"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Monday, April 30, 2012

Don’t Lower Interest Rates on Student Loans–Raise Them


There has been a lot of press recently about interest rates on federal student loans, currently pegged at 3.4 percent and proposed to be doubled to 6.8 percent.  While many lobby groups and individuals are calling for keeping the rates where they are or even lowering them, the best path forward is increasing them to market rates.  The reason is clear.  Right now the low interest rates encourage both poor choices on the part of students and increased costs on the part of school administrators.

Right now with interest rates so low, students who should focus more on a lower-cost technical education, attend four-year colleges which leave them with a mountain of debt and little to show for it.  Few states have yet addressed the issue of structural reform within higher learning – that is, refocusing the curriculum of state universities to economically and civically productive concentrations (see my various blog posts on this subject), leaving the more esoteric courses to the private system.  This realignment would improve the cost-benefit ratio of educational investment.  Students graduate with a useful degree and practical experience.  University costs are kept down because of a more realistic limitation of courses; and not only are taxes less, but they result in higher value. 

As a result of the status quo, students, enticed by universities who see profit in their matriculation attend low-value institutions.  These public universities can anticipate more students with more money via easy loans which translates into more sports facilities, new auditoriums, and an expanded physical plant.  They are under no obligation to reform the educational curriculum and program.

If students had to pay market rates for their loans – i.e. eliminating the federal loan program altogether – more judicious choices would be made by students, and universities and colleges would be forced to realign their curricula to student demand.  If students agree to pay market prices, then they will choose the school which offers the best value for them, whether a technical school, pre-med, engineering, or pre-law; and these institutions would necessarily reform.

Although I have argued that state-initiated educational reform of higher education is necessary (and still do), a simpler and more realistic way of achieving the same end is to raise interest rates on loans and let the market determine school availability and curricula.  Rather than rely on a state to determine what are productive and non-productive courses, let the market decide; that is, let students decide based on economic choice.

This is not a revolutionary concept.  We, as a country, have consistently rejected central planning, dirigisme, or any other form of state decision-making in the economy.  While we have not been consistent in this (tax ‘reform’ is still and always will be a manipulation of the market), in most cases direct federal investment in a particular segment of the economy has been off-limits.  Why not in education as well?

Today’s (4.30.12) Washington Post http://www.washingtonpost.com/opinions/whats-better-for-college-students/2012/04/29/gIQA8kqKqT_story.html gets at the problem, but does not address all the issues:

It’s no surprise that extending the lower rate now comes at a high price: $6 billion for a year, according to the Congressional Budget Office, and much more if the rate is extended year after year. That spending would be more defensible if the rate cut reflected something other than a number picked in a years-ago campaign pledge. It would make more sense if the alternative were truly bleak, instead of a return to what was still a good deal compared with the rates and terms of loans in the private market. Keeping the federal rate extra-low would be less a concern if it didn’t risk encouraging runaway higher-education costs.

While it is true that the debate over interest rates is largely politically-driven in an election year, it is a debate which must happen; and the Post editorial does not consider the obvious possibility of raising interest rates even further or eliminating the federal subsidy program.  Nor does it raise the most compelling issue of a market-based alternative to state-sponsored educational reform.

The amount of outstanding debt is significant.  As another article in the Washington Post indicates http://www.washingtonpost.com/blogs/campus-overload/post/colleges-visited-by-obama-have-varying-records-on-student-loan-debt/2012/04/25/gIQAEP8BhT_blog.html :

The average University of Iowa senior in 2010 had loans totaling $27,391, higher than the national average of $25,250. The state of Iowa has one of the highest rates of student loan debt in the country ($29,598), just behind Maine ($29,983) and New Hampshire ($31,048).

Student loan debt is an issue that affects millions of people, even more so than credit card debt. For the Class of 2010, at least two-thirds of seniors took on some form of student loan debt. This debt is generally higher at private institutions than at public ones. Last year, the amount of outstanding student loans hit more than $1 trillion [Italics mine].

The biggest question, again not addressed in this or other articles is “What are students getting for their money”?  As importantly, “What are the states getting?”.  The argument for state, taxpayer-supported funds for education is that there should be maximum benefit to the state.  While there can be different opinions on what that benefit might be, few would argue that producing economically and civically viable students is of the highest priority.  While other arguments are posited – a college education, beyond the reach of most people in the earlier days of the nation, should be considered a right; college continues the process of institutionalized diversity, etc. – they should be far down the list.

A companion piece to the Post article entitled Differential Tuition addresses the cost issue in a different way, suggesting that higher tuitions should be charged for programs in high demand, such as nursing, business, and engineering.  This makes sense, for these courses will always be in higher demand than Comparative Literature for which there is no job market.  However if tuition rates and interest rates go up, most prospective students would be priced out of the market.  If interest rates alone were allowed to float into commercial territory, students would automatically choose the most promising and productive courses, forcing the universities to cut unproductive courses and maintaining reasonable tuition costs.

In short, raising interest rates to market values – that is, eliminating all federal subsidy programs – would force a quick and efficient reconfiguring of higher education to the benefit of both state and student.

The Post raises the issue of Pell Grants, suggesting that these should not come under any scrutiny and in fact be increased; and the argument in principle is sound.  There are many talented young people who cannot afford higher education.  Yet, if recipients of Pell Grants are allowed to use the money indiscriminately (as above selecting institutions and courses irrelevant to their own and the national interest), the money will be wasted.  If there are to be federal full-subsidy grant programs, then there must be certain conditions for their use.

Open Immigration -The Myth of Cultural Homogeneity

There have been a number of articles recently on the aging of the population of developed countries.  Some, such as the Manchester Guardian’s, below, focus on the economic consequences of declining birth rates and restrictive immigration policy, such as in Australia; while others, such as the New York Times’, discuss the more far-reaching changes in society caused by a distortion of the normal age distribution, such as in Japan.  Few discuss the major issue underlying the persistent and increasingly xenophobic demands for cultural purity.  Members of the old guard – the French who have for centuries viewed the country as a cultural and spiritual leader of Europe; traditional Japanese who have retained the ancient traditions of the Shoguns, strong family and societal structures, and Shinto and Buddhist principles; white, Anglo-Saxon Americans who trace their cultural lineage back to the Puritans and the Calvinist fundamentals of the new nation – all resist the changes that would result from a more pluralistic society.

The anti-immigration movement uses three arguments, two understandable, the other not so.  The first is economic.  Illegal Mexican immigration, it is often repeated in the United States, is depressing wages, adding to welfare roles, increasing public service costs, and increasing taxpayer burden.  This same scenario is played out in Europe with different dimensions.  France, Denmark and even socially tolerant Netherlands are realizing that the labor market can be, at least in the short run, altered, often with negative consequences for the native population. 

The second argument is that the rapid influx of immigrants will cause social unrest.  This has been especially true in Europe where Muslim immigrants from North and Sub-Saharan Africa are from vastly different cultures.  Worse, because of radical Islam, the demands of these marginalized and ghettoized populations become aggressive and dangerous.  They will not abide by white European traditions of assimilation and homogenization, and have been empowered to demand what they see are their civil rights. While this is indeed a problem, countries have been slow to realize the dimensions of the problem. 

Africans in France were largely concentrated, isolated, and mostly forgotten in the suburbs of Paris and other major cities.  Unlike in the United States where urban ghettoes are close, visible, and frightening, these poor and increasingly dysfunctional communities were far from the majority’s view.  Old-school French families in the tony 7th arrondissement went about their business shopping for fashion, wine, baguettes and cheese with little thought to the turmoil raging in Neuilly-sur-Marne, Aulnay-sous-Bois, and Trembley-en-France, neighborhoods with traditional names evoking a pastoral existence on the banks of rivers or under shading elms.  The French government ignored the simmering resentment and hostility until it was too late, and the suburbs erupted.  After a token expression of regret and conciliation, France is back to measures which will only further isolate, enrage, and harden these communities.

The third and most compelling argument is that immigration will destroy ‘traditional culture’ – our American way, our French way. But what exactly is the culture that these diminishing majorities want to extend? And how will a more diverse population diminish it?  Few people have convincing answers. America is the hardest to understand, since we are a country of immigrants, easily and quickly assimilated, and within one or two generations speak English and more importantly subscribe to the American work ethic.  The sons and daughters of Mexican, Guatemalan, Salvadoran, and Honduran immigrants want the same thing as ‘traditional’ citizens – to get ahead, to make money, to be a success.  No argument makes sense.  Most first or second generation Americans speak English.  All are Christian.  Few practice barbarous rites.  Yet the idea of a largely Hispanic population is still threatening.

