Colin's Blog

A Comparison of Sweden and the US

2011-12-17T19:09:00.000-08:00

The other day someone pointed out that if Sweden were a U.S. state it would not rank very high on per capita GDP. This was a Facebook conversation and the tone of the post was "see you socialist left wing fanatics, even in the best case your socialist state is worse off than almost all of the U.S.". This, of course, created a small firestorm of posts, which I think was the object of the provocation. The comparison is interesting though.

There are cases where the differences in governance, national attitude and results are stark. For example, Haiti and the Dominican republic share an island, but the contrast between the two is stark. The same can be said of Costa Rica and Nicaragua. Sweden is not, of course, a socialist state. The U.S. and Sweden are both industrialized nations with relatively educated populations. The U.S. has a leg up because of its vast natural resources.

Given the general similarity of status of Sweden and the U.S. as industrialized nations, a comparison of social policy and the results for the average citizen is worthwhile. I think the differences between Sweden and the U.S. are largely a reflection of basic philosophical differences in national attitude. As a nation the U.S. attitude is: social darwinist, each man for himself, pull yourself up by your bootstraps, if you cannot make it here don't blame anyone but yourself, government always does a worse job than the private sector. I have never been to Sweden so I cannot report firsthand on conditions there. From the outside its social policy seems more: we are all in this together, each does better when all do better, we are all people and things happen so let us support each other, government programs work well at providing the basis for us to build strong lives.

The Swedish GDP for 2010 is about 458,000 (millions). With a 2011 estimated population of 9,415,300 the per capita GDP is about $48,640. This is roughly the same as North Dakota at 47,714 which ranks as the 20th highest state GDP per capita. There is some disagreement about these numbers. For example the wikipedia article on the Swedish economy gives a per capita GDP of about $37,775, which would make it closer to Michigan, the 42nd poorest state. Sweden cannot prop up its social welfare system with natural resources like North Sea oil (Norway, Britain). It must pay through basic productivity.

In the World Economic Forum (the Davos folks) Global Competitiveness Report, Sweden ranks above the US (because of the recession)

Sweden is not going bankrupt. Its overall national debt is 40% of GDP compared to 60% - 90% for the United States (depending on whose number you use). Sweden went through a real estate and financial crisis in the early 1990s and had to re-adjust its social spending to accomodate lower GDP. Sweden is now used as a model for how a nation should handle financial crises. Sweden can afford its social programs. Because it is somewhat poorer pre capita than United States, we could afford similar programs if our national philosophy allowed it. The difference is choice, not money.

Sweden ranks high in taxation about 48% of GDP (2007). In the developed world, Sweden is on the high end of taxation exceeded only by Denmark. In the U.S. taxes are about 27% of GDP (2006). The U.S. tax rate is one of the lowest in the developed world. Only Mexico, Turkey, Korea, and Japan have lower taxes as a percent of GDP.

So, which resident gets the better deal: someone living in Sweden with its not-outstanding per capita GDP and high taxes or a resident of Michigan/North Dakota.

Health care in Sweden requires patients to pay a fee per visit/prescription, but total costs to the patient is limited to about $360 per year. In comparison to the US Sweden has more doctors and nurses per capita. Life expectancy is higher, and infant mortality is lower. Over 80% of all medical costs are paid by the government (vs. 45% in the US) but the total cost spent on health care is so much lower that the US government pays more as a percentage of revenue than Sweden does. So, in Sweden everyone is guaranteed health care, the cost is lower both to the individual and the government than in the U.S.. The outcomes of health care are generally better, and citizens do not need to fear medical bankruptcy.

In education, Sweden works hard to make sure that opportunity is equalized for children. Grants from the national government take into account the economic conditions of the particular region. Poorer regions are subsidized and richer regions bear an extra cost. Rural regions are compensated for transportation costs and smaller class sizes. There are independent schools, roughly equivalent to charter schools in the U.S. Parents may have to pay a fee for preschool and childcare, but there is a ceiling to those costs which takes household income into account. Higher education is essentially free to the students. Students must pay for text books, and equipment needed for personal use. This means that students enter the workforce essentially debt free.

This contrasts with the United States which has limited pre-school support and where higher education is increasingly unaffordable. Two thirds of students leave higher education with an average debt of $23,000 dollars. We have created a generation of young adults who, instead of leaving college and becoming entrepreneurs, are forced by debt to ender the labor force as employees. In the United States, public dollars going to higher education have decreased and tuition costs have increased. The United States of America is the only OECD country where 25-34 year-olds are not better educated than 55-64 year-olds. This may be in part because other countries had more room to improve over the past 25 years.

In Sweden, taxpayers spend about 6.6% of GDP on education. In the U.S. about 5.5% of GDP is spent by the government on education.

We all know how skewed incomes are in the United States where the top 400 wealthiest people have more than the bottom 150 million.

About 80% of the Swedish workforce is unionized. As might be expected in a place where people tend to feel part of a single society and look after each other, the unions make the society more equal, but do not eliminate inequality or reward laziness. In hard times, looking after each other may mean unions accepting pay cuts to save jobs. The Swedish unemployment system looks much like the US unemployment system.

If we honestly compare industrialized societies, the US doesn't look so good. We have a national mythology that we are a nation of rugged individualists in a country that provides the opportunity for everyone with drive and determination to make whatever they want of their lives. While we do pretty well on the individualist side, shunning all non-business forms of collective action. We do less well on the opportunity side. American families are less socially mobile than families in other countries.

Much of the U.S. national catechism is simply incorrect.

People do not do best as rugged individuals working for their own benefit. We are social creatures who do best as collections of individuals working together and helping each other.

People are not naturally dishonest or working to game the system. There is a persistent, endemic problem of dishonesty, but this is the exception not the rule. Most people getting unemployment benefits, welfare, food stamps, WIC payments, social security, medicaid ... are ordinary hard-working folks just like you and me who have hit hard times. Most of them will be back on their feet in a little while, they just need some help to see them through.

Work and money are not the center of most people's lives. Most people work for money to earn enough to live, but are not particularly interested in accumulating large amounts of wealth. Everyone would love to be wealthy, but if you talk to people about what they would do once they got that big pile of cash, very few of them talk about accumulating more. Most people would simply do more of what they currently enjoy the most. We should not be educating our children to be effective workers, we should be educating them to understand themselves and the world around them.

Government can be effective. Government is comparable to other large organizations in efficiency and effectiveness. I have worked as a consultant to both government and private entities. The problems are somewhat different, but both government and private entities tend to have about the same level of bone headedness. If we look around the world, we can see examples of more effective governance. Sweden seems to be one of those places.

The United States has low taxation, both at the individual and the corporate level. The question in most of the developed world is not "how much am I taxed", but "what do I get for my tax dollars". As an example, the citizens of every country with universal health care are basically pleased with their system do not want a privatized system.

If We Aren't Careful, We May End Up Where We Are Heading.

2011-09-30T14:50:00.000-07:00

It is easy to predict man made catastrophes. Sometimes they even happen. Here are some intractable problems/trends that are likely to make the next hundred years "difficult". If we do not find some way, pretty quickly (fifty to one hundred years), to change course I think we could be fairly described as a failed species. That is, things will look much more like "Blade Runner" or "The Mote in God's Eye" than "Ecotopia".

This post assumes an unstated desired future. If your view of a desirable world differs significantly from mine, you may not find any problems here.

The good news is that we can relatively easily make things much much better. The bad news is that, as a species, we seem incapable of making good long term choices. If change occurs it will likely occur on the back of poverty, war, famine, and plague. If change does not occur, we are condemning our descendants to an impoverished, less habitable planet.

Social Trends - Concentration of Wealth

It has always been true in settled societies that wealth is concentrated. As productivity increases in industrialized societies, it takes less and less labor to make the same amount of goods. Either we constantly increase the amount of goods we desire and require (endless growth) or more and more people become "redundant" as they say in England. That is, there is no need for their labor.

In the nineteenth and twentieth centuries there was a serious countervailing social movement to redistribute wealth to make societies more equitable. Tides seemed to have turned and, particularly in the United States, the scales have tilted toward unfettered wealth and, along with it, increasing manipulation of both media and elections to serve the plutocracy.

I am not suggesting a trilateral commission type conspiracy. Instead, individuals and groups with plenty of money are doing their best to publicize their point of view and make it the basis of discourse. There has been about a century of systematic work to improve marketing. In the political arena the admonition that government should be more like business has been taken to heart in the propaganda department. Political messages use the tools of marketing (focus groups, test markets ...) to find the most immediately effective messages.

There have been some genuine innovations in the exercise of power though. For example, it is no longer necessary to buy politicians. It is much easier to find someone who already holds your point of view and work for their election. An extreme example is Caperton v. A.T. Massey Coal Co..

Sometimes there are social policies that reinforce the concentration of wealth as an unintended consequence. For example, higher education is increasing in cost and is commonly funded with loans. Forbes reports that two thirds of all students graduating from four year colleges and universities carry loans with an average debt of $23,000. This is a doubling from 1996. Instead of leaving the University with knowledge and a clean slate to start new enterprises, this generation is pretty much forced by debt to become simple employees of existing operations.

We know the end of this story. In the U.S. there is relentless propaganda campaign that insists that we have a pure meritocracy and the wealthy are the ones who feed us all. As the gap between haves and have nots continues to widen and the number of have nots increases, eventually they will simply rebel. If that happens, expect decades of chaos and class warfare with guns.

Social Trends - Fewer, Larger Entities

As technology improves it becomes possible to create larger and larger organizations. Advances in information processing have accelerated this capability.

The current tendency is writ large in the video distribution industry. When VHS tapes became the technology winner, the low entry costs for starting a video store allowed thousands or even tens of thousands of independently owned video stores to blossom. Almost as quickly there was a wave of consolidation as smaller operations were either bought or driven out of business by a regional video chains. These, in turn, were consolidated into a few national chains (Blockbuster, Showtime) which dominated the market. There are still mom and pop video stores, but after the first boom they never had appreciable impact on the market as a whole.

In many industries there are very few real players. This includes media companies where nine companies control virtually all television and Clear Channel controls 1200 radio stations. Four cell phone providers own the lion's share of the mobile phone market (280 million subscribers). There are five major oil companies. Oil companies are among the largest companies that have ever existed. Over half of all farm seed is produced by fewer than ten companies.

As a side effect, increasing institution size also works to further concentrate wealth.

We know from network theory and from study of biological systems that diverse systems which have large numbers of highly interconnected parts are more resilient and less prone to catastrophic failure than systems with fewer nodes and interconnections. When diverse systems of many nodes have some of them fail, the remainder of the system tends to work around the problem. When their are fewer, strongly connected nodes, they tend to drag each other down in the face of disaster. Note how this sounds just like the start of the 2008 financial crisis and the current Greek debt crisis.

In agriculture, the number of farms has decreased, the acreage of each farm has increased, and the vast majority of farms are a monoculture. We have centralized meat and food processing. While the system may be immediately efficient, it is also incredibly fragile and shortsighted. We impoverish the ecosystem, including the soil ecosystem. We also make our food supply dependent on a smaller variety of foods where a single virulent disease can spell disaster. Centralized processing means that millions of people can be infected or poisoned from a single point.

Despite their inherent fragility when faced with the unexpected, in the normal course of events, centralization tends to win. The only way to redress the problems is by creating an environment that rewards smallness or penalizes bigness.

Social Trends - Race to the Bottom

Globalization has allowed the entire world to become a source of labor and products. One side of this is that wealth has flowed to some desperately poor places. The other side is that it has depressed pay in many developed countries and made jobs much less secure. While money does flow toward poor areas of the world, the net effect is to lower labor costs in general. It is interesting to note that globalization involves capital and goods, not people. A factory worker in Sheboygan is competing with workers in Bangalore, but it is unlikely the factory worker can emigrate to Bangalore and take advantage of its lower cost of living.

Globalization allows producers to reduce costs. Labor is part of this, but not the whole picture. It is also possible to reduce costs by operating in locales that allow costs to be ignored or externalized. For example, it will be cheaper to produce in a country that allows wholesale pollution or deforestation because you don't have to install that expensive emission control equipment or worry about forty years down the road when the trees are all gone.

Because every locality wants the jobs, the tendency is to offer the most attractive deal possible to producers who promise jobs. Producers use this to pit localities against each other. Internationally, this rewards countries with the worst labor practices and the most lax regulations. Within the U.S., communities generally bid by offering tax breaks. The hope is that the increased wage base will make up for the breaks, but often the end result is simply to starve local government.

When the cost of production goes down, a number of things can happen. The cost of goods to the end consumer can go down. High tech items show this most clearly but it also shows up in the price of clothes at Old Navy. Second, profits for producers can increase. This has happened as well. In the current "recession" profits for U.S. manufacturers have completely recovered. Finally wages for workers can increase. In the past few decades this has not happened. Wages in the U.S. have been stagnant for almost two generations. When producers (owners) increase profits but workers do not share in the wealth, this increases the concentration of wealth.

Remarkably, public discourse on workers benefits has joined this race to the bottom. Look at the discussion over public pensions. There is a problem with pension funding. Governments have sometimes promised more than was prudent (as did GM and other major corporations). The discussion never seems to be "how can we get private retirement better", it is always "public employees are getting benefits that private employees do not, let's reduce them".

Social Trends - Rise of the Ideologues

Never underestimate the power of a simple idea or worldview even if it is completely wrong or destructive.

People will take a few general principles and assume everything can be explained by them without much regard to complicating factors. If the ideas lead to bad results, it is a failure of application, not the principle.

Among the current Ideologies that are threatening social destruction I would include (non-exhaustive list): radical violent Islam, any religion based on literal inerrancy of the bible, libertarianism, and all forms of racism.

Social Trends - Algorithms and Hubris

There is a notion in computer science called the singularity. This is the creation of smarter than human intelligence. A basic question is, will we notice it?

We already have specialized machines that perform much better than humans. Computers have bested humans in games like chess. Robots create and assemble parts much faster and more accurately than humans. In the computer gaming world, our "enemies" are dumbed down to correspond to our terribly slow human reaction time and limited ability to handle large numbers of inputs. Our planes and cars are already run by computers. Humans enter basic parameters for flight, but the plane itself makes virtually all decisions.

To increase efficiency we constantly streamline and automate business processes. The end result is an expansion in the power of algorithmic systems. In a modern corporation there are fewer and fewer levers pulled by fewer and fewer people. Take shipping as an example. A company like Fed-Ex has completely automated the routing of packages. Once your package information is entered into the system, humans do nothing but follow a machine generated instruction to pick up a box in one place and drop it at another. Airline reservations are another example. Humans do not play any role in the process. The price is determined by complex algorithms that are probably beyond the understanding of any single person. Planes are automatically booked and overbooked. Even upgrades and seat re-assignments are pretty much controlled by the algorithm. The person at the gate has almost no choices and no authority.

The system we have to create these systems is not reassuring. When a business decides to automate a process, a team of people, often outside specialists, is assembled to analyze the problem and implement a solution. When successful, the results are put into production and handed off to a separate team that is in charge of operating, maintaining, and improving the system. In theory this is a repeatable process with each group playing its specialized role. The players usually do not understand each other's roles very well. At the business level, the indicators are productivity (how many flights are booked in how much time and at how much cost) and overall profit and loss. The systems are designed to report some set of indicators so this can be tracked. The people who look at the indicators do not usually understand the underlying algorithms. The people who design and implement the system are specialists in new product creation and generally leave the scene after the process is in place. The people who maintain and improve the system generally have documentation, but they may not be aware of why particular design choices were made and the trade-offs involved.

Another way to state this is that every day we create large algorithmic systems that no single person, or even group of people, understands. As long as he systems work reasonably well or can be discarded, there is no real problem. When the systems fail or are critical but so complex they cannot be discarded, we run into trouble.

On Wall Street, most trading does not involve humans. In 2009 almost three quarters of all stock trades were automated trades based on computer algorithms. Since then this number has almost certainly increased. When you listen to commentators discuss the stock market and why it moves one way or another, it is complete nonsense. It sounds good and it always supports the commentator's overall view of the world, but it is not based in any kind of fact. On May 6, 2010 the stock market briefly crashed. It took five months to issue a report that could attempt to explain what actually happened. The basic answer is that the machines did it.

The hubris part of this trend is that there are people who think we can model and control complex systems. As an example, one of the great failures of modern economics has been the attempt to quantify risk. Do a google search for "quantification of risk economics". You will get pages of google results that are complete nonsense written by people who actually believe they are close to the holy grail of putting a number on risk. Often they create models that work well in certain circumstances - but their predictions ALWAYS fail catastrophically in the long term.

What happens when you put a couple of people with Nobel Prizes in Economics in a room with the Vice Chairman and Head of Bond Trading at Solomon Brothers. You get a well funded scheme to make money based on the finest and most capable economic models of the day. You get "Long Term Capital Management" a firm which made profits until it completely failed in 2000. The failure of a single firm, even a big one, is not particularly important. Unfortunately the firm was so highly leveraged (highly leveraged means "playing with huge sums of other peoples money") it threatened to bring down large portions of the financial system. Fixing the problem required a massive bailout supervised by the Federal Reserve. It failed because of events that they simply could not predict. That is the point. There are always events that we simply cannot predict. We do pretty well with "normal distributions", hence the reliable existence of life insurance. Unfortunately, most real world economics are not "normal".

The run-up to the 2008 collapse was a tribute to the power of simple greed, but all good cons need a convincing story. In this case, investors were reassured that the risk involved in collections of mortgages was known and quantified, and besides, we can hedge (insure) to limit losses. There was outright lying at every level of the financial transactions, but a systemic problem was that the intertwined system intended to reduce risk by spreading it, simply increased risk for everyone. Of course there were some folks who knew about the lying and worked the system to their own advantage (notably, Goldman Sachs).

Social Trends - Missing the Big Picture

Evidence based action is important to understand what works and what doesn't. When we have the evidence it seems silly to ignore it. But, it is also silly to read more into our simple experiments than is actually there.

Experimentation is difficult and expensive. This is especially true with trying to understand humans. Too often we end up understanding and exploiting a tendency. The results may be immediately satisfying but ultimately destructive.

There are many situations where short term investigation gives us a "local optimum" where people are more satisfied at this instant, but the end result is ultimately destructive to our health and well being.

The prime example of this is industrial food production. To build a more popular food product you have to understand what people want so they will buy your product. An industry with a new product must be able to produce it consistently and on a large scale. If you create a focus group or simply ask people on the street to tell you which of several food products they prefer, the winner is likely to be the the cheapest product with the highest sugar/fat/salt. As organisms that evolved in circumstances of want, we crave these things. To produce the product consistently and in large quantities you have to industrialize the production of the raw ingredients. In the case of food this is living organisms. For crops, we standardize the breeds, the methods of production, and we process the results in chemical plants to homogenize, filter, and extract. For animals, we reduce them to eating machines on a cheap controlled diet and we engineer their genetics to change what was an animal into a muscle production machine.

We get consistent products that we biologically crave, we also get obesity, diabetes, heart disease, and an odd form of malnutrition. Don't worry about the malnutrition though, because we have processed supplements to fix that.

Since the introduction of the automobile we have done exactly the same sort of short term fixes. When faced with traffic problems, typically traffic congestion, the answer is always the same. Congestion will be alleviated if we add more lanes and reduce the number of entrances into the main streets (no houses on arterials). It also helps if people stay away from the congested areas. The end result is our typical suburban city form. That is, a built environment that is reasonable if you are a car, but not very suitable for supportive human culture.

On a business level the question is usually "How can we improve our profits this quarter or this year?" It is almost never "How can we stay in this business in a sustainable way?" or "How can we make the world a better place in ten or a hundred years?" If your time horizon for profit is one or even five years and an opportunity arises to make a profit based on destruction that will not become apparent for ten or twenty years, most businesses will take the profit and screw the future, which leads to the next section.

Environmental Trends - Destruction of the Natural World

It is clear that as a species we are quite willing to destroy everything around us for short term survival or short term gain. We are willing to completely destroy the natural environment. Take as examples mountaintop removal for coal, deforestation and overfishing.

On top of this, there are unintended results of our actions. The prime example is global warming. General habitat destruction as we exploit more and more of the world is a severe problem.

Environmental Trends - Unsustainable Human Population

We have already passed a tipping point in human population. We have more people than the planet can sustainably support. Like a profligate child with a large inheritance, we can live for some time by depleting our inheritance, but in the end we will be broke. In this case of humanity, our inheritance is the natural world and all its riches which we are rapidly despoiling.

It is not clear what the carrying capacity of our planet is, particularly since this is partially related to the technology at hand. It is clear that we have exceeded the current capacity. As the human population continues to increase we will see even more rapid environmental degradation as well as more frequent human disasters (crop collapse, famine, social unrest, war for resources...).

In industrial countries population has stabilized or even decreased. This gives some hope that we can control our own numbers. For the world as a whole I think it is likely that we will simply exhaust natural resources. This will cause a very painful decline in human population based on misery.

As a contrast, think what the world would be like with our current technology if we had a third of our current population. We could live in a world of human plenty with a massively improved environment. We have passed the point in human society where increasing human labor is the best way to improve the human condition.

Economics - What is it Good For

2010-11-30T08:24:00.000-08:00

I think of economics as the study of money and how it travels. I had a written conversation with one of my brothers and he explained that economists do not think of economics this way. They think of economics as the study of human choice and allocation of resources. For example, my brother wrote:

What are these non-economic spheres of which you speak? Give me a couple of examples and I'll understand better. To me, the economy IS society. It's people using their resources to exchange with other people. Taking the time to respond to you is a choice in the use of my resources. I could have been riding my bike. Economics studies how we make these choices. It's as abstract as Galois theory and, IMHO, way more fun.

This is a very grand ambition, a unified theory of human choice. If this could be accomplished it would stand among the greatest human achievements.

When I speak of non-economic spheres, like religious or scholarly pursuits, there is an obvious mismatch with the economists view. If economics is about choice and resource allocation, there are no non-economic spheres. Cloistered nuns make the choice to spend their resources in meditation and prayer and scholars choose to spend their resources on acquiring and disseminating knowledge.

I took a negotiation class. The first exercise was to act out a scenario about buying/selling a car. Everyone in the class had exactly the same information about buyer, seller, and car. We paired off into buyers and sellers and negotiated. Perhaps because it was an exercise, no one walked away from the deal. At the end of the exercise each pair was satisfied with their transaction. The range of prices was huge. Some people bought a classic car that was likely to appreciate in value. Some people bought a source of spare parts, most of which would turn out to be useless. Each person brought their own sense of value to the table and negotiated the transaction based on that value.

This is the strength of the free market. Both buyers and sellers get to say what an item is worth and either complete a transaction or walk away. Each person assigns value and chooses how to allocate resources.

This is a basic notion of economics. To make it a science we have to be able to generalize, theorize, and test those theories. That "sense of value" is called a utility function. The utility function represents the value that a buyer or seller assigns to a resource at any given point in time. We can also speak about utility functions for large numbers of people. What is, for example, a fair price for an iPad where there are hundreds of millions of potential buyers. Can we establish that the collective utility function is such that 10 million buyers will pay $500 dollars but only 8 million will pay $600.

Here are a some facts about utility functions, both individual and collective.

They vary over time. A rotary telephone is worth much less today than it was 75 years ago.

They are discontinuous. When lcd televisions reached a certain price/quality point, CRT televisions suddenly lost almost all of their monetary value.

They are chaotic in the mathematical sense. That is, utility functions that are initially very close may, over time, diverge to be arbitrarily far apart. Two men may agree on the worth of a new Mercedes. One of them has a baby and suddenly the Mercedes is worth no more to that man than a Honda Civic.

These qualities are common in nature but are, so far, mathematically intractable. Economists generally work with simplified models assuming that utility functions are, at least locally, continuous and non-chaotic. That is, to make the mathematics simpler they ignore the basic complexity.

All scientists make simplifying assumptions in their models. The difference between economists and scientists becomes clear when the models fail. Scientists blame their models and re-examine their assumptions. Economists blame the world and try to persuade people that they should behave more like the model.

The brightest and most analytically rigorous economists have an impressive track record of failure in their predictions. Given this legacy, what does contemporary economics have to say that helps us with our lives? Is this a reasonable tool to use when looking at the world, or is it simply a case of "when you have a hammer everything looks like a nail".

Transactions are all about value, and value is mostly ontological. That is, what are we negotiating about? Is this a classic car or a bucket of bolts? To a philanthropist value might lie in the name of a building "The Jones Center for Advanced Learning". The question is not one of discovering the utility function, but of creating a story about the world. The utility function follows from the story. In creating the story, the tools of psychology are much more important than economics. This is marketing. I have almost never seen a marketer do an economic analysis. They create the story, the shape of the world, to make the object as desirable as possible to potential customers. It is the story that determines the utility function.

Unrealistic utility functions are not the only simplification made in economics. There are also the patently absurd notions that humans are rational actors (even in the limited economic sense) and that all parties have the same information about transactions.

While this discussion has mainly focused on microeconomics, macroeconomics has been equally unsuccessful in prediction and in guiding policy. Countries that defy conventional economic wisdom often end up better off than those that follow it. To see this, look at the history of the IMF and the results of following or disobeying its advice.

Given that the basic premises used in economics are faulty and that realistic mathematics are intractable, what is the use of current economic theory? Ben Bernanke explains:

Economic models are useful only in the context for which they are designed ... standard models were designed for these non-crisis periods, and they have proven quite useful in that context.

That is, economic theories and models are great except for the fact that they fail catastrophically from time to time.

Perhaps formal economics has failed us because the economists have not developed the analytical tools necessary for realistic models. Despite this, economic notions could provide us a particularly useful way of looking at the world or determining how we should behave.

I am not an economist and have not deeply studied the field. As a result my views are probably distorted. I see the field as an educated lay person.

I find viewing human relations in terms of self interested agents, resource allocation, and transactions to be largely bankrupt. It is true that we often work for our own gain, have limited resources and engage in many transactions. For most of us, these issues are not central to how we live our lives. Moreover, the notion that we are individualistic self interested agents has infected US society leading to a "greed is good" mentality. This flies in the face of what we know about our success as a species, which is dependent on cooperation and sacrificing self interest for family, friends, neighbors and nations.

Here is the bottom line. Economics as it is currently formulated has failed us in prediction, guidance and in world view. Economic models are only useful in the simplest situations. In world view, contemporary economics leads to greater inequality, poorer health and welfare for society as a whole, divisiveness between individuals and groups, and the mistaken belief that government cannot solve problems. All in all, an impressive record of complete failure.

Fairness and US Federal Tax

2010-11-18T09:52:00.000-08:00

I keep seeing articles about "fairness" of the federal tax system. In particular, that the wealthiest americans fund most of the government. For example, the Wall Street Journal "As it happens, the top fifth of earners currently pay 67% of all federal taxes". On the face of it, it doesn't seem fair that twenty percent of the population should pay two thirds of federal taxes. To make this even worse, depending on how you work the accounting, somewhere between ten and forty seven percent of households pay no Federal taxes at all.

