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!

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.

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 2^nd to 5^th 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!)

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?

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.

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.

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?”