It turns out that I am not the only person who thinks that Malcolm Gladwell is overrated and often wrong. Here are three more articles taking him to task:
I’ll let you all follow the links and read the articles, but I am feeling good about no longer being alone on the anti-Gladwell plank.
Posted in Business, Pop culture, Trends
Tagged Business, culture, malcom gladwell, new yorker, publishing, statistics, Trends
The deeper I get into Moral Man and Immoral Society, the more I realize that Reinhold Niebuhr was tremendously prescient. Or, perhaps, the world just hasn’t changed in the 70 years since he wrote the book.
For example:
“Thus, for instance, a laissez faire economic theory is maintained in an industrial era through the ignorant believe that the general welfare is best served by placing the least possible political restraints upon economic activity. The history of the past hundred years is a refutation of the theory….The men in power in modern industry would not, of course, capitulate simply because the social philosophy by which they justify their policies had been discredited. “
And yet, since the Reagan presidency, we have seen nothing but deregulation and an emphasis on laissez faire economics. And even after the meltdown of the past two years, the Right is clinging more than ever to its free market mantra, following the siren song of Ayn Rand, letting the Howard Roarks of the world build their luxury highrises while the city crumbles around them (that was buildings as metaphors and as concrete examples (and THAT was using a word which is a component of buildings also as a descriptive (Thoughtbasket has layers, baby))).
Just yesterday the NY Times reported on how Congress is gutting the Sarbanes-Oxley bill, removing the post-Enron regulations that were meant to prevent corporate chicanery, succumbing to corporate and banking lobbyists at the expense of small investors. Were Niebuhr alive he would be knowingly, and sadly, shaking his head.
Posted in Business, Philosophy, Politics
Tagged Business, economics, free market, Philosophy, Politics, regulation, reinhold niebuhr
A mere 15 years after buying it, I am finally getting around to reading Reinhold Niebuhr’s Moral Man and Immoral Society. Thoughtbasket readers will probably see numerous posts inspired by this book, likely spanning months, since that is how long it will take me to finish it based on my current reading pace.
The basic premise of the book is that while people, as individuals, are generally pretty moral, once they group together – as tribes, countries, companies, trade organizations – they often act in immoral ways. How Niebuhr bridges this dichotomy will require me reading beyond page 25, which is where I am now.
But in setting up the dichotomy Niebuhr discussed the forces that push man into society and ways that society enforces mores and rules. Writing in 1932, he says this:
“With the increased centralization of economic power in the period of modern industrialism, this development merely means that society as such does not control economic power as much as social well-being requires; and that the economic, rather than the political and military, power has become the significant coercive force of modern society.”
I don’t know whether to be relieved or disturbed that the economic elite have controlled our society for at least 75 years.
As the government throws trillions of dollars at Wall Street, with Goldman alumni seemingly running the Treasury department, and bankers using taxpayer dollars to pay themselves multimillion dollar bonuses (why isn’t that bonii?), it really seems like Simon Johnson is right and the financiers have taken over government via a quiet coup. But according to Niebuhr they took over government long ago, and while they have certainly managed to pillage the common man in the intervening years, the reality is that standards of living have increased since the 1930’s, so perhaps economic coercion isn’t that bad. That’s the relieved side of my brain.
The disturbed side of my brain, on the other hand, focuses on the pillaging. Note that in the above graph, standards of living have improved dramatically at the top end, but not so much at the bottom end. Not surprisingly, those who hold economic power ensure that society is set up such that most of the proceeds of growth accrue to them. Or, as Niebuhr puts it, “the dominant class….always paying itself inordinate rewards for its labors.” I wonder when and how we went from being a democracy deriving its “just powers from the consent of the governed,” to a society in which economic entities are dominant.
Should we blame greedy businessmen and craven politicians? Of course. But we need to look in a mirror too. Gary Cross discussed at length in An All-Consuming Century the trade-offs that labor organizations consciously made to ensure steady employment at a stable wage. Many of these trade-offs transferred power from unionized masses to the corporate elite. And as I’ve noted before, we all need to be more active and informed voters; when our representatives are more beholden to corporations than to people, we need to vote them out.
