The anniversary of the Triangle Shirtwaist Factory fire is this week. This event has been coming up in my life frequently of late.

Mary and I just got through this part in a giant 6-part documentary on the history of new York; we recently went through the tenement museum here, which deals with ‘those kinds of issues’; and, on account of the anniversary, there’s been some press comparing that event to political battle over unions in Wisconsin.

It’s a gruesome event and, unsurprisingly, served as a catalyst for pro-union legislation, improvements in workplace safety and I believe its occurrence prevented other such tragedies.

But my hackles always get raised when presented with one-sided narratives. The kind of self-satisfied ease with which left -leaning folks present this event and its ‘context’ only avails itself to the victors of history. Sacrilegious as it is to say, I bet that most factory conditions of the day were tolerable by the standards of the day.

Most isn’t all, of course, and a single disaster like this is enough to condemn the entire system supporting it.

Much as unions really irritate me, I’m not terribly surprised they exist.

“Some Day I’m Going to Start My Own Company” – Douchebag

Perhaps surprisingly, there is a vibrant startup community in the insurance world. In any sales-driven industry, those who can start a business that locks in a distribution channel get rich.

In insurance, these businesses are called Managing General agents (MGAs). They are to insurers what hedge funds are to pension managers.

Anyway, the part about successful MGA owners making big money isn’t lost on many. Predictably, there’s a multitude of frustrated middle managers harboring a deep desire to put their shingle out and strike it rich.

Easier said than done, of course, but it can serve to salve a beaten down ego for a while.

Obviously, I eagerly count myself among these despondent douchebags.

Interestingly, most MGAs are only barely viable. They typically identify some market micro-segment with only enough scale to make a little money; the rest is hopes and dreams stuff that never comes true (but proven by hockey stick growth targets!). Economists would say price equals marginal cost here, and go to bed happy with the state of the world.

At scale, the insurance market is a commodity business, but at the local level it’s a relationship business. Different skills.

Those with the best view of the big picture are the corporate types and they just aren’t entrepreneur material. Too secure, too much to lose. They overthink and do things like write blogs about entrepreneurs while having started nothing at all in their lives.

The local shark is often a champion salesman but runs out of gas when he runs out of hours in the day to sell. No scale.

When lightning strikes and you get the natural entrepreneur with a solid grasp of the whole thing?

That dude gets rich.

Making Waves

I like having pet ‘theories’ that I find useful for thinking about the world but are exaggerations or ‘caricatures’, as I typically call them. Reading Arnold Kling and Robin Hanson freed me from the need to feel like people should ‘kinda agree with me all around‘ about things.

Here comes another one: “people and politics never matter”

Barry Cunliffe’s Europe Between the Oceans discusses Fernand Braudel‘s division of history into three concepts of time:

(oh, yes, I’m using the french!)

1. l’histoire evenmentielle (“events insitgated by individuals”);

2. conjontures (“collective forces, impersonal and restricted in time to no more than a century”); and,

3. the longue duree (“geographical time”).

Ok, some examples to help explain.

Scott Sumner’s had what I’m sure he would say was a provocative idea:

I seem to be the only person in the world who thinks Al Gore would have led us into Iraq.

I’d rephrase what Scott’s saying as: everyone thinks that the invasion of Iraq was a #1 event (attributable to GWB or Rumsfeld or something), but it was really a #2 event (driven by the will of the people in reaction to 9/11).

Controversial example, to be sure. But it helps illustrate the point that humans have a deep need to attribute actions and consequences to individuals. We aren’t built to think on a societal scale, we’re built to think in terms of tribal units, a mental model that evolved waaaay before societies were of any size.

Now, my caricature of this idea is that NO heroic historical figure is relevant for understanding any historical process: Plato, Aristotle, Alexander the Great, Jesus, Charlemagne, Copernicus, Martin Luther, Newton, Geroge Washington, Napoleon, Abe Lincoln, Darwin, Einstein, Hitler, Stalin, Martin Luther King Jr, Jackie Robinson, Ronald Regan, Bill Clinton, George W Bush, Sarah Palin or Joe the Plumber.

All extraordinary individuals, to be sure. But I’d say that all of their acts (good or bad) were fundamentally products of their culture. The WHO affects the WHEN (barely), but not the WHY.

The next lesson I take from this is that we attribute #3 effects to #2. Geography builds societies, not culture.

Why did Western Europe develop faster than North America, Africa or Australia? Geography. Why did the Middle East develop first and not Europe? Geography. Why was the Industrial Revolution in England? Geography.

GG&S was the first exposure I had to this idea and it blew me away. Cunliffe’s book is very much in this tradition.

