There are lots of fun little stories that people tell that don't quite check out upon further examination. A realistic grasp of history is well served by additional exploration. One good example are the stories about Henry Ford and the payment of higher wages. Another is the role played by labor unions. In an article by Kevin Williamson he touches on both:
The unions are not, contrary to the popular bumper sticker, the “people
who brought you the weekend” or the 40-hour work week. In reality, Ford
decided to institute the five-day week in 1922, though it was not done
until 1926 — a decade before the United Autoworkers union was even
formed, and 15 years before Ford would sign its first union contract.
The Ford example is illustrative in that the company’s work-force
innovations — effectively doubling its entry-level wage at one point,
five-day weeks, etc. — were driven neither by political pressure nor
union extortion nor philanthropic impulse but by the fact that good
workers were and are extraordinarily valuable, and every time Ford lost
an assembly-line veteran and had to recruit and train a replacement was
money out of Henry Ford’s pocket. Ford’s management knew what today’s
executives in Silicon Valley and on Wall Street and in Montana sawmills know: People are assets, not liabilities.
The same
principle holds true now: A world without union bosses is not a world of
wicked coal-mine operators exploiting helpless serfs with nobody
standing in the way but the Molly Maguires. It isn’t a union that
inspires Google to offer such high wages and rich (indeed, sometimes
silly) amenities to its employees — it’s Apple, Facebook, Microsoft,
etc., each of which would love to drive a fleet of buses over to
Mountain View and bring back everybody it could. “Well, that’s
Google,” you might say, “and not everybody has the skills or the talent
to work in High Nerdery in San Jose or Austin or to tote a pitch book
around lower Manhattan.” True enough, but the same principle applies to
pipefitters and machinists and the 244 other labor categories Evan
Soltas takes a look at here.
His finding? That changes in productivity account for about 74 percent
of changes in wages within any given industry. Workers get paid more
because they produce more, not because there’s some coddled predatory
halfwit threatening to pass out picket signs.
Henry Ford had good reasons for decisions he made and unions had contributions to make of both the positive and rent seeking kind, but I have a preference for a non-fiction version of the story. I've voiced that preference before.
Would you tell an accountant how to do their job if you had no accounting experience and limited knowledge of accounting? Would you second guess how a guitarist played a riff if you don't play the guitar, even if you know a little bit about music? Would you criticize a quarterback on how they played a game, especially if you've never played football?
Of course, we all do things like that, especially the last one which birthed the phrase "Monday Morning Quarterback." So the real question is whether the accountant or the guitarist or the quarterback would take you even vaguely seriously. The answer is: very likely NO. Partly because after the fact second guessing is very much different than making decisions in real-time under great uncertainty. But mostly because without the experience of setting up charts of accounts, fingering guitar riffs, or calling plays, realistically, your input isn't terribly useful. On the other hand, advice from another accountant, guitarist, or quarterback is much more likely to be of value since they've had similar experience and a great deal of knowledge.
Now I'd like to switch from accounting, guitar playing, and football and consider business. Of all of the things I've ever done, from recording rock music to robotics, starting and running a business is by far the hardest. Resources have to be constantly orchestrated and many of those resources need to be kept "happy" in order that they do the best job possible. Market trends have to be guessed, regulators complied with or dodged, suppliers (who have the same issues) have to be convinced to supply at an acceptable time and price, customers need to be found and product delivered, funding needs to be found, and on, and on, and on.
All of these ons and ons and ons have to be balanced in a web of hard to fathom tradeoffs. For example, perhaps there's yet another of the many cash crunches we've faced. Do I lay off a couple of employees now, hurting them, and if so which employees, or do I hold on and keep them because there's a reasonable possibility that one of two contracts will begin generating revenue in time, but if the revenue doesn't start in a timely fashion I won't be able to pay anybody next month and the whole company will unravel in an unpredictable way and possibly everybody will be out of a job? Every day, I have a hundred questions with that level of complexity.
So when non-business folk do the Monday Morning Quarterback thing regarding some business catastrophe, I mostly just laugh. Recently, I made the following comment along those lines:
"I rarely take criticism to entrepreneurs seriously except from other entrepreneurs because I'm convinced that those who haven't started and run businesses have no idea how hard it is since I certainly didn't before I did it."