This blog entry was triggered by an opinion piece written by Glenn Hubbard, a chairman of the Council of Economic Advisers under President George W. Bush. "Left, Right and Wrong on Taxes". In that piece Mr. Hubbard says

When I left my job as the deputy assistant Treasury secretary for tax policy in 1993, I left a message on my office blackboard for my successor. I wrote, “Broaden the base, lower the rates” repeatedly until I filled the entire space. I then had it covered with wax so it could not be erased. (Yes, the government charged me for my bit of vandalism. But it was worth it.)

I think all of this is nonsense. It seems to be based on the simplest possible notion of "fair" and a deep misunderstanding of wealth, taxes, and spending.

Anything to do with taxes and finance is complicated, but this note is not. I am using a very broad brush, but in data I use the numbers that argue against my point of view. For example, I use federal spending numbers from 2000 when the government spent much less than it does now. The income figures come from 2005, which gives households a higher income than in 2000. I did this because it is hard to get a consistent data set but I wanted to make sure I could not be accused of cherry picking data.

The gist of my argument is that the wealthiest must pay most of the burden because, frankly, they are the only ones that have any money. The federal government goes after them because they cannot get the money anywhere else without having people starving in the streets.

In 2000 the federal government spent about 1,789 billion (about 1.8 trillion) dollars. See: Government Spending Details, Federal Spending by the Numbers 2010, Table 1.1 — Summary of Receipts, Outlays, and Surpluses or Deficits: 1789–2009 . In 2005 there were about 110 million households . Dividing federal spending by households gives an "average" federal tax burden matching taxes to spending. In billions, this is: 1,789/.11 or $17,890/household

In 2005, twenty percent of all households had an income less than $18,500. That means for one out of five people to pay their "fair share" we would have to confiscate all their money leaving them nothing for food, shelter, heat, water... Looking at income breakdowns, the poor are disproportionately young and have less education. This group has more households headed by single women. My own experience and the fact that they tend to by younger indicates there are often children in the households. Children have no say in when or to whom they are born.

My earlier post discusses how, in virtually all societies, wealth is concentrated in the hands of a few. If you compare the wealth curve to the tax curve. you will find general agreement. Compare "But by 2005, the top 10 percent accounted for nearly 55 percent of all federal tax revenues, while the rest of the population paid about 45 percent." with the fact that the top ten percent has about 71% of the wealth.

The federal government taxes the rich for the same reasons Willie Sutton robbed banks. That is where the money is. If you look at capability to pay taxes (percent of wealth vs. percent of tax burden), the top ten percent are getting off easy. In terms of power politics, that makes sense. The wealthiest have the greatest ability to influence government policy and public opinion. As Warren Buffet famously said, "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning."

We have income redistribution in the United States, as does every industrialized country in the world. We do this because the alternative is having malnourished children and a huge homeless population.

It would be impossible to argue in favor of the current federal tax system with its arcane rules and special deductions. Eliminating many of the current deductions would allow stated tax rates to go down and would make the stated rates closer to the actual rates. But calls to “Broaden the base, lower the rates” are another salvo in the class warfare already going on. If we look at Mr. Hubbard's specific proposals we can see where he stands.

Broaden the base lower the rates.: Reduce taxes for the wealthiest americans (softened by removing deductions).
Cut corporate taxes.: Increase income mostly for the wealthiest americans. The evidence that this spurs economic growth is sketchy at best.
Shift from income tax to a consumption tax.: This disproportionately affects those who must spend all their income.

The United States is the wealthiest nation that has ever existed. Even with our debt crisis we can afford to support those among us who are the poorest and most vulnerable, but it will require taking some wealth from those who have the most.

Election Related Blog Posts

2010-10-13T18:15:00.000-07:00

Election season is on us again, so I thought I would collect some blog posts from the last election because I think they are still valid.

This election cycle is even worse than usual because of the amount of untraceable money. As I note in Following Politics Too Closely Makes You Stupid, nothing can be learned from a thirty second ad. Unfortunately, there are so many of them they are impossible to ignore.

If you have a small amount of energy to devote to politics, I recommend keeping a pencil and paper and jotting down the name of organizations sponsoring ads (Citizens for All Things Good). Look for the organization on the internet. If it does not list where the money comes from, that should be a black mark against the candidate. Whoever is sponsoring the ad is spending a lot of money to get the candidate elected (or to defeat the opponent). The sponsors will want something in return, but they don't want you to know who they are.

Following Politics Too Closely Makes You Stupid

It is Your Civic Duty - Lie to Political Pollsters

Machine Politics

A little off topic, but related to many of the current election discussions is
Why Does Government Interfere With Markets?

Wealth Distribution and The Work Week

2010-09-20T17:43:00.000-07:00

In this post I have quite a few links. They vary in political slant and probably somewhat in numerical values, but the overall picture is largely consistent. Often I reference an article rather than the base data because I found the article itself interesting. Sometimes the general articles contain other useful links.

I read a quote a while ago - but cannot find it now. It went something like "Every successful person says they got that way by dint of hard work, intelligence and perseverance. I never met an unsuccessful person who did not blame circumstance and bad luck."

I can interpret this statement in at least three ways, all of which have some truth. One is that successful people work hard and meet adversity with intelligence and persistence while unsuccessful people blame the world around them. A second interpretation is that successful people are likely to pat themselves on the back and attribute to themselves results that may have come from simple luck. A third interpretation is that both sides are correct. Hard work, intelligence and perseverance may be necessary precursors of self earned success. While these traits may be necessary, they are not sufficient. Many people are defeated by events beyond their control.

In my last blog post I requested a 1950 lifestyle in exchange for a work week that corresponds to current productivity compared to 1950 (11 hours per week). With steady increases in productivity it is a reasonable to question why life is as hard as it is and why the work week has not gotten any shorter, and may have gotten longer. I saw an analysis (unfortunately not very good) of hunter-gatherers that estimated they spent about 40 hours a week on survival. That means that in the past 4000 years we have we made no progress on shortening the labor needed to survive. Admittedly "survival" now is much different than 4000 years ago. Life is much more comfortable, longer and, for most of us, less brutish. Still... something seems wrong.

About a century ago an economist named Wilfried Pareto noticed than many phenomena including income and wealth follow what is now called a Pareto Distribution. This is often known as the 80/20 rule and says that 20% of the population have 80% of the wealth/income... The distribution is self similar in that if you take the top 20% it will follow the same distribution. That is, 20% of the most wealthy people will have 80% of the wealth in the wealthy group.

The distribution of wealth is not exactly a Pareto Distribution but it is close, particularly at the high end of the income/wealth scales. This is true in many societies around the globe including medieval Hungary.

When something is this widespread it argues for a common mechanism. This mechanism could be the distribution of brains/work ethic/persistence or it could be something having to do with the nature of economic systems. In 2002 the Harvard Business Review published an article "Wealth Happens" . Simulations based on a few assumptions about money flow show a Pareto Distribution occurring strictly by chance. That is, a few chance events may cause one person to become wealthy while another becomes poor. In their simulations, the basic feedback mechanism was investment. If you gained enough wealth to start investing in things that provided more wealth, you headed up the wealth chain. Wealth is compounding, so the more you have the more you get.

The numbers 80%/20% are really just an example. Different societies have different percentages. Most people underestimate how skewed wealth is and overestimate social mobility (moving from poor to rich or vice versa).

Net worth is the value of everything you own minus all debt. In 2007 the median net worth of a family was $120,000. If this were a stack of $100 bills, it would be a little less than six inches tall. The 400th richest American in 2007 was Kenny Troutt of Excel Communications with a net worth of 1.3 billion. That would be a stack of $100 bills just over a mile tall. Bill Gates topped the world list that year at 59 billion, a stack of $100 bills about 45.5 miles tall.

It is worth a moment to talk about "mean" and "median". In the last paragraph I said the median net worth in 2007 was $120,000. The median is the middle number. That is, if you have 11 different numbers then 5 numbers will be less than the median and 5 numbers will be greater than the median. The "mean" is the average you get by adding up all the numbers and dividing by the total. For the numbers (1,2,3,4, 10000) the median is 3. There are two numbers (1, 2) that are less than the median and two numbers (4, 100000) that are greater than the median. The mean of these numbers is 2002 = (1 + 2 + 3 + 4 + 10000)/5. The difference between the median and the mean is an indication of how skewed a distribution is.

In the case of US family net worth in 2007, the median was $120,000. The mean was $556,380. The Pareto Distribution is quite skewed. If we confiscated all wealth and redistributed it evenly among all families, every family in the US would be around the current 80th percentile of net worth. That is, every single family would be better off than about 80% of the families today.

Before you start the revolution remember the Harvard Business Review article. It indicates that inequality would quickly reassert itself and we would be in the same position as today in relatively short order. Many people would lose almost all their money and a few people would become fabulously wealthy.

Over the past 20 years the US has become less equal in terms of wealth distribution, but the absolute wealth of each class may have increased. That is, the economic pie has gotten bigger so that even though the very wealthy have increased their percentage of the pie, the rest of us still got a little more pie than we used to.

In social mobility there is a general trend for poor families to improve their lot over several generations. In the US it takes about four generations to move from 20% of the average income to about 90% of the average income. There is more social mobility in much of the developed world than in the United States. That is, families pull themselves out of poverty significantly faster in France, Canada, and Denmark than they do in the US.

On a macroeconomic level, measurements indicate productivity and wages are somewhat linked. At and industry level, this correlation does not hold. This can be seen in agriculture. Agricultural production has increased many fold over the past century and a half, but farm wages remain among the lowest of any industry.

I have said that Pareto Distributions of wealth and income probably have some basic underlying cause. That means we will always have a lot of relatively poor people and a very very few fabulously wealthy. However the percentages can and do vary from society to society. I believe that much of the difference is a result of government policy. In a Kleptocracy, 95% of the wealth may be owned by 5% of the population. Social welfare states (most of Western Europe) tend to have less wealth inequality than we have in the US.

The difference between median and mean income in the United States indicates there is plenty of room for increasing the general welfare of people and, at the same time, shortening the work week. The average American worker works 500 hours per year more than the average German worker, yet German quality of life and social security is at least as high. The difference is social policy.

The Pareto Distribution ensures that there will always be a pool of less well off people who may be willing to work more hours or for less pay. Decisions on the length of the work week are political and are based in part on how the populace feels about wealth redistribution. In US politics this topic cannot be discussed rationally. Because structural changes to the economy are likely to further concentrate wealth (possible topic of another blog post) and lack of rational discussion, you can expect to be working even longer hours in the near future.

Productivity and Lifestyle - Are We Being Shafted?

2010-09-16T12:24:00.000-07:00

If we are to believe productivity statistics it should take 11 hours of work per week to have an output that is equivalent to a 40 hour work week in 1950. It should take 23 hours per week to equal 40 hours in 1975. http://groups.csail.mit.edu/mac/users/rauch/worktime/

I am writing this in my house, built in 1956. In front of the house is our single car, a ten year old Honda. Something seems wrong either with the statistics or with my life. Currently I am starting a new business, so I expect to be working a lot without much (any) monetary gain. That said, I have worked at least 40 hours per week for decades and I have never been four times as well off as the equivalent worker in 1950.

There are explanations (aside from the obvious one that I have been shafted for my entire adult life). Mostly these revolve around the difficulty of comparing time periods. On the measurement side, we have shifted from a manufacturing to a service economy. How do you compare my productivity as a software engineer (a white collar position that did not exist in 1950) with that of a mid level manager at a blender manufacturer in 1950. Within an industry we can more easily measure productivity gains, but as one industry becomes more productive, workers are laid off and shift to new industries.

On the consumption side, the goods and services we use have changed drastically. Instead of an expensive, crummy, black and white TV, I have a a big screen high definition TV that I can use to stream movies off the internet. Instead of a single phone line with expensive long distance, we have multiple cell phones and the internet. My 10 year old car is undoubtedly more efficient, comfortable and reliable than a brand new car in 1950. We have several computers in the house all of which are wirelessly connected to the internet.

Despite these difficulties, I personally believe the "we are all being shafted" theory. Honestly, my life is not that much different from life in the 1950's or the 1970s. My house was built in 1956 and has no air conditioning. The heater has changed several times, but is still a natural gas burning central system. My car, while of higher quality, is still just a car. I do not own that many appliances. Those that I do own are of higher quality and probably more reliable than anything available a couple decades ago, but their basic design and operation is essentially the same.

On the working side, I have always worked at a full time job, but these days most households have every adult member working outside the home for wages. In 1950 a primary white collar wage earner would have supported a household on 40 hours a week. Now we need two wage earners working close to 80 hours for my household. On top of that, many of the tasks that used to be someone else's job are now mine. For example, in the grocery store I used to wheel my cart up to a check out lane and someone would ring up my purchases. Now I have to ring it up myself. A business traveler in the 1950s or even the 1970s would have a travel agency - either external or internal - book travel. Now even highly paid executives book their own travel. White collar workers in 1950 or 1970 had secretaries for clerical work, now we do it all ourselves.

I would trade my current lifestyle for a 1950 lifestyle working 11 hours per week. It is true that I enjoy modern conveniences, so I am willing to double my work week to get some of that (computers and the internet). That brings me up to 22 hours per week. Heck, I'll throw in a couple hours for free and make it an even 24 hours of work a week - but that is my final offer.

Don't even get me started on the flying car that all visions of the future thought we would have by now.

Human Social Groups

2010-05-01T10:17:00.000-07:00

Humans are social animals. We band together into family, social, and work groups. Our money societies allow us to see how dependent we are on these social groups. In most societies, roughly half the people earn the money to support everyone. The other half are either engaged in non-money activities, like taking care of children or the infirm, or they are children or infirm. If you are lucky, you will spend roughly a quarter of your life in the care of others. This includes your time as a child and time when age, illness or disability makes it difficult to earn. If you are unlucky, you may spend all of your life dependent on others.

While we have cities containing tens of millions of people, each individual has a much smaller social set. The average person probably has between one and two hundred people with whom they regularly interact. Humans have hierarchies of social identification and protection. Siblings will abuse each other within a family but band together to defend against people outside the family. People complain about intrusions of federal government in local affairs, but join a national army to defend the country. These nested social groups provide us with protection and purpose. We tend to be loyal to those with whom we identify. We will forgive and protect them, even when they do things we would condemn if done by outsiders.

The identification with social groups and antipathy toward outsiders seems to be a base human trait. I know of no social group without some degree of this. The positive part of this tendency is the ability to come together to work toward a common goal. On the negative side, the separation between us and them allows “us” to treat "them" without any consideration other than our own aim.

Separation of "us" from "them" is often justified because “they” are different from “us”. Biologically, this is hogwash. Each of us has parents and there are familial traits. Some of us are blonde and some have black hair. Some groups of people have lived with enough isolation to show adaptation to their surroundings. For example, groups living farther from the equator tend to have lighter skin. These differences are marked enough so that pathologists can identify human groups from these physical traits. That said, humans are also nomadic and relatively recent. This underlies a remarkable degree of genetic homogeneity. I liken the differences between humans to the differences between brown spotted and black spotted Dalmatian dogs. As a species, we have so little genetic diversity that some scientists postulate that the species was reduced to a very small number of individuals in the not so distant past.

Because there are physical differences between human groups, it is interesting to ask if there might be analogs in other areas. For example, some groups of humans might be more or less capable of mathematical reasoning or eye/hand coordination. I think this is unlikely. Variants like skin color give an advantage in a particular region. Mental and social advantages have no such geographic constraints. People with the advantage will quickly spread the genetics outside their own group. Only extreme geographic isolation could keep advantageous adaptations out of the general gene pool. Human history is filled with tales of travel, conquest, and stranger's babies. Unjustified claims of essential differences between groups of people have been used to justify genocide. To counter this tendency, the standard of proof for assertions of fundamental differences between groups must be extremely high. I know of no evidence that there are physical differences between human groups that elevate the fundamental capabilities of any group. This is especially clear when we look at genius. Genius is characterized by some capability, which is far greater than normal. Think Leonardo da Vinci, Mahatma Gandhi, or Michael Jordan. Genius springs up around the world and cannot be characterized by family, "race" or any other factor I know of. There are musical families, but to paraphrase Aaron Copeland "There was nothing to indicate that Leonard’s parents would produce a Bernstein."

Our upbringing affects who we are, not just emotionally, but physically. There is evidence, for example, that people brought up speaking a tonal language tend to respond differently to sound than those brought up speaking non-tonal languages. In those cultures, a higher percentage of people perceive absolute pitch. Our bodies change based on our environment, but are especially malleable before adulthood. There are some abilities, like language acquisition, that fall off as we grow older.

Humans are genetically pretty homogeneous, but in values, and hence behavior, we vary greatly. Because we learn behavior from each other, values and behavior tend to be cultural. The biggest influence is family followed peer groups and finally the culture as a whole. Some societies are monogamous, some have men with multiple wives and some have women with multiple husbands. In some societies butchers are respected and prosperous. In others they are outcasts. Food taboos are so strong that it is difficult to imagine violating them. Culturally forbidden foods include fish, insects, dogs, and pigs.

Humans like to be comfortable, both mentally and physically. Most of us are comfortable with our beliefs and day-to-day actions. Marked differences make us uncomfortable, so we avoid them. When we have a choice most of us only associate with people who share much of our own outlook and behavior. This tendency divides humanity into separate groups. In every U.S. high school there are the artists and the jocks. They may share classes, but they don't share much else. As adults, when the differences are solely those of belief, we sweep them under the carpet with admonitions about not discussing religion or politics at parties. When apparent differences are physical, the separation becomes stronger. Sometimes physical difference is innate, like skin color. Other times it is cultural, like dreadlocks, ear locks, or tattoos. We use these physically identifiable differences to announce the groups to which we belong. In a group of strangers it is always comforting and sometimes essential to find allies whose actions can be anticipated and whose help will be forthcoming.

In contemporary US society we have confused and conflated notions and enshrined two false concepts. The multifaceted nature of our current groupings is often reduced to false notions of race and ethnic group. Both of these are dependent on ancestry.

Our genetic homogeneity makes the notion of race pretty much absurd. The notion of ethnicity identifies groups of people based on cultural ancestry. This seems more reasonable because humans group first into families and families are a fundamental driver of values and behavior. In the US though, this has become hashed up as well. The cultural value of individualism and laws preventing discrimination based on obvious physical and cultural traits have caused some re-mixing of groups. This shift can be seen most clearly in people whose families have been in the US for several generations. Some of my great-grandparents were ethnically Irish-American. They were strongly Catholic and associated with others of Irish descent. They knew the history of their homeland and had views about their place in it. I am several generations removed from that. In totality, my ancestors came from a number of places. I do not identify with any of those places as a homeland and my customs and habits are only dimly related to that background. My ethnic group is "Middle Class Suburban". Social pressures have isolated some groups more than others in the US. This makes "African American" or "Hispanic" seem more reasonable as ethnic groups. However, there are a great many people classed in these groups who are culturally much closer to "Middle Class Suburban" than to the stereotypical "African American" or "Hispanic” ethnic groups.

It is demonstrably true that humans band together into trust groups. Innate traits like skin color or epicanthal folds are easy markers. As a regrettable consequence, each of us tends to exclude those with innate differences as not part of our group. This is natural, but not inevitable. For example, imagine a room with two black and two white men. If one white man and one black man both have gang tattoos and one black man and one white man are both wearing expensive business suits, they will initially pair up based on clothing rather than skin color.

None of us belong exclusively to a single group and all of us are capable of forming strong associations with almost anyone. Put a group of musicians from around the world in a single room and in short order they will be forming new associations based on their shared passion for sound.

Even in groups with strong cultural mores, there will be rogues. Every society has outcasts and criminals. Some people, gangs, clans, and governments are dangerous to outsiders. That is one of the reasons that we look for cultural allies. They may help protect us from the dangerous humans. But the tendency to bond in groups is more than a need for protection. We also have a need for acceptance by others in our group. The combination of fear and the need for acceptance and protection is very powerful. A social group can manipulate individual humans to do literally anything. They will rape, torture, and murder neighbors with whom they have lived peacefully for years. They will kill themselves and their own children. That is, the very groups we rely on for protection from the dangerous humans can also transform us into those dangerous humans.

Everyone thinks they have things they will do and things they will not do. However, the power of circumstance and persuasion move these lines. Totalitarian regimes recognize this so they create programs to make everyone complicit. Right now you would not think of killing the Jew/Black/Korean/Armenian shopkeeper on the corner, but in light of the past actions of people like him, would you be willing to keep an eye on him and report suspicious activity? Would you if there were a payment? One thing leads to another. Lines are drawn between us and them. They are clearly threatening. You are one of us. You have shown it by your actions – even accepting favors or money. But your status is provisional and must be earned by showing your commitment to us. You must show your commitment to us by acting more strongly against them.

Do we always want more

2010-04-02T09:14:00.001-07:00

This was part of a facebook conversation that I thought might have more general interest. I apologize for the lack of context. There were two strands going, one on the effectiveness of economic theory. The second, and I think more interesting, topic I paraphrase as "are humans hardwired to want more and to equate more with better".

------

I have no problem with the base notions that economists have come up with. They are extremely valuable. Supply/demand and the notion of marginal utility seem to explain some basic facts about humans as economic animals. The elaboration of those concepts into mathematics with the attendant simplifications is also fine by me, as long as the basic shortcomings are acknowledged. Unfortunately, certain brands of economists (pure free market capitalists) have hijacked the political discussion by making their value judgements into articles of political faith, partly on the basis of "science and mathematics".

On the basic question of more equals better in the human animal, I think the jury is out. Even if we accept more is better, what we want more of is quite malleable.

It is quite clear that virtually all human groupings larger than tribes establish social hierarchies and that social status is announced by appearance and behavior. It is also clear that in many groups, displays of wealth are associated with high social status. Wealth is often associated with a surplus of labor. In the middle ages, kings might have torch holders at a feast. This was not because the wall sconce was not invented. On the Yap islands, large carved stone discs served served as currency. The value of a stone was largely associated with the difficulty of acquiring it.

Social status is not always associated with material goods though. In academic circles status comes with papers, citations, and awards. In religious communities it can come with piety, prayer and even asceticism. These are cases where the hierarchy is disconnected from wealth. Hereditary social status is often associated with wealth, but the existence of sumptuary laws shows us that higher social classes (typically hereditary) may try to eliminate the advantage of wealth to maintain their own status.

Within the larger social hierarchy, both religious and academic social status often exist side by side with wealth or hereditary social status. That indicates that while social status is important, it need not be wealth based.

Even if we accept displays of wealth as indicators of status, what we spend our money on is almost completely arbitrary. Take fashion. The codpiece shows us that people can make anything fashionable.

To Michael's point on advertising. There are two ways that advertising can be effective. One is to channel existing notions of desirability into a particular product. For example, when I want a drink, advertising can influence my decision to get a Coke instead of a Pepsi or water. Thirst is the need, and advertising changes the choice, not the need.

The second way advertising can be effective is to create a new sense of need. That is, it changes the utility function rather than just directing it. The current market for diamonds in jewelry is an existence proof that this is possible. This should be a textbook case in marketing. Diamonds are sparkly and pretty. They have been used in jewelry for several thousand years. Through advertising, the De Beers company manufactured the diamond as the standard engagement ring. They controlled supplies and were able to create an artificial scarcity. This both increased the price and fed into the notion of giving a valuable engagement ring as a symbol. Now that synthetic diamonds are increasing in size and quality, they have added "natural" to the marketing. You must give a "natural" stone even though an electron microscope may be required to decide whether a given stone is natural.

Research shows that when you take a school class, the specifics of the subject are quickly forgotten. What is remembered are the basic concepts, the shape of the world. Advertisements are the same way. This is what allows Coke ads to be effective without mentioning any attributes of the product. What comes through, the shape of the world, is that Coke is part of good times with friends and family.

For commerce as a whole, the basic shape of the world is that things make the world better (which is often quite true) and that having the latest, most full featured, most stylish thing is fulfilling (which is often not true).

I personally believe that there has been a concerted commercial effort in the United States to base almost all social status on wealth and the conspicuous consumption of goods, many of which are designed either by manufacture or fashion to become obsolete quickly. I am not suggesting that this is a conspiracy, just that it makes economic sense for every business to increase the desirability of its products. In a world of mass media, non-economic spheres have less effective incentives and means.

Quitting my Job

2010-02-28T13:38:00.000-08:00

At the beginning of January I quit my job, leaving corporate America. My employer was surprised but I had been working on my escape for quite some time. I had been saving money and acquiring equipment for my next adventure, a coffee house.

A major complaint I had about my employer was a shift to completely bottom line thinking. I decided that my leaving the company should be on the same terms. I submitted my resignation at an inconvenient time for the company with an offer to continue working for some period of time for, effectively, more money. They refused and I left. I won't be requesting a recommendation.

It has now been a couple of months and the results are mixed. In some ways my life has improved. I have been spending more time at the gym. Over the past three or four years my fitness level has plummeted and my weight spiked. Since I quit both my weight and resting heart rate have slowly decreased. I have also moved more toward what I consider my genuine self. I have volunteered time to a local food co-op and even marched in the Martin Luther King day parade.

On the other hand, my stress level has not decreased. The new business is a gamble and progress has been slower than I would like. This has left me with free time that I have not used as productively as I would like. I should be writing more blog posts. I should be playing more music. I should be working more aggressively on some business related activities. I don't always deal with stress in the most productive ways.

Heath care in the US outside of a corporate umbrella is difficult. Assuming we can get any coverage at all it looks like the best I can do is about $450/month with a $10,000 yearly deductible. That means Sarah and I are on our own in any year we spend less than $10,000 out of pocket. On one hand this is what insurance is for, protection against catastrophic loss. On the other hand, the rates seem high for this kind of protection.

A number of years ago one of my swim buddies was irritated with his wife. He likes beer and she sometimes worries that he is drinking too much. She mentioned this in an exam with his doctor. He said that even if he had a problem, his doctor should be the last person to hear about it. If his doctor wrote anything down, it would go into the insurance database and future insurance coverage might either increase in cost or be denied.

Sarah and I ran into a version of this in our insurance application. Before I left my corporate job, we made sure that we had preventive care done. I got my eyes checked (I do this every couple of decades) and Sarah went in for a physical. One of the tests recommended for someone of her age is a bone density scan. The results showed lower density than desired. While this is good to know and treat, on our insurance application it comes up as a potential chronic, expensive condition. By requesting the scan, the physician actually did Sarah a disservice. A possible consequences is that we may be denied coverage for anything related to bone density for one or more years. At worst, our request for insurance may be denied altogether.

Yes, there is a global health database maintained and used by all the major US insurance companies. If you have health insurance, one of the papers you sign is an agreement to disclose everything to the insurance company. That information goes into the shared database. The database is not used to improve your health care, it is used to determine risk and reduce insurance company payouts.

