Measures of Management

As a line worker, your contribution is easily measured. Assemblies per hour. Forms moved from "inbox" to "outbox." Daily trading P&L. As a manager, however, your contribution is nebulous. Imortant, contributory, difficult, yes. But easy to measure, generally no. Yet managers are perhaps the biggest fans of productivity metrics. Reporting. Dashboards. These are the same people who have to sit their own staff down periodically and explain why their bonus isn't what the other guy's is. Unfortunately, when measuring themselves (or the managers reporting to them), the de-facto metric is simply calories burned. How many hours they were active for the business and how hyper they were during those hours. How many people they talked to, conference calls and meetings they popped into, and emails they read. How many fires they fought. How many tasks they assigned. All of this measures activity, but managers are compensated more than line workers, not just because they work harder. They are compensated for their rare ability to make good decisions. In my days as a manager, I've always measured my contribution in the number and dificulty of good decisions made per day. Retrospectively bad decisions should count for zero, but those decisions that were neutral to good should be multiplied by their difficulty factor, which in tern is a combination of several components including % of necessary information available, amount of analysis done, parties to be satisfied, and value at risk. The result of this calculation gives us a "business contribution factor." Sum this BCF across time and you get a standardized measure across all managers of the organization which is comparable. Moreover, plot it over time for all your managers and you can build yourself a "manager of managers" dashboard to monitor how each is doing. As managers develop, their BCF should appreciate just like a good equity.

What would Reagan say to the people of America Today?

He's already said it. Let's listen in as he speaks to us via actual quotes from twenty, thirty years ago ... "Before I refuse to take your questions, I have an opening statement ... My fellow Americans, I am pleased to tell you I just signed legislation which outlaws Russia forever. The bombing begins in five minutes ... How do you tell a communist? Well, it's someone who reads Marx and Lenin. And how do you tell an anti-Communist? It's someone who understands Marx and Lenin ... " "Government is not the solution to our problem. Government is the problem ... I don't believe in a government that protects us from ourselves ... Concentrated power has always been the enemy of liberty ... Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free ... Above all, we must realize that no arsenal or no weapon in the arsenals of the world is so formidable as the will and moral courage of free men and women. It is a weapon our adversaries in today's world do not have. It is a weapon that we as Americans do have. Let that be understood by those who practice terrorism and prey upon their neighbors ... " "History teaches that wars begin when governments believe the price of aggression is cheap ... Of the four wars in my lifetime, none came about because the U.S. was too strong ... If it's to be a bloodbath, let it be now. Appeasement is not the answer ... We can not play innocents abroad in a world that is not innocent ... I am totally unwilling to see this country fail in its obligation to itself and to the other free peoples of the world ... We have done what we had to do. If necessary, we shall do it again ... When our citizens are abused or attacked anywhere in the world on the direct orders of a hostile regime, we will respond so long as I'm in this Oval Office ... [They] counted on America to be passive. [They] counted wrong ... " "There are no easy answers but there are simple answers. We must have the courage to do what we know is morally right ... You and I have a rendezvous with destiny. We will preserve for our children this, the last best hope of man on earth, or we will sentence them to take the first step into a thousand years of darkness ... All great change in America begins at the dinner table ... We have found, in our country, that when people have the right to make decisions as close to home as possible, they usually make the right decisions. ... We must reject the idea that every time a law's broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions ... I know in my heart that man is good. That what is right will always eventually triumph. And there's purpose and worth to each and every life ... " "If you analyze it I believe the very heart and soul of conservatism is libertarianism ... Whatever else history may say about me when I'm gone, I hope it will record that I appealed to your best hopes, not your worst fears; to your confidence rather than your doubts. My dream is that you will travel the road ahead with liberty's lamp guiding your steps and opportunity's arm steadying your way ... My friends: We did it. We weren't just marking time. We made a difference. We made the city stronger. We made the city freer, and we left her in good hands. All in all, not bad, not bad at all. And so, good-bye, God bless you, and God bless the United States of America. "

All in All, Not Bad at All

Ronald W Reagan would be 96 today.

We miss you, Gip.

