People have been fired. Mike Huckabee predicts that Obama won't complete his second term. At a minimum, Bloomberg Businessweek predicts, Obama's hope for gun legilsation, immigration reform, and a health overall are to be jettisoned. This IRS scandal is a big deal.
So what, exactly, is the big deal? The IRS targeted tea party like groups but not progressive groups. They were searching for folks who had formed groups around the notion of patriotism, tax relief, and anti-government sentiments. This much seems true and for that people have been fired.
So then, what nefarious things did they do once they'd targeted these groups? They requested information. Specifically, they asked the following questions:
These questions were deemed "unnecessary."
That's right. These groups had to answer questions they didn't have to. They weren't shut down. They weren't fined. Their members weren't subject to wire-tapping. Their leaders weren't imprisoned or targeted by drones. Nobody was water boarded. They were asked to provide information.
That's the big scandal.
We live in time when we're about to hit a big inflection point. Going one way, we could enter a time of prosperity that past generations could not even imagine. Going another way, we could enter a time of unfolding disasters. And in the face of that, the government with the most influence of any group in the world is focusing on an issue that is - depending on the angle from which you observe it - either inane or irrelevant.
We don't really have to worry about what future generations will think of us, though. With judgment about real vs. trivial issues this faulty, we're likely to cause our own extinction before those future generations can show up to judge us. That will shut them up.
Daniel Kahneman begins his book Thinking Fast and Slow with a picture and an equation.
In an instant, 90% of people know that this girl is mad.
By contrast, 90% of people take at least a few seconds to calculate the answer to this equation.
37 X 4.
Some things we can do so quickly and effortlessly that we don't even think that we're thinking. Other tasks make us very aware that we're thinking.
The media - and by extension the political dialogue - is defined by the fact that we can instantly judge scandals but it takes time and effort to judge policy. (Not that we always resort to actual judgment for policy; once we know whether a particular proposal is considered liberal or conservative, we can judge it as quickly as we can this little girl's mood.)
The federal government has nearly 3 million civilian employees. When they do something wrong, the question is whether it actually stems from policy or - even better for the media - conspiracy. If they were just acting on their own - mavericks in the system - it may qualify as a scandal but it is no indictment of the White House. (Unless, of course, you have mavericks in the White House like McCain and Palin who would, presumably, encourage maverick behavior.)
Abu Ghraib and My Lai were atrocious but don't seem to have been the result of either White House conspiracy or policy; neither Bush nor LBJ were ever indicted in these awful acts and it would be unfair to judge them by those events.
By contrast, it really is fair to judge LBJ and Bush by the wars (occupations?) of Vietnam and Iraq. Those are the result of policy, choices that emanated from the White House. It's harder to judge whether those were good decisions. My Lai and Abu Ghraib? We can all confidently criticize those as wrong.
Conspiracies never make as much difference as policies. Abu Ghraib and My Lai did not kill as many people or cost as much money as the Iraq and Vietnam wars, did not have as much impact on the region.
Yet policy is boring. It requires slow thinking, the same plodding thought that solves equations. Scandals, on the other hand, are exciting. It lets us rely on fast thinking, letting us judge them almost instantly. They make us feel smart because they are easy to think about.
Scandals rarely matter. Policy almost always does. And yet savvy media and politicians will continue to feed us scandals and largely ignore policy. Not because that's a smart thing to do when it comes to running a country. Instead, they do it because it makes us - and them - feel smart.
The random walk hypothesis is simple. Today's stock prices predict what we know today. Tomorrow we will discover new information and that information is as likely to be bad as good - it is random - so future changes in stock prices are random. Put simply, we can't predict the future.
I think that events are more connected than that, more likely to form a part of larger patterns. And because of that, news tends to come in the form of clusters, bad news bringing more bad news and good news bringing more good news.
It is hard to argue that these events are unconnected. Most obviously, an improving economy will make the deficit smaller. But it would be hard to argue that any of the above events are unrelated. A better stock market gives people more confidence to buy things and gives companies more confidence to hire people; as more people get hired, they buy more things; as companies sell more, they hire more people. Effect becomes cause and pretty soon we don't so much see individual dominoes falling as patterns: news about home sales or hiring is slowly displaced by more general reports: the economy is strong. Better news means even more better news.
