My Sandy Timeline

Mid-April: I move to Hoboken, NJ with my 6-month pregnant wife and Bree and Max, my two 10-pound dogs.

Some time in May: a relatively minor storm floods our parking garage and the nearby street. WTF? Lesson: Hoboken is really bad for flooding and we live in one of the worst parts.

End of July: I sign up for an actuarial exam for the end of October AND my son is born.

October 20: “A strong ridge of high pressure parked itself over Greenland beginning on October 20, creating a “blocking ridge” that prevented the normal west-to-east flow of winds over Eastern North America. Think of the blocking ridge like a big truck parked over Greenland. Storms approaching from the west or from the south were blocked from heading to the northeast.”

Some additional background from the same link:

We expect hurricanes to move from east to west in the tropics, where the prevailing trade winds blow that direction. But the prevailing wind direction reverses at mid-latitudes, flowing predominately west-to-east, due to the spin of the Earth. Hurricanes that penetrate to about Florida’s latitude usually get caught up in these westerly winds, and are whisked northeastwards, out to sea.

Bottom line: normal no longer applies.

October 22th: Tropical Depression 18 forms.

October 24th: Now Hurricane Sandy, the storm hits Cuba hard. The possibility of a US landfall dawns on the NHC for the first time.

October 27th (Saturday): I get a mass email from my building manager saying that the area flooded even during the over-hyped Irene last year and big floods trigger the fire alarm. I reply: as in the building-wide fire alarm? Yep, he fires back, and we can’t turn it off and it’s LOUD.

Well that sews this one up, but where do we go? Here’s our criteria:

  1. Town that has a hotel that wasn’t full
  2. Oh, yeah, and isn’t on a river
  3. That hotel needs to take dogs
  4. Is near a place where I can take my exam (still studying through all this!).

I pull up the intertubes and hit the phones. The answer? Three-hour away Albany.

October 28th (Sunday): no point studying, got to pack up an infant and dogs and supplies and whatnot and hit the road. That takes most of a day. The hotel is great and guest cancellations are rolling in. Papa John’s pizza and a practice exam for me.

October 29th (Monday): Holy Cow this is for real. Glued to CNN. Albany? A brisk wind is the worst we saw. Incredible luck.

October 30th (Tuesday): Hoboken is underwater. Everything is underwater. Uh, oh, when are we going to be able to get back?

October 31st (Wednesday): I write my exam in the morning. I’m the only one sitting it since the CAS let affected folks put it off. Not for me, let’s do this. That’s four hours.

Back at the hotel it’s becoming clear, as I scarf down yet more takeout, that we’re not going home. Looks like it’s back to Canada to my in-laws’. But first someone’s got to go back to Hoboken to get our travel documents. Saddle up!

Driving down the roads I see that about one in ten gas stations in Northern New Jersey is open and each has a gigantic queue of cars at it.

You know what that means: rationing by time instead of price. Far more importantly, however, it means that overall supply is lower. Here’s Yglesias who has been covering this very well:

Chris Christie, also put out a weekend press release warning that “price gouging during a state of emergency is illegal” and that complaints would be investigated by the attorney general. Specifically, Garden State merchants are barred from raising prices more than 10 percent over their normal level during emergency conditions (New York’s anti-gouging law sets a less precise definition, barring “unconscionably extreme” increases).

The bipartisan indignation is heartening, but there’s one problem. These laws are hideously misguided. Stopping price hikes during disasters may sound like a way to help people, but all it does is exacerbate shortages and complicate preparedness

And more:

But when it comes to things like gasoline and bottled water, neither the short-term nor the long-term supplies are genuinely fixed. Transportation routes into the area have been severely disrupted and many gas stations’ supplies are hard to access due to power outages, but it’s not impossible to transport this fuel from where it is into people’s cars and generators. It’s just much more annoying and difficult than usual. But the possibility of windfall profits is exactly the lure we need to get people to start making extraordinary efforts to get more fuel to the people who need it. There are things people will do to sell gasoline for $10 a gallon that they won’t do to sell gasoline for $3.40 a gallon (note that in Norway this is what gas costs all the time) and that’s what we need.

