Software vs. finance

I've worked in software for quite a few years now, and I know that there are few more complex things that humans have created. To describe to anyone who hasn't worked in the field just how complicated an order entry system, for example, can be is almost impossible. You not only have thousands of lines of code, written by people of varying skill levels and experience responding to different requirements, but you also have interactions with the operating system, third-party software, external data stores, and so forth. Any moderately interesting application is orders more complex than the majority of the non-computer world.

So my question for the day is this:

Why do we need finance people to stay in place to unwind the crisis, when we let completely inexperienced people take over our software?

We're seeing our bankers making the big bucks again, and they were all kept in place through government bailouts. No matter what they had done to destabilize the world financial system, they were needed because "only they could understand these complicated financial instruments."

Now I have a master's in finance from a prominent school (FWIW), so I have some understanding of financial products, the misdirection, the assignment of risk (that theoretically reduces that risk, ha, ha), and I can tell you that there is no financial product, no matter how layered in legal jargon, that compares to a useful computer program in difficulty.

So, and I ask this in sincerity, why do we need to prop up the kings of Wall Street, restore them to their place in the universe, while every day we move some piece of software to an offshored company full of folks with meager training and experience? Why are we so comfortable taking applications away from the people who built them, giving them over to people who don't understand the business, the industry, the requirements of users?

Several answers present themselves, and at least one of them is right, but I still find it incongruous and unfortunate.

Bubble machine

Occasionally I will take requests on the blog (actually, I'd love to get more), suggestions on something to write about, and I'm happy to put something together if I can think of something to say. A reader/friend asked me to write something about Matt Taibbi's Rolling Stone article titled The Great American Bubble Machine. In it, Taibbi lays the blame for our financial meltdown on investment bank Goldman Sachs:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

Reaction has been severe. Of course, Goldman Sachs has responded with outrage, but many other commentators have leapt to the barricades, accusing Taibbi of overreach and sloppiness. One who has attracted a lot of attention with her "takedown" is The Atlantic's Megan McArdle, and I'll swing back to her in a moment.

But, you ask, what of my take on the original article? Ah, yes, but there's a problem: Rolling Stone has, in their infinite old-media wisdom, not published the whole thing online; the link I provided above is a series of excerpts interspersed with videos of Taibbi. So it's hard for me to provide any cogent analysis of the article without running out to the store and picking up a copy of the mag, and I'm not going to do that. (Kevin Drum fell into the trap, reviewing the article without realizing he was looking at bits and pieces. Once he got on track, he read the whole thing, concluding that, "It's a very good takedown of the modern financial industry and well worth reading." Drum also provides a link to a site that purportedly offers the whole article, but that's not working for me.)

I am left, then, trying to review an article based on excerpts, and that's not fair to the piece. I will not try to claim total objectivity anyway, as I am a fan of Taibbi's writing. His reviews of the Tom Friedman oeuvre are canonical, but I already praised those enough. He is a passionate writer, one who, perhaps, sometimes allows his passions to get in the way of precision.

But that's who he is, and to take the other side, to argue that his vehement eloquence is disqualifying is to refuse to engage with his points. And that is a far greater sin. Witness the quote in a TIME piece from a former journalist, "For the record, I don't think any article that contains the line 'vampire squid sucking the face of humanity' [Taibbi's opening description of Goldman] is real journalism." That quote is vacuous and completely unenlightening. (Taibbi himself responds to TIME's piece here.)

Here's Taibbi's position in an somewhat unfair nutshell: Goldman Sachs has been at the center of every negative investing trend over the last several decades, and their involvement in questionable financial instruments and oil speculation directly led to the current world financial crisis. Furthermore, their connections to people in high places ensures that they will be allowed to profit mightily no matter what happens in the global economy.

And that doesn't really seem too wrong. I sense maybe a little too much conspiracy in Taibbi's article, a bit too much willingness to credit Goldman with prescient malevolence. In my experience, there is rarely a decision arc in even the most powerful companies; rather, there is a culture which approaches problems in consistent ways, thus leading to similar results. Once that culture is seen as successful, it becomes widely adopted and the influence is magnified.

One thinks of, in the business consulting realm, the influence of McKinsey. McKinsey is not responsible for some of the worst management trends of the past 30 years, but they do tell their well-paying clients what they want to hear. Once the concepts (things like dehumanization and offshoring, anything in which customers can reap gains without paying the full costs) get the official McKinsey imprimatur, they become consecrated as holy writ, and McKinsey appears to be at the cutting edge of modern management techniques. I believe something similar happens with Goldman Sachs, that whatever they do quickly pervades the industry, giving the appearance of a conspiracy where none exists.

Which brings me to Megan McArdle. I find this self-styled libertarian to be maddeningly inconsistent, capable of penning some clear-eyed pieces that cut through cant (as in this post about retraining, where she couples her own experience with conventional wisdom and finds reasons to question the "wisdom"), but too often falling into a mush of disorganization. One could pin that on the blog format, but she is a major force in the blogging world and I expect more from her.

At any rate, her criticism of Taibbi has received quite a bit of attention, probably because she begins:

What I think, sadly, is that Matt Taibbi is becoming the Sarah Palin of journalism. He seems to deliberately eschew understanding his subjects, because only corrupt, pointy-headed financial journalists who have been co-opted by the system do that. And Matt Taibbi is here to save you from those pointy headed elites.

(Sarah Palin analogies are always attention grabbers.) Her argument is that Taibbi misemphasizes the importance of the things that Goldman did, that they did do those bad things but they're old news and other people did stuff that was worse, so why pick on Goldman?

She then takes her U of Chicago MBA (a degree she shares with this writer) and rolls right off the tracks:

But in fact, everyone was aware that CDO's were repackaging crap mortgages--that was the point. The idea was pure portfolio theory, broadly agreed upon by everyone involved. Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don't like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.) But if you pool the risk, only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn't been for those crazy kids a collapse in the housing market of a scale not seen since the Great Depression.

This betrays a misunderstanding of portfolio theory, in that the risk of the pooled security is less only if there is minimal correlation among the component securities. Diversification works only when the underlying elements are different in nature; when they all stem from the same source, for example, residential mortgages, any downturn in the overall housing market will destroy the value of the pooled security, which is, of course, exactly what happened. There is no magic that allows anyone to take D-level garbage that is all of the same type and turn it into AAA by clever dividing and recombining. That's absolutely basic.

McArdle then hedges her own bets by agreeing with Taibbi's basic point:

Wall Street is an arrogant beast that more than held up its half of the devil's bargain which drove us into our current ugly straits. Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression. They made a terrifying amount of money doing it. And now that the taxpayers have bailed them out at considerable expense, we don't even get a goddamn fruit basket. Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age. I think some populist rage is more than warranted.

She simply disagrees with the way Taibbi chose to illustrate these problems, claiming that he didn't ask the right questions and, therefore, profoundly misunderstands the true nature of the problem. So we should be mad at Goldman, but we should also be mad at others too, and we can't know exactly who we should be mad at for what, and so forth into its own brand of incoherence.

McArdle got some pushback for her piece, especially for her assertion that, "financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system." So she wrote another long blog post about that, defending herself with this analogy:

A woman gets into her car, and waves at her husband, who is crossing in front of the car. Pressing the pedal to the ground, she puts it into gear . . . and steams forward at full speed, crushing him against the wall of the garage.

Is she a villain? It rather depends, doesn't it?

Scenario #1: she's angry because she found out he had an affair, and decided to kill him "by accident" for the insurance. Scenario #2: she thought she was stepping on the brake, and stepped on the gas instead. The former is a crime, the latter a tragedy. But you can't divine which simply by knowing that something terrible happened....Villainy involves people who know, or should have known, that what they were doing was likely to lead to the awful results.

I mean, you can quibble and say "You should have known that that was the gas pedal", and indeed you should have, but if, for whatever reason, your senses deluded you, you're not a villain. No, even if you were thinking about the presentation you had due at work--or how angry you were at your husband for having a fling with his secreatary--rather than concentrating on your driving.

When something is common enough, I think it definitionally isn't villanous. It may be a practice that should be fixed--we should all be more careful when starting our cars, I'm sure.

This is a bad analogy, so let's try to fix it. Let's say the woman may or may not know how to drive. Her husband asks her if she knows which is the brake pedal. She confidently answers yes, then steps on the gas and kills him.

