Heffernan: Stop Working!

Interesting article over at BNET by Margaret Heffernan, who makes a pretty well grounded argument that heroism and other misguided notions are dampening the productivity of modern workers:

…for the last 100 years, every productivity study in every industry has come to the same conclusion: after about 40 hours in a week, the quality of your work starts to degrade. You make mistakes. That’s why working 60 hours may not save you time or money: you’ll spend too much of that time fixing the mistakes you shouldn’t have made in the meantime. That’s why software companies that limit work to 35 hours a week need to employ fewer QA engineers: there isn’t as much mess to clean up.In a knowledge economy, where thinking and creativity are the raw materials from which products and profit flow, brains are assets. They need to be cherished, nurtured and protected, not abused. Leaders need to take seriously a century’s evidence that 1) overwork doesn’t make us productive, it makes us stupid, 2) looking away from a problem is often the best way to solve it, and 3) burnout is what happens when people are asked to work in ways that obliterate all other parts of their lives.

Caveats abound, of course.  For example, a professional who bills hourly or by the service may place material aspirations above other criteria.  Competitive imperatives may lead some firms to believe that there’s no good alternative to burning out entire crops of recruits and making partners of the survivors.  If an individual can tolerate those environments, and a firm can survive or thrive following those practices, so be it, as long as there’s enough room for more humane approaches to work to choose from.

Whatever your personal views and values, Heffernan’s article is compelling food for thought, especially the idea that people should be treated as assets, even though they’re not recorded on the balance sheet.

Economy on a knife’s edge

The Philly Fed’s ADS Business Index gave us the old demon drop last week.  While the index had been negative since the start of Q2, the readings were fairly dovish, until last week’s updates.  The latest print shows that conditions in June and July were two to three times worse than originally thought (also that conditions were notably less ebullient in March, April and May).  As a result, the ”progressively more negative values” of the index are offering a much stronger indication of “progressively worse-than-average conditions”:

Excluding the 2008-2009 recession, the low of -0.79 in July was last seen in mid-2005 and during the 2001 recession:

A crude first pass at the data indicates that an ADS reading of -0.79 or lower has been associated with recessionary conditions 85% of the time.  Using more conservative and statistically meaningful approaches brings the recession probability below 50%, but that’s still too high for comfort, and is likely to rise in the weeks ahead — just one more piece in a disconcerting mosaic.

Other important pieces of the mosaic include:

The budget situation faced by state and local governments, which the FT recently took Congressional Democrats to task for:

Congress should pass the state aid bill next week, but more than that it needs to get a grip. Democrats are fearful of November, as they should be; Republicans are content to watch them squirm. Government is paralysed and the economy struggles.

The right fiscal policy for the US is ease sustained for the time being, followed by tightening through higher taxes and lower spending as conditions allow. It is a sad and even alarming fact that Washington’s political dysfunction now puts this straightforward advice in the realm of fantasy. Not just the US economy but the global economy too will have to bear the consequences.

Today’s FOMC statement, which indicated that the Federal Reserve intends to keep its balance sheet at around current levels, and to reinvest income into government securities in order to keep lending rates low:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature. 

And a continuing grind lower in long term Treasury yields that implies falling expectations for economic growth and/or inflation, perhaps even concerns about deflation.  The downtrend of yields in recent months looks a bit like the one that unfolded in 2H07, about six months prior to the start of the last recession:

However you slice the data, the economy appears to be walking on a knife’s edge, or at the very least approaching one.  And the key ingredients of the grout holding this pessimistic mosaic together are, in our view, negative demographic shifts and household balance sheet deleveraging, neither of which argue in favor of fiscal austerity as the right approach for policymakers. 

In fact, a small but potentially very significant piece of the mosaic is anecdotal claims about rising rates of expatriation by high U.S. income earners.  As Rueven Brenner has pointed out, immigration and emigration have historically played an important part in the rise and fall of nations and economies.  It’s too soon to make any meaningful assessments, but this is a risk that policymakers (and voters!) must stay attuned to.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy.

Good advice for parents & students

BNET is carrying a good column by Cait Murphy (an Amherst alum by any chance?) on whether it pays economically to attend an elite university. After citing some poll data and a couple of empirical studies, she boils their findings down to:

For those who do not have a vocation for something like the ministry and are interested in earning as much as possible (be honest!) in economic terms, it probably makes sense to suck it up and go to an elite school, if you can. If you are lower income, definitely do so. ..

If the super-selective colleges don’t seem to want you for some reason, the evidence is that there is no reason, economically, to go to an expensive private one.  So financially savvy parents not averse to bribery might cut a deal along these lines:  Go to State U instead of Middling-and-Expensive Private U and we’ll throw in a car.  Or a summer in Europe.  Or both.

