Mike Littwin of the Denver Post writes a smart, satirical article relating to news coverage of the Financial Meltdown, the Iraq and Afghanistan Wars, and the latest Teleprompter brouhaha. He accurately points out the difficulties understanding the elements that caused the financial problems, and even more, the disagreements that are occurring in what plans will move us forward.
It’s all tough for a citizen to understand, and we count on our news media to inform. True, there have been many useful articles to that end, although I have yet to encounter any in a newspaper (hmmm…..), but, since the study of economics can consume a lifetime of research, penning these articles is hard. Reading them likewise. It all takes effort.
And so, as Littwin points out, the press devolves into a debate about President Obama’s use of the teleprompter, because it is easy and trivial. National Watchdogs? Informers of the Citizenry? Defenders of Democracy? Arrgh! No!
Good job, Mike. Focus our attention back where it matters: How are we going to clean up the financial mess? Prevent its reoccurrence? What’s our exit strategy for Afghanistan? What do we need to know and do to make it possible?
And then I scrolled down to the comments, expected to see more of what I wrote in the previous paragraph. I was (sadly) mistaken. Post after post of anti Obama, ant-government screed (and anti-Littwin thrown in for good measure.)
There is so much potential in the Internet. We can have dialogues with people we’ve never met, or those closer to home who need a little time to digest and respond to what we’ve put forth. We can add data to strengthen arguments, point out where we think data has been mis-interpreted, or even argue for a different conclusion. Through it all, we can become a smarter and better informed citizenry, better able to carry out our civic duty and advance our society to what we’d like it to become.
But, we’ve never accomplished much when we rant and yell and call each other names. Sadly, articles like Mr. Littwin’s need to be written, and re-written, and written again, as a constant reminder to focus on the important, the hard, the meaningful. The comments he received just prove how many more times it will have to be said.
Tuesday, March 31, 2009
Monday, March 30, 2009
The Seven Daughters of Eve
Thought I would step into the world of genetics, or more precisely, the world of mitochondrial genetics. I spent several enjoyable evenings reading Bryan Sykes account of his research into the DNA carried by these intracellular hitchhikers, and what it indicates about our ancestry.
Quickly, mitochondria are the little entities that exist within each cell and give the cell the ability to use oxygen to produce energy. They are passed only from mother to children, no mitochondria take a ride on the male sperm. Also, mitochondria do not undergo any kind of DNA recombination; Their strands are passed identically down to children (except for the occasional mutation.) Therefore, mitochonrial DNA represent an unbroken maternal line leading back. The rate of mutations gives us a distance, in time, when two lines separated.
One of the things that was bothering me as I read the book was his focus on the genetics of Europe and Europeans. The Seven Daughters are the Seven women, at various times in the past (from 45,000 to less than 15,000 years ago), whose strains of mitochondria are still present in Europeans today. Certainly those aren't the only strains worldwide, I kept thinking. And towards the end, Dr Sykes reveals that so far 33 strains, or clans as he dubs them, have been identified world-wide.
Through the markers in our mitochondria human migrations can be plotted, and some surprising placements come to light. That Neanderthals and early humans did not mix can be ascertained, also that the Polynesians spread from West to East (Thor Heyerdahl notwithstanding). But, even more, the full mixing of peoples throughout history; that there was not just one, but perhaps two waves of people who moved into the Americans from the Bering Straight. And, where we often define 'race' as a distinct group, the research indicates that there are substantial portions of each population that have mitochondria bearing markers more common to other populations. We are all related back to these 33 women, and our relatives have widely dispersed throughout the globe.
Professor Sykes gets high marks for making science come alive in this engaging book. I really enjoyed both his descriptions of the work to get DNA out of old bones, and his accounts of having to defend his team's initial conclusions. He takes the challenges seriously, and provides convincing research to defend his claims, which have now been widely accepted. That he turned some previously held ideas on their head and increased our understanding of the human tale makes for some pretty exciting reading.
Friday, March 27, 2009
Mr Greenspan: Hero or Villain?
Over the last year there has been considerable debate about if, and if so, to what extent Alan Greenspan is to blame for our recent economic woes. I've pretty much sat on the sidelines on this one, feeling myself unskilled to pass judgment. But no more. Reflecting on what I've learned on monetary policy (as exercised by the Federal Reserve, or just Fed), and the role money is playing in our current slowdown and attempted rescue, I've developed some insights.
During an earlier essay I developed an outline of how a sudden, and drastic, contraction of the monetary base has influenced our current downturn. A reasonable question that can be asked is: “Proceeding the contraction, was there a visible over-expansion (bubble) of the money supply that should have triggered actions by the Fed?”
It is a reasonable query, because this is how the Fed works to regulate the money supply. When inflation is low and unemployment high, the Fed reduces interest rates in the hopes that by allowing for an increase in the money supply, production will increase, which will require hiring, which will boost the economy, leading to lower unemployment, larger profits, and a positive trade balance. If the economy heats up too much, and inflation becomes present, the Federal Reserve puts on the brakes by raising interest rates. The higher rates make it more expensive to borrow, and require an anticipation of larger spreads to make it economical to do so. Thus, lending is reduced, the rate of increase of the money supply is diminished, and inflation is controlled. This is the basic monetary policy followed by the Feds.