Power lines were down everywhere and electrical crews were working away. Roads were closed, though, and it took forever to get back to Hoboken. Eventually I had to park about a mile away and, now under the cover of darkness, run into town with my rubber boots, flashlight and backpack.

Very post-apocalyptic.

The phone networks were overloaded so there were definitely people around. You could see refugees sitting in cars charging their devices before going back up to, I dunno, play angry birds by candlelight, I suppose. The gold standard of disaster certifications is of course an on-location broadcast by Anderson Cooper, which happened while I was there! I didn’t see AC360 himself, though.

Anyway, got my stuff and booted it back to the car. Back to Albany by 11pm. Phew. what a day.

November 1st: quick check of the newswires. Still flooded. Ok, back in the car for 8 hours to Canada!

Post Scripts:

The insurance loss is getting picked at 10-20bn, which should put this after Katrina and Andrew as the third most costly hurricane in US history. That’s probably about right. There’s also a debate about whether hurricane deductibles (higher than normal storm deductibles) are going to apply to this “Post-Tropical Cyclone”. See here for example.

There is also a debate about the role of FEMA in these kinds of disasters. Here is an interesting point (via MR):

We’ve nationalized so many of the events over the last few decades that the federal government is involved in virtually every disaster that happens. And that’s not the way it’s supposed to be. It stresses FEMA unnecessarily. And it allows states to shift costs from themselves to other states, while defunding their own emergency management because Uncle Sam is going to pay. That’s not good for anyone.

When FEMA’s operational tempo is 100-plus disasters a year, it’s always having to do stuff. There’s not enough time to truly prepare for a catastrophic event. Time is a finite quantity. And when you’re spending time and money on 100-plus declarations, or over 200 last year, that taxes the system. It takes away time you could be spending getting ready for the big stuff.

…I think another issue is some people see the failed response to Hurricane Andrew as the reason George H.W. Bush lost Florida to Clinton. So now, you have presidents who are very concerned about the potential impact, from an election standpoint, of disasters. That created an incentive to nationalize things.

Finally, here’s a statistical wrap-up (great image at the link):

Death toll: 160 (88 in the U.S., 54 in Haiti, 11 in Cuba)

Damage estimates: $10 – $55 billion

Power outages: 8.5 million U.S. customers, 2nd most for a natural disaster behind the 1993 blizzard (10 million)

Maximum U.S. sustained winds: 69 mph at Westerly, RI

Peak U.S. wind gusts: 90 mph at Islip, NY and Tompkinsville, NJ

Maximum U.S. storm surge: 9.45′, Bergen Point, NJ 9:24 pm EDT October 29, 2012

Maximum U.S. Storm Tide: 14.60′, Bergen Point, NJ, 9:24 pm EDT October 29, 2012

Maximum wave height: 33.1′ at the buoy east of Cape Hatteras, NC (2nd highest: 32.5′ at the Entrance to New York Harbor)

Maximum U.S. rainfall: 12.55″, Easton, MD

Maximum snowfall: 36″, Richwood, WV

Minimum pressure: 945.5 mb, Atlantic City, NJ at 7:24 pm EST, October 29, 2012. This is the lowest pressure measured in the U.S., at any location north of Cape Hatteras, NC (previous record: 946 mb in the 1938 hurricane on Long Island, NY)

Destructive potential of storm surge: 5.8 on a scale of 0 to 6, highest of any hurricane observed since 1969. Previous record: 5.6 on a scale of 0 to 6, set during Hurricane Isabel of 2003.

Diameter of tropical storm-force winds at landfall: 945 miles

Diameter of ocean with 12′ seas at landfall: 1500 miles

The Next Movie I’ll Watch

Cloud Atlas. From Ebert’s 4-star review:

Even as I was watching “Cloud Atlas” the first time, I knew I would need to see it again. Now that I’ve seen it the second time, I know I’d like to see it a third time — but I no longer believe repeated viewings will solve anything. To borrow Churchill’s description of Russia, “it is a riddle, wrapped in a mystery, inside an enigma.” It fascinates in the moment. It’s getting from one moment to the next that is tricky.

