There's gold in them thar banks

Thanks to a good quarter, the average employee at Goldman Sachs is on track to earn $900,000 this year. This only months after the US government bailed out the big banks with $125 billion.

I like this, though. It shows restraint. You'll note that the average pay will be under $1 million. Very crafty of those bankers to stay off the radar like that. And to think some people say that their inflated sense of self worth clouds their judgment when it comes to managing public perception.

What Will You Do?

My daughter graduated from UC San Diego last month. Even people she has just met now feel free to ask her, "So, what are you going to do with your life?" They feel free to challenge her ability to pay the rent, be happy, or actually accomplish what she's planning. (Although few actually do so directly.) She is gracious about it, in no small part because she has a plan and it's already in motion.

And this got me thinking. I have even less time left than her, presumably. This question should have even greater urgency for me.

So, I wonder why we don't ask this question instead of, "So, what do you do?" of people who have become old like me.

Please don't feel offended if you see me in the next week or two and I ask you, "So, what will you do now?"

Betting on Google (or Why Chrome OS Is a Lottery Ticket Worth Scratching Off)

The guys at Google came up with a secret sauce in the form of algorithms that efficiently and quickly search the Internet. They understand probabilities. And that might be as good a reason as any to bet on their continued success.

Google has a fascinating policy of letting programmers work one day a week – 20% of their time – on their own projects. This has already translated into popular products like gmail and google news. Some projects come from central management and some come from the cubicles. This is not much different from successful economies where some projects (e.g., NASA or the early Internet) come from centrally-planned government programs and some come from unexpected sources like the garage or the back of a cocktail napkin.

One of the insights to come from the world of probabilities and into the world of finance in the last century is the notion of the high probability of low probability events. The lottery is the simplest example. The odds of any ONE person winning are incredibly low. Buying a lottery ticket to win money is almost like buying an airplane ticket to commit suicide. The odds are terribly low for any one person to win and yet the odds that SOMEONE will win are incredibly high.

Venture capitalists differ greatly from bankers in this regard: they take an equity position in success and know that only a small percentage of their investments have to become the next Yahoo or … well, Google in order to offset the many investments that don’t pay off. They don’t embrace failure but they know it is inevitable.

Google has seemed to realize that a corporation has a huge advantage over a venture capitalist in this game. A corporation can provide a risk free environment in which individuals can start projects that might become market successes or merely technical successes or might never become successful. The corporation can provide the infrastructure (e.g., HR, marketing, etc.) that can absorb so much time from the entrepreneur. And if one of these projects like gmail or google news should become successful, they offset the many projects that don't come to fruition.

Further, even the failures are never clearly failures. If an employee learns a new skill or gains a new market insight from trying something new, that can be applied to the next venture. And with everyone taking on their own project, the entire organization has a vastly different mindset in regards to projects. Thinking about how to create and deliver products to market becomes pervasive. This sort of culture can be more valuable than any one project.

All that to say that the many critics who are already pointing out why Google Chrome OS – Google’s attempt to capture Operating System market from Microsoft – will fail could be right. The odds of this ONE product becoming a success are pretty low. (But it is still a good bet. Microsoft gets about $15 billion a year in revenue from Windows.) But each time they try another venture like this, the odds of generating profit to match what's generated by their search engine go up.

Oh, and one other thing. I remember when Microsoft’s Excel and Word were obvious failures. It took some time before they seemed like something other than cute substitutes for the seemingly invincible Lotus 1-2-3 and Multimate Word Processor. The fact that gmail does not have as much market share as Outlook does not mean it will not eventually have more. It is rarely the released product that conquers the market – it is usually the evolved product that owns a market.

It is true that lottery tickets are unlikely to pay off. It is also true that only people who buy them ever win the lottery.

Palin for President?

“You are responsible for the predictable consequences of your actions.”
- Noam Chomsky


72% of Republicans said they would support Sarah Palin for President in 2012. At the risk of pointing out what might seem to be obvious to some, let me just say why it would be a bad idea for Palin to be President.

Leadership suggests a capacity to predict consequences of an action. The complexity of the decisions you make is limited by your ability to predict consequences.

Listen to Sarah talk. Tell me this woman is responsible in this sense. Tell me she can predict consequences of anything the least complex when she can't articulate anything the least complex.

A Megaphone for the Mega-Deficits

By 2014, the world's biggest economies are likely to have public debt equal to their GDP. This is not necessarily debilitating: many households owe more on their mortgage than they make in a year. But it is not something we should be happy about.