However the numbers are sliced and diced, though, one other thing is clear:  Character, ability, career choice and of course serendipity also matter.  Warren Buffett went to Nebraska, for example;  Steve Jobs dropped out of Reed, and Steven Spielberg went to Cal State Long Beach when the USC film school rejected him – repeatedly.

The list of (sometimes wildly) successful dropouts is much longer than this — something to keep in mind should your child decide to take a less beaten path.

Cait raises a few more good points.

First, a smart choice of school depends critically on your chosen profession. I’ll never forget a New York Times article I read a few years back about some young adults with pedigreed, six figure Master of Fine Arts degrees who were unable to afford the debt service on their student loans (yet another example of the horrible disservice we do by not providing primary financial education to all students). In the end, the price tag on an education should make sense based on well grounded expectations for future income.

Second, she writes that “in general, if you are good at math and choose a major to match, you are going to do very well indeed. The top majors in terms of high salaries, according to PayScale, are aerospace engineering, chemical engineering, computer engineering, electrical engineering, economics and physics.”

And third, ”all of these studies measure the effect of bachelor’s degrees. With more and more students going on for higher higher education, it might well turn out that the best strategy, economically, is to excel at a state university, then treat yourself to an elite law degree or MBA.”

URLs:

http://blogs.bnet.com/career-advice/?p=751&tag=col1;post-751

Happy 75th Elvis!

Elvis Presley, the King of Rock’n'Roll, was born seventy five years ago today. For fun, we’ve traced out a brief history of one of his best known songs, “Hound Dog”, that illustrates the richness, complexity, network effects, competitive forces, and social factors at work in creative industries: 

• “Hound Dog” was written in 1952 by Jerry Leiber and Mike Stoller.
  • Leiber and Stoller wrote another great old standard, “Kansas City” (we recommend Hound Dog Taylor/Brewer Phillip’s version, and Willie Nelson/Susan Tedeschi’s).
    • Hound Dog Taylor and the House Rockers helped catalyze the creation of legendary blues label Alligator Records, started by a shipping clerk of a label that refused to sign them.
• ‘Hound Dog” was first recorded by Big Mama Thornton in 1952, and was the first and biggest hit of her career, reaching #1 four years before the King’s recording was released.
  • Charles Sawyer, who interviewed Ms. Thornton in 1978, claims that her version inspired Elvis to record it.  His interview also includes Thornton’s memory of doo-wop artist Johnny Ace’s suicide – real life blues.  
• “Hound Dog” was reportedly recorded by multiple acts in multiple genres, including country, before Elvis gave it a shot circa 1955 (his recording was released in 1956).
• According to biographical sources, Elvis reportedly heard the song performed in Vegas by Freddie Bell and the Bellboys.
  • Front man Frankie Bello was an Italian American lad from South Philly; reportedly, the Bellboys were a solid Las Vegas act and enjoyed international support, but never caught on in the States.
    • Philadelphia’s The Roots faced the same situation of international platinum / domestic anonymity in the 1990s, but overcame it in a big way this past decade.
  • The Bellboys’ stage antics appear to have been a strong influence on Elvis’ still developing delivery and persona.
• Big Mama Thornton:
  • Got her first break in a Hollywood moment, standing in at the club where she scrubbed floors after the regular performer quit.
  • Reportedly lived a hard drinking life; then again, she outlasted the younger Elvis, who had demons of his own. 
    • The main difference might be that had Elvis survived, his financial situation would not have imposed any constraint on a desire to turn things around.
  • Is the namesake of the Willie Mae Rock Camp for Girls in New York, which seems to have a stronger social purpose than Sir Denis Eton-Hogg’s Hoggwood summer camp for pale young boys (if you don’t get the reference, shoot us an email).

It’s safe to assume that the proportion of music fans who have heard, respectively, of Hound Dog Taylor, Big Mama Thornton, Johnny Ace, Freddie Bell, and Elvis Presley follows a power distribution (familiarity with Elvis running very high, and familiarity with everyone else relatively low; you could also substitute income for familiarity). It’s tempting to suspect that race, ethnicity, economic power, etc, are the responsible factors, i.e., to simply ascribe Elvis’ relative popularity to human wickedness and shortcomings. However, power laws are observed across a wide range of natural and social phenomena, which raises some interesting questions and possibilities:

• In the US of the 1950s, social factors almost certainly meant that successful ‘cultural crossover’ of R&B required white artists to be the carriers. However, power laws limit the popularity attained by all but a handful of crossover artists, meaning that just one or a few would end up as the conduit.
• While we tend to think of ‘fairness’ as a socially determined good, to the extent that societies obey biological ‘laws’, its determinants might actually lie in natural phenomena. Vilfredo Pareto discovered this about ninety years ago, when he found that incomes across many different countries were distributed according to power laws, with a very small proportion of the population earning a very large proportion of total income. At least two recent books have given differing but fascinating treatments to this subject: Albert-Laszlo Barabasi’s Linked and Malcolm Gladwell’s Outliers.
• If power laws are naturally occurring, then the proper objective for social justice or fairness would seem to be removing or reducing constraints that unfairly limit one’s opportunity to sit atop a power distribution, whatever field it’s in. But the odds of any one individual or entity occupying that position are quite remote. And the possibility of social policies doing away with power laws completely might well be zero.
• If we assume that power laws are at work in asset and securities prices, that lends support to the idea that there will always be undervalued and overvalued assets for an investor to select from. In Outliers, Gladwell raises an analogous argument about human capital. And the Willie Mae Rock Camp is a good example of how institutions can help society do a better job of identifying, developing, and valuing talent.

That’s deep enough. Happy Birthday to Elvis, and to David Bowie, Stephen Hawking, Charles Osgood, Soupy Sales, and everyone else born on January 8th!

IMPORTANT DISCLOSURE: Symmetry Capital Management, LLC is a member of the Amazon Associates program, and earns a revenue sharing fee of approximately 4% on qualified purchases made by clicking through from our website.

URLs:

http://news.yahoo.com/s/ap/20100107/ap_en_mu/us_museum_elvis_presley_2

http://en.wikipedia.org/wiki/Leiber_and_Stoller

http://popup.lala.com/popup/3675218809813776552

http://popup.lala.com/popup/432627077923496532

http://en.wikipedia.org/wiki/Hound_Dog_Taylor

http://popup.lala.com/popup/432627043551418906

http://en.wikipedia.org/wiki/Big_Mama_Thornton

http://www.people.fas.harvard.edu/~sawyer/thornton.html

http://en.wikipedia.org/wiki/Johnny_Ace

http://www.youtube.com/watch?v=fJQ-fDb4M4s

http://en.wikipedia.org/wiki/Freddie_Bell_and_the_Bellboys

http://www.theroots.com/

http://en.wikipedia.org/wiki/Hound_Dog_(song)

http://www.musicianguide.com/biographies/1608000152/Big-Mama-Thornton.html

http://www.williemaerockcamp.org/about.html

http://en.wikipedia.org/wiki/Power_law

http://www.amazon.com/gp/product/0452284392?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0452284392

http://www.amazon.com/gp/product/0316017922?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0316017922

http://www.famousbirthdays.com/

Farmer: Farewell to the Natural Rate

An interesting theory and a cool video graphic can be found here, where UCLA economist Roger Farmer examines the relationship between inflation, unemployment, and job vacancies, adding yet another contribution to the Keynesian renaissance:

In two forthcoming books, Expectations Employment and Prices (2010a) and How the Economy Works (2010b), I provide a theory that explains these data. I argue that there is no natural rate of unemployment and that the economy can come to rest in a stationary equilibrium at any point on the Beveridge curve. Which equilibrium persists, is decided by the confidence of households and firms that pins down asset values as reflected in housing wealth and the value of the stock market.

When households feel wealthy, that belief is self-fulfilling. Consumers spend a lot, firms hire workers, and the economy comes to rest at a point on the Beveridge curve with low unemployment and high vacancies. When the values of houses, factories, and machines fall, households spend less, firms lay off workers, and the economy comes to rest at a point on the Beveridge curve with high unemployment and low vacancies. Both situations – and anything in between – are zero-profit equilibria. High inflation makes the trade-off between unemployment and vacancies less favourable, and in the steady state, any inflation rate is consistent with any unemployment rate.

Most policymakers subscribe to the theory of the existence of a natural rate of unemployment. The data suggest that this theory is unconfirmed at best. To make the theory consistent with data, one must posit that the natural rate changes between recessions in unpredictable ways. This version of natural rate theory is difficult or impossible to refute. It is religion, not science.

For more than fifty years policy makers have been trying to hit two targets, unemployment and inflation, with one instrument, the interest rate. Recently, central bankers have discovered a second instrument – quantitative easing. I believe that quantitative easing works by influencing the value of real assets as reflected in housing wealth and the stock market and that it was successfully deployed by central banks in 2009 to maintain aggregate demand. In my two forthcoming books, I argue that quantitative easing should permanently enter the lexicon of central banking as a second instrument of monetary policy and that it will prove to be a more effective and flexible tool than fiscal policy for restoring and maintaining full employment.

