Tuesday, September 25, 2012

Fruitful melding of advanced theory and technology

I like this sentence, and think it is conveys meaning.  From  Google Spanner's Most Surprising Revelation: NoSQL Is Out And NewSQL Is In

Only Google solved the problems in a typically Googlish way, through the fruitful melding of advanced theory and technology.
That statement does a good job of capturing Google's strength and weakness.  I think Google is not very good at solutions that are not the combination of those two items (with a bit of an engineering mindset focused on maximum economic benefit thrown in).  It seems to me Google wants an "unbiased" measure of performance and uses profit in that way (this is my view as an outsider).

Google has continued to struggle greatly with customer focus, as I see it.  It might be we need to get much better academic research on the value of customer care before Google will be able to adopt strategies consistent with valuing customer service - more than the throw away way they general do now.

Research fits Google's theory and technology focus.  Once it can be arguably be measured in the marketplace I think Google gets uncomfortable.  They plug away, but it seems like they are out of their natural element in this situation - until it is easy to find market measures of value.  Some things immediately go from research to production.  Some things have to be developed quite a bit - I think Google gets uncomfortable in this space, they want to hurry up and let the market tell them: and not have to rely on judgement of people doing the work.

Google's appreciation for theory is shared by leading thinkers at the most innovative organization of the last 100 years (Bell Labs etc.) but in most organizations MBA's hold sway and MBA's (in general) don't have a clue about the value of theory.  

I think the MBA's failure to understand the value of theory is largely is due to the failure of basic scientific literacy in our society.  Which then leads to people confusing theory in a scientific context and theory in a I have this odd ball idea I thought up in the shower last night that I call a "theory."  Disrespecting the 2nd kind of theory is fine.  When you can't understand the difference between a well supported theory and ignorant pontification that is a big problem.

Related: Richard Feynman Explains the PDSA Cycle - The Illusion of Knowledge - Bogus Theories, Bad for Business

Wednesday, September 19, 2012

Reducing Corruption

Corruption is a significant problem.  It directly reduces the lifestyle people deserve and it greatly impacts economic progress.  Poor countries often are hampered by a large amount of petty corruption and large political corruption.

It seems to me corruption normally reduce as more wealth is created in the society.  As more people have power it is harder to enforce petty corruption against them.  And the effort taken to extract corrupt gains can be productively deployed more effectively to get higher gains doing less corrupt things.  So if you are competent you go earn money by providing value.  Leaving bozos and super lazy people to be corrupt who are not very good at anything they try so they are lame at being corrupt too.

Obviously this doesn't work perfectly but it seems to me that the correlation between wealth (especially with good wealth distribution) and reduced corruption is high.  It is true this is a dynamic process and what leads to what is not as clear - as one gets better normally the other does.

I do believe one good strategy is just to pursue economic growth and good things will happen.  It can be pretty ugly at first - it might not seem to be working.  One thing that happens is there is so much more wealth that at first corruption can seem to be growing because the corrupt are richer than ever.  But I think, even then, the level of corruption is really going down.  It is a lower proportion of the economy even though it grows in absolute terms at first.  Over time 10-20 (or more) years significant declines are made as those with power are not willing to tolerate systems burdened by huge levels of corruption.

A free press is a huge help.  Strong support for entrepreneurs is a huge help (versus big established businesses that can actually use corruption to suppress competition - this happens still in the USA all the time, using the congress to create and allow monopolistic markets for your industry).

Petty corruption is the type that is most easily reduced by wealth. The corruption that is more easily hidden with back-room deals are tougher to reduce. In my view this type of systemic corruption has increased in the USA in the last 30 years. There is more and more very economically damaging practices that are only possible with the cooperation of "leaders" and the situation doesn't even seem to be a serious consideration for most people.

Petty corruption (paying cash to a police officer to get out of a ticket [or to get out of a false ticket], demanding cash to process your passport, demanding cash to approve your building permit) is not very high in the USA I don't think (or Northern Europe, Singapore, Japan...). But corrupt practices at the core of how our financial system is run, how legislation is written... are extremely damaging. So we have largely eliminated corruption from most people, but leaders seem have taken to corrupt practices with a new zeal lately - unfortunately. In the USA we can stop this whenever we want. Just vote out the corruption. But it is so institutionalized in the political parties it doesn't seem likely anytime soon.

The leaders have figured out the way to make corrupt practices palatable is to impose the burden of the corruption on society and pay the benefits to a small group that then pays the politicians for the benefit they were provided at the expense of society. For those interested in corruption in a wealthy society this is the smart model to use. So at least our leaders are smart at figuring out the best way to be corrupt given the system they are operating in. This likely means they would react sensibly if we were to vote against those politicians providing benefits to those giving them cash, at the expense of society. But until then they seem to be interested in how to maximize their gain, not in ethics or helping society.