That's not my friendliest comment ever and I apologize for the dismissive tone. I made that comment during a discussion about the 2013 Savar building collapse in which 1,129 people died and thousands more were injured. There were some comments that I found not credible and/or not relevant that went something like: "it pays for itself to implement basic safety standards."
Maybe. But the question is who has the incentive to take this safety action. Let's start in the middle of story. Let's say I'm one of the factory owners/managers. I don't own the building and I'm simply leasing space. The building is evacuated because there are large cracks in the building. But the next day:
It is also reported that Kabir Hossain Sardar, the upazila nirbahi officer visited the site, met with Sohel Rana, and declared the building safe. Sohel Rana said to the media that the building was safe and workers should return to work the next day. One manager of the factories in the Rana Plaza reported that Sohel Rana told them that the building was safe.
Assume I'm the manager mentioned. I see these huge cracks and I might well be skeptical that the building is safe even though I'm told that it is. I can make one of two choices:
Not have my employees go in the factory and work. In this case, I'm nearly certainly bankrupt, which I'll bet is pretty damn unpleasant in Bangladesh. Not only is my family ruined and perhaps destined to be homeless on the streets, but my dozens or hundreds of employees aren't going to get paid which will seriously damage them as well. If the building doesn't collapse, I've badly hurt a lot of people, including my family, for no good reason in hindsight. If the building does collapse, I'm still ruined, but at least I've saved some people.
Have my employees go in the factory and work. Hopefully, the building won't collapse, or if it does, perhaps there will be enough warning to get out.
The trade off is certain damage to a lot of people versus possibly catastrophic damage to a lot of people. In my experience, that would be an impossibly difficult choice to make in real-time. Now that we know the building collapsed, it's easier to make the choice as a Monday Morning Quarterback.
One thing that I've found is that many non-business owners think that all entrepreneurs and business owners are rich and have essentially infinite resources at their command. Nothing could be further from the truth:
...small business owners ... are receiving an average salary of $68,000 annually, down from $72,000 a year ago. In addition, nearly 15 percent of small business owners need to work a second job while running their business in order to make ends meet.
I'm in that 15 percent. Not all entrepreneurs are Bill Gates or Steve Jobs and even they were probably short on cash in the beginning. If I had to fix the building I'm in, I'd throw in the towel and walk away. There's no possible way I could afford to fix it.
Working backwards, where could've decisions been made to prevent the catastrophe. Clearly Kabir Hossain Sardar could've declined to declare the building safe. My bet is that some sort of corrupt deal between Sardar and Rana was made. However, let's assume not for a moment. Even without bribes Sardar would've been under immense pressure to say the building was "safe." Not only from Rana (possibly a mob thug), but also from the factory owners/managers and even the employees. No factory equals no work equals no pay equals serious problem.
Working back from there, I could've not started the factory. But my opinion is that discouraging business in Bangladesh is wildly counterproductive. No businesses, no jobs, no work, no pay, no food.
Working back from there, Rana could've not built the building and/or not allowed the modifications to the building and/or made the building safer. My guess is that Rana simply wouldn't have bothered to build the building if he had to incur the extra cost of making it safer. In other words, the ROI wouldn't have penciled out. It's easy to Monday Morning Quarterback it and say that since the building collapsed, he would've been better off making it a safer building. Yes, but he might've been even better off not building it in the first place and investing elsewhere if it was going to be more expensive. Then, no building, no factories, no jobs, no work, no pay, no food.
Another choice is that the government could've done a better job enforcing building codes. Then Rana wouldn't have built the building. Then, no building, no factories, no jobs, no work, no pay, no food.
Another choice is that the government could've taxed the people more and built the buildings themselves using appropriate building codes. With $1,100 per year GDP, higher taxes pretty much means someone's not eating. And if you think the government is somehow going to tax people like Rana instead of the poor, think about how corrupt Bangladesh is.
Nobody had the incentive to prevent the catastrophe. Note that even the government wasn't going to bother doing anything about the collapse until Americans complained.
I want to end with a snippet about George McGovern.
Senator George McGovern was the Democrat's presidential nominee in 1972 and was possibly the most left wing candidate ever to run for president as part of a major party. As a Senator, he was involved in a great deal of legislation that directly affected business.
Later, he became a businessman (my guess is he thought it would be really easy) and reminisced about the experience:
In 1988, I invested most of the earnings from this lecture circuit acquiring the leasehold on Connecticut’s Stratford Inn. Hotels, inns and restaurants have always held a special fascination for me. The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility — complete with an experienced manager and staff.