Surely this is one of the most ambitious films ever made.

I can’t wait. I’ve actually read the book.

Now I’m not normally a fiction reader but a few years ago I set my heart on reading awesome recent fiction, just to see if I’d like it. So I found these two lists of the top 10 novels of the 2000s, one voted on by critics and one by non-critics.  There were only four books that made both top 10 lists. Perfect, I thought.

And here they were: *The Corrections* by Jonathan Franzen, *The Road* by Cormac McCarthy, *2666* by Roberto Bolano and *Cloud Atlas* by David Mitchell.

So I bought them all and read them. They were all good and interesting but none were as good as I was hoping. Authors have an agenda, I suppose, and it isn’t the same as mine as a reader. Well told stories about real life are ALWAYS more entertaining.

The Corrections was probably the best of the group but was marred, in my view, by Franzen’s jarring take on the Denise character.  His mockery of her archetype was a bit too outrageous. It made me feel like he didn’t really understand her. Enid almost made up for it, but I never recovered.

The Road was my least favorite, so I’ll skip it. 2666 was just weird and not really a novel as I’d previously imagined it. I enjoyed the thing but I feel like it would work better as a series of magazine articles.

Cloud Atlas was easily the most ambitious of all the books. I read a review of it that suggested that Mitchell needs to stop trying to show off as a writer and just write. I see where the reviewer is coming from. Cloud Atlas is an extraordinary mix of genres and character types, humor and fantasy and drama and… everything. And he does it all better than many genre authors can muster in their silos.

And he ALMOST got it all to hang together as a whole piece.

That a film has tried to pull that off is impressive. That it might have actually worked is astonishing.

Banks And Insurers: Full of Fail?

This is a neat little paper: How Complex Systems Fail. It is short, it is simple and it is absolutely PACKED with insight. Here is are some excerpts:

5. Complex systems run in degraded mode.
A corollary to the preceding point is that complex systems run as broken systems. The system continues to function because it contains so many redundancies and because people can make it function, despite the presence of many flaws. After accident reviews nearly always note that the system has a history of prior ‘proto-accidents’ that nearly generated catastrophe. Arguments that these degraded conditions should have been recognized before the overt accident are usually predicated on naïve notions of system performance. System operations are dynamic, with components (organizational, human, technical) failing and being replaced continuously

7. Post-accident attribution accident to a ‘root cause’ is fundamentally wrong.
Because overt failure requires multiple faults, there is no isolated ‘cause’ of an accident… The evaluations based on such reasoning as ‘root cause’ do not reflect a technical understanding of the nature of failure but rather the social, cultural need to blame specific, localized forces or events for outcomes.

One thing that strikes me about the paper is that the author (probably deliberately) does not try to define what a complex system is. In a sense the paper is a definition of a complex system, which is to say that they are defined by how they fail. Or, perhaps like with pornography: you know it when you see it.

I can see two ways that a complex system can develop and operate: top down or bottom up. Bottom up systems get to be much much more complex, yet I would say that they are much less prone to failure. Perhaps that last sentence is saying the same thing twice.

I think of this in terms of risk management at insurance companies or banks. You can imagine that a weak grasp of how systems fail could be financially ruinous: for example, by an executive believing he/she has a better grasp for the ‘root cause’ of why failures occur.

To run a complex system perhaps requires humility in the face of something you simply cannot understand.

Review of *Jiro Dreams of Sushi*

My family used to go on long vacations when I was a kid. One summer we found ourselves in a little town out West watching some kind of small time rodeo/outdoor fair. We ate lunch watching a country band.

Culturally, we weren’t normally into that kind of thing and I remember asking my mom what the deal was. Her response: “They’re live and good at what they do. That’s always interesting to see.”

That about sums up what’s great about this movie. Jiro is good at what he does, maybe the best in the world. His restaurant is a case study in narrow but deep achievement. Only Sushi? No bathroom? 10 seats? Underground strip mall? Three Michelin Stars.