The coffee house is progressing. I am negotiating a space and think I have basically come to terms with the landlord. The location is good and the costs look do-able. The next few months will be really exciting. I expect that all free time will evaporate and just hope I can keep up the gym visits.

Let's Have Less Security at Airports

2010-01-01T11:05:00.000-08:00

After the recent, foiled attempt to bring down an airliner let me, once again, ask for fewer security measures at airports. This seems counter-intuitive, but the current measures are almost completely ineffective and new measures will simply increase the cost without making us safer. Here is how I think terrorists can define success. Spend a couple of thousand dollars to get a guy to burn himself on a plane and the US responds by spending billions of dollars on useless security measures and, as a bonus, slows commerce and communication. The real wounds of terrorism are self inflicted. Every time we clamp down on civil liberties or spend lavishly on additional defense, the terrorists have won.

The recent terrorist failure to bring down an airliner has, predictably, been hailed as a failure of airport security. On the TV, round after round of security experts have been crying for more money and technology to be deployed at airports to protect us. Secondary screenings have been instituted at many places and travel experts are urging travelers to arrive at the airport even earlier and to anticipate even longer delays. In international travel to the US you will be confined to your seat, with no permitted distractions and no ability to go to the bathroom for the last hour of the flight.

If you want to make a bundle over the next few years, invest in the companies that make corporate jets. As travel becomes more costly in terms of time (money) business travel will decrease overall, but more companies will simply buy/lease their own planes to bypass the increasing hassle of commercial flight.

As far as I know, there has never been a hijacking attempt that was thwarted by airport security. None, zero, zip, nada, zilch. There have been thousands of box cutters and pocket knives seized. I am probably pretty typical of the passenger who has a "dangerous weapon" confiscated. I always carry a pocket knife (swiss army tinker). Sometimes I forget to leave it behind and find it in my pocket while waiting in the security line. I have had to throw away at least three pocket knives (and smuggled them through security a half dozen times). Occasionally even a gun is found in a passenger's carry on. This is hardly surprising considering that Florida alone has over half a million concealed carry licenses in force. Let me repeat, security screening has proven to be ineffective. I have not been able to find a single case of hijackers being stopped by airport security. The security could deter terrorists, and it may be best to keep guns off planes, but I doubt the current screening system could pass any kind of cost/benefit analysis.

There are three things that actually increase security on airplanes.

The primary effective security measure is the tracking of extremist individuals and groups long before a member approaches an airport. The failure of tracking is what lead to the latest (pathetic) terrorist attempt.

The second effective air security measure is locks on the cockpit door combined with the assurance that pilots will never allow anyone on board to direct the flight. This means that planes cannot be used as guided missiles. The most a terrorist can dream of is a plane that goes down in an urban area causing a maximum of perhaps five or six hundred dead. Locking the cabin doors was one of the few proper reactions to the September Eleventh bombings.

Given that the worst immediate consequence of an airline hijacking is several hundred dead people, terrorists have better targets elsewhere. In terms of maximum terror, public places are easier and more attractive. The Madrid bombings killed 19 and wounded 1800. The Mumbai attacks killed 173 and wounded abut 300 others. Baghdad bombings in October killed 132 and wounded more than 500. The Oklahoma City bombing killed 168 people and injured about 700.

The final security system is the passengers and crew. Starting with September eleventh itself, passengers came to realize that the best way to survive a terrorist attack is to eliminate any threat that appears. Because of this, it is basically impossible to hijack a plane with a knife or even a gun. Both of the terrorist hijackings since 2001 (Richard Reid and Abdul Farouk Abdulmutallab) were thwarted when passengers took action

The only reason for a terrorist group to attack an airline is to trigger a disproportionate defense response. This is exactly what the current attack is likely to do. The terrorists have won.

A brief history of hijackings since 9/11 shows the current sources of hijacking threats to US citizens - largely drunk or crazy folks. Don't expect that threat to decrease as airline travel becomes even more unpleasant.

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This list comes from internet sources including Wikipedia (proves its worth again) plus worldwide news media.

December 2001 - Richard Reid attempts to ignite explosives in his shoe. Passengers prevent this. (terrorist/passengers)

August 2002 - Swedish man (originally Tunisian) arrested for trying to take a gun on board a plane going from Stockholm to London. Caught by racial profiling and security screening. Most of the early reporting turned out to be incorrect. All charges were dropped. Apparently he had simply forgotten to take his gun out of his possessions before heading to the airport. (police mistake)

March 2003 - Turkish Airlines aircraft Ergene on the way from Ankara to Istanbul was hijacked and forced to land in Athens, Greece. The Turkish citizen hijacker surrendered, appears to be mentally unstable. (crazy/surrender)

April 2003 - Cuban passenger plane hijacked. Landed back in Cuba, some passengers released in exchange for food and fuel. Plane flew and landed in Key West. "Second time in two weeks a plane has been hijacked to the US." The man apparently had his wife and child on the plane. (asylum/surrender)

Oct 2006 - A man hijacked a Turkish Airlines Boeing 737 with 107 passengers and six crew on board. He was captured. Hijacker was seeking asylum in Italy, but was returned to Turkey. (asylum/surrender)

December 2006 - Russian plane hijacked. Russian wanted the plane diverted to Cairo. Emergency landing in Prague. Man arrested, no one hurt. Terrorism not a motive. Hijacker claimed to have a bomb. Apparently he was drunk, involved in a fight, then demanded that the plane be diverted. The man was traveling with eight family members, three of them children. (drunk/surrender)

January 2007 - Internal Sudanese flight hijacked. Flight landed in Chad where the hijacker surrendered. Hijacker entered the cockpit with a gun. Passengers were unaware that the plane had been hijacked. Motive was political, to call attention to the conflict in Darfur. (statement/surrender)

February 2007 - Flight from Mauritania to the Canary Islands hijacked by a gun wielding hijacker who wanted political asylum in France. The pilot took the plane to its planned destination and speaking in French (the hijacker did not speak french) warned the passengers and flight crew that he would brake hard on landing. This threw the hijacker off balance and he was subdued and beaten by passengers and crew. (asylum/passengers)

April 2007 - Turkish flight forced to land in Ankara. Security forces overwhelmed the hijacker. Unemployed man tried to approach the cockpit and said he "had something in his belt" and wanted to go to Iran. (??/police)

August 2007 - A Turkish passenger plane heading for Istanbul from northern Cyprus was hijacked and forced to land in southern Turkey, where the 136 passengers escaped or were set free and the hijackers surrendered to authorities. (??/surrender)

August 2008 - Sudanese flight from Darfur - apparently successful attempt to divert the plane. The hijackers wanted to go to Egypt, but ended up in Libya. No injuries. (??/surrender)

April 2009 - Flight from Jamaica to Hallifax hijacked by a gunman. He asked to be taken to Cuba. He allowed passengers to buy their way off the plane. The "mentally challenged" hijacker was captured by a security officer who entered through the cockpit window and pretended to be the copilot. (crazy/police)

September 9, 2009 - Flight out of Cancun Mexico. A crazy guy says he has a bomb and tries to hijack a plane. His demand is to speak to the Mexican president. The plane continued to its destination and landed five minutes early. (crazy/police)

October 2009 - Man attempts to hijack a plane from Istanbul to Cairo using a plastic knife from the meal (US airlines have phased out food and utensils). Marshals overpowered the man and the flight continued. Man may have been drunk and claimed that he wanted to "liberate Jerusalem". (drunk/air marshall)

December 2009 - Northwest Airlines Flight 253 Amsterdam to NY Man on plane to the US attempts to combine materials (hidden in his underwear) for an explosive device. Passengers and flight crew intervene. There is a fire, the terrorist is badly burned and a couple of passengers injured. (terrorist/passengers)

Humor? You be the Judge!

2009-12-26T10:58:00.000-08:00

Looking back through my posts, I don't think readers can actually get a sense for who I am as a person. For example, my posts are pretty completely humorless. I think this is more an artifact of the act of writing than a reflection of personality. Apparently I am not a comic writer. I like to believe I'm actually pretty funny, though my humor tends toward puns, the completely stupid, and shaggy dog stories.

As a change of pace I give you two original jokes. I have told each of these numerous times (as anyone in my family will attest). The first has occasionally elicited a small smile. Even I cannot tell the second one properly and I can honestly say no one has ever laughed at it. I throw these out into the universe in the hopes they can find a small home outside my imagination.

At a small Turkish restaurant in Chicago two men often come in for lunch. This is completely unexceptional except that they insist on receiving their bill written on rocks. I mean actual stones. They are good customers and the waiters humor them. Whenever the men come in, the busboy is sent out to find rocks on which to write each of their tabs. However, in the middle of a city there is a limited supply of rocks with flat surfaces suitable for writing. One day the men come in and the busboy can only find one. Since the men pay separately, the waiter has no idea what will happen. He writes both their receipts on the single rock and presents it to the pair. To his joy, they pay without complaint. After they leave, the waiter shouts in joy. "I've done it. I've billed two Kurds with one stone."

Knowing the success of food marketing campaigns that popularize unfamiliar foods (Avocados, Filberts renamed Hazelnuts, Yogurt...) a businessman decides to move the Garbanzo Bean into the mainstream. He buys large quantities of the beans, processing facilities, and a large marketing workforce. One area of interest is the entertainment field so the businessman questions one of of his salesmen. "Do you know how Garbanzos are doing?" The response: "I don't know. Hummus, a few bars."

Losing Contact

2009-12-24T14:40:00.000-08:00

Like everyone else, my world view is limited and filtered by my own experience. Like everyone else, when there is no available, reliable research I form opinions based on my particular, atypical experiences.

Based on surveys, I have to accept that about twenty percent of adults in the US smoke. My personal experience says it is about five percent because the group of people I interact with day to day are generally non-smokers and the smokers tend not to smoke around me.

I bring this up because I feel a cultural change, but have only the most personal and anecdotal evidence. It strikes me that, day to day, I have less and less genuine human contact, both physical and emotional. I am sure some of this has to do with time of life, particular circumstance, and the softening effect of memory. Despite this, I feel there is a genuine cultural change for the worse in the United States.

Years ago when our family was smaller and very young, we moved to Oregon. This was to a small city. We arrived with nothing but the names of some friends of friends. During the three years we lived there, we developed a set of close friends and companions. I was trying to work as a musician and formed contacts in that community. We formed bands of convenience and played the local taverns and coffee shops. There were day jobs for money, but we spent as little time as possible there because our real lives were elsewhere. I helped people build additions, move, attended births and birthday parties and do all the other quotidian things without the thought of payment or trading labor. We were just in it together. There were parties and saunas and music and love. I don't remember censoring what I thought or said with these people. I'm sure that some folks were put off and probably pulled away, but there were enough left for a small community.

I contrast that to my current situation. My monetary work takes virtually all of my waking hours. Due perhaps to a poor choice or poor opportunity, my commute is quite long. A typical day involves getting up at 5:10am. By 5:30 I am in a spinning class at the local gym. After that I shower, dress and commute to work. At work there is no real communal area and I typically eat lunch alone at a nearby shopping mall. My day is largely spent in work meetings, large and small. Although I am constantly talking with people, it is all work related. I do not get home until about 7:00pm, quite exhausted.

At work, I do not speak freely. Some time ago I made a small, very bad, joke on an email received by everyone in our office (probably sixty people). Some people in management thought that such a joke might be construed by someone as offensive. As far as I can tell, no one actually complained, but some folks fantasized they might. I read and re-read the message and could find no basis for any rational complaint, but I complied with the request to send an apology saying that such communication had no place in our office.

I am more aloof than most people and I see friendships develop and grow in the workplace but I am guarded. I simply do not trust that the organization has my or my colleagues best interests in mind. As a manager, I try to protect the people who work for me, but the day may come where I am asked to do things that injure them. Most of my bosses seem to accept the notion that the primary purpose of our work is to monetarily advance the organization as a whole. I like the people I work with. I respect them. I think the institutions we have created force us apart rather than bringing us together.

In the past few years sending work off-shore has been a common topic of management discussion in several jobs I have had. It generally occurs as almost a spreadsheet computation: cost of labor versus inefficiencies in communication and the cost of developing requisite skills in people far away. In talks about pay we speak of being competitive. Work benefits are a way keep talented people from defecting to other jobs. There are career development programs and birthday reminders, but I feel the underlying sentiment that we are not dealing with friends or even people, but with labor units. Labor units that should be developed and trained and respected, but the basic notion is economic utility. The purpose of the organization is to earn money for the owners. In my current job, the owners want good economic results so they can cash out by selling the company to someone else.

Frankly, I do not think economics should form the basis for our work lives or any other part of our lives. We require money to live and our lives must make sense economically. Work must make money, but that does not mean that money should form the basis of work. Work can be centered around helping others. It can be centered on a common sense of purpose and making something bigger than one person. It can center on doing things no one has done before or better than anyone has ever done them before. It can provide community and a way to help each other.

My reaction to my work brings me distance rather than closeness to others. This is, of course, my reaction. Others may react differently, but I do not think my experience is uncommon.

I sometimes look at movies as a window onto different times and places. A couple of good examples are the original (1951) "The Day the Earth Stood Still" and "God Grew Tired of Us: The Story of Lost Boys of Sudan".

"The Day the Earth Stood Still" is a good story but mostly I like to contrast the everyday life that is portrayed with current life in the US. A human looking alien is loose in Washington. This apparently well educated and intelligent may chooses to live in a boarding house where he finds good middle class folks. (As a side note, Thomas Jefferson, Jon Marshall and Aaron Burr all lived in boarding houses while in Washington DC.) A single mother and her son (12 years old?) live in the boarding house as well. Within a few days the mother trusts the new boarder well enough to have him look after her son. The son has the run of Washington and is allowed to roam by himself. This setting is not the point of the movie and I do not believe that reviewers of the time commented on the lives portrayed. This was simply the texture of the time.

"God Grew Tired of Us: The Story of Lost Boys of Sudan" is the story of some remarkable Sudanese men. Due to war in Sudan, thousands of children were forced to flee, without any adults, across thousands of miles to refugee camps in Kenya. In Kenya they lived in refugee camps run by the UN where they created their own goverment and were schooled. Their lives were confined to the camps and they developed an extremely close knit society based on personal contact, trust and loyalty. The film introduces us to several of these young men given the opportunity of moving to the US. These are remarkable people. When we meet them they have not only survived their epic flight from Sudan, they are also remarkably well educated. Each speaks at least two or three languages.

For them, the US is a land of opportunity and provides a chance for more education and money that they can send to their community back in Kenya. It is not particularly mentioned in the film, but you see this group of men who completely depended on each other in Kenya become a fragmented group of individuals who share the same apartment, but spend no time together. Their communal life is simply shattered by the reality of contemporary American life. I do not believe that they would choose to go back, but as an observer the tragedy and loss are stark.

It is about time for me to change my life to bring it more closely into line with my values. More on this later.

Sometimes Common Sense Doesn't Make Sense

2009-12-12T16:38:00.000-08:00

Sometimes sensible sounding positions make little sense. Here are two radically different examples. The first is helping birds by keeping your cats inside. The second is using intensive user testing to improve products.

First let's look at bird populations and cats. Many species of birds, particularly songbirds are in trouble Disappearing Common Birds Send Environmental Wake-up Call. It is also true that cats are tremendous predators. By some estimates cats kill hundreds of millions of birds in the US each year. The conjunction of these facts leads to a call that owners should keep their cats indoors Give Birds a Break, Lock up the Cat.

There may be good reasons to keep your cat indoors (though I haven't found one that convinces me), but bird killing is not one of them. It is a sop that makes people feel better without addressing the real problems.

Almost every article that seriously looks at bird loss talks about loss of habitat as the main threat. This includes the Washington Post, the Audobon Society and even Australian scientists.

My city is about seven miles on a side. Inside this area of about fifty square miles, there are essentially no native species. Fifty square miles of prairie grassland was bulldozed and replaced with asphalt, houses, stores, Kentucky Bluegrass and non-native trees. It is a nice enough town, but it does not provide much habitat for native birds.

The range of a cat is on the order of thirty or forty hectares. That is roughly a third of a mile on a side. If my city is a square seven miles on a side, cats extend each side by a maximum of about one third of a mile. The amount of severely disturbed land goes from forty nine square miles to about fifty three square miles. This is less than a ten percent increase. Complaining about bird loss due to urban cats is like killing a deer with your car and worrying about its broken antler.

Suppose that cats were a main cause of bird disappearance. Keeping your cat indoors will still not solve the problem. About one third of all cats are feral. Cats breed prodigiously and feral cats exist because there is an ecological niche for them. Even if all owned cats were kept indoors, the birds would keep dying.

I use cats and birds as an example, but we suffer from an epidemic of glossy arguments that may not stand up to any real scrutiny. A second, less supported, example has to do with product development.

It seems sensible that if you are developing products to meet some consumer need, it would be a good idea to know what those consumers want and how they will react to you product. There are a number of established techniques for this. For example, focus groups. Software organizations, often talk about user centered design.

I have developed products using these techniques. I can honestly say that every in-depth interaction I have had with customers has changed my view of the product I was developing. Sometimes I have found out that my view of the problems and their solutions is quite different from my customer's. Sometimes I have found that users had much less tolerance of complexity than I imagined.

That said, I don't think this kind of external facing, user centered process develops better products.

To support this you need only compare Microsoft and Apple. Both these companies have the time and money to investigate, measure, and improve their product development. Microsoft has a user centered development process. Apple has a completely different, inward focused product development system.

On the whole Microsoft products are, at best, acceptable. Commonly they are a complete mess. Just look at the appalling Microsoft Project. It has done more to ruin project management than any other single tool. Everyone uses Microsoft Word, but I can't think of anyone who actually likes the program. It is larded with obscure, mostly useless, features. Nothing is easy and the resulting documents are extraordinarily difficult to re-purpose.

On the whole, Microsoft follows the market. They re-implement what others have done and often do it worse. This pattern started with the operating system extends through their software products, and includes their hardware.

Apple, in contrast, is known as an innovative company that leads the market. Their customers don't just like the products, they love them. MP3 players with much the same functionality as the iPod existed before the iPod, but the Apple developers came up with a whole ecosystem for music. When the iPhone came out, it erased and replaced peoples ideas of how to interact with a that device in their pocket that sends and receives phone calls.

The problem may be that focusing on the views of potential users directs your attention to those views. Those views are often very restricted because most folks don't really think about what they are doing and what is possible. When you talk to a lot of potential customers, the tendency is to aim for the lowest common denominator. The end result seems to be products that serve a purpose, that most people can use, but that no one really cares about.

Like keeping cats inside to protect birds, asking customers to help develop products seems to make a lot of sense, but may not be sensible.

Small Thoughts on Slack

2009-11-29T16:02:00.000-08:00

Things vary. Streams flood, temperature drops or rises. Traffic thickens and thins. In human endeavors sometimes there is to much too do, sometimes too little. How an organization responds to these fluctuations tells us a lot about the nature of the events and the organization. There are a range of reactions.

Every city in the United States has firefighters. Firefighters are constantly available even though fires are not that common. The speed and destructiveness of fires makes it worthwhile to keep crews on duty even though most of the time they are not fighting fires.

In an ordinary restaurant there is a predictable fluctuation of customers throughout the day with pulses around meal times. There are also unpredictable surges for particular meals. Restaurant owners typically respond by having a flexible work force and scheduling somewhat more than the expected need. If a rush does not materialize, someone can be sent home. If a rush is large, extra help may be brought in at the last minute. Starting with some excess capacity is less expensive than perhaps losing a customer.

The opposite approach can be seen at an airline counter or telephone call center. A line of waiting people is used to even the load. When there is a rush, the line gets longer. When things calm down, the line shortens. The business goal is to always have some line so workers are constantly occupied. On the surface this is the least expensive from the business point of view. Workers are always busy and staffing is consistent. However, it only works if customers do not have a better alternative or do not value their own time highly.

The "always have a line" business model is a form of cost shifting. The cost of normal fluctuations in business are borne by the consumer who is forced to wait rather than the company paying someone who may not be completely busy.

Hospital emergency rooms have largely gone to the line model. That is, they seem to have little or no excess capacity. They do take the trouble to constantly re-order the waiting line, a process called triage. Occasionally someone dies, but normally the impact is only an excessively long wait for those who are not in dire straits.

Very popular restaurants encourage a line. It makes them seem all the more desirable. It is a way of saying "there is no alternative that can provide what we do". This demand allows the owners to raise prices. For something exclusive, you may pay more. Almost paradoxically, this exclusivity can increase demand. One step further is the doorman with a list. Those on the list are allowed immediate entry. The hoi poloi must wait in line for a chance to rub elbows with the elect.

Humans can be trained to be remarkably tolerant of others wasting their time. An object lesson can be found in the shopping queues of the former Soviet Union. People will wait without complaint for a very long time even when the wait is pointless. One example is the line at the airport for security screening (which does not increase security). Because the alternative to quietly waiting your turn is to miss your flight and perhaps face police questioning, people will wait for as long as it takes with nary a word of complaint.

Slack in financial matters is often the difference between profit and bankruptcy. Businesses must be able to accommodate shifting amounts of money coming in and leaving. This can be a problem of timing. A business may sell enough product to make a profit, but if payments do not arrive soon enough, it may not be able to pay the bills. Of course if the problem is simply one of timing, then there are usually lenders willing to bridge the gap - at a price. One of the major differences between large and small business is the ability to last out temporary changes in circumstance. A large business has two advantages. One is that downturns in one segment can be covered by profits in another. The second is that large businesses find it easier to borrow money to make it through lean times.

Some Thoughts on Debt

2009-08-30T14:51:00.000-07:00

I've been thinking some about debt. It seems to be the zeitgeist. There is nothing profound in this post. Mostly, I am just presenting a framework to think about lending and borrowing. The last part gives some of my personal debt rules.

Well, what this post lacks in profundity it makes up in length. Here is a small index.

What is Debt
Hedging the Bet
Different Kinds of Debt
When Waters are Calm
When the Storm Comes
Personal Protection

The other day I was in a shop that was being liquidated. I am always curious why businesses must close, so I spent a little time talking with the owners. One of the questions I asked was whether they had to take on much debt to open the shop. They said no, they used equity (the monetary value of a property or business beyond any amounts owed on it) from their home to finance the venture. For them, debt is defined to be any amount owed that exceeds net worth. That is, if you can sell all your property, and have enough to pay everyone you owe, you are not in debt. Even if this were an accurate definition, the home equity loan payments must have affected their cash flow.

What is Debt

The American Heritage Dictionary defines debt as:

1. Something owed, such as money, goods, or services.
2.
a. An obligation or liability to pay or render something to someone else.
b. The condition of owing: a young family always in debt.

The other side of the debt coin is loan
1.
a. Something lent for temporary use.
b. A sum of money lent at interest.
2. An act of lending; a grant for temporary use: asked for the loan of a garden hose.
3. A temporary transfer to a duty or place away from a regular job: an efficiency expert on loan from the main office.

Loans and debt are all about the future. Both the lender and the borrower envision a future where the debt can be repaid, usually with interest. Ben Stein wrote a column about sales in which he recounted buying a car he wasn't sure he could afford.

In 1976, when I moved to Los Angeles, I desperately wanted a Mercedes 450 SLC, a car that was — even in used form — far more than I deserved or could afford at my entry-level, highly tenuous work as a scriptwriter. My salesman at Mercedes-Benz of Beverly Hills, Larry Anish, listened to my objections and simply asked, “Don’t you believe in your own future?” Of course, I bought the car.

In this case, the salesman wanted to sell the car. His financial interests only involved the sale. The loan, its terms, and its collection were someone else's problem. The salesman's projection of the future implied the fulfillment of dreams and faith in the buyer. In this case, I presume the bet was good. Ben got, and enjoyed, his car. The salesman got his commission, and the lender got the money back plus interest.

A different power dynamic occurs when someone wants a loan to start a new business. The borrower is generally the supplicant trying to persuade others that the wish should be granted. The lender usually insists on a business plan that takes into account foreseeable costs, revenue, and risks. The business owner dutifully uses the plan to project a future where the business succeeds and all parties prosper.

Hedging the Bet

Because the future is uncertain, lenders usually hedge the bet. This takes a number of forms.

In a "secured" loan the borrower offers something as collateral. Collateral is property or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default. With a secured loan, the lender is judging that even if the loan is not repaid, the collateral will allow recovery of the money owed. This was the case with the business owners who were liquidating their shop. They put up a portion of their house as a guarantee that they would repay the loan. Even after their shop is gone they must keep up the payments on the business loan or the lender may foreclose on their home to reclaim the remaining balance of the loan (plus interest, fees, the cost of the foreclosure...).

For secured loans, losses are limited to the difference between the amount due on the loan and the value of the property (less any costs for selling).

A standard mortgage is a secured loan where the lender owns the property until the debt is repaid. That is, the property itself serves as a stand in for future payments. The lender can only lose if the property loses value over time. A similar, but more risky, arrangement is used by venture capitalists. In exchange for money, the borrower gives up some portion of company ownership. This includes not only profits, but decision making as well. The business itself serves as collateral. The investors are projecting that if the borrowers cannot repay, the investors can seize the company and make it profitable.

Not all loans are secured. Sometimes the borrower and lender take a leap of faith together about the future. This is usually not a blind leap. Most loans are made with the expectation of profit and a weighing of risk. The amount loaned is balanced against the current situation of the borrower and past history of repayment. At the single loan level the lender generally requires that a trusted person, someone with a history of repaying debts and with current financial means, guarantee the loan. Lenders also vary the interest rate based on projected risk. As uncertainty of repayment increases, so does the interest rate. Over a large number of loans, the lender is assuming a certain percentage of defaults. The interest rate must be high enough to not only cover these bad loans, but to make a profit in addition.

The consolidation of financial information has allowed information about virtually all loans for all people to be tracked and shared. In this way, lenders enter into loans with a reasonably complete history of past borrowing and repayment. Financial models are used to project risk levels, hence the "credit score". In addition, lenders usually require some proof of current income.

The existence of elaborate systems to predict risk gives great comfort to lenders who deceive themselves that they understand the likely future. Unfortunately, the actual future is often unlikely. Every system of prediction devised by humans has failed, often catastrophically.

Different Kinds of Debt

Debt should not be considered a curse word. Much, if not most, of our built environment would not exist without debt. This includes roads, bridges, buildings, automobiles, computers... Most of the debts incurred to build these objects were incurred in good faith and paid off as expected. For individuals, both homes and cars are usually financed by debt and could not be bought without debt.

Debt is incurred for different reasons. Some of this is embodied in the language we use to describe debt.

One of the terms is "leverage". The term is analogy with mechanical system where a lever allows a small amount of force to move a large object. In the financial case, the lever is the borrowed money. The borrower expects a future where financial gains from the borrowed money exceed the cost of the money.

Suppose I wish to buy a commercial property and have $1,000,000. I could invest all of my money and buy a small property outright. If the property increases in value by 10% and I sell, I make $100,000 profit. Suppose instead that I pay 10% down and take out a loan for $9,000,000. If the property value increases 10% and I sell, I make $1,000,000 (less the interest paid on the loan). With the same amount of my own money, I make roughly nine times as much. That is, I have leveraged my money.

