Monday, March 31, 2008

What would we do without them?

At the risk of being tiresome, I am linking to yet another post by former Secretary of Labor Robert Reich. In it, he discusses the new Bush plan for fixing the regulation of Wall Street. (It wouldn't surprise me if, once again, Secretary Paulson had to work over the weekend.)

The remedy that has been most often proposed by those in the know is that we regulate the non-bank investment companies just the way we do commercial banks. I should think that would be a good, if minimal, start. But the new plan doesn't do that: "But the Fed would not routinely examine the books of investment banks
and hedge funds the way bank examiners now scrutinize regular banks."

One of the key regulations that govern banks is the need for maintaining capital as a percentage of holdings (one of the great problems during the Depression is that banks became very leveraged, lending out most of their deposits; the lack of backing deposits created the famous bank runs that bankrupted many financial institutions). The imposition of capital requirements created a confidence in the banking system that persists today.

"Even though 80 percent of all lending today is from unregulated banks that hold almost no capital assets," the Bush plan does nothing to lay capital requirements on the hedge funds and investment banks that are the source of the current crisis.

And the least surprising thing? This plan won't be implemented by next January, so the Bush administration won't have to deal with it. So, as you're spending your fiscal incentive check on gas, milk, and eggs, and your neighbors are losing their homes to foreclosure, you'll be happy to hear that the high-rollers will be able to continue their free-wheeling ways, at least while Junior is still in office.

Who's in charge?

I'm finding the stories out of Iraq the last few days to be pretty confusing. I'll summarize what I think I know, but I reserve the right to back out if I misunderstand something.

Prime Minister al-Maliki decided to flex some muscle (for reasons that people are debating) and take back the lawless city of Basra. I gather that Basra is a lot like Casablanca in the movie, where there are swirling factions in uneasy balance, and the British troops were keeping the lid on without taking absolute control. Now the British troops have been reduced, and the Mahdi Army led by al-Sadr has gained influence. Since Basra is a major port and one of the main economic centers of Iraq, the al-Maliki government would like total control.

What some find unusual is that both fighting factions are Shi'a, complicating the issues of what might happen if we pull our troops out. The assumption is that sectarian violence would increase, but it is quite possible that there will be intra-sect fighting as well.

Now it seems that there has been a negotiated peace; ominously, Iran was involved and al-Maliki may not have been. Whatever else may be happening, chaos or near-chaos seem to continue to be the order of the day.

What troubles me is that, from all accounts (including that of CIA director Hayden on Meet the Press yesterday), al-Maliki started this fight all on his own, without consultation with anyone from our side. However, our military was involved because of our commitment to the Iraqi government.

So, if I've got this right, American troops can be committed, put in harm's way, due to the whim of al-Maliki. Does that mean we've given him effective command over our troops? For a country that is reluctant to be part of UN peacekeeping forces because we'd have to cede our control, this seem like inconsistent policy.

Sunday, March 30, 2008

The press conference we need

LEBANON, Kansas - The American people said on Saturday they were having trouble finding enough skilled CEOs to fill all the top spots in corporations that are needed to cope with increased globalization.

"We're having trouble finding the numbers that we need with the skills that are required to do these jobs," the people told the world in Lebanon, Kansas, the geographic center of the 48 states.

So far, these CEOs have failed to retain jobs in the United States, and the promised savings to consumers and returns to shareholders have not been realized, as the CEOs have siphoned off much of the increased corporate values for themselves. Between 2005 and 2006, the last years for which figures are available, the CEOs of America's biggest companies saw a pay increase of 38%, according to Forbes.

The people, who face rising prices, particularly in such necessities as food and gasoline, and declining assets, due largely to a falling housing market, saw no such gain in their compensation.

"At least half of the CEOs perform below the market; if we had a business that half the product we turned out was defective, we would shut that business down," they said.

Gone are the days when we have to draw our CEOs solely from American talent, they said. "Only 2 of the 11 richest people in the world are Americans, and 4 of the top 8 are from India. It seems clear that there is a lot of business talent in the world, and it doesn't all come from Harvard Business School."

"I know you don't like hearing that, but that's the way it is," they said.

The people cited several well-known cases of CEO failure, including:

  • Bill Gates, 52, who is the third-richest man in the world despite the fact that his company, Microsoft, has consistently failed to deliver software on time with the promised functionality. It has also been reported that, at least twice, he has lied in testimony before the Congress of the United States.
  • Carly Fiorina, 53, the former CEO of Hewlett-Packard, who held a great deal of responsibility for the decline of once-proud Lucent Technologies through her vendor financing schemes. After leaving Lucent in a huff because she didn't get the top job, she took over HP, continued their drop in quality while merging it with equally decrepit Compaq; upon failing to make the combined company work, Fiorina was dismissed by the HP board. She is now rumored, for no reason anyone can understand, to be a possible candidate for the vice presidency under John McCain.
  • Robert Nardelli, 59, the current CEO of Chrysler, who as CEO of Home Depot, during the biggest housing market in history, managed to guide the stock to a lower price over his six-year tenure. For that performance and alienating shareholders, he received a parting gift of $210 million.
  • Randall Stephenson, 47, the CEO of AT&T, who received $22 million in 2007, despite an inability to understand basic economics. After promising customers in 2006 that he would bring 5,000 service jobs back to the U.S., he recently confessed that he couldn't find sufficient qualified workers. Apparently no one told him that, when you are having trouble hiring people for dead-end jobs, you might try offering more money.
The people said, "If those folks can have prominent, well-paying jobs despite their clear failures, we obviously are not attracting the talent we need to these important positions. Maybe we need to look elsewhere."

(The reporter would like to thank Randall Stephenson for his help with this article.)

Saturday, March 29, 2008

Review - The Fortune Cookie Chronicles

Jennifer 8. Lee (yes, 8.), a reporter for the New York Times, has written The Fortune Cookie Chronicles: Adventures in the World of Chinese Food (2008). To give a quick review that would fit in a fortune cookie: Good read, worth the time, flawed in writing.

Lee is the daughter of Chinese immigrants, and her book represents an attempt to describe her relationship to Chinese food, mostly in its American form (for those who don't know, American and Chinese Chinese food are quite different, and Lee deftly delineates the aspects of Chinese food that Americans don't like - nothing with eyes, for example). She tells a number of different stories, some light and comical, others quite serious. Threading among the vignettes is her search for the origin of the fortune cookie.

The book reads for the most part like a series of newspaper articles, assuredly new-wave journalism, as Lee and her friends make appearances throughout. Two of the dramatic centerpieces are an account of illegal Chinese who try to sneak into the country to work in restaurants, and the disintegration of a family that is out of its element when it buys a restaurant in rural Georgia. These stories are well-told and poignant, if not quite the fully-realized character sketches that Lee probably intended.

The other two major serious pieces fare less well. The Kosher Duck Scandal of 1989 never really takes off, and the saga of the missing deliveryman contains some interesting facts, but never becomes personal enough to engage the reader.

The light pieces are better, as they seem to fit Lee's style. Her search for the origin of General Tso's chicken is enchanting, particularly her encounter with its inventor. The chronicle of the development of the American Chinese staple, at least in the years I grew up, chop suey, is a fascinating piece of detective work.

There are problems with this book, and they come mostly from pace and selection. The beginning reads like a blog, not a book, as Lee jumps from topic to topic (lottery numbers, fortune cookies, food, menus) without any creation of context. The longest chapter is her search for the best Chinese restaurant in the world (with qualifications, such as it can't be in a Chinese country). The part that might have been interesting, the logistics and the choices, is lost in quick hits without any consistency across cities, and her final choice is oddly justified - I didn't come away understanding why this restaurant was the best or why I would go there.

Perhaps the most irritating part was the fortune cookie thread. The search for the beginnings of the near-tasteless dessert grows tiresome, and it feels stretched, as if Lee chose her title, then had to write around it. By the end, I didn't care where it originated, I didn't care who wrote the fortunes. Had it been one or two chapters, I could have read it and moved on - but it kept coming back.

What is really odd is that Chapter 15 is the final chapter of the book; you read it and feel that Lee has brought you to a conclusion. She has summarized the book, discussed assimilation and authenticity, and made some general points that, while not remarkably deep, are insightful. The final paragraph puts a nice close to this charming, uneven book.

But wait, we still have three more chapters to go, two of them on those darn fortune cookies, and one nearly-incomprehensible section comparing the spread of Chinese food to open source software development. And now the final paragraph of the book is an attempt to divine the purpose of fortune cookies, and it's banal; you won't believe the last line in terms of what has come before.

I have emphasized the negative, as is my wont in these reviews, but this book is delightful...well, most of it. There are enough anecdotes and facts to provide a reader with a good time, so, go ahead, pull up a container of mapo dofu or gong bao ji ding, and have at it.

Friday, March 28, 2008

More on economics (though you can read that the other way around)

Last week, I wrote a post that was largely critical of economics, pointing out that, as a discipline, economics fails to fulfill the conditions of being a true science. That would be fine, except that economists have become so important to our society as pundits, advisers, even decision-makers.

I don't want to appear to be writing an anti-economics blog, as I believe it to be a young discipline with some insights; it's just relied upon in lieu of actual thinking. And there is no precept, no matter how commonly believed, that cannot be set aside if an economist is trying to make a political point (witness free trade in labor, which basic economic theory will tell you implies that the higher-cost country will have to reduce costs, leading inexorably to lower salaries - but few economists will be honest about that).