When I hear some grand even attributed to a person, I think about the culture. When I hear something attributed to culture, I think about the geography.

Inmates Run the Asylum

Just finished Russ’ podcast with Daron Acemoglu on inequality and the financial crisis. There’s a lot of interesting stuff here.

The genesis of the podcast is a book by Ragu Rajan that I haven’t read. The ideas (as discussed in the podcast) are familiar, though: measured inequality goes up, everyone freaks out, politicians figure subsidizing housing is a good response, a housing bubble emerges and every special interest under the sun (the poor, Wall Street, Real Estate, etc) makes a killing.

Acemoglu has a great stat about how politicians’ voting records correlate most highly with the surveyed priorities of the top third of the income distribution, somewhat well with the middle third and not at all with the bottom third. Lots of interpretations here:

My caricature of Bryan Caplan would say that the top third are the informed voters and the rest don’t matter because their desires are nonsensical and they don’t vote anyway.

Super lefties immediately go for the corruption angle.

Who knows.

Tyler Cowen’s awesome essay on financial regulation and inequality screams for a mention here. It taught me that bailouts are impossible to a avoid, really.

The only people who know enough to figure out how to engineer a non-bailout system or command enough authority to convince the polity that bailouts aren’t necessary are in the system!

Depressing stuff.

Douchebag Alert!

Man do I hate this post. Let me count the ways:

Basic Math:

I’d say I correctly broke down how a dollar  of insurance premium gets distributed, but I made two errors. I stand by the main cost being claims and brokerage. I glossed over the breakdown of the rest, though. There’s profits (5%), Reinsurance (5-10%) and internal expenses (5-15%).

Different Reality:

The internal expense portion is massively dominated by one function: regulation. In the US, there are fifty regulators a nationwide carrier needs to cozy up to. FIFTY. Insurers are NOT just pools of capital. They are money + regulation passing machines. That function is pretty resilient to ‘streamlining’.

No Balls:

So why did I decide that the smallest share of premium is the one to automate? The fat is in the brokerage because they have the power over the business.

Facile Business Fantasy (I really hate this part):

‘Silicon Valley’? WTF are they going to do for you? Social networking or cloud computing? You going to improve our process by outsourcing it? The key problem here is that if someone else has an idea that’s great for insurers, they should just start an insurance company. All you’d bring to the table is regulatory expertise and work flow systems. Not very impressive is it?

All the money is in the distribution network. Forget insurance. Find a way to take out the broker and let the insurers play with the regulators.

This is why I was worried about writing more. I start slinging stuff out the door and only later realize it’s shit.

HR is a Low Priority

One frustration about working for a small company is the hiring ‘Strategy’.* The process (for general entry-level spots) goes something like this:

1. Realize you should have hired someone 6 months ago

2. Hire the next person you meet that seems suitable

3. Be annoyed 5 years later when you feel like there’s always a shortage of ‘skill’ positions.

4. Hit the sale rack for discarded talent.

The answer to this problem: choose carefully and train. Easy enough to understand.

Recently, I’ve been given the go-ahead to hire an intern. I’ll show ’em how it’s done!


Haven’t much to show for myself. Here’s why I think this is:

1. This process is effing TIME CONSUMING. College career services offices are painfully bureaucratic and only want to talk to a company that hires dozens of MBAs (ka-ching!), not one that might hire an undergrad intern per year. Maybe.

2. Learning is hard! Bumbling through the process with bureaucrats then try and sort out which students are duds? No fun. I remember, from ages past, the ratio of decent-to-disastrous candidates as something like 1-5 or 1-10, and that was from a heavily pre-selected University program.

3. Meeting people is hard. And chumming around with a gang of youths too nervous to flash me a glimpse of their real selves so I can probably reject them outright? Wearying.

4. And all for what? Short term pain, medium term breakeven (probably), long term massive gains. MY discount rate is prohibitive?! My bosses’ discount rates are astronomical by comparison.

Luckily I’m happy to tie myself to the mast with blog posts like this. Need some motivation!

* For small companies in my business, ‘strategy’ is something to do when idleness if forced upon you, the rest of the time, you’re broking/pitching/selling.

Hammering a Nail Outside the Box

Here‘s a very interesting article on the cognitive cost of expertise. The author takes us through some studies, particularly of London Taxi drivers, that when you learn a particular skill, you have a very hard time changing that skill. London cab drivers had a tough time figuring out the new Canary Wharf layout.

“To a man with a hammer, every problem is a nail”.

This really resonates with me. The process of applying new cognitive strategies to solve problems that ‘experts’ in a field are struggling with (by, perhaps, using a strategy from another area of expertise), is called “thinking outside of the box”.