I miss you.

"Ronald Reagan belongs to the ages now, but we preferred it when he belonged to us." - George W Bush

Individualism

I've long felt that one of the major risks to this world's future is laziness. Laziness fuelled by hedonism. I guess I'm old enough to start harkening back to simpler better days. On one hand, I think the present is incredible. Wonderful. Spectacular. I wouldn't want to live in the past, even if I could. However, I do have concerns about people today. So many ills today sseem to stem from peoples' bad decisions, mis-education, lack of interest and intellectual curiosity. There seems to be a romanticisation of laziness, stupidness, uninformedness, populism, sensationalism, entertainment-ism. And this last one is either the consequence or cause of the deeper issue. TV and even newspapers no longer just present pure news. It's gotta be news-tainment. Evidently under the premise that no one would watch just news anymore. If so, that's sad. Is it true? If so, why? Have the media outlets morphed public behavior to cause this, or did they simply react? Will people truly not watch the morning news just to get informed, rather than the talk-show format spoon-feeding of tidbits of news hidden inside huge lumps of sugary sensationalized, nearly fictionalized human-interest drivel. The kind of crap that is, and should be forgotten by the next day. The kind of thing which can be traced to absolutely no subsequent change in our world or our lives. Truly a waste of time. So much goes on in this world today - there's actually too much information to digest. Yet instead of going after at least the most important pieces, we numb our minds with this drivel. Thereby sorely uninformed, we can only outsource our thinking and decision making. we form our opinions not on facts and analysis, bur on the opinions of others - either based on the consensus views of those close to us (whether or not they have any greater qualification than ourselves) or on the words of some celebrity we choose. And here again media steps right up to serve us talking heads we recognize. Doesn't matter whether they're informed or intelligent or logical. Just matters that we "like" them and that they're famous. Rather than choosing our thought-leaders based on skill, we substitute celebrity. They must be smart, if they're so well known, right? That's asinine. It's laziness. The idea that either we have no impact and thus should just disengage ... or that issues are too complicated and there's too much information for us to digest, and thus we should just follow others. This creates a huge vaccuum, and invites popularity-seekers to step up and "lead" by drowning us with their self-edifying blather based not on facts or analysis either, but just one their "opinions" and "beliefs" and what they've heard. These talking heads are no more qualified than anyone else. We could all form uninformed opinions and then go prostelize. and there's a component of this that sources from the vast growth in individualism in the last 100 years. I theorize that, once people's basic needs no longer took all their time to satisfy, they lost the desire to have the security of being part of something larger, be it a community, a society, a nation, a religion, a party, a famliy, a team, an army. And so sinc ewe had no desire to belong, we had no motivation to fit in - to comply with the rules and standards and expectations of the group. Individualism, in itself, is a good thing. People should be free to discover and pursue their own interests as long as it doesn't negatively impact others. But when individualism leads the individual to act only out of self-interest irrespective of the impact on any greater group or future period, only stopping when physically checked, they become deleterious to their own world unawares.

So, what do we do about it, smarty pants? What's the right answer?

That's a good one. And it'll have to wait till next time.

What will Tomorrow Bring: Sarkoszy

Pro-American, Pro-Business, and a damn fine first name. We need Sarkoszy in charge of France!

Woe-is-Europe

One of the most unsung sad stories of this world is the age gap in Europe. As their population pyramid inverts (more kodgers than kids), there is a job vaccuum at the top of the food chain. Even though their overall economy is stagnant on the continent, the few good jobs left are held onto with a death grip by older and older people. Most Euro kids coming out of school have no job to turn to. Instead they focus on internship after internship, advanced training after advanced training, apprenticeship after apprenticeship. All the while living at home, broke, and depressed. Forever postponing the launch of the "real life" they hope to lead when they "grow up."

At the end of the day, you end up 100 tragically overqualified twentysomethings competing for every job that comes up ... only to get aced out by a much less educated establishment player in his 40's.

Similar things happen in politics. Euro youth is entirely disenfranchised in that arena.

Meanwhile, the US youth has long won the culture wars. Euros have two choices: buy into American culture or be a global dork.