The secret is a workaholic monomania. Sushi is raw fish, rice and wasabi. Simple enough. You’ll be surprised, perhaps, to learn that Jiro’s apprentices progress on a geologic time scale: months of squeezing towels to start, 10 years before you’re allowed to cook the eggs.

Tyler Cowen sees some kind of employer cartel among Sushi Chefs: extorting labour from skilled apprentices for years with the promise of trade secrets at the end.

I prefer the explanation given in the opening sequence. There are no secrets, says Jiro’s son and heir Yoshikazu, being a great sushi chef simply requires enough tolerance for mind-numbing routine to never, ever lose focus. Squeezing towels? The apprentices might as well just train by staring contest.

Deep skills can be learned through vaguely related, trivial tasks, as we know:


Jiro isn’t rushed. Like all masters of craft, he has been doing it forever (75 years) and feels he’s learning all the time. He’s released many apprentices to open their own restaurants, even his younger son (there’s only room for one dauphin). Anyway, the greatest masters never stop being apprentices, Jiro included. That lesson, too, takes time to learn.

The length of this apprenticeship stands in meta irony to the production of the film itself. The director, David Gelb, is only 28. I’m no cinophile so this comment sits a bit awkwardly in my mind, but I really enjoyed the camerawork in the film. The NYT reminds me of a particularly delightful scene, and it seems our young gun got some help:

Toward the end of the documentary, which comes out in New York on March 9, there is a spellbinding “concerto of sushi” in which nearly every item on the omakase menu at Sukiyabashi Jiro, Mr. Ono’s sliver of a restaurant, is captured in a loving close-up while Mozart soars on the soundtrack.

It looks simple enough — point a camera at the fish and start rolling — but it wasn’t.

Mr. Ono’s standards are so obsessively high that he wanted to shoot each handmade masterwork at “the supreme moment of deliciousness,” Mr. Gelb said, which happened to be the precise instant of its creation.

“It was important to Jiro that the sushi looked the way it was supposed to,” Mr. Gelb said.

This went beyond the fresh glistening hue of the fish. In the chef’s eyes, the scene had to incorporate even the gentle settling and merging of the fish and rice and sauce as each piece was placed onto a plate.

Take too long, Mr. Gelb said, and “we would’ve lost the soft landing, because it had already landed.”

The film touches on some of those lessons that are simple but hold enduring appeal. #1: the greatest are incalculably greater at their craft than the rest.

#2: But they don’t get that way by magic. There is not a single shot of Jiro’s home or life outside of the restaurant. And that is probably because, not being sushi, they don’t matter much to him.

Martinez vs Macklin Fight Review

Excitement can be had with any sport, really; I like watching boxing because it’s my preferred way of working out. There’s a heavy bag in my building’s gym and I bought my own double-end bag a few weeks ago to spice up the routine*.

Another nice aspect of boxing is that it happens year-round, every weekend. Surprised? Don’t worry, you haven’t been missing much lately.

But I just caught one I enjoyed enough to report back on.

Last night Sergio Martinez defended his Middleweight Championship (and by that I mean that nobody in his weight class can touch him: belts in boxing mean about as much as they do in professional wrestling) against a little-known challenger in Matthew Macklin. Read the (excellent) BLH and ESPN reviews.

Here’s mine:

It was a bit confusing at first. Macklin, the 10-1 underdog, was comfortably making Martinez look uncomfortable. Now, calling a fighter awkward or saying he makes another uncomfortable is extremely high praise in a sport dependent on rhythm. Macklin was doing just that, to the consensus #3 pound-for-pound fighter in the world.

Impressive as it was to me, the crowd booed its restlessness over this odd chess match as each fighter looked for… something, I guess. Exchanges were infrequent and most commentators had it even through 7 rounds. Very surprising. But there’s drama in a champ’s struggles, too. Might he lose? Might this be it?

Suddenly, late in the 7th, Macklin scored a cheap, legal knockdown as Martinez tripped after taking a shot.

And the sleeping giant awoke.

What ensued was no crass telephone booth war, mind you. Martinez went from landing tentative shots, mostly jabs, to hammering home straight crosses and hooks at every opening, which were suddenly abundant. Even those same jabs were finding the mark with real, thudding force. His footwork and ring movement are something to behold, better even than Pacquiao’s, who’s slowed a bit.