Apparently there is an ongoing debate in ophthalmological circles about using Lucentis or Avastin to treat macular degeneration. These are two closely related drugs, both made by Genentech from the same molecule. Avastin has been approved for treating various cancers, but ophthalmologists have evidently been using it off-label for a while to treat macular degeneration. This off-label use is one of the reasons Genentech produced Lucentis, which has been approved for macular degeneration.
Why is this relevant to health care reform? Because Lucentis costs thousands of dollars per dose while Avastin costs less than one hundred dollars. Even worse, as I was told by an ophthalmologist over the weekend, insurance policies keep even those doctors who are worried about costs from using Avastin. Doctors pay $50 for a dose of the drug, but only get reimbursed $7, so they are losing $43 per treatment. If they use Lucentis, they get full reimbursement. One might argue (in fact, I probably would) that the ophthalmologists are making so much charging for the treatment that they should eat the $40 loss, but I doubt many of the doctors will listen.
I know that there are many complexities here: you can’t expect insurance companies to fund the use of unapproved drugs, and you want a drug approval system that errs on the side of safety, and there hasn’t been a head-to-head trial to see if Avastin is fully equivalent to Lucentis. But surely there is a middle ground, where drugs are sufficiently vetted yet we are not incenting doctors to prescribe thousand dollar drugs instead of fifty dollar drugs.
I recently posted about how corporate lobbyists stymied consumer protection reform in the 1960’s and 1970’s. Now here is a quote from Baron Arthur Salter’s book Recovery, from 1932:
“Government is failing above all because it has become enmeshed in the task of giving discretionary, particular preferential, privileges to competitive industry.”
Ugh. Will the system ever be as responsive to individuals as it is to corporate interests?
Tagged Business, corporate power, economics, lobbyists, Politics
I recently finished reading a great book called An All-Consuming Century by Gary Cross, a professor of history at Penn State. In this book Professor Cross traces the history of American consumerism in the 20th century, exploring the various roles of consumers, marketers, politicians and temperance movements, and teasing out theories of why America is so much more consumery (my word, not his) than other countries.
There is too much in his book to summarize, and I’d prefer that you buy it anyway, because it’s a great book. It’s currently number 330,562 on Amazon and I’m sure that we can get it up in the two hundred thousands. Suffice it to say that in a society founded on egalitarianism, consumption can be a method of both differentiation and assimilation.
One of the side themes that emerges from Cross’ book, and the one this blog entry is actually about, is the role that corporate lobbying has historically played in keeping consumption up. At a time when the role and power of Wall Street and insurance company lobbying are being much discussed, it seems appropriate to note that it’s nothing new for big business to use its money and lobbying clout to push around the little guy.
In particular, Cross discusses how after a rush of consumer rights legislation in the 1960’s (Hazardous Substance Labeling Act, Child Protection Act, Clean Air Act, etc.), corporations figured out how to lobby in order to limit the scope of those laws. “By 1976, they had begun to learn how to lobby a more decentralized Congress and to use Public Action Committee funds and grassroots pressure groups to regain dominance.” (p. 158) Moreover, as Cross makes clear, the deregulation that marked the Reagan era was the nexus of laissez faire ideologues and corporate lobbying, and it encouraged consumption by limiting constraints on corporate marketing and product safety as well as environmental impact. Cross: “…deregulators were not friends of the average consumer, for they allowed higher bank fees, cable TV rates, insurance premiums, and child care and health costs.” (p. 205)
The fact that corporate lobbyists have been harming our hypothetical little guy for decades doesn’t make it right. I’m sure that the moneyed and powerful have been pushing their interests for longer than that. But in a US congressional system that has become so driven by the need to raise vast sums of money, the power of lobbyists is greater than ever. Solutions? Campaign finance reform and term limits are both possible answers. But the strongest answer is for voters to be aware of what their representatives are doing and act accordingly. Hey Montanans: if you don’t like that Senator Baucus took millions from the insurance industry while writing the health care reform law, then vote him out. We the people have a fair amount of power, but we have to work to exercise it.
