I’m glad I read Anne Field’s article before that huge restructuring that took place just after the dust settled on the subprime mortgage crisis [1]. Those were dark days around here. But our company was following her advised strategy – sending new talent (the ‘high potentials’ or Hi-Po’s) off for frequent short-stretch assignments in other countries so they could handle being pulled in multiple directions. And they’d give groups of Hi-Po’s a challenging problem – like applying new leadership thinking to test different structuring alternatives to better align our human capital resources with our new strategy. Hi-Po’s were also tasked with learning from experts through both formal and informal mentoring programs. It seemed at the time that they were really hand-holding those Hi-Po’s. For example, it seemed like they were always sitting down to make sure they understood the leadership development objectives for every task they were given. I didn’t know at the time, but one of those Hi-Po’s was destined to be my boss.

Since she took charge of my group and announced she was a proud Millennial, things have changed for the better. It didn’t happen overnight, but I can’t believe how well she managed change in a group composed of tough-minded people representing multiple generations. One day she both e-mailed and snail-mailed (to make sure everyone got it) an article written way back in March of 2003 by David Stauffer [2]. It helped me realize how difficult a problem it was to manage our group, and it made me appreciate how she’d taken the time to understand what motivates each different generation and what the typical sources of inter-generational conflicts might be. As a borderline boomer, I was pretty disillusioned at the time – but then she made sure I was getting plenty of training in the hottest new areas.

Today we do business much differently than back then. Things move at such a high velocity – you have to have the right information systems in place to keep you in the game. For example, when there are new jobs put out for bid, the most lucrative contracts are for quick-turnaround projects - where if you don’t get it done before anybody else who might of made a competitive bid – you lose it all. That’s right – if another bidder beats you to the deadline, everything you’ve done is lost, and there’s no pay - $0.00. It’s that simple. Of course, you can still bid for standard fixed contracts, but the margins are razor thin. So, to be in the game for these fast-paced, high pay, high risk, knowledge intensive ventures, you learn to communicate efficiently, assign people with the right skill sets to tasks with little slack, and you track your prior wins and losses to harness as much business intelligence as you can. The information systems help you predict your suitability for a win, they facilitate coordinating the schedule and exchanging the necessary digital work products, but you need 110% of the brains of your people on task at all critical times. The stakes are high – but when the pressure backs off – there’s time for some fun.

Well, that’s it for today’s blog – will be interesting to see how it get’s interpreted by the company’s IDEA (Innovation Detection and Expert Advisor) system. Our group has learned a great deal from that system. As I recall, it came from a field of study called ‘text mining,’ and it was sold worldwide by a company founded by Harvard drop-out – I hear he is a Millennial, too - and a very rich one at that.

One in five parents send a picture of their newborn baby to friends and family within 10 minutes of the birth, with almost half (48 per cent) of parents taking snaps of their bundle of joy within the hour. For the parents who just can't wait for the birth, one in seven (14 per cent) have also sent pictures of their unborn baby's ultrasound scan via their mobile or e-mail - meaning almost 9000 babies each year in New Zealand are seen by friends and family before they're even born.

There is the corresponding trend of parents creating web sites or blogs for their newborn or yet-to-be-born infant.

So if the Internet has a shadow of us before we are born, and can retain a shadow of us long, long after we pass away, just how virtual is the Internet?

I want to bring your attention to some patterns we’ve noticed about Wonkosphere which shed some light on how we should think about the role of bloggers in the current political process (so-called Politics 2.0).

First, political blogs are consumed in much the same manner as mainstream media is, which indicates that readers treat political blogs not as seperate from, but rather as part of, mainstream media. Wonkosphere traffic is greatest on Monday, and tends to peak before breakfast, lunch and dinner, i.e. when people are cruising on the net to end a portion of their work day. Blogs act as newspapers for most readers.

Second, very few blogs break stories. It is a myth. From our data, the vast majority of bloggers still rely on mainstream media for the content they comment on. In fact, a blogger is more likely to cite mainstream media as they are another blogger. Thus, bloggers are primarily amplifiers rather than sources of news.

Third, the popularity of political blogs tends to follow a Pareto (power) law, meaning that there are a few blogs that have a very large number of readers while most blogs have few readers. This means that the influence of blogs is also so distributed, leading to elite blogs (e.g. MyDD, Hot Air), in the same way we have elite mainstream media sources (e.g. New York Times, Newsweek).