It's not a perfect policy, as many economists will point out. Raising interest rates has the unfortunate side effect of throwing people out of work, with difficult consequences for those individuals. And lowering the interest rate in the hopes of generating growth can be akin to 'pushing on a string' in the words of one notable economist (John K. Galbraith). Consider: Business does not borrow money just because it can, but because it anticipates a reasonable return on the investment, which predicates an increase in sales. If future sales don't seem plausible, business won't borrow, regardless of the interest rate.
It also predicates that all inflation is caused by too rapid increases in the money supply. What about energy inflation: That inflation caused because of reduced availability of the energy to drive production, and the co-commitment increase in the costs of almost everything?
Nevertheless, this is the stated policy of the Federal Reserve, and Alan Greenspan its overseer for a long time. Let's look at the events of 2000-2007, and see what was happening, and answer our question about whether Mr. Greenspan should have recognized what was occurring and taken some action.
If we look at inflation figures for the time span in question, we see that inflation is low, and remained low for the entire period. We see an Average value of 3.01% for the entire period, with it ranging from 1.07% to a high of 4.69%. However, since the median is 2.79%, there are more months under the average than above. The worst period, from May through Aug 2006, is the only period to average above 4%.
Mr. Greenspan and the Federal Reserve kept interest rates low throughout this period, and based on the inflation figures, they should have. (The Federal Funds Rate stood at 5.50% on Jan 1 2000, and after a brief raising to 6%, dropped steadily during 2001-2004 to bottom at 1% in 2003, and then climbing slightly thereafter, reaching 5.25% in June 2006, and then falling during 2007.) Mr Greenspan exonerated?
I don't think so. If the Consumer Price Index were the only place we could spot an inflating money supply, then yes. However, that is not the case. There are at least three additional areas where an inflating money supply (inflation) can be spotted, and with his background, I would argue that Mr. Greenspan should have noted all three, and taken action.
The first was the growing trade imbalance, notably with China. In a sense, there really is no trade in-balance: If goods are predominately flowing one way, then money is predominately flowing in the opposite direction. To sustain an overall import / export imbalance requires the creation of enough money to cover the difference. The US-China trade deficit (from the US standpoint) stood at $83 bn in 2000 and 2001, and then increase at over 20% yearly to end up $256 bn by 2007. That is a total increase of almost 300%. Since the US economy wasn't growing at that rate, that should have been a flag. (US GDP grew from $9817 bn in 2000 to $11539bn in 2000 dollars by 2007 – an overall increase of just 17.5%, and to $13807 in real dollars, again just 40%).
The second was vastly increasing government deficit. Recall, deficit spending effectively enters money into the economy. The greater the deficit, the greater the increase in money supply. As the budget surpluses of the 1990's ended, and grew to yearly deficits approaching $400bn, something was going on.
The third indicator of inflating money supply was the rapid run up of housing prices, well above trend levels. Data compiled by Robert Shiller of Yale shows that housing increasing by over 10% per year, when historically it ran much closer to the CPI value – just 4% per annum during 1980-2000. Of course, this makes sense: The banks were making housing loans at an unprecedented rate, pushing up the rate of money increase, and driving housing prices proportionally. Additionally, housing prices historically run 3 to 1 on income. By 2004 they had risen to 4 to 1, and beyond in some markets. A clear flag something was amiss.
It becomes clear that the Federal Reserve should have been much more aggressive in raising interest rates during the time period. A rapid run up of interest rates would have possibly slowed the housing growth, perhaps even pushing the 'bad' loans into foreclosure at a faster rate, and revealed the weakness of the Collateralized Mortgage Backed Securities. Perhaps an aggressive stance vis a vis the interest rate would have unwound the unsupportable Credit Default Swaps before the companies got too far into them.
That's not all the Fed could have done. Recognizing the problem would have allowed Mr Greenspan to speak out on it – to use his pulpit as the nation's foremost economist to warn, stridently, about what was going on and the unsustainability of it all. But, he didn't do that either.
Of course, if no-one had recognized the issues, we could let Mr Greenspan off the hook. But, read this from 2004, and convince yourself that Mr Greenspan couldn't see what was going on.
So. Mr. Greenspan is the villain many say he is. All very neat and tidy.
But, there is a catch with foisting the blame on Mr. Greenspan's shoulders. Can you see what it is?
Sources:
http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
http://www.the-privateer.com/rates.html
http://www.uschina.org/statistics/tradetable.html
http://www.bea.gov/national/index.htm#gdp
http://www.econ.yale.edu/~shiller/data.htm
http://www.globalpolicy.org/socecon/crisis/tradedeficit/tables/budgetdeficit.htm
During an earlier essay I developed an outline of how a sudden, and drastic, contraction of the monetary base has influenced our current downturn. A reasonable question that can be asked is: “Proceeding the contraction, was there a visible over-expansion (bubble) of the money supply that should have triggered actions by the Fed?”