The French cultural resistance is easier to understand but just as hard to accept.  France has always considered itself ‘The Elder Sister of the Catholic Church’ thanks to the valiant efforts of Charlemagne to keep the Muslim hordes out of France.  Because of its strong intellectual traditions, it has ascribed to itself a certain intellectual and cultural supremacy; and because of the past elegance and luxury of the French courts, it has preserved its national talents for fashion and cuisine.   When the French say that their culture is being perversely altered, it is likely to be comprised of these elements.  At least the French of the 7th arrondissement who have the money and social status to preserve them.  Not so for the vast majority of French who work in factories, ports, railroads, farms, and post offices throughout the nation.  For them – if they think about it – culture is more indefinable.  A café-cognac at the neighborhood bar, perhaps; or two- or three-stop shopping at the butcher, grocer, and baker.  In any case, both classes revolt in their own ways.

In any case French primacy in culture and the arts has long since suffered a decline.  The arts have moved across the Atlantic, futuristic innovations occur from California to India.  When one thinks of fashion, it is the runways of New York, Italy, or the boutiques of hipster San Francisco that first come to mind.  The world is smaller, more competitive, more integrated and more flexible.  The traditional French have not yet learned this lesson.

So, again, what is this culture that the French are trying to preserve? The current received wisdom is as old as the Revolution – “We are all French citizens, equal in being and opportunity”.  Within that official worldview, there are no boxes for race or ethnicity to be checked on census forms; no affirmative action; no cultural preferences.  The current policies to forbid hijabs and non-‘French’ cultural practices in public institutions are an extension of this principle. Yet no one – except traditional French – accept this principle any more.  Racial and ethnic differences, far from diminishing or dissipating, are increasing.  Only countries like Britain and the United States have realized this and accepted it.

What the French have not realized is that it is almost impossible for cultural traditions to expire because immigration is gradual.  If you travel to some of the ethnically diverse outlying neighborhoods of Paris you will find both boulangeries, charcuteries, and epicieries alongside felafel, couscous, and pita.  Second generation immigrants read Le Monde and Arab weeklies.

The point is that French cultural traditions will not disappear.  Many will be changed to incorporate non-European perspectives, and many will simply co-exist with newcomers. Countries all have certain characteristics which guide if not propel newcomers without their realizing it, or without banners being waved about cultural values.  America is and will always be ‘The Land of Opportunity’.  Regardless of who comes or goes, what political party is in office, the business of America is business.  All else – our fashion, cuisine, and artistic and intellectual endeavors – are secondary.  France – regardless of who come and who goes – should retain its high valuation of intellectualism and the high arts as necessary and welcome contributions to society (I say should because its radicalized Muslim immigrants hold views antithetical to even this generic principle). Germany will always be fundamentally Protestant in outlook. 

Yet, the older powers that be in the Elysee still retain an old-fashioned gestalt of Jean-Paul Sartre sitting at Le Café des Deux Magots – the Paris recently limned in Woody Allen’s recent Midnight In Paris.  As Allen concludes, every generation thinks the present one is worse than those past, and that there is greater sanity, value, and heroics then rather than now.  Immigration – refreshing the cultural and gene pool – is out.  Backward-looking, unrealistic policies are in. 

The problem is made infinitely more difficult because of the demographic profile of the very countries which are most defending conservative cultural values.  

Ross Douthat writes in the New York Times http://www.nytimes.com/2012/04/29/opinion/sunday/douthat-incredible-shrinking-country.html?_r=1 about Japan which because of extreme xenophobia and the almost insurmountable barrier of language continues to be hermetically sealed:

“THE Children of Men,” P. D. James’s 1992 novel, is set in a future where the world’s male population has become infertile, and an aging Britain is adapting to the human race’s gradual extinction. Women push dolls in baby carriages. Families baptize kittens. There are state-run “national porn shops” to stimulate the flagging male libido. Suicide flourishes. Immigrants are welcomed as guest laborers but expelled once they become too old to work. The last children born on earth — the so-called “Omegas” — have grown up to be bored, arrogant, antisocial and destructive.

James’s book, like most effective dystopias, worked by exaggerating existing trends — the plunge in birthrates across the developed world, the spread of voluntary euthanasia in nations like the Netherlands and Switzerland, the European struggle to assimilate a growing immigrant population.

“Gradually but relentlessly,” the demographer Nick Eberstadt writes in the latest issue of The Wilson Quarterly, “Japan is evolving into a type of society whose contours and workings have only been contemplated in science fiction.”

The expressions of this phenomenon are indeed scary:

These trends are forging a society that sometimes evokes the infertile Britain in James’s dystopia. Japan has one of the highest suicide rates in the developed world, and there were rashes of Internet-enabled group suicidesin the last decade. Rental “relatives” are available for sparsely attended wedding parties; so-called “babyloids” — furry dolls that mimic infant sounds — are being developed for lonely seniors; and Japanese researchers are at the forefront of efforts to build robots that resemble human babies The younger generation includes millions of so-called “parasite singles” who still live with (and off) their parents, and perhaps hundreds of thousands of the “hikikomori” — “young adults,” Eberstadt writes, “who shut themselves off almost entirely by retreating into a friendless life of video games, the Internet and manga (comics) in their parents’ home.”

Douthat suggests reasons for this phenomenon:

Japan is facing such swift demographic collapse, Eberstadt’s essay suggests, because its culture combines liberalism and traditionalism in particularly disastrous ways. On the one hand, the old sexual culture, oriented around arranged marriage and family obligation, has largely collapsed. Japan is one of the world’s least religious nations, the marriage rate has plunged and the divorce rate is higher than in Northern Europe.

Even despite these frightening trends, Japan refuses to admit immigrants.  In other words, the dark, foreboding handwriting is on the wall, and no one is willing to even look at it, let alone read it.

Other countries like France and Australia have offered incentives to the native population to reproduce.  A recent article in the Guardian http://www.guardian.co.uk/commentisfree/2012/apr/28/ageing-australia-young-immigrants reports:

Policymakers in Australia have to balance the public's desire for continued tightening of immigration controls versus maintaining a steady population growth against a background of an ageing population. It is predicted that by 2036 more Australians will be retiring from the labour force than joining it. By 2050 there will only be 2.5 working Australians for every citizen over 65 – in the 1970s that figure was 7.5. The main solution policymakers seem to have come up with is to throw money at the problem.

In 2002, perhaps in response to Australia's Total Fertility Rate (TFR) reaching an all time low, the government introduced a baby bonus scheme. For every child born or adopted by a citizen or permanent resident of Australia the government will award them $5,000. Australia's TFR has risen since then, yet it still remains below replacement levels of 2.1 births per woman. If the baby bonus wasn't enough, the government is now introducing a jobs bonus, where employers will be offered $1,000 for each employee they hire and retain over 50 years of age. These seem like desperate measures from a government running out of ideas.

Desperate measures indeed, and not even well-conceived.  Anyone who has had children and who takes childrearing seriously knows that the $5000 is nothing compared to the lifetime investment in a child; and for those who have children indiscriminately, the money is wasted.

In conclusion, the battle over immigration is superficially one about jobs, tax burdens, and social divisiveness; but it is really about preserving a perceived way of life, a Woody Allenesque romantic dream of Le Temps Perdu. Yet the greatest vitality of cultures comes from their inclusiveness; and for those who are worried about making a buck or where to get their baguettes, those timeless truths will never change.

Thursday, April 26, 2012

Recipes–Pappardelle a la Crème

Pappardelle – thin, long, wide egg noodles – are a bit difficult to find and you can easily use fettucini.  However, pappardelle are special because when made the Italian way are almost translucent, delicate, and flavorful on their own; and it is a special treat to use them.

The foundation for the recipe is a simple cream sauce – that is a mix of cream, sour cream, and yoghurt; and the other ingredients can be either beef, pork, or sausage.  Especially when made with pork or sausage, this dish is classically Tuscan.  The following recipe is for beef or pork.  I will discuss sausage later.

Pappardelle a la Crème

1/2 lb. pappardelle (they usually come in half-pound packages, enough for two people

3/4 cup half-and-half

2 Tbsp. sour cream

1 Tbsp. whole milk yoghurt

1/4 lb. lean beef or pork, chopped by hand into small (1/8” pieces)

1 tsp. thyme

1 tsp. oregano

1 tsp. rosemary

3 lg. cloves garlic, chopped medium-fine

2 Tbsp. olive oil

Salt and ground pepper

1/4 cup freshly grated parmesan cheese

- Sautee the garlic and spices in the olive oil for about 8 minutes

- Chop the meat and add to the sautéed spices

- Cook until the meat is thoroughly cooked, but not dry and overcooked, about 10 min.  Stir frequently to assure even cooking

- Add the cream, sour cream, and yoghurt, and stir well.  Add about 10 grindings whole black pepper.  Simmer for about 15 minutes stirring occasionally.  Adjust for taste

- Cook the pappardelle which should require about 5 minutes, but check for al dente

- Serve over pappardelle, add grated cheese, and few grindings of black pepper and serve.