Macklin’s face started looking like he was getting hit. And he was. Two or three knockdowns later and he’d had enough, not answering the bell for the 12th. TKO.

The story of the first few rounds became clearer in retrospect. In camp, Martinez studied a very different opponent than the one facing him in the ring: Macklin came up with a game plan very different than his normal aggressive style and stuck with it. The plan was no surprise, he stole it from the last guy that Sergio fought. Same tentative first few rounds, same lack of engagement.

Same late-round knockout.

Spare a moment for Macklin, though. Changing your style effectively is impressive stuff: think leopards changing their spots. Macklin was an aggressive attacker and, to his credit, realized this was not going to work against Sergio. No wonder Martinez was confused.

Martinez wasn’t waiting. He wasn’t scared or losing his skills. He was thinking. Often we criticize athletes for thinking too much and freezing. Or thinking too little and not adjusting. Sergio thinks exactly enough. He’s probably the smartest boxer I’ve ever seen.

What he figured out was Macklin’s timing. He started calibrating his punches to an astonishing precision. Macklin’s head slipped slightly to his left when throwing his bigger shots, which helped him avoid the counters. For 7 rounds, anyway.

It’s wonderful to watch the best be awesome at what they do. Martinez is an outstanding boxer and athlete. Can’t wait to see him again.

*I do 3 minute rounds with 30 second breaks. Two warm-up rounds of shadow boxing (usually nobody around to make me feel as stupid as I doubtless look), three rounds on the double-end bag, four rounds on the heavy bag and one more round of shadow boxing. I’m usually completely exhausted by this point. Then I putter around the gym a bit doing some physio exercises for whatever injury’s bugging me at the moment and head back to the apartment. Total time is never more than 45 minutes. Three times a week.

You’re A Cultist, Too. Review of *Steve Jobs* [and *Clever*]

Boxing fans, like everyone else on earth, consume drama. ‘Action Fighters‘ draw the crowds with danger while skilled fighters, ironically enough, weave reality TV plot lines and talk trash to stay relevant. Drama outside the ring is still drama.

Steve Jobs was a drama magnet. Not all of it was his fault, to be sure, be he was an unabashed, deliberate showman. There was always going to be a biography about Steve Jobs, he was a narcissistic egomaniac after all, and he would probably have written the thing himself if he had to. We care because he was a driven businessman, but cringe over his dark personality. BOTH qualities were necessary to his success.

Consider the best part of this book:

Jobs’ biological father, Abdulfattah “John” Jandali, was a restauranteur and once owned an Italian joint in San Jose:

“That was a wonderful place”, he (Abdulfattah) said. “All of the successful technology people used to come there. Even Steve Jobs.” [Mona, Steve’s biological ister] Simpson was stunned. “Oh, yeah, he used to come in, and he was a sweet guy, and a big tipper,” her father added. Mona was able to refrain from blurting out, STEVE JOBS IS YOUR SON!

Jobs was understandably astonished when she mentioned the restaurant near San Jose. He could recall being there and even meeting the man who was his biological father. “I remember meeting the owner. He was Syrian. Balding. We shook hands.”

I call BS. There’s no way Jobs remembers this more than a decade later, but even without a drop of desire to meet Jandali, he still found a way to stir the pot.

Steve Jobs was a difficult dude. I heard this before reading the book and was a bit skeptical. Can’t be that bad, right?

Well it was:

  • He continuously decomposed things into black and white. Something was either “insanely great” or “shit”.
  • When things were shit he personally insulted whomever presented him with the shit.
  • When things were “insanely great” he had a habit of convincing himself that it was his idea all along, robbing true creators of the credit.
  • He lied. A lot. He lied to himself, he lied to others. He lied about facts of history. He lied about facts of his life and others’. He cheated and he stole and he lied.
  • He was supremely self-centered as well as self-delusional. He almost certainly, as was suggested in the book, suffered from a mild case of narcissistic personality disorder.

Imagine working for a guy like that? Yet he inspired thousands of workaholic overachievers to give him (and so us) their most precious gift: their greatest work.