Critics are right to wring their hands about the deficit that Obama's building up. But the commentary on the right is annoying on two points. One, while Bush was stacking up IOUs like leaves in fall, they were silent on the issue of deficit spending. Two, they gloss over the fact that Obama is going to have outrageous deficits because he started with outrageous deficits. $1 trillion of the deficit from this year is inherited from Bush.

We've had worse deficits (as a percentage of GDP) than Bush's, but not during an expansion. And not so quickly after we were running a surplus.

The Republican Party used to be well populated by fiscal conservatives. That is, people who liked to avoid deficit spending. The GOP was hijacked (a story well told by Jonathan Chait in his book, The Big Con) and all the fiscal conservatives were muzzled. At least until now.

I don't even mind that the fiscal conservatives have been given a voice again. I think it is healthy. But until they start their critique with a expose of the massive spending increase and deficits run up by their own party for the 6 years it owned Congress and the White House, their words lack credibility. Bush's budgets became the new baseline from which any stimulus package had to start.

By definition, a stimulus package will increase the deficit. If Obama had - like Bush - inherited a surplus, his stimulus package would not have required huge deficits. It might not have even required deficits.

It's important not to be quiet about the deficit. It is just as important to be honest about its cause.

Waiting for Meaning

why do I like this so much?
It seems to explain everything.
- The essence of the message from my brother in law. I don't know what more I could offer by way of commentary or sentiment. It, inexplicably, amuses me. (Is it legal to say that it inexplicably explains so much?)

TV News Offers an Escape from Reality

The other day I'm on the treadmill and I'm watching the TV monitors hanging from the ceiling: CNN, MSNBC, and Fox were all on. As I watched the odd behavior and even odder reporting of the talking heads, I became convinced that the news has changed.

There seems to have been a time when the purpose of the news was to get us in touch with reality, report on what is happening.

After watching Fox report on how Obama is losing so many jobs (in a recession that began before Obama was even nominated by his party) and CNN speculate on whether Michael Jackson's ex-wife will sue for custody of kids we average Americans would not recognize even if they ended up on our porch selling cookies, I can only conclude that reality has become too much. Now even the news has to perform the task previously reserved for TV sitcoms, soap operas, and movies: it has to give us an escape from reality.

Color me strange, but for all my day dreaming, I've always kind of liked reality. Too bad the TV producers don't think I can handle it anymore.

Flow as the Compass for Social Invention

We’ve now reached a curious and potentially powerful point in history in which our social reality will be less defined by any one dominant institution or certain traditions than the act of intentionally engaging in social invention. It will, however, be social invention to a particular end.

A lot of our practices are about imitating. This is the opposite of inventing. We don’t call it imitating. We say that we’re studying principles of organizations and looking to apply what is proven or successful. But we’re imitating.
The problem with this and the practice of it is perhaps seen most readily in our approach to work within organizations.

In his book, Good Business, Csikszentmihalyi quotes Robert Shapiro, former CEO of Monsanto. He makes a critical point about how individuals are fit into organizations.

“The notion of job implies that there’s been some supreme architect who designed this system so that a lot of parts fit together and produce whatever the desired input is. No one in a job can see the whole. When we ask you to join us, we are saying, ‘Do you have the skills and the willingness to shape yourself in this way so that you will fit into this big machine? Because somebody did this job before you, somebody who was different from you. Someone will do it after you. Those parts of you that aren’t relevant to that job, please just forget about. Those shortcomings that you have that really don’t enable you to fill this job, please at least try to fake, so that we can all have the impression that you’re doing this job.’”

“It’s a Procrustean concept, and it studiously and systematically avoids using the most valuable part of you, the part of you that makes you different from other people, that makes you uniquely you. If we want to be a great institution, that’s where we ought to be looking. We ought to be saying, “What can you bring to this that’s going to help?” Not, ‘Here’s the job, just do it.’”

What does Shapiro mean by “a Procrustean concept?” Procrustes was a figure in Greek mythology who forced travelers to fit into his bed by stretching their bodies when they were too short or cutting off their legs when they were too long. It is probably true that the vast majority of employees are both stretched to the limits of their capacity in some aspects of their job and literally cut off from real and crucial parts of their self in others. In either case, fitting into a job in such a way does little to realize their own potential or, by extension, the potential of the organization.

In fact, such programming of one’s actions is antithetical to what any society would hope to see emerge: genius. “One admires genius because one has the imagination to see that there is no mechanism in him or his work, nothing that can be analyzed and rationalized, ” Barzun writes. Again, imitation is the opposite of creativity, a way to suppress genius.

