He was right.

Bardacke, a respected labor activist and educator based in Watsonville California, was first mentioned in this blog six years ago in connection with his research on Cesar Chavez. Like Bill Gates and Mark Zuckerberg, he dropped out of Harvard after his freshman year and moved west to change the world. Unlike them, he joined the Berkeley Free Speech Movement and has had an abiding interest in radical politics ever since. In the early 70s, I traveled to China with Bardacke to get a first hand look at Mao’s proletarian dictatorship. Frank admired all things proletarian; I feared the dictators. Bardacke often views the world through a different template than I do, but I have learned a lot from him and continue to have enormous respect for his views.

Bardacke became a farmworker – one of a handful of Anglos and surely the only former Harvard student to work the celery fields. He became fluent in Spanish and formed friendships with many of the union staff and farmworkers who appear in his book. He spent more than a decade interviewing every major participant in the drama, reading every known book on the farmworkers and scouring every archive. He received help in managing this massive project from faculty in history and politics at nearby UC Santa Cruz.

The result, Trampling Out the Vintage: Cesar Chavez and the Two Souls of the United Farmworkers, is the most complete account yet of the rise and fall of the UFW. It is also an epic, Shakespearean drama with all of the elements of a Hollywood blockbuster. The pitch meeting would be surreal:

OK, picture this: we have a conservative Catholic who fasts and marches like he’s Ghandi. He courts progressive clerics and hires liberal Jews and alienated Anglos to mobilize immigrant Mexicans and Philipinos to fight Slavic and Italian growers. At first David slays Goliath, but then he morphs into King Lear and destroys his newly built kingdom amidst slaughter and recrimination. We’ve got side plot romances between devotees who work for $5/week and bad food trying to raise farmworker pay. We’ve got violent Teamster, UFW, and grower thugs straight out of the Sopranos. We’ve got a certifiably batshit human potential guru who wreaks havoc getting everyone to criticize everyone else. And under the carpet here somewhere, we may even have communists trying to advance a proletarian revolution without a proletariat. How can we miss?”

Astonishingly, it is a true story and Bardacke delivers it with intelligence and compassion. Unique among labor historians, he grounds his analysis in “the work itself”, with brilliant, memorable descriptions of how different stages of production for different crops in different regions of California all affect the ability and willingness of different crews to self organize. He describes clearly why organizing was often sustained by the tight-knit, highly skilled lechugeuros or the celery cutters, not the garlic or asparagus workers or those in ladder crops. He describes the skill and endurance that the work requires, introduces leaders that arise from various crews, and captures in fine detail how they interact with a union that was built on a very different set of principles from farm work. In a decade spent organizing waiters, housekeepers, nurses, bartenders, machinists, cannery workers, and assembly workers, I observed precisely these differences. The work itself shapes our propensity to organize. Bardacke is the first writer to apply this principle to the fields and he does so with a deep understanding and compassion for the work.

Bringing an existing union into a workplace is an act of industrial combat not for the faint of heart — but starting a new union from scratch is a herculean task that almost always fails.  I started a company that has lasted more than a decade, a public agency that lasted three years, and a union (United Espresso Workers – I was a bit early) that lasted all of three weeks. With the proud exception of the United Farmworkers, I cannot think of a single independent union formed in the United States in the past 50 years that was not sponsored and controlled by an incumbent union (I can think of several that tried and died – but none who made it).

This was not always true — new unions once spawned regularly in the US. There are many reasons for the change, but the lack of competition between unions has positioned them nicely for extinction. Organizations evolve through the mutation, variation, and selection that is always produced by competition. The labor movement stopped growing the instant the AFL joined with the CIO and prohibited unions from competing with each other. When two teachers unions competed, both grew. The instant the Teamsters stopped raiding the UFW, growth stopped. I hated the Teamsters (who were kicked out of the AFL-CIO for corruption and are not subject to the noncompete provisions) and I took a nasty beating from them once, but like sharks or wolves, they have their place in the ecosystem. (I am aware of no union leader who agrees with this view, by the way. Most feel that they have all the competition they can handle from employers).

But for a brief moment following the civil rights movement in the 1960s, a new labor union arose in the United States and in the least likely place. If you had asked in 1960 where in the economy a new union might appear, you would never have selected the farmworkers of California. Organizers prefer workers who are tied to one place and to one employer, not workers who are seasonal and often itinerant. Probably wrongly, organizers prefer workers who are covered by labor laws, which had always exempted farmworkers. Organizers like English-speaking Americans, not Tagalog or Spanish-speaking immigrants or Braceros who are tolerated for a season then ushered back to Mexico. A dozen or so failed efforts by farmworkers to form agricultural unions seemed to validate Marx and Lenin’s belief that workers would organize once they were forced into factories and worked for a single employer.

Bardacke demonstrates that Cesar Chavez succeeded in organizing farmworkers because he was, at heart, a brilliant and hard-working Alinksy-trained community organizer. As a community organizer, Chavez pioneered an enormous innovation that had the potential to transform labor organizing: he mastered the secondary boycott (illegal for most workers under the federal labor law, which thoughtfully excludes farmworkers). Chavez tirelessly organized enormous boycott operations in grapes, lettuce, and against major retailers including Safeway.

Farmworker boycotts were the Occupy movement of the 70s and 80s – a way for college students, community activists, and middle class young people to participate directly in the tough work of social change. And credit Chavez’s brilliant leadership, it worked magnificently: faced with effective boycotts, growers raised wages and improved working conditions and politicians begged the army of grass-roots Chavistas to help register voters and turn them out on election day. The UFW became a powerful force for social change.

But the UFW was only briefly a powerful labor union. Bardacke correctly diagnoses the boycott as creating a formidable tension within the UFW. He frames the tension between labor and boycott organizing as a struggle between the “two souls” of the UFW. The metaphor is fraught. As Bardacke demonstrates, the UFW collapses not because it has two souls, but because none of its activities were organized, financed, or led in a manner that enable them to grow. The problem is not that community organizing is a distraction – most American labor unions lack a community service organization and are much the weaker for it. This is tragic: having discovered and refined one of the few recent innovations in union organizing, Chavez cannot let it grow. Instead, he strangles his own child.

One of the heros of Bardacke’s book is Marshall Ganz, one of America’s most innovative labor organizers. Ganz also dropped out of Harvard, but moved south to organize for civil rights before heading west. After his exile from the UFW, Ganz helped the Silicon Valley Central Labor Council build a powerful neighborhood-based political organization for the 1984 elections. He was terrific at posing fundamental questions – and at directing me and others to writers and thinkers who helped answer them. In 1984 he urged me to read, of all things, a business book, In Search of Excellence. I quickly developed an appetite for business writing. decided to get trained in it, and ended up working with the book’s authors. Marshall returned to Harvard, got his degree after a 28 year hiatus, and now teaches at the Kennedy School. (His version of the UFW story, told in Why David Sometimes Wins, is a fine companion volume. It suffers for being his PhD dissertation and dwells more deeply on theories of organizing and less on the dynamics of local struggles).