In general, lenders of leverage loans insist on knowing the purpose of the loan and do their own analysis of the financial viability.

Educational loans are a form of leverage. The increase in earnings that come from increased knowledge and skills is expected to justify the risk that incurring a debt implies. Even a car can be thought of as leverage if it allows the buyer to travel in a way that increases income (a job across town).

A second kind of loan is "credit". This term is a strange reversal of meaning. In accounting there are columns for credit and debit. That is, credit is the opposite of debit. In more general parlance, credit is something you earn or have. In the lending industry, you can borrow against your perceived financial credit. That is, you can get a "credit line" which is an amount of money the lender thinks you are likely to repay. This gets shortened to credit.

Parenthetically, another twist of terminology is "debit cards". If you use a debit card, the amount is immediately debited to your bank account. Usually a debit card can only be used if you have the funds to cover the expense. That is "debit cards" do not incur debt.

Because the borrower is judged on general reliability, credit loans are typically "revolving credit". That is, there is not a single loan with a set amount and a fixed number of payments. Instead, the amount of the loan and the size of the payment can vary from month to month. The maximum amount that can owed at any time is fixed. This limits the risk to the lender.

Credit loans are typically unsecured and the lender does not investigate how the money is used. Consumers typically use credit lines for everyday expenses. That is, the money is used in ways that do not increase future income. This makes credit loans more risky and, as a consequence, increases their cost to the borrower. Some of the cost is in higher interest. Another part of the cost comes from fees associated with the account.

There is generally a minimum payment that must be made on a credit account each month. However, the interest and fees associated with maintaining a balance are so large that the minimum payment due may not even cover the monthly interest on the loan. As long as most of the loan will eventually be repaid it is to the lender's advantage for borrowers to have a large outstanding balance.

For example, if a credit card company lends someone $10,000 dollars and that amount is paid off at the end of the month, the card company makes only the amount of the money that the merchant paid to accept the credit card (typically a one to two percent of the bill plus a per transaction fee of between four and twenty five cents). For $10,000 this might be a single payment of $100 from the merchant.

If the borrower does not pay back the loan at the end of the month, the lender starts collecting interest. Currently, credit card annual percentage rates for interest range between ten and twenty five percent. On $10,000 a fifteen percent rate would be $1,500 a year or about $125 per month. In an economy where a five percent rate of return is considered healthy, fifteen percent is very good money. Of course if the borrower defaults on the loan, the lender is out the principal loaned. At fifteen percent, it takes about seven years to collect as much in interest as the original loan.

Lenders who want their borrowers to carry the highest possible level of debt do not have the borrowers best interest in mind. It is very difficult for many people to defer desires. The promise of immediate cash is almost irresistible. Most adults know someone with a large number of credit accounts, many of them "maxed out". They may even be borrowing money from one account to make minimum payments on another. They are literally "borrowing from Peter to pay Paul".

When Waters are Calm

Everyone who has watched "It's a Wonderful Life" knows that the credit system is based on trust. As George Bailey says:

No, but you... you... you're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house... (to one of the men)...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

The system is built on debtors paying their loans in an orderly fashion. George Bailey's building and loan acts as a middle man. In George's bank the people lending the money are the depositors. The people borrowing the money are the homeowners. Often the borrowers are also depositors. If the amount of deposits, loan repayments and withdrawals are predictable the bank can have enough cash on hand to satisfy the small number of depositors who wish to withdraw their money.

There are three pillars of stability.

The vast majority of loans will be repaid.

Assets that secure loans maintain their value and are liquid (can be sold quickly).

There is a predictable pace of repayment.

In orderly times (any time when this month looks a lot like last month) the system is resilient and can tolerate a certain number of loans not being repaid. As long as the average rate of default can be predicted the lender can factor that number into the interest rates for loans. The interest rate is not just a return on investment. It also covers losses from the few loans that are not repaid.

This desire toward order can be seen in pre-payment penalties. Some loans have a condition that penalizes the borrower for paying the loan before expected. The lender expects a certain amount of interest to be paid over a set amount of time. When the borrower pays back the loan early, the lender no longer gets interest payments. The pre-payment penalty compensates the lender for this "lost" income. Typically loans are repaid early because the borrower has found a lender with a lower interest rate. The pre-payment penalty keeps borrowers from jumping ship.

When the Storm Comes

Danger comes from disorderly times. Unfortunately, destructive feedback cycles magnify small problems and guarantee that there will be disorderly times.

The economy as a whole is incredibly interconnected with money flowing from person to person and organization to organization. This network does not just involve formal loans, it involves all non-immediate transactions. As an employee you are typically paid for work some time after it is done. This is not a formal loan, but you have loaned your labor with the expectation of a future repayment.

When expected cash stops coming in, the person or organization that expects the money does everything possible to recoup the loss quickly and to reduce the exposure to future problems. The response is typically two sided. One side is trying to replace the lost money, the other side is to reduce expenses so that the losses do not affect payments to others.

To replace lost money, organizations will typically try to be first in line for future repayment. In addition they will add fees and penalties to the amount due. Virtually every business invoice contains a provision for interest to be paid when the amount is past due. Usually there is increased emphasis on finding new customers.

Everyone who has worked for a large organization has seen it protect itself against cash flow problems. The first step is to reduce discretionary spending. The "Tuesday doughnuts" disappear. Training and travel are curtailed or eliminated. Then come hiring freezes, furloughs, and layoffs. When the problems are severe, expenses that are expected to yield future profits are eliminated. First to go is administrative staff followed by research and development. The sales force is a company's most immediate investment in profit. When layoffs hit the sales force it is a sign that the company is close to insolvency. Bankruptcy often follows.

Layoffs extend the problem from the business to individuals and families. Individuals and families protect themselves in much the same way as businesses. They try to increase income by finding new work or starting new businesses. Expenses not directly related to day to day survival are eliminated. Then credit card payments (past expenses) are ignored. Utility and shelter payments are next to go and finally food.

In our interconnected system, problems are infectious. If those who normally give you money pull back, you cannot spend as much with others. Those expecting your spending must, in turn, pull back. When a large portion of the economy is affected it is called a recession or depression. Recession and depressions are an economic infection so large that no single individual or organization can adequately respond.

Not every downturn spreads widely and there are different causes. When a single company fails, the surrounding economy usually replaces the missing goods or services and the workers find jobs in other firms. Some downturns are more widespread but do not affect the whole economy. The mechanization of agriculture causes farm labor needs to plummet while production remains high. Individuals lose their jobs and are forced off the land. When this happens the workers generally move to urban areas with more opportunities. This often leads to an increase in urban population and a large number of unemployed people, sometimes for a generation or more. This is devastating for the individuals, but the economy as a whole is often largely unaffected.

Personal Protection

Loans are about hope and the future. Don't discount your potential and your future, but try not to sabotage it either. There may be a time when you make a decision to "go for broke" because you think the potential rewards outweigh the potential risk. This is a good thing, but walk in with your eyes open.

The first step in protecting yourself and your family against financial trouble is to accept that trouble will come along. Someone will lose a job. The car will require expensive repair or replacement.

Temporary setbacks can be smoothed over by a reserve of cash. If the car breaks and you have some extra cash, you simply repair or replace the car. If you lose your job, the cash may see you through until you find another source of income.

Low income families may not be able to create any reserve. These families have no recourse and must respond to events the best they can. There are government programs (food stamps, section 8 housing ...) that may help, but basically you are on your own. When thinking about government aid, just remember:

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread. (Anatole France from The Red Lily, 1894)

One of the first responses to financial trouble is to reduce expenses. It is in this area that loans become dangerous. Loans are typically a fixed monthly expense. That is, they are an expense that cannot be reduced without starting a chain of negative repercussions.

Once again the poor get the short end of the stick. If you have no cash reserve but do have access to a line of credit, you can smooth over trouble by borrowing. Long term, this is a losing strategy. Loans always involve fees and interest and short term loans are the most expensive. If you cannot afford to create a cash reserve, you probably cannot afford the fees and interest. However, such loans may be the only recourse available.

Currently I am fortunate. I have sufficient income to cover my expenses and to create some reserve. Part of this is income, part is inherent conservatism. It is in my nature to avoid ongoing expenses.

If you can afford them, I recommend some rules of thumb.

Never use a credit line except to consolidate payment. I use a cash-back card for many purchases but I pay the balance in full every month without dipping into cash reserves. In fact, I go one step further. I do not put anything on the card unless I currently have enough money to pay for it. That is, I do not buy something on the fifth of the month with the expectation that my paycheck on the fifteenth will cover it.

Do not incur a regular payment that prevents you from saving a little every month.

Only borrow as leverage. That is, the money should be used in a way that will pay for the total amount of the loan. For a family, a mortgage is in this class. Shelter is an expense that cannot be avoided. If you intend to live in a place for some time, paying a mortgage rather than rent may make sense because the non-interest portion of the payment buys property that can be sold later. This can be a good long term investment even if the property decreases somewhat in value. Rent is simply lost.

In flush times, pay down debt. I bought my current car with a loan. A couple of years after the purchase I got some unexpected cash. I used that to pay off the car which eliminated a fixed monthly expense.

One way to create a cash reserve is to pay ahead on loans. I am several months ahead on my mortgage. When a cash crunch comes, that gives me an expense I can eliminate for some period of time.

Student Debt is Bad for All of Us

2009-08-08T18:19:00.000-07:00

In the Atlantic (online) Conor Clarke wrote a blog entry called "Let College Students Get Into Debt". One statement in the note really stands out.

The second problem is more specific: if the the point of credit-based consumption is to bring lifetime consumption more in line with lifetime income -- as I believe it is -- then college students more than anyone else should be getting into debt.

An interesting rebuttal can be found at
Problems With Clarke's Student Debt Post.

The practical absurdity of the Clarke's statement can be seen in the phrase "bring lifetime consumption more in line with lifetime income". Let us make the giant leap of faith that individuals and lenders are rational enough to take expected lifetime income into consideration. In order to smooth out our consumption we would have to have an accurate notion of an individual's lifetime income. This brings to mind my favorite John Kenneth Galbraith quote. "The only function of economic forecasting is to make astrology look respectable." It is the rare person of any age who can accurately predict their income even five years in the future.

The best information about lifetime income comes from statistics about current and past incomes for people in various occupations. This information is useless to an individual for several reasons. First, it is out of date. If the buggy whip apprentice in 1890 had access to these kind of statistics, he would feel good about borrowing money because his future was so secure. Second, it assumes an occupation. Apparently the average college student changes majors two to three times during the course of their studies. Most basically, aggregate statistics may not accurately describe the situation for any individual Averages and Actuals.

Every debt you incur and intend to pay limits future options. Suppose you are a college student anticipating a career with a relatively high income and you borrow commensurately while you are in school. When you graduate, you must quickly (usually within six months to a year) generate sufficient, steady income to service the debt. This puts lower income jobs out of reach. The problem is, many career paths demand some time at a low income. If you cannot tolerate a low income for a period of years, you may not be able to start a business of your own.

Student debt is pernicious because it limits options at a time of life where options are most important. Individuals and society gain when bright people are free to pursue their dreams. These people often give us the new ideas and new businesses that are the lifeblood of the future. One of the natural times for this adventure is the time between schooling and family. Many of our brightest and most educated end their schooling not with a clear field of opportunity, but with the almost immediate need to generate a steady income to service school debt. For many, this pushes them down the employee rather than the entrepreneur path.

Can't we all just get along?

2009-07-23T20:21:00.000-07:00

A new coffee shop opened across the street from the office where I work. The local paper had a small article and the online version allowed readers to comment. At another location of the same shop a couple people had bad experiences and posted them. The two incidents were a pregnant woman (eight months) who was feeling ill and put her stocking feet (shoes off) up an a chair to raise them. The owner came by and asked her to take her feet off the chair. The second incident was when a couple of families had strollers that were blocking an aisle. Again, the owner told them to move the strollers. In both cases the people did not complain that they were asked to stop what they were doing. They were upset because the owner yelled at them and treated them badly. Some people called the owner "a jerk".

A second group spoke up in favor of the owner saying the original posters were unbearably rude and deserved the treatment they received. Terms used for the (ex) customers included "self-entitled yuppies", "self entitled a-holes", and "self absorbed". The vitriol was strong.

In thinking about it, I think the "self absorbed" title is probably not far off. The customers engaged in actions that I find completely innocuous, but apparently offend a fair number of people. I think "self entitled" probably better describe the group that defended the owner. Self entitled seems a perfect title for people who expect everyone around them to conform to their notion of correct public behavior. As for the owner, yelling at people probably does make him a jerk.

If something poses a danger to you or others, step in and fix things. But be aware we live in a very large world among people with vastly different upbringings and customs. What is outrageous to one group of people is ordinary to another. I am reminded of the Scandinavian nanny who was arrested in New York because she left the baby in a stroller outside and went into a store. In her home city that was ordinary and expected behavior.

Each of us is upset by different things. In the face of this, we should give each other a little slack. If you find yourself getting upset, ask yourself if your feelings are well grounded. In the case of stocking feet on a chair there is essentially no chance of harm being done to anyone. If you feel strongly about feet on chairs, have a serious discussion with a shrink about why that is. If you are irritated by strollers in the way, politely help to correct the situation, but be aware that people are pretty good at avoiding obstacles.

Also, put yourself in the other person's shoes. Almost everyone has had a crummy day and blown up over some small thing. All of us have had other things on our mind and inconvenienced those around us. Let's all sigh and smile a little more at what we perceive to be bad behavior and try to dial down the outrage. Can't we all just get along?

Josie is Gone

2009-06-24T18:09:00.000-07:00

My dog is dead. Josie was almost fifteen. For a long time she had been in decline. First calcification of tendons in her legs and arthritis. Then she lost her hearing and her eyesight became dim. She became progressively weaker in her legs and would sometimes just fall over. Yesterday morning she had her second bout of a vestibular problem that removed her sense of balance. Her eyes jerked spasmodically and she could hardly get up. The first bout of balance problems was a couple of years ago. On the vets advice, we just let her work through it. This time, faced with all her other difficulties and obvious pain, I decided to euthanize her. She died in my arms at the vets office this afternoon. Silver was there with me and it was a good thing. I don't know how I would have handled it alone.

Josie was a border collie. She lived to please and serve. When she was a puppy I took her to an obedience class. It was difficult for her because, like many border collies, she was extremely shy. Most dogs were given treats as a reward, but Josie would not take them. A simple word of praise was all she wanted. For discipline, a disapproving glance was usually enough. When we house trained her and she would have an accident, I would look at her and say "uh oh". This became a curse word for her and for years afterward I had to be careful about muttering "uh oh" under my breath lest she think that she had done something terrible.

Border collies need something to do. Josie was a runner and a tennis ball dog. Josie was a wonder. She didn't just run, she ran full out and she ran where she was told; in and out of gates, right and left based on both verbal and visual cues. She was obsessed with tennis balls. Sometimes I work from home. One day I looked down and had seven tennis balls at my feet. Inside we would throw balls across the room or down the hall. It was so unconscious that I did it without interrupting my work. She would put a ball on my lap so that it was convenient. Outside, she vastly overestimated my strength. If I was throwing the ball, she would run out two hundred yards and look back saying "throw it to me here!". Even using a tennis racquet as an aid (which I often did), I couldn't get it that far.

Josie always tried to get visitors to play her tennis ball games. For her, the game was to see how much she could get the ball thrower to work. She would drop the ball some distance from the thrower. Many people assumed that she was shy and a dog that almost knew how to fetch. She just required a little more training to bring the ball all the way back. A few minutes would do the trick. In fact, Josie was training them to work just a little harder to get the ball. If you walked ten feet to pick up the ball, the next time she dropped it, it would be twelve feet away.

In another blog post, http://colin-quodlibet.blogspot.com/2008/07/running-dog.html,I talked about the legal trouble we got into. When I was forced to stop running Josie in the park I never forgave the city. To this day I view the city bureaucracy as malevolent and incompetent. This city and its inhabitants love order over freedom and for no reason destroyed the fun that Josie and I had in the park. Even though I have no plans to move, I do not feel at home here.

We got Josie as a family dog, and so she was. She played with and loved all of us. As is common with Border Collies though, she needed a master. I was that person. I trained her and I think it is fair to say that she was my dog. For most of her life, Josie slept on our bed. That stopped only when she got too old to jump up. Through her whole life, Josie followed me around. If she didn't see me for a while, she would come looking.

I say that I trained her, but as everyone who has a good companion dog knows, that is not true. We trained and adjusted to each other. I talk about verbal and visual signals, but that does not convey the subtlety of the communication. We had a sound and gestural system that involved known signals, but also the tilt of a head or the lilt of a word or bark. We were partners.

She was a puppy. She grew up to be a strong and proud adult, then declined in her old age. She had as good a life as we could give her. Now she is gone. My right arm is missing and I will not get it back.

Singular Memories

2009-05-29T19:58:00.000-07:00

I have noticed a memory phenomenon that I haven't heard discussed. Memory is normally discussed in terms of persistence. There are at least three layers of memory: sensory, short term, and long term. As is often the case, wikipedia has an excellent primer on this, http://en.wikipedia.org/wiki/Memory. What I have noticed is what I will call a singular memory. This is a specific long term memory where we only remember one of a series.

The quintessential example of what I call a singular memory is the combination for a lock. If you ever went to school in the United States, you undoubtedly owned a series of combination locks. Every day you unlocked the lock, perhaps several times. If you ask someone the combination of the lock they had two years ago, they probably will not remember it. It is as though there is one spot in memory for a lock combination and remembering a new one erases, or at least substantially dims the memory of the old one.

Another example is parking spots. When you park your car at a store, you remember its location for hours. This implies that the memory is long term. on the other hand, if I asked you where you parked at the same store two weeks ago, you may have no recollection at all.

Though I call this a singular memory, in fact it is not completely singular. One year at school I absent-mindedly wandered to a locker I had several years before. I was in the middle of dialing the combination I had for that locker before I realized I was in the wrong place. In the same way, if I remind you of exactly what you bought at the store two weeks ago or an incident that occurred on the way out the door, you may remember where you parked the car that day.

I believe that these singular memories may be a byproduct of the mechanism of recall. Memories are not replayed. They are reconstructed. This reconstruction is a mini re-enactment where the neurons involved in the original experience are re-activated. During this reconstruction the original memory is subject to change. I think that when we memorize a new combination for a lock, it is as though we misremembered the old combination and re-stored the new combination as the original memory. When I wandered to my old locker, I was not just trying to remember a combination, I had the entire sensory experience of an earlier year. That sensory experience triggered the original memory in context as opposed to the more abstract number whose memory was normally reinforced by a new locker location and other details.

To summarize I have proposed a new type of memory, a singular memory. I gave a couple of examples, then demolished part of my own argument by showing that the memories are not actually singular. Finally I proposed a mechanism that might explain how this type of memory, which may not exist, works.

Limits of Analytics

2009-05-02T16:32:00.000-07:00

If you read many of my posts, you will discover that I am an analytic person. That is, I tend to look at situations from the outside and try to figure out what is actually going on through the use of observation and reason.

Despite (or perhaps because of) this natural tendency, I am well aware of the limits of this sort of analysis. There is a strong strain in my culture that believes rational analysis is the primary basis of human knowledge and that this sort of knowledge should underlie action. I think this is a pernicious view that cheapens us as humans. Our ever increasing scientific knowledge base can protect us from some of our cruel and irrational tendencies. For example, the existence of the well respected Centers for Disease Control in the United States will keep us (unlike the Egyptians) from slaughtering all our pigs because we are threatened with the "swine flu". In general though, analytic knowledge is too incomplete, too prone to error, and too slow to serve us in most situations. We have other, more effective tools to make our way through the world.

Violin construction is an excellent example of how humans actually learn and change. the golden age of violin construction occurred three or four centuries ago. To this day we do not understand why the Cremona violin construction produced what we feel to be superior instruments. In the intervening centuries we have developed mathematics and simulations that have improved our understanding of vibration and acoustics. We have used this and our knowledge of consistent manufacturing to create increasingly better musical instruments in increasingly large numbers. As with so many other things, we live in a golden age. It has never been easier or cheaper to own a fine musical instrument. That is, our analytic knowledge has raised the bar, but it has not allowed us to attain the level of mastery achieved by people without these formal analytic tools.

So how do we actually learn and progress in areas that cannot be understood by current analytic techniques. In short, trial and error. Humans rarely invent, but we have a marvelous capacity to vary what we do and to detect the effects of the variations. Most of what we call invention is really applying existing knowledge to a new area or amassing small sets of variations to achieve a shifting goal. Violin makers have rules accumulated through experimentation. These rules govern the choice of materials, their manufacture (strike here with your fingernail and if it sounds "dead" thin the material over in this area). These rules do not come from any kind of mathematical analysis and only rarely from a rigorous program of experimentation. Instead they come from the accretion of experience over generations. This experience is based on a deepening, visceral understanding of the desired end and the practical means to achieve it.

A generation ago there was much work on "expert systems" that could replace humans in various areas. The general notion was: figure out the rules people use to solve problems, encode those rules, and replace the human with a computational engine operating over the rules. The first step was to find a competent expert and extract the rules. Usually this failed. Most experts could not express the rules and those who could were often wrong. Observation of actual problem solving shows that it is a wonderfully complex and non-linear activity. People try one approach, and abandon it midway. They put down the problem altogether and work on unrelated things. They try different approaches in seemingly random order. Some approaches seem to not make much sense. They pick up abandoned work and add to it. After the problem is solved, they explain (and remember) what they did as a linear sequence that led to the solution, but that does not fit the actual activity.

There are limits to most of our analytic techniques. Many practical problems are frightfully complex and often chaotic in the mathematical sense. I have little doubt that we will continue to increase our analytic tools, but the end result may provide only statistical rather than direct guidance. For these situations we can make informed guesses, but having a ninety percent chance of success doesn't help much if you find yourself on the ten percent side.

One reasonable response to complex situations is to make them simpler. This underlies much of modern manufacturing and business. If materials used in manufacturing are not uniform, manufacturing techniques must adjust to the differences. A good solution is to improve the raw materials to eliminate the variability. On the human side, we invent personnel rules that constrain how employees are treated. This simplifies management and gives people a sense of fairness and boundaries. At the same time it depersonalizes and turns the most unique of animals into an industrial part. I was once on a conference call where someone started referring to "human capital". I told him that if he called me that I would hit him.

As biological animals we have evolved to be incredibly adept at a rapid, subconscious, and often amazingly accurate analysis. The trick is to harness this biologic capacity while using our analytic knowledge to inhibit our more destructive automatic tendencies.

Over time, analytic knowledge tends to increase faster, be more reliable, and be transmitted more easily than experiential knowledge. Serious inquiry requires rigorous analysis and careful, controlled experimentation. But in novel situations (almost every situation we encounter) and in areas where we are expanding our knowledge, purely rational techniques do not serve us well. There is some special non-analytic human capability that allows us to succeed.

Language, Dialect, Idiolect and Beliefs

2009-02-21T13:23:00.000-08:00

Linguists have a set of words to identify variations in speech. These are language, dialect, and idiolect. A language is a set of words and the grammatical rules used to put the words together. A language enables a set of people to communicate. Even when people speak the same language there are often regional or class differences in the pronunciation, word choice, and grammatical structures. These are called dialects. For example, on the East coast of the United States many people put an extra "r" sound at the end of words, so "idea" sounds like "idear". These same people usually have pronunciation that distinguishes the words "Mary", "Marry" and "Merry". In the mid-west, those three words usually sound the same and are distinguished by context. In "standard" english the word "you" can mean either one person or a group of people. In the southern United States these are distinguished. "You" means a single person, "y'all" means a group of people, and "all y'all" means every single individual in a group. Idiolect refers to a particular person's pattern of speech. Each of us has idiosyncratic patterns of words and expressions.

The division of speech into languages, and languages into dialects is not precise and different people will argue for different lines, but there are clearly different languages and different dialects. Even people raised together in the same family differ in word choices and modes of expression.

These same sort of groupings exist in many other areas of human life. For example, Christianity is analogous to a religious belief language, Lutherans have a "dialect" of Christianity. If you question closely you will find that each individual Lutheran has a particular and distinct set of beliefs. The same is true of politics. The industrialized democracies of Western Europe and (to a lesser extent) the United states have similar structures to create and change government officials through elections. This is the political language. The dialects typically have the words "liberal" and "conservative" attached to them, though the meanings of these words is different in different times and places. Finally, there are personal differences. Even the most ardent "conservatives" will differ on basic issues.

With belief structures, it is often true that the most violent disagreements occur between groups that agree on almost everything. For example, Shiite and Sunni muslims. In Christianity there were centuries of violence between Catholics and Protestants. When someone has beliefs that are completely foreign, it seems to be easier to dismiss them as outsiders to be ignored or tolerated. If someone almost agrees with you, then the differences are stark and it is hard to understand how the other person can be so sensible on some issues but so obviously and completely wrong on others.

There is a quote attributed to various people (including Wilde and Shaw) describing the United States and Britain as "Two great nations divided by a common language". In some sense we should treat everyone this way. Be aware that words and phrases, and hence the ideas they represent, have different nuances of meaning for each speaker. It is necessary and desirable in common conversation to gloss over these differences. But, when the stakes are raised and common understanding must be achieved, be very careful about examining these differences.

The hardest social problem I know

2009-02-07T15:27:00.000-08:00

As humans, many of our problems are social. I want to share what I consider to be one of the most difficult problems I ever encountered as a parent. If you find a person who has humanely (or even inhumanely) solved this, I think you are in the presence of true social genius. The problem:

Get a junior high or high school girl to ride a bicycle to school wearing a bike helmet.

Many of us have found a way to get the girl on the bike, but I know of no way to get a helmet on that girl. Having perfect hair is just too important.

I also believe that these same girls show us the true limits of human endurance. Go to a cold climate and observe junior high students. Beanpole girls with negative body fat will have bare legs and light jackets at twenty below. They must be part hummingbird to have a metabolism that can heat a body in those conditions.

Why Does Government Interfere With Markets?

2008-12-30T07:31:00.000-08:00

Since I wrote my blog post on big vs. small business I have been thinking a fair amount about the role of commerce in society as a whole and our view of commerce in the United States.

This story has to do with the cultural narrative about economics and choice. In some of the circles in which I run it seems that people have a simplistic notion of economics. The basic story is that the free market, unencumbered by government intervention, is an ideal condition and that deviation from this ideal is a distortion that is bound to backfire. I do not put this argument forward as a straw man. I hear the simplistic point of view expressed and I think it influences public debate and policy in the United States. Since the financial meltdowns and obvious abuses of 2008, the argument has lost some power, but it is still seems to be a bedrock view for many people.