Rob Goffee and Gareth Jones, the co-authors of *Clever*, are no doubt baffled. Theirs is a book about managing business superstars and its model leader doesn’t look much like Steve Jobs.

It’s actually closer to Will Wright, video game “auteur”, manager of teams and an employee of Electronic Arts. They describe him as indispensable, semi-autonomous, extremely productive and inspiring. Managing Clevers is meant to be a deferential process: they just need some infrastructure, a few other Clevers around and the peace to get on with it.

Being a rather typical business book, *Clever* is padded out with enough fluff to make a struggling high school student blush. But let’s see how Steve Jobs does against a list of the qualities that maximize the effectiveness of leading ‘Clevers’:

  • Explain and persuade (vs use authority)
  • Influence with expertise (vs hierarchy)
  • Amplify their achievements and don’t take any credit
  • Protect them from politics

Not doing so well. Steve was an autocrat who mistreated his people, except those who flattered his artistic conceit. ‘Artists’ were given special treatment.

  • Talk straight
  • Encourage failure
  • Give them time and don’t interfere
  • Don’t create bureaucracy
  • Tell them what (vs how)
  • Give people space and resources

Steve does better on this second list, though reading the tone of *Clever* I might have changed the the title to *Mothering*. And there was nothing motherly about Steve.

But Clevers are, above all, performance junkies and Steve inelegantly dismissed people’s perceived performance barriers. He did it by declaring their work crap when deep down they agreed. He didn’t need to belittle them, but those that stand in awe of the resulting outperformance forgive that.

*Clever* discusses this rush of achievement but then misses the most important leadership quality of all and THE one Steve was known for.

The ability to inspire.

But let’s step back first for some necessary biographical detail.

The world is flush with narcissistics with delusions of grandeur. This one was a man gifted with extraordinary circumstance. He was raised in Silicon Valley. He and Woz (a legitimate, world-class genius) were given the gift of each other’s friendship. He was catapulted into fame and fortune while witnessing what awesome ability and hard work can achieve. His very first work experiences were with A+ players. Who can say that? If you had that and lost it, wouldn’t you want to recreate it?

But he was a willful, obstinate and shockingly difficult human being. So he took that amazing training and screwed it all up; unfortunately, that’s the only way to learn.

And learn he did. He learned by emptying his bank account, pawing at success with NeXT and Pixar. But we don’t see the stumbles and heartache so we don’t learn with him.

Instead we focus on the design of the Pixar office and other vacuous minutiae like his personal life. He didn’t care about anyone then, so why should we care now? You can feel Steve’s guiding hand pausing on the Pixar supernova then pushing us to the third act and his spectacular successes (“Talk about the iPhone! Talk about the iPad!”). Well-trodden ground with lots of puff. But where are the disgruntled insiders with new scoops?

So I didn’t even finish the thing.

I came away from this book with an appreciation for the staggering power of inspirational charisma. A charitable comparison would be to a preacher that can heal with his words. A less charitable one would be to a cult leader or con man. They all share the gift of enthusiasm without affectation, which apparently very few people can resist. We’re all cultists at heart.

And there are all kinds of interesting facets to this gift that the book implicitly explores.

One comment that kept coming up was his ability to “figure out whether you know what you’re talking about”. Time for a little (more) Robin Hanson, who taught me that leadership makes you both better at lying and better at detecting lies.

Perhaps… the implicit elites in a band [are] better able to read such clues [signaling lying], either via better raw abilities or because power frees one to use such abilities (perhaps by reducing fear of retribution).

Leaders lie a lot because they can get away with it and call people out on lies because it isn’t socially costly for them to do so.

Another example: take Steve’s desire to ‘control all aspects of the user experience’. He indulged the most extreme form of this inclination at NeXT: they built operating systems, software, hardware, factories to build the hardware and programming languages to write the software. All the while we read of Steve’s compulsive need for everything to benefit from the touch of design. Much is made of his obsession over painting the assembly machines in factories in spite of the operating complications that result.