So let’s ask a Marshall Ganz-like question: what does it take for an organization to grow successfully? Venture capitalists, a group not deeply concerned with the welfare of those who produce their salads, obsess about this question. There are at least as many answers as there are VCs, but common elements include:

• A big market. If there is not substantial demand for the product or service an organization produces, the organization cannot get very big.

• Positive unit economics. If serving one more person imposes more cost on the organization than it generates in revenue, then growth makes no economic sense and the organization will depend for growth on funding from charity or government. Anyone can sell a dime for a nickel; selling a nickel for a dime means that an organization has to add at least a nickel’s worth of value if it wants to grow.

• Customer or member acquisition costs that scale. Every organization has a cost of acquiring a customer that must be repaid over the lifetime of that customer or member. Smart organizations exhibit declining COA: the cost of acquiring each incremental customer declines with scale. Very smart organizations (and effective social movements) are viral: COA approaches zero as current participants recruit new ones. See Facebook, Google, or Arab Spring.

• Leadership. Growth is very, very demanding on an organization. Everyone in a fast-growing organization has to grow with it: jobs change radically every few months. Not everyone grows at the same pace, so leaders must recruit furiously, communicate direction and values continually, promote and replace people regularly, and test what works all the time. It is stressful and a lot of fun – ask anyone who has been involved in a fast-growing company, boycott, strike, or organizing campaign.

Back to the fields. Boycotts have completely different economics than labor organizations. Boycotts have huge markets: liberals eager to shop their conscience. Churches and colleges do the recruiting at very low cost to the boycott sponsors. Every convert adds more value (the grapes they don’t buy) than cost (the very low cost of volunteers leafleting).

Unions are different. The market for a membership organization of farmworkers is not small, but it is small enough that the UFW needed to capture almost all of it because, as Bardacke notes, organizing half an industry penalizes the organized growers. A union has a responsibility to organize the remaining growers and will frequently be cheered on quietly by those who have signed. More fundamentally, unions need to grow big enough to achieve minimum economic scale: they cannot fund the fixed cost of their operations if they are too small. Unions with fewer than a half a million members are nearly always too small to operate efficiently across the US (meaning that most unions in the United States waste money because they are too small). The UFW never had 100,000 members — although its field operations were mostly in California. Bardacke would counter that the democratic character of the union matters more than its size, which is true, but creating organizations that are not economically sustainable is a bad idea. Unions do this all the time.

Unions have a second problem, to which Chavez developed a unique but ultimately unworkable solution: the economics of labor organizing are often unattractive. Campaigns, negotiations, and strikes are expensive and uncertain of success. If unions file for elections on half of the campaigns they run, win half of the elections they file on, and negotiate contracts successfully 80 percent of the time, then every successful contract has to finance four unsuccessful campaigns and potentially a strike. If the campaigns and the negotiations are labor intensive and the union bears all of those costs, then the economics of organizing turn heavily on the cost and productivity of staff and on the cost and duration of strikes.

The Chavez solution to this dilemma was simple but utterly unsustainable: pump talented people through the organization. Those of us who worked boycott operations worked 14-16 hour days, often 7 days a week. We were paid $5/week and had to beg for donated food to eat. Once we were burned out, the UFW happily replaced us in a process Chavez once compared with pumping water. At any given time during large boycots, hundreds of young people slaved on the campaigns for months and sometimes years. Staff at headquarters (located in the small misnamed town of La Paz), were likewise furnished with living quarters, food, and a miniscule stipend. Chavez personally approved all expenses. From here, it looks like a cult – although from inside the cult, it looked like La Causa and stands today as some of the best work many of us ever did. Regardless of how it feels or looks however, and regardless of the ethics of exploiting volunteers on behalf of underpaid farmworkers, an organization without a core of talented, motivated leaders simply does not scale. Volunteers are not enough — and finding people like Marshall Ganz and Eliseo Medina to fight year after year for farmworkers without paying them even farmworker wages is simply unrealistic.

Bardacke does not go deeply into union economics in part because there is a much bigger tension restricting growth: a command and control organization. Chavez not only micromanages, but much worse, he prohibits local labor or boycott operations. Centrally led boycott operations could work: boycotts demand a consistent message and negotiations with a single adversary and since allied organizations delivered most of the volunteers with help from a skeletal UFW staff, there were relatively few local issues to resolve. But labor organizations are built in hundreds of unique workplaces. This is in part due to the work itself: the problems of lechugueros are simply not the same as tomato workers or lemon pickers. More important however, is that without elected reps, stewards, and ranch committee members, contract negotiations suffer because strike threats lose credibility. Without a credible strike threat, backed in this case by a credible boycott threat, growers rationally refuse to negotiate. Chavez tried to run the union from the top, like he built and ran the boycott. When George Meany and others derided the UFW as “not a real union”, they were wrong at the level of the fields. But in their description of La Paz, they were right.

Bardacke reveals Cesar Chavez to be a brilliant community organizer who campaigned for farmworkers but did not empower them. Bardacke plots the tragic trajectory of the UFW from an authentic movement led by a charismatic leader to one paralyzed by demoralized staff that could see no way to grow a union beyond the constraints imposed by its increasingly unstable founder. Chavez died afraid of his own organization, which he had shriveled into a family business devoted to nonprofit services, La Raza not La Causa, and promoting the Chavez legacy. The union was all but gone.

Bardacke masters an enormous amount of material to relate these events skillfully. He salts his prose with stories and characters straight out of Steinbeck. He rarely leaves the reader guessing about his point of view: Walter Reuther, the brilliant activist who built the United Auto Workers (and marched with Cesar in Delano) is a worthless hack because he voted against seating the Mississippi Freedom Delegation in 1964 and drove communists from the union. Those who cross the US border illegally are noble immigrants deserving of union embrace; those who cross picket lines legally are scabs deserving of UFW tire-slashing and intimidation (but not of UFW efforts to call La Migra and send the illegals among them home). Teamster and grower goons are thugs; Manual Chavez, designated hitter for his nonviolent cousin and other UFW punks are charming rogues who firebomb field sheds and beat their opponents. Those who seek to impose Synanon’s destructive ideology on the UFW are obviously crazy and should be driven from the union; those who seek to advance various communist or nationalist ideologies within the organization are dedicated activists who should be protected. Trampling Out the Vintage is a beautiful work despite these caricatures; it would be even stronger without them. It is a book that deserves a wider distribution and better copy editing than Verso, a niche left publisher, can provide. It would also be nice had Verso published the book electronically (then again, Frank confesses in the postscript that he composed the early chapters of the book on a typewriter!)