The argument starts off with free market economics. In a free market buyers and sellers negotiate with each other to establish prices. Goods that better satisfy a need are more popular in the marketplace and command a higher price and perhaps higher profit. Higher profit draws competition which tends to reduce price and profit. This in turn spurs innovation in both production (lower production costs at a fixed price increases profit) and the good itself (better satisfaction of the consumer need leads to higher price and profit).

The second step is laissez-faire economics. If a free market leads to better satisfaction of self stated needs (ever cheaper and better products), then any interference with the operation of a free market is a distortion that will lead to less than optimal results. In this view, government intervention in markets should be restricted to ensuring that they are free. Any discussion of government intervention centers around whether the market has ceased to be free and what the corrective mechanism should be. For example, intervention to break up monopolies may be considered to be a restoration of a free market. If there is a single supplier of a good and that supplier can prevent the emergence of competitors the free market ceases to operate and government may intervene to restore the free market.

In outline this seems sensible and, I believe, is the basic narrative for economic discussion in the United States. There are some hidden simplifications in this basic narrative. Serious discussions of economics and society should at least acknowledge some of the additional complexities. I will go through a some of these in what I consider to be reverse order of importance. As I move toward the more important considerations the discussion moves farther from strictly economic concerns.

EXTERNALITIES

Hidden in the free market explanation is the assumption that the important parties in an economic transaction are the buyer and seller. This is often untrue. The classic case is pollution. A mine or factory may produce a good but as a side effect pollute air, water or land. The people downwind or downriver may pay a price for additional health care or reduced utility of their property, but this cost is not reflected in the transaction between buyer and seller. These are called externalities because they are costs or benefits that are external to the buyer and seller in the transaction. When the externality is a cost, the price paid for a good is artificially low, so the good tends to be overproduced relative to the overall benefit. While we normally discuss externalities in terms of costs there can be external benefits as well.

Externalities are sometimes time-based. This brings up a second shortcoming of the simple free market story. Transactions are based on immediate needs and products. It is true that each actor may be planning for the future, but the transaction is today and the evaluation of price takes only the immediate situation into account. This is easy to see in the exploitation of natural resources. The cost of tropical hardwood is based on the immediate supply of tropical trees. As long as there are large stands of forest, the cost of the hardwood basically reflects the cost of cutting and transport. As the forests decline, the wood will become more scarce and the price will increase. But that will only occur after the native utility of tropical forest is lost, essentially forever. The immediate cost and profit available from the trees is taken into consideration, but future utility of the rainforest is not.

For future externalities some of the problems are often simplified as the "tragedy of the unregulated commons". For situations like logging and fishing, the resource is not controlled, so there is no immediate incentive for anyone to restrict their activity. Each individual has an incentive to exploit the resource until it is gone.

In the United States the predominant reaction to the tragedy of the unregulated commons is to privatize the resource. For example, pollution can be addressed by capping and trading emissions. Resources like fisheries can be sold to individuals. This gives the owner a greater incentive to consider the long term in managing the resource. There is another solution. The basic problem is the tragedy of the unregulated commons. Resources can be regulated instead of owned. For example, Balinese rice farmers traditionally handled allocation of water by setting irrigation schedules. The water was controlled by the community instead of individuals and a water board arranged irrigation schedules to grant use to the farmers in the community. Once we agree on a problem, the solution may depend on both the physical and social situation. For example, for preserving fisheries a combination of protected reserves around the most productive areas and owned fishing rights in other areas seems to be most effective.

EXTERNALIZING COSTS

To the extent they can, businesses will always externalize costs. A cost not paid is direct profit to the business. A simple example can be seen in the retail market. In many stores there is no one who actually understands the products being sold. The job of understanding the products and their fitness for the task is left completely to the consumer. This allows the store to hire fewer, less skilled, and cheaper workers. On the whole, consumers seem to prefer this model. There has always been a conflict of interest between the salesman as a purveyor of information and the salesman as someone trying to sell the products on the floor. Another example, is "big box" stores like Sam's Club or Home Depot. These are essentially warehouses open to the public. The selection and price make it likely that the consumer will find something close to what they need at a relatively low price. The externalized costs include transportation. The larger store draws customers from a larger area, so rather than have to reship to more, smaller, local stores the company can stock a single warehouse and let the consumer transport goods the final miles.

For many businesses the largest cost is labor. Lowering labor costs can be done in a number of ways. Typical techniques include automation, de-skilling work, and externalizing labor costs. Automation typically reduces the amount of human input needed in a process. On the whole, this tends to increase the quality and reduce the cost of goods and services. Skill implies experience and training. Skilled workers get higher pay because it is cheaper for the business to pay a higher wage to a known skilled worker than to risk the time, energy and lost productivity of training an unskilled worker. Externalizing labor costs can be done in a couple of ways. Pushing needed work outside the boundaries of the business decreases labor costs. So does forcing labor costs outside the business.

The contemporary supermarket shows all these trends. The supermarket itself was an innovation that reduced labor costs by having the consumer choose products directly off the shelf (externalize work). Two generations ago, supermarket prices were marked on each object. Stockers had to both put items on the shelf and mark the prices. The advent of the bar code and scanner eliminated the need for marking prices on individual items (automation). It also eliminated the need for checkers to know produce prices or how to work a cash register (de-skilling). The checker's job today is sufficiently deskilled that customers now check themselves out (externalize work). This does two things, it reduces the number of employees needed and it reduces the wages of those who are left because they can be replaced easily.

Forcing labor costs outside the business is an interesting development. Businesses do this on both a short term and a long term scale. When there are jobs, highly skilled workers are largely exempt from these processes because they can demand and receive higher wages. In the short term, unskilled labor always commands a lower price. The floor of this price is somewhere near the minimum amount of pay it takes for a single person to live. The existence of a public safety net reduces this number. For example, if a low income person can have food subsidized through government food stamps, and medical care through Medicaid, then the business hiring low skill workers can effectively subtract that amount from the wages paid to low skilled workers. In one idealized labor market, workers move completely freely between employers and employers pay for exactly the work done while the person is working. Unfortunately, people sometimes get sick and always, if they are lucky, get old. The most fortunate among us spend about a quarter of our lives under the care of others and unable to gainfully work. The society as a whole must pay for this downtime. For a brief period of time in the United States, many employers took long term responsibility for workers in the form of pensions. These defined benefit plans have essentially disappeared and it is the responsibility of employees to make provisions for old age in the form of defined contribution plans (e.g. 401K plans). Employers may provide such retirement plans, but are not compelled to. Employers may contribute to these plans, but are not compelled to. The net effect is to push the long term care of those who cannot work, particularly low wage earners, onto the government.

ASYMMETRY OF POWER

In a true free market, both buyer and seller freely enter into an agreement and choose to make the trade. In fact, this ideal rarely holds. When we add to that the almost limitless capacity for cruelty in our species, abuse and exploitation become almost inevitable.

Asymmetry in trading power only matters if one party or the other is effectively forced to trade. It is unimportant for non-essential goods. For example, manufacturers of television sets can conspire on price. This will raise their relative prices, but if the price becomes too high, buyers will simply withdraw from the market. Essential goods include employment, food, and shelter. Employment is probably the most important of these and the root cause of much abuse.

First let me say that employment is a squishy concept because individuals do not have to trade their labor for money. Anyone who has skills or goods can become self employed. That said, the ability of people to become self employed also depends on macro economic conditions. The level of self-employment has varied tremendously over time. In the United States, self employment probably reached its zenith in the early Eighteenth Century when vast tracts of land were opened to ordinary people and the ideal of a country of yeoman farmers seemed within reach. Right now, no more than 10% of the population is self employed http://www.smallbusinessnotes.com/aboutsb/rs243.html.

When there are more people than jobs, pay decreases and conditions become more miserable. To understand the necessity of government intervention, the words "triangle shirtwaist factory" should be sufficient. The height of abuse can be seen in company towns, where the employer controls not just employment, but food and shelter as well. Prices for necessary commodities can be set slightly higher than wages resulting in virtual slavery. As the Merle Travis song says:


You load sixteen tons and what do you get?
Another day older and deeper in debt.
Saint Peter, don't you call me 'cause I can't go,
I owe my soul to the company store.

LOCAL DECISIONS, GLOBAL OPTIMUMS

I certainly feel best when I can freely make my own choices. I like to think I make good decisions and I suspect others feel the same way. It seems to be an article of faith in the U.S. that these sorts of personal and local decisions lead to an optimum (whatever that means) for the society as a whole. Or if individual decisions do not lead to a global optimum, they are still better than any other decision making regime. This fits well into laissez-faire, free market economics. If each of us is left alone in the economic sphere things will work out as well as they can.

We can take this a step further and say that the definition of global optimum is the result of completely free economic choice. Let us avoid that tautology. In social situations, where each person has his or her own views, it is hard to make any decisions about "best" or "optimal". However, there are situations that we can agree are "not best". As a society we have some agreements about unacceptable situations. Check the papers after someone has been denied medical care and died as a result (http://www.msnbc.msn.com/id/25475759/, http://www.bookrags.com/news/911-dispatchers-denied-dying-woman-moc/).

The notion that laissez-faire economics leads to any kind of global optimum in the real world is vacuous. As any physicist will tell you, there are local optimums that are difficult to escape, but are far from a global optimum. In the economic sphere the parties to a transaction often cannot make free and rational choices; there are almost always inherent asymmetries in power and information. Given this, it takes blind faith, unsupported by fact, to assume that a reasonable, sustainable society can be built strictly on economic choices.

Some government interventions are aimed at creating a better global situation than simple economic transactions can provide. Public funding for education is one example. Everyone, particularly property owners, is charged for public education whether or not they have children. The same is true of child nutrition programs. The benefits of these programs cannot be seriously questioned. The quality of childhood education and nutrition drastically affect the quality of life and the productivity of the adults these children become. By making education and nutrition artificially cheap, we encourage "overuse" of these "products". The benefits may be clear, but the distance in time and space between investment in the child and the payoff in the improved quality of life of the adult is too large to be handled by ordinary transactions.

NOT EVERYONE PARTICIPATES ECONOMICALLY

In most societies, only about half the population directly get income. The other half are too young, too old, too infirm, or participate in direct unpaid work caring for those people. That means that on average, each wage earner supports a non-wage earner. The largest part of this income transfer is within families as family members take care of each other.

It often happens that those who cannot work do not have families to take care of them. Sometimes the most economically ruthless among us seem to take the attitude Oscar Wilde parodied. "To lose one parent Mr. Worthing may be considered misfortunate, to lose both looks simply careless". In all industrialized nations there are welfare programs that take the place of family income transfer where that is not available. We have these programs because, as a society, we have decided we do not want people starving and dying on the streets.

Even when people are gainfully employed, it often happens that there are catastrophic events that can bankrupt them. These are typically medical emergencies, but there are other emergencies like fire, tornadoes, hurricanes and global economic collapses. All industrial countries have a mix of private insurance and government aid for these events. In the United States, there is a large reliance on private insurance and personal bankruptcy. The government does step in for national disasters with a combination of direct aid, grants, and loans. For medical expenses, the government provides a floor on care with Medicaid and Medicare. To smooth temporary job dislocations, unemployment insurance is mandated.

Where there are welfare (including Social Security in the United States) and emergency aid programs, they must be paid for. In the United States these programs consume roughly half of the federal budget. That means overall taxes must be set high enough to cover these costs. These taxes are straight, necessary, income redistribution.

ECONOMIC VALUE VERSUS HUMAN VALUE

My basic objection to the simple laissez-faire free market story is much more basic. In the simple story, monetary value is essentially equated with human value. This view cheapens us all.

We live in a money economy. The economy puts a value on goods and services. The tendency to confuse monetary value with personal value is natural. As I look at my life, the falseness of this becomes clear. Many of the things that make my life worth living have no monetary value and I would be insulted if anyone tried to put one on them. For example, the chance glance of a beautiful woman, a sunset, a musical passage that I happen to play well. I could pay a beautiful woman to smile, but the mere existence of payment cheapens the experience. Things I purchase often have a personal value far in excess of the monetary value. My filing cabinet and my cordless power drill are two inexpensive items. They are inexpensive because production and intellectual property costs are low. They have improved my life immeasurably and I value them greatly. Although their manufacturers would be delighted if they could charge me in proportion to the personal value I place on them, this would be unfair and artificial.

Human value is distinct from monetary value. Sometimes it is practical to pretend that human and monetary value are interchangeable (creating markets for clean air) but let us acknowledge that this is a pretense. We are economic animals, but that does not mean we can be explained, or our actions should be based, strictly on economics. This simplistic view makes no more sense than insisting that because we are sexual animals, all our behavior and decisions are based on sex.

Because I have gotten to sex, I feel I can end this little essay.

Large vs. Small Businesses

2008-11-30T17:33:00.000-08:00

When I first left graduate school I worked for about a decade for a very large company with close to one hundred thousand employees. After that I started working with and for smaller companies, often with fewer than ten employees. The company for which I currently work is less than ten years old. In that time it has grown from about five people to around two hundred. During my three years at this firm the feel has moved from that of a small company to that of a large company. This has prompted me to think about both the forces that favor either large or small businesses and the human consequences of each.

I believe that organizations are becoming larger, that this is inevitable, but it is a dangerous trend for a couple of reasons. One is increased risk to the society as a whole. A second is depersonalization that treats humans as disposable commodities.

THE LARGE BUSINESS ADVANTAGE

In the United States, the Census Bureau keeps statistics on industries, employees, payroll and revenue. See http://www.census.gov/csd/susb/susb.htm and http://www.census.gov/epcd/www/smallbus.html About seventy five percent of businesses have no employees but these account for less than four percent of all business receipts and will be ignored here.

My data analysis here is simple minded, but I think the trend is obvious enough to eliminate subtlety.

In 2002 businesses of 500 or more employees accounted for about 59% of all receipts, 50% of all employees and about 55% of all payroll.

Very large businesses, those with 10,000 or more employees, accounted for about 35% of all receipts, 27% of all employees and about 30% of all payroll.

In 2002 there were about 5.7 million businesses with employees. Of these, 891 (.015%) have sales or receipts of 2.5 billion or more. That small fraction of businesses accounts for 42% of all sales or receipts. They account for 23% of all employees and about 29% of all payroll.

100% of employees generate 100% of receipts, but these are not evenly distributed for firms of different sizes. The 891 businesses with receipts of 2.5 billion or more got 42% of receipts with only 23% of the employees. That means the rest of the businesses require 77% of all employees to get 58% of receipts. Larger businesses pay their employees more than average. For those 891 firms, their 23% of employees get 29% of all payroll, but that 6% difference in payroll/employment is dwarfed by the 19% point difference between receipts/employee.

Firm Size	receipt%	employee%	payroll%	receipt% - employee%	payroll% - employee%
500+ employees	59	50	55	9	5
10,000+ employees	35	27	30	8	3
2.5 billion+ rev.	42	23	29	19	6

Looking at different size businesses, the disproportionate revenue and employees hold, but it is not as simple as more employees implies more efficient. Other issues, like the type of industry, play an important role. I do not have the data or the time for more than this cursory analysis. Larger businesses seem to have an advantage.

Business failures have been studied. Here too, larger businesses seem to have an advantage. Larger business go bankrupt less often and failures take more time. Smaller businesses are more inclined to quick death rather than a long lingering death. The reason for these failures have been studied, but the results tend to boil down to "bad management", by which is meant lack of planning, lack of proper controls, or even bad salesmanship. Because everything is more ad hoc in smaller companies, the opportunity for both mistakes and fraud increase.

I have not found good data on long term trends in business size, but I think it is safe to say that the largest organizations have been getting larger and that large organizations take a larger portion of the economic pie. Much of this is due to the computer and telecommunications. Computers have automated processes and eliminated the need for human involvement. Telecommunications allow those automated processes to be accessed from anywhere and at any time. I can go an a trip with no human contact with either the airline or my bank. Reservations and accounting are completely automated. The volume of transactions handled by the average airline would have been impossible a century ago. In the same way, markets can be searched and supplies bought with little human intervention. This allows for more efficient business, but only if the business venture is large enough to buy the expensive systems needed.

LARGE BUSINESS CHARACTERISTICS

I think the root of the advantage for larger businesses is a larger financial cushion. Small business tend to operate closer to the edges. One edge is the number of customers. It is not uncommon for a small company to rely on a small number of clients for the lion's share of income. If something happens to the relationship with one of those major customers, the small business may have no way to recover. On top of that, small companies often borrow money for initial company set up and for expansion. This debt is a fixed operational cost while revenue is dependent on highly variable sales. Large businesses typically have some diversification so that an unsuccessful segment can be subsidized by more successful segments. This makes the total revenue less susceptible to radical swings.

Larger sales volume also means larger absolute profits that can be reinvested. A small company selling a million dollars a year with a 10% profit margin gets one hundred thousand dollars a year that can be invested in product improvements and company efficiency. A large company selling one hundred million dollars a year with a 5% profit margin has five million dollars to invest.

Companies with more customers can also amortize investment over the larger set of customers. I suspect the most comfortable chair each of us owns is the driver's seat of our car. The driver's seat has been undergoing research and development for close to one hundred years. Sales volume at a large car manufacturer gives it the funds to invest in design to keep up with the latest materials and technology. For a company like Ford, GM, or Toyota, I suspect there is at least a man-century of engineering design invested in their automobile seats.

When a company decides to reinvest profit there are two major areas where the money can be spent. One is business process and the second is product development. Over time, the processes used to decide where to reinvest money tend to be formalized. Money is tracked more carefully and each person must be prepared to explain where and why money is being spent. This leads to careful evaluation of prospective markets and the best way to meet those needs. Tight accounting processes reduce the risk of small scale fraud. On the product development side, manufacturing processes are streamlined and the methodology for creating and refining products becomes more formalized.

Conceptually, this formalization is a strength because the business can constantly improve processes. As the process becomes more fixed, standardized documentation of work and results become more important. The person who performs the work has fewer choices in a standardized process. Jobs are categorized and it becomes less important which individual from the category does the work. This depersonalization allows the business to continue smoothly in the face of personnel changes and reduces the skill level needed for any particular job. At the same time, the business can afford to pay somewhat higher wages and, theoretically, attract more competent employees.

More formal processes take a great deal of time and energy to create and just as much to modify. That ossifies the business processes. In addition, the emphasis on written, formal communication as the basis of decision making slows the business.

I do not know of any evidence that shows that more formal planning processes are more effective the the ad-hoc planning that tends to be used in small businesses. In both cases, the basic decision making is actually made at a high level of the organization, usually by a single person. The formal process simply reinforces and refines the decision. In fact, the basic direction is generally decided before the machinery is started. More formal development practices are also largely unproven. Formal processes tend to quantify and avoid yesterday's errors, but they do not prevent tomorrow's.

SMALL BUSINESS CHARACTERISTICS

By contrast, small businesses tend to have fewer established procedures. Workers are not interchangeable and the enterprise tends to be more personality driven. In small enterprises jobs are less categorized and people have both a wider range of tasks and more discretion in how they are performed. Small businesses are less stable year to year than a large business, but day to day they are generally more humane and pleasant to work in.

The lack of completely established procedures allows small business to evaluate the business situation day by day and to respond quickly to changes. Most of the formal planning processes used by larger businesses do not work any better than the ad-hoc planning of smaller businesses, but large businesses have guaranteed overhead that makes them slower. Large business review processes also make it less likely that any given idea will make it to the marketplace. Lots of people can say no. Few people can say yes.

There are some business niches that require a large capital investment to exploit (e.g. large LCD screen manufacturing). Aside from these, small organizations are much more likely than large firms to find and exploit new opportunities. Large organizations simply cannot perceive and act quickly enough.

There is a symbiotic relationship between smaller and larger businesses. Larger businesses often view small businesses as a zero cost research and development arm. Most small businesses fail. The successful small business identifies a market opportunity. If the opportunity is one that can be scaled, the small business becomes a target for acquisition by a larger one. One of the most common strategies for high-tech entrepreneurs is to identify a niche that new technology makes available, create a small company that exploits the niche, then cash out by selling the small company to a larger one when the market is confirmed. This works well for the small business owners, but less well for the employees.

WHY VERY LARGE BUSINESSES MAY BE BAD FOR US

Network theory has shown us the value of self organizing systems of small components. This is true of both biological and technological systems. Systems created in this way can be self healing and require less intelligence at each node in the system. That is because failures tend to be local and are locally repaired. For example, internet routing is remarkably resilient in the face of many single failures because each routing node can detect and work around failures of its neighbors.

An economy based on fewer, larger players loses these advantages. Simply because of their size, large enterprises tend to be tightly coupled. The meltdown in 2008 showed this quite starkly. All of the large financial players were tightly coupled in risk and the risk was contagious. The mechanisms used to hedge the risks in fact increased the coupling and magnified the risk. Home loan risk reduced the capacity of the system for all loans and that infected all businesses that required credit.

Having fewer, and larger players is inherently riskier for the economy as a whole. This is not a problem of monopolies. It occurs when power in any segment of the economy is concentrated among very large interconnected players. A second problem is in the relationship between the company and its employees.

As a manager in a large business, my concern is business efficiency and profit. The natural tendency of the business to formalize processes and standardize jobs aids this because it makes labor more interchangeable. From an economic point of view the ideal labor market is one where both workers and employers are completely unbound. That is, if a better opportunity comes along for me as a worker, I should quit and take it. As an employer, if a more cost effective worker is available, I should fire a current worker and hire the new one.

As a high tech worker, this open marketplace has been the reality for me. Over the past fifteen years I have changed jobs about once every three years. About half of those changes were because I was offered a better position somewhere else. About half of the changes were because the business folded or was bought.

This open market of employees is very good for employers and would be good for employees if opportunities for work existed everywhere, and the workers were perpetually twenty five years old and in good health. However, that is not the real world. Jobs are often moved wholesale from one location to another leaving behind high unemployment that cannot be absorbed by the local market. For individuals, a perfectly open market is simply a way for employers to dump workers with temporary or permanent problems and to shift work location for even minor economic gains.

This type of labor fluidity is only reasonable if we as a society commit to those left behind. So far, I think the United States has done a very poor job of helping unemployed workers create and take advantage of new opportunities.

It is my experience that small enterprises, by their very nature, care more about individual employees. Small groups of people form loyalties. Any business faced with survival, will fire employees. In a small business, these decisions are personal. In a larger business, the decisions are impersonal. I have worked with a number of large employers where the decision to fire large numbers of employees and move the work to a different country is strictly a spreadsheet decision. If we are solely concerned with short term business efficiency, that is how the decision should be made. If we care about the communities in which we do business, if we care about the people with whom we work, this is not how the decisions should be made.

Software and Chaos

2008-11-09T12:30:00.000-08:00

As with many of my blog posts, this is a little long. To make things slightly easier, here is a map

The Problem
My Experience
Business Expectations and Results
Software and the Elevator Speech
All is Not Lost

THE PROBLEM

Roughly seventy five percent of all software projects fail in the sense that they cost more than expected, deliver less than expected, or are delivered later than expected. This has been true for decades. Behind the scenes at these projects is untold stress and pain as development teams and management try to cope. This coping typically starts when it becomes apparent that the carefully constructed project plan does not describe what is happening and "success" is unlikely. I would like to believe that my projects perform better than average, but many of them go through this readjustment to reality. It starts with a meeting where the current situation is explained and options are explored. At some point, someone asks what went wrong, and all eyes turn toward me as system architect and technical manager.

I pride myself on being honest and not ducking blame. I go through a careful analysis of projections and actualities. I point out places where we made mistakes and where we may have lost time, but also explain that this is not where most of the problems lay. I point out the areas where there was unanticipated work or where an underlying system did not perform as expected.

All of this is true, but it is not the actual problem. The actual problems are structural, and most organizations with whom I work will never make the changes necessary to rationally develop software. They will not change because they cannot accept the truth about the type of software development I work on. No team, regardless how smart or how much time is spent in planning, can accurately predict the effort necessary to produce the software. The predictions of effort are based on what is known and are always optimistic.

MY EXPERIENCE

Let me preface this with some characteristics of the projects I work on. My generalization may not apply to other types of work. I work on new development. Typically it is putting a system in place to replace some existing process. Often there is no existing software in place. In the case where there is existing software, the organization plans to completely scrap that system. Along with new software, the business processes will be substantially changed. The projects are usually medium sized, say three to fifteen developers working for between six months and a year and a half.

The parent organization is usually quite large, but not a software development house. They usually have an IT department that maintains and expands existing software. They may have a reasonably large body of homegrown software, but developing new products is not their expertise. The existing IT staff is often expected to do much of the development work. It is common for the organization to have outsourced their data center operations.

These are generally business and process problems, not the development of shrink wrapped products. I have worked on products as well. The details of the problems change in product development, but the basic outline remains.

BUSINESS EXPECTATIONS AND RESULTS

Modern business is based on rational sounding self deception. As a rational business person faced with investing in the future I want to get answers to a set of questions.

What business are we in?
What and when are the opportunities?
How much will it cost to address the opportunity?
How much will we earn if we are successful?
What are the risks of action and inaction?

There are existing tools to address each of these questions. Upper management usually spends a lot of time and money to define the business. This includes vision statements as well as long and short term goals. Market research is used to answer the what, when, and size of opportunities as well as the cost of inaction. Technology research and initial product research are used to estimate the cost of action.

Given this information, I can compare projects to project the highest return on the investment. As a rational person I want to guard against incomplete or incorrect information, so I will want information at every step of the way to make sure assumptions were valid and to readjust the course. Recognizing that it is cheaper and easier to correct errors early in the process, I will want to make sure that we understand the problem and the solution as early as possible. This leads to a typical waterfall process.

Gather Requirements – understand the problem
Detailed Design – understand the solution
Implementation – fill in the details
Test – make sure users see a reliable product
Release – cha ching - here is where we get the return on investment
Support – if we have done things well, we can minimize support

After every step of this process there are checkpoints to assess progress and readjust based on our best information.

This is called a waterfall process because it moves in one direction, at the end of any stage, it is difficult to move back upstream.

The end result of this rational process is generally failure. Not just failure to deliver the software as envisaged, but failure at every step. Management changes in the middle of a project are common. With every change in management there is a shift in the way the business is understood. What was critical yesterday is marginal today. Market research is almost invariably wrong. You can confirm this yourself. Take a look at your marketing reports from two years ago. Project requirements change in the middle of the project. This is one of the most commonly listed critical problems in software post-mortems. The implementation takes longer than projected. As the pressure mounts because the project is late, developers hack functionality together to meet deadlines. Adequate testing is often one of the first casualties. As the bugs mount and the project slips, functionality is cut. Test exposes defects that require rework and sometimes the rework is not simple bug fixing. Sometimes the fix requires major architectural work. When release finally occurs, users find that things they consider essential have been chopped out, or the carefully crafted requirements do not correspond to the way users work.

The sad reality is that this process will fail for all but the most constrained projects. The large uncertainties inherent in the world combined with our limited ability to understand and communicate our understanding doom the entire methodology.

