The economy seems to have fallen off of the Yellow Brick Road of steady real GDP growth. Are we now lost in the woods without a compass?

1. LOOKING FOR THE YELLOW BRICK ROAD
October 13, 2015
Bruce Yandle
yandle@bellsouth.net
Can Eureka Moments Help?

2. Exports Decline!
Canada in Recession!
Fed Indecision!
Political Crazy Season!
Stock Market Collapse!
China in the Basement!

3. “I am describing the outlook
I see as most likely, but
based on many years of
forecasting, I can assure
you that any specific
projection I write down
will be wrong, perhaps
markedly so.”
Janet Yellen
Business Insider, Myles Udland
http://finance.yahoo.com/news/janet-yellen-just-made-one-
180927211.html
May 23, 2015.

5. How’s the
U.S. economy
doing?
I think we are
on the Yellow
Brick Road…,
but I am a bit
nervous!

6. -10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2000-01-01
2000-08-01
2001-03-01
2001-10-01
2002-05-01
2002-12-01
2003-07-01
2004-02-01
2004-09-01
2005-04-01
2005-11-01
2006-06-01
2007-01-01
2007-08-01
2008-03-01
2008-10-01
2009-05-01
2009-12-01
2010-07-01
2011-02-01
2011-09-01
2012-04-01
2012-11-01
2013-06-01
2014-01-01
2014-08-01
2015-03-01
Real GDP Growth
1Q2000 - 2Q2015(est)
(4-Quarter Moving Average)
3.17%
3.9%

7. -10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2000-01-01
2000-08-01
2001-03-01
2001-10-01
2002-05-01
2002-12-01
2003-07-01
2004-02-01
2004-09-01
2005-04-01
2005-11-01
2006-06-01
2007-01-01
2007-08-01
2008-03-01
2008-10-01
2009-05-01
2009-12-01
2010-07-01
2011-02-01
2011-09-01
2012-04-01
2012-11-01
2013-06-01
2014-01-01
2014-08-01
2015-03-01
Real GDP Growth
1Q2000 - 2Q2015(est)
(4-Quarter Moving Average)
3.17%
3.9%Expect 2.2% to 3.0% real
GDP growth, 2015-2018.
Recession in 2019.

9. The Housing Boom?

14. QUESTIONS?

15. PART II
Three-Legged
Chickens, Creativity
& Eureka Moments

16. Let’s talk
about
creativity.
• Recognition of a practical
problem to be solved.
• Eureka! An idea emerges.
• Experimentation by people
closest to the problem,
Indigenous innovation.
• Potentially game-changing,
but disruptive, technology
emerges.

17. How to get from repetitive
learning to idea generation and
creation of new intellectual
wealth?
How do we get from fountain pens
to ball point pens to typewriters to
digital communication to thought
transmission?
EUREKA!

18. • The Creativity puzzle.
• Human progress is driven by creativity.
• It’s magic. Metaphysics. Some people can take the
same ingredients, the same inputs, and magically
produce brilliant, beautiful, or spectacular outcomes.
• Where others produce the same old same old.
• Do Eureka Moments exit? What explains?

19. Exploring Creativity & Eureka Moments
• Taking a glance at human flourishing since
1300.
• Creative minds and innovation. Is it will
power?
• Is it some component of the mind or brain?
• What do creative people say?
• Do economists have Eureka moments?

21. “From the 1820s to the 1870s, Britain,
America, France, and Germany broke
out of the pack one by one. The
trajectory of these countries’ two
indicators—output per head and the
average real wage—was a phenomenal
development in the history of the
world.”
Edmund Phelps. Human Flourishing. Princeton:
Princeton University Press, 2013: 5.
Edmund
Phelps
1933 -

22. Most people are common men. They do not have
thoughts of their own; they only receive. They do not
create new ideas; they repeat what they have heard
and imitate what they have seen. If the world were
peopled only by such as these, there would not be
any change and any history.
What produces change is new ideas and actions
guided by them. What distinguishes one group from
another is the effect of such innovations. These
innovations are not accomplished by a group mind;
they are always the achievement of individuals.
Ludwig von Mises. Theory and History. Auburn, AL: Mises
Institute, 2007: 191-192.
Convergent versus Divergent Thinking
Ludwig von
Mises
1881-1973