A competing idea is to attack this from the fiscal side rather than the monetary side, by making the federal government the ‘employer of last resort’. This is an interesting idea for a few reasons. First, it’s been proposed by economists on both the ‘left’ (e.g., L. Randall Wray) and the ‘right’ (e.g., Edmund Phelps). Second, it would put at least some intermediary stages between USD creation and the USD carry trade. And third, while either lever should work from a Wicksellian point of view, as long as the USD is the primary global reserve currency, quantitative easing may be riskier to the global financial system (not to mention the USD’s reserve currency status) than a purely domestic employment program would be.

IMPORTANT DISCLOSURE: Symmetry Capital Management, LLC is a member of the Amazon Associates program, and earns a revenue sharing fee of approximately 4% on qualified purchases made by clicking through from our website.

URLs:

http://www.voxeu.org/index.php?q=node/4452

http://www.amazon.com/gp/product/0195397908?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0195397908

http://www.amazon.com/gp/product/0195397916?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0195397916

http://ideas.repec.org/p/wpa/wuwpma/9802006.html

http://www.amazon.com/gp/product/0674094964?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0674094964

Conference Board: Job satisfaction at record low

Disturbing findings from the Conference Board’s latest job satisfaction survey, which reached its lowest level since the survey began in 1987. Some endpoint comparisons:

Source: Yahoo, Associated Press, Conference Board

According to the AP article, these findings imply that the American work force could become less innovative, competitive, and productive over time. Potential explanations for declining job satisfaction:

Conference Board officials and outside economists suggested that weak wage growth helps explain why workers’ unhappiness has been rising for more than 20 years. After growing in the 1980s and 1990s, average household incomes adjusted for inflation have been shrinking since 2000. Also, compared with 1980, three times as many workers contribute to the cost of their health insurance — and those contributions have gone up. The average employee contribution for single-coverage medical care benefits rose from $48 a month to $76 a month between 1999 and 2006.

It’s difficult to know what forces and factors might be driving the underlying trends (lower pay, boredom, security, unhappiness with superiors) that are manifested in higher levels of job dissatisfaction. It would be helpful to have data prior to 1987, but accepting that as is, and assuming statistically significant and unbiased results, let’s consider them in the context of major structural developments of the past two decades. Two forces that spring to mind are productivity growth and economic globalization.

• Rising productivity could have a positive or negative impact. To the extent that it raises net income and/or free time, it should raise satisfaction. However, we’d have to have some idea of how the gains from higher productivity have been shared/divided among different industries, different types of workers (including in managers’ and executives’ compensation), different stakeholders (customers, creditors, shareholders, governments, society at large), etc. Further study might try to analyze whether declines in satisfaction have coincided with changes in the rate of productivity growth.
• Globalization has been a rising force since 1987, especially since the early 1990s, with undeniable effects on the structure of U.S. employment. And while education and retraining are reasonable responses, it’s important to consider that, relative to renovating an individual’s human capital, a job can be outsourced rather easily.
• We would also toss in the declining marginal competitiveness of our corporate tax code as a factor that, if it pushes capital investment outside of the U.S., amplifies the negative impacts of globalization (admittedly, this assertion requires that some qualifications be added to the role of productivity growth). The burden of corporate taxes has also been found under certain conditions to fall disproportionately on workers’ income.

Productivity gains can be shared among owners (share value and dividends), employees (income and benefits), executives (compensation), governments (tax authorities and and regulatory bodies), and society. The following table is a highly simplified back of the envelope tabulation, based simply on the annualized after-inflation growth rates in each of the following items, using a core PCE inflation rate of 2.7% per year (it doesn’t contain any direct estimates of productivity growth). Executive compensation data is fairly slippery — the low end is based on an amalgam of sources, and the high end is based on estimates of the ratio of average CEO compensation to average employee compensation (2006 ~ $400, 1980 ~$42, 1965 ~$20). Information on data sources is provided below.

For globalization, an overly simple proxy is returns to equity owners in developing markets. Brazil’s economy and Bovespa stock market index have been among the top performers over the period in question, returning almost 16% annualized the last ten years, and over 20% annualized since 1994; against an official annualized inflation rate over the past decade, we get a real annualized return around 9%, a figure that comports well with other emerging market return statistics.

We need to emphasize that this is a back of the envelope analysis that leaves plenty of questions unanswered. A more credible analysis would consider other potential forces and factors, formalize and scrub the data, and provide some meaningful statistical insights.  However, if we can at least assume that the ordinal findings hold up, then it’s a good start, and implies that the benefits of economic growth over the past decade or two have accrued first to developing economies and markets, then to equity owners and executives, then to public coffers, and only minimally to employees, which could help to explain rising job dissatisfaction.