And we see yet another side to Steve when he forced into negotiations as a partner (or, gasp, supplicant) in a deal. He’s terrible at it: all hardball and temper tantrums. As we learned in the 2008 financial crisis, assholes can’t negotiate, even to save their own bacon. Was the purity of his ‘complete experience’ vision rooted in his inability to play with others?

And let’s face, the ‘go it alone’/walled garden strategy was a failure for personal computers. Bill Gates (who, by the way, is easily the most interesting and funny character in the book) was right: you win by getting everyone into your sandbox.

Luckily for Steve, he got over this with the Pixar/Disney deal and only selectively lengthened his supply chain in the the smartphone/tablet era, where integrated software and hardware is essential. Indeed, the Microsoft PC strategy is as big a failure for smartphones as the Apple strategy was for the personal computer.

I don’t think that anyone who reads this book would want to retroactively make themselves Steve Jobs’ friend. Such a relationship would be unpleasant. You’d alternately bask in the attention of his charismania and wither under his belittling rage. Mostly, however, you’d live out your life without a hint that he knew who you were. Indifference is painful. He wasn’t ‘friendly’.

But he brings new life to the common lessons of startup success: work hard, be relentlessly resourceful, be enthusiastic.

Sure there is a correlation between success and some unpleasant qualities, but I still hold the faith that good guys can win, too.

Fix The Future. Get Outta Your Bubble

From what I can tell, that’s about the upshot of Charles Murray’s book that’s set the blogosphere alight this past week.

I haven’t read the book and probably won’t with the likes of this and this and this review giving me the gist.

And the gist is that the ‘upper class’ are richer, better educated, more likely to go to church, more likely to stay married and more likely to raise kids that will themselves be even more educated, rich, churchgoing and married than themselves. Fine.

But there are two extra bits that Murray (and everyone else) is focusing on. First, the churchgoing part above is a clue to this cutting straight past the labels ‘Republican’ or ‘Democrat’. Second, and most importantly for Murray: these people are self-segregating.

Most of the commentary discusses the geography of this trend, which is apparently stark. The ‘elite’ don’t venture out of their bubble and so the non-‘elite’ don’t get to see what being ‘elite’ is all about. This is meant to ice their and their kids’ chances of moving up.

Therefore, says Murray, the elite have a duty to get themselves out there more.

My parents always worried about what kind of kids my sister and I hung out with. They figured our peers would influence our habits much more than they could.

Charles Murray agrees then turns to them and asks: “but who are YOU hanging out with?”

Full disclosure: Murray would probably say that you, dear reader, and I are both in this elite. As are our parents and everyone we know, basically.

Review of David Merkel’s Analysis of ROE During the GFC

Link here.

Abstract:

From 2005-2010, the change in public company returns on book equity [ROE] was wrenching during the financial crisis. The results were uneven by sectors, and even by geography, for stocks traded in US equity markets. This paper looks at the differences, and attempts to explain why there was so much variation by sector and geography. After that, the paper attempts to explain the correlation between changes in ROE and stock returns, by year, sector, and geography.

In a world in which I didn’t have only 20 minutes to read, analyze and write about this paper, I’d like to think through his model choices. I would feel much more comfortable on this point if he accepted the Russ Roberts Science challenge and have a section discussing the process by which he arrived at the process by which he arrived at his conclusions.

Aaaanyway, the paper is interesting in that it identifies some interesting countries (Mexico? Israel?) that had companies that did very well during the crisis. Another interesting thing is that he decomposes the performance of individual US States but immediately discounts the conclusion by saying that the location of these corporates are due to historical accident:

To some degree, historical accidents help explain why some states have high contributions to returns on equity, and others low contributions. Washington State has Microsoft, Amazon, and Costco, all of which started out there. Michigan has General Motors, Ford, and Chrysler; the automobile industry has long been a big part of the state economy.

The contribution to ROE of Arkansas can be entirely attributed to Wal-Mart. Washington, DC can largely be attributed to Danaher, though Fannie Mae pulled the contribution to ROE down considerably as it failed in 2008.