Tagged Business, congress, consumerism, health care, lobbyists, marketing, max baucus, penn state
Back in February the New Yorker wrote an article about how Florida was sort of the epicenter of the real estate madness, full of frauds and crooks, and that the entire state was essentially a giant ponzi scheme. The story mentioned one man in particular, Sonny Kim, who sold 90 properties, netting $4 million. Here is a link to a story in the local paper about Mr. Kim. The buyers were mostly in on the scam, putting no money down, getting liar loan mortgages from foolish loan officers, and then walking away, sticking the bank (meaning the taxpayers) with the house while Mr. Kim kept his proceeds.
Here is how it works: “A common scam works like this: Someone with cash buys a crummy house cheap. A mortgage broker signs on and finds an appraiser to inflate the value. The broker shops the loan application, with false data about the borrower and the house. Bank loan officers approve it.”
Sonny Kim bought one house for $100, and three months later “flipped it for the sum of three hundred thousand dollars, with the help of a no-money-down mortgage from a subsidiary of Washington Mutual Bank, which later foreclosed on the house.”
I saved the article, so that I could go back to it later and see what happened to these folks. According to the St. Petersburg Times, which broke the story, nothing has happened. Sonny Kim hasn’t been charged with any crime. The title agent who managed a third of Kim’s deal, and was arrested on other fraud charges, hasn’t been charged for these deals. Nobody at WAMU is in jail. So all the people who made money on these fraudulent deals are sitting pretty, spending their money on mojitos, while the taxpayers are footing the bill for the bailout. That seems wrong somehow.
In fact, here is a quote from another house flipper, who started his real estate career while on probation from a cocaine conviction: “I drive a Hummer and own a 1970 vintage Oldsmobile 442. I always wanted diamonds and now I own them legally and no one can take them away.”
Posted in Business
Tagged Business, financial meltdown, florida, justice, Politics, real estate
This is truly a miracle! For the first time in memory, there is an op-ed in the Wall Street Journal with which I actually agree. Mostly. And it’s by Holman Jenkins, who is usually such a tax-cutting, market-loving, poor person-hating cretin that I am often amazed he is even literate. But here we are on the same page. He expresses his views in his usual caustic and hyperbolic fashion, but I’m on board with his analysis.
The issue is net neutrality, and the possibility of FCC regulations on the matter. Jenkins points out that while there is a theoretical possibility of carriers favoring their own content over 3rd party content, this has yet to actually happen. He also notes that carriers invest billions in the infrastructure needed to carry ever more data, and that they need to recoup that investment. Finally, he points out that if carriers do not charge differential rates to content suppliers, the obvious solution is to charge differential rates to content users, namely charging more for heavy bandwidth users, which is clearly an equitable solution. In all cases, I agree with Jenkins.
This is also rare for the Journal, but the first two letters to the editor regarding Jenkins’ column, which can be found here, are also quite reasonable.
Posted in Business, Politics, Technology, Uncategorized
Tagged Business, holman jenkins, internet, net neutrality, Politics, Technology, wall street journal
Harvard Magazine recently published an article regarding bank regulation. Like many articles (in fact, like the vast majority of articles I’ve seen), it makes the case that the current situation virtually guarantees another financial meltdown, since all major financial institutions now have implicit government backing, under the “too big to fail (TBTF)” doctrine. However, this article is a little different than many because it’s written not by a journalist, but by David Moss, a professor at Harvard Business School, which is, of course, the main source of the overconfident financiers who created the recent meltdown.
Professor Moss suggests a number of solutions to the TBTF problem and the moral hazard it creates. Most of these suggestions revolve around making the implicit guarantee an explicit one, with transparent limits and with the government charging for the guarantee. He would also add a tight regulatory regime.
The most interesting thing about Moss’ article was the graph I’ve inserted below. This graph has the date on the X axis, from 1864 to 2000. The Y axis shows the number of bank failures during each year. As you can see, bank failures were a regular occurrence in the American economy until 1932, when in the wake of the Great Depression a whole series of regulations were implemented, including Glass-Steagall. Then there is a long, calm period with very few bank failures, running up to the early 1980’s, when bank deregulation began under the Reagan administration. This graph speaks volumes.