In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender. [emphasis added]
Everybody thinks business is easy, but most who try it, find it's not.
It has been my experience that in studying the literature on complex subjects in social science such as economics, many of the people with significant insights could be considered polymaths. Some time in the past year I was discussing some ideas espoused by George Gilder with my coblogger. He asked if I considered Mr. Gilder to be a polymath. I've read many articles and most of the books authored by Mr. Gilder but had not thought about that question. After a pause to think about the matter, the reply was a clear "yes." A few weeks later while watching a video of Deirdre McCloskey, George Gilder and his ideas came up in discussion. It was clear that McCloskey, herself an obvious polymath, considers Gilder to be a polymath. With that introduction, here are some excerpts from Unleash the Mind by George Gilder:
The belief that wealth consists not chiefly in ideas, attitudes, moral codes, and mental disciplines but in definable static things that can be seized and redistributed—that is the materialist superstition. It stultified the works of Marx and other prophets of violence and envy. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly every conglomerateur who believes he can safely enter new industries by buying rather than by learning them. It confounds every bureaucrat of science who imagines he can buy or steal the fruits of research and development.
Even if it wished to, the government could not capture America’s wealth from its one percent of the one percent. As Marxist despots and tribal socialists from Cuba to Greece have discovered to their huge disappointment, governments can neither create wealth nor effectively redistribute it. They can only expropriate and watch it dissipate. If we continue to harass, overtax, and oppressively regulate entrepreneurs, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production dissolve into so much corroded wire, abandoned batteries, scrap metal, and wasteland rot.
Capitalism is the supreme expression of human creativity and freedom, an economy of mind overcoming the constraints of material power. It is not simply a practical success, a “worst of all systems except for the rest of them,” a faute de mieux compromise redeemed by charities and regulators and proverbially “saved by the New Deal.” It is dynamic, a force that pushes human enterprise down spirals of declining costs and greater abundance. The cost of capturing technology is mastery of the underlying science. The means of production of entrepreneurs are not land, labor, or capital but minds and hearts. Enduring are only the contributions of mind and morality. … Entrepreneurship is the launching of surprises. The process of wealth creation is offensive to levelers and planners because it yields mountains of new wealth in ways that could not possibly be planned. But unpredictability is fundamental to free human enterprise. It defies every econometric model and socialist scheme. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the establishment above them. Creativity cannot be planned because it is defined by information measured as surprise. Leading entrepreneurs—from Sam Walton to Larry Page to Mark Zuckerberg—did not ascend a hierarchy; they created a new one. They did not climb to the top of anything. They were pushed to the top by their own success. They did not capture the pinnacle; they became it. … Most of America’s leading entrepreneurs are bound to the masts of their fortunes. They are allowed to keep their wealth only as long as they invest it in others. In a real sense, they can keep only what they give away. It has been given to others in the form of investments. It is embodied in a vast web of enterprises that retains its worth only through constant work and sacrifice. Capitalism is a system that begins not with taking but with giving to others.
For this reason, wealth is nearly as difficult to maintain as it is to create. Owners are besieged on all sides by aspiring spenders—debauchers of wealth and purveyors of poverty in the name of charity, idealism, envy, or social change. Bureaucrats, politicians, bishops, raiders, robbers, short-sellers, and business writers all think they can invest money better than its owners. In fact, of all the people on the face of the globe, it is usually only the legal owners of businesses who know enough about the sources of their wealth to maintain it. It is usually they who have the clearest interest in building wealth for others rather than spending it on themselves. … Entrepreneurial knowledge has little to do with certified expertise, advanced degrees, or the learning of establishment schools. The fashionably educated and cultivated spurn the kind of fanatically focused learning commanded by the innovators. Wealth all too often comes from doing what other people consider insufferably boring or unendurably hard.
The treacherous intricacies of software languages or garbage routes, the mechanics of frying and freezing potatoes, the mazes of high-yield bonds and low-collateral companies, the murky lore of petroleum leases or housing deeds or Far Eastern electronics supplies, the multiple scientific disciplines entailed by fracking for natural gas or contriving the ultimate search engine—all are considered tedious and trivial by the established powers.
