I'll take a dive for 20 million

Everyone of us watches a boxer get knocked out in 32 seconds and thinks, hey I could do that. Yes, you could, but would they let you? The sad sack boxer and the bench warming NBA nobody get paid lots and lots of money for doing what anyone of the street could do: Nothing.

Then we see these CEO's get paid millions for exceptionally poor performance and we think, hey I could do that. Yes you could, but would they let you? My personal grievance was watching people at my job who were eminently less able than I get paid much more and do a poor job. Hell, I could have done that but they wouldn't let me.

Wages are based on two different things. The position and the performance within that position. I am getting an MBA in hopes of gaining the position. That position is in itself a higher salary regardless of my performance. Granted that if I am really terrible I would eventually lose my position but it doesn't change the fact that I am in a higher pay grade. While my performance in that position is secondary in terms of my salary, it does two things: It sets my pay within the position and ultimately puts me in line for the next position. Rinse and repeat.

Before we lament at the pay of the bench warmer or the poor performing CEO, remember they are not only being paid for performance. They are being paid as much money as is necessary for someone in that position. Think about it this way. First you get paid for being an NBA player, then you get paid for being Michael Jordan.

It's the West Wing, for real

I just heard Barack Obama, our Savior, declare that cancer will be cured in our lifetime. For all the other TV watchers out there, you may recall an episode of the West Wing where Rob Lowe (the speechwriter for president Bartlett, the fake president we wish we had, oh my) was going to put in the speech that we could cure cancer in ten years. They, unlike Obama, had the common sense to take that part out of the speech. I am tickled pink that Obama will cure cancer, at least we can Hope that He does. I, for one, need to change the channel, the West Wing, like Obama, was fake but at least it was better written.

Flash versus Substance

Recently I participated in a competition to determine the commercial viability of some particular invention. The competition involved researching the invention and determining it's advantages over the current technology. It then involved conducting an analysis of the current and potential markets and whether given their size and the product's relative advantage, an investor should invest money. It was fun and I think my team did a good job understanding the market place. I am happy to report that our analysis was very sound, our presentation was lacking.

The winners did an amazing job with their presentation. I don't remember their analysis and that's the point. The competition had virtually nothing to do with the analysis, it was about awing the audience with your presentation.

My personal demeanor is one that values substance over flash but I fear that is a minority opinion. Most people value flash over substance. The phrase, "perception is reality" reflects upon this belief and it is a bit of a tragedy. Like the falling tree, reality does not need our perception. Perception distorts reality.

At the end of the day perception always loses out to reality. I am ok with that. I can wait!

Rationality and Darwin

In today's Wall Street Journal I read yet another article talking Darwin and about how people are not rational. This growing field in behavioral economics argues persuasively that we should question our economic foundations based on the assumption of a rational actor.

I have no disagreement over the fact that people are not perfectly rational, we aren't. I concede. What I don't concede are the implications of this fact. The logic advocated is that if people are not rational then we must not trust their judgements and hence the free market system which is based on the fact that people make rational judgements cannot be trusted.

The problem with that argument is the confusion of actions with their reprecussions. If we or anyone were omniscient and infallible, then no mistaken actions would take place. This is obliviously not true, we can and often do make mistakes. Here is the important point: do we accept the fact that we WILL make mistakes? If you believe that mistakes are inevitable then the really important question is how to mitigate their impact. The feedback mechanism for communicating our mistakes is essential to prevent a recession from becoming another depression.

I am reading this George Soros book that refers to booms and busts in the economy. He creates a theory of reflexivity in which feedback loops change our underlying behavior. The idea is that we don't act rationally and that our irrationality builds on itself until it is no longer sustainable. This feedback initially creates a boom followed by an inevitable bust and the process repeats.

What I think Mr. Soros laments is the fact that our irrationality causes these booms and busts and that because we know these are irrational we should somehow prevent them. The problem with his argument is the notion that in one context we have the ability to act rational while his entire argument is based on the notion that we are irrational. No system can take away our irrationality and mistaken actions. Whether administered by a beareaucrat or by the market mistakes WILL be made.

Those on the market side of things are making a mistake when they argue that the market is perfectly rational. The purpose of the market is not to prevent mistakes but to punish mistakes. The more efficiently we let that happen the better off we will all be.

That single mother

Sitting here listening to our president, Barack Obama, I am struck by the reference to the mythical "single mother of 3 trying to save her house". There is an subtlety that needs elucidation.

What is omitted is any judgement of how her predicament is a direct result of choices made. Could it be that if the mother were not single or did not have any children or chose to rent instead of own that things wouldn't be so bad for her? Maybe, maybe not. Perhaps she was thrust into this situation and had no control in the matter or perhaps she purposely got into the scenario. What should be noticed is the implicit acceptance of the situation. Nowhere does he question the wisdom of becoming a "single mother of 3 trying to save her house".

This may sound like blaming the victim, but one should ask if this person is really a victim. There is a sickness here where we fail to grant any responsibility to the actions one takes and the consequences that result from those actions. It is possible for people to fall victim to circumstances but it is more likely that circumstances are a result of deliberate actions. As a matter of public policy it should be our goal to tailor incentives to modify behavior which leads to unfortunate circumstances.

Oops

Anyone who touts experience is foolish. Experience can only teach if we choose to listen and this is a HUGE if. Let's recap some recent events:
Bush spends 300 Billion in stimulus checks
700 Billion in TARP funds are approved

Neither of these events solved any problems. 1 trillion in spending and zip, zilch, nada. So what is the next proposal:
800 billion in more stimulus spending

So how is doing the same thing that didn't work in the past going to work in the future? I don't know and neither does anyone else.

Deal or No Deal

Just for my entertainment, but there is a reason some of us are meant to be poor. I saw a guy on deal or no deal turn down over half a million. He then proceeded to open a million dollar case. At that time he had a 1 million dollar and a 1 dollar case left. The bank offer was 416000, a lot of money and more money I am sure than he would see in his entire life. Only his mother (god bless her heart) told him to take the deal. While normal folks know that this is a no brainer, so what does he do? NO DEAL!!!! Oh my God. Cosmic justice prevailed and he walked away with 1 dollar. Let me repeat, 1 DOLLAR. Anyone who tells you people are the prey of the rich and bear no fault in their own circumstances clearly hasn't seen this form of natural selection. That's why I love that show, no matter how insanely dumb you may think people are it proves you wrong every time. The only person I feel bad for is Howey because he has to congratulate them on a great "game".