What's left for these people? Radicalism? Adventurism? Socialism? Someday, these guys are gonna start changing things on that continent.

Woe-is-me

so much pessimism these days ... there must be a lot to be pessimistic about. Especially sitting here on the west coast, where according to the majority of people I talk to, the world is going to hell. Strange, it looks a lot more like heaven here to me. Of those things people continue to fight about worldwide, I see scant evidence here. When I hear "Unprecedented" I'm seldom disappointed by the following adjective about this country: unprecedented wealth, unprecedented freedom, unprecedented opportunity ... Whence does all the worry stem?

It's a bunch of rebels without causes. All those kids of the sixties, all those ex-hippies who are at the controls today transform our national culture faster than ever before by insisting on not getting old, not getting stodgy, not falling behind the latest trend. Sure, like their parents, they want a good life, a comfortable life, a safe life. But they have higher aspirations. Those elements are the floor of their culture-house, not the steeple. My grandparents fought for survival and quested for comfort for their families. My parents took comfort for granted, fought for independence and quested to deliver their families into luxury. Both generations succeeded, goals reaching ever higher as the generations stand on the shoulders of the precending. And no evidence of the same ceasing with my generation - the perpetual kids of the original perpetual kids. We want to, but find it hard to out-cool our parents, to out-speed, out-drug, out-spend, out-rebel. And we feel just the slightest bit inadequate. They invented rock. We just listen to it. They marched and changed the world. We just talk about it. We don't see that our goals are again higher, our contributions again building on those of our forebears. We don't know where we'll go. But maybe we should start thinking about it. Without goals, we're gonna get nowhere.

But to take a step back, let me marvel at how beautiful it is we have the right to do so. That's what our grandparent's grandparents fought for ... and won for us.

Does Bush really hate Supranationalism?

Bush imposes huge steel tariffs, gives record farm subsidies, breaks the ABM treaty, circumvents the UN on Iraq, nominates a UN-basher as his ambassador to it, shoots down Kyoto and the ICC. He must have it in for the new world order.

Not so fast. Perhaps he and his team trying to teach the world textbook game theory.

There is no world government. National sovereigns are the highest level of organization which can coerce (using the economics definition of the term). Multilateral and supranational treaties and organizations operate under the premise of persuasion via voluntary participation. To plagiarize NYU professor Israel Kirschner, they "don't have the guns." The only way someone can be forced to abide by rules of these organizations is if powerful sovereigns voluntarily enforce them. Even NATO doesn't have a standing army of its own; forces are contributed voluntarily by member nations. Underpinning these supras, then, is the elegantly simple premise that those who participate agree with the rules; those who don't agree don't participate. This is critical because supras don't have a US-style system of checks-and-balances. Instead, they rely on this game theory-based equivalent which allows participating nations to exert their own persuasion (not coercion) through their participation. In line with game theory, there is no attempt at equality here. As game theory asserts, there should be no presumption that equality is optimal. Rather, the strength of each nation's persuasion should be commensurate with the net present value of all future contributions they can make, PLUS the (absolute value of the deeply negative) net present value of the damage they can cause by opting out.

Consider the hypothetical Organization of Pig Excrement Countries where we have: Cacastan and Crapola: big producers of excrement and and equally big consumers The Poo: loves excrement, but can't make any Dutyland: Full of crap but with a low tolerance for the stuff Bovinia: Bullshit only please Fartville: Doesn't give a shit Bovinia and Fartville may be the biggest countries on the planet, with standing armies of 100 million souls each, but they have an NPV of zero to OPEC because they have nothing to contribute (or withold) and nothing to lose (or gain) when it comes to the lucrative pig excrement trade. As our logic gets more sophisticated, this will change, but for now Dutyland has a big positive NPV to OPEC since they make a ton of the stuff. The Poo doesn't contribute much, but, were they to strike a side agreement with a big producer, OPEC would be up shit creek without a paddle. Thus, they carry the potential for a big (negative) NPV. But Cacastan and Crapola are in the best position. They have two "levers" to play with: supply and demand. Thus, they are the kings of OPEC. Their desires carry a lot of weight and, where enforcement is needed, they have to step in. The rest could gang up on them, but they'd have to act as one to counterbalance these two shit superpowers. If we move to a higher level game theory, we must consider the fact that Dutyland has only have one source of persuasion: restricting production. If we were to add probability math to our game theory computations, we might recognize that restricting production hurts themselves more than it hurts the rest of the world, and thus we would factor into our calculations the scant likelihood that they would use that lever. This would reduce their overall NPV to OPEC and thus their strength in the organization. On the other hand, if they were able to re-direct their resources into the equally lucrative pork chop industry, they might have very little to lose by restricting pig excrement production. This would give them a bigger sway in OPEC.