The results of Kansas are dominated by Sprint Nextel, which has been a weak competitor in wireless telephony, though YRC Worldwide also had some impact on the low contribution to ROE as it was too acquisitive heading into a major recession. Virginia has many strong companies, but Freddie Mac pulled the contribution to ROE down with it failure in 2008.

Companies don’t move often, so attributing the differing contributions to ROE to state policies is unlikely. In the extreme cases listed above, all of the companies listed had been headquartered in their respective states for a long time, and most had been started there

I’d have two comments:

1. What’s the point of decomposing them, then?

2. Can’t you just attribute ALL variance of corporates to ‘historical accident’? Can there be no policy implications?

On point #2, I’d defend Merkel by saying that policy implications need a big enough sample that you can reasonably hold other factors constant. You’d need a dataset of every industry in every state over every conceivable macro-economic environment, then control for those other factors. Same applies for analyzing different countries.

But, you might say, every industry isn’t in every state! Yep, that’s why this kind of analysis is probably better classified as ‘interesting’ than ‘science’.

He probably should have left the geographical component out if he (rightly) concluded that there aren’t any policy implications. Or at least chose a different basis than political geography: how about companies on coasts vs inland? High vs low altitudes? Near vs far geographically from ‘bad’ industries (like financial services)?

Anyway, none of the criticism is a knock on Merkel who is a first class analyst with a first class blog.

Review: New York Tech Meetup

I went to another NYTM last night and, again, really enjoyed it. Every time I go, I meet a few really interesting people (batting 1.000 so far) and have some stimulating conversations about the presentations.

This month we were treated to another bland lineup of social media webapps, which don’t really excite my interest. Social media webapps seem to have two goals: letting you keep in touch with people you already know (facebook) or suggesting new people for you to meet (no paradigm here, yet, but linkedin is in the ballpark). I saw several variations on both, none of which were particularly gripping. I have a pretty low tolerance for this kind of thing, though.

The enterprise software was a bit more interesting. Big data is a persistent theme. If you can get your hands on a big, novel dataset, you have found yourself at the cutting edge of technology. Better get some crunchers on that, pronto, before someone nicks your lunch. I’m available.

There were two hardware offerings, which I always find the most exciting. One was a 3d printing service, which is one of the most extraordinary recent technological developments.

The other is an almost moving story, to an econo-geek. From the ashes of the Rochester photography industry rises Kogeto, a maker of 1. a 360 degree video camera add-on for the iphone; 2. hardware (woops!) software for editing such video and, 3. a video player that lets you click and drag such video in your browser (or wherever). Impressive.

Once again the presentations are polished, often funny, and almost always flawless. Bravo to all.

Can’t wait for next month!

Motivations And Scale

A paper on small businesses.

[W]e show non pecuniary benefits (being one’s own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision. We then discuss how our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated.

Here’s the MR link.

Another important quote:

some firms do not grow or innovate simply because they do not want to grow or innovate… those business owners that report starting their business in part for non-pecuniary reasons were much more likely to want to keep their firm size small well into the future.

I recently heard a story about a round of layoffs at a large reinsurance company. It started with an email to 50 or so people (NOT BCC’d!!) who were told to cancel any vacation they had for the next two weeks. Sure enough, two weeks later, as told to me by one of the guys on the list, HR and managers were walking the hallways and slipping into offices to deliver their fatal blow. My storyteller suddenly found himself facing his own angel of death (his boss) but was told his name was a decoy on the list (they couldn’t be that obvious!). He was fine.

Work for yourself, indeed.

Another quote:

Second, some businesses may stay persistently small because they are in industries which have low natural efficient scales. Many small businesses are dentists, plumbers, real estate and insurance agents, small shop keepers, and beauticians. Within these industries, the productivity of the firm is directly linked to the individual’s skill set.

If you’re in a business for which human service is the primary function, there is NO economy of scale. Humans aren’t scalable.

Once upon a time, Investment Banks were such businesses, like doctors and lawyers. They ate or starved on the relationships and execution skill of a few individuals. They found scale when they figured out they could raise capital and trade on their knowledge advantage. The free option (bailout) on their debt for their bondholders turbocharged this model and they became the omnipotent behemoths we know today.