Alternatively, she chooses to flip a coin as to which pedal to step on.

Is she a "villain" in either of those scenarios? I don't know, but she is certainly criminally negligent, and we do have societal punishments for that kind of recklessness.

And this is closer to what we've seen from our financial corporations. They took unconscionable risks, actions that could bring down a world financial system, then pled, "No one could have known," when it all went south. Their perverse incentive policies made gambling with OPM (other people's money) acceptable, even necessary. This is not their senses deluding them, this is arrogant heedlessness and, whatever the merits of Taibbi's contention that a great deal of it was due to deliberate manipulation on the part of Goldman Sachs, can't be wished away by McArdle's limp argument.

Then, unsurprisingly, McArdle yet again hedges her bets, telling us that she actually doesn't like Goldman Sachs at all:

I have no reason to love Goldman Sachs, and I don't. I didn't like them when I was interviewing for investment banking internships in business school (worst interviews by far were sponsored by Goldman Sachs and Bear Stearns). I dislike the way their alums, and indeed, their current employees, have permeated our politics and our financial regulatory system like some sort of insidious fungus. I have been repelled by Jon Corzine ever since he spoke at my business school graduation ceremony, where he jovially described how he had cheated his way into a diploma by getting his girlfriend to do his final project for him. He seemed to think this was funny.

She goes on in this vein for a while, but ultimately defends the bankers by claiming that they were stupid, but so was everybody else, and that doesn't equate to villainy, and that no change to history would have allowed us to avert the financial crisis (?!?):

But I think the case needs to be a leetle bit tighter than the fact that bankers make stupid decisions, bankers get paid a lot, and we just had a financial crisis. I'd like to see someone make the case that they did things that were actively, knowingly, illegal and morally turpitudinous, rather than simply totally moronic. Because with the total moron thing, they had an awful lot of company.

Of course, that's actually just the case that Taibbi is making (perhaps it is not as airtight as we would like, but it's a start). When money is entrusted to people who are reckless with it, that's wrong - I suppose we can debate the word "villainy" at some length. But the hands-off, "no one is more wrong than anyone else" attitude is profoundly unhelpful, no matter how much the principal actors in this piece would like it to become the prevailing approach.

[Update: I have come across a site on which the whole Taibbi piece has been posted. I don't believe a complete reading changes anything I've already written, but I'll ponder it some more and come back if I have any additional comments to make.]

Hello? Is anyone there?

Greg Glockner, at the Dwaffler Decidedly blog, tells A tale of two outsourcings. The first is actually a counter-outsourcing story, as Boeing plans to buy one of their key suppliers for the "revolutionary" 787 airplane, running directly counter to their master strategy of strewing bits of manufacturing across the world and assembling the results in magically short time. This hasn't gone at all well, as I wrote about a year and a half ago:

This, of course, is the logical consequence of modern-day management thinking. You out-manage your risk by transferring it to others, relying on contract compliance to take the place of responsibility. You conceptualize or ideate, not even descending to the point of high-level design, rather shifting that to the "experts" who know better than you what you need.

But you can't take a contract and glue it into a working airplane. Perhaps Boeing will get some money back, eventually, through negotiation or lawsuit. Will they ever make up the deficit to Airbus in market or mind share? I doubt it.

Apparently the newest solution is to bring the suppliers into the company, so the mystical world of contract compliance will give way to the old-fangled solution of actually managing something.

Greg's second example comes from the world of telecommunications: Sprint is going to outsource their network operations to Ericsson:

So what will be left of Sprint? They don't manufacture the equipment. They won't operate the network. According to Matt Hamblen of Computerworld, "Ericsson will manage day-to-day operations of the Sprint CDMA, iDen and wired networks, while Sprint retains control and customer care under the deal."

Customer care? Excuse me while I laugh. Someone I know endured atrocious customer experiences from Sprint. It took months of letters - the old-fashioned, paper kind - to resolve a simple billing issue. Customer service is not a strength of the mobile phone industry.

Oh, and isn't customer care just another job that will be outsourced someday?

The answer to the last question is, of course, yes. Which will leave Sprint with control and...nothing else.

I may well have mentioned this before (my great ideas get lost in the swirling mists of time), but I think we're approaching the logical consequence of this thinking. Eventually, there will be a Fortune 500 company that will have about 12 employees. There will be a CEO, a few people who stay up all night to talk to the various suppliers around the world, and some flunkies who will make lunch and airplane reservations for the CEO. That'll be it.

The value of the company will not come from any value-added work they'll be providing, because there won't be any. The company won't make anything, won't sell anything, won't ship anything. It will simply be a holding company for a collection of brands, with all the work done by others as cheaply as possible. The CEO will negotiate contracts (at the highest level), check with the lawyers to ensure contracts are being complied with, give presentations to analysts, and do as much media as possible to "build the brand."

At that point, maybe we'll all finally understand that it is not a function of American business to employ Americans, and we'll stop accepting some pretty weak arguments that we have to do more for these companies. Then, corporate welfare will stop, lobbyists will have less influence on politics, and we'll be able to work for the welfare of the people.

Ha, ha, I made myself laugh.

Post-nation nation

Carol A. Burch at Decidedly (a week old; I'm still working on my new blogging schedule):

Success of one's people in those countries [Russia and Asia] is honored, appreciated and focused upon by each individual far more than in the United States, where emphasis is on the individual and individual achievement.

We can see the effect of individual vs. collective consciousness as we look at the shifts in centers of economic and political power in the world today.

Corporations and individuals in the U.S., as is their right in a free society, made decisions that inured to their individual benefit. Production and manufacturing (and the economic and political strengths that are associated with those endeavors) went elsewhere. Certainly, the image of a collective exodus of almost the entire manufacturing base from the nation was probably not part of each individual decision. Yet, cumulatively, over time, this happened. This is the effect of the lack of a collective consciousness. Now, with diminished economic health and clout to influence the world's direction, we, as a country, are less formidable, and are viewed primarily as a voracious consumer society.

Economic strength now centers in the countries that took on the manufacturing. Of note is the fact that these countries operate culturally with a high level of collective consciousness,with a collectively understood and embraced long-term vision of a future in which they will continue to dominate. It is unlikely that the mistakes we made will be repeated there.

Very true. We derided the old Five-Year-Plans of the Soviet Union and China, confusing execution with concept. Then we saw India and China actually plan for the future, focusing resources on growth fields like engineering and computer science. (Keep in mind this didn't constitute a huge risk, these were already well-established as fields of the future by the time these countries got around to supporting them.)

At the same time, the U.S. decided that laissez faire worked so well for economics that it could be applied to anything that even had the slightest economic component. CSI is a hit TV show, of course we'll see students flock to forensics programs despite the reality that budgets will never go up as much as enrollment did. I wonder what all those budding Gil Grissoms are doing now.

One thing that interests me is how this idea was sold to the American people, not that they needed much convincing. There were two large ideas, I think, with which we deluded ourselves that "collective consciousness" was something that could be transcended.

The first was what I call the "lottery mentality," with an added shot of altruism. If we allow everyone to pursue their own aims, each person will maximize their potential, get rich, and then be able to do more for the collective than they ever could just going out and living their lives. What lottery winner fails to say that he'll do more for his church, or for his children, or for his community? We created a virtue out of going out and scrabbling for whatever bucks were there, because, sometime in the future, more will be created for the larger group.

Much of this, of course, was simply mindless claptrap. A lottery is a massive tax and redistribution scheme, but it's hard to see how society profits from it. Much of business works the same way - some aspects of what is done is truly innovative, and betters the lot of humanity, but a great deal more is a way to take money from someone and give it to someone else. [I'm not talking here about the normal business of business, in which customers pay less for something than it's worth to them, but some of the less publicized activities, such as lobbyist-induced tax breaks and offshoring, things for which we never quite figure out the true cost.]

The second "big idea" was one that didn't require us to give up our sense of the collective good, but to expand it. This was what I refer to as the "post-nation" concept, the idea that we uniquely had a responsibility to the world, that even if some of our practices were negative in effect to the U.S., that they benefited the world far more.

We see this in some of the commentary the past few days about Iran, from those thinkers who believe we "must" get involved. That we would undoubtedly pay a price in lives and money to install a president who doesn't have all that much power who might be little better than the one they have is of little consequence; we must interfere because that's what America does.