Sausage is particularly tasty with this recipe.  Take two Italian-style sausages, hot or mild to your taste, and remove the meat from the casings.  Then follow the recipe above, sautéing the sausage in olive oil and garlic,  but do NOT add any spices since the sausage is already spiced. 

Chicken Retirement

Uncle Guido has always been amazed at the ‘Love Your Chicken’ movement in the United States.  He has wondered, mouth agape, at the fawning (or chickening) over poultry, especially in Portland which has led the way in over-the-top bleeding heart misplaced feelings for them.  There was a restaurant in Portland reported on not long ago in which chickens were guaranteed to be coddled (this is a great way to eat eggs, by the way) from birth to ’passing over’.  Each chicken served in the restaurant had been given a name, so to the familiar routine of “Hi, guys.  My name is Bruce, and I’ll be your server tonight” was added, “And your chicken tonight is Bob”.

A new report in the generally respected New York Times, is about chicken retirement in Portland http://www.nytimes.com/2012/04/26/us/new-homes-beckon-for-city-chickens-in-retirement.html?

Hindus regard the chicken as a vessel for evil spirits. The Chinese cook them to honor village deities. But here, chickens are a symbol of urban nirvana, their coops backyard shrines to a locavore movement that has city dwellers moving ever closer to their food. And the increasingly intimate relationships have led some bird owners to make plans for their chickens’ unproductive years. Hence a budding phenomenon: urban chicken retirement.

We all agree this is ridiculous, but it is important to deconstruct this paragraph a bit:

* Hindus may regard the chicken as a vessel for evil spirits, but will Murgh Masala get rid of them?

* Were the Chinese deities also chickens?  The point is not made clear

* How much closer to food are locavores trying to get?  Should they live with them?  This would give a new twist to the old saying, “You’ve made your bed.  Now lay in it”.

Here is how the Portland scheme works:

While many Portlanders still pluck aging birds for the broiler, others seek a blissful, pastoral end for them. Because most chickens lay the majority of eggs early in life, and can live about 10 years, the quest for a place where chickens can live out their sunset years has brought a boom to at least two farm animal sanctuaries and led Pete Porath, a self-described chicken slinger, to expand the portion of his business that finds new homes for unwanted birds.

“I would say I’m a halfway house for chickens on the move,” he said.

This is American entrepreneurial spirit at its best – finding a market niche and exploiting it.  Portland locavores, seeing their pullets move on into their infertile years, pay Mr. Porath to take them away and give them happy sunset years. This enterprise has spun off others.  Lawyers as usual have gotten into the game:

Karen Wolfgang of Independence Gardens, a consulting firm that helps clients build sustainable gardens, has meanwhile become an expert on end-of-life issues for chickens. She teaches a course to help urban farmers plan a wholesome end for their chickens, including referrals to retirement farms.

End-of-life issues, Uncle Guido presumes, are significant.  For example, there must be government regulation of chicken retirement homes, just as it regulates old people’s homes.  The regulation would specify chickens’ rights.  Although it hardly seems possible that a chicken could get any dumber, the issue of Chicken Alzheimer’s has raised its ugly head.  Retirement home staff have to be given special training to recognize Chicken Alzheimer’s.  The signs are not obvious.  Memory loss? Just about all other animals – songbirds, dogs, pigs, horses – have the ability to memorize some basic words or instructions.  Chickens, with their pea brains are waaaaay more stupid and just peck and squirt anywhere anytime.  Imagine this: “Come here, Daisy, come to Daddy.  Atta girl!” You can’t imagine it because it is unimaginable.

Incontinence?  Refer to the above about pecking and squirting.  Disorientation?  Have you ever seen chickens bob and weave around the barnyard with no sense of any direction or purpose?

The abuse of old people in institutions is well-documented.  Poorly-educated, poorly-paid, barely literate women from the Third World surely lose their patience quickly.  I once heard a Jamaican woman telling a patient that she had to get up for her physical therapy – at least that’s what I thought she was saying; but her Island English said something entirely different.  “It don’t take no phy-si-cal ex-er-shun”, she lilted and sang, “To take a bloody di-ur-eh-tic”.  The poor patient could barely make sense out of Fox News let alone Dorothea Levy.

So, you can imagine the abuse of chickens.  Which makes you wonder who does Mr. Porath employ?  “Instead of going upscale”, he said, “I go down.  My workers have to be as….” Here he paused, obviously trying to phrase his comments delicately for the press.  “…intellectually challenged as the chickens.”  It must be a real circus in there.

Not only does Mr. Porath have to intend with government regulations on client care, hygiene (whew! can you imagine that job?), space requirements, and ventilation (All chickens stank, but old chickens really stank), he has to put up with former chicken owners.  Actually they are not called ‘owners’ because that is too insensitive; and the  preferred term is ‘colleagues’).

These former colleagues have treated their chickens to a high-and-mighty life style, and get all pissy if Daisy is not getting her due:

They have personalities,” [a former owner/colleague] explained. “And they each have different ways of interacting with you, and they make different sounds.”

Mr. Finley said the five birds he now owns are a home-based food source that complements a vegetable garden. But they are also pets, he said, part of a family that includes his partner, Ray Frye, two dogs and two cats.

“We name them and we hold them,” he said. “I know it sounds kind of crazy, but we kiss them.”

The couple also buy toys for their chicks, and enjoy watching the older birds jump for Cheerios and chase one another around the yard.

Their stunning multilevel chicken coop was featured in the 2011 Tour de Coops in Portland. The event showcases the most spectacular of bird lodgings. Last year’s featured coops sported green roofs, rainwater systems and towers with panoramic views

Please note the comment of Mr. Finley: “I know it sounds kind of crazy, but we kiss them”.  In America, anything goes, so Uncle Guido is not at all surprised at the kissing part, he just wonders where and how.  Chickens are pretty much all feathers and beak and they do a lot of twitching.  In an off-the-record comment to the Times, Mr. Finley admitted that he held them in his arms, pinning the head to his chest and giving it a light peck.  “Nothing sexual here”, added Mr. Finley.  “All very above board.”

In any case, these former owner/colleagues are always at the Retirement Home, almost as bad as liberal parents who send their kids to a shitty public school on principle, then spend hours each week supervising bad teachers.  “Why aren’t you giving Daisy more stimulation?”; or “I don’t think Daisy is not getting enough quality time”. 

Apparently the burn-out rate for caregivers is extremely high, and who can blame them?

Now for the elephant in the room question: “What happens to the retired chickens when their time to pass over has come?”.  Is life support removed, and if so, who gives permission?  Are they allowed to just flap around one last time, pirouette in the dust, and drop dead – a death as natural as they come?  What happens to the remains?  Uncle Guido doesn’t want to even begin to contemplate chicken cemeteries, but he assumes they are there.  And the tombstones?  “Here lies Daisy, our beloved colleague, who left this life after ten glorious years.  She leaves 3420 children and 10,223 grandchildren.  She will be missed”.

Tuesday, April 24, 2012

Competition vs. Innovation

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

David Brooks has written an interesting article in today’s (4.24.12) New York Times about the difference between competition and innovation; or more accurately, how a competitive environment, far from stimulating innovation, discourages it.  http://www.nytimes.com/2012/04/24/opinion/brooks-the-creative-monopoly.html?_r=1&ref=opinion He cites the example of Peter Thiel who initially went the competitive route, moving quickly and easily up the legal ladder from one competitive institution to another.  Only when he hit his first and only brick wall – he was refused a Supreme Court judgeship, did he reflect and go back to his initial, creative Stanford roots.  He founded PayPal.

The argument about competition trumping innovation makes immediate sense – once you are in a commercially competitive environment, whether your own start-up or working within a larger firm, you tend to become focused on the incremental changes that will keep you just ahead of the competition, increasing market share by fractions.  You lose the desire or motivation to think within a revolutionary world of big ideas.

One of his core points [Peter Thiel, the subject of the article] is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.

In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.

I have written a post recently on how innovation recedes once creative people enter big business (Innovation – Why Facebook Had To Pay $1b For Instagram).  In it I argued that the creative people emerging from Stanford or MIT with a great idea quickly get co-opted by big business.  In the case cited, Instagram got bought up by Facebook; but as the Brooks article illustrates, even if Instagram had remained small and independent, the innovative ideas that they brought with them from the insulated rarified air environment of academia, would soon dissipate and get transformed into much smaller, less creative but more financially rewarding increments.

Thiel expands on his theory:

Think about the traits that creative people possess. Creative people don’t follow the crowds; they seek out the blank spots on the map. Creative people wander through faraway and forgotten traditions and then integrate marginal perspectives back to the mainstream. Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows.

Now think about the competitive environment that confronts the most fortunate people today and how it undermines those mind-sets.

First, students have to jump through ever-more demanding, pre-assigned academic hoops. Instead of developing a passion for one subject, they’re rewarded for becoming professional students, getting great grades across all subjects, regardless of their intrinsic interests. Instead of wandering across strange domains, they have to prudentially apportion their time, making productive use of each hour.