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George Whitman, 1913-2011

I have known hundreds of booksellers; the most memorable by far was George Whitman, proprietor of Shakespeare and Company, across from Notre Dame at point zero in Paris.

His store, like its namesake run by Sylvia Beach during the 1930s, became point zero for two generations of writers and wanderers. I am one of tens of thousands of people who was taken in by George, absorbed into his literary world, made part of his little “Rag and Bone shop of the heart”. George never cared about money, food, or finery — he cared about people, literature, and travelers. He was especially drawn to young people, to whom his generosity was legendary.

I last saw George four years ago. My tribute to him at the time reads nicely today. I recalled my days living in Shakespeare in January of 1976, decades after Jackie Onassis had come through as a student and around the time that a young Greek immigrant named George Soros hung his hat at Shakespeare & Co. for several days.

The New York Times ran a wonderful obituary about George, who had written his own eulogy years earlier. Inscribed over a doorway that led to the upstairs of Shakespeare was a motto: “Be not inhospitable to strangers,” it counseled, “for they may be angels in disguise”. George did not, in fact, treat every visitor like an angel in disguise. But he gave visitors a place to discover their literary angels, and more than a few rose to the challenge.

Christopher Hitchens, 1949-2011

A life that partakes even a little of friendship, love, irony, humor, parenthood, literature, and music, and the chance to take part in battles for the liberation of others cannot be called ‘meaningless’ except if the person living it is also an existentialist and elects to call it so.”

and

Beware the irrational, however seductive. Shun the ‘transcendent’ and all who invite you to subordinate or annihilate yourself. Distrust compassion; prefer dignity for yourself and others. Don’t be afraid to be thought arrogant or selfish. Picture all experts as if they were mammals. Never be a spectator of unfairness or stupidity. Seek out argument and disputation for their own sake; the grave will supply plenty of time for silence. Suspect your own motives, and all excuses. Do not live for others any more than you would expect others to live for you.”

Hitchens was always provocative, occasionally irritating, and frequently funny. I will miss his voice enormously.

Vaclav Havel, 1936-2011

Imagine a political upheaval so profound as to be accurately called a revolution, so bloodless and smooth as to be called velvet, and so artistic that its leader was a playwright who conducted the insurrection from, and I am not making this up, the Magic Lantern Theatre, in Prague. Vaclav Havel is the Nelson Mandela of Eastern Europe, and his personal role as catalyst of the communist collapse his hard to overstate. From the Times:

In 1977, Havel was one of three leading organizers of Charter 77, a group of 242 artists and activists who called for basic human rights in Czechoslovakia. Havel was arrested and imprisoned. He spent five years in and out of Communist prisons, lived for decades under daily police surveillance and suffered the suppression of his literary works.

Later he served 14 years as president, resigning rather than see his country separated. He is author of  19 plays and dozens of essays, including “The Power of the Powerless”, which influenced a generation of activists much as King’s “Letter from a Birmingham Jail” had done in the United States. By the time he became President of Czechoslovakia, Havel had written more serious fiction than most heads of state had read.

Timothy Garten Ash, then a British graduate student, witnessed the remarkable Havel in action during the Velvet Revolution. Havel’s moral standing, his poetic use of language, and his patience made him as the dominant figure in resistance politics in Prague in 1989. Garten Ash reports in his indispensable first hand account of events that year in Prague, Budapest, and Berlin that Havel served as the chief behind-the-scenes negotiator who brought about the end of more than 40 years of Communist rule and the peaceful transfer of power. The revolt was so smooth that it took just weeks to complete and not a single shot was fired.

Warren Hellman 1934-2011

In business school, I became friends with Marco, the kid in the next seat everyone called Mick. I recall the day when a classmate told me “his father is Hurricane Hellman — the youngest partner in the history of Lehman Brothers. He ran the place before he turned 40″. Although I only met Warren Hellman a handful of times, I came to respect him as an icon of a group of prominent postwar Bay Area business Republicans who were deeply civic, secular Jews whose contribution to life in these parts is rarely noted. Architect Art Gensler and Gap Founder Don Fischer are others, as, excepting the Republican bit, are banker Bill Hambrecht and Levis heir Robert Haas.

If you live in the Bay Area, it is hard to overstate the impact of Warren Hellman. He saved San Francisco over a billion dollars by financing a ballot measure to reform the city’s tottering pension system. He built the parking garage beneath teh DeYoung Museum in Golden Gate Park. He chaired the Board of Trustees at Mills College and reversed the decision to admit men (still a very popular decision, although I have argued a dubious one). He funded the San Francisco Free Clinic and endowed aquatic sports at UC Berkeley, where he had played water polo as a student. And in 2001, Hellman launched the Hardly Strictly Bluegrass festival, an annual three day event in Golden Gate park that draws more than 300,000 people and is put on for free. Hellman paid the musicians, usually including EmmyLou Harris and the late Hazel Dickens. Hellman himself was a serious amateur banjo player and toured with his group, the Wronglers, until quite recently.

Hellman was not only born into a remarkable family, but he created one as well. He was the great grandson of Isaias Hellman, California’s first banker, who created what became Wells Fargo Bank and built the University of Southern California. His kids are high achievers who share his passion for athletics. Warren competed in extreme sports, once finishing a 100-mile high altitude race in the Sierra after falling and breaking a rib at mile 25. His kids have won championships in m mountain bike racing, skiing, and other sports.

Hellman was the sort of one percenter that the Bay Area loves: a guy who took much more pleasure from giving his money away than he did from making it; who walked away from Wall Street to build an investment firm as “the opposite of Lehman Brothers”, who rarely wore a tie and never seemed to take himself terribly seriously, and who was disarmingly candid about his many failures. He has much to teach the pashas of Silicon Valley; I sincerely hope that they are up to the task.

Kim Jong Il, ??-2011

Those looking for evidence that God has a sense of humor had a fine week. Not only did the Iraq war and the life of Christopher Hitchens end on the same day, but the loss of four of our finest was followed by the unmourned death of perhaps the worst human alive.

History will struggle to find a single kind word to say about Kim Jong Il. He built a hermetic garrison state, imprisoned and starved millions of his people, sponsored untold terrorist activities including the downing of a civilian airliner, and undertook military provocations and kidnappings against Japan and South Korea. He developed and tested thermonuclear weapons and sold them to some of the most unstable governments in the world, including Pakistan. He refined his doctrine of Juchu into a personality cult that represents the precise opposite of everything George Whitman, Christopher Hitchens, Vaclav Havel, or Warren Hellman stood for. 