Most people consider themselves above the gritty and relentless details of life that allow the creation of great wealth. They leave it to the experts. But in general you join the one percent of the one percent not by leaving it to the experts but by creating new expertise, not by knowing what the experts know but by learning what they think is beneath them. … Most of the world, then as now, was engaged in one of its periodic revulsions against capitalist “greed” and waste. Lester Thurow of MIT was proclaiming a “zero sum society,” where henceforth any gains for the rich must be extracted from the poor and middle classes. William Sloane Coffin, the formidable Yale chaplain, was inveighing against capitalist orgies of greed and environmental devastation. Howard Zinn and Noam Chomsky were denouncing Western capitalism for displacing American Indians and condemning Israelis for displacing Palestinians (rather than praising the settlers in both countries for reclaiming and redeeming wastelands and hugely enlarging the populations they could support). Edward Said was conducting his Columbia classes (fatefully introducing the works of Frantz Fanon to future president Barack Obama) on Western psychological colonization and hegemonic evisceration of the entire Third World.
Here we go again, deep in the New Millennium. The themes of exploitation and zero-sum equality continue to preoccupy the media. Congress remains enthralled with static accounting rules that assume tax-rate reductions will not alter economic behavior. In this model, the only way to expand tax receipts is to raise rates on the “rich.” … By focusing on incentives rather than on information and creativity, free-market economists have encouraged the idea that capitalism is based on greed, although, as we have seen, entrepreneurs cannot in general revel in their wealth, because most of it is not liquid. Greed, in fact, only motivates capitalists to seek government guarantees and subsidies that denature and stultify the works of entrepreneurs. The financial crash of 2007 and beyond reflected orgies of greed among crony capitalists awash in government guarantees and subsidies, sitting on their Fannies and Freddies, feeding in the troughs of Treasury privileges and government insurance scams. Greed leads as by an invisible hand to an ever-growing welfare and plutocratic state—to socialism and near-fascist corporatism (see Jonah Goldberg’s Liberal Fascism for details).
The secret of supply-side economics is not merely to incentivize people to work harder or accept more risk in order to gain a greater reward. That could be done under socialism. The reason lower marginal tax rates produce more revenues than higher ones is that the lower rates release the creativity of employers, allowing them to garner more information. They can move more rapidly down the curves of learning and experience. They can learn more because they command more capital to use in their trade. With more capital they can attract more highly skilled labor from around the globe. They reduce time and effort devoted to avoiding taxes and interpreting regulations and consulting lawyers and accountants. With fewer resources diverted to government bureaucracy, they can conduct more undetermined experiments, test more falsifiable hypotheses, try more business plans, generate more productive knowledge.
It is not the enlargement of incentives and rewards that generates growth and progress, profits and capital gains for the entrepreneur and revenues for the government, but the combination of new knowledge with the power to test and extend it. Volatile and shifting ideas, not heavy and entrenched establishments, constitute the source of wealth.
These are not the conventional ideas that enter most discussions about economics, growth and wealth creation, but they are part of much deeper insight than most people will ever acquire.
In 2010, General Electric (NYSE:GE) had revenues of $149 billion. That's larger than the gross domestic product of all but about one-quarter of the countries on earth. General Electric may also be the most diverse company in the world, involved in everything from jet engines to coffee makers, power plants to sealants, finance to lighting, and General Electric's "economy" is more diverse than the economy of many nations and most governments. They have over 300,000 employees working all over the world. General Electric is currently number 6 on the list of Fortune 500 companies. They are almost a nation unto themselves.
In 2010, GE had profits of $14,200,000,000, of which $5,100,000,000 was earned in the United States, yet GE paid no U.S. taxes:
...low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
Other huge companies are also using hordes of lawyers and lobbyists to collude with the government to avoid taxes and let others bear the burden of funding the government:
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less. [...]
Such strategies ... have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
And Big Government, including Obama, is definitely a willing player in the collusion:
Obama ... has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
I don't mean to pick on GE. While they've been the most successful at the tax avoidance game, Big Money (Wall Street), Big Pharma, Big Oil, Big Military, etc. all have been quite successful at collaborating with Big Government to fleece the rest of the country via favorable tax and regulatory treatment for these important election campaign donors. The Bigs fund the elections of the politicians and bureaucrats and the government largess is the return payment for that funding.