It is a reasonable query, because this is how the Fed works to regulate the money supply. When inflation is low and unemployment high, the Fed reduces interest rates in the hopes that by allowing for an increase in the money supply, production will increase, which will require hiring, which will boost the economy, leading to lower unemployment, larger profits, and a positive trade balance. If the economy heats up too much, and inflation becomes present, the Federal Reserve puts on the brakes by raising interest rates. The higher rates make it more expensive to borrow, and require an anticipation of larger spreads to make it economical to do so. Thus, lending is reduced, the rate of increase of the money supply is diminished, and inflation is controlled. This is the basic monetary policy followed by the Feds.
It's not a perfect policy, as many economists will point out. Raising interest rates has the unfortunate side effect of throwing people out of work, with difficult consequences for those individuals. And lowering the interest rate in the hopes of generating growth can be akin to 'pushing on a string' in the words of one notable economist (John K. Galbraith). Consider: Business does not borrow money just because it can, but because it anticipates a reasonable return on the investment, which predicates an increase in sales. If future sales don't seem plausible, business won't borrow, regardless of the interest rate.
It also predicates that all inflation is caused by too rapid increases in the money supply. What about energy inflation: That inflation caused because of reduced availability of the energy to drive production, and the co-commitment increase in the costs of almost everything?
Nevertheless, this is the stated policy of the Federal Reserve, and Alan Greenspan its overseer for a long time. Let's look at the events of 2000-2007, and see what was happening, and answer our question about whether Mr. Greenspan should have recognized what was occurring and taken some action.
If we look at inflation figures for the time span in question, we see that inflation is low, and remained low for the entire period. We see an Average value of 3.01% for the entire period, with it ranging from 1.07% to a high of 4.69%. However, since the median is 2.79%, there are more months under the average than above. The worst period, from May through Aug 2006, is the only period to average above 4%.
Mr. Greenspan and the Federal Reserve kept interest rates low throughout this period, and based on the inflation figures, they should have. (The Federal Funds Rate stood at 5.50% on Jan 1 2000, and after a brief raising to 6%, dropped steadily during 2001-2004 to bottom at 1% in 2003, and then climbing slightly thereafter, reaching 5.25% in June 2006, and then falling during 2007.) Mr Greenspan exonerated?
I don't think so. If the Consumer Price Index were the only place we could spot an inflating money supply, then yes. However, that is not the case. There are at least three additional areas where an inflating money supply (inflation) can be spotted, and with his background, I would argue that Mr. Greenspan should have noted all three, and taken action.
The first was the growing trade imbalance, notably with China. In a sense, there really is no trade in-balance: If goods are predominately flowing one way, then money is predominately flowing in the opposite direction. To sustain an overall import / export imbalance requires the creation of enough money to cover the difference. The US-China trade deficit (from the US standpoint) stood at $83 bn in 2000 and 2001, and then increase at over 20% yearly to end up $256 bn by 2007. That is a total increase of almost 300%. Since the US economy wasn't growing at that rate, that should have been a flag. (US GDP grew from $9817 bn in 2000 to $11539bn in 2000 dollars by 2007 – an overall increase of just 17.5%, and to $13807 in real dollars, again just 40%).
The second was vastly increasing government deficit. Recall, deficit spending effectively enters money into the economy. The greater the deficit, the greater the increase in money supply. As the budget surpluses of the 1990's ended, and grew to yearly deficits approaching $400bn, something was going on.
The third indicator of inflating money supply was the rapid run up of housing prices, well above trend levels. Data compiled by Robert Shiller of Yale shows that housing increasing by over 10% per year, when historically it ran much closer to the CPI value – just 4% per annum during 1980-2000. Of course, this makes sense: The banks were making housing loans at an unprecedented rate, pushing up the rate of money increase, and driving housing prices proportionally. Additionally, housing prices historically run 3 to 1 on income. By 2004 they had risen to 4 to 1, and beyond in some markets. A clear flag something was amiss.
It becomes clear that the Federal Reserve should have been much more aggressive in raising interest rates during the time period. A rapid run up of interest rates would have possibly slowed the housing growth, perhaps even pushing the 'bad' loans into foreclosure at a faster rate, and revealed the weakness of the Collateralized Mortgage Backed Securities. Perhaps an aggressive stance vis a vis the interest rate would have unwound the unsupportable Credit Default Swaps before the companies got too far into them.
That's not all the Fed could have done. Recognizing the problem would have allowed Mr Greenspan to speak out on it – to use his pulpit as the nation's foremost economist to warn, stridently, about what was going on and the unsustainability of it all. But, he didn't do that either.
Of course, if no-one had recognized the issues, we could let Mr Greenspan off the hook. But, read this from 2004, and convince yourself that Mr Greenspan couldn't see what was going on.
So. Mr. Greenspan is the villain many say he is. All very neat and tidy.
But, there is a catch with foisting the blame on Mr. Greenspan's shoulders. Can you see what it is?
Sources:
http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
http://www.the-privateer.com/rates.html
http://www.uschina.org/statistics/tradetable.html
http://www.bea.gov/national/index.htm#gdp
http://www.econ.yale.edu/~shiller/data.htm
http://www.globalpolicy.org/socecon/crisis/tradedeficit/tables/budgetdeficit.htm
Tuesday, March 24, 2009
Exec Pay
A woman my wife knows saw an article about our government floating plans to limit executive pay. Not just pay at failed and bailed institutions, but curbing the excesses of executive pay across the board. She was incensed, to put it mildly. Such an act could only come from a president hell-bent on taking the country down the path of Socialism, with dire consequences.