Then they move into a ranking system in which the most competitive college, program and employment opportunity is deemed to be the best. There is a status funnel pointing to the most competitive colleges and banks and companies, regardless of their appropriateness.

Brooks sees the inevitable move of these talented students to competitive big business like the move of idealistic social reformers who go into politics – the same need to think down and small, incremental changes required by competition and market share: 

[Students] move into businesses in which the main point is to beat the competition, in which the competitive juices take control and gradually obliterate other goals. I [Brooks] see this in politics all the time. Candidates enter politics wanting to be authentic and change things. But once the candidates enter the campaign, they stop focusing on how to be change-agents. They and their staff spend all their time focusing on beating the other guy. They hone the skills of one-upsmanship. They get engulfed in a tit-for-tat competition to win the news cycle. Instead of being new and authentic, they become artificial mirror opposites of their opponents. Instead of providing the value voters want — change — they become canned tacticians, hoping to eke out a slight win over the other side.

Competition has trumped value-creation. In this and other ways, the competitive arena undermines innovation.

Neither Brooks nor Thiel have any answers, but conclude:

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

Everybody worries about American competitiveness. That may be the wrong problem. The future of the country will probably be determined by how well Americans can succeed at being monopolists.

This is a tall order.  The clash of cultures – thinking big and creatively, focusing on revolutionary inventions and taking big risks vs. thinking incrementally – is unlikely to be resolved.  At the same time, visionaries do come along and not that infrequently.  Bill Gates, Steve Jobs, Sergei Brin and Larry Page, and Mark Zuckerberg are products of our current generation.  The personal computer, easy access to the Internet, powerful search engines, and social networking were revolutionary ideas; and while Microsoft, Apple, Google, and Facebook are now focused on predictable incremental changes, they all began with the pure, creative, innovative idea of their founders.  All of them developed their ideas ‘in cramped garages’ or in the labs of graduate school.  Each had a vision, a passion, superior intelligence, and a powerful desire to succeed.

The conclusion is not that large corporations can be reformed to become innovative laboratories – even Google’s famed secret research facilities are focused on the incremental changes that will make their search engine progressively more powerful – but that creative geniuses will always out if they have the right environment in which to develop their ideas; and that environment begins in kindergarten.

The current primary and secondary education systems do not favor creativity, innovation, or risk-taking; and favor the least-advantaged over the most promising.  Many public universities have become diploma mills, lowering standards to promote diversity, and tightening their academic offerings because of limited taxpayer funding.  Only fundamental structural reform can begin to reorient education to encourage what has always been America’s long suit – innovation. In order to turn out a slew of the likes of Bill Gates, Steve Jobs, and Sergei Brin, the way we educate those promising students must radically change.

The elite institutions which have provided the intellectual environment in which these innovative geniuses have flourished – Harvard, MIT, Stanford (which seems a particularly rich breeding ground for innovation) – are national treasures and should be the model for educational reform as should the few public universities like Berkeley which approximate the intellect- and intelligence-rich student bodies of the best private schools.

In America, perhaps especially during an election year, charges of elitism abound; and yet it is from those elite institutions of learning that the best and the brightest emerge.  There is something sniffy in our reaction to the overwhelming number of Ivy League graduates in the White House; and yet the mission of these institutions is not to teach learning but thinking.  I recently had a look at the Harvard ‘Red Book’ published for each class before decade reunions.  It is not only remarkable to see the impressive career paths of most students, it is their risk-taking and innovation.  The number of career changes was significant.  These students were confident enough of their abilities and had been trained to think large, that such changes, intimidating to some, were completely reasonable.

America will always be a creative, innovative nation; but there is no better time than now to rethink our institutions and to reorient them towards the future.  The renewed culture of individualism is not the anti-progressive phenomenon pilloried by the Left.  On the contrary not only is it the promise of the future, it is the future.  The relationship between the individual and the state, business, religion, education, and politics is changing dramatically as responsibility and accountability are shifted from corporate structures to the individual.  It is time to value the individual in a more complete and comprehensive way, and move from the simplistic and conventional view of freedom, liberty, and independence to a more comprehensive and nuanced one which sees the individual as a productive economic unit.

Saturday, April 21, 2012

The Decline Of American Institutions And The Rise Of Individualism

An article in the Atlantic had described the decline of American institutions – church, government, school – and has referred to the increasing alienation of those who have not adapted to a world ‘without’ them.  This alienation, the author proposes, is the reason why this disaffected group has turned away from the Democratic party which used to be the party of help and support to the middle class.


However, institutions always have and always will exist.  It is just that in the 21st Century there has been such a radical transformation of them from brick and mortar to cyberspace, it seems as though evolution has speeded up and little time has been afforded ordinary citizens to adapt.  Nevertheless, evolution is unstoppable, and most of the changes in our institutional framework have been good.

Whitmire [the subject of the article] is an angry man. He is among a group of voters most skeptical of President Obama: non-college-educated white males. He feels betrayed -- not just by Obama, who won his vote in 2008, but by the institutions that were supposed to protect him: his state, which laid off his wife; his government in Washington, which couldn't rescue homeowners who had played by the rules; his bank, which failed to walk him through the correct paperwork or warn him about a potential mortgage hike; his city, which penalized him for somebody else's error; and even his employer, a construction company he likes even though he got laid off. "I was middle class for 10 years, but it's done," Whitmire says. "I've lost my home. I live in a trailer now because of a mortgage company and an incompetent government."

Mr. Whitmire has not kept pace with rapid change.  In these days of deficit, debt, and suspicion of inefficient government programs, an FDR government is impossible – unthinkable in fact.  ‘Protection’ is now increasingly an individual matter and the word ‘trust’ is fading from the lexicon.  Not only does Mr. Whitmire not know where to turn – that is who will support him in his time of need – he does not realize that the institutions that did that are disappearing.  Moreover, in this new brave and harsh world, he realizes he does not know whom to trust.

This, however, is not a failure of institutions; it is the unfortunate failure of individuals like Mr. Whitmire, with relatively little education and isolated from the larger arena in which structural changes are debated and effected.  He knows that his rock-solid, marble-and-Corinthian pillared local bank is no longer, but he has no clue about entering the new financial world of complex investments – a world, which if understood, would reward him more than the marginal interest rates paid on savings.

He is dismayed at the decline in local public education, but as in the case of banking, is ill-equipped to navigate the increasingly complex world of vouchers, charters, for-profit education companies, and home-schooling which could offer him a better education than the one he has relied on. 

Mr. Whitmire sees empty pews in his traditional church, but feels emotionally and socially ill-equipped to move to the more dynamic and socially-attuned alternative churches in which an alien form of religion is practiced.  He does not realize that these churches are far more in tune with a media-focused, socially networked, and highly individualized congregation.  Moreover, they are particularly suited to the 21st century and could afford the support he is looking for:

Union Chapel's pastor, Gregg Parris, speaks in phrases you'd expect from an M.B.A. ("I'm in the word business") or a sociologist ("We're going from a Gutenberg world to a Google world"). He keeps his sermons simple because "you can't assume everybody knows the Lord's Prayer," and he strives to make the liturgy relevant to life's challenges. His church offers counseling for depression, anxiety, eating disorders, marriage problems, alcoholism, and sexual abuse. Union Chapel heavily promotes its social clubs to buoy connection-starved people. The services are casual, hip, and focused on middle-class Muncians who feel abandoned amid economic change. "My job," Parris says in an interview at his office, "is to fill in the gaps where our institutions have failed us."

In short, there is nothing intrinsically wrong with the decline of traditional institutions because they will always be replaced by others which simple include, organize, and serve people in different ways.

Government, politics, corporations, the media, organized religion, organized labor, banks, businesses, and other mainstays of a healthy society are failing. It's not just that the institutions are corrupt or broken; those clichés oversimplify an existential problem: With few notable exceptions, the nation's onetime social pillars are ill-equipped for the 21st century. Most critically, they are failing to adapt quickly enough for a population buffeted by wrenching economic, technological, and demographic change.

This statement is almost right, but fundamentally off-key.  It implies that old institutions are simply ‘ill-equipped’ for the 21st century, and that they are failing to adapt and to serve their old constituency.  It is not that the old institutions have to be reformed; it is in the nature of social evolution that they be replaced.

Much has been written about the hopelessness of the inner-city ghettoes – places which have been left in the backwaters of the mainstream – but little has been written about the hopelessness of the Mr. Whitmires of the country who feel the same sense of despair and aloneness.

The answer to both – to the dismay of those like Mr. Whitmire and his political allies who still feel there is a role for big government – is individual economic and especially intellectual enterprise.  This is a matter of necessity, not programs.