We also see it in discussions of offshoring in which we blow by the very real negative effects on American workers and move to wondrous tales of how our work is helping the downtrodden of China and India. Whatever we used to call national interest gets subsumed to a utopian ideal of effortless foreign aid.

I guess my point is that the United States has never really lost its sense of the collective unconsciousness, we've just allowed it to be perverted from the straightforward sense of nation that we used to have to some pretty indirect, even strange, concepts. It's not that we've lost sight of the greater good, just that we've allowed it to be twisted into ideas that are so obscure that the true costs and benefits have been lost.

Perhaps these new ideas are, ultimately, better for the world as a whole and we should pursue them, but I don't believe the case is so clear-cut that we shouldn't at least be discussing them. And I'm sure it's just coincidence that they are pushed most ardently by the folks who have the most to gain from their acceptance.

Take the next step

Yglesias, a couple of weeks ago, on national identification of companies:

He [Tyler Cowen] points out that not only do Toyota and Honda manufacture cars in the United States, but these are publicly traded firms. Americans can—and do—own shares in both firms, and could own more if we wanted to. Conversely, an “American” company like Apple actually does very little production in the United States. Nestle is “Swiss” but it’s a giant multinational corporation and Switzerland is a small country so the vast majority of its operations are elsewhere.

So let's follow the logic a little further and ask ourselves why we use taxpayer money to prop up one set of multinationals at the expense of another set, and why the economic talking heads don't leap to calling that what it is...protectionism.

If we put a tariff on every foreign car of $1000, every reputable pundit would yell Smoot-Hawley (except for Congresswoman Bachmann, who would yell Hoot-Smalley) and decry this action as Hoover-style Depression-inducing.

Let us, however, give $1000 per car to an auto company that happens to house its executives in and around the Detroit area, and that's called principled support of a major American industry. I really don't get the distinction.

Update: for a somewhat economisty view of this which makes sense, see Claus Vistesen by way of Edward Hugh.

The Iacocca theory

I've searched my blog, and I find no evidence I've put forth my Iacocca theory before. I find that hard to believe, as it's something I've believed since, well, Lee Iacocca would have seemed like the best illustration of that theory.

What has induced me to bring this up is a post by Greg Glockner on Decidedly, where he asks the musical question, Are "Great" Companies Just Lucky?":

When you look at an old list of "top companies" or "top executives", how many are still tops? If someone is no longer tops, what can we learn? Were they just lucky at the time that someone said they were "tops"? Or did they make some strategic blunder that caused them to fall from the top?

The Iacocca theory says: Take 100 "Lee Iacocca's," and watch them through their lives. We can even cook the game by putting them in the same circumstances, presenting them with the same options. What will happen?

Obviously, they can't all become heads of car companies and American business icons - there aren't that many spots open in a generation. My guess is that one will become the Lee Iacocca we know and love(?), nine will do very well for themselves, 50 or so will top out somewhere below the very top levels of whatever organization they end up in, 30 will stall out early through some fundamental mistake or (yes!) bad luck, and 10 will end up abject failures (or will die early or something else dire).

[Clearly those numbers are totally made up - my wife wanted me to be sure to mention that.]

If you want to seem more au courant, substitute "Bill Gates" or "Larry Ellison" or whatever business hero you have. But the point remains the same, that confusing the result with the process is a common mistake people make, that is, the assumption is that the successful had some kind of distinguishing feature that made them so successful. And that's true of companies just as it is of individuals.

Of course, there's another reinforcing factor: someone has to be in that position. Some company is going to be the number one car company, and the leaders of that company are going to seem, well, near-magical as a result. Right now Toyota's riding relatively high, and it's natural (but misleading) to focus on everything they've done right; moreover, to believe that everything they've done has contributed to that "rightness," that they are beyond criticism.

Few business leaders were riding higher a year ago than GE CEO Jeff Immelt. He seemed to have seamlessly mastered the globalization trend, taking the "legendary" Jack Welch's accomplishments on into the heavens. Now it seems clear that he was just riding the bubble, that there is little magic there, and one could easily foretell a bad end for Mr. Immelt sometime in the future. My point is not to castigate Immelt in particular, merely to point out how a year can seriously unguru some of our biggest names.

It reminds me of the studies that have been done on clutch hitting in baseball. There are few more commonly-held ideas than that there are some players who are superb in the tough situations - they rise to the occasion and carry their teams, and so are worth more than similar ball players who can't come up as big when the pressure is on.

And study after study have found that there is pretty much no clutch effect at all, that a player who does well with the bases loaded one year ("well" being defined as beyond his own norm) does not tend to see this persist year after year. Obviously, there will be the occasional player who will seem clutch for ten straight years, but no more than one would expect by chance. (There's also the memory effect in which we tend to remember the dramatic moments, all the times David Ortiz clears the bases in the 8th inning with a long double, not all the times he pops up in similar situations.)

I'm sure that Bill Gates is a pretty smart guy. I'm not sure that there aren't a whole lot of other people who would have done just as well if they had been inserted into Bill Gates's skin 30 years ago. We can't rerun history, as the saying goes.

But we need to be wary, as we evaluate individuals or companies (or any other institution), of crediting the wrong things for success that may well be indistinguishable from luck. We would do well to remember that it took even the great Bill Gates a long time to acknowledge the importance of the Internet, and only the vast market power of Microsoft kept that from being a company-killing misstep.

Some yea, some nay

Steve Yegge is a big-time computer programmer, well-known in the industry, and he has a blog (Stevey's Blog Rants) where he posts about 15 times a year. This is not quite as limiting as it sounds, as his posts tend to be quite long; his most recent goes about 5500 words. His posts may touch on programming, but are by no means confined to that, and are always at the very least interesting.

His most recent post, Have you ever legalized marijuana?, is pretty good...for the first two-thirds, then goes off the rails. In that first two-thirds, you may wonder when Yegge will get around to discussing marijuana. After that, you'll wonder why he bothered.

The post is built around Dan Ariely's idea of "credit buckets," that is, partitioning people's credit limits by category. In that way, the consumer could manage credit at a more granular, and presumably more controllable, level. In effect, the very structure of the buckets would enforce a kind of spending discipline (you'd be limited in how much you could spend on gas, or on food).

The first inclination I have is to see the ways this wouldn't work. Wouldn't the average consumer just use more credit cards to get around these limits? I'm sure you can think of more. But I have to concede that awareness is a great deal of the problem, and the bucket idea might reduce the casual misuse of credit.

Ariely, in his book Predictably Irrational, goes on to talk about how he actually presented this idea to a bank board of directors, and how they never did a thing about it. Yegge then speculates that such a feature would work against the goal of the bank, which is, after all, to get people to use as much credit as possible, and it certainly has no problem with overdraft fees. This shows, yet again, according to Yegge, why "the banks are evil."

But then Yegge puts on his programmer hat, ponders how this simple idea would actually gets done, and theorizes as to the preliminary questions he would have to ask his boss (I will quote the entire list except for the last item):

• Can customers control the buckets, or are they fixed?
• If fixed, how many are there? What are their names?
• Let's assume for the remaining questions that they are NOT fixed, since a predefined set of buckets would be "insanely stupid" and rejected by customers. So, how many buckets can a customer make? Min and max?
• Can customers give the buckets names? If not, do they have to use numbers?
• What characters can they use in the name? What's the maximum length? If we need to truncate the name in a printed statement, how do we truncate it?
• Can a customer change their buckets mid-month?
• Can a customer change their buckets between months? What if their balance is nonzero? Can they transfer balance between buckets?
• Can a customer change the name of a bucket? Do names have to be unique?
• Exactly how does a customer name a bucket? Online? Over the phone? By snail mail forms? Talking to bank teller? All of the above?
• Same question for all other configuration settings. How? Where?
• Do credit-card customer service reps have to know about the buckets? How much do they have to know? (hint: everything) Is there training involved? (hint: yes)
• Do the customer-service tools have to be redesigned to take into account this bucketization?
• What about the bank's customer self-service website?
• What about the phone interactive voice-response tree?
• What about the software that sends email updates to the customer?
• What about the software that generates printed billing statements? How exactly does it represent the buckets, the individual spending limits and balances, the carry-overs from month to month, the transfers, the charge-backs, the individual per-bucket fees?
• What about the help text on the website? What about the terms and conditions? What about the little marketing pamphlets? Should they try to explain all this shit, or just do some hand-waving?
• Can a customer insert a new bucket into the list? How are the credit limits of the remaining buckets re-allocated? What if adding a new bucket puts one or more of the older buckets over the limit? Do we charge fees? Do we tell the customer they're about to be charged a fee right before they create the bucket? Is it, like, OK/Cancel? Do we send them a follow-up email telling them they just fucked themselves over? What exact wording do we use?
• Can a customer delete a bucket? What if there's money in it? What if it's overdrawn? How do we represent the overdraft fee in the database? How do we show the deletion event in their bill?
• Can a customer merge or consolidate buckets?
• What if a customer has an emergency situation, plenty of limit in other buckets, and they really really need to charge to a couple of buckets, but they want to avoid an overdraft fee? What do they do? Are the buckets mandatory or discretionary?
• How the hell do we even tell if they're buying "chocolate", anyway? The vendor doesn't tell us the purchase type. How do we know how to charge the right bucket? What if it's ambiguous? What if the buckets overlap? Does the customer need a point-of-sale interface for deciding which bucket to put the charge in? Can they do "separate checks" and split the charge into several buckets?
• Where are you going? Answer me!