Please note that we are not anti-globalization. But we do believe that developed economy countries can do a better job of designing and implementing policies that, while still friendly to trade and growth, can help mitigate the negative domestic impacts brought about by global economic development. We also believe that while health care reform is an important piece of the puzzle, closing the ‘compensation gap’ domestically would ideally be resolved in the private sector. However, the issue requires some enlightened executive and board leadership, and if history is any guide, the problem is most likely to be addressed via higher tax rates on top incomes. Finally,  if corporate taxes fall disproportionately on labor income, or amplify negative impacts of globalization, then they could be an indirect factor in job dissatisfaction, along with the more direct impact of payroll taxes and benefits costs.

===

Via a tweet from Laurie Ruettiman of the Punk Rock HR blog, there’s a video version of the AP story. Ruettiman also blogged about a new CBS series, “Undercover Boss,” that might contribute towards reducing job dissatisfaction (or not…time will tell). If you get a chance to watch the trailer she linked, it’s worth it (it’s a fun site to peruse too, see especially her short and sweet employee handbook). According to Ruettiman, Undercover Boss (like The Office, The Beatles, white boy blues, and the Mini Cooper) is another clever premise borrowed from the Brits.

Judging by the trailers, the show gives executives an anonymous, and thus open, firsthand view of their company’s line operations, and more importantly, some insight into the questions we raised above. In a year when corporate profits are expected to rebound nicely, a show like this could gain quite a popular following (of course, more cynical interpretations of corporate participants’ motivations are possible). If this allows a growing ’fair pay’ movement to take root, shareholders beware. With Wall Street’s social capital at all time lows, labor costs, including non-union labor, might be due for a trend reversal in the years ahead – though admittedly, that might not happen in the face of historically high unemployment levels. If it doesn’t happen, then current job satisfaction trends are more likely to remain intact, which, over the long run, will impose unwanted costs on us all.

DATA: According to one set of estimates (http://www.pay-without-performance.com/Core_Guay_Thomas-IsUS-CEO-Compensation-Inefficient.pdf, p. 65), executive compensation increased at an annualized nominal rate of just under 13% from 1993 to 2003, and another 13% in 2004 (http://www.guardian.co.uk/business/2005/aug/04/executivesalaries.executivepay2). It declined 15% in 2007 and 11% in 2008 (http://www.forbes.com/2009/04/22/executive-pay-ceo-leadership-compensation-best-boss-09-ceo_land.html). If we interpolate conservatively (g = 0%) for the years 1987-1992 and 2005-2006, we get an annualized rate of 5.2%, which is in the ballpark of a study that found a 5.57% annualized increase from 1997 to 2004 (http://www.cfapubs.org/doi/pdf/10.2469/faj.v63.n3.4687). EBRI estimates that employee compensation costs grew at 3.3% annually from 1987 to 2004 (http://www.ebri.org/pdf/publications/facts/0305fact.pdf).

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a state registered investment advisor. The foregoing article is intended only for readers’ interest, amusement, and edification. It is not an offer to buy or a solicitation to sell any security, nor is it a recommendation to engage in any particular investment strategy. Any mention of public securities herein is purely coincidental, and no securities mentioned are owned by the firm’s clients, principals, or the firm itself. SCM participates in the Amazon.com Associates program and earns a small revenue sharing fee (~4%) on qualified merchandise for any “click through” sales from our website.

URLs:

http://finance.yahoo.com/news/Americans-job-satisfaction-apf-1483464009.html?x=0&sec=topStories&pos=3&asset=&ccode=

http://www.youtube.com/watch?v=Gps7Dx8cN4Q 

http://finance.yahoo.com/q/hp?s=%5EBVSP&a=00&b=5&c=2000&d=00&e=5&f=2010&g=m

http://www.bcb.gov.br/pec/metas/InflationTargetingTable.pdf

http://punkrockhr.com/undercover-boss/

http://www.amazon.com/gp/redirect.html?ie=UTF8&location=http%3A%2F%2Fwww.amazon.com%2Fgp%2Fentity%2FWhite-Boy-Blues-%28Series%29%2FB000AQ2MUU&tag=symmetrycapit-20&linkCode=ur2&camp=1789&creative=390957

H1N1 Update

AP is reporting that “some people who aren’t at high risk for swine flu complications got the much-in-demand vaccine…healthy adults or senior citizens instead of kids, pregnant women and people with health problems.”