As Shakespeare predicted, the evil that Kim did will survive him. Kim’s sudden death is problem for South Korea but an even larger problem for China. China has tended to treat North Korea as their pain-in-the-ass psychotic kid brother who refuses his meds but performs a useful service by keeping the neighbors on their guard. But an unstable North Korea is not a good thing for China. There is a strong argument that China will need to take over North Korea as a client state — effectively a new province. In a generation or two, Korea would either unify in a Chinese economic sphere or the North would be forcibly absorbed, Tibet-like, into Han culture. It ain’t Jeffersonian democracy, but it is hard to argue that this would be a worse outcome for the people of North Korea than the continued demented rule of the last standing communist dynasty.

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Journalist Chris McDougall wondered why he was getting hurt when humans have been running for two million years. His best-selling book, Born to Run, is a well-told tale of people who run barefoot without getting hurt and of researchers who discover a paradox: support can make you weaker, not stronger. The more support a running shoe gives you, the more it weakens your foot, ankle, and calf muscles and the more prone you become to injury.

McDougall presents the stories that led to the science and the science that has led to a resurgence of barefoot or minimal shoe running. He visits the Tarahumara, an impoverished clan of long distance runners living in the very remote Copper Canyons of Mexico. McDougall romanticizes their lives, describing men and women of all ages routinely running for dozens of miles in sandals over hot, steep mountains.

Scientists have studied the Tarahumara for years because their isolation makes them good subjects. As roads arrive, the Tarahumara embrace modernity: their diet goes from corn meal and long runs to pickup trucks and Hohos. Epidemiologists have documented the diabetes, cancer, and heart disease that result. McDougall looks past this, focusing instead on the propensity of the canyon-dwelling Tarahumara and some of their more crazed gringo brethren to race ridiculous distances wearing heuraches cut from old tires.

Back home, McDougall consults a Stanford track coach who refuses to let his athletes wear expensive running shoes and discovers data suggesting that both the extent and severity of injuries go up with the price of shoes. He interviews Daniel Lieberman, a Harvard biomechanics professor, who explains precisely how the support a of a running shoe makes most runners over stride and heel strike, which delivers a much sharper blow than a barefoot runner who lands mid foot. A good video of Lieberman explaining his research is below. The peer reviewed work is here in Nature.

Lots of testing and learning is still being done both by individuals and by researchers, but nobody these days takes for granted that running shoes are always helpful. Shoe companies are trying to shift their designs and their message to promote “minimalist” shoes, some of which are now best-sellers.

Is this just a fad? Of course any shoe can become a fad if well marketed. On the other hand, humans have run barefoot for two million years but have worn running shoes for only about 30. I would not bet against barefoot running, given the injury rates that shod runners experience.

Protection turns out to be deceptive. It seems completely normal to me that as a runner, I would prefer a protective shoe. I want lots of cushioning. I want to avoid pronation, which must be awful because it sounds so bad. It would be simple to sell me orthotics — hey, my knees hurt sometimes. Although some people surely do fine in running shoes, for many people, highly protective shoes are like a cast. They reduce your mobility and your foot gets continually weaker as a result.

Economists, of course, know that protection often makes competitors weaker. They believe instinctively that competition strengthens counterparties, be they muscles, individuals, teams, companies, or regions. I have even argued that those who want stronger labor unions need to force unions to compete. Economists left and right can show that trade protection weakens both parties, although this knowledge never stops companies, communities, or workers who are hurt by trade from seeking it. Doubtless some similar principal applies to parenting: too much protection weakens your kids. Fine, now buckle your damned seat belt.

To evaluate social programs or parenting, we need the equivalent of the Tarahumara — a group isolated from extraneous influences that can test whether social protections produce more benefits than costs. Fortunately, an impressive young economist has shown that many of our protective programs are testable. Esther Duflo is an MIT professor, a MacArthur genius grant winner, and the winner of the  2010 John Bates Clark Medal for the best economist under the age of forty. Watch her fascinating TED talk on how she tests programs to fight malaria, educate kids, and immunize children. This is barefoot economics at its best.

Testing of this sort requires an appetite for failure. Politicians, business people, and scientists each approach tests differently, depending on how failure affects them.

• Politicians pay a huge price for failure. This forces them to simplify problems and promise sound bite solutions. If they do not do this, they won’t be elected and they won’t be politicians. Politicians cannot say “wow, this is a tough problem. Let’s try a bunch of things, fail at most of them, and learn what works.” Most politicians suffer from what Tim Hartford calls the “God Complex”. Hartford writes the Undercover Economist column for the Financial Times. He has published a terrific book called Adapt: Why Success Always Starts with Failure. You can get a flavor of his thinking at his fantastic TED talk. The God Complex is the equivalent of intelligent design: certainty that complex systems can best be managed centrally and that complex questions can be answered without the painful process of trial and error. Parents, CEOs, physicians, gods, and anyone else who pays a high price for failure are especially vulnerable.

• Business people embrace trial and error mainly because markets force them to. Hartford notes that ten percent of all businesses fail every year.  A market economy can be looked at as a huge, ongoing experiment that evolves, like every complex system, because of variation and selection. The best leaders of complex systems acknowledge that leading edge problems don’t have obvious solutions and encourage a structured process of trial and error. Hartford’s book discusses the value of lots of small, low cost trials that are decoupled so that they don’t spill over and of carefully documenting and interpreting results. An important and highly recommended read.

• Scientists love failure. It’s how they learn. They understand that humans have evolved as complex systems through millions of years of variation and selection. They reason either deductively from data or inductively to ask have we evolved to run? Evolutionary biologists have long noted that the unique way we sweat for thermoregulation, our hairlessness, our odd bipedal design (more energy efficient than any quadruped), our unusual ability to breath multiple times per step, and our highly engineered feet, ankles, and hips all suggest anatomy designed to run.

But until the 1980s, researchers were stymied by one big problem: we are slow. Why on earth would running matter, when every mammal worth eating can outrun us? 

It fell to David Carrier, a graduate student at the University of Utah, to notice something that had escaped other scientists: we are built for endurance, not for speed. The case for humans designed for endurance running is now widely accepted. This is partly because we have discovered a story that backs the data. Hunter-gatherers in the central Kalahari Desert in Southern Africa still practice persistence hunting: they run their prey to death (there is one other group that practices persistence hunting — or at least remembers it. Our pals the Tarahumara). Running down a large mammal takes as little as an hour or as long as 8 hours, but if a human can keep a mammal galloping so that it cannot catch its breath, cool down, or rejoin its herd, it will collapse of exhaustion before the human does. It appears that before we invented spears, humans survived by high-endurance, persistence hunting. Barefoot.