If you're not a programmer, or you've never been in a position in which you have to implement someone else's "great idea," you may not realize that this list is just the tip of the iceberg. These are just business-level questions, they don't even delve into the technical details. Chances are this bucket idea would cut across pretty much every existing system the bank has, which may well be divided by programming teams, so there are big organizational problems as well.

And for what? For a feature that might or might not bring in any additional customers, and would almost certainly only bring them in by promising them that they would end up paying less to the bank. It's going to be real hard for the financial analysts to create a scenario in which the return on investment is positive.

I've worked on quite a few development projects in my time, and occasionally one of these things gets championed by a high-enough executive that it gets approved, and they pretty much all end badly (some time I'll tell the story of what happened when my management decided a new order and inventory system "needed" to be accompanied by a new user interface paradigm; it was not delightful).

Yegge goes on to apply this same kind of analysis to the legalization of marijuana, which he in general favors. But then he thinks of all the difficulties of implementing such laws, and finds that they get mired in the same complexity as credit buckets, and this is where the post kind of goes off the rails.

Because Yegge believes that making these laws are analogous to creating a complex piece of software, that it's an implementation of a project. The reason that the analogy doesn't hold up is that our political/legal system is built around just these sorts of issues, and the questions that he raises are not seen as deterrents.

If even one component of the bucket software doesn't work, it can prove calamitous for the project as a whole. If one component of the marijuana law doesn't work, well, people work around it in some way. Either the unworkable parts are ignored by law enforcement, or the public attorney avoids bringing charges around the problematic pieces, or the whole thing is left to the judiciary to interpret or rule. The imperfections that come out of the inability for people to anticipate every possible implication are handled by other people; if the problems rise to high-enough awareness, new laws are passed to delineate or modify the old law.

And that's why this post is valuable, even for non-technical people. Yegge's list of questions about the credit bucket project needs to be answered before work can begin. You can't just write up some of it, throw it out there, and hope it works (note that I'm not claiming that's true of all software, as there are projects that can be rolled out incrementally - but even that needs to be explicitly planned out). I don't believe the average person realizes just how difficult it is to create computer systems, and I think they should.

Poor Larry

Richard Cohen in the Washington Post:

The recent headlines about Lawrence Summers had it all wrong. They announced with an implied breathlessness that he earned around $8 million last year -- much of it from the hedge fund D.E. Shaw. Here's what I would have written: "Man Takes More Than $7.9 Million Cut in Pay." Somewhere in the Diagnostic and Statistical Manual of Mental Disorders, the bible of shrinks, there should be an entry for "public servant." They are all, bless their hearts, a little nuts.

Dean Baker responds:

Arguably Richard Cohen is just best ignored as readership of the Washington Post oped pages rapidly approaches zero, but it is worth correcting the logic by which he decided that Larry Summers, one of President Obama's top advisers, is making a huge sacrifice by foregoing Wall Street millions.

All jobs carry a mix of pleasant and unpleasant aspects. Many people take relatively low-paying jobs, for example school teachers or social workers, because they believe that they are advancing a social purpose that they consider valuable.

Cohen does allow:

I don't mean to characterize these or other administration aides as the functional equivalent of Trappist monks, since they enjoy the attention, the power and -- above all -- the action. They are doing something substantive, important -- sometimes making life-or-death decisions and gaining, if they are lucky, a mention in a history book. It is not a life without any compensation.

I think both Cohen and Baker have forgotten something important, that it is the government service which, in many cases, enables the riches. To talk about Larry Summers' "sacrifice" without pointing out that he was one of Clinton's Secretaries of the Treasury is a major omission. Without his occasional forays into public positions, Summers stands as a major but by no means invaluable economist.

There is also the issue of access, that someone who has held the sorts of positions Summers has is more likely to have a voice in the halls of Congress. I obviously have no idea what he was doing that would induce a hedge fund to pay him more than $5 million last year, but it would be odd if some of that didn't come from his implied influence with politicians. And, when Summers is done working for Obama, there's a high probability that he will be that much more valuable, and able to command more money.

This is one of those classic fallacies of short-term thinking, similar to the idea that we can't restrict the pay of top bankers because "they'll take their talent elsewhere." That leads us to give failed financial wizards major dollars when they have most certainly not earned them, at least not lately. But no one is saying that their pay will be restricted forever, and the cachet that comes from turning around a bad situation will undoubtedly enhance their future prospects.

Why the heck not?

A lot of media types are reacting negatively to the forcing out of GM CEO Rick Wagoner (he's comforted only by the $20 million retirement package). The argument, similar to that of the folks who argued the AIG bonuses weren't so bad, is that government shouldn't interfere this dramatically with the operations of a private company, and the CEO is just a fall guy for bigger problems; he alone doesn't make much of a difference anyway.

For the first objection, I would counter that GM (and AIG and...) is no longer a private corporation. If you can't survive without public money, you end up with obligations and accountability to the public at large. The day Wagoner hopped on the private jet to come to Washington with his hand out is the day he should have started to look around the office to see what he wanted to take home.

The second objection is, if anything, even more idiotic. GM has lost $82 billion over the past four years. Had they earned that much, Wagoner would be rolling in money and on the cover of every major news magazine. His leadership would be seen as significant.

At base, though, my feeling is this: why not get rid of him? If various pundits can ask the opposite, why bother getting him out, I can certainly ask the opposite. Had he any way to save GM, he presumably would have shown it well before now. Since the whole thing has become a crap shoot anyway, let's get another shooter in there.

"Can-do" attitude

I don't know exactly how I feel about what actions we should take concerning the Bush-Cheney torture activities. Truth commission, war crimes trials (if The Hague doesn't get there first), investigation followed by censure - which choice is best is something on which I have not been able to reach a conclusion.

Our nation has trouble dealing with bad things done in our name or by our representatives. White people certainly benefited from the destruction of the indigenous population, and our attempts to make it right have never seemed satisfactory. Ford pardoned Nixon, reasoning that the country had already been through enough; I can't say if the catharsis of a trial would have made things better.

The Clinton impeachment showed the alternative at its worst, as it devolved into a partisan witch hunt. (I should say more about this, because I think quite a few people shared my opinion. The Monica Lewinsky business was, yes, a personal matter that did not merit impeachment. But it was reprehensible for this activity to take place in one of our hallowed national places, the Oval Office. It demonstrated Clinton's recklessness and arrogance, and we should never forget that.)

So I don't have anything to offer as to what we should do about the perversion that was Bush-Cheney policy. I have this vague sense that we can't just leave it as it is, let it go while we deal with our pressing problems. To see these two men strutting around, Cheney in particular, proudly defending one of the shameful periods in American history, is an offense to everything I've ever believed was right about this country.

On the other hand, to allow the real business of the nation to be sidetracked while a Democratic Congress postures for the people back home seems a poor solution also. Letting the likes of Pelosi and Reid, sham public servants that they are, use such a proceeding as a means of gaining political capital disgusts me.