My comment on Reddit discussion on reduction of corruption throughout history.

Related: Taking What You Don’t Deserve, CEO Style - Why Congress Won’t Investigate Wall Street - Systems Design Can Create Perverse Incentives - Society is being shaped for us while we are busy making other plans

Thursday, September 13, 2012

I Don't See How the Ponzi Scheme Economy Doesn't End Badly

I am very worried about the ponzi scheme like action of the governments of the rich western countries the last 10 years.  I don't see how this is not going to end badly.

I also can't really figure out how it will end badly.  The first or second or third order effects shouldn't be too hard.  Eventually those getting the ious stop believing the ponzi creator and won't accept their promises anymore.  So then interest rates on debt sky and currencies collapse.  "Real assets" (I prefer real estate to gold) should do well.

But is the massive ponzi scheme so huge the economy breaks so completely that normal economic collapse history is useless.  Does it turn more into what happens with normally poor, corrupt, broken states?  How does that play out with the massive wealth the rich countries accumulated prior to the ponzi scheme "solutions?"  I really am not sure.

Does the failing cripple countries like Singapore, Malaysia, Brazil, Ghana, Indonesia, Korea?  The old model is the rich countries have so much wealth when they mess up they suffer a bit and others suffer a ton.  Does that happen again?  I am not so sure.

I can understand desire to avoid consequences.  That is what blew up the special favors to those giving lots of money to politicians into the ponzi scheme style in the first place.  But I don't understand how people believe this can work - just throw out more ponzi promises and avoid the consequences.

Sure something similar works fine if you can afford to just give away a bunch of money you saved for a rainy day to get through the tough times.  But we didn't.  Heck, even if you just hadn't gone hugely into debt in the boom times to give even more to those giving large amounts of cash to politicians and instead of saving for a rainy day just didn't go hugely into debt even during your boom times.  But we did go hugely into debt during the bubble times.

The USA is still extremely rich.  As is much of Europe and Japan.   But it sure seems to me that we are hugely rich but have been spending much more than we have been making by pretending these ponzi promises have actual value.  When the markets stop accepting that it sure seems like things could be VERY SCARY.  So scary and unpredictable I can't even figure out what the SAFE investment plays are.

By far the best hope is that I am just wrong about how rich we are compared to what seem like ponzi scheme promises to me.  If we are lucky the ponzi part is but a blip on top of a rich foundation.  I am very worried that the ponzi part is not a blip at all.  It is huge.

Diversity in investments helps when you are clueless (and also other times but specifically when you are clueless is important to me here).  I really can't see any way long term bonds are good now.  So that doesn't help in my opinion - of course if I am wrong about that the portfolio will suffer.

I don't like gold.  I don't like assets that are not capable of providing earnings.  For some amount of store of value if currencies lose most value fine.  But unless you are very wealthy I can't see putting much here.  Speculating in it, fine, but it seems to high to speculate to me (but I could be wrong).

Real estate I like though I am worried about what happens in a much much worse economy than we have had since the great depression.  Still putting some there is sensible to me.

A fair amount of cash just trying to not lose too much makes sense given this super risky ponzi atmosphere.  Savings account at a credit union seems the best place .  I trust the government will cover any real loses but my guess is the value of the $ will plummet if things get bad (at first it will rise as people think that is what you do in a economic crisis - buy $).  I can't see $ being the sensible thing if the ponzi scheme is no longer accepted but we will see.

Trying to figure out what companies should actually stay profitable is another sensible place.  Even if they earn less some companies will stay profitable.  While others may well go under.  Companies that have fairly low fixed costs to carry in bad times seem appealing.  I really think if companies like Google, Apple and Costco are not making actual profits things are so bad only the super lucky are doing well.  The tricky part is figuring out which companies are those that will remain profitable - I may have the theory right and still pick the wrong companies.  I would definitely be diversified globally (and Apple and Google do that for you, among other things).

Obviously, in order to work as an investment to be valuable in a ponzi collapse the company has to be profitable in very hard times.  I think another key is they can't need outside cash - I think likely currencies would collapse and interest rates would sky.  Solid cash flow, even in hard times is key.  Small, nimble companies can do well.  That is much harder for huge companies.  But small companies can also go under quickly.  After the fact seeing the nimble smarts is often easy.  Predicting the winners in advance is hard.

I am very worried about China too.  India still refuses to get serious about reducing corruption and taking sensible steps to build infrastructure, improve education so I am not very positive there either.  It has potential but big problems.  I am most optimistic about countries growing into mid income (Malaysia, Thailand, Brazil, Ghana [early], Indonesia...) of high income (Singapore…along with Canada, Korea and Australia, maybe).

If you have good ideas for investments based on much more significant economic problems than we have seen let me know.

Related: The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations - Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means - We Need to be More Capitalist and Less Cronyist - The USA Economy Needs to Reduce Personal and Government Debt