Bank Failures Over Time
Bank CEOs and Republicans are arguing strenuously against new bank regulations. CEOs have a good reason: they want to make as much money as possible. But Republicans are fighting regulation simply because they have an ideology that regulation is inherently bad. I think the last two years have proven this ideology wrong, but even if you don’t buy that, it’s hard to argue with the chart. So the question for Republicans is whether they are going to look at 136 years of data, or listen to the anti-government ramblings of people like former exterminator and creepy dancer Tom Delay, or fact-hindered quasi-philosopher Ayn Rand?
Tagged bailout, banks, Business, financial meltdown, Politics, republicans, wall street
I’m a little late in getting to this, but a semi-recent suite of letters to the editor regarding Malcom Gladwell’s New Yorker piece on basketball’s full court press provided me with a reason to write something I’ve been stewing over for years: Malcom Gladwell is massively overrated. I have been disagreeing with him for years, since before he published The Tipping Point, back when he was just a New Yorker staff writer.
The letters about the full court press, which sadly are not on the New Yorker website, generally press [heh heh] on the theme that Gladwell’s conclusion was superficial if not downright specious. This makes sense to me, since when I read his article, it clearly seemed to be wrong. And that has been my problem with Gladwell all along: too often I feel like his conclusion doesn’t make sense.
I should state here that I don’t want to fully attack Gladwell. Sometimes his conclusions are correct. And in all cases I think he is a truly talented writer with an amazing skill at explaining complex ideas in clear and concise language. He just sometimes leaps to unwarranted conclusions.
Here is how the typical Gladwell article works: he presents a few facts, which he then links into some sort of “surprising” conclusion (e.g. underdogs should always press or a few well-connected hipsters started the Hush Puppies trend) and then does a series of riffs on the implications of this conclusion. But his conclusion is based on some analysis he has done of those first few facts. My problem is that he never gives you the details of this analysis or how he did it. That means that you can’t tell if he’s right or not. He might have misread the data, or skewed it to fit his thesis, or just screwed the analytical pooch. You have to trust his analysis, and if you don’t, his whole article is meaningless.
The real problem here is that Gladwell’s analyses are sometimes wrong. As the letters indicate, his view of the press is flawed. Of course any new strategy can prove effective for a while, but fundamentally all a press does is move the locus of competition from the basket to the backcourt. Once teams get used the press, the good teams will break it the same way they can outscore the bad teams once under the basket. In addition, as the letters pointed out, it is often the favorite that presses, leveraging its physical advantage.
Similarly, Gladwell’s first — and still most famous — analysis, in The Tipping Point, is equally problematic. Recent research in trends has shown that that randomness and social dynamics provide a full explanation for why some trends explode and some don’t. Gladwell’s whole structure of Mavens and Connectors is irrelevant. Check out Duncan Watts’ work on music popularity to see how wrong Gladwell really was. See links here, here, here, here and here.
Here is Watts from the NY Times magazine: “This means that if one object happens to be slightly more popular than another at just the right point, it will tend to become more popular still. As a result, even tiny, random fluctuations can blow up, generating potentially enormous long-run differences among even indistinguishable competitors.”
As statisticians always say, just because the data looks like a trend doesn’t mean the trend exists. Gladwell’s problem is that he likes to make a thesis out of a few data points, without doing the work to truly understand whether his thesis actually has causative properties.
Or, as MIT professor Ezra Zuckerman put it in a letter to the New Yorker regarding Gladwell’s piece on the Wall Street meltdown, “This is an interpretive leap drawn from two facts….But Gladwell’s logic is faulty.”
I want to emphasize again, however, that I am not fully anti-Gladwell. His writing is great, even if his analysis is sometimes flawed. And his review of Free, the idiotic book by Chris Anderson, is right on the money. So to speak.
Posted in Business, Pop culture
Tagged Business, culture, malcolm gladwell, music, outliers, tipping point, Trends
Thoughtbasket 