Nevertheless, economists can be their own worst enemies. That they are highly-placed in government and business can lead to a remarkable self-importance, especially remarkable given their lack of concrete results. For example, check out this post on Crooked Timber. Daniel Davies discusses a post on Gregory Mankiw's blog (Mankiw is the Harvard economist who served as Bush's chairman of the Council of Economic Advisors, and we know how that worked out):
It’s been a staple of CT over the last five years that altogether too many economists have altogether too much academic arrogance when it comes to their dealings with other social science disciplines, but this is as April showers when it comes to the ugly contempt and patronisation displayed by your typical economist to the general working public.
The risk?
Joe Sixpack is pretty aware that his livelihood is under threat from something, because his bloody real wages haven’t gone up in the last thirty years. If he ceases to blame the foreigners, then since the problem won’t have gone away, he is likely to start looking round for alternative explanations. And the results of that search are unlikely to be anything but very bad news for the Republican Party.
Actually, the case is understated, because there is a remarkable consensus on quite a few issues that cross parties. Unfortunately, that common wisdom doesn't jibe with what most people see. As a result, economists, and the politicians who rely upon them, lose credibility. When the average person knows that his or her life is higher in risk and lower in reward, and the ruling class says everything's great, this mismatch bodes poorly.

Occasionally, someone cuts through the mist, and tries to present an alternative view to the conventional wisdom. For example, take a look at this paper by Dean Baker. This is a real economist who dares to question his colleagues, something he does quite often on his blog.

I'll let you read the paper, titled "Trade and inequality: The role of economists," for its insights. The basic thrust, though, is:
The role of economists in trade debates is especially pernicious because there is no area of economics in which economists have been less honest about what their models show. They have consistently exaggerated the benefits that are predicted by standard trade models. At the same time they have ignored or downplayed the distributional consequences. In doing so, they consistently deride those who raise questions about the path of recent trade policy for failing to accept fundamental realities of the modern world.
(I may discuss the actual results of this paper at a later time; suffice it to say that Baker calls into questions the commonly-held ideas about free trade, particularly with respect to winners and losers - let's just say it isn't an unqualified win-win, which is what you would think if you read editorials, think pieces, or listened to anyone influenced by modern economic thinking.)

The point of this post is to point out the remarkable hubris shown by a profession that has "proven" almost nothing. There are still serious doubts about even the most common place aspects of economic theory, but you wouldn't know this unless you dig it out. I, for one, would have a lot more respect for economists if they would, at least occasionally, qualify their statements - I suppose that would cost them money, though. And that part of the model, that they've got down.

Thursday, March 27, 2008

The wages of sin

Long post by Mark Thoma, but important in understanding what's going on in the financial markets right now. He begins with a quote from Fred Block on how Reaganomics led to today's crisis. Essentially, Reagan reduced financial regulation and cut taxes for the wealthy (and if that seems familiar, George W. Reagan Jr. has continued this process). The rich took a lot of this new big money and put it in investments with big returns, the most famous of which are hedge funds (unregulated investment companies that are restricted to big-ticket investors, are mostly housed offshore as a tax dodge, and pay their CEOs remarkably well, as much as $1.5 - 2 billion dollars a year).

Now, we had some warning that hedge funds do not inevitably work, as we saw in 1998 when Long-Term Capital Management lost more than $4 billion in four months. Nonetheless, other financial institutions got jealous and wanted to get in on the act; two things happened, some institutions invested in these funds, others set up their own. Understand, the risk of these things is huge, and there is no regulatory body insisting on any kind of transparency or oversight. So when your pension fund invests in a hedge fund, it's taking your future and putting it on the roulette wheel in Reno.

One problem with a hedge fund is that it needs a constant expansion of markets in order to compete. If one hedge fund discovers that trading in Kazakh uranium futures can generate high returns, it doesn't take long for other hedge funds to spill into Kazakhstan looking for their cut, and the returns drop. (This is analogous to what happened in commercial banking in the 1980s. I was working in the industry then, and I saw envious commercial bankers try to emulate the investment banks by jumping into complicated swaps and the like. Of course, they didn't have quite the expertise, and everyone did the same thing, so they got nothing like the high margins they were expecting. That was one of the reasons for the bad results for banks in the late '80s.)

So someone had the bright idea of using subprime mortgages as an investment vehicle. These are mortgages that are given to people who really can't afford them but are willing to pay a high interest rate. And there's no risk to the lender, because house prices rise infinitely, meaning the worst that can happen is that it will end up with a high-value house in the portfolio instead of the mortgage.

But housing prices don't rise infinitely, and the securities that were based on these mortgages turned out to have very little value after all (you see, the hedge funds and investment banks don't buy mortgages, they buy bundled mortgages, packets of high-risk mortgages that magically become low-risk after bundling - no one knows exactly how). As Block says, "The right-wing experiment with free market orthodoxy has been a complete and total failure."

There is, thus, talk of regulating these currently unregulated investment companies, but very little confidence that will happen effectively. The Bush administration still seems reluctant to support any structural changes (it's easier just to roll out short-term programs that sound good). Thoma:
Regulations can make markets work better, so it's not clear to me why those who believe in the power of markets have such a knee jerk reaction against any kind of regulatory oversight.
It may not be clear to Professor Thoma, but, to anyone who has watched the Bush administration for eight years, it is all too obvious. Simplistic ideas have ruled this president and his people, whether it be in foreign policy ("we will be greeted as liberators") or in domestic policy.

There is an Econ 101 foolishness to our executive branch, believing that tax cuts always bring more government revenues and that the above quote is wrong. Of course regulations hamper the working of the market, all the business leaders tell us so. Managers of regulated mutual funds do OK, but they don't make anywhere close to the income of even a mediocre hedge fund manager. And in a world in which wealth is taken as a proxy for wisdom and public-mindedness, the incentive is to let the geniuses do what they want.

Thoma goes on to talk about the kind of regulations that would improve financial markets: increasing available information, increasing capital requirements, basically "rethink[ing] the whole operation." He then provides a couple more quotes on how regulation might prevent the capital markets from freezing in the way they apparently have now.

However, until we understand politically how to create a true level playing field, which we'll do only when we stop allowing large institutions to write our laws, we're unlikely to achieve the results Prof. Thoma and the others quoted here believe are possible. Do you really trust the Bush administration to do a 180, start believing in regulation, and implement public-friendly policies? Or will they allow industry insiders to create regulations that seem like action, but will perpetuate, if not enhance, existing inequities? I know how I'd bet.

Wednesday, March 26, 2008

Desperate companies

Today, Citizen Carrie again exposes the H-1B charade, where American companies, companies that have profited from the free flow of capital and various kinds of infrastructure, once again go, hat in hand, to Congress to beg for more visas to bring in foreign information technology workers. As I've stated before, as an experienced software worker, I am quite passionate on this issue, so much so that I hesitate to write about it lest I devolve into a sputtering quivering mess. But I shall try to remain composed this time.

Carrie points us to yesterday's Washington Post editorial titled "Visas Needed." It's pretty easy to see what tack this venerable newspaper is going to take on this issue, and they predictably run through the Bill Gates-approved list of talking points. In particular, "If nothing changes, America will miss out on another crop of talent this year. H1-B visas are reserved for the world's best and brightest, and barring their entry is economic self-sabotage."

Who are these best and brightest? Let's agree not to discuss that these "highly skilled" workers include fashion models (I think we can all agree that we have a lamentable lack of domestic super-hotties). The main qualification is that the worker have a bachelor's degree. Given that the U.S. produces about 1.2 million of these talented people a year (in all fields), I hardly think we can be sure that getting through three or four years of post-secondary education confers "brightest" status, even in China and India.

The Post goes on, "because lawmakers lack the political will to keep the world's talent in America, companies are following it overseas." That's right, because stupid Americans can't handle this work and refuse to get relevant degrees, companies have to go to the expense of moving work and operations to foreign countries. It's just a happy coincidence that these brilliant, bright-eyed, motivated young people will work for considerably smaller salaries.

Need I point out that, like so many other writers on this subject, the Post is confusing cause and effect. American students aren't leaving technical fields because they're dumb, or because, all of a sudden, accounting is looking so attractive. It's because they see those jobs either going overseas or paying less, and it no longer makes sense to plan for a career in such an unstable field. (I live in a Chicago suburb that was built on tech companies; I would wager that every high schooler in our town today has a friend's parent or parent's friend who has seen their life damaged by uncertainty.)

The worst thing about this editorial is the internal illogic. The last line is, "Allowing the cap to stay so low effectively exiles not only the world's best and brightest but also the U.S. companies that employ them." First, the word "exile" is misused, it refers to people unable to live in their own country. More importantly, the writer has just told us that American countries are (reluctantly, I'm sure) moving those jobs overseas, so "the best and brightest" are still being employed, and U.S. companies are still able to take advantage of their purported superior skills.

To discuss this issue without mentioning the experienced tech worker, the person who is increasingly squeezed into unemployment or underemployment, working as a contractor, following jobs around the country, for less money, is intellectually bankrupt.

Of course, we can explain this bankruptcy by looking at all the disinformation being spread around like spring manure. Not only is Uncle Bill Gates the only member of the public to be asked to testify to his worshipful fans, I'm sorry, I meant the elected Congress of the United States, but there are numerous articles in every publication you can think of attesting to the desperate need we have to overlook American workers in favor of those who are cheaper better.