Put together, these patterns imply that political blogs are acting as supplements to mainstream media, rather than substitutes for it. The impact on the system is more volatility–blogs make most news spread faster, but sometimes it’s slower; blogs spread both fact and opinion, truth and slander more rapidly; only a few blogs influence opinion most of the time, but any single blog has the potential to impact everyone; and the blogsphere both enables extreme candidate-inevitability and the potential for anyone to come-from-behind in a shocker.

Everett Rogers was one of our great American thinkers, and his classic book “Diffusion of Innovations” is the bible concerning how both tangible innovations (like a product) and intangible innovations (like an idea) diffuse in a society. He identified that there are different “types” of people per when they adopt: first innovators adopt, then early adopters, early majority, late majority, and finally laggards. In his theory, early adopters are the most important group in terms of the likelihood of broad difussion, as they take the bold ideas from the innovators and mold them for adoption by the pragmatic early majority.

In a political context, the innovation in Roger’s model is ideology, political bloggers are both innovators and early adopters, primary voters are the early majority, and swing voters are the late majority.

Will bloggers vote in the same way that the general populace does? According to Roger’s theory, the answer would be yes. As people at the front-end of the adoption curve, bloggers have to “adopt” before the general populace does. Not all bloggers adopt the same idea–as ideological leaders, their views are going to tend to be more intense and diverse, and more ideological and less pragmatic. Nevertheless, bloggers in the aggregate will tend to move ahead of the curve and thus be predictive.

Imagine a funnel of political ideas. At the front-end of the funnel, many ideas exist in the ideological soup. Bloggers who are innovators, and the political campaigns, create these innovations, and bloggers who are early adopters select and shape those ideological innovations in such a way that they are attractive to the early majority, i.e. the primary voter.

I suspect the same dynamic in a commercial context. Early product adopters are the first to experience a new product, and are of a personality type that loves to share experiences with others, i.e. they are the ideal bloggers. If bloggers are positive, it's a good bet that the new product or service will take off. If bloggers are not paying attention, that's bad news. If bloggers are paying attention but negative, the situation may be salvagable, if you can listen to their complaints and take action.

Given that goal and looking at the impact of its success is rather worrisome. The Pew Hispanic Center estimates that 8 percent of Arizona's population is here without the appropriate paperwork. If the law is successful in that given goal, one could expect Arizona to lose that portion of its population. But wait, there's more! Some of those people here illegally are related to, by marriage or birth, to US citizens. If we make the illegal immigrant leave, then surely we'll lose the US citizen too?

There is plenty of anecdotal evidence that this is happening. The problem is quantifying it. The US does not keep data on people that leave the country and a full census is only done once every ten years. For the population of illegal immigrants, driver license data is no help. School enrollment? Not a help either as many of the people who cross our border illegally leave their children at home and those that enter legally and overstay their visas may have children.

That leaves us in a quandry. Population growth helps drive economic growth, especially in Arizona. Take away that growth and we know the picture is not rosy. The problem is that we can't quantify how "not rosy" it could get.

In the first post, I made general comments that blogging communities serve as accelerators, laboratories, and early adopters. To make this more concrete, let's consider the political blogosphere, which is huge in size and very active. Since August my colleague Steve Corman and I have been running, Wonkosphere, which tracks over 1500 conservative, liberal, and independent blogs as they discuss the 2008 presidential race. Here are some observations from our "deep dive":

=> Read more!

What do we really mean by “predictive”? I think de facto this question is comparative; what we really mean to ask is

1. Do blogs process and spread information more rapidly than other mainsteam media (MSM)? In other words, are they a “first mover” or “early adopter”?

2. Do blogs create buzz around something that would otherwise go unreported by MSM? In other words, are they a “buzz creator”?

In the first case, it’s the speed of the medium that comes into play. In the second case, it’s the diversity of the medium that comes into play. One cannot perfectly seperate the two, but I think it’s worth distinguising them.

First let me answer these questions from the perspective of the consumer-world. We have plenty of examples where the blogosphere, or the internet in general, kept a story alive until MSM could get around to it. Perhaps the most famous is the Intel Pentium chip flaw. For about a month it was relegated to a discussion board topic, and Intel ignored it. Because of the compounding interest in the story (who doesn’t like to take down a giant?), it stayed alive while being ignored by MSM. It is interesting to note that many execs at Intel, including supposedly Andy Grove himself, were not aware of the issue until it hit MSM.