The example of Eastern Europe is a good one although not exactly homologous to the one of the white middle class addressed in this article.  I worked in Romania right after the fall of Ceausescu.  It was a period when all the supports of communism, however feeble and inadequate, were dismantled, destroyed, or removed.  The very intellectual foundations of society were broken in one blow.  The principles espoused by communism – a supposed no-class, egalitarian society which depended on the state for everything – were gone.  People were individuals responsible for their own well-being and in competition with others for it.  European and world history as taught had to be relearned according to fact rather than to ideological perspective. The same scenario repeated itself throughout the region, and Poles, Bulgarians, Macedonians, and Ukrainians faced the same challenges.

Now, a little over twenty years since the purging revolutions of the 90s, these countries and their citizens have quickly changed.  It is a remarkable story of human adaptability, courage, persistence, and intelligence.  What made the challenge even more difficult was that these countries had to make the leap from the 19th century to the 21st in a few years.  There was certainly a dalliance with old-style institutions such as the Church which, especially in Poland, had been a heroic supporter of revolution, but in general the young people look to cyber-institutions just like their Western European counterparts.

The point is in the sink-or-swim environment of post-Communist Europe, most people swam.  At the beginning Romanians turned to their rural relatives for food, some of which they sold.  When the exchange rates were freed up, their little revenues, turned into dollars, bought foreign goods which were sold at a higher profit.  First there were sidewalk vendors, then kiosks, then stores, then superstores.  Few young people talk in Communist-speak but in the language of MBAs, Google, Mark Zuckerberg, and Apple.

The author cites recent history to suggest that this social dislocation has happened before:

We've been through this before, and Muncie is again instructive. Nearly nine decades ago, sociologists Robert and Helen Lynd moved here to document the transition away from an agrarian economy. Americans were battered by unbridled commercialism, stymied by an incompetent government beholden to special interests, and flustered by new technologies and new media. The Lynds found a loss of faith in social institutions.

But, somehow, institutions adapted or gave way to vibrant new ones. The Catholic Church took on poverty, illness, and illiteracy. The Progressive movement, embodied by Theodore Roosevelt, grappled with the social costs of modernization and equipped the government to offset them. Labor unions reined in the corporate excesses of the new economy. Fraternal organizations, a new concept, gave people a sense of community that was lost when knitting circles and barn-raisings died out.

Once again, the author is right, but still off-key.  Old-fashioned adaptability – e.g. the Catholic Church becoming more socially-attuned, or new social groupings such as labor unions constituted and organized to play an advocacy role – is not the issue here.  These institutions corresponded to an old social order – one in which social organizations were still given primacy for support and progress over the individual.  Today, that paradigm has been reversed.  It is the individual increasingly responsible for his/her own destiny and well-being.   Also, the move from an agrarian society to an industrialized one happened in glacial terms relative to the quantum leaps in social interaction today.  Not only has the paradigm shifted from communal to individual; and not only have old institutions been replaced by new ones; the pace of change has been staggering and hard to deal with by many.

When people trust their institutions, they're better able to solve common problems. Research shows that school principals are much more likely to turn around struggling schools in places where people have a history of working together and getting involved in their children's education. Communities bonded by friendships formed at church are more likely to vote, volunteer, and perform everyday good deeds like helping someone find a job. And governments find it easier to persuade the public to make sacrifices for the common good when people trust that their political leaders have the community's best interests at heart. "Institutions -- even dysfunctional ones -- are why we don't run amok in the woods," Hansen says.

The word ‘trust’ again has become archaic.  It is no longer a question of trusting institutions; it is developing the skills to deal with a highly competitive world where opportunities must be identified among vying companies and contracts negotiated individually.  ‘Trust’ on Facebook is a non-term; protection of privacy is.  That is, we the FB consumers lobby as online individuals to assure that our information is not too seriously violated.  We don’t want or need to ‘trust’ Facebook.  We need to keep them in line.

This is not to say that all traditional institutions have gone or will go.  Government, for better or worse, will be around for a long time; but it will be reduced in scope and intent, and in particular its relationship with individual citizens will be redefined.  We will still need police and fire departments.  We may or may not need the old-fashioned groupings the author describes to ‘perform good deeds’, although it is unimaginable that such groupings will not be increasingly virtual.

I have sympathy for Mr. Whitmire, for it is unlikely that he will survive the upheavals in American society without pain and difficulty.  He is too old, too uneducated, and too isolated to even make a decent go of it.  His income is just too high for the safety net.  He does not know where to turn.  He will be a casualty of the revolution. 

At the same time, the younger, better-educated, urban generation will not only do quite well, but they will thrive.  They see social networking as the key to individual learning, expression, and influence.  They see online commerce, political action, and religion as liberating.  They anticipate the coming interface between mind and computer as ultimately fulfilling; and synthetic genetics as even more revolutionary in terms of human nature and society as anything ever before.

In conclusion, I am sorry for Mr. Whitmire, but happy with the substantive structural changes that are occurring.  Not only are they inevitable – life is nothing but change – but they promise a level of individual and social fulfillment that only has been dreamed of.

Thursday, April 19, 2012

America–A Christian Empire

In a book review in The New Republic, Michael Kimmage discusses the premier role that religion, and in particular Christianity, has had in American politics since the founding of the nation  http://www.tnr.com/book/review/sword-spirit-shield-faith-andrew-preston, and perhaps the most interesting observation is the following:

Seeking to explain why “U.S. foreign policy has often acquired the tenor of a moral crusade,” Preston first turns his attention to the seventeenth century. Avidly Protestant, “the American colonies never underwent a counterreformation,” he observes, and they waged almost continuous war against enemies deemed theologically other—i.e. Catholics and Native Americans. These Christian soldiers prided themselves on fighting holy wars, regularly fitting themselves into Old Testament patterns, the New World’s Israelites imbued with “a consistent belief in America as a chosen nation and in Americans as a chosen people.”

This is of particular interest and importance because that sentiment is as true today as it was in 1776.  The Neo-Cons of the Bush Administration went to war in Iraq, among other, more practical geopolitical reasons, because of a deep-seated belief in the rightness of American democracy, our vision of freedom and individualism, and the anointed role we have in promoting it.  American ‘exceptionalism’ is a result of our fundamental religious beliefs:

American exceptionalism refers to the theory that the United States is different from other countries in that it has a specific world mission to spread liberty and democracy. In this view, America's exceptionalism stems from its emergence from a revolution, becoming "the first new nation,"and developing a uniquely American ideology, based on liberty, egalitarianism, individualism populism and laissez-faire. This observation can be traced to Alexis de Tocqueville, the first writer to describe the United States as "exceptional" in 1831 and 1840.Historian Gordon Wood has argued, "Our beliefs in liberty, equality, constitutionalism, and the well-being of ordinary people came out of the Revolutionary era. So too did our idea that we Americans are a special people with a special destiny to lead the world toward liberty and democracy.” (Wikipedia)

Although Tocqueville may have been the first to observe and chronicle this phenomenon, its roots are thoroughly Puritan and Calvinistic.  Kimmage goes on to write:

Going forward, Preston [the author of the book Kimmage is reviewing] accents the Protestant origins of the American Revolution. London was equated with Rome, and “the new political order [in America] newly codified a very old and very Protestant tradition of hostility to arbitrary power,” Preston observes. American historians have outdone themselves in analyzing the Founders and the Enlightenment, the legacy of Hume and Montesquieu in American political thought. Preston notes that “Adams, Washington, and especially Jefferson cited Milton to justify or explain their political views,” citations that reflect the rise of an American-style Christian republicanism. In the place of an established church, and opposed to the Church of England, not to mention the Church of Rome, was the first amendment to the constitution.

Both Milton and Jefferson “derived their coherence from their Creator” (Camus), and the Declaration of Independence’s citing of inalienable rights of life, liberty, and the pursuit of happiness were inalienable because they came from God.

The book not only describes America’s religion-based national and international imperialism, but what the author describes as its ‘double helix’ whereby both expansionist and humanitarian sentiments are part of our national DNA”

The double helix has two strands. One strand entails the melding of Christian sentiment with state power, through diplomatic maneuvers and the waging of war. This is the sword of the spirit, cherished by the Puritans and by George W. Bush alike. The other strand inverts the ideal of the church militant, appealing instead to a Christian hunger for international peace, for the beating of swords into ploughshares, for a fraternity of nations liberated from war...

Antiwar movements would continue to emanate from New England for centuries to come. In antebellum America, Christian republicanism nurtured the abolitionist spirit, and the Civil War was (among other things) a war over the proper relationship between the Christian faith and the American polity..

FDR’s was a “serene spirituality,” and no less tenacious for its serenity. Synthesizing centuries of historical experience, FDR held “the Christian republican view that religion was the source of democratic freedom because it was the source of conscience and private belief,” Preston writes. Roosevelt pushed this conviction in an ecumenical direction. Catholics and Jews were invited to participate in an American project sure to outshine the authoritarian evils of Nazi Germany and imperial Japan.