She, of course, didn’t outline what the dire outcome might be, or even how this act could lead to it. And, unfortunately, I’m not in a position to ask her. But it occurred to me that I am in a position to ask myself: Why am I not concerned about such a proposal?
I read the article. From what I can gather, the limits would basically come in the form of new regulations, (thus bypassing the legislative process), overseen by the Federal Reserve. There is a fair amount of populist anger aimed at high paid execs who don’t appear to have the country or the economy in mind while making their decisions, so many will likely applaud such a move.
Doing it this way, with the Fed regulating the execs, doesn’t seem like a good plan from a protect the public standpoint, but it is a good plan from the executive standpoint. Oh, sure, their enormous salaries (er, compensation packages) will get nipped for a while, but let’s not be naive. The Fed hasn’t taken regulation seriously before. The Federal staff is composed mostly of men and women who exited the high ranks of executive leadership; they will have no desire to really clip the wings of their peers. A few years down the road, when the population has forgotten its rage, the regulations will be quietly softened, and it will be business as usual.
So, I am concerned. Not because this will take us down some evil road, but because it just misses the mark. It’s a nice cover against the angry public, and lessens our will to legislatively pass something more meaningful and lasting.
She, of course, didn’t outline what the dire outcome might be, or even how this act could lead to it. And, unfortunately, I’m not in a position to ask her. But it occurred to me that I am in a position to ask myself: Why am I not concerned about such a proposal?
I read the article. From what I can gather, the limits would basically come in the form of new regulations, (thus bypassing the legislative process), overseen by the Federal Reserve. There is a fair amount of populist anger aimed at high paid execs who don’t appear to have the country or the economy in mind while making their decisions, so many will likely applaud such a move.
Doing it this way, with the Fed regulating the execs, doesn’t seem like a good plan from a protect the public standpoint, but it is a good plan from the executive standpoint. Oh, sure, their enormous salaries (er, compensation packages) will get nipped for a while, but let’s not be naive. The Fed hasn’t taken regulation seriously before. The Federal staff is composed mostly of men and women who exited the high ranks of executive leadership; they will have no desire to really clip the wings of their peers. A few years down the road, when the population has forgotten its rage, the regulations will be quietly softened, and it will be business as usual.
So, I am concerned. Not because this will take us down some evil road, but because it just misses the mark. It’s a nice cover against the angry public, and lessens our will to legislatively pass something more meaningful and lasting.
Sunday, March 22, 2009
Big Government
The term 'Big Government' frequently comes out of both politicians and citizen's mouths. It is usually in the pejorative, the sense that many problems will go away if only the size of the government were reduced.
The difficulty when an individual speaks out against 'Big Government' is the ambiguity: Surely they don't mean that we should reduce all government, and if they have a specific aspect in mind, why don't they address that directly? It seems to me there is a sort of dishonesty at play here. My observations are that people jump on the anti Big Government bandwagon, thinking that addresses their issue with government, when those driving the wagon have a different aspect in mind.
So, to disambiguate, it seems to me there are several aspects that must be defined and addressed. Can we identify the various aspects of government that people find too big, and develop a reasonable framework for evaluating their concerns? Also, can we quantify 'too big' in any meaningful way?
For starters, let's divide 'Too Big' into two categories: Financial and Intrusive. In speaking with people, their concerns will be sometimes that government is just too big financially: That we as a nation are sending too much of our production to the government to spend. Other people will be concerned less with the financial size, and are more concerned with how intrusive government is in our daily lives, preferring that government would take a more 'hands off' approach.
There are two main ways in which the government intrudes in our lives, one via the laws that constrain our personal behavior, the other the set of laws that constrain and regulate our economic behavior. The second fall mostly on business in the form of regulations governing fair representation of their products, hiring and firing, safety, perhaps product testing. The first, personal, set regulates how we can relate to one another, the actions we can and cannot take with respect to other individuals.
Financially, the government provides four broad areas of services. There is defense, the spending on our military and the subsequent flows of money to our defense contractors that build planes and ships and vehicles and munitions. There is the flow of money for infrastructure improvements across the nation: schools, roads and bridges, environment cleanup and preservation, water works, energy. Third we can identify the 'Social Safety Net', spending on care for the elderly, payments to widows and orphans, unemployment, programs designed with the goal of preventing or at least reducing poverty. Lastly, we identify as an area of spending government funded research. This will include non-military research, as that is usually lumped into the numbers presented on defense spending.
That's a start: We have identified six aspects of government, any of which an individual may think has grown too big: Personal Intrusion, Economic Intrusion, Defense Spending, Infrastructure Spending, Social Spending, and Research Spending.
So, the next time you hear someone advocating for the reduction in 'Big Government', pin them down to one of these six (or, if they have something else in mind, get that.) It seems to me that will provide a much more useful position in which to segue into a debate about the merits and costs of what they may be advocating. It should prove useful in clarifying their position, and it may even prove humorous: What if they don't know?