The BBC managed to film a group of men in the Kalahari hunting a kudu this way. Despite the drums and the breathless narration, it is a stunning film. Notice that the runners are shod in cheap shoes that do not let them heel strike. They look a lot like the sneakers we all wore as kids.

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The United States maintains posh embassies around the world to host worthies from events such as these and our current ambassador to Hungary did not disappoint. Obama’s emissary is Eleni Tsakopoulous Kounalakis, Berkeley grad but Stanford donor, daughter of a real estate tycoon and a California-based Democratic activist of the Phil Angelides school of progressive realtors. She raised more than a million bucks for Hillary, which made her ambassador material. Budapest isn’t bad duty (one can imagine her politely passing on an opportunity to serve in Athens, the family homeland).

She was a fine hostess and thoughtfully included entrepreneurs from interesting Hungarian startups including Prezi, UStream, Logmein, and NNG (formerly iGo). But the highlight of the reception and dinner hosted at the embassy came when Koualakis tapped my shoulder to introduce a short, shy, graying fellow “I’d like you to meet Erno Rubik”. I fought back the urge to bow, shook his hand, and realized that he, like many others in the room, would rather be working.

Rubik is, of course, the inventor of the world’s most popular toy — the maddening twistable puzzle instantly understood by any child and rarely solved even by accomplished adults. It has spawned an industry of competitions, including speed-cubing, foot cubing (current world record for solving a Rubik’s cube using only your feet is a bit over a minute), and blindfold cubing (look at the scrambled cube, get blindfolded, and work from memory. Good luck with that.)

We were all challenged to complete a scrambled cube (yeah, I know. There is an app for that. You photograph the cube and it shows you how to solve it. Erno even earns royalties on every download. But for once, I resisted). Personally, I always thought that the real innovation behind the cube was the weird bit of plastic in the middle that can be twisted every which way without breaking. And yes, I have taken a cube apart to see it, although I admit that there was a hammer involved. (If you want to try it, just twist the top 45 degrees and you can pop the thing apart pretty easily. Of course, you can reassemble it solved — that’s how many people do it).

Naturally neither America’s top scientists nor Hungary’s top entrepreneurs, people who solve three dimensional problems in their sleep, could restore a scrambled cube, which got me to wondering: which came first, the mathematics of the cube, or the puzzle itself? Surely a brilliant Hungarian mathematician like Rubik had computed the various solutions to a cube. Perhaps he had even tried to solve the “God number” question: what is the fewest number of moves that will restore any cube? The God number turns out to be 20 for a 3*3 cube, and a lot of mathematics together with 35 years of Google-donated CPU time went into figuring that out. Turns out however, that Rubik is an architect and game designer, not a mathematician.

There are of course, people who make solving Rubik’s cubes look incredibly easy. For example, the world’s record for solving a cube is….you won’t believe it. So watch — but don’t blink or you’ll miss it.

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They also produced a video on how they produced the video. Worth a look.

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But amidst the carnage, a funny thing happened: the music industry grew larger even though it had fewer labels and far fewer retailers. Revenue from CDs was replaced by revenue from live concerts, ring tones, downloaded singles, merchandise, and sponsorships. The new industry has its challenges (many of them traceable to lousy music), but it has hardly collapsed.

This transformation presages the coming destruction of traditional book publishing and retailing, even as their overall publishing industry grows. Here are the seven reasons that bookstores and traditional book publishers are doomed.

7. Americans have stopped reading books. This is a non-trivial problem (after all, we did not stop listening to music). But the landmark National Endowment for the Arts study “Reading at Risk” confirms what we intuitively know: Americans read less than we used to. 43% of Americans read no books outside of work or school — a number meaningfully lower than Canada or most European countries.

Those who do read books, don’t read many of them. About 24 percent of Americans read eight or more books in 2002, a lower percentage of “strong readers” than two thirds of European countries surveyed. Only 16% of the US population reads a book or more each month. According to Morgan Stanley, 20% of all book buyers purchase a majority of all books. Men read much less than women. NPR reports that among active readers, women typically read nine books in a year, compared with only five for men. Women read more than men in all categories except for history and biography.

When most of us read, we prefer magazines and online articles that are shorter and less demanding than books. Kind of like you are doing right now.

6. Many of the books we read are crap. The largest single book category is still romance novels — a fact so embarrassing to the New York Times and other tastemakers that they exclude the category entirely from best seller lists. These bodice-rippers, together with religion, self-help, fantasy, and thrillers, account for a majority of books sold in the US (Gothic romance, which did not exist before 1972, by itself accounts for a majority of all paperback sales). Nearly all of these sales are to women, but women buy and read a lot more books than men even if you adjust out the Harlequins.

Part of this is, no doubt, that brains exposed to constant media are not well wired for long form reading. We prefer writing that is built around tidy lists…oops. Nice essay to this effect by Alan Jacobs (hey, if you have read this far, you can manage it).

5. We can easily get books for free. Just Google “Torrent” and “Books” along with anything else and you will be directed to many sites that enable you to download books as pdf files easily readable on a tablet or an eReader. The site I checked helps you steal any of several dozen books on religion, most of which presumably counsel the reader against theft.

It is always hard to estimate the economic impact of illicit downloading. I wonder if the net effect isn’t positive, even if authors howl. WordPerfect marketer Pete Peterson had a sensible point when he said that “if someone is going to steal software, I hope they steal ours”. Every illegal download is not a lost sale — but every time a reader finishes a book and raves about it, the marketing leads to new sales. Realizing this, most publishers will let you read the first chapter for free anyway. If we see publishers offering books for free but with advertising, we will know that the torrent sites have struck a nerve.

My current bet is that it won’t happen for the same reason that iTunes curbed illegal music downloading. Customers like the ancillary content and the reliable file quality enough that if the experience is frictionless and the price sensible, we will pay.

4. “Books” are mutating.  Like music and movies, books are becoming a service, not a product. Today Amazon launched its Kindle Lending Library, which turns books into a service like Spotify for music or Netflix for movies. The number of publishers who have embraced this idea? Zero. These guys would rather face the Torrent sites than let Amazon loan their books. But publishers need to monetize their back list. Over time, they will do a deal with Amazon, even if they require Amazon to purchase a new copy after a finite number of rentals. Many publishers require libraries to do that now — and would doubtless oppose libraries as socialist if Ben Franklin hadn’t established libraries before they got organized.

