science.

It’s time to get serious on education reform and make sure we’re setting up future generations for success and ultimately the continued progress of our innovation engine that drives our great nation. We spend more per student than anywhere in the world, yet we rank lower than most developed countries in reading and math competency. Our high school graduates can barely read at an 8^th grade level and math is even worse. Reform is badly needed. We must discover and replicate what the top schools are doing and promote a nationwide system of best practices for our public education system as a whole.

Fact Five: Our immigration policy is broken. We must encourage the best and brightest from around the world to come to the US. What has made America great over our history as a nation? We’ve opened our arms to the smartest thinkers from all over the world and they create jobs, improve the health and wellbeing of the people and become neighbors in the melting pot experiment that is America. It’s a shame what’s going on with our current immigration policy. H1-B visas create a very important process for the educated and freedom loving people to come to America in search of a better life. We must encourage the import of the best knowledge workers of the 21^st century or suffer from the brain drain that will cripple our competitive edge. If you’re talking about building a 2000-mile fence along the border of US/Mexico you shouldn’t be taken seriously.

Fact Six: None of this will be able to happen unless we have campaign finance reform. I feature Teddy Roosevelt’s famous smile on my blog is because I have a great deal of respect for his policies. He was one of my favorite Republican presidents. He represented the conservation so lacking in the conservative party today. A true naturalist, Teddy enacted one of my favorite bills of all time: the national parks system designed to preserve our national treasures. Teddy was also a “trust-buster.” He had become increasingly wary of “trusts” (modern day corporations) influence over politics. Today, in the post Citizens United landscape, we need a new breed of trust busting politicians. Remember when campaign finance reform was a big issue in the late 90s? What happened? It has seemingly vanished from the national stage. By allowing corporations to donate in unlimited amounts to politicians and PACs, we’ve created a monster that has created even deeper seeded corruption. Politicians aren’t concerned with solving big problems because they’re all too focused on getting re-elected and stuffing their campaign coffers. I can scantly find a single person who thinks the modern day lobbying and special interest groups have a positive effect on our political system. If we want out politicians to solve problems, we need campaign finance reform designed to push our elected representatives back to their original purpose of creating policies that will benefit the country as a whole, not just some group who donated thousands of dollars to their campaigns.

Iraq & Afghanistan

The Arab Spring has risen in the Middle East and Northern Africa. We must wake up and see our support of authoritarian regimes post-WWII hasn’t been a good long-term strategy. The rise of social media technology like Facebook, Twitter & YouTube have allowed the masses tools to organize on an unprecedented scale, distribute political demonstration videos with the phone in their pocket and show terrible atrocities that the world cannot ignore. It’s amazing what a smartphone and young man like Wael Ghonim (my former co-worker at Google) can accomplish. We are forever connected to each other in the new digital world. We must support the democratic movements, especially the secular groups, and help the peaceful protesters to delegitimize their governments.  

History has shown democratic reforms must come from within and revolutions must be organic. Just look at America’s own revolution. So what does that say about our strategy in Iraq? Does anyone even know what our mission is? I hear pundits saying we’ll leave when we’ve “won” but no one seems to know what winning entails. Pundits and politicians in DC must be drinking tiger’s blood. It’s time to wake up and realize we’re bankrupt, spending billions every year and the strategy adopted by the last administration is a failure. Let’s deconstruct our long term bases and slowly transition control back to the Iraqi people on a responsible timeline. If the American people don’t push our government into action, then we’ll end up having bases in the Middle East for long haul like we do all over the world from past wars. It’s a hard truth to accept, but the prior administration systematically lied to the American people to get us into Iraq and it’s not worth the noble effort of our troops and taxpayer dollars.

As for Afghanistan, that place has been the death of empires for hundreds of years. What is the endgame? Defeat the terrorists? We just took out Osama Bin Laden but there will always be another replacement. A conventional military strategy doesn’t work against a decentralized enemy who can blend in with civilians. It’s time we pull out our boots on the ground and develop a new strategy based on small / strategic missions (drones strikes / seal teams) with a strong focus on good intelligence gathering. All we’re doing is supporting a corrupt government that has brotherly ties to the emerging heroin business coming from Afghanistan’s massive poppy seed crop. If I was to grade our performance in either war it would be D- at best. We haven’t completely failed, yet. Now that Bin Laden is dead and there are no weapons of mass destruction in Iraq, it’s time to go. I wonder what our great WWII general and former President Dwight D. Eisenhower would think about the wars. I’m sure he’d agree, it’s time for the military industrial complex to shut down shop and come home to focus on improving our own country first. Our military should be used as the option of last resort, not as a preemptive force. 