Once again, it is Carrie who points us there by finding a tearjerker of an article in Network World. If the stories of American companies lining up at the H-1B trough, only to be turned away by our heartless lawmakers, doesn't bring a tear or three to your eye, you're a harder man than I. These companies have to get their paperwork in on time, and "there is pressure to have no errors or unflagged issues." (Naturally, there is a cadre of "immigration experts" lined up to help the beleaguered firm through this onerous process.)

The article does give some hope, as there are ways around the H-1B nightmare. There are H-1B1, TN, and L-1 visas that might be used to slip more of the "best and brightest" around the barriers.

And there is a last resort: "if IT hiring managers exhaust options outside of the company, then they need to look at the pool of talent already producing at the company." Yes, you can take junior people already at the company, "take some chances on training and development," and hope that they can be as valuable as Rahul or Li-Chin, unlikely as that sounds.

One of the sources for this article is Jennifer Russell, VP and director of recruiting for a direct-marketing firm in Boston, Digitas. She desperately wants H-1Bs, but allows as how they might be able to hire someone with "80% of the skills needed...[and] teach the other 20% of skills."

So it may be instructive to see just what kind of talent Digitas needs. First, let's look at the Digitas approach:

The transformation of the media landscape throughout world markets both demands and enables big changes in marketing. Brands can no longer afford to market at customers; they must seize and invent new ways of working harder with and for them. Winning brands, today more than ever, are loyal brands.

Our approach to creating loyal brands we call active branding. It brings together:

new ways of listening harder to customers for actionable insights
ideas that earn customer engagement through valuable and motivating experiences

new ways of being responsive to customers across channels and over time
collaborative creativity that includes media and technology at its core
new practices for content creation and digital production
new data analytics, tools, and operations to support and measure more dynamic customer interaction and content distribution
a large network of diverse international talent, allowing us to design global client teams that are both agile and effective

Above all, we are committed to our clients, inspired by their customers, excited by change, and fueled by a passion for collaboration and bold invention.

So it's just possible that, having stated boldly that they use "diverse international talent," they may not be entirely objective about the use of visas; that they are a subsidiary of the French media giant Publicis Groupe probably doesn't matter either. (I could parse their approach further, but I'll leave that task to the reader - needless to say, it's corporate speak for nothing.)

Let's move on to a specific job, one in my field, and they have a posting for a Software Engineer right here in Chicago. I won't copy the whole thing (you can see it here), mainly because it features some of the most god-awful spacing I've ever seen on a web page.

This innovative company is certainly full of innovation, especially as they look to a future without hyphens (data driven, internet based). The ubiquity of the Internet will lead to the loss of its capital letter (internet). One of the skills the lucky applicant will have is to, "Posses advanced JavaScript development skills"; oh, dare I dream that I will posses such skills.

Several times the computer language is referred to as "java." They'd like the candidate to be able to handle "servlets" or "servelets," they aren't sure which. You would need to be "proficient in XML and it's role and application in complex software projects," which, other than being incoherent, misuses "it's." I hope you have the "ability to play leadership within smaller teams." Let's not forget a "general understanding of user interfaces and how they effect applications design," a statement charming in its total lack of knowledge (even assuming they mean "affect," one designs interfaces as part of the application). Another responsibility: "Mentor more junior team members in utilized technical skills." And, you want to, "become a recognized subject matter expert within their fields of expertise," though it's not at all clear who this "their" is.

Oh, and, of course, "high quality" is expected.

Perhaps Digitas has hit on a truly novel strategy; they will argue for increased H-1B visas on the grounds that the Indians and Chinese they'll bring here to "create loyal brands" will actually upgrade their English.

I suppose it's pointless to discuss how appalling this all is. Digitas can't even write a job posting in properly-formed English, but they want to avoid hiring Americans (Jennifer herself doesn't seem very comfortable with the language: referring to H-1B visas, "it is not company policy to not go for them").

Yet these are the people whose voices are heard on this subject. As we devalue our own workers, we act as if an accent is enough to confer brilliance. As long as we encourage companies to game the system to hire the lowest-cost workers possible, we will destroy this industry in our own country.

But what will our people do? We can't all do "active branding," can we?

Tuesday, March 25, 2008

Review - god is not Great

I haven't discussed my religion on this blog before, and I will not do so now - I blog about economics and politics and business, and those are contentious enough for me. Last year (2007), Christopher Hitchens, journalist and author, wrote a book called god is not Great: How Religion Poisons Everything. It's a book similar to scientist Richard Dawkins' The God Delusion.

Hitchens does not just believe that religion is wrong, as is obvious from the subtitle. He believes it to be downright dangerous:
If I cannot definitively prove that the usefulness of religion is in the past, and that its foundational books are transparent fables, and that it is a man-made imposition, and that it has been an enemy of science and inquiry, and that it has subsisted largely on lies and fears, and has been the accomplice of ignorance and guilt as well as of slavery, genocide, racism, and tyranny, I can most certainly claim that religion is now fully aware of these criticisms.
Actually, he does feel he's proven all those things. This book is, at base, a contrast of religion to civilization, with religion as the expression of backward, primitive thinking, doomed to be in eternal conflict with the humanizing forces of civilization.

I, as most of us, have known pious people whose religion preaches tolerance and love who are the least tolerant and loving people you'll ever find, and use their religion to justify their intolerance. I've also known other people whose faith informed their lives in giving and caring ways; Hitchens would say that those people could be moral without their religion, and he's right - but would they?

Sometimes faith is a matter of indoctrination, even of personal weakness. At other times, it provides a complement to life, enriching and enhancing it. You can argue whether or not it is man-made or God-granted, but, like it or not, faith's interaction with the individual is likely to be idiosyncratic, and blanket statements like "it poisons everything" are unlikely either to convince or inform.

Hitchens has not written a bad book, at least, not in the purely literary sense. It is impassioned, but also reasoned, and certainly makes one think that religious leaders have more to answer for than they have embraced. Religion, like any complex institution made up of people, can spend more time trying to maintain its sense of infallibility than it does in trying to accommodate a changing world, and that generally works out poorly.

So read this book with an open mind; if you lean toward having faith in religion, your basic tenets will likely not be challenged, but it may allow you to ask questions of the people who represent you and your deity. If you lean toward a lack of faith, the book may well reinforce your doubts (or disbelief). Either way, it will make you think about the role religion plays in the modern world, and that's a worthwhile exercise.

Monday, March 24, 2008

Giving credit where credit is due

Good post today on Credit Slips, in which Adam Levitin discusses the problems with consumer credit, particularly the terms of credit cards that blur customers' real expectations. Of course, that is exactly the point, where "consumer cognitive issues" lead to huge profits for the credit card issuers.

A more general problem is the extent to which statistical models dominate certain industries and create asymmetric risk. A lot of people wonder how credit card companies can be so lax as to send offers to children, dead people, even dogs. The answer is that they don't care. There is a model somewhere that could be used to estimate, if you signed every person in America up for a credit card, how much they'd use the card, how likely they'd be to default, how big a balance they'd keep, and so forth. That model can be used to determine the terms of the card, the interest rate, and you can bet that there is a substantial premium built in.

What some people don't understand is the statistical nature of that; it is not that they can tell whether or not you will default. It is that, given a thousand you's, they know pretty well how many of you will default. The same is true of the well-known FICO score (also known as your credit score); no single score has to be accurate as long as the distribution of scores leads to big profits.

These models work only in the aggregate - for the individual, the decision is binary. You're denied the loan, maybe even the job (more companies are running a credit check on job applicants). The credit companies will do fine; even if they miscall a few, they'll just change the terms anyway, it's not as if you can really go anywhere (collusion vs. competitive pressure, please discuss). They've cut their risk to 0.

For you, of course, a billing dispute or lax delivery by the Post Office can cause you some serious problems - massive late fees or a permanent interest rate bump. Your risk is huge. Just another example of how the big people can shift the risks of business (and society) to the little people.


What is the proper rate at which we should introduce the new and discard the old? It seems that our pattern is to love something, take it down (or see it disappear of its own accord), replace it with something new, then exploit the old thing as nostalgia that is supposed to reflect positively on the new thing.

We've had three things happen in Chicago the past couple of years that reflect that phenomenon; you may have that in your locale as well.

One of the most beloved retailing icons in Chicago was the Marshall Field's department store. In a city built on commerce, our heroes tend to be businessmen, and the Field name was one of the biggest. Once the family sold the store chain, it bounced around the consolidated world of retailing until it was purchased by Federated Department Stores about 2-1/2 years ago. At that point, Federated decided to rename Field's to match the flagship of the line, Macy's. This has led to protests, reports of unimproved sales, and a general hubbub of controversy unusual for a business decision.

One thing I found interesting was the justification, that the name change would allow Federated to create national branding strategies. Interesting because the big trend in retailing today is individual customization, the creation of a personalized shopping experience. One might think they could have left the beloved icon in place.

Of course, they've tried to exploit the old as much as possible. There's still a tribute to the store's history on the 7th floor of the State Street store, and many of the old traditions have been retained. I wouldn't be totally surprised if, sometime in the future, they change the name again, to Macy's at Marshall Field's or some similar abomination.

Another near-holy place is the home of the Chicago Cubs, Wrigley Field. The Cubs were just sold as a throw-in on the Chicago Tribune deal, and the new owner, a rich real-estate mogul, is willing to change the name in exchange for the big bucks he can get from a corporate naming deal. This process is not as far along as the Marshall Field's - Macy's deal, but it has already engendered a lot of talk. And there have been serious suggestions of incorporating both, leading to the possibility of a name like Wrigley Field at Cialis Stadium.