The difficulty when an individual speaks out against 'Big Government' is the ambiguity: Surely they don't mean that we should reduce all government, and if they have a specific aspect in mind, why don't they address that directly? It seems to me there is a sort of dishonesty at play here. My observations are that people jump on the anti Big Government bandwagon, thinking that addresses their issue with government, when those driving the wagon have a different aspect in mind.
So, to disambiguate, it seems to me there are several aspects that must be defined and addressed. Can we identify the various aspects of government that people find too big, and develop a reasonable framework for evaluating their concerns? Also, can we quantify 'too big' in any meaningful way?
For starters, let's divide 'Too Big' into two categories: Financial and Intrusive. In speaking with people, their concerns will be sometimes that government is just too big financially: That we as a nation are sending too much of our production to the government to spend. Other people will be concerned less with the financial size, and are more concerned with how intrusive government is in our daily lives, preferring that government would take a more 'hands off' approach.
There are two main ways in which the government intrudes in our lives, one via the laws that constrain our personal behavior, the other the set of laws that constrain and regulate our economic behavior. The second fall mostly on business in the form of regulations governing fair representation of their products, hiring and firing, safety, perhaps product testing. The first, personal, set regulates how we can relate to one another, the actions we can and cannot take with respect to other individuals.
Financially, the government provides four broad areas of services. There is defense, the spending on our military and the subsequent flows of money to our defense contractors that build planes and ships and vehicles and munitions. There is the flow of money for infrastructure improvements across the nation: schools, roads and bridges, environment cleanup and preservation, water works, energy. Third we can identify the 'Social Safety Net', spending on care for the elderly, payments to widows and orphans, unemployment, programs designed with the goal of preventing or at least reducing poverty. Lastly, we identify as an area of spending government funded research. This will include non-military research, as that is usually lumped into the numbers presented on defense spending.
That's a start: We have identified six aspects of government, any of which an individual may think has grown too big: Personal Intrusion, Economic Intrusion, Defense Spending, Infrastructure Spending, Social Spending, and Research Spending.
So, the next time you hear someone advocating for the reduction in 'Big Government', pin them down to one of these six (or, if they have something else in mind, get that.) It seems to me that will provide a much more useful position in which to segue into a debate about the merits and costs of what they may be advocating. It should prove useful in clarifying their position, and it may even prove humorous: What if they don't know?
Thursday, March 19, 2009
Money from Bernanke
I heard and read some interesting news this week and it just seemed that it needed commentary.
On Sunday's 60 Minutes, Ben Bernanke was interviewed. During the interview, there was an exchange between the interviewer and Mr. Bernanke. Responding to a question about whether the U.S. Was printing money, Mr. Bernanke answered in the affirmative, and further indicated that the Federal Reserve was attempting to increase the United States money supply.
Yesterday the news came out that the Federal Reserve was buying up U.S. Treasury Bonds – which is a very direct way for the Reserve to inject additional cash directly into circulation. The word is that it will be on the order of $350 billion. And that's on top of the money the Government is adding to the supply through deficit spending on the American Recovery and Reinvestment Act (not to mention the TARP funds to banks).
I'm very much taking a 'Wait and See' approach to this. As I pointed out during an earlier post, my understanding of economics indicates this is exactly what the Federal Reserve should be doing. And since it is economists (Mr Bernanke is a graduate of MIT and a former chair of the Princeton Economics Department) that are making this latest decision, it gives me a little hope that it is the correct thing (rather than if it were politicians, since there are usually counter motives at play.)
So, do I know this is the correct thing? No. But, I'd put my money on the people who study these things. It came out during the interview that Mr. Bernanke has studied the Great Depression in depth, and in a sense, has prepared for this sort of financial meltdown all his life. Let's hope he's drawn the right conclusions!
On Sunday's 60 Minutes, Ben Bernanke was interviewed. During the interview, there was an exchange between the interviewer and Mr. Bernanke. Responding to a question about whether the U.S. Was printing money, Mr. Bernanke answered in the affirmative, and further indicated that the Federal Reserve was attempting to increase the United States money supply.
Yesterday the news came out that the Federal Reserve was buying up U.S. Treasury Bonds – which is a very direct way for the Reserve to inject additional cash directly into circulation. The word is that it will be on the order of $350 billion. And that's on top of the money the Government is adding to the supply through deficit spending on the American Recovery and Reinvestment Act (not to mention the TARP funds to banks).
I'm very much taking a 'Wait and See' approach to this. As I pointed out during an earlier post, my understanding of economics indicates this is exactly what the Federal Reserve should be doing. And since it is economists (Mr Bernanke is a graduate of MIT and a former chair of the Princeton Economics Department) that are making this latest decision, it gives me a little hope that it is the correct thing (rather than if it were politicians, since there are usually counter motives at play.)
So, do I know this is the correct thing? No. But, I'd put my money on the people who study these things. It came out during the interview that Mr. Bernanke has studied the Great Depression in depth, and in a sense, has prepared for this sort of financial meltdown all his life. Let's hope he's drawn the right conclusions!