An extension of this religious-based conviction to promote peace and harmony not written about in the article (and presumably not the book) is America’s ‘humanitarianism’, also a component of exceptionalism.  We, the anointed nation, have the responsibility for bringing enlightened civilization to the rest of the world, for alleviating poverty and misery.  Our foreign aid program, although very geopolitical in nature, is fueled by the belief that democracy and liberty, God-given in nature, must be extended to the rest of the world.  There is a missionary zeal, therefore, in our attempts to reform authoritarian governments, to extend political representation and civil liberties. 

We are not simply extending a viable political system.  We are extending fundamental religious principles.  The focus of the Founding Fathers on individual liberties was not only a reaction against the tyrannies of Europe but a statement of the Calvinist belief in a personal relationship with God.  Communism and other statist regimes are particularly odious because they limit the ability of the individual to seek spiritual fulfillment if not salvation. 

The French also had a ‘mission civilatrice’ – a mission to bring French civilization to the rest of the world, but they were propelled more by secular traditions of ‘liberte, egalite, et fraternite’ and as importantly the preeminence of the French intellectual, literary, and artistic traditions than by any religious sentiment.  Although many of the goals of the mission may have coincided with the French, ours was unmistakably religious in origin.

Our foreign humanitarian programs are derived from the same religious foundation.  Such concerns always trump realpolitik because it is considered un-Christian to refuse to offer help to those who need it.  When I challenged the NGO I worked for on its decision to work in Burma under the generals – providing additional and free resources to a corrupt and tyrannical regime would only serve to strengthen its power, I argued – I was told, “Perhaps, but there are starving children in the country”.  I used the same argument to reject the NGO’s rush to work in Mugabe’s Zimbabwe, but again was rebuffed. 

This scenario has played itself out over and over again.  There is no good reason to continue to prop up corrupt and self-serving regimes with grants and soft loans.  History has shown that few of the essential political, economic, and financial reforms necessary for real self-sufficiency and progress are ever adopted regardless of the ‘conditionalities’ or externally-funded donor programs; but we keep giving money because of ‘the children, the suffering, and the disadvantaged’.  A better outcome for these vulnerable groups would certainly ensue from more objective policies designed to wean irresponsible countries from foreign assistance; but our Christian conscience gets in the way every time. 

The influence of religious conviction within American politics has never been stronger, as evidenced by the recently-concluded Republican primaries.  Thinly veiled in conservative political arguments is the belief that America is a Christian country, and even though it may now be populated by increasing numbers of non-Christians, the religious principles of freedom of expression, respect for life and liberty, and the right to know God on a personal basis have not changed. 

One further aspect of Protestant and particularly Calvinistic theology that is often overlooked is that of predestination.  We are all predestined by God for salvation or damnation.

Calvinism's most distinctive dogma is the doctrine of predestination. Good works were not a means to salvation, but they were a sign of having been chosen.

Wealth has always been an indicator of material and spiritual success ever since the founding of the republic.  Therefore the link between individual liberty, freedom of religious expression, and the pursuit of happiness through individual labor has always been a strong one.  One of the strongest arguments used in the North against the South in the antebellum period was that of free labor.  It was against good Christian principles to sit back and become wealthy without working for it as the plantation owners of the South did.  Not only was slavery wrong, but so was the principle of riches without toil.  Of the many sentiments that Lincoln felt about slavery, free labor was perhaps the strongest.  Slavery denied slaves rewards for their work; and permitted slave owners to benefit from others labor without investing any of their own.

Although the Biblical parable of the camel and the eye of a needle is often recited; and although Catholic Popes may argue for Christian charity and a rejection of materialism, Protestant theology reins.  Conservative politicians are very right in assuming that the pursuit of individual riches is the lowest common denominator of American society, a principle to which all newcomers aspire and soon espouse.

The book is a welcome addition to the sociological literature concerning religion in America especially because it focuses on the historical antecedents of modern religious fervor and commitment.  We started as a religious nation and our politics have been guided by Christian principles throughout our history.

Tuesday, April 17, 2012

Target Knows You’re Pregnant–And You Never Told Them

The United States has always been at the forefront of consumer marketing, and given the high rewards for a tiny percentage shift in market share, the stakes are high.  Communications technology, and in particular the software that allows everything that is transacted electronically – credit card purchases, email, Facebook posts, cell phone calls and texts, GPS positioning, surveillance camera records – to be captured, stored, and ultimately used to micro-target consumers.

This collection of raw data, however, is nothing if not organized to create useful consumer profiles.  In some cases this is easy.  Amazon routinely tracks your purchases, allowing them to predict which new books and music you might like.  Netflix has offered substantial prizes for the development of new ‘preference software’ so that it can suggest what movies might appeal to your tastes. 

However, these companies and others like them are not content with simply using user rankings.  The traditional way for Netflix was to build better film recommendations was to ask each user to rank hundreds films seen, thus building a personal profile.  This use of internal information was helpful, but confining.  However, if Amazon knew what online news sources you read, it would have additional external information about your preferences and would therefore be able to enhance your reader profile.

Data sharing is big business.  Facebook, Google, Yahoo, and other online companies that have access to vast amounts of information about you, sell this information to companies who want to sell to you.  People put all kinds of interesting things on Facebook.  One of my FB friends has had an ongoing post about remodeling his kitchen, information that Lowe’s would love to have.  They can see what kind of fixtures, lighting, tiling Mr. Fixit is using, get contact information from his profile, and send him direct mail about Moen sinks at discount prices. 

Hundreds of millions of emails are generated each hour, and Google through Gmail reads them all using algorithms to check for keyed items.  If you are writing a friend about Turkish rugs, either you will see an ad for Hartoonian Carpets or Hartoonian Carpets will have paid Google for the privilege of getting information about you so that they can contact you directly.

In a recent article in the New York Times, the author described the experience of  Target which has been successful in knowing you even better than your own family.  They have gotten so good at creating consumer profiles, using their own store data but increasingly relying on the other sources mentioned above, that they can not only tell who is pregnant, but what trimester they are in. 


Pregnancy is particularly important for Target because it is one of the times when people break out of traditional buying habits.  Most purchases are done by rote – buying coffee and not tea; buying a particular brand of coffee; choosing the same cereals, etc. – but habit is broken at the time of key events, like divorce or pregnancy.

In the 1980s, a team of researchers at UCLA undertook a study of peoples’ most mundane purchases, like soap, toothpaste, trash bags and toilet paper. They learned that most shoppers paid almost no attention to how they bought these products, that the purchases occurred habitually, without any complex decision-making. Which meant it was hard for marketers, despite their displays and coupons and product promotions, to persuade shoppers to change.

But when some customers were going through a major life event, like graduating from college or getting a new job or moving to a new town, their shopping habits became flexible in ways that were both predictable and potential gold mines for retailers. The study found that when someone marries, he or she is more likely to start buying a new type of coffee. When a couple move into a new house, they’re more apt to purchase a different kind of cereal. When they divorce, there’s an increased chance they’ll start buying different brands of beer.

Consumers going through major life events often don’t notice, or care, that their shopping habits have shifted, but retailers notice, and they care quite a bit. At those unique moments, Andreasen wrote, customers are “vulnerable to intervention by marketers.” In other words, a precisely timed advertisement, sent to a recent divorcee or new homebuyer, can change someone’s shopping patterns for years.

And among life events, none are more important than the arrival of a baby. At that moment, new parents’ habits are more flexible than at almost any other time in their adult lives. If companies can identify pregnant shoppers, they can earn millions.

The issue for Target, however, was not to get to the consumer after she had her baby, but before.  Everyone has access to public birth records, but if Target could identify pregnant women early and market directly to them, they would have a significant competitive advantage:

Because birth records are usually public, the moment a couple have a new baby, they are almost instantaneously barraged with offers and incentives and advertisements from all sorts of companies. Which means that the key is to reach them earlier, before any other retailers know a baby is on the way. Specifically, the marketers said they wanted to send specially designed ads to women in their second trimester, which is when most expectant mothers begin buying all sorts of new things, like prenatal vitamins and maternity clothing. “Can you give us a list?” the marketers asked.

“We knew that if we could identify them in their second trimester, there’s a good chance we could capture them for years,” Pole told me. “As soon as we get them buying diapers from us, they’re going to start buying everything else too. If you’re rushing through the store, looking for bottles, and you pass orange juice, you’ll grab a carton. Oh, and there’s that new DVD I want. Soon, you’ll be buying cereal and paper towels from us, and keep coming back.”

How did they figure this out?  They used their own data and the resource-rich information from Google, Facebook and others.  A Target marketing executive explained that the start simply and internally:

“If you use a credit card or a coupon, or fill out a survey, or mail in a refund, or call the customer help line, or open an e-mail we’ve sent you or visit our Web site, we’ll record it and link it to your Guest ID,” Pole said. “We want to know everything we can.”