In these cases, blogs have the potential to give a worthy story legs and sustenance until it “matures”, ready for diffusion in MSM.

The second situation is one where bloggers take a more active role in actually uncovering news and making it public. The Dan Rather-Bush draft story is an example, where bloggers quickly vetted and rejected Rather’s story as bogus, which eventually led to the “death” of the Dan Rather brand.

Another example I like to cite involves the Aug 2006 banning of Coca-Cola (and Pepsi) by two Indian states, for having tainted water samples. Most people in the US heard about it on Aug 10, from their local newspaper. It hit large US MSM (e.g. USA Today, BBC, ABC) two days earlier, and NYT led the second-wave of MSM with an Aug 07 report. There was a first wave of MSM coverage that went ignored around Aug 3, with reports from BBC, Reuters, and Toronto Sun. BUT–the Indian blogosphere had been discussing this as early as mid-June (e.g. World Prout Assembly, Mission and Justice), a month BEFORE the court ruled against Coke and Pepsi. Finally, if you were tracking Indian blogs all year long, you would have known that Indian citizens in certain towns were furious with Coke for “stealing” the water from their aquafers, and that trouble was a brewin’ as early as March 06.

So in the consumer world at least, companies know that any single blogger can create a PR catastrophe that has to be attended to; and likewise, positive bloggers can enhance the value of the brand enormously, especially in terms of attracting new customers.

Tomorrow, I’ll address these questions from the perspective of the political Wonkosphere….

The Fair Tax has been discussed, and even supported by some of the candidates, in the Republican and Democratic presidential debates, but is it really fair? I, for one, don’t think so.

The proposed Fair Tax legislation would eliminate income taxes, payroll taxes, and estate and gift taxes and replace them with a national sales tax on all retail purchases of goods and services. It would also eliminate the IRS. The legislation proposes a tax rate of 23%, but that is an “all inclusive” rate. State sales taxes are stated as “exclusive” rates, a rate that is added to the price of the good or service. That rate for the Fair Tax would be approximately 30%.

At first blush, the Fair Tax sounds simple and may even seem fair, but its not. Let’s assume that you are retired and live off of your savings and social security. Chances are that you pay little or no income tax, and certainly no payroll tax, under the current system. However, under the Fair Tax you will pay a 30% national sales tax on all of your purchases of goods (including food) and services (including haircuts). You already paid income tax on your savings (when you earned the money that you saved). Now you have to pay tax again when you spend those savings. Fair?

Let’s assume you want to buy a house to live in. You will have to pay a national sales tax of 30% on top of the price of the house. You will be competing to purchase the house with an investor who wants to hold it as a rental property. Guess what? The investor isn’t buying the house as a retail purchaser so he doesn’t have to pay the 30% sales tax. In other words, there is no way you can compete against an investor to purchase that house. Fair?

Let’s assume you are single and make $35,000 a year. No more federal income tax or payroll taxes are withheld from your paycheck. You (and everyone else) also get a “prebate”, an advance rebate of the Fair Tax equal to the amount that would be paid by someone earning at the poverty level. What a great deal! But, you have to pay a 30% sales tax on all purchases of goods and services. Would your total federal tax burden, net of the prebate, decrease? If you use all of your income for consumption of goods and services it would actually increase. Fair?

Let’s assume you make $5 million a year in compensation. You only consume $1.8 million and save the rest. Your total federal tax burden would go down by approximately 60%. It would go down by an even greater percentage if you had gains on the sale of investments, since they aren’t subject to the Fair Tax. Fair?

Other arguments for the Fair Tax are that it is simple and that it is easy to administer (thus the elimination of the IRS). I don’t agree with either of those arguments, but I’ll leave that discussion for another day.

Originally I thought the Fed would show some restraint so as not to worry people. However, the emergency meeting suggests either that the Fed sees the economy as worse than others see it or that they are trying to shock people into believing they are out in front of the problem. They appear to be reacting to the stock market declines of the last few days, which makes me lean to the second explanation. It is more of a slap up side the head than it is an attempt to save a patient who has gone into cardiac arrest. The markets were starting to panic and quick action is often the only effective action.

I think the Fed intends to take the federal funds rate down to 2.5 percent and keep it there for a while. I think the Fed will cut rates another 50 basis points at the next meeting on January 30th to make sure everyone gets the message that the Fed is on the job. They will then make the rest of the cuts down to 2.5 percent at the next few meetings after that. They seem to think inflation will remain under control which appears to be a view shared by the various financial markets.