Tuesday, March 17, 2009
More on Success
'Talent is Overrated' is the name, and Geoff Colvin is the author of another book on the subject of success, successful people, and what makes them that way. It is similar to 'Outliers' by Malcolm Gladwell, and often draws on the same research. But, the focus is different: Where 'Outliers' looks at the randomness of success and the barriers that stand in the way of many, Colvin is more interested in uncovering the enablers of success, and giving that information to anyone willing to read. His focus is decidedly business oriented. (And, to a large degree, both writers define success more 'makes a lot of money' than 'stands out in their field'.)
Colvin uncovers the same basic requirement of success: Roughly ten years (similar to Gladwell's 10,000 hours) of 'Deliberate Practice'. Deliberate practice is not simply doing the tasks, it is focused, it gives feedback, and it is hard. Jerry Rice is invoked as someone who drove himself to intense levels of deliberate practice. Tiger Woods has his father to thank for showing him, as do the Polgar sisters (chess champions by 20). These sorts of examples are well known.
But Colvin is more interested in the sorts of occupations that more of us undertake. Business, rather than athletics or art is where more of us find ourselves. And what makes the business greats? By looking at the most successful corporations, and those who have led them, Colvin makes the argument that it is the same thing: Deliberate Practice at one's chosen profession.
It seems clear that to do well, one must be driven to confront this unpleasant practice, and pursue it for hours on end. We call people who will do so passionate, but, for most of us, the mystery is the source of the passion. One could reasonably postulate that passion is talent: The passionate may test no better on tests of intelligence of athletic skill early, but that's because we are testing the wrong component. If only we could measure passion in a child.
By far the most interesting portion of the book is when Colvin looks into this issue of passion and attempts to discern whence it arises. The results of the research pretty well refute my postulate of passion as talent. Although the successful, by the time we would call them that, have enormous amounts of intrinsic drive or passion to focus on their work for its own sake, they don't start out that way. Future musicians protest at their parent's compelling them to practice, future athletes shirk the extra practice sessions, future business leaders skip assignments and classes. Passion is not innate.
So, there is something extrinsic, or outside the individual, that contributes to the passion. Research has begun to uncover this, too: “Extrinsic motivators that reinforce intrinsic motivation” (p. 192) and “constructive, nonthreatening, and work-focused rather than person-focused” (ibid). This is in contrast to extrinsic motivation that is controlling, which in many studies has been shown to be detrimental to creativity and performance in general.
Recognize a child in a way that confirms competence, and they are more likely to seek out more. More work, more extrinsic recognition, bulding more intrinsic confidence, more practice, more recognition of competence, and the intrinsic motivation becomes stronger. Eventually, the external reminders are unnecessary, and the future Michael Jordan, knowing he gets better with practice, that he is better than most, and confident that he can improve as much as he is willing to practice is in the gym before anyone else to improve and refine his skills.
Colvin's and Gladwell's books open up worlds of possibilities, both for us individually, and for us as parents. What would we like to do well? Is the necessary time (10,000 hours) available? Can we receive the necessary coaching and training early on, and get the immediate constructive, focused feedback that will enable us to develop an internal drive? As we expose our children to activities, can we provide them with the positive external motivators that will build the passion in them, through feelings of competence? And, for them, what will be the most beneficial skills that we should help them learn to develop? We spend large amounts of time and money enabling this in sports and art, but should we consider future business oriented activities: Pursuit of math, economics, business strategy?
The only question Colvin doesn't address is what Deliberate Practice looks like for a specific profession. He shows early on in the book that many people, after entering their chosen career, actually get worse, or at least no better, both because the day-to-day demands of the job take precedence and are not conducive to professional improvement and the individual has no notion of practicing on a regular basis to get better. There is an implicit challenge in his closing pages: Individually to design our practice to improve, and to businesses to make the time and resources available to allow it. The motivation? Those businesses that have made it a priority (he cites GE and Google) routinely out innovate and outgrow their competition.
Good books, both. They uncover the fallacy of 'talent' as an explanation, reveal the difficulties predicting success, and point to ways we can use to our advantage. I must close here, as I have to go and develop a Deliberate Practice plan for my chosen profession.
Saturday, March 14, 2009
The Fire Within
I'm reading one of my son's books: The Fire Within, by Chris D'Lacey. It is a tale of David, a college student, and the people of the house in which he rents a room, Liz and her daughter, Lucy. It is also a tale of dragons and squirrels (perhaps more squirrels than dragons!)
It's pretty easy reading for me, and seems suitable for a 2nd to 5th grade student. At times I find the prose awkward: There are some very neat sentences in the book, like when at one point two people 'exchanged a little eyebrow traffic.' But, the sentences appear more like gems in a desert than as part of a connected scene. D'Lacey alternately refers to the protagonist as David and 'the tenant' – for no apparent reason other than to avoid referring to him continually as 'David'. Switching between the familiar and the unfamiliar is plain awkward when the surrounding context has not changed.
However, we read stories for more than smooth prose. We read to learn what happens to the characters. As the story-worthy events of our lives change us from who we were to who we are, we read to see how the characters will gain and lose, grow, and change as the story unfolds.