They then move on to collect external information:

Target can buy data about your ethnicity, job history, the magazines you read, if you’ve ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own.

However, this data will make no sense unless it is organized.  Specifically, what in a consumer’s buying habits will tell Target that she is pregnant and in particular what stage of pregnancy she is in.

The only problem is that identifying pregnant customers is harder than it sounds. Target has a baby-shower registry, and Pole [Target marketing analyst] started there, observing how shopping habits changed as a woman approached her due date, which women on the registry had willingly disclosed. He ran test after test, analyzing the data, and before long some useful patterns emerged.

Lotions, for example. Lots of people buy lotion, but one of Pole’s colleagues noticed that women on the baby registry were buying larger quantities of unscented lotion around the beginning of their second trimester. Another analyst noted that sometime in the first 20 weeks, pregnant women loaded up on supplements like calcium, magnesium and zinc. Many shoppers purchase soap and cotton balls, but when someone suddenly starts buying lots of scent-free soap and extra-big bags of cotton balls, in addition to hand sanitizers and washcloths, it signals they could be getting close to their delivery date.

As Pole’s computers crawled through the data, he was able to identify about 25 products that, when analyzed together, allowed him to assign each shopper a “pregnancy prediction” score. More important, he could also estimate her due date to within a small window, so Target could send coupons timed to very specific stages of her pregnancy.

Target was so good at determining who is pregnant that they ran into trouble:

About a year after Pole created his pregnancy-prediction model, a man walked into a Target outside Minneapolis and demanded to see the manager. He was clutching coupons that had been sent to his daughter, and he was angry, according to an employee who participated in the conversation.

“My daughter got this in the mail!” he said. “She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”

As amazing as this all is, it is just the beginning.  A recent article by the BBC explored the new facial recognition technology http://www.bbc.co.uk/news/magazine-17733455:

The Affective Computing Research Group is working on computers that can read facial expressions and track basic states like confusion, liking or disliking. Wearable devices, such as electronic bracelets, can detect stress or excitement by measuring minimal changes in the sweat level.

"Emotion measurement technology will be soon ubiquitous," says research scientist Rana El Kaliouby. "It will allow people to communicate in new different ways. It's a kind of very sophisticated version of the 'Like' button on Facebook."

The applications of this technology are wide ranging. Medically, it could help people with autism spectrum disorders to read emotions; commercially, it could be used to evaluate ads by tracking viewers' emotional response. Developers also say it could have important implications for social movements like the Egyptian revolution.

I have written previously on this blog about how this assemblage of data, so seemingly innocuous when it comes to body lotion or nursing bras, can be used by government against its citizens.  You can’t have it both ways, for if more exacting privacy laws are enacted, commercial companies will have less access to your information, thus limiting their ability to micro-target and to offer you just what you always wanted even before you knew it.

There is little chance that this wave of data collection and information-sharing will stop or even slow significantly.  It is currently seen as a win-win-win situation.  Consumers love it because they not only see ads in which they are interested in, but they do not have to wade through commercial clutter.  Companies love it because they save millions on broadcast advertising and find just the customers they are looking for.  Governments love it because they not only have billions of bits of raw data, but pre-packaged profiles about everyone.

We are living in a truly revolutionary era where information-sharing is not only the rule, but the preferred mode of behavior.  As Facebook has amply shown, we want everyone to know everything about us from our babies to our vacations to our political obsessions to our new kitchens.  If we have an obsession it is not about safeguarding our private lives, it is about sharing them with as many people as possible.

Marketers and government agencies know this very well and are capitalizing on it.  Information-sharing is now the norm, not the exception.  While there are still many information troglodytes over 70 who jealously guard secrets about their kitchens, no one is interested in them.  They don’t buy much and are unlikely terrorists.

Marketing is an American invention and American genius.  New start-up ‘design’ companies are now linking market research, marketing, and product design – anticipating consumer preferences like Target, but immediately working with producers to change product design and advising them on how to market it.  The three best elements of American business – understanding the consumer, innovative product design, and canny marketing – will always keep it competitive; and our appetite for things only gets bigger.  

Monday, April 16, 2012

Innovation–Why Facebook Had to Pay $1b for Instagram

Most of us were amazed that Instagram, a small start-up IT company in San Francisco with 13 employees was sold to Facebook for $1b.  The one billion was pure profit, for the only capital the company had was a few computers and very little debt.  After the surprise and admiration for the 28-year old owner had worn off, I began to wonder why would Facebook have to buy this company; or why hadn’t very tech-savvy companies like Apple or Google developed this software first?  Or more appropriately, why hadn’t  Eastman Kodak develop it and staved off disaster or Nikon, Sony, or other companies in the image business?  After all Eastman was a photography company.  The answer, says the author of a fascinating article in the New York Times was corporate habit.  http://bits.blogs.nytimes.com/2012/04/15/disruptions-innovation-isnt-easy-especially-midstream/?ref=business  Once a company becomes successful, known and trusted by its clients, there is little incentive to move off that mark:

Michael Hawley, who is on Kodak’s board, said the answer could be summed up in one word: culture.

“It’s a little like asking why Hasbro didn’t do Farmville, or why McDonald’s didn’t start Whole Foods,” said Mr. Hawley, formerly of the Media Lab at the Massachusetts Institute of Technology. “Cultural patterns are pretty hard to escape once you get sucked into them. For instance, Apple and Google are diametrical opposites in so many ways, have all the skills, but neither of them did Instagram, either.”

Neither could Facebook. If it could, it wouldn’t have paid $1 billion to acquire the small team of engineers and access to the program’s 30 million users.

The articles goes on to explain ‘culture’ based on interviews at Yale and Harvard business schools: 

Clayton M. Christensen, a Harvard Business School professor, explored this problem in his 1997 book, “The Innovator’s Dilemma,” and found that “it was as if the leading firms were held captive by their customers, enabling attacking entrant firms to topple the incumbent industry leaders each time a disruptive technology emerged.”

In a 2008 talk at the Yale School of Management, Gary T. DiCamillo, a former chief executive at Polaroid said one reason that the company went out of business was that the revenue it was reaping from film sales acted like a blockade to any experimentation with new business models.

“We knew we needed to change the fan belt, but we couldn’t stop the engine,” he said. “And the reason we couldn’t stop the engine was that instant film was the core of the financial model of this company. It drove all the economics.” The same was true of Kodak and its reliance on its own cash cow: silver halide film.

It is a cyclical problem all successful companies eventually face as the technology around them changes, but  they cannot change.

What the author refers to but does not explore is the tendency in American business to focus on short-term profits.  General Motors for years ignored the Japanese small car threat because it was making huge profits on every Cadillac and Buick Roadmaster it sold.  It only changed when its market share began to fall progressively and then precipitously as Honda Civics and Toyota Corollas showed up on American docks to meet the growing consumer demand for small, energy-efficient, reliable cars.

Reliability was another innovation of the Japanese, although my former neighbor, Edward Deming, deserves much of the credit for introducing quality control to an emerging Japan.  At a time when General Motors, Ford, and Chryslers were still operating on a two-year buyer cycle, where the unreliability of everything from motors to clocks would only kick in at about the time customers were trading in their cars, Mr. Deming was helping the Japanese to build cars that would perform and last.

Why change to smaller, more efficient, and more reliable cars when gas guzzlers returned a sweet profit, retooling and reconfiguring plants required significant capital, and market share, although declining, was still high?

In more recent years this model was strengthened by high executive salaries and the bidding wars for top managers.  A Senior VP of General Motors has little to gain from a long-term investment in small, efficient cars, when his income and benefits are dependent on current sales and profits and responsibility to shareholders; and when he will soon be gone from the company.

This should be less true today, since in the software business there are not a lot of assembly lines to reconfigure, new parts to purchase, etc.  Moreover, Google and Apple are very much forward-thinking.  Microsoft recently produced its vision of the future – one where touch-mode interactivity is the norm.  http://www.pcworld.com/article/242827/microsoft_video_predicts_dazzling_technology_future.html and the company has certainly been working to realize this vision.  Google is renowned worldwide for its research labs, some highly secret, and with the vast resources the company has available, there is certainly room for short- and long-term product research.

Yet these companies did not develop the photograph-sharing software that Instagram did. One assumption (these research labs are very secret) is that they are still focused on small, incremental changes in existing products.  These changes will consolidate their customer base without causing the ‘internal disruption’ suggested in the article.  The issuance of the latest version of the I-Phone is a good example.  It was not the completely redesigned product that many had expected from such an innovative company, but an improvement – the embedding of Siri technology, extremely high-resolution graphics, etc.

Another explanation is very simple – ‘You can’t think of everything’.  Why should Apple’s engineers have come up with the Instagram model when they were focusing on something equally important for the consumer and an even greater wave of the future than picture sharing – voice recognition?  Every time Google upgrades its search engine and the software program anticipates our request almost before we type in the words, we are amazed, impressed, and thankful.  The Google options expand monthly.  They are in the information-acquisition and –sharing business, and most of their engineers, one assumes, are working on this.  Again, this is more the wave of the future than picture sharing.