And that more general pattern is driven by the emergence of simple consensus more than folks care to admit.
Economics is a bit like fashion: it gets defined as much by agreement as "real" issues.
It seems as though communities around the US have begun to build agreement that the economy is good and it is again time to buy homes and stocks and to hire people. That will make it so for months - probably years - to come. That may seem arbitrary but it is not random.
This poor excuse for a human being, Judge Mark Ciavarella, was putting kids as young as 10 years old into prison. Not for the crimes they'd committed but instead for kickbacks from the for-profit prison system into which the kids were sent. Hard to imagine a more vile piece of humanity than Ciavarella. The Pennsylvania Supreme Court overturned 4,000 of his convictions. 4,000. I guess it's easier to do such things when you've already sold your soul.
His sentence was not harsh enough. A 28 year sentence to a 61 year old man might be enough, but a million dollar fine for a million dollar profit is not. For other judges and for-profit prisons, this could just be seen as a cost of doing business, and not even a high enough cost to stop such practices.
The reason it is not enough is because the odds of getting any sort of fine are so low.
The odds that Ciavarella would be caught were less than 100%. There was maybe a 20% chance, say. The odds that the DA would decide to prosecute were less than 100% - perhaps about 50%? And finally, the odds that he'd be found guilty were less than 100% - again, maybe 70%? (And yes, I'm making up these numbers; the only thing that I know for sure is that the odds of his making it to each stage are less than 100% and by 10's of percent.) So by these calculations, the odds that Judge Ciavarella would be caught, prosecuted, and found guilty were about 7% (20% X 50% X 70%).
So if you are another judge who is amoral enough to look at the incarceration of the young as a for-profit venture, you could easily make the following calculation. "I could make a million dollars by giving out the maximum sentence to these kids. Money I'd get in kick backs for the cost of their incarceration. Money paid by taxpayers to the for-profit prison company." Then you'd have to ask about possible costs. By the above calculations, the probable cost of this venture would be about $70,000 (7% of the million). Now you can make your own calculations about probabilities but no matter how you do it, you'll find that a fine equal to the reward for criminal behavior is inadequate. It would only make sense if the odds of being caught, prosecuted, and found guilty were 100%. They're not.
I'd suggest that the judge's fine should have been at least $15 million, not merely $1.2 million. And who could make up the difference? The for-profit prisons.
After the
Mona Lisa was stolen in 1911, the lines to see the space where it had once hung
were longer than the lines had previously been to actually see the painting.
Of course any reputable country music artist could tell you
that absence is a great way to be noticed. Curiously, and rather fittingly,
Kafka was among the folks who cut short a vacation to rush to the Louvre to see
this blank piece of wall upon which the
Mona Lisa had once rested.
Should ever happen again,
I think that it would be all the more reason to have a museum of forgeries. (Such a museum would provide an identical art experience to the real art and yet acquisition costs would be much lower, no?) I'll have a blank wall
in my museum of forgeries with a sign that says, "It's not here either."
So, I've discontinued my experiment to determine whether the lines to see - or rather, the hits on the blog - were greater with missing posts.
Before you leap to the conclusion that this blog has been abandoned, I would like to point out that I've been busy. In the last five weeks I've been in four states (not counting this one) in three different time zones (trips of 2 to 5 nights), been able to visit a new major league ballpark and the rock and roll hall of fame, driven through a snow storm, looked after my elderly father, and started work with two new clients.
Reported in the Atlantic's new Quartz, it is not just stocks and homes that Americans are again buying.
US auto sales in March hit their highest level since 2007, showing American consumers are indeed in a mood to go shopping.... luxury Cadillac brand was up by almost 50% compared to the same period last year.The sales numbers show the US auto industry is in a sustainable recovery. The news is even better for luxury brands, which posted stronger gains than their mass market counterparts. BMW, Audi, and Lexus all reported double-digit percentage growth in sales.