It is worth noting that the Fed sees its job as keeping inflation under control. If evidence were to surface that inflation in food and fuels is spreading to the rest of the economy their willingness to hold interest rates down to help the economy could evaporate.

The question for many economists is not if the U.S. economy will fall into a recession. It's whether it already has.

The formal recognition of a start of a recession probably wouldn't come for at least six months if not more than a year, as official judges from the National Bureau of Economic Research (NBER) pour through various economic readings.

This is consistent with my last blog post.

To date I have been riding the optimistic wagon, suggesting that the national economy would avoid recession -- perhaps by a just a whisker. It is time to face the music. Wall Street has begun the year with a thud, the December jobs report is abysmal with the unemployment rate actually popping to 5 percent, and the real estate sector seems poised for another leg down on housing prices. There is still reason to hope that the downturn will be relatively short lived and that the latter half of 2008 will bring modest economic growth, but for now the economy has stalled. Is this a recession? Well if it walks like a duck and quacks like a duck, why not call it a duck? The NBER will probably make the official call in a few months. Let’s go with a recession that began in October 2007 and ends in late spring, with a little sign of life in real estate come mid summer. I said little, not anywhere near a return to boom times of 2005. All of this presumes that we don’t get caught watching too much election coverage this summer and forget to shop -- in which case the slowdown could linger. Here’s wishing you a prosperous new year! Now hunker down for the next 9-12 months!!

Is it possible to measure the relative impact of the housing bust on a state versus the nation as a whole?

Economic theory says that one of the first areas to suffer as the economy weakens is spending on durable goods. 'Durable goods' are goods that last a long time -- think big ticket items like autos, where the purchase represents a significant commitment of finances. When the economy weakens, durable good purchases are expected to react first, because they are more expensive and they are easier to delay due to their longer life.

One of the ways economists track durable goods is to watch auto sales, because sales data for autos is available nationally and by state. The volume of auto sales is estimated nationally based on a survey of retailers. But these surveys are not conducted on a state level. In states like Arizona, information on auto sales is collected as a result of the state sales tax. Even though these two measures are not precisely comparable, taken together they do illustrate broad trends.

In Arizona auto sales have been flat or negative since December 2006. Year to date through September 2007 sales were down 6.2 percent compared to the same period last year. In contrast, national auto sales are actually doing better than last year -- up 2.6 percent for the year through September.

When auto sales are subtracted from total retail sales, Arizona shows an increase of 3.6 percent year to date, a period when retail minus auto nationally showed a 4.0 percent increase. Retail sales growth in Arizona typically outpaces sales activity for the nation as a whole by a significant margin, due to our greater population growth. This past year, however, while Arizona absorbed the shock of the housing downturn, auto sales are fared much worse than the national average, while non auto sales simply slowed to the national average.

The housing bust hit incomes because people can no longer refinance their homes. People working in real estate and real estate related areas saw their earnings drop, and investors watched income from real estate related investments evaporate. The sign on the street that people are in pain is fewer new cars. It appears that the impact of the housing bust on Arizona is greater than the national average, particularly with regard to durables like autos.


Retail Auto Sales Growth
AZ US
2003 6.90% 2.60%
2004 7.00% 2.80%
2005 10.10% 2.70%
2006 2.50% 1.40%
2007 through September -6.20% 2.60%

It's hard for me to analogize all of computing to electricity like Carr frequently does, and while companies like Apple are out there reinventing the PC as they exploit their organizational capabilities to attack new industries, it makes me wonder if the lights are dimming for Carr's simplistic view. My perspective was reinforced today when I read the article in the Business section of the Arizona Republic citing how Home Depot is now offering residential solar-power systems in all of its 55 Arizona stores. Maybe Personal Power Systems (PPSs) will be all the rage. I'm going to have to go check them out. I'd bet that PPS has some embodiment of a PC - imagine that, a 'Big Switch' that will invoke my PPS to delink me from the grid. It's not really that shocking, is it?

If you're driving along a highway and see a curiosity at the side of the road, such as the carnival just south of Phoenix on the I-10, it's easy to spend a second or two looking at it. The problem is that the couple of seconds spent by each driver adds up to a long tie-up for the people at the back of the line. This is what could happen with small business and the employer sanctions law. Because small business sees itself as a likely target, small business hesitates to invest. While each small business is, well, small, the aggregate effect of small business in Arizona is large. We can't think of small business as just another two jobs.