The solution is quite simple. First, eliminate the corporate income tax completely, especially since it only represents 6.6 percent of all federal revenue anyway. This will immediately eliminate all the current collusion and corruption. This should actually be moderately easy to get through Congress, if not right now, then eventually.
Second, institute a revenue tax (NOT income tax), on all revenues over some amount, say $10 billion, with no loopholes, and increasing rates as revenues increase beyond $10 billion. If economies of scale still favor the company even with the revenue tax, fine. If not, the shareholders will force a breakup of the company because the new pieces will then be more profitable in aggregate because each piece will be smaller and able to avoid the tax on revenue. This would help reduce the number of Bigs and their inherently corrupt relationship with Big Government.
Limiting the number of large and powerful companies would be a good thing since, to paraphrase Lord Acton, power corrupts and big power corrupts bigly.
Clayton Christensen, a Harvard business professor and author of "The Innovator's Dilemma" recently had a very interesting article in the NY Times. He refines Schmupeter's Creative Destruction characterization of the economy into empowering, sustaining, and efficiency innovations where empowering innovations mostly generate new economic activity and employment, efficiency innovations liberate capital but reduce employment, and sustaining innovations have little effect on employment though they do increase wealth over time. To create new jobs, one should therefore focus on empowering innovations.
He makes a second point as well: most government policy and private investment approaches were formulated when capital was extremely scarce. Something has clearly changed in that the Fed is creating huge sums of money yet people are just sitting on the cash and not investing. This implies that capital itself isn't nearly as scarce as it once was and that the policies and strategies of yesteryear no longer apply. He makes some policy suggestions to push investors towards empowering innovations.
Not just one, but two liberal friends independently pointed me to a New York Times posting titled "Is This the End of Market Democracy?" I've often been harshly critical of things written by the Times staff, but I think this one actually makes some good points. The most important one is regarding the effects of the "gale of creative destruction" which really isn't being addressed by anyone and I think it may be important to consider when formulating policy.
The phrase "creative destruction" was popularized by Schumpeter as a description of an evolutionary process of continuous innovation. The creation of the automobile destroyed the horse and buggy industry, the creation of the telephone destroyed the telegraph, and in general, the creation of automation and other technologies and business innovations have and will continue to destroy huge numbers of jobs. The job destruction isn't necessarily a problem since when the U.S. economy is healthy, millions of jobs are destroyed every year, but even more jobs are created.
While the creation part of the process makes the general population better off, it's always been true that those who lose their jobs face some or even a great deal of hardship while they transition to something else (or retire or become permanently unemployed or whatever). The next generation always benefits because they don't yet have jobs to be destroyed.
As long as the creation is significantly beneficial and the rate of destruction is not overwhelming (or the cost and effort of transitioning to new jobs isn't too high), significant progress in terms of wealth creation is made without intolerable pain.
The rate of creative destruction has been rapidly increasing over the last few decades, taking us to the point where there's an uncomfortable and perhaps intolerable rate of destruction. While many people like to blame foreign trade (which I lump in with general business innovations), new technology destroys far more jobs than the Chinese. How many bank tellers lost their jobs to ATMs, how many stores have closed due to Amazon's automated order system, how many factory jobs are lost to robots and automation, etc.? Far more than have been lost to the Chinese making cheap widgets. Nonetheless, both technical and business innovations have been aligning to destroy jobs at an ever increasing pace.
Further exacerbating the problem is that the jobs being destroyed are potentially being replaced by jobs that require far more skill and talent and the people whose jobs are being destroyed are simply incapable of filling those new jobs. So they often end up being unemployed for a long time.
I also agree with the article that neither Democrats nor Republicans have discussed the issue of accelerating creative destruction and what, if anything, to do about it. The article is a little short on solutions as well.
I happened to see the following chart of the Price to Earnings ratio of the S&P 500 and thought it was interesting (click on it to enlarge):
After each of the previous periods with poor economic performance, the P-E ratio had to get down into the neighborhood of 10 for an extended period of time before rapid economic growth resumed. I sure hope that's not the case this time or we have a long, long ways to go before growth resumes.
William Jacobson had some key observations on his Legal Insurrection blog:
The message of the bill is that whatever you do, if you want to grow your business without paying the health care tax, do not add employees.
Obama does not understand these provisions. Obama gave a speech this morning in which he stated that these provisions are directed at small businesses operating on thin margins. But these provisions have nothing to do with profit margins. This is a wage-based tax.