In the software community, almost no one believes that waterfall processes are either effective or desirable. The first descriptions of the process describe its failures as well. The failures have been spectacular. The US Federal Government has had numerous multi-billion dollar projects that have been complete losses (FAA - 2.6 billion IRS - 4 billion http://spectrum.ieee.org/sep05/1685/failt1). The money would have been better spent if it had been bundled into logs and burned to provide heat for the poor. Despite this, many large organizations mandate a waterfall approach. In large organizations around the world, untold amounts of money are spent to describe, mandate, and adjust a process that will never work.

SOFTWARE AND THE ELEVATOR SPEECH

"I'm a busy man, tell me what you want." This is the origin of the elevator speech. As an entrepreneur you find yourself in an elevator with the very person who can fund your project. You walk in and by the time the elevator gets to your floor you want to hook the prospective funder. To do so you answer the implicit questions, What am I going to get (and why should I care), when am I going to get it, and what will it cost? You have perhaps a minute to hook the person.

The basic problem is that the "what", "when", "how much" questions are essentially impossible to answer. The world is chaotic in the mathematical sense. That is, the circumstances that lead to wild success are often indistinguishable from the circumstances that lead to complete disaster.

Even in constrained fields like books and movies where the processes to develop the end product are well known and understood, no once can predict the success of the final product.

For new software, the prediction problems are magnified. The problems I address typically span multiple groups in an organization and involve manual processes that currently require human judgement. It is common that no single person in the organization understands the entire problem. Like the blind men and the elephant, each individual understands the the part they are touching, but no one sees the whole.

I always say that there is only one thing worse than fully specifying a computer system before code is written. It is getting the system that was specified. No matter how carefully we work, the requirements specified at the start of the project often prove untenable in real life.

At best, the process itself encourages wishful thinking. At worst, outright lying. Software is expensive. In a world where the low bid sets a general bar, there is every reason to underestimate the uncertainty and to assume that everything will work as predicted. As a result, I get to sit in meetings where someone asks the "what went wrong" and all eyes turn to me.

ALL IS NOT LOST

Although this picture is bleak, the software development community has developed techniques that actually work. Most of these fall under the rubric "agile development".

Agile development is the antithesis of the elevator speech. The answer to the what, when, how expensive questions are: I don't know, I don't know and I don't know. Agile development says that if you want to get effective systems in place, you get a bunch of smart people in a room and let them loose. The pact with the business is:

Choose the project as best you can.
Define a level of investment.
Involve customers from the first day to the last.
Address the most important customer problems first.
Produce working software early and often.
Insist on complete transparency.
If cost is too high or benefit too low, pull the plug.

That is, as a software provider I will provide actual value as quickly as possible and if I don't earn my keep, fire me. Because large systems generally have a roll-out to a large number of end users, it may be a long time before the system is actually deployed, but every three weeks or a month there is a new, actual working system that can be evaluated, tested and re-directed. When that system provides enough value to warrant its deployment, roll it out. After roll out, continue investment so long as the implemented improvements justify their own cost.

Rules Schmules

2008-10-19T15:13:00.000-07:00

There is a joke among business consultants that when you go into an organization, figure out if they are a top down organization where decisions flow from above, or a bottoms up organization where individual units have a great deal of autonomy. If a business is top down you recommend it become more bottoms up so that individual units can understand and respond to the marketplace more quickly. If it is bottoms up you recommend that it become more top down to avoid chaotic redundancy and lack of focus.

There is a lot of truth in this. There is no ideal organization. Every organizational structure has problems. Over time, organizations tend to oscillate between structures based on the current set of problems. The same is true in other aspects of life. Should dictionaries be descriptive or prescriptive? How much freedom should parents allow their children?

This note is about the balance between individual freedom and enforced order. Based on what I see in the United States, I think the pendulum has swung too far toward order and it is time to move toward more freedom of action. I think the current situation is largely based on unreasonable fears combined with a desire to make the world safer for ourselves and our children. The end result is not a safer society, but a society with less freedom and more rigidity of thought.

I think the current situation is based on widespread misunderstanding of humans and their capabilities. As a species we are remarkable in our ability to exist in social groups and to flexibly react to each other and the environment. Despite the fact that we are capable of unspeakable cruelty, on the whole we are extremely kind and cooperative with each other. We are also protective, particularly of the most vulnerable among us. I do not deny the atrocities and cruelty, the scams, the sociopathic behavior of both individuals and groups. I merely say that these are anomalies. Bad behavior makes the news and becomes a focus of our thoughts precisely because it is uncommon in a stable society like the US.

As individuals we also misunderstand risk and emotionally overreact to perceived danger. Lately Hans Monderman has been in the news. For example, Wired Magazine. Monderman was a Dutch traffic engineer who died in January 2008. Monderman improved safety by removing traffic controls. That's right, he removed speed limit and other traffic signs and signals to make the roads safer. At a busy intersection there is nothing to segregate pedestrian, bicycle, auto and truck traffic. He has a stunt to prove his point to reporters. I have seen several separate reports on this, but from the wired article:

We drive on to another project Monderman designed, this one in the nearby village of Oosterwolde. What was once a conventional road junction with traffic lights has been turned into something resembling a public square that mixes cars, pedestrians, and cyclists. About 5,000 cars pass through the square each day, with no serious accidents since the redesign in 1999. "To my mind, there is one crucial test of a design such as this," Monderman says. "Here, I will show you." With that, Monderman tucks his hands behind his back and begins to walk into the square - backward - straight into traffic, without being able to see oncoming vehicles. A stream of motorists, bicyclists, and pedestrians ease around him, instinctively yielding to a man with the courage of his convictions.

From the International Tribune.

"Who has the right of way?" he asked rhetorically. "I don't care. People here have to find their own way, negotiate for themselves, use their own brains."

When asked, people who use these uncontrolled intersections say they are not safe, despite the statistics to the contrary. The fact that people do not feel as safe, as controlled, leads them to be more careful. Take off the explicit controls and people use their own judgment to behave in ways that increase safety rather than the perception of safety.

We have allowed our fears to distort our behavior and our society in ways that I find unacceptable. One example of this is the way we treat our children. As a seven or eight year old child I had large amounts of time that were unsupervised. My mother had a bell to call us in for dinner. As long as I was within earshot of the bell at that time, I could do what I wanted. When I got my first bicycle at about the age of seven, my world expanded and I was allowed to roam at will as long as I was home at designated times. Because our family was a large tribe I had more freedom than most, but I was not alone. At Halloween groups of children, without parental accompaniment, roamed miles from their homes to scour the best neighborhoods for candy. Neighborhood children organized their own games without supervision.

The United States has changed, but it has not become less safe. I do not believe that the rate of child kidnapping or abuse by strangers has increased. There is more traffic, but I do not believe that our neighborhoods present more dangers. What has changed is the level of fear. We have institutionalized the belief that the world is unsafe and children cannot be trusted to operate without constant supervision. As a result, elementary school children are not allowed to walk a quarter mile to school by themselves. Because parents believe that children can never be left alone, activities outside of school are supervised and, as a result, expensive. The constant supervision also diminishes the development of conflict resolution skills. I am not saying that adults should not look out for children. To the contrary, each of us has a responsibility to keep everyone around us safe, especially the young and defenseless. The world is unsafe. Children do not understand much of what is going on around them. But it is safe enough and we are here to help them.

The same attitudes and fears have helped turn children into incipient economic units. The current school debates focus on more time in school and more controlled school environments. This regimentation devalues the children and, in the long run, will hurt us economically. The genius of the American economy is our flexibility and inventiveness. As we become more regimented, as children's education become more standardized, I believe we lose that flexibility and inventiveness.

I recognize that I am neither typical nor a role model. In a sense that is my point. Few of us are typical. Only a few people think I am stupid or incompetent. I do well in a field that requires both constant education and inventiveness. I consider myself to be reasonably well educated. I also didn't do homework until I entered the university. Homework was assigned, I just never did it. My grades through high school were spotty, but performance on tests seemed to overrule the bad homework grades. As far as I know, no one ever considered holding me back. Based on college entrance tests, I was admitted to the university after my junior year in high school.

In junior high school instead doing my homework, I was reading a book a day. I read all the science fiction, "boy in the country", and biographies in the school library. In high school I was reading the daily newspaper, two to three weekly news magazines, and several monthly magazines including Scientific American and the Atlantic Monthly (it used to be a monthly). I also studied mathematics on my own. Had I spent more supervised time in school or had more structured after school activities, I would not have had time to get my real education. Looking back, I think I could have benefited from better schools. By better schools I mean those populated by more educated, and flexible teachers. I do not believe I would have benefited by more structure or more hours in school.

As a society we seem to have grown more and more rule bound. By rule bound I mean respecting and enforcing rules without looking at the sense of the situation. I have always followed Bob Dylan's dictum "To live outside the law you must be honest". A simple example from my masters swim group. We rent lanes at one of the pools in town. In addition to the pool life guards, we provide our own coach on the deck. The lifeguards and pool administration have recently gotten upset because some of our swimmers did not enter the pool feet first as the rules require. This is an experienced group of swimmers, many of them competitive. In my several years of swimming with the group, I have not seen a dangerous entry into the pool. The lifeguards either have no idea what is dangerous, have no idea why the rule exists, or are simply complaining about infractions for the sake of the rule itself.

As Monderman's practical experiments with traffic show us, posting and enforcing rules does not always make us safer. We are at our best when we take the time and effort to understand and respond to the particular circumstances in which we find ourselves.

Rules are a means to an end, not the end itself. The valid reasons behind the rules should be obeyed and enforced. If a rule is about safety and you are in a position to enforce, enforce safety not the rule. This is not a slide down a slippery slope toward anarchy. It is a slide down the slope toward respect and humanity. As with all things, you must do this intelligently and with awareness of your own limitations. Don't let your like or dislike of a person cause you to abuse your power and selectively enforce the rules.

If you are in a position to make rules, make sure that you are addressing a real problem, not the perception of a problem. Do not make rules in the mistaken belief that you can enforce conflict out of existence (the homeowners association fallacy). In work environments, try not to rigidly enforce standard practice at the expense of better solutions.

In our day to day lives each of us should remember the old saying, "People who like sausage and respect the law should never watch either of them being made". Rigid order is both impossible and overrated. Do the right thing. Help and protect those around you. This has nothing to do with rules, it has to do with humanity.

Following Politics Too Closely Makes You Stupid

2008-10-07T16:00:00.000-07:00

I'm reading (and recommend) "The Black Swan" by Nassim Nicholas Taleb. As with his preceding book, "Fooled by Randomness" it deals in part with human limitations in predicting the future and, in particular, our inability to judge risk.

One of his themes is what others call the pull of narrative. As a species we like a nice story and we also wonder what happens next. It doesn't seem to matter how banal the story is (gossip or business plans) or how outlandish (soap operas or business plans). We are drawn in. Something is being shown or explained. We want to understand how the pieces fit together and to imagine what happens next. One of Taleb's points is that the narratives we see and invent for the world around us are not only false, they also lead us astray and cause us to miss what is actually occurring. A black swan is something that we do not see coming, but seems obvious once it has occurred and we create an appropriate narrative. The current financial meltdowns are a case in point. We will be paying for the debacle for generations. While the seeds were being sown many smart, and sometimes well intentioned, people gave us a story about how the financial instruments at the base of the crisis reduced risk. Now that credit markets are freezing, we have new stories that tell how greedy people acted blindly and exposed everyone to grave risks.

In political discourse the same human foibles apply and are even magnified. Every side is selling a story. The vehicle for the story is mostly TV and radio through ads and news stories. Each installment of the story must be communicated in about thirty seconds. Very occasionally a full minute can be used. Because the audience only observes intermittently, each installment must be repeated many times to make sure everyone keeps up. This is one of the origins of "talking points". Consistent messages are easier to remember. Constant repetition makes it more likely the message will be heard, and more likely the ideas will be accepted at face value (everyone is saying it). This leads to a slow accretion of fragments that fit into a consistent theme or story that the proponent hopes is persuasive.

In an odd way, the fragmentary delivery of political messages makes them more effective. Like the next installment of a soap opera, new talking points fill in a missing piece and lead us to wonder what is next. The abbreviated format force reduction of the message to slogans and codewords that mean more than the actual statement. These not only reinforce the story, they act as cheers to emotionally charge supporters who have accepted the truth of the underlying message. All sides engage in this but, in the United States, conservatives have been much more effective at this style of communication. They just have better slogans. There are keywords like "liberal" and phrases like "tax and spend". They are even better at adjectives. One recent ad talked about an opponent supporting "massive government", which has succeeded the epithet "big government". Each of these keys on a part of a larger narrative. Political narratives have existed for as long as the human race, but the modern form is based on commercial advertising and uses all the tools and techniques of that craft including testing and focus groups.

Political communication has been simplified to mere advertising, but the problems we face are not simple. There is essentially nothing that can be learned about a complex situation in thirty seconds. Regardless of the party or position, every ad you listen too is misleading. The same is true of the news stories. Simplified communication can communicate at most first order forces. Complex situations are often the result of many different forces, some of them quite removed from the obvious.

I take one ad, http://www.youtube.com/watch?v=9pRHliGZl-o, as an example, not because there is anything special about it, but because there isn't anything special. It typifies the level of discourse. It happens to come out of the Republican camp. The ad shows gas prices going up, "the US has more oil resources than Saudi Arabia" but "85% of it is off limits" and the opposing candidate "voted against development of American energy".

The first level of skepticism should be the facts presented. Anyone who works with numbers about the real world knows how difficult it is to get valid numbers and that the numbers are usually based on simplifying assumptions. The statement that the US has more oil resources than Saudi Arabia presumes that we have a good idea about what those reserves are. For both the US and Saudi Arabia, we do not know about the reserves. Some of this is genuine ignorance (we haven't looked), some of it is global politics (the Saudi's have every reason to lie). It also depends on what you mean by "reserve". Does oil shale in Colorado count the same way as a typical Saudi oil field?

Moving past the "facts" we get to the implied world view. Implied is the notion that gasoline and oil are synonymous with energy and that lower gas prices are good public policy. Beyond that is the notion that opening the 85% of reserves that are off limits will reduce the price of Gasoline. None of these are particularly good assumptions for reasons that would take more than thirty seconds to explain.

After hearing a typical political ad or even candidate speech, you are actually more ignorant than you were before. You have been deliberately deceived and your emotions played upon to accept a world view that is questionable and policies that, if you investigated further, you might very well disagree with.

What to do then? Try to get real information. On the whole, books are much more valuable than any kind of daily/weekly/monthly news. But recognize that books can be commissioned as propaganda as easily as many other things. Trust authors who examine the situation dispassionately and who genuinely research all sides. If you are interested in oil, do not start with anything political. Instead, read science articles on exploration and estimation. On most subjects it is best to get a good grounding in the state of the information and its limitations, then move to issues of policy. At least you will recognize the blatant distortions.

Policy has to do with where we are and what we want for ourselves and the world. In terms of policy, it is not enough to have an intent, we must also examine the risks, the likelihood of failure, and strategies that have worked and failed in the past. Because each of us is in a different situation, wants different things, and weighs choices differently, your judgements on policy and tactics will differ from your neighbors.

If you do all this, you will be as well informed as you can. You will also be wrong on basic issues. The way you think the world works will be incorrect. There is no avoiding this. The world is a complicated place. We just do the best we can.

Machine Politics

2008-09-21T15:51:00.000-07:00

Political machines are self perpetuating systems generally based on personal loyalty and patronage. In the United States people generally think of political machines in terms of large cities. For example: the Richard Daley machine in Chicago, Tammany Hall in New York. But a political machine can exist at any level of government. At the state level we have had Huey Long in Louisiana and Thomas Catron in New Mexico. At the national level, Tom Delay ran a comprehensive and relatively effective national political machine.

The nature of a machine depends on the power structure of the society in which it is embedded. In societies where political power is influenced by election, the basic mechanics of the machine center on getting votes. In hierarchical societies (feudal, tribal...) machines center on fealty often coerced by violence.

Political machines are not an aberration. They are based on an essential part of being human. As a social animal, we live in groups. We band together for mutual support and protection. We form friendships and animosities. We try to help our friends and expect them to do the same. When someone thwarts our plans, we will undermine him in order to accomplish our aims. Political machines are not unalloyed evil. In order to maintain a power base, a machine may be extremely response to their supporters. In many cases this improves government services. In supporter's areas, the trash is picked up and the roads are good.

Political machines are about power. Its members may espouse, and believe in, a particular ideology, but the heart of a machine is not ideological, it is personal. A machine must have a way to reward supporters and punish enemies. In fact, one of the hallmarks of the machine mentality is an enemies list.

For political machines the source of power is the machinery of government. Government taxation provides a base of money. This money provides direct means to reward in the form of jobs and contracts. Withholding jobs and money provides a means of punishment. Government regulation provides another carrot and another stick. Businesses can be shut down through regulation or over-vigorous enforcement. Conversely, the skids can be greased by removing regulations or declining to enforce them. Taxation itself is a great lever. Taxes can be reduced on friends and increased on enemies. All of this requires that the machine controls the levers of government.

City machines are perhaps the easiest to understand and examine. The Daley organization controlled on the order of 30,000 patronage jobs. There was a strict hierarchy based on electoral politics. The city was divided into wards and precincts. Political appointees were responsible for estimating and delivering the votes in their area. At every level of the machine, there were rewards and punishments. The plus side is government responsiveness. An influential person gets his requests answered. A important precinct might get better city services. On the other hand, precincts where the machine lost might find themselves without city services and city jobs.

Electoral politics are used to ensure control over government, but machines are personal. By cooperating with the machine, you should personally benefit. By defying, you are personally punished. Reward can be through direct payment, perhaps by being given a job that may or may not require work. More profitable is the ability to steer government money. A lucrative government contract can act as payment. If you are the person deciding where the contract should go, that power is worth something. Typical forms of personal payment can be bribes, kickbacks or jobs for friends. Political machines thrive on graft. When personal profit takes precedence over public good, everyone suffers.

In national politics the same basic mechanics exist, but because of the scale the details change. On a national level, campaigns are won with money. Loyalty can be bought with campaign money.

Direct contributions to particular candidates and parties are restricted. Campaigns that address large numbers of individual voters can raise tremendous amounts of money. However, each individual contributor is not that important to the campaign. If you want to gain attention, you can become a "bundler". A bundler gathers together the campaign money from a set of individuals. The bundler may not put up all the money himself but becomes personally powerful by being able to control a large donation. There have, or course, been scandals where bundlers paid the money to the individuals who turned around and contributed it. The bigger the bundle, the more powerful the bundler becomes.

At the national level, lobbyists for industries and particular points of view are very important. Lobbyists must be able to argue persuasively, but another important function is to provide monetary support for those who support them. This support provides access to the political process. Tom Delay took this to a new level. First, he steered contributions to his political action organizations. That made candidates beholden directly to him. He also inserted himself into the lobbying firms themselves. Access required political approval in hiring. This made lobbying itself a patronage job.

At the national level, the personal loyalty and reward structure of machines remains the same, but the amount of money available is much larger.

Rules and Reality

2008-09-07T15:04:00.000-07:00

For the past few years I have been consulting with large businesses on software projects. As a result, I see a lot of different companies and cultures. Recently I have been working with a very profitable media company with a more extreme schizophrenia than most companies.

Part of the business involves coordinated release of merchandise from many different manufacturers. The list of manufacturers is constantly shifting. The product standards are high and manufacturers must work off the latest artwork. The artwork is constantly being refined and the time-lines are short and getting shorter. This creates a business need for rapid processes. In addition to a shifting cast of manufacturers, the company relies on contractors to do much of its essential work. Many contractors have worked in the same capacity for years, but there is also a churn of contractors and contractor employees.

Another part of the business is concerned with protection of intellectual property. Protection often requires tight control on access. That is, no one should be allowed access to company property until all the correct agreements have been drafted, reviewed, revised, and finally approved. This desire for protection has bred a culture of slow deliberation. Every formal decision involves slow and ponderous study and documentation (with periodic formal reviews).

These two strains, the need for rapid response and the slow processes that protect, exist in many organizations. In the case of this media company the culture has fractured. The protective processes are so slow and insular that they must be subverted. As an example, access to buildings is controlled by key cards. Getting permission to issue a key card is difficult and slow. The need for access may evaporate before a card can be approved. As a matter of common practice, those without key cards simply follow a carded employee into the building. Carded employees understand the situation and do not question when someone enters behind them. One morning I followed someone to the door only to find that neither of us had cards, so we both waited by the door for a carded employee. That employee let us in without question or hesitation.

For the software system I am examining, the development process involves asking people who use the system for their requirements. A fair number of those requirements are essentially "We have a way to subvert company policy because we cannot possibly follow it, but it is difficult and cumbersome. Could you make the subversion easier?"

For both individuals and organizations there is often a disconnect between our rules and what we actually do. Because people and the world are more complicated than our notions of them, some disconnect is inevitable. The healthy side is when we recognize the need to be flexible to accommodate novel situations. The unhealthy side is hypocrisy and self deception. If you cannot follow the rules the fault may be yours, but do not discount the possibility that the rules or their implementation is broken. Besides, strict adherence to any set of rules is not much of a virtue.

It is Your Civic Duty - Lie to Political Pollsters

2008-08-23T18:03:00.000-07:00

It is your civic duty to lie to political pollsters to make polls as unreliable as possible. It is not enough to refuse to answer the questions, you have to lie.

The rest of this article deals with why, but I want to take a moment on the practical - how to lie. There are several amusing techniques for this. Here are two. The most reliable one is to pretend you are someone else, but completely stereotype their views. Choose your crazy Aunt Myrtle or your grandmother who votes for the "most handsome" candidate. The important thing is that their views do not agree with yours. This technique has the advantage of a coherent, if mildly insane, point of view. That makes it hard for pollsters to simply discard your answers as nonsensical. I suspect that most polling techniques do not allow for throwing out responses. That allows for more extreme techniques. I choose random numbers, the digits of pi for example, and use those to determine my answers. If the next digit is 3 and there are three choices, I answer with the third one. If there are only two answers I choose the first because 3 and 1 are both odd numbers. The other day I owned a company with over 100 employees, but made less than 20 thousand a year and had no health insurance.

At first you may find it hard to give an answer that you absolutely and positively disagree with, but I assure you, you get over it and it becomes fun after a while.

Here is what I want from political candidates and the media that covers elections. I want to know how the candidates think about the world and our place in it, and how they are likely to vote on issues I care about. Political polling makes it less likely that I will get what I want from the media, from political parties, and from the candidates themselves. Each of us should do what we can to remove polling from the political landscape. Lying is the easiest and most effective way I can think of to make the polls disappear.

The Media:

Media coverage of elections is bad and not getting better. From "A First Look at Coverage of the 2008 Presidential Campaign".

Just 12% of stories examined were presented in a way that explained how citizens might be affected by the election, while nearly nine-out-of-ten stories (86%) focused on matters that largely impacted only the parties and the candidates. Those numbers, incidentally, match almost exactly the campaign-centric orientation of coverage found on the eve of the primaries eight years ago.

Here is what we get from the media

Horserace coverage. Candidate Smith is 3% up in the polls, candidate Jones is gaining in a final stretch surge in the polls. Candidate McMurry wins by a nose. Candidate Rostnikov outdid candidate McMurry in fund-raising in the month of June.

Political strategy coverage. Polling shows 27% of the electorate is "very concerned" about issue "Horses that have left the barn". The Animal party intends to take advantage of this with a direct mail campaign to people who do not own horses emphasizing their position that barn doors should be self closing.

Discussion of the polls. After a poll proves unreliable, the media spend a lot of time talking about why. This is particularly corrosive because it uses up time that could be used discussing something of importance. It is also completely vacuous because if the pollsters knew why they were wrong they would have corrected for it before the poll was published. My goal is to stop this discussion by making ALL political polls unreliable.

Reporting of partisan polls. Many polls are commissioned by people with an axe to grind. Questions are created that invite a particular answer, then it is reported that "By a vast majority, the electorate oppose beating dead horses."

Nonsensical explanations. Poll results are often analyzed as though the polls were answered by a single person and that person had a coherent set of beliefs. This invented person if often called "the electorate". For example, "The electorate seem to feels that taxes are too high." In fact, poll results do not reflect anyone's views. They are an aggregate measure.

Parties and Special Interest Groups

Here is what we get from the parties and special interest groups:

Attack ads on targeted, hot-button topics. "Candidate Rostnikov voted to allow horses to escape, often to be killed". These ads invariably inflame passion, distort the candidates views, and cheapen the debate. Here is a simple rule. There is nothing meaningful that can be learned about a candidate in 30 seconds.

Feel good ads. These are essentially selling the candidate with the same techniques as Coca Cola. There are some general techniques: attractive smiling people doing good things, flags waving, children and a better future. Polling and focus groups allow the political machines to tune these ads like a drug formula.

Pandering. Here is a definition of pandering: "To cater to the lower tastes and desires of others or exploit their weaknesses." Pandering is often subtle, but sometimes not. If someone offers you money "A $1000 tax rebate" or "repeal/suspend a tax", they are pandering. "Lower tastes and desires" are easy to figure out. In politics, money usually does the trick. But, effective pandering requires some excuse so you feel justified in receiving the the largess. That is where polling comes in.

Very specific targeting of particular people. Based on your answers to political polls, you will categorized. This allows you to be targeted very specifically. If a candidate Hernandez knows that it is very important to you that koala bears remain a symbol of affection and comfort, you may be targeted with a koala bear ad. It will paint the opposing candidate, Walenski, with some plausible evidence, as someone who just doesn't care about koalas. Hernandez is counting on your affection for koalas to motivate you to support him and oppose Walenski. A closer examimination of the candidates voting records may show that Hernandez is likely to vote for a measure that will cost you your job, but he does like those koalas and Walenski seems to hate them.

A few interesting links to follow if you are interested in the topic:

Polling Politics, Media, and Election Campaigns

Poll-obsessed media focus on strategy over substance

Horse race reporting - 92 election

Nanny nanny boo boo

2008-08-15T11:58:00.000-07:00

Some time ago when I both had and worked with young children I noticed an interesting thing. Kids of particular ages have their own expressions that are not used by either adults or children of other ages. My favorite example is from kids under about six years old who chant "Nanny nanny boo boo." This is a shortening of the full expression "Nanny nanny boo boo. Stick your head in doo doo." This taunt is typically used in chasing games and means "You can't catch me you ...". I have heard this chant in multiple locations thousands of miles apart, and I have heard it over a period of years. As far as I can tell it is: persistent, widespread, and completely restricted to young children. I don't think I have ever heard an adult use the full expression.

Other age groups seem to have similar cultural artifacts. Junior high kids who would never dream of being so immature as to say "Nanny nanny boo boo" may tell you the joke about the pygmy tribe called the fakawi. In tall grasslands, people of this tribe can be found jumping up and yelling "We're the fakawi". Say it with a Brooklyn accent - its an aural joke. I had an adult neighbor repeat this one to me the other day, but I believe it is largely confined to junior high aged kids.