For now, then, I'll leave the discussion to others. Andrew Sullivan has written a lot about this issue, apparently believing that no stone should be left unturned in determining the truth and bringing everyone involved to account. In a Sunday post, he again takes up the case of Abu Zabaida, someone we tortured though we had evidence that he was a low-level al-Qaeda functionary. Apparently, whatever useful information he had, essentially names, he gave up before the torture actually began - there was no plot failed as a result of our "interrogation."

[Here's one thing I never quite understand. If you were running a terrorist outfit, and someone with critical information disappeared, wouldn't you then change your plans? "Hey, Osama's not in his cave any more. Well, maybe he's just on vacation, let's go ahead with those attacks exactly as planned." I know that some would say you extract the information before anyone knows he's gone, which is inevitably the situation on 24, but it doesn't appear that our post-9/11 procedures were restricted to that.]

Sullivan quotes an article from the Washington Post:

As weeks passed after the capture without significant new confessions, the Bush White House and some at the CIA became convinced that tougher measures had to be tried. The pressure from upper levels of the government was "tremendous," driven in part by the routine of daily meetings in which policymakers would press for updates, one official remembered. "They couldn't stand the idea that there wasn't anything new," the official said. "They'd say, 'You aren't working hard enough.' There was both a disbelief in what he was saying and also a desire for retribution -- a feeling that 'He's going to talk, and if he doesn't talk, we'll do whatever.' "

I think I understand the mindset that gave rise to this attitude. George W. Bush was in so many ways the epitome of a bad CEO. (This isn't surprising in that he was, in fact, a bad CEO.) I've worked for a few (fortunately, very few) people who adopt a credo that any failure is the result of not making sufficient effort, that something not getting done can be overcome by more hard work.

There are, of course, times when that's true. There are, of course, other times when that's not. A great deal of wisdom is understanding the difference.

Some things are impossible or infeasible. You can push someone to create faster-than-light speed travel by next week, and it still won't happen. You can insist on extracting information from someone who doesn't have any, and you may get information, but it won't be true.

When one works for someone who doesn't understand this, the negative effects go beyond the wasting of time. It creates a lack of trust up and down the chain of command. Imagine being the person who had to go into the Oval Office and say, "This guy clearly doesn't have anything more to give," and to be told, "You're wrong, go back again." Your boss is saying, in effect, that you're an idiot who doesn't know his work, doesn't have the ability to distinguish between the hard and the impossible. I can tell you, that makes for a very corrosive work environment.

Happy happy joy joy

There continues to be a prevailing attitude that a lot of our problems are simply the result of pervasive pessimism, that, if we could just perk up and feel good about what's going on, we would see a resurgence of financial strength and national pride. The media comes in for particular criticism here; they insist on talking about layoffs and unemployment and housing prices and dead 401(k)s, and they bring everyone down, and that creates a vicious cycle that makes things even worse.

Rob Horning discussed this in an item that ran about a month ago, where he parses an op-ed by Robert Shiller that replicates the idea of his book (with George Akerlof), Animal Spirits (which has given us one of the more blogged phrases of the past month), that "the Depression narrative could easily end up as a self-fulfilling prophecy." Horning:

If people invest, or spend, not out of strict need or want, but in accordance with how they feel about wanting, then the implication is that the media owes society some happy talk about the economy to keep up the “animal spirits”—Keynes’s term for the irreducible ambition that drives entrepreneurs regardless of their probability of success.

Akerlof has gone so far as to argue that government's role is one of countercyclical confidence: that it cut down people's confidence when times are good, and pump us up when times are bad. Horning quotes Will Wilkinson, who is not very pleased with this reasoning:

I’m extremely suspicious of what strike me as intellectually contentious, ad hoc interventions into the economy aimed at expectation management. Countercyclical economic mood-control initiatives seem to me inconsistent with the maintenance of a general framework of stable rules — that is, they don’t take the importance of expectations seriously enough — while also smacking of illiberal state propaganda.

A skeptical Horning concludes:

Delusional thinking about credit risk got us into this mess, so now the only thing to get us out is more widespread and more doggedly institutionalized delusional thinking? All right then! Not sure how this would help the “trust” and “faith in the system” components of animal spirits, but oh, well. Maybe if we perfect the dissemination of these delusions, we’ll be free at last from those ultimately irrelevant real economic conditions, and the state can just drop in to tell us what condition our animal spirits should be in.

I liken the Shiller-Akerlof attitude to our mental model of how football works. Conditioned by years of "Win one for the Gipper" and "Do you believe in miracles?," Americans have come to believe that any situation can be overcome by the right frame of mind and simply "wanting it more." All the economy needs to come back strong is the right halftime speech, and we will all be inspired to do anything necessary for success.

This seems compelling until we think about it for, say, 15 seconds or so. A football team made up of 160-pounders can be as inspired as we want, but, barring massive injections of PCP, is going to be crushed by the 300-pound linemen of a major college or pro team. No amount of "animal spirits" is going to change the reality that facts are facts. If you've lost your job, confidence doesn't permit you to believe you still have one.

Anyone who's worked in business for a while has seen an example or two of the person who brings very little competence, but a whole mess of confidence. Enthusiasm is confused with ability; that's possibly the result of management's own experience, that projection of a certain image can bring real results, whether in sales or the conference room.

But that should have nothing to do with hiring a programmer or an accountant, jobs where skills actually matter. You can trump up a theory that a positive attitude helps any team, and that may be true in the short run, but, eventually, management's regard for someone who can't actually do anything but be peppy corrodes the team.

The same is true of the economy as a whole. To say that everything's fine, just ignore those pesky media reports or the for sale signs, is to brand yourself as a nincompoop. It's possible to project long-term optimism while being realistic about today; that's something, I think, that Obama has done quite well (though I personally still find his outlook overly rosy). Irrational optimism, optimism that is at odds with actual on-the-ground, is foolish, and the purveyor of such ideas should not be listened to.

Martha and Bernie

I try to be philosophically consistent, or explain when it doesn't appear so. For example, I support making education better, but don't believe that we can try to educate everyone to the same level and then be surprised when we fail to see the outstanding kids do as well as we need them to do. Is this inconsistent, that education needs to be better but, for some students, we need to get them off the college track? I can see where some might think my logic doesn't hold up, but I've laid out my thinking in several posts and ask only for people to try to follow it, then evaluate it.

(At the same time, I don't find it consistent that people say we need to pay teachers more, but we also have to standardize the curriculum; so we're paying more money at the same time we're making teaching easier.)

Crises often present opportunities for great inconsistency. The problems are so large, and, clearly, no one orthodoxy is up to the task of making them better. It might seem incongruent to believe simultaneously in the power of the free market and in the Obama programs; if you believe both those things, you need to be prepared to explain yourself further.

David Letterman is going through such a time himself. He has been merciless in his treatment of "investor" Bernie Madoff, with a barrage of jokes and skits that can only make one believe that Dave has a few million dollars with the faux financier.

At the same time, better living guru Martha Stewart continues to get gentle handling on Dave's show. He has joked repeatedly (and somewhat tediously) about how, first, we can feel safer now that Martha's locked up, and now, how we should be worried that she's back on the streets (chortle, chortle).

But these crimes come out of the same sensibility. It's pat to argue that Bernie victimized people, while Martha's offense was "victimless." But, if you were one of the people who bought stock while tipped-off Martha was selling, you lost money just as surely as if you wrote Bernie a check. In fact, in some ways, her crime was worse; each of the people who signed up with Bernie had every opportunity to do due diligence, and they didn't. The other sides to the Martha trades had every right to believe that they possessed requisite information.

I'm not saying that the crimes were entirely proportional, and the relative prison terms strike me as roughly correct. But it's a much harder argument to claim that one case was unfair, the other fair. For both Martha and Bernie, the attitude of "something for nothing" was present, it informed their actions. And there were people on the other side of those trades who were hurt. Just because it's easy to see one group and not the other does not mean that we can't be bothered by both cases, and it doesn't mean that one perpretator should escape punishment.

How we can make globalization work for us

It's no secret to regular readers of this blog that I have concerns about the hidden costs of globalization. I do not, cannot, deny the positive effects of all the policies that fall within this term, but I think the standard economic model, the place where a great deal of the discussion begins and ends, is too limited to capture reality. We can draw all the graphs we want that demonstrate that two countries that engage in free trade both end up better off; the flaws come when we ignore all the constituent groups that make up a nation, and when we accept GDP as a proxy for the health of that nation.