On this level, The Fire Within does much better. David is a rocks and minerals college student (geologist), and through Lucy and the squirrels she wants to save, he develops an increased appreciation for animals. This leads to his meeting a girl his age, Sophie, who works at a local animal shelter that cares for wounded wild animals. Their budding friendship continues to change his views. And, although he apparently has no difficulty typing his college reports, again, Liz, Lucy, and the dragons nudge him to type stories of his own, something he contends he cannot do. David's skills and world are expanding before our eyes.
That's not bad for any book. It certainly lifts these (a trilogy) out of mediocrity, and makes them worthy of the Scholastic label. As a bonus, my son is enjoying them immensely (I caught him reading under the covers last night with his headlamp!)
Friday, March 6, 2009
Why Is That?
Just a quick observation today:
Normally we view obeying the law as the moral thing to do. However, from conversations I've had around the office and from watching people on the road, it appears to me that we attach no morality to obeying the speed limit. We speed with impunity, and worse, I've had people advocate that if you are going slower than someone else wants to, even if you are moving at or above the speed limit, you need to move out of the way!
My question: Why Is That? Why do we attach so little weight to the speed laws, and feel so little remorse when we break them? Doesn't that make us immoral?
Normally we view obeying the law as the moral thing to do. However, from conversations I've had around the office and from watching people on the road, it appears to me that we attach no morality to obeying the speed limit. We speed with impunity, and worse, I've had people advocate that if you are going slower than someone else wants to, even if you are moving at or above the speed limit, you need to move out of the way!
My question: Why Is That? Why do we attach so little weight to the speed laws, and feel so little remorse when we break them? Doesn't that make us immoral?
Wednesday, March 4, 2009
Rat Democracy
I am doubly depressed today.
First, I was reading an essay about rational self-interest, and its implications for democracy. I'm not talking about the greedy self-interest of Ayn Rand that (she hoped) leads to altruism and a nearly perfect society, instead I'm referring to the rational theory of Samuel Popkin that more clearly shows why the 'free-rider' problem persists, indeed, why it is often in our rational self-interest to be free-riders when we can.
In his well-written essay 'Rat Democracy', Paul Krugman follows rational (or 'rat') theory to some conclusions about what it means for democracy, and why our elected officials continually support various forms of 'pork' or 'ear-marks', even though we don't think we don't want them to. To paraphrase the essay, the free-rider problem appears any time a good or service is non-exclude able. Take, for instance, the desire to have a coast guard to rescue boaters in trouble. Once the service exists, it is actually in an individual boater's self-interest to not pay if possible; to free-ride on the others. Of course, we create an entity (the government) to collect fees from all boaters, and invest in the government the coercive power to collect them even from the recalcitrant.
But it isn't always possible to collect. We live in a democracy, and ideally, everyone becomes and remains informed about the potential issues facing society, the various candidates' proposed solutions, and votes accordingly to gain the best government they can. However, if enough people are doing so, I can instead inform myself about the best ways to invest my money or improve my business, and I gain the best of both: A better government and a stronger financial position. I've become a free-rider. And, worse, it is actually in my rational self-interest to do so.
Krugman writes: “As a result, the public at large is, entirely rationally, remarkably ill-informed about politics and policy. And that leaves the field open for special interests – which means people with a large stake in small issues – to buy policies to suit them.” And there are lots of little issues, perhaps $10-$20 million a year, that aren't worth tracking by individual voters except those who benefit. A politician can make those 'pork' without real fear of retribution, indeed, those who benefit will be more likely to vote for the particular politician who made their lives better.
And rat theory does appear to explain the real world much much better than Ayn Rand: Indeed, one of Ms Rand's arguments was that it was in a business' greedy self-interest to finance colleges to have a steady supply of educated workers; However, rat theory would postulate that if other businesses do so, mine can benefit even more by not! And its even better if we can get others (non-businesses) to pick up the tab!
Dr. Krugman's conclusion is that government by the people has an uphill, perhaps impossible, battle being government for the people.
Being an ardent believer in the promise of democracy, I find that a little depressing.
First, I was reading an essay about rational self-interest, and its implications for democracy. I'm not talking about the greedy self-interest of Ayn Rand that (she hoped) leads to altruism and a nearly perfect society, instead I'm referring to the rational theory of Samuel Popkin that more clearly shows why the 'free-rider' problem persists, indeed, why it is often in our rational self-interest to be free-riders when we can.
In his well-written essay 'Rat Democracy', Paul Krugman follows rational (or 'rat') theory to some conclusions about what it means for democracy, and why our elected officials continually support various forms of 'pork' or 'ear-marks', even though we don't think we don't want them to. To paraphrase the essay, the free-rider problem appears any time a good or service is non-exclude able. Take, for instance, the desire to have a coast guard to rescue boaters in trouble. Once the service exists, it is actually in an individual boater's self-interest to not pay if possible; to free-ride on the others. Of course, we create an entity (the government) to collect fees from all boaters, and invest in the government the coercive power to collect them even from the recalcitrant.
But it isn't always possible to collect. We live in a democracy, and ideally, everyone becomes and remains informed about the potential issues facing society, the various candidates' proposed solutions, and votes accordingly to gain the best government they can. However, if enough people are doing so, I can instead inform myself about the best ways to invest my money or improve my business, and I gain the best of both: A better government and a stronger financial position. I've become a free-rider. And, worse, it is actually in my rational self-interest to do so.