The War on Drugs

Given it’s the 40^th anniversary of Nixon’s launch of the War on Drugs, I thought it made sense to start off the blog with a provocative post in favor of ending marijuana prohibition. An increasing number of Americans are in favor of legalizing marijuana and on its current course will eventually be the majority opinion. I can think of no better time than the present to act a little ahead of the curve. Our country is facing a huge fiscal deficit, our southwest states share a border with an increasingly powerful drug cartel presence, our for profit prisons are putting away as many non-violent drug offenders as they possibly can and our drug habits are funneling billions of dollars into criminal organizations worldwide.

Just like prohibition of alcohol in our earlier history, the prohibition of marijuana is a huge policy mistake. It’s hard to believe, but the truth is the drug cartels, alcohol & tobacco companies, pharmaceutical companies and the drug enforcement / prison lobbies are all on the same side when it comes to the issue of marijuana legalization (or even decriminalization). They all profit from marijuana being illegal and want the laws to stay that way.  These are very powerful interests to take on and by no means will ending prohibition be an easy change. The profit motive of all parties involved in keeping marijuana illegal drives them to push for a policy that doesn’t make sense for the American people.

The truth is, marijuana legalization will have tremendously positive affects on our country and foreign interests. First and foremost, marijuana is a vice for many people just like a fine wine, nice bottle of scotch or Cuban cigars are to others. In a perfect world people wouldn’t use alcohol or drugs, but we live in a world that’s far from perfect and must face realities head on. Living in Silicon Valley for the past ten years has shown me that many of the smartest people I know occasionally smoke a joint or enjoy a special brownie on a rainy Saturday. I worked at Google for five years and marijuana was prevalent at the company  (people often times wondered why we had such amazing snack rooms with every candy known to man). I know Zuckerberg says he didn’t partake, but the summer Facebook was created he lived in a house filled with people smoking pot.  Can you think of more recent and bigger success than Facebook? Did you hear the internet is driving something like 20% of GDP growth?

Marijuana should be legalized and regulated in an intelligent way just like alcohol. Making it illegal only racks up billions of dollars in costs for the country and provides a huge amount of cash flow to unsavory characters. It simply doesn’t work. Let’s go over the benefits: reduce taxpayer expenses on drug enforcement, defund drug cartels and create a vibrant industry of marijuana / hemp related products at home that will drive tax revenues as well as jobs. The founding fathers grew hemp because they knew of it’s many wonderful uses. It makes great paper which saves trees (guess what the constitution was written on), it’s an alternative for many wood products, an ingredient for animal feed and can be used to make clothes. The plant’s hempseed oil has uses in cosmetics, food products and can potentially be a viable alternative to corn based ethanol.

As for other drugs like cocaine and heroin, I think decriminalization is the first step and our taxpayer dollars should be spent on prevention and rehab rather than imprisonment. At the end of the day, legalizing all drugs would keep US dollars out of the hands of drug cartels, terrorists and corrupt officials. A 2008 study by Harvard economist Jeffrey A. Miron has estimated that legalizing drugs would inject $76.8 billion a year into the U.S. economy — $44.1 billion from law enforcement savings, and at least $32.7 billion in tax revenue ($6.7 billion from marijuana, $22.5 billion from cocaine and heroin, remainder from other drugs). 

It time for Americans, both Republican and Democrat, to come together on this issue and move the country forward. 

The Purpose

America is at a pivotal point in our history. We’ve been the predominant power in the world for much of the last 100 years, however, with the turn of the century we’ve seen the rise of the dormant giants as America has stumbled. Our economic system has been on shaky ground post the financial crisis of 2008 and it’s very obvious that America’s status as the global leader is rapidly diminishing. Despite the huge challenges ahead, what makes our country so great is our ability to reinvent ourselves. Even in a post-Citizens United world, we, the people, have the ultimate power at the ballot box. It’s up to us to create the country we want and hold politicians accountable.

The intent of this blog is to take a practical approach to public policy, not a partisan or idealogical. With every important policy choice, it’s important to understand all sides of the argument to make a practical decision based on factual evidence and common sense.