For the average American, the picture of the "benefits" is a lot blurrier; in many cases, they've seen careers (not just "jobs") disappear, and, with them, large sections of whole cities and towns. The offshorers are doing a lot better than the offshored, as they've taken huge percentages of the gains out of the stream. Neither customers nor shareholders seem to have realized the huge benefits that have been promised; saving a buck on a sweater doesn't seem like much next to a loss of livelihood.

We have not done a good job at all of assessing these costs, as the discussions generally devolve into tiresome rants about "America First" vs. economic orthodoxy. In reality, we have no idea the extent to which American students are shying away from technology because they don't expect to find jobs in those fields. Instead, we urge them to enter those fields anyway because "that's the future."

In economics terms, we focus on expanding the supply on the questionable proposition that an increase will somehow create its own demand; we pay no attention to the reality that demand for Americans has been dropping, and we never touch on the certainty that differing wage scales may have something to do with that. Furthermore, to forestall the possibility that someone may raise such an argument, our leading offshorers and their apologists have decided to adopt the strategy of calling out American workers as stupid and incompetent, and the press has happily gone along with that.

But why should an American youngster, looking at the job market of the future, take on the challenge of a curriculum in science or technology? Your education is substandard, your work habits are terrible, you're more concerned with updating your Facebook page than doing any hard work. And the genetically-endowed, 100 hours a week young people from China and India are going to eat your lunch anyway.

Even if you are good, and hard-working, you run into another obstacle: college tuition rates seem impervious to economic reality. The Indian who attends one of the Indian Institutes of Technology (IIT) pays about $750 a year. You will pay $45,000 for a year at MIT. If the IIT Indian gets a job at $10,000, he can pay his whole tuition in under four months. The MIT grad will need a job at $600,000 to do the same. Obviously, that's unlikely, so the American will tend to start with a huge burden of debt, in fields that have uncertain prospects.

But there is an answer, and the only question I have is why it hasn't happened yet. What we need is for IIT to create a degree-granting distance learning program. Offer a B.Tech. over the Internet, and I guarantee Americans will flock to it, especially when it only costs, say, $2000 a year. (It can't be too hard for those brilliant students to set up, not if you listen to Tom Friedman or Bill Gates; it's probably no more than a weekend project for these bright-eyed geniuses.)

I'm not being sarcastic here; I honestly want to see this happen. You see, it's pretty obvious that higher education in the U.S. has turned into a scam. The economics makes no sense, with high tuition rates propped up by every expert who tells us that the key to our future is to get those degrees, and go back for more and more training, and that will make us globally competitive (despite the massive wage disparities). Let's run some numbers.

Visualize an Intro to Econ course in one of our larger universities. We see a giant amphitheater with students filling every one of the 1000 seats. At the front is an ABD (all but dissertation) lecturer who is, for all intents and purposes, a university contractor. Let's say each student pays $1000 per course they take (that's conservative). So we have a million dollars in revenue. The lecturer gets $5000 for teaching the course (that's generous), and let's multiply that by four to capture overhead, foregone tuition for the TA, and other expenses. Thus, the course costs about $20,000 to present. $1,000,000 vs. $20,000: that's pretty good profit for the school. Each student in that class is subsidizing something else (landscaping for the president's residence, the lacrosse team, and so forth).

The apologists for our university system will argue that I'm being simplistic here, that the value of a degree from the University of Podunk is far greater than simple dollars and cents. The experience, the exposure to alternative points of view, the friends that will last a lifetime.

If that's true, then existing on-line courses should be cheaper than on-campus instruction. One example: the University of Illinois Graduate School of Library and Information Science charges in-state students $5363 per semester. Their on-line students pay $1952 for 4 graduate hours. A typical load is 12 hours per semester. So on-line students actually pay about $500 more (maybe the U of I servers eat a lot).

I have to admit I'm at a loss as to why IIT hasn't set something up in the U.S. This is a huge arbitrage opportunity; they could charge three (four, five) times their normal tuition, American students would save 90-95%, and American companies would get more of these highly-coveted graduates, young people who, because they would be free of crippling student loan debt, could work for less than they possibly can now. Seems like a win-win to me.

Oh, there would be one big loser in this: the current American higher education system. One wonders how supportive our economics departments would be of free trade when their doors close because, say, Cambridge is offering degrees over the Internet ("Get your degree at the place that taught Keynes everything he knew"). They'd fight back, of course; we'd see and hear learned PhDs arguing why Internet learning is inferior, how it leads to a lack of quality, how we can't equate the on-campus experience to that on a computer screen, how we need to have an American presence in the field. You know, all the arguments they blithely ignore when confronted with them with respect to people's jobs.

One has to expect that the resistance would be keen. The supposedly-independent accreditation bodies might refuse to approve an IIT engineering curriculum. If they did that, they would be the ones called into question. After all, award-winning journalist Tom Friedman has claimed that IIT is "more selective than Harvard," so no one could argue that their program isn't up to snuff.

I'm not one to look for conspiracies everywhere. I can't seriously argue that there's some kind of collusion going on between foreign schools and our schools that prevents on-line learning from taking place. But you have to wonder when you see what would be a huge opportunity for, say, IIT to pull in some serious bucks and extend their brand, and they don't take advantage of it.

If this ever does happen, the entire field of American higher education will be rocked to the core. A system that depends on massive cross-subsidization will collapse under competitive pressures. To see a model for this, we need only look at American manufacturing, at our auto companies.

But Americans should, just once, have the chance to take advantage of offshoring in the same way that CEOs have. If that means a few free-market economists lose their jobs, well, hey, that's just the inexorable workings of the great market, and none of them, surely, could object to that.

An ex ante vs.ex post post

The AIG bonus controversy is interesting, not so much for the predictable back and forth between those few who are lining up in favor of them (see Ruth Marcus of the Washington Post for the basic argument, one that is shared by the editorial staff of the Chicago Tribune) and those who are outraged that a company that got itself into so much trouble that the federal government would have to buy 80% of it would pay massive sums to the people who ostensibly caused that trouble.

What it does show is a dichotomy in the way two groups of people look at the world. The common concept of a bonus is that it is something paid ex post, that is, it's earned for work that has been done. Someone has a good year, produces a lot for their company, and they're rewarded with some extra compensation. The baseball player has a good first half, is named to the All Star team, and there's something extra in the paycheck. We all get that idea.

But there is another group of people who hand out (and collect) money for what they hope will happen, ex ante payments. To them, a bonus is not a reward for a job well done, but a sweetener to induce the recipient to do the good job. Under this theory, the financial analyst who would go home early if he's only making $150K will keep his nose to the grindstone for $300K. (Note that I'm not ignoring the argument that the analyst has to be paid or he'll go elsewhere, but, if that's all we were trying to accomplish, we'd just pay him $300K in the first place, not structure it as a "bonus.")

Most CEOs tend to favor the latter interpretation, even for themselves. This creates some odd situations, as when huge "incentive" payments are given to people who are leaving the company (11 of the AIG bonus millionaires have already left the company; for another example, see Bob Nardelli and Home Depot).

Philosophically, the ex post interpretation is consistent, and people feel it's consistent. Bonuses are a reward for exceptional performance and nothing else.

Ex ante, however, requires the believer to jump through mental hoops. You see, there are no companies in which every employee gets pre-agreed bonuses. A CEO puts one group of people in one category, the rest in another. And they don't even see the inconsistency of handing out speculative bonuses to one set of employees, while insisting that bonuses to the other, larger, group result from a lengthy (and imperfect) evaluation process.

Of course, the discerning reader is thinking. The CEO believes that the first set is valuable, integral to the success of the enterprise, while the second set is derived from a vast fungible supply of workers who can easily be replaced. That's not what they say, but it's certainly how they feel. So, perhaps, this post is belaboring the obvious, that "Our power is our people" is just a meaningless group of words that these captains of industry mouth whenever they want to seem like men and women of the people.

But there is still value in pointing out yet another way in which American companies do not exist to employ Americans or compensate Americans, and our insistence on acting in this way is a profound problem. We save one group of auto companies with operations and employees in this country in preference to another group of auto companies with operations and employees in this country, based solely on where their ultimate corporate headquarters is located, then we're surprised when a large part of the strategy involves the firing of American workers.