Obama does not understand the difference between profit margins and wages. This is exactly what you would expect from someone who always has been on the receiving end of wages, and never had to meet a payroll. Wages are not profits and have nothing to do with the success of a business. Just ask the auto companies.
I don't think Obama and the other Democrats are lying about this aspect of the health care tax. They truly do not understand how the private economy works. In their blissful ignorance they are designing job-killings provisions which they do not understand.
Job losses at large establishments have slowed considerably as monetary policy has helped stem panic. Small businesses are still shedding jobs at a high rate or are failing to even form. When we see net job creation some time next year it would help if a bill like this was not in prospect. Otherwise it will be a nearly jobless recovery for longer than many people expect. It might be so anyway if regime uncertainty doesn't abate.
I think this article gives an appropriate overall characterization of the bill as well as the relevant accounting used for scoring versus a more realistic tally:
The bill is instead a breathtaking display of illiberal ambition, intended to make the middle class more dependent on government through the umbilical cord of "universal health care." It creates a vast new entitlement, financed by European levels of taxation on business and individuals. The 20% corner of Medicare open to private competition is slashed, while fiscally strapped states are saddled with new Medicaid burdens. The insurance industry will have to vet every policy with Washington, which will regulate who it must cover, what it can offer, and how much it can charge. ...
Perhaps the most unsurprising news in this drama was the collapse of the Blue Dog "deficit hawks." Enough of them always cave in the end to give Mrs. Pelosi her way. It's nonetheless worth noting the surrender of that most vocal scourge of deficits, Tennessee's Jim Cooper, who voted aye on grounds that the bill can be improved in the Senate.
But Max Baucus's Finance Committee bill includes a similar gimmick of making the numbers look good by using 10 years of new taxes to finance only seven years of spending (six in the House). The deficits explode in the second decade and beyond in both bills.
The House also contains a new government long-term insurance program that starts collecting premiums in 2011 but doesn't starting paying benefits until 2016 and then runs out of money in 2029. North Dakota Democrat Kent Conrad called it "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of" in an interview with the Washington Post in late October. Mr. Cooper has with a single vote made his entire career irrelevant.
I saw an interview of Senator Bob Corker in which he said that a Senate Democrat agreed that if Republicans had proposed this exact same bill, Democrats would all vote it down. Hopefully a bill this bad simply dies in the Senate. Then they can start over again.
Boston's winter is a natural disaster, but its predictability changes everything. As Hutchinson suggests, New Englanders know winter is coming. Bad weather is annoying but easy to plan for: You build snow days into the school year, buy a car with four-wheel drive, get used to scraping ice and shoveling snow. You make sure you have a coat, hat, and gloves. Snow, says Hutchinson, is no big deal: "You just put on boots." Life has a regular rhythm.
Good weather plus earthquakes creates an utterly different environment. On a day-to-day basis, you can concentrate on your goals, with no need for contingency plans. Your softball game, your picnic, your wedding won't be rained out. But everything could change in an instant. You can't anticipate earthquakes, can't plan for them, can't even predict when and where they'll strike. Instead of providing the certainty of seasons, nature promises a future of random shocks. All you can do is develop general coping skills and resources. There is nothing familiar about the aftermath of an earthquake, and no one survives it alone.
IN HIS 1988 BOOK, SEARCHING FOR SAFETY, the late UC-Berkeley political scientist Aaron Wildavsky laid out two alternatives for dealing with risk: anticipation, the static planning that aspires to perfect foresight, and resilience, the dynamic response that relies on having many margins of adjustment: "Anticipation is a mode of control by a central mind; efforts are made to predict and prevent potential dangers before damage is done. Forbidding the sale of certain medical drugs is an anticipatory measure. Resilience is the capacity to cope with unanticipated dangers after they have become manifest, learning to bounce back. An innovative biomedical industry that creates new drugs for new diseases is a resilient device. . . . Anticipation seeks to preserve stability: the less fluctuation, the better. Resilience accommodates variability; one may not do so well in good times but learn to persist in the bad."
Here, then, is the basic difference between the valley and the Hub: Viewing the world as predictable and itself as the center of the universe, Boston has encouraged strategies of anticipation. People try to imagine everything that might go wrong and fix it in advance. But in Silicon Valley, there are no certainties. The future is open and subject to upheaval. Resilience is the strategy of choice. People do the best they can at the moment, deal with problems as they arise, and develop networks to help them out.