As mentioned previously in this blog, economists were oddly cautious in their forecast for 2013. I think they should have been optimistic instead. This, it seems to me, is further proof that GDP will grow by more than 3% in 2013. (That optimistic prediction is explained here, The Wealth Effect Will Boost 2013 GDP.)
Value-investing was developed during the Great Depression. Since then, the percentage of households holding stocks has at least tripled, radically increasing demand for stocks. Because of that, it is too hard to find under-priced stocks to ever systemically apply value-investing. It might be akin to a high school kid holding out for a Sports Illustrated swimsuit model for a prom date. If he can do it, great. But if he wants to go to prom, he might want to lower his standards. So it is for folks who want to retire.
There. That's the gist of my argument. You can click on to another of the web's nearly 15 billion pages or you can read further.
First the caveat. I'm no Warren Buffet. Thursday of last week, Buffet's net worth rose $557 million. Yeah. Half a billion. My total net worth is a rounding error in the amount his wealth fluctuates during a trip to the bathroom. Buffet recommends value-investing, so you would probably be wise to ignore my concerns and listen to him instead.
But you're still here. Good. That means you've got an open mind. So for you I'll elaborate.
Ben Graham and David Dodd developed their ideas about value investing in 1928 and then released a textbook defining it (Security Analysis) in 1934. In its simplest form, the idea is to find stocks that are under-priced and then buy those when investing. Buffet has since defined this as buying outstanding stocks at sensible prices. I'm not foolish enough to argue with this. While it's a great ideal, it's just not a practical idea. Not anymore.
Both the percentage of households owning stock and the percentage of wealth represented by this stock ownership have gone up dramatically since Graham and Dodd wrote their book. As demand has risen for stocks, it is harder to find under-priced stocks that meet their criteria. While you wait for cheap stocks, you could miss out on decades of decent gains.
In 1929, when the stock market crashed and triggered the Great Depression, only twenty-some percent of Americans owned stock.
Gallup reveals that about 54% to 67% of households now hold stock. This percentage probably under-reports the actual percentage since so many Americans are invested in the stock market through pension funds they're unaware hold stocks.
Further, the portion of household wealth has gone up. In 1984, only 9% of household wealth was in the form of stocks (either directly or through mutual funds or IRA accounts). By 2011, that had risen to 46%. (401(k) accounts did not take off until about 1984.) As a percentage of household wealth, stocks rose about 5X in a quarter century.
This demand for stocks has driven up their price. And it is only getting worse. It's a cliche (and possibly even accurate) to say that about 20 years ago 80% of retirees depended on fixed pensions whereas today it is 80% of retirees who depend on their own investments. Demand is high for stocks and that alone drives up prices.
So, if you can find a stock that sells for cheap, a stock that's a great investment, do it. But that's like saying buy a good house for less than market price. It's tough to do. If you want to retire, you'd probably do well to get your money out of your savings account and into the market. If you can find cheap stocks, great, but don't wait because that may never happen. Buffet may represent the last generation able to systemically find under-priced stocks. You and me? We may have to pay retail.
Ohio Republican Senator Rob Portman changed his mind about gay marriage once his son came to him to announce that he was gay and had been as long as he could remember. It seems to me illustrative of the GOP's general lack of imagination when it comes to policy. Aid for the poor and homeless? Can't imagine this ever happening to me, says the GOP, so let's not worry about it. Aid for AIDS victims? Can't imagine this ever happening to me, says the GOP, so let's no worry about it. Same-sex marriage? Can't imagine ever wanting to marry someone of the same sex, so let's not worry about that.
In my opinion, good policy is a product of a good imagination. Ultimately, being able to imagine that the situation in which others find themselves is one that you could find yourself.
"Memory allows for a kind of
mental time travel, a way for us to picture not just the past but also a
version of the future, according to a growing body of research.""The studies suggest that the
purpose of memory is far more extensive than simply helping us store and recall
information about what has already happened.""Brain-imaging studies have
demonstrated that when people are asked to imagine the future as they recall
past experiences, many of the same regions of the brain—the hippocampus and the
medial prefrontal cortex—show increased activity. "
The person who only knows the now has no clue about what else could be. Knowing what else has been in the past immediately triggers the imagination for what else could be in the future.