Should that be cause for alarm? On the one hand, public health officials and members of at-risk populations should be proactive about getting the vaccine, and others should be supportive of those efforts. But on the other, the greater the number of vaccine administrations, the lower the risk of H1N1 to the rest of the population, including at-risk groups. As the article reports:

One of the doctors who helped draw up guidelines for vaccine priority groups also isn’t surprised at how things are unfolding.

The government’s vaccine advisory panel “did not expect vaccine police to be set up around the country,” said Dr. William Schaffner, a flu specialist at Vanderbilt University Medical Center, who is on the panel.

If vaccine demand is low in some locations, it makes sense for non-priority groups to get it instead of wasting the supply.

“I don’t consider it a problem,” said Schaffner. “I consider it more of a problem if vaccine is left unused.”

That seems to make sense. Also, flu trends being reported by the CDC are scary enough this year that we can understand people’s temptation to avoid chivalrous conduct. Based on the latest data released for Week 41, which ended October 17th:

• Just about all of the reported and tested flu cases this season appear to be H1N1 (“swine flu”).
• The proportion of deaths relative to the number of hospitalizations has run between roughly 3% and 8%. Granted, this is a hospitalization-fatality rate, not a case-fatality rate. But imagine you have a severe enough case to enter the hospital, and have a 5% chance of not returning home. And while the proportion of deaths appears to be trending down since late August, the number of hospitalizations is up over 500%, so a lower percentage of fatalities out of a much larger number of hospitalizations provides little comfort — for example, the number of deaths in week 41 was up more than 200% over week 35.
• The number of flu deaths per week has been increasing exponentially since 2006, and to paraphrase George Soros, it’s gone ‘parabolic’ this year. There were 1.5 deaths per week in 2006-07, 1.7 in 2007-08, and 2.23 in 2008-09, while the current run rate for 2009-10 is 7.6! [We divided by fifty two because the flu didn't take its normal seasonal break this summer; the actual number of deaths per week during flu seasons would be higher than those figures.]
• According to this chart of expected versus actual cumulative hospitalizations and deaths, it’s not apparent that any age groups are at higher risk  than any others. In fact, one could argue that the 18-49 group should be at the front of the line! As we pointed out previously, this mimics the ‘W shaped’ global influenza pandemic of 1918 that killed many, many millions of people, and a far greater number of healthy adults than a typical influenza virus.

H1N1 is not only scary enough at the moment to excuse some people elbowing their way to the front of the line for the vaccine. You can actually make a sound argument, based on historical evidence and current data, that healthy twenty to forty year olds should be included in the target population for the vaccine. Perhaps that’s one reason why the CDC is not up in arms about the lack of ‘vaccine police’.

URLs:

http://news.yahoo.com/s/ap/20091030/ap_on_he_me/us_med_swine_flu_vaccine_cheaters

http://www.cdc.gov/flu/weekly/

http://www.cdc.gov/flu/weekly/weeklyarchives2009-2010/AHDR41.htm

http://www.cdc.gov/flu/weekly/weeklyarchives2009-2010/IPD41.htm

http://www.cdc.gov/flu/weekly/weeklyarchives2009-2010/EIP41.htm

http://www.cdc.gov/ncidod/eid/vol12no01/05-0979-G2.htm

http://www.cdc.gov/ncidod/eid/vol12no01/05-0979.htm

http://www.amazon.com/gp/product/0971542821?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0971542821

PLEASE NOTE: Symmetry Capital Management, LLC is a state registered investment advisor. The foregoing information is for informational, educational, or entertainment purposes only. It does not constitute an offer to buy nor a solicitation to sell any security, or to engage in any investment strategy. Symmetry Capital Management, LLC is an Amazon.com associate, and may earn a percentage of any sales generated by clicking through to the Amazon.com website from links on our website.

“The Ten-Year Century”

An interesting op-ed ran in the WSJ last week. Authors Tom Hayes and Michael S. Malone argued that in a world of rapid and persistent change, time moves so fast that trust becomes ever more crucial:

Changes that used to take generations—economic cycles, cultural shifts, mass migrations, changes in the structures of families and institutions—now unfurl in a span of years…

Call it the advent of “the 10-year century”: a fast shuffle that stacks events which once took place in the course of a lifetime compressed into the duration of a childhood…

…when a computer chip goes through as many computations in a single second as there are human heartbeats in 10 lifetimes, a 10-year year century seems positively pokey. But we humans have a slower metabolism, which will make this rapid fire of events ever more difficult to comprehend, much less manage.

More disturbing, we have few safeguards—software shut-off switches, virus protections, firewalls, etc.—in place to check or repair our new global über-system when it misfires or goes completely off the rails…

So how do we control this increasingly out-of-control, interlinked world? Venture capitalist Bill Davidow has proposed the equivalent of online “surge protectors” to stop run-ups and panics on the Internet, the same way stock markets stop runaway trading. At the least we need better analytics to predict where change is taking us next.