Books have become protean. Sites like Byliner and the Atavist are publishing long form essays by well known authors. This writing is longer than most essays but shorter than a book. Sometimes the pieces are free, sometimes paid, and sometimes, as in the case of a recent piece by author John Krakauer, free for the first 50,000 downloads, then paid. Inkling, a San Francisco startup, takes textbooks and transforms them into socially enabled multimedia iPad apps that end up not looking much like textbooks at all. They have just released The Professional Chef, the bible textbook produced by the Culinary Institute of America. You can buy the book or you can just buy a chapter. It features photos, note sharing between cooks, demonstration videos, etc. Their south of market neighbor,  Blurb, does the opposite: it converts your online blog into a nicely bound book you can give to mom. O’Reilly makes many of its books available by the chapter and lets you join a club to get lifetime book updates and access to community events. EBrary lets academic subscribers read huge online libraries and charges by the page for printing or copying.

3. Robo-books.  I shared a taxi yesterday with a guy who bragged that his wife “cranks out eBooks”. She writes 2-3 books each week the same way some kids write college papers: by stealing content and re-writing enough of it to not get caught. Of course, free market capitalism being the spectacular engine of innovation that it is, some late night huckster even sells Autopilot Kindle Cash that helps “your ten year old kid publish 10 to 20 new Kindle books a day.”

The impact of the resulting spam “books” has been extraordinary. In 2002, about 250,000 books were published in the US; about 15% of these books were self published. By 2010, the number of books had increase thirty times. 3.1 million books were published in the US — about 8,500 “books” per day and 90% of these books were self-published.  In response, Amazon has been forced to “curate” the user experience, meaning that they must try to filter the output of products like Amazon Kindle Cash. If they are wise, they will start charging “authors” $20 to publish their “books”, and deploy the same software that faculty use to detect even clever plagiarists.

Amazon's best selling Single

2. Economics. Amazon has put the publishing industry on notice by hiring respected industry veteran Larry Kirschbaum. In a sly reference to the music industry, Kirshbaum launched Amazon Singles. A single is what it sounds like — a chapter, not a book. It can be an article or an essay, like this terrific one by Hitchens on Bin Laden. In books as with music, you often want just the single, not the entire album.

By promoting authors whose books sell, Amazon has also created self-published millionaires. John Locke and Amanda Hocking are the superheroes of self-publishing. By making millions, they have helped transform self publishing from an industry backwater inhabited by the untouchables to a place where writers no longer share sales with publishers. Importantly, writers price their books and they have become smart about demand elasticity. Locke discovered that his CIA  novels increased twenty fold when he dropped the price from $1.99 to $.99.

“It wasn’t so long ago that an aspiring author would … don a pair of knee pads and assume a supplicating posture in order to beg agents to beg publishers to read their work. And from way on high, the publishers would bestow favor upon this one or that, and those who failed to get the nod were out of the game. No more.”

This trend will affect all publishers. Famous authors will wonder why they share revenue  with publishers. New authors (like Amanda Hocking) will demand enormous advances once they establish a reputation as a successful self-published writer. Because the profitability of the publishing industry turns on the ability of a few popular authors to subsidize the great majority of unprofitable ones, the defection of popular authors is especially threatening.

Publishers and retailers are being badly disintermediated not only because they add too little value, but because they add unnecessary costs. Traditional book retailing is insanely wasteful: at any given time about a quarter of the books are moving backwards in the supply chain because retailers can return product, usually without penalty, to distributors or publishers. I am not aware of any other industry that permits this. These and other costs make printed books more and more more expensive. Price increases, not unit sales, account for nearly all of the “growth” in the sales of traditional books. Trade book prices have risen twice as fast as inflation for more than a decade. Libraries now pay more than $80 per book, in part because library books require specialized processing.

1. Amazon. The number one reason that bookstores will close and publishers will die in large numbers is that Amazon is continuing to take a page from the Apple playbook and create a user experience that is integrated from content development to ecommerce and the device. They are not identical models: we will not see Amazon stores any time soon, nor Apple publishing, but clearly Amazon has learned a lot from Apple.

Indeed one could argue that they learned too well. Walter Isaacson’s asserts in his recent biography of Steve Jobs that Apple won the battle over agency pricing (they let the publisher set the price and took a cut, whereas Amazon set the price as the retailer and paid publishers a commission). In truth, Amazon won and Isaacson got the story wrong. Customers care enormously about price and convenience, as a quick glance at iBooks reveals: it is a wasteland. By combining a preeminent retail experience, offering books as physical, print on demand, or eBooks, featuring buy-back programs and used books, offering Singles, Publishing, and now Libraries, Amazon controls the reading waterfront. They are quickly taking the oxygen out of traditional book retailing and publishing.

When the dust settles, we will see the same thing we saw in music. Spending on what we read will go up with economic growth or a bit faster. But it will go to very different players for very different products than in the past.

Fine. 

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Steve Jobs died

I felt like someone had unplugged my compass. Steve Jobs was by any reasonable measure the greatest entrepreneur and the greatest CEO in American history. He was a hero to his customers, but to most technology entrepreneurs, he was a God. He revered the Beatles and always reminded me of John Lennon: a genius with round glasses, a rebel with a mischievous grin, and an artist who showed the world things that it had not realized it wanted. With both, it takes years to absorb the full loss.  

Steve Jobs had the soul of an an artist. Like Leonardo DaVinci, Samuel B. Morse, or Edwin Land, he lived at the intersection of humanities and technology and could ruthlessly carve away marble until only his vision of beauty remained. He was a practical poet who understood that “real artists ship”. He accomplished his goal of “making a dent in the universe” — but his premature death has left a dent in the hearts of people the world over.

Steve was the rarest of creatures: a business revolutionary motivated by a deep love of technology and its power to change the rules. We always knew that his “Think Different” ad was really about him:

Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.

Steve broke rules eagerly. He dropped out of college and dropped acid. He fathered a daughter and disclaimed her, much as his Syrian biological father had lost track of him. He followed very odd diets and lived on communes. At age 20, he made a sojourn to India to see a guru. He learned to focus and focus some more. Often, this meant removing features. The original Mac had no cursor keys. Steve was the first to take away keyboards, mice, modems, floppies, Flash, screens, and CD-ROMs. Reviewers raged and the digerati derided him, but Steve knew that “innovation means saying no to a thousand things”.

His passion often made him obnoxious. Seated next to him on a flight in 1979, he learned that I had made my Apple II usable for word processing by inserting a Z-80 card so that I could run WordStar under the CP/M operating system. He was appalled: “Why on earth would you ever do that?” he asked twice, shaking his long hair and making it very clear that I had flunked the bozo test. He publicly insulted competitors and employees. He launched huge products, including the iPad, with no market research (“it is not the consumer’s job to know what they want”.) At a dinner in 2006, he repeatedly assured me and others that Apple would never sell a telephone under any circumstances. Nobody believed him for a moment (six months later, he unveiled the iPhone), but any other CEO would have deflected the rumor instead of lying outright. This sort of behavior famously got him fired from his own company.