Enough of that crass example. How does pig crap relate to Bushcrap? The Bush administration's behavior relating to supras may appear disturbingly brash and erratic when viewed through the prism of European come-alongism and stagnation (see my earlier article on inaction). However, when viewed as a game theorist, Bush seems quite savvy and painstakingly consistent. At each turn, he reminds the other members of these supras that the US has the right not to participate. As game theory dictates, each member must anticipate the actions of the other members and design their own strategy for playing the game. As each member makes a move, the other members must re-engineer their strategy. Inherent in these strategies must be a recognition of the NPV each member carries, and thus the power they wield. If the US deems that we have more to lose than we gain with Kyoto, it is entirely rational (in fact expected) that we will opt out. This doesn't mean the other members can't carry on. It just means that they will have to re-design the thing before we feel that, on balance, it is in our interest to sign up. Those like Haiti with very little to contribute or gain from the treaty appropriately have very little say in how the thing is crafted.

So, does Bush hate the supras? Is he singlemindedly trying to kill them off in favor of a unilateralist world? Nope. He loves them. He's just playing the game!

FOLLOW UP: Chinese Growth - Who's afraid of the big bad wolf?

By now, it's cliche to say how great China is. You won't be off the plane an hour before you hear that this is Asia's century. And, having recently returned from there, I can concur that the progress, the development, the overall civility there is spectacular. However, I can also confirm what I said 2 years ago before I had visited. Their miracle is going from communist-agrarian to capitalist-urban in 50 years, but it'll be nothing short of a second miracle if they can clean up the mess they've made in less than another 50 years. Specifically:

• They have set up an industrial complex which consumes their (and others') natural resources at such a rate that they'll be devoid of economically-viable resources within 50 years. They must make friends with nuclear power, non-petroleum plastics, hybrid vehicles, and RECYCLING.
• Which segues into the next issue: pollution. There must be about 500 trillion pieces of trash on the ground in that country. With a population of 2 billion, I calculate that it will take half of 'em exactly 50 years to pick it all up. Meanwhile, the other half of the population can start straining the crap out of their water supply. At the same time, of course, they're going to start facing the health problems caused by their decadence. Hey you stock-chasers: listen up: buy pharma stocks, buy Gilette. These folks are gonna need lots of Kleenex! Ah-choo.
• And while we're talking about the population, we might throw in the ridiculously low productivity figure. The population has to be educated, outfitted with new technologies, and taught how to work in a profit-incentivized capitalist structure. This is a generational change, not a 5-year plan.
• The allocation of capital has been entirely and cronyistic. As such, past and present investments are quite likely to crash and burn. Projects with obviously negative ROIs continue to get money tossed at them while entrepreneurs are trying to get water from stones. Existing investments need to be reviewed and new investment methodology must be totally revamped. How do you say "risk adjusted return on capital" in Mandarin?

FOLLOW UP #2: You've heard of the Illuminati, right?

Six months ago, I singled out one of the 'illuminati' for particular criticism. In the last week, he has been relieved of his job, pushed off his board (and, surely, others will follow), and thrown to the proverbial magnate-curb. As I said before, the roaches can only survive in the dark. Turn on the light and they scurry. Poor Ace Greenberg just had a hitch in his getalong and couldn't scurry fast enough. If you ever need an affirmation that perfect information is contributory to perfect capitalism (which, IMHO, is the economic ideal), here you have it!