And yet tailoring even a job to the individual is something we rarely do. We prod students, congregants in church, employees, and citizens into a particular way of being. We are focused on what is “best” without regard for what is unique.
But what if the purpose of social inventions like church, school, and business was to provide a forum for the individual to realize his potential and not simply realize the vision of some leader?

In this world, the guide to progress will be rooted in the psychology of engagement, in what makes us most happy.

Mihalyi Csikszentmihalyi has spent decades studying what makes people most engaged. He has called the state of engagement “Flow” and has found that it is in this state that people are most happy, most creative and from which people are most likely to emerge more able and developed. In short, the path of flow – found in challenges that stretch us beyond those in which we feel in control (much less bored) and less than those that make us feel anxious (much less overwhelmed) – is the path to self development. It is by following the path of flow that we find our own unique path and realize our potential.

If you can imagine a world in which learning and work follow the path of flow for the individual, you can begin to imagine a world in which social invention is necessary – where work and learning are as dynamic as a video game that raises the challenge as the gamer gets more skilled. This world is not chaotic, but it certainly is not static or generic.

And such a world is congruent with the basic theme of progress since about 1300: increased autonomy. We have increasingly given the individual more options and more freedom on how to construct his own life.

Accomplishing this will require massive amounts of information that is custom to the individual. That is, this kind of world could only sit atop an information age. There are a great number of obstacles to creating such a world but the major obstacle at this point in history is simply awareness: very few people are aware it is possible or even that is desirable. It’s time we ended this. Pass the word along. It’s time we stopped settling for somebody else’s life and created the context for our own.

21st Century Protesant Revolution

Secular scientists, agnostics, and non-Christians have challenged the authority of the Bible. Next, a new protestant movement will actually involve Christians who challenge its authority. In the 16th century, the Protestant Revolt shifted authority from the church to the Bible. Now, in the half century since the discoveries of the Nag Hammadi Library and Dead Sea Scrolls, a growing number of Christians are questioning why earlier protestants who challenged the church’s authority on policy would not challenge their authority in regards to their decision about the books that were excluded and included in the Bible.

During the first few centuries after Christ, there were lots of gospels and epistles. In the 4th century, the church sorted through the list of dozens and dozens of possible books to come up with the list that 98% of Christian churches use today. Discoveries at Nag Hammadi and the Dead Sea revealed some of the variety represented in the discarded books.

A belief about the Old Testament God being a different entity than the New Testament God were typical of the different ways this new religion was defined. Some advocated asceticism (a denial of any physical pleasure) as a means to greater enlightenment, prohibiting sex. Others took the reverse position, and felt that the body was irrelevant to spiritual salvation and were criticized for tolerating and encouraging licentious behavior.

Of course people have questioned the authority of the Bible before. But I suspect that as interest in the gnostic gospels like the Gospel of Thomas and Gospel of Judas increases, we’ll see even greater variety of challenges from under the umbrella of Christianity. It won’t just be those outside of Christianity who challenge the Bible during this second protestant revolt.

In the 16th century, we had a protestant movement that challenged the authority of the Catholic Church. Today, so quietly that it is largely escaping notice, a new protestant movement has begun, one that challenges the authority of the Bible defined by the Catholic Church. This will probably lead to even greater variety of denominations and definitions of what it means to be Christian. And this will be in keeping with the trend of all modern social change: greater autonomy and definition by the individual and less by authority figures. It will, in the end, be just more reason that the 21st century will be a fascinating time to be alive.

From Agricultural to Industrial to .... Bubble Economy?

The problem is not that financial markets are too mature and able to create too much capital and credit. The problem is that the corporation is too immature and unable to create profitable opportunities using that capital and credit. The result? Capital bids up the price of existing assets and we have a series of bubbles. Policy makers looking at financial markets will only see the symptom of this problem. We need to start talking about corporate reform.

James Fallows of the Atlantic talked to Nouriel Roubini, who spoke about the danger and increasing severity of economic bubbles.
“These asset bubbles are increasingly frequent, increasingly dangerous, increasingly virulent, and increasingly costly,” he said. After the housing bubble of the 1980s came the S&L crisis and the recession of 1991. After the tech bubble of the 1990s came the recession of 2001. “Most likely $10 trillion in household wealth [not just housing value but investments and other assets] has been destroyed in this latest crash. Millions of people have lost their jobs. We will probably add $7 trillion to our public debt. Eventually that debt must be serviced, and that may hamper growth.”

After talking about the dynamic of bubbles and how we've been dependent on them for growth, Roubini says,“'The question is, can the U.S. grow in a non-bubble way?'” He asked the question rhetorically, so I [James Fallows] turned it back on him. Can it?"