I harped constantly in this blog and elsewhere on his insistence that he control every aspect of the user experience. I recall construction workers building Pixar across the street from my company shaking their heads in awe every time Jobs would land on the property in his baby blue helicopter and take a pencil to their blueprints. He spent millions moving walls and even foundations at the last minute so they would end up precisely where he thought they should go.  He obsessed about details that few CEOs notice (when you upgrade your iPhone next week, notice that as you bring the message shade to a full close, a very tiny animation rounds off the squared edges. Nobody but Steve Jobs would bother to do that.)

Steve Jobs failed. A lot. The Apple III was a disaster. The Lisa sold so poorly that tens of thousands of computers named after his daughter ended up in a large land fill in Utah. You have hardly heard of the Pippin, the Newton, the Copeland, HiFi, the G4 cube, Mobile Me, and several other products that were complete busts. It didn’t matter. Jobs remained unbelievably self-assured and ridiculously demanding. Over the years, I met several Apple employees who worked insane hours and suffered nervous insomnia because they had to present a product or an idea to Jobs – and were terrified at the prospect. One such encounter, possibly apocryphal, was reported in The Atlantic.

When engineers working on the very first iPod completed the prototype, they presented their work to Steve Jobs for his approval. Jobs played with the device, scrutinized it, weighed it in his hands, and promptly rejected it. It was too big.

The engineers explained that they had to reinvent inventing to create the iPod, and that it was simply impossible to make it any smaller. Jobs was quiet for a moment. Finally he stood, walked over to an aquarium, and dropped the iPod in the tank. After it touched bottom, bubbles floated to the top.

“Those are air bubbles,” he snapped. “That means there’s space in there. Make it smaller.”

As I drove north towards San Francisco following the news of Steve’s death, the radio reported that mourners were gathering at Apple headquarters, at Apple stores, at Jobs’ house, and in Dolores Park. Tributes followed from around the world – many of them written and read on devices that Steve built. Here are some that resonated:

7. Of the statements by the famous, Obama called Jobs “…brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.” He shoulda said “think different”, but otherwise a good statement.

Bill Gates was quick and generous: “For those of us lucky enough to get to work with him, it’s been an insanely great honor. I will miss Steve immensely.” Gates ordered the flags at Microsoft lowered to half-mast. Microsoft joined Amazon, eBay, Google, and many other other sites in offering home page tributes.

6. Insanely Great  author Steven Levy wrote a colorful, articulate obit for Wired that is exceptionally well done. Sample: “If Jobs were not so talented, if he were not so visionary, if he were not so canny in determining where others had failed in producing great products and what was necessary to succeed, his pushiness and imperiousness would have made him a figure of mockery.”

5. John Markoff, the talented New York Times technology writer who has known Jobs for many years wrote a precise, careful, definitive obituary. That, of course, is why we have the New York Times.

4. Fake Steve Jobs, captures the Jobsian hauteur and poetry with surprising and touching verse. An excerpt:

3. Apple. Immediately revised its home page, as did Pixar. Very Steve. He probably approved it in advance, but still. I hope they keep up the tributes and his spirit.

2. The Onion: “The Last American Who Knew What the Fuck He Was Doing Dies”. “We haven’t just lost a great innovator, leader, and businessman, we’ve literally lost the only person in this country who actually had his shit together and knew what the hell was going on…” My kind of tribute. Not for everyone. But anything that makes me laugh at tragedy is +1 in my book.

1. Steve at Stanford. The YouTube video was watched 8 million times yesterday, as crowds paid tribute at Apple stores around the world. NPR played the speech in full at noon. It’s a classic believed by many to be the best commencement address ever given. Even if this is not such a high bar, it’s a great talk and worth watching again.

Many are memorializing Jobs as this generation’s Henry Ford because he did for computers what Ford did for cars — transform them from hobbyist toys to indispensable commodities. In his day, Ford was hugely popular — tens of thousands attended his memorial services in 1947. Some have declared Jobs a modern Thomas Edison, the great inventor who was buried by a small group of friends in rural Ohio (a group that included, ironically, Henry Ford).

Others compare him to Walt Disney, a technology and artistic visionary whose ashes are in Glendale (he is not cryogenically frozen, as widely believed) and whose largest shareholder ended up being Steve Jobs (Jobs made about twice as much money selling Pixar to Disney as he did selling Apple to the public — although these things change with the stock market and there is no evidence that he cared much in any case).

By a very wide margin, Steve Jobs earned first place in the pantheon of genius entrepreneurs. He utterly transformed not one industry but five or six: personal computers, music, telephones, tablets, and animated film. And possibly publishing. He  personally led extraordinary business turnarounds at both Apple and Pixar. When he stepped down as CEO, Apple was the most valuable company in the world. 

Steve was a national treasure and we should honor him in a big way: schools, parks, battleships, postage stamps — the whole thing. I’d gladly throw Columbus under a bus to give Steve Jobs a national holiday. I hope his forthcoming biography is the smashing success that everyone expects it to be.

We will miss this guy enormously.

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Why ask them to swap when both Clinton and Biden are by all accounts doing a great job? Mainly because it would revitalize and unify the Democratic ticket, which will face a formidable opposition, contrary to popular wisdom. I don’t know whether the Republicans will nominate Perry or Romney, but I have a pretty good idea of who the short list for VP will be — and Sarah Palin and Michelle Bachman don’t need to wait by the phone.

The strongest VP candidates for Perry or Romney are David Petraeus and Mario Rubio. Petraeus is unlikely to do it. He is a Rockefeller Republican, who Romney could not appoint. He just began a job running the CIA, which takes him out of domestic politics. I hope. He is not Tea Party certified and while he clearly brings huge strengths to any ticket, is not an experienced campaigner (military campaigns don’t count, although the differences are fewer than many realize).

Rubio is a different matter entirely. He is young, son of Cuban exiles, the politically savvy former Speaker of the Florida House, telegenic, and a Senator from a battleground state. He is fully credentialed by the TP crowd. A Romney – Rubio ticket will begin with massive strength in the south and will be very tough to beat in Florida. Romney will play well in the Midwest, where his father was a popular governor, and to conservative parts of New England. Rubio would energize Hispanic voters and extend the Republican base beyond the rich, the pugnacious, and the certifiably looney. It would be a tough ticket to beat — and Obama knows it.