A third example is, once again, related to the Chicago Cubs. AT&T (itself a tarnished icon) is running saturation commercials featuring a Harry Caray impersonator (for those not familiar with baseball broadcasting, Harry Caray was the much-beloved Cubs broadcaster for many years; while overrated on skills, his best years having apparently been left in St. Louis, his beer-swilling, enthusiastic persona attracted many casual fans and helped build the Cubs into a national team). Strangely enough, these started running almost immediately following the 10-year anniversary of Harry's death.

The commercials are awful, but, more importantly, we see the cycle of love-replacement-exploitation yet again. I won't try to draw any broad conclusions here, but isn't it possible that resistance to change comes, not from fuddy-duddiness, but from a reluctance to watch this process? I wasn't a big fan of Harry Caray, but I'm revolted by this unfunny caricature (as others have pointed out, it comes off like a bad copy of the really bad Will Ferrell impersonation). Change may be inevitable, but how much do you want to bet that the people behind these changes have no respect for the original, but simply want to trade on other's nostalgia to make some money? And, if asked, I'm sure they'd insist that the commercials were intended as a tribute to Caray - what twaddle.

Sunday, March 23, 2008


Is there anything more bizarre in the history of advertising than the Jared arc with Subway Restaurants?

Jared is the guy who lost 240 pounds, ostensibly by eating nothing but low-fat Subway sandwiches. He got some press attention, Subway initially disclaimed it (not wanting to promote themselves as a diet fad), eventually put Jared in commercials, replaced him in 2005 with remarkably putrid ads, then brought him back, culminating in the current campaign in which celebrities pay tribute to the great man in extolling his 10 years of keeping the weight off.

And Jared is not particularly attractive or charismatic. He's a fairly normal seeming guy, which may be the attraction, but he seems totally unlikely to be the focus of a decade-long ad strategy. Are there really people who say, "Hey, that's Subway, where Jared eats - let's go there!"? There must be.

I don't have a larger point, except that I doubt that anyone at Subway saw this lasting into 2008 and, probably, beyond. All the self-promoting businesspeople who like to portray their success as based on skill and hard work, luck not playing a factor, are full of it; Jared may not prove that you can lose weight eating Subway, but he does prove the old adage that, "Nobody knows anything."

Saturday, March 22, 2008


Last Monday, I promised a post about software development. It's the field in which I've worked for quite a few years, and is important today because it represents something of a beachhead in the struggle over globalization and offshoring. While not the only white-collar job category to follow our factory jobs overseas, SD is one of the easiest and most lucrative to move. It brings into sharp relief some of the major assumptions of the pro-side, that expertise and training are the guarantees of continued employment, that high value-added will always have a place in the economy. (These are cases a lot easier to make with entry-level call center jobs than with software architect jobs.)

Dr. Dobb's Journal (DDJ) is one of the leading magazines of SD, with a long track record of articles that give a real idea of where the industry is going from the technical side (not through think pieces, but through hands-on case studies). A couple of years ago, they subsumed Software Development magazine, which dealt more directly with industry trends in non-technical terms; it discussed offshoring as an important trend in a way that DDJ didn't (that's not criticism, they had distinctly different objectives).

The promise was that DDJ would incorporate the topics that Software Development had covered, but they really haven't at all. The magazine itself is far thinner, many of the interesting columns have been lost - far from being stronger as a combination, it has grown weaker. They've moved to more of a Web model, and my impression is that they're struggling (though I have no idea as to their financial picture).

In the current issue, the Editor-in-Chief writes his monthly column, titled "Does Geography Really Matter Anymore?" After criticizing his high school geography teacher (instead of feeling lucky he had one), Jonathan Erickson makes the observation that geography is unimportant now.

This comes from two things he's noticed, that "developers around the world use the same tools," and that programmers are immune to the need for workers to "uproot families and lifestyles to chase new jobs" because they can live one place and work in another. He does allow as to how that might lead to jobs changing countries, but that's kind of a throwaway.

Amazing, just amazing. The editor-in-chief of a major software development publication is just now noticing globalization, and just now noticing that it may affect jobs - and at that he still misses the implications. Was this written in 1995? Has he been busy programming and editing and just didn't see the major trend in the industry? Erickson titles his column, Hmmmm - seems as if it should be called ZZZZZ.

Friday, March 21, 2008

Best-case, worst-case

Matthew Yglesias wrote a piece yesterday criticizing the Washington Post for an editorial that expressed the idea that the Democratic plans for Iraq are unrealistic, that allowing the troops to leave will destabilize the country. The newspaper, which has developed a reputation as something of an apologist for the Bush administration (though it's hard to believe that it can be much worse than my hometown Chicago Tribune), does allow that the president's claim that the troop surge has clinched the deal is premature.

But Bush is still given credit for "forestalling an incipient civil war," whereas the Democratic candidates are lambasted for their proposals to withdraw quickly. If Obama or Clinton get their way, Iraq will explode into sectarian violence, what few troops they propose to leave there will be ushered out by betrayed Iraqi leaders, and the Middle East will be permanently destabilized.

At which point Matt writes one of the truest sentences yet: "over and over again we see withdrawal plans being judged by worst-case
scenarios whereas staying scenarios are judged by best-case scenarios."

Oddly enough, the one person who has broken through this dichotomy is John McCain, who has said staying may lead to our having a major presence there for 50 or 100 years (of course, he presents that as a best-case scenario, but we aren't really fooled by that, are we? Oh, he's the Republican candidate? Well, then, I guess we have been fooled by that.).

Let me tell you my biggest frustration with Iraq. Leave aside the decision to fight the war, the misleading intelligence, the itchy Administration even before 9/11. Just take Iraq as of, say, 2004. We're there, we're committed to improving the lot of the Iraqi people, Pottery Barn, yeah, yeah, yeah. What are our biggest challenges?

We need to tamp down violence in order to give the Iraqis time to create a stable multi-factional government with self-determination, pursuit of happiness, all the American stuff. We need to have time to train the Iraqi people themselves to take over internal security. And (this one's a little more quiet) we have to help Iraq establish a free-market capitalist system.

Now it's four years later. We've lost 4000 young men and women, spent anywhere from $600 billion to $3 trillion, money which could have been on "remaining competitive" in the world economy, and immeasurably hurt our moral standing in the world. The best strategic idea we've had is the surge, which has quite predictably reduced violence by throwing more people at the problem. And what are our current biggest challenges?

We need to tamp down violence in order to give the Iraqis time to
create a stable multi-factional government with self-determination,
pursuit of happiness, all the American stuff. We need to have time to
train the Iraqi people themselves to take over internal security. And
(this one's a little more quiet) we have to help Iraq establish a
free-market capitalist system.

If Canada came to Chicago and told Mayor Daley, "we'll take over your police duties for you, we'll bring officers who are better-trained than yours, and we won't charge you a cent," the mayor would be a fool not to take that deal. Chicago would save massive amounts of money, and likely have better-quality policing. The city would have a huge incentive to ensure that Canada stayed as long as possible.

Well, the U.S. is Canada - why should the Iraqis work to get a government, work to take over their own security? We're doing it for free. I'm not saying there is some kind of conspiracy to keep violence just high enough to retain the American presence; I'm just saying there is a horribly perverse incentive for doing so.

It's hard even to conceive of this as a war. In WWII, you could look at a map and see out troops moving across the Pacific Ocean, taking territory as we drew ever closer to Japan. The goal was clear.

In Iraq, the goals are not clear, the conditions for success arbitrary. Setting benchmarks and deadlines would not be a sign of weakness, it would be a sign that we understand that nothing is achieved unless you define the achievement. We can't really afford the "we'll know we've won when we see it" attitude. There are risks in staying and risks in leaving; what most Americans want is a president who will evaluate both sides and make a good decision, rather than looking only at one side and making no real decision at all.

Thursday, March 20, 2008

Follow these links

I don't often point out specific posts written by people in my Other Places list; that I've featured them there should be sufficient. In particular, I don't write about Joe Posnanski's blog, which is wonderful but mainly focused on sports (I love sports, almost any of them, but there are a lot of sports blogs out there), not surprising since he is a sportswriter for the Kansas City Star.

Joe, if I may call him that, started blogging as promotion for his remarkable book about Buck O'Neil, The Soul of Baseball. Quite honestly, even if you care nothing about baseball, this book is worth your time. If you want to get a taste of what's there, Joe posted an excerpt from his book on his blog - great story.

Another Joe post, only peripherally related to sports, relates three of his biggest mistakes, and they are quite funny (I know, my saying that is the kiss of death, read them anyway).

In the intro, Joe relates the time his bicycle was stolen, and how he felt better when he found out his friend's bike had been stolen the same day. In retrospect, he knew he should have felt worse, but "I think I felt a little less alone."

My story: My family moved to Michigan in the summer between 5th and 6th grade. I wasn't real happy about that, and the first day of school was tough for me. I remember the room was quite hot, I didn't know anyone, and time was just dragging - I couldn't have been more miserable.

Then, about an hour into the school day (seemed like a month), the door opened and the school secretary brought in a girl who had obviously been crying. On top of that, she was wearing a brown dotted dress with bells on the straps. That's right, little ringing bells, one on each strap.