For me, the core problem is that we’ve created massive potential for financial stimulus but have not created a corresponding potential for translating that into new ventures. So, the financial clout is used to bid up the prices of existing assets rather than create new ones. This can’t help but create a series of bubbles, it seems to me. The problem is not that financial markets are too capable of creating capital. The problem is that business markets are too feeble at using that capital to fund innovation.

Businesses are not that interested in innovation and creativity. They prefer predictability. This is typical of fiefdoms run by the last of the monarchs. The dispersion of power within corporations to employees who would be eager to create equity would not only result in more innovation but would require more capital. Financial markets are capable of creating the credit and capital to finance new ventures at a faster rate: corporations don’t avail themselves of this, more often than not generating cash rather than consuming capital as if they did not operate in a possibility-rich environment.

As long as capital markets are biased towards the purchase of used securities – buying stocks and financial instruments for investments already created – we’re likely to see a series of bubbles. Once we get better at making entrepreneurship a normal part of the daily routine of business, we’ll still have bubbles but I suspect that they won’t be nearly as frequent or pernicious. And the foundational economy upon which financial markets rests will be more diversified and vibrant, offsetting the bubbles that do occur.

Double Dip Recession - Courtesy of California

This recession has one more dip in it before it’s over. The problem doesn’t stem from Obama’s stimulus package: California’s fiscal woes will be the cause.

If California were a country, its economy would be ranked 8th in the world – smaller than France and Italy and larger than Spain and Canada. All of the ten largest economies in the world have adopted aggressive stimulus policies. All, that is, but California. This is going to undermine Obama’s efforts to stimulate the economy.

Californians recently voted against taxing themselves more and will now start slashing programs. For instance, professors within the state university system will be put on furlough and lose about 10% of their income. Layoffs, program cuts, and discontinuation of services will hit every community. These, just as the economic numbers for the US are looking better.

California’s contraction won’t be enough to completely de-rail the recovery. It will, however, delay it by one or two quarters.

Governor Schwarzenegger now finds himself in the same position as Gray Davis – the governor he replaced in a recall election. The problem wasn’t Davis or Schwarzenegger. California is the only state to require a two-thirds vote in the Legislature for BOTH tax increases and budget approval. A small minority can hold the legislature hostage and the odds of finding agreement among 66.6% of the diverse population of Californians on anything – much less tax and budget – are close to 0.6%. Until this system is changed, California’s problems will continue and the requirement for balanced budget means that the state government will always exacerbate down turns and bubbles alike.

California’s budget problems are about to spill over into the rest of the nation. Expect the economic numbers to fall again in the Fall. And look for the cause in California.

The Icons are Dead! Long Live the Icons!

I'll join the chorus of voices lamenting the loss of Farrah Fawcett (and my youth). Every generation conspires with the media to create a fertility goddess. Given that my generation may have been the last to make any real attempt to sublimate teen sexuality into something other than actual sex, the importance of Farrah Fawcett will be hard for the current (and future) generation(s) to fully appreciate.

For her critics who allege that her major claim to fame came from inspiring millions of high school yearbook photos, I will agree. But I don't think that this is a trivial feat. I think it was amazing.

I used to be disdainful of fashion but I now see it as the most fascinating form of art. It is one thing to shape clay or canvas or marble into something aesthetic. It is quite another to shape the public. Fashion has to use the mind first and then the form, whereas all other types of art create a shape or form first and then try to impact the mind. Fashion has to recruit volunteers who will be the canvas for the artist’s vision. And Farrah – for a few years and probably like no one since – was the inspiration for a very distinctive look. I can’t help but admire what she did. Plus, when her iconic poster came out I was 15 and that image seemed to me the epitome of beauty.

Poor Farrah was given only 15 minutes of eulogy, having the misfortune of dying just before Michael Jackson. In the roughly two hours between when I boarded the plane and then landed in Chicago, TV broadcasts seemed to have gone from non-stop coverage of Farrah's life and death to non-stop coverage of Michael Jackson's.

Michael Jackson - just a couple of years older than me - was actually the first celebrity to make me feel inadequate. I remember realizing how talented he was (even at 8 he had a great voice) and feeling woefully less as a person, me the child who had already dropped out of piano lessons, having abandoned a career in music about the time I began first grade, putting me in stark contrast with Michael.

I do think that a Michael Jackson tribute concert featuring only people named Michael Jackson would be interesting to watch. In that vein, here is a bit from the BBC from years ago, a reminder that Jackson will be hard to replace.