23. [W]orking within an established field is both
empowering and restricting at the same time. Stay
within the boundaries of your discipline, and you
will have an easier time making incremental
improvements, opening the doors of the adjacent
possible that are directly available to you given the
specifics of the historical moment. But those
disciplinary boundaries can also serve as blinders,
keeping you from the bigger ideas that become
visible only when you cross those borders.
Steven Johnson. How We Got to Now. New York: Riverhead Books, 253.
Steven
Johnson
1968 -
The Adjacent Possible

24. John Maynard
Keynes
1883 - 1946
The difficulty lies, not in the
new ideas, but in escaping
from the old ones, which
ramify, for those brought up
as most of us have been,
into every corner of our
minds.
J.M. Keynes. The General Theory of
Employment, Interest, and Money. London:
Macmillan, 1936. vii.

25. Capitalism, then, is by nature a form or method of economic
change and not only never is but never can be stationary. And
this evolutionary character of the capitalist process is not
merely due to the fact that economic life goes on in a social and
natural environment which changes and by its change alters the
data of economic action; this fact is important and these
changes (wars, revolutions and so on) often condition industrial
change, but they are not its prime movers. Nor is this
evolutionary character due to a quasi-automatic increase in
population and capital or to the vagaries of monetary systems,
of which exactly the same thing holds true.
The fundamental impulse that sets and keeps the capitalist
engine in motion comes from the new consumers, goods, the
new methods of production or transportation, the new markets,
the new forms of industrial organization that capitalist
enterprise creates.
Joseph Schumpeter
Capitalism, Socialism and Democracy. New York: Harper, 1975, 82
Joseph
Schumpeter
1883 - 1950

26. Is it being connected to
other creative brains?

27. Brilliant people, be they anthropologists, psychologists or economists,
assume that brilliance is the key to human achievement. They vote
for the cleverest people to run governments, they ask the cleverest
experts to devise plans for the economy, they credit the cleverest
scientists with discoveries, and they speculate on how human
intelligence evolved in the first place.
They are all barking up the wrong tree. The key to human
achievement is not individual intelligence at all.
Human achievement is based on collective intelligence - the nodes in
the human neural network are people themselves. By each doing one
thing and getting good at it, then sharing and combining the results
through exchange, people become capable of doing things they do
not even understand. As the economist Leonard Read observed in his
essay "I, Pencil' (which I'd like everybody to read), no single person
knows how to make even a pencil - the knowledge is distributed in
society among many thousands of graphite miners, lumberjacks,
designers and factory workers
Matt Ridley. Collective Intelligence on Edge. Matt Ridley On-Line, March 14, 2012.
http://www.rationaloptimist.com/blog/collective-intelligence-on-the-edge.aspx.
Matt Ridley
1958 -

29. The Sharing EconomyThe Sharing Economy

31. Daily Shot. 3/5/15. Banksy

32. Is it just hard work?

33. It is impossible for a hockey player, or Bill Joy, or
Robert Oppenheimer, or any other outlier for that
matter, to look down from their lofty perch and say
with truthfulness, “I did this, all by myself.”
Superstar lawyers and math whizzes and software
entrepreneurs appear at first blush to lie outside
ordinary experience. But they don’t. They are
products of history and community, of opportunity
and legacy…The outlier, in the end, is not an outlier
at all.
“No one who can rise before dawn three hundred
sixty days a year fails to make his family rich.”–
Saying of penniless Chinese rice farming peasants.
Malcolm Gladwell. Outliers. 285 and 249.
Malcolm
Gladwell
1963 -

34. Or something about the
brain and how it works?

35. As for how these ideas emerge, almost all of my subjects
confirmed that when eureka moments occur, they tend
to be precipitated by long periods of preparation and
incubation, and to strike when the mind is relaxed—
during that state we called REST. “A lot of it happens
when you are doing one thing and you’re not thinking
about what your mind is doing,” one of the artists in my
study told me. “I’m either watching television, I’m
reading a book, and I make a connection … It may have
nothing to do with what I am doing, but somehow or
other you see something or hear something or do
something, and it pops that connection together.”
Random Episodic Silent Thought
Secrets of the Creative Brain, Nancy C. Andreasen, July/August 2014
http://www.theatlantic.com/features/archive/2014/06/secrets-of-the-creative-
brain/372299/
Nancy
Andreasen
1938 -