And I instantly felt better. Someone else was new to the school, and whatever attention I might have drawn by being the new kid (almost certainly overstated in my mind) was taken away by the crying bell new girl.

Of course, within a couple of weeks Kathy was established as one of the generally popular kids, while I was more of a niche player, but for a few moments at least, I was not the most obviously out of place, and I felt immeasurably pleased. And, I, too, regret now (somewhat) that I took that pleasure in someone else's discomfort.

Review - Free World

I first encountered Timothy Garton Ash last month on the Charlie Rose show. Charlie was talking to three British writer/reporters about the U.S. relationship to the rest of the world, and Ash was the one who seemed closest to my own views, not foolishly positive, but realistically hopeful that things would change. [Note: I know the normal pattern with British names would be to refer to him as Garton Ash, but I really don't want to type that every time, so I'll go with just plain Ash.]

What really grabbed me was when he said that Washington in 2008 is very much like London in 1908, in that they're both at the edge of a precipice of power that few people are seeing. Charlie seemed to disagree with him, apparently feeling that a lot of people in Washington do see that, but he didn't press the point. (Good thing, too, because no one in Washington, no matter what they're saying, is actually doing anything.)

Anyway, I headed out to the local library to find what I could of Ash's work, and I came up with his 2004 book, Free World: America, Europe, and the Surprising Future of the West. Ash is an author and a columnist who has written extensively on Europe, but he is also a senior fellow at the Hoover Institution at Stanford, so he's got some American experience.

I'll say upfront that I know very little about European politics; it is one of the great paradoxes that we Americans understand Europe so poorly, but think, because of our roots, that we know them well. One of the leading embarrassments to me is the knee-jerk reaction to France's lack of supine involvement in the war in Iraq. Whether we believe (or believed at the time) that France should have thrown in their lot with us, we never should have ignored France's right to evaluate their own self-interest and act accordingly (and Jay Leno's continual jokes were facile and, in the main, unfunny).

Because of my own ignorance, it's impossible for me to evaluate the sections of Ash's book that discuss the current political climate of Britain and Europe; I don't even know if anything has changed there in the four years since this book was written (and isn't it shocking to realize how little things have changed in the U.S. We're still in Iraq, facing essentially the same issues, we haven't dealt with any of the problems that have been deemed #1 priority in the meantime, like immigration or social security, and now our government has been pretty much shut down for two years as we all watch the presidential campaign. At a time of extreme world change, we have been in extreme stasis.).

That being said, I found Free World an excellent job of reporting, with a few curious omissions, but with the usual bunch of hopes and dreams masquerading as solutions. Ash is an entertaining writer, drawing on his own reporting and popular culture to inform his judgment and ours. At times he casts his rhetorical net a bit wide; on facing pages (34 and 35) he offers a great insight ("Self-censorship is the political writer's appeasement") and too-cute wordplay ("an Atlanticist Atlantis"). For the most part, though, Ash keeps down the cutesiness, and offers what seems to be a solid primer on national and transnational identity in the first years of the 21st century.

And this, I think, is the heart of this book; not the usual program recommendations (though Ash's suggestion of keeping ourselves to a 20-year timeframe is one of his best), but urging us in the Western world to question our own identity - what does our nation mean? As I read history, I find that this question used to be in the forefront, what should the United States be? Apparently, today we've answered that question, as it never seems to be posed any more. (The answer is, we are what we are, the acme of human development, why question that?)

Ash sees Britain as poised at a crossroads, uncertain where to throw its lot. Should they retreat or embrace the world? Should they look east, toward Europe, or west, toward America? I'll let the reader go through the history and the current arguments - it's all very well presented - and cut to the end: Britain should march out into the world, hand in hand with both its West and its East, playing a pivotal role. He allows that it won't always be comfortable, and that Britain can't always insist on being the "bridge" of Tony Blair, but that they can engage with both sides to solve problems but belong to neither.

As for Europe, they too stand at a fork, not certain of what they have created in the European Union. They are slowly working their way toward a reconciliation of national sovereignty with transnational strength and unity, but have complicated it by adding countries that are, historically, barely European. They can continue to define themselves using America as a reference point, but that will ultimately be self-defeating. Europe should figure out what it wants to be, allow those countries to join who are capable of being that, and march forward as a self-confident equal to the U.S. (though their world roles may be different).

One thing Ash understands about America, as many foreigners do not, is that we are unlikely ever to be truly unilateralist because of our internal divisions. The Bush administration notwithstanding, we do have built-in corrective measures to pull us back from certain brinks. However, it is our common beliefs, most having to do with American exceptionalism and our belief that ours is the one true way, that cause the most conflicts with nations we need to treat as partners. However off mainstream belief Bush is, a lot of people would agree with his, "a decisive victory for the forces of freedom and a single sustainable model for national success: freedom, democracy, and free enterprise." As Ash says, "What titanic hubris."

Along those lines, he tells the story of Paul Wolfowitz going to the E.U. to insist that Turkey be made a member (you recall, our good friends the Saudis didn't want to host an attack on the Muslim world, not again, so we wanted to use Turkey as our staging area). Ash states, correctly, "imagine a European politician traveling to Washington to tell the United States it must accept Mexico as the fifty-first state, so that Mexico would support a European invasion of Guatemala."

Ash goes on to discuss the rest of the world, more as a series of problems to be solved by the West than in the sense of their trying to develop their own identities. That may sound like a weakness of the book, but it really isn't. For a British writer to climb inside the heads of four billion people or so is not, in theory, any more impossible than doing so for the U.S. But Free World would be a much bigger book, and a different one, and not as valuable, perhaps. He never says he's anything other than a Westerner writing about the West.

The reader has a pretty good sense of where Ash is going before he gets there. He drops hints, such as how freer trade would allow potential immigrants to stay in their own countries; they'd probably prefer that anyway, and it would help the West avoid a host of problems. So the recommendations for freer trade and more direct assistance from the billion "wealthy" people are predictable.

He alludes to the growth of the larger Asian countries, but, I think, understates its potential impact. While we expend resources over the next twenty years helping the Near East and Africa, the Far East can be building themselves even faster without taking responsibility for global problems (yes, I know that China should have the same opportunity to build themselves on cheap oil as we did, but that isn't today's reality). That's in large part why the U.S. pulled out of Kyoto, because of that sense that others would profit in a way that was closed to us. Morally, you can argue it; politically, it's a hard sell. Ash acknowledges that: "[America would have to put] the wider international interest before the narrowly conceived national one; and the long-term before the short-term...such an outcome looks woefully unlikely." Apparently, this intractable problem is such that Ash does not return to it.

One real problem with Free World is that Ash doesn't fully grasp the extent to which, at least in the U.S., the citizenry has adopted corporate goals as "our" goals. I don't understand our slack-jawed adoration of offshoring corporate "leaders," but any discussion of the identity of this country has to include it. We have become so wrapped up in our worship of "free enterprise" that we have created gods out of its masters. Look at the number of books and articles that proclaim the answers to the world's problems will come from private concerns, despite their unsuitability for such work - but you have to go where the money is.

Few things are more contentious than the concept of a true world government. The United Nations often seems to be nothing better than a multi-ethnic debate society. Ash talks about world problems, talks about how current institutions may have to expand (growing E.U., Russia in NATO but not the E.U.), but never quite advocates more than happy free nations all working together, including some currently non-free nations to help (even working, no matter how sub rosa, to help them become free), to solve those problems. He may see this as a non-starter in the twenty years he's giving us to work on these things.

I have not, almost certainly, given you the full flavor of this book. The tone is one I favor, that of positive pessimism, a belief that we have some chance to make a dent in the world's challenges, but not blind to how difficult that path will be to walk. But it will take more than this or a hundred books (or a thousand blogs) to make a dent in the American torpor. We can't even advocate our own best interests well, how can we possibly meld that with the best interests of the world as a whole?

I despair in how far we are from taking even the first hesitant steps. Ash wants the West to, "[define] these universal minima of inalienable human dignity, on which there can be no compromise." I doubt, reluctantly doubt, that 20 years will even allow us to take a first crack at that, and that's an early step. I hope, tremulously hope, that I am wrong.

Wednesday, March 19, 2008

Loverboy comes to Washington

Everyone's watching, to see what you will do
Everyone's looking at you, oh
Everyone's wondering, will you come out tonight
Everyone's trying to get it right, get it right

Everybody's working for the weekend
Everybody wants a little romance
Everybody's goin' off the deep end
Everybody needs a second chance, oh
You want a piece of my heart
You better start from start
You wanna be in the show
Come on baby lets go [Loverboy, Working for the Weekend]
It has been said that art is how we interpret reality, that we cannot contextualize actuality without filtering it through a process of simplification and reconstitution (no, I can't find a reference, but that sentence sounded appropriately weighty and deep). I think many of us eagerly await a time when creative minds sift through the wreckage of the Bush presidency and fit it into a larger picture (Neocons: The Opera - no, darn it, Wagner already wrote that one).

Little did we know that the extraordinarily prescient Calgary rock band Loverboy already created the quintessential piece of music to explain the Bush years, the song Working for the Weekend - and they wrote it way back in 1981 (coincidence that it came out the first year of the Reagan presidency - I think not).

To go through the above lyrics line by line is unnecessary. Every single line reveals important clues to the administration's actions and policies - the remarkable use of "everyone" to reflect the American people (though this remarkable work later changes the context of "everyone" - Bush is us, we are Bush), as we watched to see what Bush would do, hoping he'd come out; in desperation, the country moved to the right in hopes that something would happen. Then we went off the deep end by giving the president a second chance (read, term). We wanted him to start from start (actually, I have no idea what that means, though I suspect it has something to do with arms negotiations).