And this is why any attempt to save American jobs by funneling the money to corporations is problematic. Any such result is collateral, no matter what the corporate leaders might say. We have no proof that the money will be used to beef up domestic payrolls. Unfortunately, short of starting up another CCC, I can't imagine a better solution, so we'll probably be stuck using this indirect method of trying to bring down the unemployment rate; we simply shouldn't assume that the most rosy predictions will come true.

The future of journalism

Several trends have come together lately, and I think that I can make a prediction as to what the future of journalism is. Recently, we've seen the folding of the Rocky Mountain News and the complete web-ification of the Seattle Post-Intelligencer, every industry expert is predicting the demise of many more newspapers, and large media companies have or will file for bankruptcy.

Journalism is one of those fields, like education, that is forever catching up with business trends and presenting them as new-found knowledge. As newspapers and TV stations are folded into large "media companies," they will be treated as any other subsidiaries, with the same ethic and behavioral structure.

In particular, branding will be seen as the way to add value. For those not up on cutting-edge marketing lingo, branding is the practice of creating value in a product that is not intrinsically in the product. The classic example is the soft drink industry, which sells flavored sugar water at far higher prices than would be warranted by the cost of ingredients and distribution. The high margins are justified by "brand value," the feeling of homespun comfort you get when you drink Coca-Cola, or the youthful outlook of Pepsi-Cola. A lot of this is pretentious claptrap, but it works well enough that "branding" has become the unifying concept of the consumer goods market.

Local television news has known this for some time, so we have the female anchor who acts like nothing so much as a party hostess, ushering us into her living room to hear 10-second snatches of the news of the day. Chicago's CBS affiliate tried an experiment several years ago, of having one of our more respected journalists, Carol Marin, host a serious news program that might cover a story in depth, making room by giving only 30 seconds to the weather...and it was a total failure (at least in terms of the only thing that counts, the ratings). The brand message of local news is, "Come join us for some family fun; we'll slip in some serious news :-(, but we'll have the zany weather guy, and the zany sports guy, and generally enjoy a good time," and the ratings measure how successfully any "news" organization fulfills this strategy.

In print, we've heard of layoffs of reporters who cover uninteresting things like business, we've heard of publishers talking about "news productivity," and we've seen a greater emphasis on soft topics - even important news is increasingly covered with a kind of breezy irreverence.

So what I think is going to happen is that reporters are going to have to become brands, and they will be charged with providing an endless stream of content that can be "repurposed" by "content managers" (no editors here) to the various media platforms that are part of the modern news organization. A columnist will write pretty much nonstop, and some portion of that writing will go to the print newspaper (if there is one), some will go to the blog, some will go to the Twitter feed.

Someone like Eric Zorn of the Chicago Tribune will churn out endless words. I pick Zorn because he was one of the first mainstream journalists to get a blog, and he is now up on Twitter. His print column, which used to be pretty much it for him, is now a tiny proportion of his weekly output. I don't know what kind of pressure is on him to be typing all the time, but it can only intensify as the Zorn brand becomes increasingly important to the health of the Tribune company.

And that brings us to Q Score, the measurement of a public figure or product's penetration and popularity. Q Scores will be used to determine which "content provider" is reaching the public, and it will become a vital part of the decision to retain certain reporters or columnists. Each company will have to decide which part of the score they wish to emphasize, but, since attention is what every company craves, it's likely that penetration will be the dominant factor. We'll see more "controversial" writers in place of solid thinking and writing (hence, new media star Karl Rove).

It's not entirely impossible that this strategy will be successful enough that there will be money sufficient to support some of the traditional news-gathering tasks, such as investigative reporting or foreign bureaus. I'm not real hopeful, because part of this strategy is to pick the low-hanging fruit, and any activity that doesn't generate profits on its own is going to be discarded.

That's the future: the successful journalist will be the guy or gal who can pump out vast numbers of words (thinking optional) and can be appealing enough to gain a high Q Score, to be branded. It will not be cost-effective to have a reporter spend four months on a story that only generates a few thousand words, so depth will decline. Competition for "branded" reporters will be high, so the stars will make more money. On the other hand, the probability of a young reporter catching on will be far lower. If print survives at all, it will only do so because of failings in the Internet advertising model. Expect more multimedia figures, as the columnist will do a two-hour radio show and write longer-form pieces for the magazine section; this will lead to a breakdown in specialties, as we want to hear what the "star" has to say about the banking crisis. Therefore, we'll see less expertise as the brands are spread across the news universe (in other words, there will be no sportswriters or political writers, we'll just have the usual subjects commenting on whatever's hot).

It's difficult to see this as positive for those of us who actually value the gathering of news, but it could save the business ("Hey, let's see what Angelina Jolie is writing about today!").

Also: I didn't mean to imply that Q Scores would be the only metric; obviously Internet page clicks will be an important input as well. That these numbers may have little to do with actual quality will be of little consequence.

New hire

AOL has hired a Google executive as their new CEO. What I find interesting about this is that, when AOL wants to improve their Internet advertising, they go out and get a chief executive who has experience doing that very thing. I'm sure they're going to pay him a lot; if he can keep AOL going, he'll be worth it.

But if, say, Microsoft wants to improve their search business, they don't go to Google and attract away some of their top technical minds. Instead, they whine about how they're not allowed to bring in top talent from overseas, the best and the brightest, the magical folks who will elevate them into the stratosphere. They push for visas, they threaten to offshore massive numbers of jobs, when they could go out and pay for the top existing people.

Why are the rules different in these two situations, I wonder?

Outsourcing (again?)

As regular readers know, I rarely waste any of my bon mots. If I write a comment of any length, it will probably show up in a subsequent blog post, and, as it has been, so is it here.

My post yesterday, More on outsourcing, attracted some comments in spite of the fact that it was basically a weak spin-off of an excellent Carrie post (which itself has received some deserved attention, having been featured in the most recent Job Destruction Newsletter and in a post at VDARE.com, which termed it "superb"; they also featured Yours Truly in a post - I must confess to slightly mixed feelings here, as VDARE has occasionally gone over the top in their opposition to immigration, and has a strange affinity for Michelle Malkin, the low-rent Ann Coulter).

One good comment came from Red Oak, and I take the liberty of reprinting it in full:

Poking around that blog [U of Michigan professor Bob Kennedy's book- and offshoring-promoting blog, The Services Shift] is fascinating. It's an excellent illustration of the thesis that our globo-class really is a pack of denatured sociopaths. It is now an unquestioned axiom to these people that the nations and peoples of the earth have no purpose beyond contributing to the "competitiveness" of multinational corporations. I don't mean "sociopath" hyperbolically either, but technically. There is no human value - no culture, no bonds, no shared heritage, no social meaning, outside the "ego", as it were, of corporations.

But what I find interesting is this: we know that this sociopathy is not shared by the businessmen, academics, and politicians of the nations who benefit from the mass offshoring and "H1-B-ing" of America's wealth and jobs. They strike me as normal human beings, looking out for the interests of their own, though they're happy to mouth the globo-crap to the eager Western whores selling out their own nations, who probably think they're "one of them", all playing the big globo-game together. For example, one of the links at Kennedy's blog went here, to an article that is pretty much the standard b.s. about the horrors job "protectionism", with an added bit of interest from our friends the sociopath immigration lawyers, warning that "[w]hile some populist sentiment may call for employers to lay off H-IB visa-holders before U.S. workers, experts say such plans are not only shortsighted, but discriminatory. Facing liability for nationality bias is only one problem with the concept." Got that? They're getting all geared up to invoke (or rather, invent) some "global law" to litigate against preserving American jobs in America during a deep recession that may turn into a depression. Behold this bizarro world Magna Carta: the laws of a nation do not exist to protect the interests of its citizens, the laws of a nation exist to promote and protect the interests of foreigners and multinational corporations from the self-seeking of a nation's citizens.

Now this is disturbing, and infuriating, but, at this stage of the game, hardly surprising. But as I noted to myself that these alleged globo-laws against "nationality discrimination" would be wielded only against Americans - the Chinese or Indians would have the good sense and sane patriotic sentiments to laugh them off and tell any protester to stuff it - a question just occurred to me: I wonder what the foreign beneficiaries of visas and offshoring think of the likes of Mr. Kennedy and his ilk (like those helpful native immigration lawyers who are devoted to screwing their countrymen - unless the Americans are the co-ethnics of foreigners they're helping and just engaging in standard ethnic nepotism). Nobody, after all, has any admiration or respect for sell-outs and traitors, not even the people who are using them. Do they just consider them useful chumps, or do they actively despise them? I'm just curious, because I think holding such types in contempt is a pretty basic and pre-rational human reaction.