Hillary helps Obama to rally Democrats and Independents. She is a formidable, even relentless, campaigner and she works harder than anyone in politics. It is not simply that she has handled problems in North Korea, Iran, and Israel without upstaging Obama, or that she has been supportive of the president and has been serious, intelligent, and energetic. It’s not just that people in the State Department like her — and some like her a lot — or that she has kept her husband out of the limelight, despite the fears many had. It’s that, unlike Joe, Hillary has a devoted constituency. She draws women, independents, and blue collar voters in much larger numbers than Biden or Obama. She adds deeply to the ticket.

The case for Biden as Secretary of State is also clear: it is the job he has always wanted and he would be very good at it. He was the ranking member and often the chair of the Senate Foreign Relations Committee, he has the requisite rolodex, and he likes diplomacy. He will rely more on personal relationships with foreign leaders than Hillary has, but that’s fine. Biden has built a very solid relationship with Obama and would continue as a senior advisor — a role he enjoys and excels at.

The timing of the Great Swap is constrained by the Constitution. Section 2 of the 25th Amendment states that “Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.” At the moment, that confirmation would be far from assured, so Obama is not likely to ask Biden to resign, appoint Hillary VP, then appoint Biden to State (where his Senate confirmation would be a cake walk). Instead, if he decides to do this, he would plan the move now and nominate Hillary at the convention. Once nominated, Hillary would resign her position and Obama would name Biden to fill it immediately. No House vote needed.

Will Obama make the Great Swap? A lot can go wrong with moves like this — but Obama knows better than anyone that a Presidential campaign requires imagination and energy. Much can and will change before the convention, but we can count on this: Obama is considering this move.  

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But as the world’s third richest mogul, Buffett seems to be arguing against his own economic interest. Buffett might assert that higher taxes, a more stable economy, and even less inequality are in the long term economic interest of the super rich. Might be true, but it is still unusual for people to campaign against their short term interests. As a group, his fellow moguls are not only fighting for tax cuts, but for cuts in public spending that will not affect them either.  At a minimum, Buffett is showing off the contrarian view that made him rich.

Buffett provides an interesting contrast to Congress, where arguments against interest are as common as snowballs in August. Congress is, by some measures, more divided than at any time in the past 120 years. We badly need Congressional leaders who will argue against their political interest: Democrats who will fight waste, Republicans who will support short term fiscal stimulus. What we get instead is a culture of pledges designed to prevent this.

• The Tea Party is circulating the short, radical, and malign “Cap, Cut, and Balance” pledge, which has been signed by most Republican presidential candidates.
• Other Tea Party members are circulating a more comprehensive “Contract From America“, signed by more than 300 elected leaders.
• The Susan B. Anthony list is circulating an anti-abortion pledge, promising to cut all funding for Planned Parenthood and close all abortion clinics. It was signed by  by Michele Bachmann, Newt Gingrich, Ron Paul, Tim Pawlenty and Rick Santorum.
• Most GOP members have signed Grover Norquist’s Taxpayer protection pledge
• Norquist is also backing the pledge to support the Parental Rights Amendment, which massages the erogenous zones of the conservative family values crowd
• The American Council for Immigration Reform is circulating a Congressional pledge to oppose amnesty in any form for illegal aliens
• The made for Jon Stewart Marriage Vow promises to to oppose same-sex marriage, reject Shariah law and pledge personal fidelity to their spouse . Good luck with that.

These pledges represent a promises not to think, not to negotiate, and especially, not to compromise. The pressure to sign them is intense. Only one leading Republican, Jon Huntsman, has refused on principle to sign pledges (although he joined the band of imbeciles in Iowa who promised to reject a hypothetical budget deal that offered ten times more spending cuts than tax increases).  Huntsman’s campaign is imploding and stuck in single digits. Certified theocrat Rick Perry, who looks from here to be the likely nominee, won’t even have Huntsman as VP.

Democracy is built on negotiation and messy compromise. Pledges subvert this, and are fundamentally anti-democratic. Compromise means your interest does not always prevail — we don’t always tax the fella behind the tree. A leaders takes an oath of office and recites a pledge of allegiance. That’s all they should commit to: on principle, no leader should ever sign an interest group pledge.

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Cryin' Time

As of tonight, it is not at all clear when the US debt ceiling will get extended or when the entirely artificial crisis caused by Republican House members will be resolved. But one thing is now very clear: the ham-fisted GOP tactics will raise interest costs for every American family and business. It is the economic equivalent of a tax increase — except that that it increases government expenses, not revenues. These higher interest rates are caused by Congressional flakiness.

Interest rates reflect perceived risk — and China and other lenders now see the US as a lot riskier than we used to be. Real risk is unchanged — but perceived risk is higher, and that’s what counts. The power to punish political stupidity with higher borrowing costs is what once caused Clinton advisor James Carville to announce that in his next life, he wanted to come back as the bond market, since it powerfully influenced all federal economic decisions.

It used to anyway. At least one rating agency, S&P, is poised to downgrade US debt. This is unlikely to be calamitous, but it is entirely avoidable and it will needlessly increase US borrowing costs. This makes government more expensive, not less. Worse, it increases interest rates for banks whose borrowing costs that are pegged to Treasuries, which is roughly all of them. It erodes our privilege of serving as the world’s reserve currency — the equivalent of a tax break extended by the world economy to Americans but to no other country. The President of France once termed it an “exorbitant privilege” — and he was right.

For Cryin' Out Loud

This is very likely to end badly for Republicans. There is no economic crisis — the US is obliged by self-interest, to say nothing of the 14th amendment, to pay all debt obligations. Obama will however, end up paying doctors and soldiers late or with IOUs, like California did a couple of years back. The fractious Republican Party will quickly begin to devour it’s Tea Party wing, which has already been denounced by Gingrich, McCain, and Anne Coulter — hardly left wingers.

If the market starts downward, plenty of people will buy stocks because many investors regard the “crisis” as temporary political insanity. Economic fundamentals, although not great and not helped by a spike in interest rates, are also not vastly changed. Treasury bonds have to remain the global fixed-income benchmark because there’s no good alternative. The $9.3 trillion of Treasury securities in circulation is five times more than the total debt of countries like France, Germany, or the UK and the $580 billion of US bonds that trade every day is 17 times higher than UK gilts, the next highest triple-A rated government debt security. The world is learning what every bank knows: if I borrow a small amount from you, I am your debtor, but if I borrow a large amount, I am your partner.

Still, Congressional perfidy will cost Americans billions of dollars in needless interest expense. Nobody benefits except banks and China — the banker to the US government. Perhaps there is after all a reason Speaker John Boener cries so often.

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