But the most important and straightforward clue, provided a full 20 years before Bush took the oath of office, is contained in the title. Working for the Weekend, of course, in the context of the song, implies that the singer is working hard so he might enjoy his weekend. And that, apparently, is the Bush motto.

Let me set the stage. A large investment firm has invested billions in high-risk securities, and their investors, having realized at last that Brian Williams really means it this time when he says there are economic problems, decide to cash in their chips. Given the intricate, interlocked, and almost totally unregulated financial system of today's United States, this can cause a real problem - other institutions might collapse, taking the real economy down with it.

But, darn it, this crisis is coming to a head at the end of a workweek. What ever will we do? "Can't it wait until Monday?" "No, Mr. President, it can't. Extraordinary measures are needed." "OK, we'll do whatever it takes, no matter how difficult, no matter the political risk. I'll ask Hanky-Panky to work over the weekend; I hope he doesn't have too many errands that he'll have to put off."

And this is no quiet request, made in secret. Though it may panic the country to learn that Treasury Secretary Paulson had to work on a weekend, the Chief Executive is going to give credit where it's due:
In some ways it was a throwaway line, the kind of praise a boss tosses out casually. But as the economy teetered Monday, President Bush's words to Treasury Secretary Henry M. Paulson struck many as discordant and disengaged.

"I want to thank you, Mr. Secretary, for working over the weekend," Bush said as he met with his economic advisors at the White House. "You've shown the country and the world that the United States is on top of the situation."
Now, lest you think Secretary Paulson was taking it easy, copying his tax returns, making long distance calls while no one else was in the office, don't worry. He was, in his own words, "very involved, you know, been on the phone for a couple days right now helping to work through this." Not only that, but, "Paulson appeared on ABC's 'This Week,' 'Fox News Sunday' and 'Late Edition' on CNN." So we had someone doing the heavy lifting, and we join the president in thanking this public servant for his effort. Henry, take a couple of extra days, you've earned it.

The "science" of economics

A previous post discussed economics reasoning and how flawed it is, how economists can be blind to arguments that run counter to their pre-existing assumptions. That's actually a fairly natural human trait; we all have beliefs that fall more on the side of articles of faith than result from solid reasoning. I imagine that can arise in any of a number of ways: indoctrination, favorable association, a lack of deep thought, and so forth.

But it's become clear to many people that economists suffer from something else, what Driskill calls (in his previously-referenced paper) the possible belief that, "economists are mere propagandists and handmaidens in service of some philosophical or political goal."

I would say that belief isn't just possible, it's absolutely true, that economics falls a lot closer to political science than to actual science. Almost none of the criteria followed by "real" scientists are used by economists. Even something so basic as experimentation has to be abstracted into unrealistic grad student activities that often more closely resemble frat hazing rituals than serious investigations into reality. And the profession totally punts when it comes to macroeconomics, correctly surmising that few governments will stand still for becoming laboratories.

Question: is there such a thing as a "conservative" mathematician? A "liberal" physicist? A "supply-side" mechanical engineer? Of course not. True science is a quest for truth based on generally accepted axioms, principles, and methods of reasoning. Economics tends to be a quest for justification based on one-off assumptions and improvised analytical techniques.

I don't want to be totally unfair here. Economics is still young, and it's still more aspirational than anything else. Important insights have come out of the attempt to discover how markets work, how incentives are useful in effecting or stifling change, how we can try to optimize the production and delivery of goods and services. The best economists are trying to push back the veil of ignorance a little at a time, and they're making progress.

But that ignores the centrality of economics to the life of the world. Economists are used to justify important political decisions; as an example, the near-universal (and flawed) belief that free trade is always good has been used to effect policies that have hurt many people. Do the benefits outweigh the costs? No one knows.

This issue is especially important now, when a shaky economy threatens to damage the prospects of nation and people, yet we still count mainly on the economists to help us through it. Should we bail out Bear Stearns? There is no consensus, so we're all just flying blind.

Look at this post. The discussion concerns whether, where globalization is concerned, the "tide of opinion amongst...academic economists...has shifted." Substitute "the speed of light" for "globalization," "physicists" for "economists," and you have a sentence that is utterly impossible.

What we have in economics far too much of the time is faux science, a practice that has adopted some of the trappings of real science but little of the rigor. Think about how much money is spent each year on predictive economic models, then think about how many interviews have been conducted the past few weeks in which an economist is asked, "Are we in a recession?" The typical answer, "Only time will tell." (Maybe Nancy Reagan had it right when she consulted an astrologer.) From Keynes through Krugman:
In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
I'm not arguing that we ignore everything economists have to say, I'm just saying that we need to start taking a more critical view. Rather than being snowed by mathematics and jargon, we need to know what the implications of following the recommendations of these modern necromancers are. They may have informed opinion, but, in the end, economists are just offering...opinion.

Tuesday, March 18, 2008

A quick link

I, even prior to the current crisis in financial markets, was fairly bearish on the long-term health of America's finances. Debt at every level of our society is high (even corporate debt, thought to be almost nil, may be substantial due to the mis-rating we've seen in situations like Bear Stearns'), and our lender of last resort is frequently another country. I've written before on the risks to the middle and lower classes from our great experiments of globalization and the service economy. Politically, these and other actions have made us vulnerable in a way we haven't been for a very long time.

Now comes the crisis, and we wonder what the new president will do (we know what the old one will do, proclaim confidence and expect the economy to fall in line, doling out small ineffective gifts along the way to keep us quiet). The discussion we need to be having about the ultimate responsibility of government vs. private enterprise in keeping the nation strong isn't happening, it probably won't, and all three candidates are quite unclear as to how we will pull this all back in.

Neither of our Democratic hopefuls have filled me with confidence that they possess the "big idea," the one that's going to cure what ails us. More disturbing is the admission by Sen. McCain that he knows little about the economy (space for a brief rant here: why do we care so much about the vice presidential nominee? Yes, it's important to know who might take over in case of presidential trouble, but I would rather find out who will have the president's ear on important issues. The Bush-Cheney relationship is unprecedented, but, even with that, we had no idea that neocons and Rice were going to take over our defense planning and, well, whomever was going to plan our economy. Don't tell me who will be second in command, and ignored; tell me who the new president will actually be listening to.).

So read Jared Bernstein's post at American Prospect, and become as afraid as I am that this kind of thinking comes from the "fiscally responsible" party.

From here to there

I don't want to turn this blog into a weekly tribute to James Howard Kunstler, he speaks well for himself. His most recent Monday post, an impassioned expression of concern about shaky suburban life, unhelpful financial bailouts, and possible gas shortages, is worth reading, but I want to pick up on something he writes early on:
One thing I've noticed is that in any given public meeting (or lecture hall) you can divide participants into two groups: those who believe we will 'high-tech' our way out of this predicament; and those who believe we'll organize our way out.
I don't subscribe to either point of view, strictly speaking. Both POV's assume that there will be an orderly transition between where we're at now and where we're headed. They're tainted by the kindergarten ethos of entitled happy endings and outcomes, which has been the chief operating system for the Baby Boomers, a therapeutic bias for placing 'good feelings' ahead of reality
I think this is an important point, and it's a misconception that has been perpetuated by our education system. When we learn history in school, it's presented as a sequence of peoples and ideas where the next inexorably follows from the last. The Greeks declined, the Romans rose. The British Empire stumbled, the American Empire came along to pick up the pieces.

Worse yet is the idea that things happen as they're supposed to, that this inevitable chain of events came about in perfect order. Many people discount counterfactual stories, those that propose an alternative line of history (what if the Nazis won WWII?), because they think such consideration is ridiculous. Of course America won, that's what we do.

And these ideas are applied to our current challenges. All we have to do is throw money at, say, the problem of oil dependence (I'm sorry, I forgot, government is inherently bad - I meant, provide proper free market-esque incentives) and in five years (OK, it may take six), we'll have a non-polluting inexpensive source of energy that will allow us to drive our current cars and is available at least as conveniently. Problem solved, let's move on.

Which is why we have to read history more closely. There are dark periods where humanity has made very little progress, where there has been no major power to pick up the responsibility of world leadership, where chaos was more the rule.

And technology does not always come along when we need it (ask Napoleon if he could have used tanks). Nothing is inevitable. We may not just find a new source of energy that is superior to petroleum-based products, we may have to go through a lengthy Kunstlerian period first. Or we may not be the ones to develop it, so we may have to go, hat in hand, and beg the Chinese or Indians to share it with us. (Again, it is ignorance of history that allows us to believe that the automobile was invented, and the next day we all took a vacation to the Grand Canyon - it took decades to put the infrastructure in place that allowed those easy family trips.)

I have the feeling that no issue provides any sense of urgency, not global warming (that's so yesterday), not peak oil, nothing. Yes, we developed the atomic bomb in a few years, we got to the moon in less than a decade, but it requires near-bovine complacency to believe that every problem will yield so simply, especially when we're dithering over trivia instead of working for solutions. It's pretty frightening.

There ain't no such thing as a free trade

Let's walk through one of my favorite thought experiments. I say to you, "I know a great way to make money through the wonders of free trade. Give me $10, and convince 99 of your friends to also give me $10." You do that, and I take the $1000. I then do something magical in the overseas black box, and a month later I have $1500. I come back to you and give you $700, saying, "The investment went well, but not quite as well as I had hoped, so here is what I have left after my 'management fee'. Give each person their $7, and catch you later."