Most importantly, trust will become the critical factor. Without the luxury of time, trust will be the new currency of our times, whether in news sources, economic systems, political figures, even spiritual leaders. As change accelerates, it will remain one true constant.

The authors are clearly on to something, and it’s an important dimension of the ‘Schumpeterian destruction’ of our age, an immensely powerful force that’s having significant and ongoing economic and social impacts.

One of our favorite books on the subject at hand is Building Trust: In Business, Politics, Relationships, and Life by Robert Solomon and Fernando Flores. Solomon and Flores have a strong grasp of the importance and potential value of trust, or more specifically, of the act and skill of trusting. It’s more of philosophical discourse than a how-to book — though the thinking they offer should increase one’s capacity to trust skillfully (which includes knowing when to mistrust!).

URLs:

http://online.wsj.com/article/SB10001424052970203946904574300382022042424.html

http://en.wikipedia.org/wiki/Creative_destruction

http://www.amazon.com/gp/product/0195161114?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0195161114

England’s Last Trench Vet

Harry Patch, the United Kingdom’s last surviving infantryman from World War One, passed away at the age of 111. He was apparently something of a national icon – the UK Poet Laureate even wrote a poem about him. Today, the AP quoted the following statements of condolence from British dignitaries:

Prime Minister Gordon Brown said the whole country would mourn “the passing of a great man.”

“The noblest of all the generations has left us, but they will never be forgotten. We say today with still greater force, We Will Remember Them,” Brown said.

Queen Elizabeth II said “we will never forget the bravery and enormous sacrifice of his generation.” Prince Charles said “nothing could give me greater pride” than paying tribute to Patch.

“The Great War is a chapter in our history we must never forget, so many sacrifices were made, so many young lives lost,” the prince said.

There’s some irony at work in this. Mr. Patch, who didn’t start talking about his experiences until he was 100 years old, described himself as a reluctant and frightened combatant who saw the war as a tremendous waste.  Meanwhile, historians increasingly see the ineptitude of political institutions and leadership as the primary cause of the conflict. As Adam Gopnik wrote in the New Yorker in 2004:

You could not have chosen a worse bunch of guys [in 1914] to have the fate of Europe in their hands. There is Kaiser Wilhelm, the deformed lesser member of the dominant royal family of Europe, intensely jealous of his cousin Edward VII and his Francophile ways (although Edward had died by 1910, the icon still shone), and determined to act in a manly and warriorlike way, yet caught in a bizarre cycle of peevishness, belligerent insecurity, and a superstitious fatalism that he thought of as “religious.” There is Count Conrad, who genuinely seems to have acted in part because he was in love with a married woman and imagined that success in war would help his romance. Even Herbert Asquith, the British Prime Minister, who for some reason gets off very lightly in British histories, seems hopelessly inadequate to the occasion.

Gopnik allows for the fact that WWI would prove a novel and harsh learning experience for military and political leaders, who could not foresee all of the battle field consequences that industrial technology would bring about:

…the previous century had been filled with wars, and none of them left behind much more than a scar and a memory of honor. The worst recent war in Europe, the Franco-Prussian War of 1870-71, had made a deep imprint on the French psyche, but it was immediately followed by the decade that resides in our imagination—courtesy of the Impressionists, but courtesy of the facts, too—as idyllic. How bad could a war be? The Germans thought that, more or less, it would be like 1870; the French thought that, with the help of the English, it wouldn’t be like 1870; the English thought that it would be like a modernized 1814, a continental war with decisive interference by Britain’s professional military; and the Russians thought that it couldn’t be worse than just sitting there.

He also points out that some of the primary actors were driven by some primal human desires:

Above all, the tragedy was that their goal was not to look weak. Even in Strachan’s dry and unemotional narrative, one wet and emotive word rings out again and again, and that word is “humiliation.” The game was not to prevail—for all the players, save perhaps some of the Germans, knew that none of them could—but to avoid being seen as the loser. There are, in the recorded words, few references to rational war aims, even of the debased, acquisitive kind; instead, you find a relentless emphasis on shame and face, position and credibility, perception of weakness and fear of ridicule. “This time I shall not give in,” Kaiser Wilhelm repeated robotically (to the arms manufacturer Krupp) in July of 1914. Lloyd George, on the British side, a key actor in favor of war, called for the mobilization of a million men lest Britain not be “taken seriously” in the councils of Europe. It was not runaway trains but a fear of being humbled, “reduced to a second-rate power,” that drove the war forward. The keynote is insecurity, an insecurity that arose, above all, from the German paranoia about encirclement, matched by Britain’s insecurity about its naval power.