Memory of the past seems to be the first step towards mental time travel. Those who learn history have an easier time imagining the future.
Or maybe, as a guy who wrote about patterns of change that played out over 700 years of history in order to predict the next 50 years, I am reading too much into a little brain research to support my notion that we can find the future in our past.
Shark Tank is reality TV / drama / comedy / technology / business advice show mash up. Each week various entrepreneurs make a proposal to investors. It is the highest ranked Friday night show and its viewers have grown from 4.2 million in the first season to 6.4 million in this, its fourth season. Tim Sae Koo, founder of Tint, writes about how what he learned from watching Shark Tank helped him to get his startup funded.
I don't doubt that there are a number of stories like Tim's. As entrepreneurship becomes more visible, more people will consider it as a choice. McDonald's spends nearly a billion each year in advertising because they know that we only choose from the menu we're aware of: if you don't know about something as an option, you simply don't pursue it. Shark Tank is just one of the more obvious ways that entrepreneurship is entering the mainstream as a choice for the average person.
Meanwhile, outside of TV land, the Internet is abuzz with entrepreneurial stories, resources, and organizations. Shark Tank lets viewers vicariously experience what it means to pitch ideas or be a venture capitalists. By contrast, Kickstarter lets actually lets people actually be venture capitalists, funding projects they believe in. Susan Jones from Melbourne has the blog Ready Set Startup! that shares stories and strategies of successful startups. Startup Social has created a platform that allows entrepreneurs in LA to connect. Paul Barron, at rethink is offering videos on business innovation. And these are just a few of the folks who have begun to follow my twitter account in the last week. (And of course there are folks who continue to hone their skills in this new economy, folks like Cody McKibben and Dan Andrews who are simultaneously creating and being created by a new generation of location-independent entrepreneurs, in the process creating a new economy that transcends both old practices and national borders alike.)
The internets are alive with stories, strategies, collaborations, plans, small businesses about to become huge, ideas about to become real, and people who are teaching each other things that no one even articulated decades ago. The obscure is becoming common and the unknown is getting mapped. We are at a stage of entrepreneurship akin to the stage of exploration when Columbus was taking inspiration from Marco Polo's book of adventures.
What people don't realize is that the success rate of these efforts only has to be in the single digits to transform the world as we know it. Imagine this scenario: 100 entrepreneurs try startups. One goes on to create a company with 10,000 employees. The result? We end up with 100 employees for each entrepreneur - even with a success rate of only 1%. And as social entrepreneurs can tell you, business entrepreneurship is just part of the story: there is not a segment of society that will emerge unscathed from the popularization of entrepreneurship: education, religion, and government will all be changed - indeed, transform is not hyperbole in the context of what will happen in the next couple of decades.
Most people are still wandering the mall unaware of the tsunami of change that will follow from the popularization of entrepreneurship. (A recent article of mine about this here and my book, The Fourth Economy, here.)
The Industrial Revolution was transformative. Starting in 1700, for the first time in 6,000 years, incomes began to rise. One reason for this is the math of capitalism. As Benjamin Franklin put it, "Money makes money and the money money makes also makes money." Compound interest is powerful. Wealth that increases by 1% a year will double in 70 years; wealth that increases at 7% a year takes only a decade to double. This math represents the phenomenal rise in wealth since the birth of Franklin in 1706.
The math of the entrepreneurial economy is even more impactful. It is the 1 in a 100 that leads to a 1,000. That is, the one successful entrepreneur out of 100 aspiring entrepreneurs who goes on to employee 10,000. We've never seen anything akin to the popularization of entrepreneurship, a force that could make this sort of math more common.
If you are a young parent, it is likely that your child will grow up to consider entrepreneurship as seriously as you considered college. Wrap your head around the impact of that. But that is the essence of progress: what was once rare becomes common.
Stay tuned. The world is just going to get more interesting.
ABC's promo here:
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