Now we examine the winners and losers here. We will assume that the folks overseas got something out of the deal, better job prospects or something, because otherwise they wouldn't have made the deal with me. Back in this country, I'm $800 better off (yay for me!), and each investor is only $3 worse off (not enough to sue me, double yay!!). And as far as the national accounts are concerned, GDP has magically increased by $500. As I spend or invest that money, the people who get it are happier (granted, the people who would have received the 300 lost investor dollars are less happy).

Was this a good deal? Almost certainly, under standard economic theory, I've done something wonderful. Taking four criteria from a paper by Vanderbilt University economist Robert Driskill ("Deconstructing the argument for free trade"): 1) "the gains to the winners are larger than the losses to the losers" - it's clear my deal has done that; 2) "it increases GDP" - check; 3) "it increases total utility" - this is more difficult to determine, but, depending on my circumstances, $800 may be quite significant to me, and probably outweighs the minor inconvenience of losing $3, even multiplied by 100; 4) "it made more people better off than were made worse off" - the most problematic, but I could still make the case that where my $800 goes downstream will make at least as many people better off as were hurt by my scheme.

You may already see where I'm going here. Those four criteria are often used as justification for free trade and its happy cousin, the offshoring of jobs. I'm sure my little experiment could be analyzed further, but at first glance it seems that I have discovered a scheme that leads to contradictory results. Economists would say I've done something good, but I wager most people would find something reprehensible in my casual appropriation of other people's money.

What prompted this post was a post by Dani Rodrik on his blog. Rodrik, a Harvard professor, is hard to pigeonhole, and I wouldn't claim that what I'm writing is something he'd be fully behind. At any rate, his post leads to another from last September, one which summarizes the aforementioned Driskill paper.

The importance of the Driskill paper is not so much that he comes out for or against free trade; his argument is that the economics community has misrepresented the case for free trade (and has done so virtually unanimously). Obviously this is vital to understand, as most major newspapers and periodicals pick up the pro argument, simplify it, and present it as gospel truth. This then creeps into the "undisputed" category, and those people who argue that the issue is far more complicated than the standard Ricardo method states are treated as crackpots or Luddites. From Rodrik:

His main argument is that the standard renditions

gloss over a key issue the resolution of which is anything but obvious: What does it mean for a change in economic circumstances to be "good for the nation as a whole", even when some members of that nation are hurt by the change?

In other words, instead of sticking to what they are good at--analyzing trade-offs--economists typically engage in amateur normative political theorizing about what is good for society.

More from Driskill:
My point is not that the economics profession is not on the side of angels in the policy debate over trade liberalization--although I will argue that a more careful argument should lead to a more nuanced view--but that the argument is poorly made. This reflects negatively on the credibility of the economics profession as a whole: critical thinkers might believe all economic arguments are as poorly supported as is the one in support of free trade; others might believe economists are mere propagandists and handmaidens in service of some philosophical or political goal.
I invite the interested reader to read the Driskill paper, as it is analysis at its best. Again, don't go there expecting some anti-free trade screed, his point is not to argue that one way or the other - it's to examine the reasoning that goes into the blind "free trade is always good in every situation" approach. [I have more to say on this subject, and I'll follow up.]

Monday, March 17, 2008

What is a blog for?

A few times on this blog, I have offered some small speculations as to what a blog should be. I had, and continue to have, no answers, just a developing sense as I continue to write each day. But that also generates at least as many new questions.

My post for today was going to be about some issues in software development, and, as I began to write, I realized that I was apologizing for writing about a topic I haven't talked about much before. I've made no secret here as to my background as a software developer, team leader, and project manager, but I never wanted this blog to become full of such topics as, "Intelligent design of smart pointers," no matter how clever such a title would be.

What I have done is to write about topics that interest me, but, I realize now, with an underlying sense that I had an audience. So I would write about "larger" issues, ones from economics or business or politics, things of broader scope, and not get too narrow. I don't write about software, then, or much about Chicago-area politics, or TV shows I like.

Even with that recognition, however, I find, in looking at my posts, a fair amount of "all over the map." You come to Androcass expecting something about the mortgage crisis, or Obama-Clinton wrangling, or my abject shame at being a stupid American in light of Lord Gates's testimony to Congress, and you get something about the Chicago Cubs, or about a cross-country skier.

A single purpose is probably good for a blog. When you go to Baseball Prospectus, you get baseball; when you go to Joel on Software, you get software; when you go to James Howard Kunstler, you get Armageddon.

I know some have resolved this by creating multiple blogs, each with a different purpose. First of all, I find that complicated. Second, I risk diluting the brand of Androcass (that's more or less a joke).

At the end, I guess, it comes down to what a blog is for. Is it to reflect the workings and interests of a particular mind, or is it to convey a cohesive set of thoughts about a particular subject? For now, I'll stick with the former, which works for me, but I'll try to keep an open mind.

Sunday, March 16, 2008

Yet another other place

I have added The Corporate Cynic to my Other places of interest. Once again, I was put on to this site by Carrie's Nation (she has some really good links). This blog is written by an experienced business hand who has some really incisive things to say about the current state of business (I prefer his posts to the hit-and-miss snark of Stanley Bing, whose books can be a bit of a slog). The only thing that will bother you is that he doesn't find the time to post more often (about once a week), but he's actually working (and his signal/noise ratio does remain high).

Full disclosure: about 99% of the paragraph above represents my sincere interest in his blog, the other 1% is due to his kindly citing yours truly in his most recent post (modesty precludes a direct link). I'm glad a comment can provide inspiration to a fellow blogger.

Anyway, read his site, and get some idea as to why the whole concept of "corporate efficiency" is severely flawed (as those of us who work already know, and the pundits, the press, and the ivory-towerers don't).

I finally feel better

[Note: Sunday is supposed to be my day for short, light posts, but between Father Bill's appearance before Congress and the economic woes, I'm in no mood for light - we'll shoot for short.]

Henry Paulson, Secretary of the Treasury, made the rounds of the Sunday morning talk shows today to talk about how things were just going to work out, "the long-term fundamentals are strong." (I caught his act with George Stephanopoulos, but couldn't find a link to that appearance, but he said the same stuff to Wolf Blitzer, apparently.)

I won't talk about the content, not today, but I do want to make a fairly shallow observation. Interviews with active political figures are almost completely worthless, as their political exigencies force them into sounding either stupid or contemptuous. For Paulson to claim that everything is essentially fine, once the administration works its magic, means that, either he is remarkably unaware, or he's sure that we are.

But I suppose that's obvious to anyone over the age of four, that he won't say anything that will run counter to his boss's message. That, ultimately, we citizens are his bosses and have a right to expect something approaching truth is too radical a thought.

So I'll move on, to the secretary's assertion that the fall in home prices is not bad given their earlier "unsustainable appreciation," at least in four states (we'll assume he misspoke on ABC when he called Las Vegas a state). So members of the administration saw this appreciation as something that couldn't last; presumably they understood that low down payment, adjustable rate, and even subprime mortgages put people at risk; and the growing amount of personal debt, credit card and home equity, made situations precarious.

When did they see that? It was obvious to most of us some time ago, so somebody in Washington probably did notice. They could have taken some kind of action in, say, 2006. Sure, some people would have said they were interfering with the normal workings of the market, but this is an administration that has insisted on being impervious to public opinion (cf. Iraq). And on the principle that a small action early is preferable to a large one late, they could have justified it.

But nothing happened, not from any of our elected representatives. Now, here we are in 2008 (coincidentally an election year), everyone recognizes the crisis (even the president is slowly coming around), and suddenly we have mortgage-protection packages, fiscal stimulus packages, investment firm bailout packages. Things are happening.

Is it too cynical of me to suppose that the appearance of doing something dramatic, even actions that may ultimately prove counterproductive (is upping the national debt to give each of us a check that we'll spend either on Chinese consumer goods or Saudi oil really an answer to any problem?), really beats responsible stewardship?

I guess the question answers itself.

Saturday, March 15, 2008

My dilemma

Once in a while, and I think this has happened to all of us, we are confronted with two opposed opinions, both of which we want to believe. Evidence piles up on one side, but we're not comfortable with it, maybe someone we respect is on the other side, maybe there's a pile of evidence over there too.

For example, is the surge in Iraq working? Part of me doesn't want to give any credit to the Bush administration for anything (not that one right move in a sea of bad ones compensates), the other part wants to believe that we can bring about meaningful change, that our lives and money won't have been thrown away in vain. How do I end up making that decision? I tend to look at where we are versus where we were in 2004, and realize that we've made no real progress on establishing an independent multi-factional government or in training Iraqis to take over their own security. In other words, I duck the question, try not to isolate and evaluate the surge, but fit it into a larger context.

This conflict is a basic one, one that we see portrayed time and again in culture and in life. The Debra Winger - Tom Berenger movie Betrayed [1988] is essentially about that, as Winger's character (and the audience) is forced to square the Berenger we see with the Berenger who's revealed to us. (Thumbnail review: Starts out great, with building tension and a sense of Winger's struggle, second half more routine.)