I didn't try to respond to everything, there's a lot packed in that comment, but I did write:

Thanks for the comments. I wonder if you've ever had occasion to check out Bakan's book, The Corporation. Bakan. a professor at the University of BC, lays out an interesting case that the very structure of a corporation makes it pathological in nature, that it is inherently incapable (if acting "properly") of promoting the common good. The book was written in 2004, and now seems prescient in detailing the implications of the legal construct.

What this thesis makes me think is that most individual people within corporations are not sociopaths (though I have run across a few), but people who are conditioned by their surroundings into taking positions that turn out sociopathic. Obviously, they are gullible, believing the likes of "statesman" Bill Gates as they trash the reputations of US workers, but that's natural of those who thrive in hierarchical institutions. If you can convince yourself that the greater good is being served by moving thousands of jobs overseas, it's easy to overlook the concomitant harm.

As to your point about a nation's laws, it does seem as if we, perhaps out of a sense of guilt about our good fortune (much of which came out of the hard work and sacrifice of our forefathers and -mothers), are the prime movers in a kind of implicit global law. We have to educate the world's youth and employ the world's workers, because we have so darn much. The protectionism of others is understandable, because they have so little; we, on the other hand, have an obligation to look out for everybody else. That we may need to change the rules in response to new conditions is not a popular idea at all.

Your last point, about the way we're regarded by the folks who are profiting the most from our giveaways, is an interesting one. Perhaps, after years of our giving foreign aid and education and citizenship to large numbers of immigrants, they've just come to expect that we'll keep the giveaways coming.

---

A quick word on another comment. I'm not sure what exactly to what this comment was responding, but it stated:

Work visas stop offshoring of high-skill jobs? Work visas stop the offshoring of high-skill INDUSTRIES.

One hears this a lot (and it probably deserves a lengthy post of its own) but this sentiment doesn't fully hold up. Essentially, what this implies is that these high-skill jobs are going to foreigners no matter what we do about it, but we're better off if they at least do them in this country.

This seems plausible, the taxes stay here, and we presume that ancillary companies and suppliers are better off. I honestly don't think we can balance that yet against the technology leakage when those job-holders return home, and the loss of capacity to perform that work by Americans. I don't think, long-term, that we will retain those industries anyway in the wake of a recession and the idle workers of Asia. There's a kind of neutron bomb idea here, that we can retain industries without them actually employing people, and that's somehow a good thing. Again, I don't think we've really begun to understand this yet, but it's difficult to see this as an absolute good for Americans, no matter how it turns out.

The Wall Street...Huh???

I have expressed concerns about the eventual effectiveness of the current programs that have been approved and will be; I think, for various reasons, the measures will be less effective than the rosy picture that is painted by Democrats. The infrastructure part of the stimulus package should be called the CCEA (Connected Contractor Enrichment Act), at least in Illinois. New energy, even if we can provide proper incentives and safeguards, is unlikely to lead to a new wealthy middle class, no matter how many times Obama says so. More education always seems attractive, but only if it matches up with the actual needs of the job market - I see little evidence that the stimulus money is going to fields that will keep our university labs full. Leakage to other countries is a real risk, especially when those other countries are leaving the saving of the world to us.

We need to keep our expectations realistic, not just accept the economist-generated estimate of 1.40 for the magic government spending multiplier, recognize that we could stoke up the economy well past the time that recovery is afoot and end up with troubles in the other direction. And, yes, we have to take moral hazard into account as we formulate programs (a comment on an earlier post on this topic, which I didn't fully understand, seemed to misunderstand my position - to clarify, we need to recognize the reality of moral hazard; it shouldn't forestall action, it should force us to create proposals with some care).

All of this is not meant to suggest that we should do nothing and wait for the market to come to the rescue. People are hurting, people who have not been particularly well-served by untrammeled free market orthodoxy. We're beginning to recognize the limitations of that approach, that there are public objectives of a modern society that are not fulfilled by laissez-faire.

Well, most of us are, but not the bible for investors, the Wall Street Journal. I'll grant that their audience is not the public at large, but that's no excuse for specious reasoning that ignores reality. But that's exactly what we find in an editorial today, The Obama Economy. I'll go through this is some detail.

It begins:

As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.

Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.

The drop in the market is, to be sure, troubling, but this is written in a misleading way. We're asked to believe that the market was roaring back in the days before Obama took over, until the world started getting a look at his policies. What is ignored is that most analysts believed the market was coming back because investors were pleased that Bush was leaving. Even taken as it is, the text is poor, because the January 2 peak was the highest since all the way back on November 5, which really wasn't the time of the "autumn panic."

The use of the term "become clear" is completely unsupported, and the implication in the second paragraph is by no means perfectly logical. It's hard to see how giving money to failed companies is "punishing business," unless we mean "punishing CEOs," which may well be a concern to WSJ readers.

Then we come across this graph, a fine example of using graphics to obscure reality:

Look at how this has been carefully chosen to make the Obama months look like the problem. The huge losses incurred by the DJIA in the months before the election are ignored. The 4500 point loss that preceded this point is blown by; after all, only partisans could blame Bush for any of this:

The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery.

Again, reasoning based on assumptions, not facts. We have no idea whether the "excess" (in what, the writer doesn't say) has really been "worked off." That this recession is close to the average length of previous recessions ignores the fact that this is very likely a worse-than-usual downturn.

By the way, note the term "job loss" in the above paragraph. It's the only time that employment will be mentioned.

There's some more stuff, not worth quoting, as to how the economy is in pretty good shape (oil prices are low, liquidity is busting out all over, housing prices are close to the bottom). Supposedly, things have been quietly getting better over the past couple of months, except for those nettlesome Obama policies.

I should probably quote a lot more of this thing, but it's discouraging. Oh, OK, maybe a bit more:

What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.

His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery.

We're getting to the gist of this now. It takes a little interpretation, but the "improving incentives to work or invest" essentially means "drop corporate tax rates." "Repair and recovery" means we should just give money to corporations and let them work things out. But even this understanding doesn't help us with all this "reasoning":

Perhaps the imminent Treasury "stress tests" will clear the decks, but until they do the banks are all living in fear of becoming the next AIG. All of this squanders public money that could better go toward burning down bank debt.

What does this even mean? I guess banks are afraid they might be taken over by the government, but some of them have already been given money that exceeds their current market capitalization. I can only believe the WSJ supports no-strings contributions to our well-managed financial institutions.

Surprise! They're not fond of the budget either:

The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade.

If health care organizations had found ways to extend coverage and rein in costs, the public wouldn't be demanding change. If they had used some of their massive profits to modernize, making medicine safer, we would be fine with them.

If private lenders were making loans, they would still be in the game. I guess every student is supposed to drop out for a few years while the market sorts it out, then come back to school and go into permanent hock as their bargained-down salaries fail to cover the repayment of those loans.

If energy companies had taken the lead on new energy, if they had devoted their record profits to paying the full costs of their operations, there would be no pressure for carbon taxes or cap and trade.

Of course, we have to get in one political barb:

They seem preoccupied with going to the barricades against Republicans who wield little power, or picking a fight with Rush Limbaugh, as if this is the kind of economic leadership Americans want.

It's really hard to see the Obama White House as the obstructionists in the current situation. As I said above, I'm not fully on board with every single thing, but the Republicans have offered nothing but roadblocks and unpleasantness - they're an embarrassment.

What The Wall Street Journal wants, clearly, is a retreat to the glorious days when business leaders called the shots, got whatever they wanted. What that is is a modified free market in which the vast majority of Americans are caught up in creative destruction, while the executives soak up all the marvelous riches that are generated.

But the market is not perfect, it does not inevitably create humane or just outcomes (even Adam Smith didn't believe that). If the current administration ends up going a bit too far in that direction, well, Republicans and Big Business have only themselves to blame. Had they ever put the public's interest ahead of their own, there would be a lot more sympathy for them now that they're on the skids.