But anticipation doesn't work when the world changes rapidly, and in unexpected ways. It encourages two types of error: hubristic central planning and overcaution.
Resilience, however, is less a guarantee of corporate success than it is a way of reducing the risk for individual careers and the regional economy. A strategy of resilience means not that companies won't fail but that resources--including human resources--are more likely to move to better uses more quickly, with less trauma. Indeed, the willingness to abandon losing projects is fundamental. The idea is to adjust quickly, on a small scale, rather than all at once: to be like grass bending before the wind, then springing back, rather than a solid oak that comes crashing down in a storm. In a resilient economy, employees have choices, and they move around.
"On the East Coast," says Mundy, "it's the building of the thing that's most important. And on the West Coast, the sharing of it is relatively more important. Getting things out to the light of day seems more important there."
Once they hit the light, no one can anticipate just where innovations will lead--or whether they will in fact succeed. It is by trusting the search, permitting experiments whose results no one can know, that we allow advances to occur. In a 1979 paper, Wildavsky prefigured his discussion of anticipation and resilience with a meditation on the sources of progress. It depends, he suggested, on spontaneity and serendipity, on discoveries no one can predict or foresee: "Incessant search by many minds...produces more (and more valuable) knowledge than the attempt to program the paths to discovery by a single one....Not only markets rely on spontaneity; science and democracy do as well....Looking back over past performance, adherents of free science, politics, and markets argue that on average their results are better than alternatives, but they cannot say what these will be....The strength of spontaneity, its ability to seek out serendipity, is also its shortcoming--exactly what it will do, as well as precisely how it will do it, cannot be specified in advance."
Nowadays it seems that every place wants to be like Silicon Valley--to discover its secrets and copy them. Here, then, is a secret that can be copied, even in places with lousy weather and stable ground: Don't ask for answers in advance. Don't try to create a life without surprises. Trust serendipity.
Read it all, it's worth it. What would you expect from Virginia Postrel?
Update: Longs Drugs ultimately reimbursed us for the towing fees. My wife kept climbing the management ladder at Longs until she talked to the director of Longs for California (or something like that) who said that it really wasn't Longs' policy to tow customers' cars who wandered off the premises for a few minutes and had the towing company refund the charges. Cool!
Drug around the parking lot and then stomped on is more accurate.
My wife and a friend (in the friend's car) with children drove to Long's Drugs, parked, went inside, shopped, bought some stuff, put the stuff in the car, went across the street to another shop, bought some more stuff, came back, and ...
... the car was gone.
The Long's employee who watches the parking lot came over and said, "I saw you put your stuff in the car and leave. You're only allowed to park here while shopping at Longs so I had you towed." My wife was informed by the store manager that it was indeed their policy to have customers' cars towed if the customers left the premises, it had been their policy for twenty years (amazing, since this particular store had been open less than ten years), and that they could do anything they damn well pleased with our car since it was parked on their private property.
The manager pointed out that there are signs posted warning us we would be towed if we left the premises. Indeed there are: little tiny signs with little tiny print that are nowhere near where my wife happened to park. So we did technically violate the warning on the sign.
Four hours and $300 later, my wife and her friend retrieved the car from Western Towing.
I'm left wondering a number of things:
1. Why the parking lot guy couldn't have told my wife and her friend that he would tow their car if they left the premises? He admitted that he saw them leave and called the towing company the second they left. It wouldn't have been any trouble at all for him to have let them know his intentions. Wouldn't you think that actual customers would deserve at least that much?
2. How it makes economic sense for Longs Drugs to tow customers' cars from a mostly empty lot? I know that my wife, her friend, my two traumatized children, and I intend to never shop at Longs again. Since we've previously spent hundreds of dollars a year there, to make economic sense either: (a) the five of us are the only (ex)-customers who would be put off by having their car towed after buying something; or (b) the parking spot (in a mostly empty lot) was extraordinarily valuable for reasons I can't fathom.
3. I wonder why the towing company "only" charged us $300 for a 5 mile tow? I've had cars towed before because they broke down, and it didn't cost nearly $300. Wouldn't they better optimize their revenue if they charged the value of the car minus a little bit? For example, they could charge $50,000 for towing a nice BMW. After all, I think in these circumstances both Longs and Western Towing have lost a (potential) customer. Why not max it out?