I haven't written too much about H-1B visas (those that allow technical people to come from other countries and work here), though it's a topic about which I am passionate. Having worked in the tech field for many years, I've worked with quite a few H-1B holders, and they're average. Some are good, some aren't. They are far from being the highly-motivated geniuses that Bill Gates and others would have you think they are, they're just...OK. And I don't talk much in this blog about my own job woes, that would make it something that I don't want it to be; suffice it to say that I have been mightily affected by offshoring and H-1B visas.

But Uncle Bill, fount of all technical and business wisdom, has gone to Congress again to stump for the expansion of H-1B visas. I won't talk about that, at least not today; Carrie's Nation and the Programmers Guild, among others, are covering his ludicrous testimony and similar issues quite well (actually, you need only be well-versed in logic to be disgusted by what Mr. Genius had to say, but Citizen Carrie quite accurately limns the issues in this post).

My problem is, that in looking around the Web at various H-1B-concerned sites, I found a strong opinion that Robert Reich, Clinton's Secretary of Labor, is one of the villains behind the program. For example, this 2005 post that contends that Reich believes Americans are stupid and need to be educated to compete. (For an eloquent putdown of this notion, see here.)

If you have read this blog over the past month or so, you know that I have become a fan of the writings of Reich (see my review of his most recent book here). I have some reservations about some of his conclusions in Supercapitalism, but most of it is surprisingly realistic, given his status as a political insider. And his blog is similarly non-conventional wisdom (look for his recent series on whether we're heading for a depression).

And there are people who are vehemently against the H-1B program who praise Reich (see this article from 2001 that excoriates the H-1B program in words that, sadly, still hold up today). So I'm left wondering: Is Reich the scourge of all of us who have been affected by the H-1B culture (meaning all of the American-hating baggage that comes with support of the program), is he one of the few voices with any influence who is speaking some version of the truth, or is he both, having changed since working in Washington?

I guess I can't answer that, so I'll have to continue to read what Reich has to say, and make up my mind on a case by case basis. That goes against a basic tendency to pigeonhole (Coulter - BAD, no reason to read her), but I'll try to deal with that complexity.

Friday, March 14, 2008

Review - Day of Empire

One of the great aspects of "new" history is that, by reading history through another point of view, we see things differently or play up facts that wouldn't seem important. Looking at things that are commonly seen as one way through, for example, feminism can illuminate the familiar. So I'm pretty open to history from other perspectives.

It can be overdone, of course, usually for political reasons. Attempts to magnify the Native American contributions to mathematics often come out as ridiculous; there is no reason to try to justify a culture by claiming things that it just didn't do, cultures stand on their own. Eventually, history is what happened, and it is possible to create explanations or find themes that do not grasp at unreality, and the best histories do that.

Did you know that, immediately post-American Revolution, many European countries enacted laws making certain categories of people unable to emigrate to America? The United States was so desperate for skilled workers in a number of trades that it would send agents to entice them to move, and England, Italy, and Germany (among others) fought hard to retain them. I didn't know this before, and I don't know that I would if I hadn't read a history that attempts to explain the rise of the greatest empires through their desire for diversity.

I'm also a sucker for the broad sweeping theory. I admire an author who takes a chance by explaining complicated events with a new perspective, even though I find myself only rarely convinced that the theory is sufficient to explain as much as it's supposed to cover. For example, I truly enjoyed Kevin Phillips' American Theocracy, which, as part of its thesis, states that the last few world powers have come about because of their mastery of the newest source of energy (the Dutch, wind and water; the British, coal; the Americans, oil). I'm not convinced that energy is the sole determinant of a nation's status, but it certainly is a major factor, and Phillips expanded my concept of what to consider.

So I wanted to like Day of Empire: How Hyperpowers Rise to Global Dominance - and Why They Fall [2007] (DOE) by Yale law professor Amy Chua. Chua offers a broad theory as to the rise and fall of what she terms "hyperpowers," namely, world-dominant powers. A hyperpower has three characteristics: 1) its power is more than any other rival; 2) its economic and military strength is at least as big as any other in the world; and 3) it extends its power over a vast portion of the world.

Chua's essential theory is: a nation rises (somehow), increases tolerance (problematically defined), becomes a hyperpower, then begins to decline, which is associated with growing intolerance (even Chua admits that cause and effect here are difficult to discern [p. xxiv]), then the nation ceases to be a hyperpower. The biggest problem is a lack of "glue," the inability of the hyperpower to bring the other societies (those of whom the hyperpower is tolerant) into a true sense of belonging.

We have a theory here with a lot of problems. The rise of the nation from country to empire can happen in any of a number of ways, then they embrace tolerance (which, as Chua admits, is a relative and selective tolerance), then the country starts to decline, then becomes intolerant (though the last two steps may happen in the other order, we just don't know), then stops being a hyperpower, probably no longer even a respectable empire. Chua applies this theory to seven different empires (Persia, Rome, Tang dynasty China, Mongol China, 17th century Holland, the British Empire, and modern-day America) and demonstrates, at least for the first six, how the theory holds up.

One personal quibble I'll toss in here. I love maps, I find any history improved by the addition of maps. There are no maps in this book, and it seems quite an omission for a general history like this one. To understand the extent of the Persian Empire without being able to see where we find, for one, Cappadocia is much more difficult. I own the out-of-print Anchor Atlas of World History, an excellent compact reference, so I can see how impressive the Persian Empire was in encompassing everything from Cappadocia to Gedrosia, but the average reader will be hard-pressed to reach this understanding.

Back to the book. Let me talk about the very real positives here, what make the book worth reading even if you don't accept the premise. This is a very entertaining book, with many interesting anecdotes about various eras in world history. It is the very definition of a readable general history, and flags only when the theory is shoehorned into the narrative. Obviously there are omissions, in particular anything that doesn't fit the thesis, and I certainly wouldn't rely on it as my primary source of knowledge about these periods, but it's a good book.

Now, the nits. Economics, which many of us would regard as a major force in history, is given very little attention in DOE. That tolerance may simply be a means to an economic end is pretty much brushed by. When Britain imports Jews from Holland (whose families had earlier emigrated from Spain), this is seen as tolerance (under Chua's liberal definition of the term) rather than an attempt to take advantage of the money they controlled.

Let's not ignore the definition of empire used here - there really isn't one. In the description of the Roman Empire,
Rather than pillaging or looting the cities of defeated foes, Rome offered them treaties of peace that were rarely refused....The conquered cities could continue to be ruled by their own leaders under their own laws, with two conditions. First, each could trade freely with Rome but not with each other; in this way, the smaller city-states quickly became economically dependent on Rome. Second, each was required to provide Rome with troops.
Does this really constitute an empire, or is it more a loose confederation? This question, arguable when applied to ancient Rome, is paramount when talking about the Mongol Empire, which barely comprised a single entity (the grandsons of Genghis Khan each took a piece, but didn't seem to rule in concert).

At least as important, did the subjugated peoples accept the empire because of the imperial "glue," or because there were real advantages, mainly economic, in joining the larger body? Perhaps this glue is nothing more than the easily-broken consent of the governed.

When DOE moves to the modern hyperpowers, in particular the British Empire and modern-day America, the slope becomes even more slippery. When earlier empires took advantage of (and you can read that statement either way) the diversity of its subjects, what Chua calls tolerance, that made sense, and I'll admit that any large power that was able to use the full range of talents at its disposal probably did better than any that suppressed them (and her use of Nazi Germany and imperial Japan is particularly apt).

But she undercuts her own argument by asking: "Is it possible for a world-dominant power to be genuinely tolerant in the modern, 'enlightened' sense?" [p. 194]. The answer is almost certainly no, as dominance and tolerance are diametrically opposed (it requires us to redefine tolerance as exploitation, which is dangerously close to Chua's argument for the earlier hyperpowers).

It becomes clear by the end of DOE that there is something of an agenda being presented here. It will not surprise the reader that Chua is arguing for fairly open immigration if America is to retain its identity as a hyperpower, that this country needs to continue to harness the talents of everyone within its sphere if it is to retain its stature. It would be just as reasonable to posit that a growing nation needs an infusion of skills from outside, but, perhaps, a mature nation does not.

As she discusses the contenders, China, the European Union, and India, and decides that none will show the tolerance necessary to become a hyperpower, she ignores the way in which technology allows exploitation without inclusion. China may not be very tolerant of foreigners in their midst, at least not in the sense of accepting them as full-fledged members of their society, but that doesn't mean they can't draw on their expertise (or their dollars) over the Internet. I'm not saying that China will become a new hyperpower, I'm just saying they don't need to grant citizenship to Ohioans to get there.

Chua does express some misgivings as to whether the United States should remain a hyperpower, or whether we should be content to become just one of a set of superpowers. She really doesn't make her case that we have a choice in the matter. Besides an open immigration policy, she defends multinational corporations and outsourcing as a way of spreading American "glue." Why, to cite her examples, Google India or Microsoft Ukraine should continue to generate ideas and dollars for the benefit of the U.S. is murky; at best, one can predict a kind of co-dependency, not a continuing feeding of the American hyperpower. (Her third piece of advice to the U.S., multilateralism, is neither clear enough to help her thesis nor detailed enough to make it more than a wish.)

The real lesson of DOE is that we have had six incredibly diverse hyperpowers, none of which followed the same arc as any other. Therefore, to infer from the decline of the others that we can somehow stave off our current decline, and to assume that the only way to do this is through greater tolerance, is a huge logical stretch.

So read this book for what it does offer, an interesting history of previous empires. Don't, however, blindly accept it as a guide to future policy - it doesn't hold up real well when measured in that sense.
Clicky Web Analytics