This is anecdotal and I have no real conclusions about the phenomena, I just find it fascinating that culture can be transmitted horizontally through an age group without the mediation of adults or even family.

Mangled Alphabet

2008-08-15T09:12:00.000-07:00

There are times when it is important to have the correct spelling of a spoken word. Because many English letters are difficult to distinguish when they are spoken (c, g, z), it is common to distinguish them by using a word. There is a standard word alphabet for this: Alpha, Bravo, Charlie, Delta, Echo...

But suppose your desire is not to be understood, but to be obscure. For example, the Internal Revenue Service calls to track down your offshore bank account. You don't want to be convicted of perjury, but you don't really want to be helpful either.

Here is a mangled alphabet for your pleasure. Just imagine being on the phone and saying "My name is Jim, J as in jalapeno, i as in ingenue, m as in mnemonic. What do you mean repeat myself, don't you speak English?".

The alphabet is a combination of spellings that do not match sounds, sounds that say a letter that is not the one of interest, accents on a misleading syllable, and obscure words that distract from the task at hand. With some letters I found it hard to be truly misleading. Suggestions are welcome.

A - Aoife (EE-feh) Irish female name
B - byssus (BIS-uhs)
C - cent (sent)
D - Django (JANG-oh) Django Reinhardt jazz great
E - elephant (EL-uh-fuhnt)
F - feign (feyn)
G - gnostic (NOS-tik)
H - honor (ON-er)
I - ingenue (AN-zhuh-noo)
J - jalapeno (hah-luh-PEYN-yoh)
K - knife (nahyf)
L - llano (YAH-naw)
M - mnemonic (ni-MON-ik)
N - nigeria (nahy-JEER-ee-uh)
O - opossum (POS-uhm)
P - phrenology (fri-NOL-uh-jee)
Q - quran (koo-RAHN)
R - Rhone (rohn)
S - sent
T - tsar (zahr)
U - umbilical (uhm-BIL-i-kuhl)
V - verisimilitude (ver-uh-si-MIL-i-tood)
W - whole (hohl)
X - Xerox (ZEE-rox)
Y - Ysolde (ee-ZAWL-duh)
Z - zakat (zuh-KHAT)

Running the dog

2008-07-27T15:12:00.000-07:00

In looking through old writing, I ran across this letter I wrote to the city after receiving the second in a series of tickets. The topic of the letter is of less than earth shaking importance, but there are serious issues on the function of government and freedom versus order.

After writing the letter I did some research. I discovered that the level of injury and death caused by dogs is almost exactly the same as that resulting from baseball, and the most common victim in both cases is children. It also turns out that dogs are most likely to cause trouble in or near their homes and least likely to cause trouble in public places. In addition to normal animal control my city (through its Natural Resources department) spends on the order of a quarter million dollars a year enforcing leash laws. The leash law applies to all animals including cats, but there is a specific exemption for birds under voice control.

In the end, the city had its way. The fines double on every ticket and I could no longer shoulder the burden. I made some attempts to change the law, but could find no leverage point. I no longer spend much time at the park. Other dog owners have also been driven away. When I do go by the park the dogs are gone, and so are many of the people. I was genuinely surprised at how important the simple pleasure of running the dog at "my" park was to me, and how betrayed I felt at having local government stop me. When my dog running disappeared, so did my pride and sense of responsibility toward the city.

The Letter

This note is about a bad law that has been badly applied. On September 29, 2004 I received a ticket for having my dog off leash in Spring Creek Park (animal at large). This is my second ticket. Each ticket was issued by park rangers I had never seen before and have not seen since. Each of them said they had no discretion in issuing the ticket. The second ticket was issued in what looked like a concerted effort by the city to crack down on unleashed dogs in the park. There were at least two rangers, one of them driving a pickup truck through the park to make sure lawbreakers did not escape.

Over the past nine and a half years I have come to Spring Creek Park at least twice a day virtually every day: rain, snow or shine. I spend between ten minutes and half an hour at each visit. That makes about 7000 visits to the park or about 1400 hours. I think it is accurate to say that over the past ten years I have spent more time in Spring Creek Park than anyone else. Until receiving this latest ticket, it was my intention to create and publish a photo essay book showing daily views of the park over an entire year.

The purpose of those 7000 visits to the park has been to run my dog. She is an impeccably trained border collie. If you have ever been around a border collie, you know that they are active dogs that need to run. I have trained Josie to run laps around the ball fields. She is getting old now and has slowed down. In her prime she would routinely run 20 or so laps around the ball-field as a warm up. After the laps she generally has the energy to do other training exercises. Her record is 50 laps, or about eight miles, at a full run. I have taken her to the dog parks, but there is nothing there that can provide the flat out running that she both enjoys and needs. She is completely disinterested in other dogs and humans.

I stopped bringing a leash to the park years ago. I can honestly say that, in all our visits, not once has my dog been a danger to any person in the park. By training and temperament, Josie rarely acknowledges that there are people in the park. As a border collie, she is all business and her business is running in the patterns that I tell her to.

Josie is a fixture at the park. She is known by the workers and the neighbors. She is admired for her ability and her training. I have received countless compliments on this dog. The number of complaints can be counted on the fingers of one hand. On the rare occasion someone looks nervous or says something, I take Josie out of the park. Periodically, either in Spring Creek Park or in other parks, an animal control person will stop by and tell me about the law. Without exception, those folks have complimented me on Josie's obedience and asked me to take her out of the park. To make life easier for all of us, on those occasions I leave the area. One animal control person said they were responding to complaints about dogs in that particular park. He suggested other places where he would not be patrolling that day.

The animal control workers and the visitors to the park have understood something the city ordinance and the park rangers do not. My dog running in the park is an innocuous and safe activity that improves my life, the dog's life, and is largely a joy to other park visitors.

While I am at the park, I pick up more dog waste than Josie leaves. I collect and throw litter away. Every couple of years I find a stray that has wandered away from home. I track down the owners and return the dog. One time I found and returned a wallet that had been stolen from a truck in the neighborhood. The owner didn’t even know it was missing. When teens rolled one of the trash barrels out onto the frozen lake, strewing garbage along the way, I recruited a couple of fire-fighters from the next door station. We retrieved the trash barrel and picked up the garbage.

Of course, the fact that my dog is well behaved does not make the law bad nor does it excuse me as a lawbreaker. What makes the law bad is that it worsens rather than betters the community. I have spent a lot of time researching human behavior, particularly in cities. We know a lot about what makes good, vibrant communities. One of the most important factors is that neighbors know each other, are aware of their surroundings, and take responsibility for the community. Parks can be marvelous places, but many towns have the problem that their parks are dangerous, particularly in off-hours. One of the major differences between a safe park and a dangerous one is community use. Crime and trouble avoid public view. When good people are near and watching, trouble moves away.

Over the years it has been interesting to see how people use the park. Almost no one simply walks through the park enjoying it. People come because they have a reason. They do what they planned to do, then they leave. Parents who bring their kids to the park stay very close to the playground. The more adventurous will walk over to the ball field to play for a couple of minutes. Ball players stay on or next to the playing field. Walkers and runners tend to either walk in a straight line through the park or they travel the perimeter. Sunbathers invariably pick a spot away from these main uses. Except for dog runners, most of the park is simply unused other than as an attractive backdrop to the other activities. People with dogs off lead almost always stay away from other park users and run their dogs in the open, unused spaces.

I seem to be pretty typical of the people who take their dogs to Spring Creek Park. These are neighborhood people who care about the neighborhood and take care of the park. I know this because I see them every day. I see them talk with each other and pick up after themselves and others. Some of the dogs are on leash, most of them are not. The difference seems to be in the temperament of the owner and the dog. If someone has a dog that will not obey or is flighty, they will only take the dog off lead once or twice. The adventure of screaming at your dog while chasing it through the public park or nearby neighborhood is a powerful deterrent to letting untrained animals off lead. People with leashed dogs behave more like walkers. They move through the park rather than spend time in it.

I am sure the Parks Department receives complaints about dogs running wild through the park. Many people feel threatened by dogs on the loose and many people simply do not like the idea that others violate the law. If the city banned blue flowers, I am sure it would receive many calls about the law violators with blue flowers in their yards.

In terms of actual danger or harm, I cannot speak with authority because I do not have the figures. I can speak from my experience and observations. Fossil Creek Park just opened. It is a beautiful park and heartening in terms of its design. For some time parks have been dumbed down to make sure that no visitor can be injured. Fossil Creek Park seems to have very thoughtfully constructed play areas, but ones where the users must take responsibility for their actions. The skate park at Fossil Creek is marvelous and seems to be heavily used. Even without seeing the figures, I can guarantee that there are more injuries in that skate park in a single week than dogs have caused in Spring Creek Park in the past ten years. Of course there is a difference between me falling off my own skateboard and being accosted by a strange dog. One I control, the other I do not. Whenever a skateboarder lets his board fly and it hits someone else or a dog owner has a dog that is out of control, they should be held accountable. But control is the problem, not the activity.

The Parks Department is in an awkward position. There is a law on the books. Until the law is changed, they must either ticket the offenders or turn a blind eye. I would prefer that the law is changed, but this is an area where emotion runs high. Not many politicians will stick a neck out for a fight that will gain them nothing but animosity, regardless of the facts. We, unfortunately, live in a time where many areas of civil behavior have been written into law. Most of them are well intended, but many of them are violated routinely. If a policeman decided to ticket every lawbreaker he saw, he could never get to a violent crime scene. He would spend all his time ticketing speeders, jaywalkers, and litterers along the way. When laws are numerous they are, and always will be, selectively enforced. I suggest that the Park Rangers would be better employed by spending more time getting to know the neighbors who do the real policing in the parks and less time driving them away by ticketing them for harmless activities.

Bad Smells and Complexity

2008-07-26T17:41:00.000-07:00

I work with software. A few years ago a couple of influential folks, Kent Beck and Martin Fowler, started using the term "bad smell" to describe a situation where something doesn't seem quite right. When you pour a glass of milk, you may catch an odor. Everything may be fine, but you probably don't want to gulp it down until you have investigated a little further. The notion of bad smells can be used in any complex human endeavor. Experienced people quickly recognize when something is off, even if they cannot express exactly what it is.

Sometimes it is hard to figure out whether something is just complex or if the investigators are simply lost. Migraine headaches are a good example. A few years ago I started getting occasional migraine auras though, thankfully, not the headaches. When I researched the topic I found that there were several proposed causes and any number of proposed treatments or ameliorations. Sufferers look for triggers of the headaches. Different people have proposed different triggers. Trigger lists include: changes in air pressure, bright light, smells, foods including meat, wine, chocolate, beans, cheese, pickled or marinated food, nuts, herring, figs, raisins, citrus, tea, coffee, chicken livers. Of course the old standby "stress" is included in the trigger list.

Lists like the migraine triggers are a bad smell. If you stop any person on the street, you will undoubtedly find they have been exposed to one or more of these triggers in the past 24 hours. It may be that triggers are quite individual and that different people have a small set of different triggers. I find it more likely that people in pain are grasping at straws to find something that might enable them to avoid the pain in the future.

Sometimes complexity is not a bad smell, but just complexity. For a long time I have been interested in questions that different people answer differently. I live in a place without a lot of crime. A number of years ago I asked folks whether they locked their doors when they were in their house. I thought the answer might give an indication of risk tolerance. Sure enough, some people answered always, some answered never. One person said he only locked the doors when he was home because he cared about his own safety, not that of his possessions. I don't know if this was a truthful answer, but it was an interesting point of view.

It is an open question whether we can use some relatively small set of traits to characterize our behavior. Even identifying traits that influence behavior is problematic.

For about a century western society has been very interested in measuring "intelligence" (http://en.wikipedia.org/wiki/Intelligence_testing). A Welsh friend of mine used to say that people in the United States have a peculiar fascination with reducing complex phenomena to a single number. Certainly intelligence testing fits this pattern. It is not clear what "intelligence" is and how many aspects of it there are (http://en.wikipedia.org/wiki/Theory_of_multiple_intelligences), but that doesn't stop us from measuring and assigning a single number.

There have also been attempts to measure both moral beliefs (Moral Judgment Test) and religiosity (The internal structure of the Post-Critical Belief scale). As it turns out, these may not be correlated (Religiosity, moral attitudes and moral competence).

Psychologists have tried a number of personality characterizations. There are classifications of pathologies and personality disorders (http://en.wikipedia.org/wiki/Personality_disorder). Some of this is clearly cultural. For example, homosexuality was listed for a time as a personality disorder. There are tests, Minnesota Multiphasic Personality Inventory for example, to help diagnose these disorders.

There are also more general classifications. The Myers Briggs Type Indicator test is based on Jung's analysis of perception (sensation and intuition) and judgment (thinking and feeling). Based on this, four dichotomies were established: Extroversion/Introversion, Sensing/iNtuition, Thinking/Feeling, Judging/Perceiving. I always joke that Myers Briggs test is much better than astrology because astrology has only 12 categories to explain us, but Myers Briggs has 16.

The "Big Five" model comes from linguistic analysis. The thought is that essentials of personality are expressed in language so an analysis of language can lead to a understanding of personality. The big five are: openness, conscientiousness, extroversion, agreeableness and neuroticism.

In looking at all of this I don't detect that much bad science or even many bad smells. I come to the conclusion that people are just complicated. The theories project this complexity onto a number of different spaces, but none of them fully encompass us. We are just too complicated for simple analysis.

Heart Rate Monitors and Training

2008-07-04T13:41:00.000-07:00

This is something I wrote some time ago, originally to help my daughter who got a heart rate monitor. Periodically I change it slightly and send to someone. I post it here because it may be of more general interest.

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How you train depends on what you want to accomplish. Genetically people tend toward a predominance of one or the other of two muscle fibers: Fast twitch or slow twitch muscles. The ratio of these is not fixed. Slow twitch fibers can be recruited to be fast twitch, but there is a genetic diffference that tends people toward one or the other. Those who have lots of fast twitch fibers tend to be sprinters. Those with lots of slow twitch tend to be better at endurance. Related to the sprinter/endurance dichotomy are several metabolic pathways for producing energy. There are aerobic (with oxygen) and anaerobic pathways. The anaerobic pathways tend to be good for very short duration activities, a few minutes or less. I have never been tested, but I am the anti-sprinter, so I suspect I tend toward the slow twitch. At any rate, my goals tend to be fitness, endurance and speed (strength) over periods of about an hour. I choose an hour because that tends to be the amount of time I can manage for exercise on any given day. This puts me in the aerobic, endurance camp. I have no idea how sprinters (or their cousins, weight lifters) train.

Several things limit athletic performance. One of them is oxygen. A second is Lactate buildup. Another is muscle strength. In a sense, muscle strength is the simplest to train for. Muscles get stronger as they adapt to stress. To make your muscles stronger you stress them to the point of minor damage, then allow them to recover. Both stress and recovery are important. No stress, no need for adaptation. No rest, no chance for the damage to be repaired and the muscles to get stronger. In addition to simple strength there is also technique. Every activity can be done more or less efficiently. The more efficient you are, the less energy is required for a given result. This is good.

The oxygen/lactate systems are more complicated because there is so much going on. Every person has a maximum rate at which oxygen can be absorbed through the lungs into the bloodstream, pumped by the heart to the body and utilized by the muscles and other organs. This can be measured as your VO2 max. If you exceed your VO2 max value, by definition you can’t provide enough oxygen to support the work you are doing and something either has to stop or go anaerobic. The point at which you start going anaerobic is called your anaerobic threshold. The best thing you can do to improve your VO2 max is to choose your parents well. However, even the genetically ungifted can improve their VO2 max through training.

When you produce energy anaerobically, one of the by products is lactic acid. If the lactic acid accumulates in the muscle it changes the PH and the muscle loses the ability to contract. Of course none of this is black and white. Even when you are exercising mainly aerobically, some lactic acid is produced. You should be able to increase performance by improving your capacity to get oxygen to your muscles, improving your ability to remove lactic acid from your muscles when it occurs, and by making your muscles more tolerant of lactic acid when it is present. Lactic acid itself is burned oxidatively by mitochondria to produce energy. That is one of the ways that lactic acid is removed. See http://home.hia.no/~stephens/lacthres.htm.

Two other factors in oxygen transport are your maximum heart rate and your resting heart rate. There is a speed past which your heart will not beat. The maximum differs from person to person and is also dependent on age. You lose roughly one beat per minute per year as you get older. Your resting heart rate serves as an indicator of heart efficiency. Take your resting heart rate while lying down, preferably in the morning before getting up or right before bed. At rest, your body still demands a certain amount of oxygen. The fewer heart beats needed to satisfy this requirement, the more efficient the heart is. As you get more fit, your heart simply delivers more blood per beat.

What does this have to do with training with a heart rate monitor? Your heart rate roughly corresponds with the amount of oxygen being demanded by your body. This, in turn correlates with the energy your body is putting out. The harder you work, the faster your heart beats. In an endurance sense your heart rate is limited on one end by your resting heart rate and on the other end by your anaerobic threshold. The range is expanded by making your heart pump more per beat (lowering the resting heart rate) and raising your anaerobic threshold (increasing oxygen delivery and lactate removal).

As long as you aren’t "overtraining", a heart rate monitor allows you to judge just how hard you are working. Surprisingly this can be more useful on easy days than on hard days. Using the monitor you can get a sense of your real anaerobic threshold (it hurts and you can’t sustain for long). You can gauge effort by finding how close you are to either your anaerobic threshold or to your maximum heart rate. This is usually expressed as a percentage (90% of maximum heart rate). Be aware that these measures are different because your anaerobic threshold is below your maximum heart rate. However, your anaerobic threshold is something you can figure out. Your maximum heart rate is difficult to determine. I knew my predicted one was wrong when I looked down at the monitor one day and saw a number above my "maximum".

Conventional wisdom is that training should be a mix of stress and recovery. Recovery does not mean inactivity. It means activity at a level below that which stresses you. Most of your time should be spent in recovery. Exercise at a recovery level can be performed for a longer duration than exercise at stress levels. This recovery not only allows you rebuild your stressed muscle, it increases endurance and gives you a chance to work on efficiency. Although technique is critically important, efficiency is not synonymous with technique. I believe some of it is a physiologic adaptation.

Stress levels for your heart lung system are right around the anaerobic threshold. To work on raising the anaerobic threshold, lactate recovery, and increasing VO2 max, intervals are the prescribed medicine. To stress the aerobic system rather than just using your sprint abilities, the intervals should be at least a couple of minutes long. These are very painful and it is recommended that you not do this more than about once a week.

A step below intervals is a hard workout. Ignoring my own advice about recovery, these are typically what I do on the bike. For a hard workout I basically work for an hour at just below my anaerobic threshold. For me on the bike this is around 90% of my predicted maximum heart rate. My excuse is that I am not an athlete and don’t have enough time to recover as an athlete would (easy days). I recover through inactivity. There are many days where I simply don’t get any exercise and it is uncommon for me to have the same exercise activity two days in a row.

For athletes and sensible people who actually schedule easy recovery workouts, the heart rate monitor is most useful. The trick is to set a level before you start. It is very easy to have a recovery workout turn into yet another hard workout. The heart rate monitor gives you a number. If that number goes too high, you ease off regardless of how you feel. I find this to be very difficult. Several sources give target recovery workout rates of about 70% of your max heart rate. I find it hard to give advice that I don’t follow, but conventional wisdom would probably have you do as many recovery workouts as you do hard workouts and intervals. Hard days should be followed by recovery days. I do not know much about recovery time. For example, I don’t know how long it takes muscles to heal from the micro-tears induced by a hard workout (but I think it is on the order of one to two days). This is probably what should govern your recovery schedule for any given muscle set.

My goal is general health and fitness, so I don’t tune my training toward any particular event or activity. I’m on maintenance and (I hope) gradual improvement regime. If you are tuning toward an event or season, there are longer cycles (weeks and months) of buildup and relaxation you should use. At that point you should find a coach.

All this assumes that your heart is a pretty good gauge of effort. For the most part it is. After using the heart rate monitor for some time on the bike and blades, I find that it correlates pretty well with perceived effort, that is, how hard it feels that I’m working. This isn’t always true though. It is not true when I’m boosting or dropping my heart rate. For example, increasing exertion to go from a heart rate of 150 to 155 can feel worse than a steady state of 165. Dropping from 170 to 165 can feel like heaven.

A second factor that can change heart rate is over-stressing. When I measure my resting heart rate after a hard workout day, it tends to be high. I think this is part of the normal recovery. If you over-stress for days or weeks, your resting heart rate will remain high and your total capacity to work will be reduced. Resting heart rate is both an indicator of general fitness (low is good) and of "overtraining" (goes up and stays up over a period of days). I think resting heart rate also goes up during illness.

Blog Comments, Families, Us and Them

2008-06-28T15:33:00.000-07:00

I started this blog not because I expected anyone to read it, but because the act of writing clarifies thought. I had been meaning to do more writing for some time, but didn't have an excuse or outlet.

If you look through the posts, at least so far, the comments are made by a small set of people. These folks are my immediate family, the clan for which I am the "Pater Familias". That title does not come from the Roman honor, but from a line in the movie "O Brother Where Art Thou". The title of that movie came from a fictional book in another wonderful movie, "Sullivan's Travels".

I am finding out that the comments are an interesting part of the blogging experience, even if they mostly come from my own family. The comments themselves usually have something to say. They are also touchingly protective. They announce "See, I'm reading this. I care". This protective attitude is amusing because, when my children were little, they assumed I was indestructible. To this day I am often mistaken for a trampoline. On an emotional level, one of the favorite pastimes of the family is putting me in humiliating situations. For example, when I had some friends over on Halloween to help in building a fence, my clan insisted I spend dinner dressed up in drag as a beauty queen, complete with toilet paper sash announcing my title "Miss Evil Colorado".

This is part of what I call the hierarchy of social identification. Most of us identify with a whole set of groups that extend from family to peers to school/work, community, nation... This is one of the most powerful forces in human society and sets the stage for collective action. On the dark side, it separates "us" from "them" and allows our collective action to be unspeakably cruel. A family, as with most social groups, has plenty of internal friction. But facing outward, will present a united front and protect its members.

It is demonstrably true that humans band together into trust groups. Innate traits like skin color or epicanthal folds are easy markers. As a regrettable consequence, each of us tends to exclude those with innate differences as not part of our group. This is natural, but not inevitable. For example, imagine a room with two black and two white men. If one white man and one black man both have gang tattoos and one black man and one white man are both wearing expensive business suits, they will initially pair up based on clothing rather than skin color.

None of us belong exclusively to a single group and all of us are capable of forming strong associations with almost anyone. Put a group of musicians from around the world in a single room and in short order they will be forming new associations based on their shared passion for sound.

The identification with social groups and antipathy toward outsiders seems to be a base human trait. I know of no social group without some degree of this. The positive part of this tendency is the ability to come together to work toward a common goal. On the negative side, the separation between us and them allows “us” to treat "them" without any consideration other than our own aim.

Separation of "us" from "them" is often justified because “they” are different from “us”. Biologically, this is hogwash. Each of us has parents and there are familial traits. Some of us are blonde and some have black hair. Some groups of people have lived with enough isolation to show adaptation to their surroundings. For example, groups living farther from the equator tend to have lighter skin. These differences are marked enough so that pathologists can identify human groups from these physical traits. That said, humans are also nomadic and relatively recent. This underlies a remarkable degree of genetic homogeneity. I liken the differences between humans to the differences between brown spotted and black spotted Dalmatian dogs. As a species, we have so little genetic diversity that some scientists postulate that the species was reduced to a very small number of individuals in the not so distant past.

Because there are physical differences between human groups, it is interesting to ask if there might be analogs in other areas. For example, some groups of humans might be more or less capable of mathematical reasoning or eye/hand coordination. I think this is unlikely. Variants like skin color give an advantage in a particular region. Mental and social advantages have no such geographic constraints. People with the advantage will quickly spread the genetics outside their own group. Only extreme geographic isolation could keep advantageous adaptations out of the general gene pool. Human history is filled with tales of travel, conquest, and stranger's babies. Unjustified claims of essential differences between groups of people have been used to justify genocide. To counter this tendency, the standard of proof for assertions of fundamental differences between groups must be extremely high. I know of no evidence that there are physical differences between human groups that elevate the fundamental capabilities of any group. This is especially clear when we look at genius. Genius is characterized by some capability that is far greater than normal. Think Leonardo da Vinci, Mahatma Gandhi, or Michael Jordan. Genius springs up around the world and cannot be characterized by family, "race" or any other factor I know of. There are musical families, but to paraphrase Aaron Copeland : there was nothing to indicate that Leonard’s parents would produce a Bernstein.

Our upbringing affects who we are, not just emotionally, but physically. There is evidence, for example, that people brought up speaking a tonal language tend to respond differently to sound than those brought up speaking non-tonal languages. In those cultures, a higher percentage of people perceive absolute pitch. Our bodies change based on our environment, but are especially malleable before adulthood. There are some abilities, like language acquisition, that fall off as we grow older.

Humans are genetically pretty homogeneous, but in values, and hence behaviour, we vary greatly. Because we learn behaviour from each other, values and behaviour tend to be cultural. The biggest influence is family followed peer groups and finally the culture as a whole. Some societies are monogamous, some have men with multiple wives and some have women with multiple husbands. In some societies butchers are respected and prosperous. In others they are outcasts. Food taboos are so strong that it is difficult to imagine violating them. Culturally forbidden foods include fish, insects, dogs, and pigs.

Even in groups with strong cultural mores, there will be rogues. Every society has outcasts and criminals. Some people, gangs, clans, and governments are dangerous to outsiders. That is one of the reasons that we look for cultural allies. They may help protect us from the dangerous humans. But the tendency to bond in groups is more than a need for protection. We also have a need for acceptance by others in our group. The combination of fear and the need for acceptance and protection is very powerful. A social group can manipulate individual humans to do literally anything. They will rape, torture, and murder neighbors with whom they have lived peacefully for years. They will kill themselves and their own children. That is, the very groups we rely on for protection from the dangerous humans can also transform us into those dangerous humans.

Everyone thinks they have things they will do and things they will not do. However, the power of circumstance and persuasion move these lines. Totalitarian regimes recognize this so they create programs to make everyone complicit. Right now you would not think of killing the Jew/Black/Korean/Armenian shopkeeper on the corner, but in light of the past actions of people like him, would you be willing to keep an eye on him and report suspicious activity? Would you if there were a payment? One thing leads to another. Lines are drawn between us and them. They are clearly threatening. You are one of us. You have shown it by your actions – even accepting favors or money. But your status is provisional and must be earned by showing your commitment to us. You must show your commitment to us by acting more strongly against them.

We are all susceptible to these forces, but we can also recognize them. It is up to each of us to recognize both the danger and the opportunity in the strangers among us. Some wariness is important for self protection. But given a chance, that person who is currently part of "them" may be a valuable part of "us" in the not distant future.