A third explanation is that small, private entrepreneurs are simply more creative because the above-mentioned corporate constraints do not exist for them; and because their creativity has not yet been coopted, influenced, or corrupted by a corporate culture.  Many of these start-up geniuses have come right out of college or graduate school which is where, in the heady company of equally creative minds, their unique idea came to them and matured.

Lastly, these large companies are so wealthy that they know they can snap up any smaller company, as Apple did with Siri.  Apple is so flush with funds, that it no longer knows where to invest so it has started paying dividends!  Why disrupt a profitable enterprise when you can buy innovations?

The most perplexing part of Polaroid’s fall and Instagram’s rise can be seen with  the founding thesis of both companies. In the early days of Polaroid, Mr. Land said photography should “go beyond amusement and record-making to become a continuous partner of most human beings.” His goal was to build a business that would allow anyone to feel an emotional connection to photography. This was exactly what Instagram figured out, too. And it’s what Facebook was unable to solve on its own.

This should not be taken as a criticism of Facebook but a tribute to the small business, young entrepreneur.  This vision of an ‘emotional connection to photography’ is the same vision that Bill Gates had about the personal computer or that Steve Jobs had to the I-phone.  They both understood American culture as well as the individual consumer.  They had vision; and both were technically competent and brilliant businessmen to realize it.  In this day of apps, there was no reason for Instagram to develop its product, when Facebook appeared at their door with a $1b check.

Sunday, April 15, 2012

Liberal vs. Conservative Brains

An article in the Washington Post (4.15.12) discusses the differences in the way conservatives and liberals think.  They don’t simply view the issues differently, but have a completely different psychological makeup, the author argues.  Liberals tend to have an open view of the world in which they are willing to consider new ideas, experiences, and perspectives; while conservatives are more closed and tend to come to conclusions more easily and quickly because for them the decision-making process is framed within a pre-existing belief system. There is no point in debating abortion, conservatives would say, because it is murder, a God-given injunction.  Liberals, on the other hand, consider the issue from a constitutional, biological, equal rights perspective.

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Liberals and conservatives have access to the same information, yet they hold wildly incompatible views on issues ranging from global warming to whether the president was born in the United States…
These things do not make sense — unless you view them through the lens of political psychology. There’s now a large body of evidence showing that those who opt for the political left and those who opt for the political right tend to process information in divergent ways and to differ on any number of psychological traits.
Perhaps most important, liberals consistently score higher on a personality measure called “openness to experience,” one of the “Big Five” personality traits, which are easily assessed through standard questionnaires. That means liberals tend to be the kind of people who want to try new things, including new music, books, restaurants and vacation spots — and new ideas.
Another aspect of the difference in processing information is the need for closure – conservatives seem to want to cloture debate on issues more quickly than liberals, for, largely because of their belief-based decision-making process, have little use for sorting through complex multi-sided arguments:
Now consider another related trait implicated in our divide over reality: the “need for cognitive closure.” This describes discomfort with uncertainty and a desire to resolve it into a firm belief. Someone with a high need for closure tends to seize on a piece of information that dispels doubt or ambiguity, and then freeze, refusing to consider new information. Those who have this trait can also be expected to spend less time processing information than those who are driven by different motivations, such as achieving accuracy.
A number of studies show that conservatives tend to have a greater need for closure than do liberals, which is precisely what you would expect in light of the strong relationship between liberalism and openness. “The finding is very robust,” explained Arie Kruglanski, a University of Maryland psychologist who has pioneered research in this area and worked to develop a scale for measuring the need for closure.
While the author correctly frames the difference – conservatives are more apt to decide issues on the basis of a pre-existing belief system – this is only part of the story.  Economics is the other.  Consider, for example, the fact that conservatives are themselves divided into two wildly different camps – the Wall Street bankers, captains of industry, and intellectual columnists like George Will, Charles Krauthammer, and William Buckley; and the red-dirt Alabama farmer.  How could they both have the same desire for belief-based decision-making and the need for quick cognitive closure?  The answer is they do not, but the common thread between them is economics.

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Conservative politicians may trumpet the importance of  limited government because it frees the spirit of the individual, the little man; but they are really promoting the cause of the Eastern Establishment – the captains of industry who stand to benefit enormously from a political system with fewer government regulations, fewer taxpayer dollars flowing into inefficient bureaucratic and unnecessary public programs, and lower taxes on capital gains. 

However, it is the brilliance of the conservative political argument that it can appeal to individual liberty and freedom and resonate both with those voters far down the socio-economic chain and with the captains of industry.  How can it do both?  Appealing to the rich is easy, but what about the poor? Economists have known for decades that risk is related to economic stability.  People who live on the margins are unlikely to take economic risks, and therefore remain isolated in their traditional ways.

Indian farmers in the early days of the Green Revolution said no to new seeds and farming techniques.  They would prefer to farm as they had always done.  

These farmers were rejecting new information and experience and relying on an old belief system.   Nevertheless upon scrutiny it was very understandable.   They knew quite well what the new seed varieties could do, but the risk of failure, no matter how small, would mean ruin for them.  A farmer with capital was very different than a farmer with only labor.

American conservatives now – as opposed to decades ago before when conservatism was reserved for the wealthy – are not necessarily well-off.  Ronald Reagan captured the votes of working class whites despite the fact that he was promoting big capitalism at their expense and changed the political landscape completely.  He did it thanks to his big, simple themes of patriotism, liberty, and Christian values.  Donald Trump has tapped into the resentment, frustration, and anger of lower-middle class Americans in a populist political movement.

It is easier for these relatively less well-off conservatives to vote their beliefs rather than see their taxpayer dollars disappear into a morass of byzantine public programs.  The Republicans are promising that citizens will be able to keep their money and not throw it away in Washington.  “Why risk the promise of public investments when we don’t have the disposable income to spend?”, ask these voters.  Of course the appeal to social values and Christian fundamental beliefs resonates as well, for it provides an acceptable rationale to voting for money.  Who wants to admit they are poor and voting for dollars when they can say they are voting for God?

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There is another important element of the political equation that the author of the article omits, and that is regional historical memory.  The South still hasn’t gotten over the Civil War nor the Civil Rights era and conservative voting patterns have a lot to do with a visceral and now habitual hatred of government.  From this perspective, there is absolutely no need to examine the intricacies of health care, welfare, or tax reform.  Get government out of our lives has been the rallying cry in the South for over 200 years.  This has little to do with the type of individual psychological patterns of openness or closed mindedness reported in the article; but a collective political consciousness reinforced over generations by families who are still in their ancestral homes.

Anyone travelling in the United States will quickly be exposed to all of the ‘irrational’ arguments suggested in the article and many more.  Before travelling East Coast residents might think that the ‘birther’ phenomenon is very much a fringe issue, hot in some remote enclaves in northern Idaho, but not very common.  However, one hears it all the time.

Although casual critics may assume that fundamentalist principles are held by a significant proportion of the American public, only when they see how they are at the core of social and political life, not just religious life, can they understand how they provide the context for conservative thinking.

If one believes that the Bible is the word of God, then there can be no debating issues of abortion or homosexuality; and there can only be a reflexive condemnation of liberal social trends. The real difference between liberals and conservatives is between logic and belief; and there is no point in arguing the case concerning currently contentious political issues on the basis of reason.  Reason is not the highest authority for everyone.

Using the same themes of liberty, lower taxes, and smaller government, Republicans have formed a coalition of the super-rich and the working poor.  The thinking middle is left to liberal Democrats, and that majority is slowly shrinking.

Despite the author’s statement that both liberals and conservatives fall into non-thinking, assumptive conclusions, he is disingenuous.  He is clearly on the side of reason and logic, and the article is more about the pernicious influence of illogic, irrational belief, and foundational thinking than giving both sides a fair shake.

What is troubling for liberal-minded thinkers is that they have not yet fashioned a new world-view which will combine reason and belief.  It happened in the Sixties when rational experts concluded – if only eventually – that the war in Vietnam was wrong; and so did irrational, emotional, rabidly passionate young people who protested as much out of a plea for humanity, justice, and righteousness as out of intellectual conclusion.  These same young protesters were behind the civil rights movement which changed forever the condition of women, blacks, and gays.  It was a coalition of reason and belief.

Today there are only dry, practical arguments of reasonable balance – reduction in spending combined with an increase in taxation – but liberals are not passionate about any issue; and after the election of Donald Trump they only have something to rally against. 

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There is certainly no such thing as a physiological or structural difference in liberal and conservative brains; but a fundamental difference in the way they think, itself conditioned by history, economics, geography, family, and a thousand other environmentally conditioning factors.  That is enough to chew on.