A few observations:

First, the desire for humiliation — and its opposite objective, saving face — may be what human individuals and/or societies had been selectively adapted to entering the 20th century. In fact, the Armistice at the end of the war fully embodied the desire to further hobble and humiliate the vanquished.  John Maynard Keynes presciently warned the world of its likely consequences, including a second great war. What’s interesting is that in the Second World War, military aims became more about strategic objectives, and Allied leadership did not try to impose quite the same measure of humiliation that their forbears in WWI had. Interestingly — and despite the cultural popularity of martial ideals and practices in business (e.g., The Art of War) — the major players in WWI and WWII seem to have moved a bit beyond the primal motivations of saving face and avoiding humiliation — whereas they continue to play a strong role in most parts of the world. Perhaps the First World War was a crucible for this? These cross currents are alive and well in international business, e.g., in individuals/institutions vs kin/clan traditions (of course, as interesting as these seeming contrasts are, human beings are alike in more respects than they are different, and we all move through backgrounds, however varied, in which individuality, institutions, family, and friends all play important roles).

Second, Gopnik’s and modern historians’ descriptions of WWI are excellent examples of a “complex foresight horizon“. World War One must indeed have been a “world of emergence, perpetual novelty, and ambiguity” for all involved, whether in palaces, parliaments,  trenches, or manning a hearth. Gopnik provides the figure that 260,000 French were killed in the first 26 days — that’s the mind boggling equivalent of more than three 9/11 attacks per day occurring for twenty six straight days! If political and military leaders — and populations at large, as Gopnik aptly points out — had known the calculus beforehand, perhaps they would have shown more modesty. Still, the failures of leadership from 1914 through 1918 (and in many other incidents of political economy in the 20th century) are striking, and not easy to forgive. Perhaps it’s inescapable that people in positions of power will always struggle with the choice between the primal motivation to save face versus the more courageous act of speaking candidly and openly with constituencies (their own and their opponents’), and with the many ethical dilemmas and challenges of wielding power. Hopefully, institutional learning will continue apace.

Meanwhile, strong leadership traits can be heard in the words of the gentleman in question:

At a remembrance ceremony in 2007, Patch said…”Today is not for me. It is for the countless millions who did not come home with their lives intact. They are the heroes,” he said. “It is also important we remember those who lost their lives on both sides.”

The AP article also pointed out that Patch outlived three wives and his two sons — a burden that we probably don’t think about when wishing to live to a ripe old age.

URLs:

http://news.yahoo.com/s/ap/20090725/ap_on_re_eu/eu_britain_obit_patch

http://www.newyorker.com/archive/2004/08/23/040823crat_atlarge?currentPage=all

http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=keynes+consequences+peace&x=0&y=0

http://www.telegraph.co.uk/culture/books/3671688/The-Five-Acts-of-Harry-Patch.html

http://www.santafe.edu/research/publications/workingpapers/95-12-106.pdf

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Productivity and Prenatal Health

AP carried an interesting story on a study that compared children’s IQ levels at age five with their level of prenatal pollution exposure, and found that children with higher exposures scored an average of four to five points lower than others in the study. The public health and other researchers quoted in the article viewed the findings as ground breaking — “there may be more dangers from typical urban air pollution than previously thought,” one remarked — but perhaps they shouldn’t be (though the researchers did come up with an ingenious method — the pollution detection device worn as a backpack — to gather their data on prenatal pollution exposure). A few maverick researchers (as well as many cranks and quacks, of course) have been sounding these kinds of warnings for decades. This particular study is longitudinal, meaning that they’ll continue to follow and compare the children’s academic performance and other behavioral and developmental measures, which could get really interesting.

What strikes us about the study’s findings is that it confirms one of the basic tenets of economics, that there ain’t no free lunch. Hydrocarbon emitting technologies have done wonders for the productivity, health, and leisure of modern societies — which means they almost certainly come with a cost. While people have known about the environmental and political impacts of fossil fuel consumption for decades, the biological impacts on human bodies are just now becoming more apparent, it seems, and they could go well beyond a decline in IQ. We’re not Luddites, in fact we’re very pro-technology, but we readily admit that all societies face the challenge of how to optimally share the gains and losses of new (and existing) technologies, and how to appropriately manage the externalities and asymmetries they create.

URLs:

http://news.yahoo.com/s/ap/20090720/ap_on_he_me/us_med_pollution_iq

http://www.amazon.com/gp/product/0879836385?ie=UTF8&tag=symmetrycapit-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0879836385

http://www.quackwatch.org/