36. What do creative people say?

37. Spencer Silver spent years trying to get his
colleagues at 3M excited about his low-tack,
pressure-sensitive adhesive. The world yawned.
But one day another 3M scientist was in church,
not a bad place for a eureka moment, and came
up with a use for Dr. Silver's glue.
Arthur Fry was annoyed that the bookmarks in his
hymnal wouldn't stay put. He thought adding Dr.
Silver's adhesive to some paper might do the
trick. Not only was he right, but people have been
coming up with uses for the Post-Its ever since.
Spencer
Silver
1941 -

38. Hermann Von
Helmhotz
1821 - 1894
Often [ideas] arrived suddenly, without any effort on
my part, like an inspiration. They never came to a
fatigued brain and never at the writing desk. It was
also necessary, first of all, that I should have turned
my problem over on all sides to such an extent that I
had all its angles and complexities “in my head.”
Then, there must come an hour of complete physical
freshness and quiet well-being, before the good ideas
arrived. Often they were there in the morning when I
first awoke… But they liked especially to make their
appearance while I was taking easy walk over wooded
hills in sunny weather.
John Kounios and Mark Beeman. The Eureka Factor. New York: Random House,
2014: 29.

39. Dicky
Betts
1943 -

40. Like almost every fiction writer, I'm sometimes asked
where I get my ideas. It's a reasonable-enough
question, one asked by nonwriters who are curious
about the creative process. When I answer that "I have
no idea," my questioner assumes my answer is a feeble
attempt at wit, which it is, but I'm also telling the
truth. Furthermore, even if ideas were gettable—say,
stacked in a secluded cave like the Dead Sea scrolls—I
wouldn't go there. An "idea," especially one adhered to
from start to finish, can be disastrous for a compelling
piece of fiction.
Ron Rash, In the Beginning, Wall Street Journal, March 8, 2013
http://online.wsj.com/articles/SB1000142412788732349450457834021293139231
2
Ron
Rash
1953 -

41. When I write songs, it’s never a
conscious decision—it’s an idea
that floats down in front of me
at four in the morning or in the
middle of a conversation or on
a tour bus or in the mall or in
an airport bathroom. I never
know when I’m gonna get an
idea and I never know what it’s
gonna be.
John Kounios and Mark Beeman. The Eureka Factor. New York:
Random House, 2014: 65.
Taylor
Swift
1989 -

42. Vernon
Smith
1927 -
‘‘Experimental economics started at Purdue in the late fall of 1955. . . . I
had insomnia one night, and . . . I found myself thinking about the
classroom experiment that Ed Chamberlin used to perform with the
Harvard graduate students to prove the impossibility of perfect
competition.
So there I was, wide-awake at 3 am, thinking about Chamberlin’s silly
experiment… This led to two ideas: (1) why not use the double oral
auction procedure, used on the stock and commodity exchanges? (2)
why not conduct the experiment in a sequence of trading ‘days’ in which
supply and demand were renewed to yield functions that were ‘daily
flows.‘
“The following January, I carri ed through my insomniacal plan. . . . I am
still recovering from the shock of the experimental results. The outcome
was unbelievably consistent with competitive price theory. “
Ted Bergstrom. “Vernon Smith’s Insomnia and the Dawn of Economics as
Experimental Science" Scandinavian Journal of Economics 105.2 (2003): 181-205,
at 182-183.

43. So we have these two basic mind-sets for
solving problems—insight and analytic. Shifting
your attention more inwardly or outwardly can
help you to engage one or the other. But in
situations calling for outside-the-box ideas…you
can use sensory deprivation to help you focus
inwardly. The missing ingredient needed to
realize a great idea could be as simple as a little
solitude and inner attentiveness to minimize the
distractions that might be blocking an idea from
bubbling up.
John Kounios and Mark Beeman. The Eureka Factor. New York: Random House,
2014: 91.
John Kounios
1957 -
Mark Beeman
1960 -

44. Payoffs always matter.
If payoffs from successfully
influencing regulation is greater
than from bringing a newly
improved product to market, then
Eureka actions may bring private
gain but public pain.
EUREKA!