Flying Has Gotten Really Bad

2008-06-13T15:20:00.000-07:00

US air travel says a lot about people and organizations, some of it not so nice.

The conditions on most airlines approach that a cattle car filled with refugees fleeing for their lives. While on the plane we are expected to stay almost completely motionless and quiet for the duration of the flight. Our bodies are built for motion. Even while sleeping, people constantly change position. On an airplane this is impossible. The conditions are so unnatural that people actually die from the experience due to deep vein thrombosis. The airline rules enforce this motionlessness with ruthless efficiency. The aisles are narrow, the galley off limits, and a cart is pushed back and forth to both block and clear the aisles. The seat positions limit human interaction. In the unlikely event that you converse with another passenger you are likely to end up with a neck ache from the strain of trying to actually see them. Conversation is unlikely partly because the chance of two strangers having both the same need for interaction and the same interests is small. Contact is made even less likely by the stress induced by the experience. I say this as someone who likes the high vantage point that air travel provides.

There are periodic instances of people snapping on planes. Sometimes they get drunk and assault another passenger, sometimes they just become delusional in one way or another. It is true that people fall apart in lots of ways and in lots of places, but I believe that being crammed on a contemporary airline approaches the limits of human endurance.

Of course each airline differs somewhat. Southwest has a single class of seats and somewhat more reliable pricing. United is perhaps the worst of the worst. Most airlines seem to be rushing toward the United end of the continuum so that end is discussed here.

The time on the plane is only one part of the dehumanizing experience. The whole system is inhuman. I mean literally inhuman. That is, there is very little true human contact involved. The basic corporate motivation is money and the current competitive environment largely removes all other motivations from both selling and buying decisions. Passengers are higher paying, but more inconvenient, cargo.

Buying the Ticket

It is a general truism that interaction with paid employees decreases over time. The cost efficiencies of automated systems move us in this direction. I find that a well designed automated system is more effective and more pleasant than trying to explain my intentions to a stranger I will never see again. However, the automated systems lead us to evaluate on a small number of criteria and these criteria generally reflect airline corporate needs. Most airline systems tell you about flight times, duration, stops, and (immediate) price. Consumers tend to fly on the cheapest flight. The flight is something to endure and surely the big contract or time with Grandma is worth a few hours of pain. Might as well save the money to use on something more worthwhile. Given these conditions, the airlines have competed almost exclusively on price. Occasionally one will try larger seats or better food, but those efforts do not seem to pay off enough to be sustained. The reservation systems turn these into intangibles that do not enter the flyer's decision making process.

I heard a prediction that in the future all prices will be instantaneous. The vending machine that gives you a soda for a quarter in the dead of winter will charge a buck fifty on a hot summer day. Airlines have been the vanguard of this for many years. They have been willing to invest in a wide variety of profit maximizing devices. I do not want to paint the airline companies as uncaring blood sucking vampires seeking the last drop of blood from their unfortunate victims. Wait, I do want to paint them that way. However, as with any good vampire story, you have to have some sympathy for vampire who may not have wanted to become what he did. Many airline companies have lost unimaginably vast sums of money for year after year. A few dollars more per customer may mean the difference between profitability and bankruptcy (which they regularly enter). Ok, enough sympathy, let's look at what they have done to us.

If you can manage it, it is an interesting experience to compare fares with the people around you. Because of the ways fares are managed and the multiple outlets for selling, everyone pays a different amount. The person sitting in the seat next to you, even if it is a middle seat, may have paid close to ten times more than you did (or vice versa). The same thing holds for all airline transactions. I was on a business trip with two colleagues when our plans changed and we had to rebook flights. The three of us had the class of tickets on the same planes. We sat across a table from each other and each called to make changes. I fared the worst (charged two hundred dollars), one person did not have to pay at all and the third, for unknown reasons, was given a credit of forty dollars.

Getting That Last Penny

The techniques to make sure the planes are more or less full, but that you pay more than you would like are interesting. Here is my naive and uniformed guess at some of the techniques. My information comes from lightly tracking the topic in my general reading and my direct observations.

The airlines would love to sell all their seats at the highest price, but a full seat (some money) is always better than an empty one. This is particularly true because many of the costs (fuel, labor for pilots/attendants...) are fixed. The best flight for the airline is a completely full flight. This is easiest to accomplish if you can sell more tickets than there are seats. A certain percentage of people will miss their flight. Those customers will likely lose the cost of the fare. If you have someone at the gate ready to sit down in the seat of a passenger who missed the flight, two people have paid for one seat. What could be better for the airline. If the airline overbooks too much, it risks losing the little goodwill that is left with the traveling public. Too little overbooking and there could be empty seats.

To get the most money from each person, the first goal of the airline is to split the herd. There are at least four types of passengers I have identified from the fare structure: fare indifferent passengers, forced passengers, flexible passengers, whim passengers.

The first class of passengers are the first class passengers. These are people less constrained by money. They are willing to pay high prices for the added comfort of first class. First class passengers pay dearly for their comfort. Of course, the worse the conditions behind the flimsy first class curtain, the better the first class seats look. Sometimes there are not enough people willing to pay the high fare. If the rest of the plane is full, a desperate passenger may be forced to pay a higher fare "economy sitting in first class". This is usually less than full first class, but much more than any other seat on the plane. If no one can be forced into a higher fare, the first class seat can be bought by frequent flyer miles. This is a zero cost way for airlines to reduce their frequent flyer miles debt load.

Forced passengers are those whose travel plans are completely determined by outside forces. Those who must travel on a fixed schedule (generally business travelers) are forced to pay more. Common tricks to identify these travelers include: unwillingness to stay over a weekend, short notice for travel, a desire to keep an option open for last minute changes, and a desire for short travel times. Once identified, the airlines charge these passengers a higher rate.

Because the people who can be forced to pay more are identified by certain characteristics, the people who get lower prices are those that don't share those traits. These are the flexible passengers. Because of the way forced passengers are identified, flexible travelers flights will generally be longer and less direct. They will be staying over a weekend and, with some notable exceptions. Their fares are also non-refundable with a charge for changes (even to a "cheaper" flight). Earlier booking is a double edged sword for the airlines. On one hand, they are assured a fare. On the other hand, that fare is less than they might get if they waited for a more desperate person. Some of this can be handled by overbooking, but not enough. So, the airlines play intricate games with the prices that take into account the history of the flight and the actual booking numbers every point in time.

If a plane is truly under-booked, the airline may sell seats through discount sites on the internet, but that is a last resort. To discourage use of these services, they must be somewhat unreliable. That is, you cannot be sure whether you will be able to make it to Mabel's wedding on Sunday. These tickets are sold to whim passengers. A typical whim passenger is someone who has a lover in another city and would like, if it is cheap and easy, to take a last minute flight for the weekend.

Getting to the Plane

Everyone who travels frequently has stories about how late they were and still got the plane. Many of us have missed a flight or two. I have known people who left a rental car illegally parked in the departure zone. I have left a car with the keys under the mat in close parking and called the rental company to pick it up. For business travelers someone else is usually picking up the tab, so we are a little more cavalier than personal travelers. My ideal for the airport is to walk up to the gate exactly when my row is being called for boarding.

Reliable time planning is impossible because of several choke points in the process. The lack of reliability is why you are asked to be at the airport a couple of hours before boarding. That extra time for uncertainty reduces the number of trips for which it is worthwhile to travel by air. For me, the crossover is about 450 miles. For any trip less than 450 miles, it is just as fast and usually cheaper to rent a car and drive. Driving has other drawbacks (I hate to drive, more susceptible to weather problems...) so sometimes I fly anyway, but that crossover point is a longer trip than you might guess. The crossover point is different for everyone, mine is increased by the fact that I have an hour drive to the airport.

The main choke point in the process are checking bags and security. At any given airport you may know the average wait, but the times are extremely variable and you may be caught in a long line on any given trip.

Security

Let's also get this out of the way at the beginning. Airport security is a huge joke. Unfortunately, the traveling public is the butt of the joke. Airport security costs vast amounts of money and disrupts the travel of every single passenger to protect against attacks that are both unlikely and stupid.

Here is an uncomfortable fact. Planes crash. Not very many of them and not very often, but they crash. In this inherently risky business of flying, your biggest worry is not terrorists. Less than 10% of all air fatalities have resulted from sabotage (http://www.planecrashinfo.com/cause.htm, http://en.wikipedia.org/wiki/Plane_crash).

Governments conceal many of their security operations so we will never hear about them. On the other hand "Terrorist Caught with Bomb at Airport" makes an irresistible headline. What better way to build support for the current airport security efforts. I have been unable to find a single instance where airport security has detected and stopped a terrorist attack from occurring. I have found numerous cases where governments have stopped attacks in the planning stages, but none where airport security has done so.

Here is a simple example of misplaced security. I always carry a pocket knife (swiss army tinker). I use it every day. Every few months I either have to mail it back to myself from the airport (if I have time) or throw it away (if I do not have time). No airliner can be hijacked with a box cutter, or a knife, or any other sharp object.. It has not been possible to hijack a plane this way for years. There are two reasons for this. Before the September 11th attacks, the best way for a passenger to survive a hijacking was to cooperate with the hijackers. After September 11th, the best way for a passenger to survive was to actively eliminate the threat. We have seen this numerous times in the past few years. When a passenger on a flight is perceived as a threat, the other passengers attack him and eliminate the threat. You and your fellow passengers are the first line of defense. In the unlikely event that someone with a knife starts killing passengers, the plane will not go down. The doors to the cockpit are reinforced and no matter what happens in the passenger cabin, the pilots will not open the door.

Reinforcing cockpit doors and educating pilots never to open them are probably the most effective defenses against a September 11 style attack. If hijackers cannot get control of the plane, they cannot use it as a missile. If planes cannot be used as missiles, their value as a terrorist target is greatly reduced. The most someone bent on destruction can hope for is a crashed plane with a few hundred dead. There are other, more attractive targets.

We are mostly kept safe by the fact that there is a vanishingly small number of people who wish to crash a plane and governments are trying to find monitor those people. Of course the best way for governments to monitor these folks is for ordinary citizens to be aware of their neighbors and be willing to report people who seem to be threatening. This requires the trust and goodwill of the people toward their government. Goodwill is hard to feel at the end of airport screening.

Security at airports will never be relaxed no matter how useless and illogical it is. No one wants to be blamed for something going wrong. Governments also have a vested interest in fostering a certain amount of fear. Fear of outsiders unites us behind the government and makes us willing to follow instructions, even when they go against our self interest.

Checking In and Luggage

Checking in used to serve the function of telling the airline that you were at the airport and ready to catch the plane. Now that you can do it online, check in serves to get you through airport security. A primary goal of airline management is to reduce labor costs. The ideal for management is for no human interaction with airline personnel at all. For passengers without luggage, they have almost accomplished this. You buy your ticket from an online system. Check in is either on line or, if you don't have baggage, an electronic kiosk. To board the plane, you hand your boarding pass to the only human you will interact with before boarding the plane.

Luggage is inconvenient for airlines in a couple of ways. First, human labor is needed to get it on to and off of the correct plane. Second, it takes up room in what could be a cargo hold. A natural discouragement is knowing that airlines are neither careful nor reliable with luggage. Airlines have recently found some excellent (from their point of view) workarounds to the luggage problem. This first is to charge for checked bags. This makes your luggage ordinary paid cargo. It also increases the ticket price in a way that does not show up when you make your reservation. Businesses love the hidden fee. It allows them to compete on the basis of a deceptively low price. See http://redtape.msnbc.com/2008/01/how-red-tape-be.html. The danger for the airlines is that people will try to carry on even more than they already do. For this, security takes the hit. At the same time the airlines announced luggage charges, the security folks said they had to limit the amount any single person can take through the line.

On the Plane

Most people on a plane are not in First Class. The airlines mantra is "pack em in". There was a time when you could put down your tray table, open a laptop and do some work. Those days are long past. The seats are so close that if the person in front of you reclines, you must have your laptop half closed. I have spent time typing reports without viewing the screen, my hands inside the half closed clamshell of the computer. There are a few seats with, very slightly, more legroom. The airlines are mandated to put these in so that you can reach the emergency exit in case of a crash. Many airlines charge more for these seats. They do not, however, charge less for the seats in front of the exits that cannot recline.

The closeness of the seats is one of the reasons movement is so difficult in planes. If someone by the window wants to get up, the passengers between him and the aisle must exit the cramped space to let him by. The aisle is just wide enough for a food cart. "Watch your elbows" is probably the flight attendants most common phrase. Once the passengers between the window seat and the aisle are up, they must march single file up the aisle so the window sitter can escape. There is not enough room for people to pass each other in the aisle so if the people in the aisle and center seats head the wrong way, it is a chinese puzzle to get everyone in place.

Inter-city busses have the reputation of being uncomfortable and dirty. Inhabited only be the undesirables who cannot afford another means of travel. I would say that airlines have become the inter-city busses of the sky, but I have never been in a bus that is as uncomfortable as a "modern" airline. Just as with busses, you can expect nothing from the company but a seat. For a long trip on either, everyone knows they must bring their own food and drink. The vestige of past food and drink service, the cart going up and down the aisle, serves almost no function but to keep the attendants busy with a moving battering ram to keep people out of the aisles.

I joke that if a completely safe anesthetic is created, the airlines will dose all the passengers and stack us like cord wood.

On the Other Side

I have no real complaints about traveling once I am out of the airport. Often when I get off the plane, there is no real public transportation. Car rental companies use new cars which are, on the whole, quite reliable. All the car rental companies I use have worked pretty hard to make the experience easy even as they have reduced the amount of human interaction needed. Sure, they try to gouge with insurance, gas, and upgrade charges. If you rent a few times, you get used to the three or four "no"s it takes to avoid these standard traps. In the cities where there is public transportation, it is usually pretty good. I expect some inconvenience when traveling to a city that is not my own. Pretty universally, people are helpful, and transportation systems work well.

The Search for Life in the Universe

2008-05-31T16:09:00.001-07:00

Just some small thoughts on the unlikeliness of finding an extra-terrestrial civilization that is not deliberately trying to contact unknown civilizations.

If a civilization is not trying to contact others, we would have to detect their actions. Over interplanetary distances, the only thing we can detect is electromagnetic radiation (light, radio waves ...). If we could take detailed photos of a planet surface, we might see cities or other evidence of civilization. We might also detect their attempts to communicate with each other (think radio, TV, cell phones...). In both cases the frequencies we would look for are those that are not absorbed by the planet atmosphere. In all cases, detection involves the recognition of patterns in the signal that indicate intelligence. Planets are next to suns. Suns transmit huge amounts of energy that mask planetary signals. Without traveling close to the solar system, we will probably never get detailed enough information to isolate sources from a particular region of a planet. That is, we won't be able to resolve images that would show us cities.

There is a chance that something like a radio signal might be regular enough and powerful enough to be distinguished from the background, but this is likely to occur only briefly in a civilization's history. Our own experience indicates that communication feeds on itself. The tendency is to try to increase the amount of information transmitted. Over time, all bandwidth that can be used will be used and that every given bandwidth will be saturated. In our case, we have compressed signals, which reduces the direct intelligibility. We have used both time and frequency multiplexing which smears signals together. Finally, we have reduced the power for any given communication to a minimum both to increase the number of devices that can communicate and to reduce interference.

The end result is that our civilization's internal conversations, and likely any other technologically advancing civilization, will be essentially undetectable. There is an infinitesimal increase in heat at frequencies transparent to the atmosphere, but no possibility of detecting intelligible transmissions.

If a civilization inhabits multiple planets or stars, we might detect traces of those signals, but this too is extremely unlikely. Such signals have a known destination and are likely to be highly directed. That makes eavesdropping difficult. Even if we received the signal, we probably could not recognize it as such because, again, available bandwidth will probably be saturated and the signals, in effect, disguised by compression and multiplexing.

That leaves only communications from civilizations that are deliberately trying to contact unknown civilizations.

Ugly US Money

2008-05-18T07:51:00.000-07:00

I think United States money is the ugliest in the world. You can check out money from other countries at http://www.banknotes.com/images.htm. Compare this sample from Papua New Guinea http://www.banknotes.com/pg29.htm with the new five dollar bill from the US. http://www.moneyfactory.gov/newmoney/main.cfm/currency/new5. Honestly, can you think of anything more idiotic looking that those yellow 05s pasted randomly. Oh wait, there is the huge purple numeral five. I am sure these "features" serve a purpose. I am also sure the purpose could be served in an artistic fashion.

When the treasury department announced a redesign of US bills I had great hopes. The US public was extremely resistant to change and it was the threat/actuality of massive counterfeiting that forced redesign. Before that, it seemed that George Washington had produced the designs after 40 days on Mount Sinai.

My hopes have been dashed. As it turns out, the new designs were solely concerned with protecting the currency. Check the Bureau of Engraving and Printing at http://www.moneyfactory.gov/. There is no indication that the engraving bureau thinks AT ALL about the appearance of the money. It is obvious that artists had little influence and no control. In other countries they realize that protection mechanisms can be implemented to create bills that are both beautiful and functional.

I highly doubt that this post will ever be seen by anyone in the Bureau of Engraving and Printing but, just in case, here is a concrete suggestion.

Currency should be designed by artists. A single artist should control the design of a single bill. It may be best if the same artist designs a whole series. The controlling artist should be aware of security and usability constraints. Security and usability people should be able to veto a design, but they should never be able to pick up a pen and modify a design.

If there are artists involved in the design of US currency, they are either not very good, or they have no real control of the design. For a case study on how currency should be designed see the lecture by Oootije Oxenaar at http://www.rgaros.nl/money/oxenaar/index.html.

At the Engraving Bureau, clearly the wrong people are doing graphic design. Even Antarctica, http://www.banknotes.com/aq16.htm, gets better looking money than the United States.

What to Learn in College

2008-05-17T20:36:00.000-07:00

My cousin Tommy has been involved with education for a very long time and recently wrote a book collecting some of his speeches to students. Many of them deal with liberal arts education.

I too think an undergraduate education should not be vocational. When my children went off to college, I spent some time thinking about what I wished them to learn in their first higher education adventure. I came up with three broad areas.

First is something that teaches them how to think logically. I mean that literally. It is important to be able to form a syllogism. I want them to understand that "if [x] then [y]" also means "if not [y] then not [x]". It is important for everyone to be able to form a chain of inferences that either prove or disprove a proposition. This is rigorously taught in mathematics, philosophy, and perhaps even physics classes.

Second, is something that teaches how vast and complex the world is. Because of this size and complexity, it is difficult to make simple statements truthfully explain real events. Even the simplest situations tend to be more complex than we initially expect. On the african savannah, elephants and other grazing animals eat acacia. To protect the trees, fences were put up. That harmed the trees. The trees live symbiotically with ants. The trees provide nectar, the ants discourage grazing. Without the grazing, the trees produced less nectar. With less nectar, different ants moved in. The new species of ant didn't protect the trees against beetles. We can learn about complexity from biology and history classes (among others).

Third is something that teaches about beauty. In my own life the study of aesthetics has been personally important and meaningful, so I feel this is an important area of knowledge. Art, music, dance, literature ... all provide roads to understanding of beauty. I have a personal preference for the non-verbal arts.

To these three, I think I would now add a fourth. I think the study of human motivation and behavior is becoming increasingly important. I also think that this study has to be based on the other three pillars. To understand human behavior you must be able to think clearly, understand complexity, and show compassion. I cannot verbalize, but I think that art is one path to compassion.

Averages and Actuals - Groups and Individuals

2008-05-03T16:05:00.000-07:00

Periodically news comes out that [group X] scores lower than [group Y] on the [test of Z]. The groups and tests differ depending on who is doing the testing and where it is done. In a way it is like ethnic jokes. The group that scores higher is usually a dominant group at the time and place where the study is done. The group that scores lower is generally of some concern to the dominant group. Sometimes the work stems from real societal concern. For example: [women] score lower [men] than in

[math tests].  If you are interested in math education, or sex linked traits this is a legitimate concern.I see references to these studies in the news.  Usually if follows a common news pattern:•    It is inflammatory.  Everyone in the group that scores lower is bound to be insulted.  The reporter can create an objective report filled with outrage on all sides "You are calling all of us stupid!" and "You are misrepresenting the work!".•    The headline and the perhaps the lead paragraph are terrible simplifications of the work and are easy to misinterpret.•    Further study and clarification show flaws in the original work or provide evidence that something unexpected is at work.  These clarifications do not get the same attention as the initial headlines.•    The news is irrelevant to anyone but specialists in the field.This particular news pattern is also present in most national crime stories (missing child, grisly murder...) and lawsuits (man sues for a gazilion dollars upon death of tropical fish).The part that interests me today is the irrelevance of the information.   To see this, let me invent a story and pretend it is true.   "Women score significantly lower than men in spatial reasoning tests.  Scores on spatial reasoning tests are among the best indicators of success in engineering graphics."  Let me also posit that I am a manager in an engineering graphics firm that is looking for new employees.  How does this information help me?Almost any test taken by a large population shows a wide variance in skill.  In most cases the results form what is called a normal distribution, the familiar bell shaped curve.   This expresses the fact that there is an average level of skill and that most people's scores cluster to some degree around that average.  The ends of the bell curve show that there are a some people who do extremely well (or extremely poorly) on the test.When we hear that

[group X] scores lower than [group Y] on the [test of Z]

,  what that really means is that when we compare the curves for the two groups, the average score is lower in one group than the other.  Even with a perfect test, depending on how many people take the test and who they are, we can expect some differences.  Statisticians have been studying this for a few centuries and they have developed measures for how likely it is that the the differences between the averages of the test scores is just an accident of who happened to take the test or whether there may be some real underlying phenomena.  Usually news that

[group X] scores lower than [group Y] on the [test of Z]

involves differences larger than we would expect by chance, but sometimes not by much. In our case, let's assume that women, on average, score WAY below men and that chance is extremely unlikely to be the cause of the difference.As the hiring manager, I do not hire an average man or an average woman.  I hire a specific man or a specific woman.  When I am interviewing a particular person, I may be faced with a man who scores much lower than the women's average or I may be faced with a woman who scores much higher than the men's average.  Here is another way to put it.  Women, on average, may score lower than men.  But given any particular man, regardless of how well he scores on the test, I can almost certainly find a particular woman who scores even higher.It is hard to imagine someone more concerned with the results of testing than our hiring manager, but it turns out that our study of the difference between men and women is completely irrelevant.  What matters is the particular man or woman across the desk.

Understanding vs. Procedure

2008-04-26T17:34:00.000-07:00

I was an early adopter of broadband home internet. The first service that became available in my area was DSL and, at the beginning, it wasn't very reliable. The situation was complicated by the fact that I didn't have the standard configuration at the time. DSL was being sold as a way to connect your home computer (singular) to the internet. I was running a network of several computers behind my broadband connection.

Often, the service would go down. When it did, I would first make sure that the network and equipment were working on my side. Once I knew the problem was on the phone company side, I would call. The first level support personnel would run me through a checklist. These checklists assumed the standard, single computer configuration and were designed to rule out problems on my end. On my first calls, I tried to explain my situation and what I had done to diagnose the problem. This served no purpose. Often they asked me to do something that was inapplicable to my configuration. I would say things like "Let's pretend I've done that. What is the next step? " The first level support at that time could not affect anything in the phone company. If the scripted procedures failed, you were directed to second level support. Second level support had people who could get information about your actual connection and do some simple reconfiguration. On one occasion I got to a third level when the problem was failed hardware in a phone company facility.

At any given level in this hierarchy, there were standard procedures (ask this question, if the response is ...). The people who created the procedures understood the working of the system at that level and how to diagnose problems. That knowledge was codified into the procedures that could be followed by people who did not understand either the system or its failures. At each level the procedures were designed to attack particular problems. Presumably the first level support solved the most common problems, most of which had nothing to do with the phone company. The second level diagnosed less common problems where there were simple connection problems. The third level was reserved for more rare occurrences.

The introduction of procedures serves several functions. It codifies the most effective way to approach a particular problem. It also reduces the amount of thought necessary to perform the task, making it easier to find people who can perform it. Sometimes systems are so complex that a single person cannot understand the whole. Even in simpler systems, procedures allow people to concentrate all their energy on a particular part without having to understand all the relationships to other parts.

All of us reduce understanding to procedure. Consider a grocery list for dinner. I want salad, so put down greens, mushrooms, onion ... At the grocery store I do not have to consider the process of making the salad (though I may double check and modify based on what is available). The part of the process that is important in the store is buying the material. I can simply get the items on the list and be assured of success. In effect, I do the up front work of preparing the list (procedure) at a time and place where I can adequately consider the question, then I delegate the task to a less capable me who is distracted by the people and things in the grocery store.

In business, less skilled generally means cheaper. This drives a movement toward procedure instead of understanding. Because simple procedures require less thought and attention than complex procedures, the tendency is to make procedures as simple as possible. Forty years ago grocery store clerks had to type in every price and were expected to know the current price of all produce. By printing machine readable product identifiers on each item and computerizing the association between product and price, the clerks job has been reduced to scanning items and either remembering or looking up produce codes. The procedures have become simple enough so that customers are now doing it themselves.

A side effect of this tendency is that understanding is concentrated in fewer and fewer people. This is one of the drivers for the increasing income rift in the United States. A more fantastic danger was explored by Robert Heinlein in his Foundation Trilogy where people with understanding virtually vanished from a technological society. An actual example occurred in Cambodia where the Khmer Rouge killed the educated and were left with no one who could run or repair a water system. For the world as a whole, this is not likely to become a problem. The large population and increased wages attached to specialized understanding assures a continuous supply of the educated.

A more mundane and common side effect of reduction of understanding to procedure is nonsense. Some time ago I had the opportunity to examine, in detail, ordering and payment procedures at a number of companies. In broad outlines, the problem is clear. Someone in the company needs something. This could be a pencil or could be raw materials for a manufacturing process. The product is purchased from someplace, it arrives, is delivered internally, and paid for. In a large company this involves a number of independent areas. These include the person or department that needs the item, a procurement department, accounting, and receiving. Pretty universally, no one understood the whole process in detail. They simply followed the appropriate procedures. Over time, business needs change. When some department found the procedures no longer worked properly, they would force a change to fix their problem. Because systemic changes require coordination and approval, they are avoided by sensible people. All of the processes studied ended up with nonsensical procedures and supporting material.

If understanding can produce procedure, can procedure produce understanding? I think the answer is yes, but only understanding of the area covered by the procedure. From the first level support questions used by the phone company, it should be possible to induce a model of the home network connections to the phone company. From the second level procedures it should be possible to induce a model of the connection itself. More global understanding requires more global study.

Lest anyone feel smug about human (or their own) understanding, I have a simple contention. There is no single person who understands, in detail, what happens between when you type a letter on your keyboard and that letter appears in your word processor. There are people who understand key codes and processor interrupts. There are people who understand word processors and the mapping of characters to glyphs. There are few people who understand both of those, and there are many other layers in between (process swapping in the operating system, control of graphics devices ...).