Krugman writes: “As a result, the public at large is, entirely rationally, remarkably ill-informed about politics and policy. And that leaves the field open for special interests – which means people with a large stake in small issues – to buy policies to suit them.” And there are lots of little issues, perhaps $10-$20 million a year, that aren't worth tracking by individual voters except those who benefit. A politician can make those 'pork' without real fear of retribution, indeed, those who benefit will be more likely to vote for the particular politician who made their lives better.
And rat theory does appear to explain the real world much much better than Ayn Rand: Indeed, one of Ms Rand's arguments was that it was in a business' greedy self-interest to finance colleges to have a steady supply of educated workers; However, rat theory would postulate that if other businesses do so, mine can benefit even more by not! And its even better if we can get others (non-businesses) to pick up the tab!
Dr. Krugman's conclusion is that government by the people has an uphill, perhaps impossible, battle being government for the people.
Being an ardent believer in the promise of democracy, I find that a little depressing.
Weasel Words
I was shocked to hear that Rush Limbaugh is hoping for the failure of our current administration. Oh, I understand that he has weaseled out 'clarified' that to mean that he is only hoping for the failure of the policies, not the administration or the American people themselves.
Now, I normally dismiss Rush as a bombastic self-indulgent blowhard, but what worries me is that others feel what he spoke.
It is normal to think that the current policy makers are heading in the wrong direction, or to worry that their prescriptions won't solve the problems we face, or that they may solve the problems on some levels but create new ones for us to deal with down the road. Since it does appear that everything has a cost, and that cost can sometimes be difficult to estimate accurately, we can often be left wondering “What is the real cost of this policy, and how hard will it be to bear?”
And so we debate policy. We attempt to look for previous situations and previous actions and draw correlations and make our arguments and hope that if we think a policy is correlated to a good outcome that we've looked at the correct variables and not missed a hidden cost and that it will work again this time.
And we disagree.
But it seems to me that there is a gulf between thinking that the chosen policy is not the best of all advanced policies and actively hoping that the enacted policy will fail.
If the majority think that a particular policy is the best, then even if I disagree I hope it succeeds. Why would I want my fellows or our country to suffer a setback? How can any true American stand up and (loudly!) proclaim they hope for failure?
I suspect that Mr Limbaugh hopes the policies fail for the simple reason that he is afraid they will succeed. For Rush, their success is not in his self-interest.
If we apply the ideas of (rational) rat theory to Mr Limbaugh's actions, we can see exactly why he said what he said. Rush is in the 5% of America that will be asked to bear a slightly higher cost going forward to aid the country's economic recovery. The remaining 95% will likely be beneficiaries of the Obama administration's policies, and for most of us (since we're in the latter group) we hope it works as well as or better than presented. We may have our doubts, but that doesn't change our hope.
But not ol' Rush. He's an accomplished free-rider, and doesn't want it to end or even to slow. If he can convince enough others, perhaps his ride will continue, even though it will likely cost them. What does he care? Rush Limbaugh is looking out for Rush Limbaugh. Not America. Not the American People. Not even the Republican Party.
My hope is that he convinces no-one outside his 5%, but my depression stems from the fear that he will, that others, even though it won't be in their self-interest, will be captivated into thinking they should hope for failure. At least we can understand Rush's actions. It's much harder to understand those who mis-interpret their own interests, and pursue courses that benefit others but hurt themselves while thinking they are aiding their future.
If he convinces even one person to act against their rational self interest, Rush is a weasel.
But, Mr. Limbaugh's not just any weasel.
He's a Rat Weasel.
That's actually funny.
Monday, March 2, 2009
Coiling Lines
Urlik stepped out of the wheelhouse and peered curiously at the circular lines of charcoal spreading across the deck. His eyes scanned right to left until he spied Jbat hunched over, moving his right arm slowly in a circle. Urlik stepped over to his friend.
“What'cha doing?” he inquired.
“The cap'n said to coil the lines,” replied Jbat. “Tis easy if you start small, but if'n ya get one awry, tis very hard ter set it straight.” He pointed to a line of charcoal that didn't match the concentric circles of the others, but wandered off, seemingly at random.
Urlik's toe fidgeted with a length of thick rope lying on the deck. “It doen' seem aright” he observed. “I never sen it done this way on ot'er boats.”
“Maybe our cap'n knows somet'ing those ot'er cap'ns don't!” his friend stated knowingly.
The yellow of Urlik's teeth appeared between his lips as he nodded his head.
“Do ya have more charcoal?”
“What'cha doing?” he inquired.
“The cap'n said to coil the lines,” replied Jbat. “Tis easy if you start small, but if'n ya get one awry, tis very hard ter set it straight.” He pointed to a line of charcoal that didn't match the concentric circles of the others, but wandered off, seemingly at random.
Urlik's toe fidgeted with a length of thick rope lying on the deck. “It doen' seem aright” he observed. “I never sen it done this way on ot'er boats.”
“Maybe our cap'n knows somet'ing those ot'er cap'ns don't!” his friend stated knowingly.
The yellow of Urlik's teeth appeared between his lips as he nodded his head.
“Do ya have more charcoal?”
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