Global Wandering

I have been fascinated for some time with complexity theory. Complex systems, such as a free market economy, have both local uncertainty and global certainty. In other words, there needs to be structure and certain bounds to the market, but then individuals should have the right to act independently to be creative and add value. This makes the system more resilient to shocks, because solutions to problems can take multiple paths. Socialism by definition reduces complexity, because it seeks to plan outcomes centrally, reducing creativity and efficiency.

A key aspect of successful markets that many people ignore and fight against is the need for structure. They believe most rules only limit freedom and create red tape, and the market is all knowing and will solve all problems. Unfortunately that is not the case. Without limits and rules to foster structure, market failure can ensue.

One example of an earlier market failure is in the mining industry. Corporations have a fiduciary responsibility to enhance shareholder wealth. Hence, in order to maximize profit when a corporation mines it needs to extract minerals as cheaply as possible, sell the product for as high as it can, and when the mine has been exhausted to move the equipment and workers out quickly. Corporations do not have a fiduciary duty to do good, just to maximize shareholder wealth. Hence for years, miners left the sludge and other byproducts of their mines sitting exposed so it could leach into rivers and streams, poisoning the environment. This is a market failure, because many of the costs of the mine were not incurred by the corporation, but were incurred by the citizens who lived downstream from the mine. Hence, the government had to step in and set environmental laws and standards to protect the public good. One of government’s roles is to provide rules and structure where the motivations of some market participants lead to market failures.

More controversial are market failures that deal with inequality of opportunity for individuals. There is a difference between inequality of outcome and inequality of opportunity. There will always be inequality of outcomes because of differences in talent and motivation. The challenge is to make sure individuals have equality of opportunity.

For many years, African Americans in this country had inequality of opportunity because of discrimination. This market failure had to be corrected by government intervention, because some individuals and corporations were motivated in a way that was detrimental to the public good. Before the civil rights movement, society and markets were much less efficient because the talents and the innovation that African Americans could have contributed was disrupted.

Inequality of opportunity also occurs when personal and property rights are only selectively enforced, when government funds mainly benefit the politically influenced or when the distribution of public services favor only the wealthy.

We have a public school system in this country. One of the longstanding controversies in education has involved correcting inequality of educational opportunities for the poor. Some of the solutions that have been enacted have not worked. Some have done harm. This is not my area of expertise. The question is, can the free market or individuals acting on their own and through charities have the motivation and the ability to ensure that each child born today in this country has the opportunity to use their talents and contribute to society? Or are their market failures that need to be corrected in this arena by other means. Is there an inequality trap that is preventing children who are born into poverty from learning and improving? Ultimately, we all pay the price because capital will not be efficiently allocated in the free market if there are individuals who because of systematic failures don’t have the opportunity to develop their talents.

These are not simple issues.

I believe there are individuals on both sides of the political spectrum who ultimately thrive on exploiting market failures. Some favor socialism. Others favor a complete lack of government intervention. Both views are wrong.

I also believe individuals should freely share their excess wealth to relieve suffering. But except in the most dire cases, solutions to relieve suffering should be growth inducing, creativity inspiring, and sustainable. Education is growth inducing and creativity inspiring. Reducing inequality of opportunity is growth inducing, because it leads to more creative seekers. Reducing inequality of outcomes is a growth detractor, because it distorts motivations, reduces creativity, leading to less wealth and more suffering.

William Easterly said, “You don’t have to immediately eliminate world poverty, bring world peace, or save the environment. You just have to do whatever you discover works with your modest resources to make a difference in the lives of poor people.”

Posted by jd at 9:39 AM | Permalink | Comments (6)

I don't play many video games. Most of them make me dizzy. Except this one.

Line Rider is an ingenious game that is the perfect mindless activity while sitting on a conference call. Breanna and her friend are downstairs on the Mac playing it, while the boys are doing the same up in my office.

For inspiration on what you can accomplish on this game, here is a video from YouTube. Enjoy.

Posted by jd at 3:43 PM | Permalink | Comments (3)

Any guesses as to where I took this picture today and what is it?

One hint, it is close to where they sell the most incredible frogs.

Posted by jd at 8:15 PM | Permalink | Comments (2)

Good

The inaugural issue of Good Magazine arrived at my mailbox today. I originally subscribed because they gave my $20 subscription price to charity (like the old business adage goes, they’ll make it up on volume). This is a cool magazine. Not only are there colorful charts and graphs, but between pages 80 and 81 is a page of stickers. I have always loved stickers. I never stick them on anything because I like to view the entire unblemished shiny page. Looking at the blank space where a sticker has once been has always brought me a tinge of sadness. (Everyone is allowed a few idiosyncrasies. This is one of mine.) The stickers were created by Tom Porostocky. His cryptic web address is morepartyanimals.com.

Good

Pandora is a delightful site that introduces you to music and artists based on their similarity to other artists you like. One advantage of working above my garage besides wearing pajamas ‘til noon is I can listen to music and watch television while at work. So today Pandora suggested a singer named Vienna Teng. She plays piano and sings beautifully. I downloaded a dozen of her songs off iTunes and plan on listening to them while I go spinning in my basement this evening since it was too gray and windy to bike outside. Pandora’s business model seems to be to make it up on volume also.

Not Good

We have plans to spend three weeks in Oaxaca after Christmas and have been dismayed by the civil unrest in the city. Delta Airlines won’t waive the $500 penalty for changing our tickets to a calmer destination like Chiapas. According to Mr. Jenson, the supervisor I spoke to, Delta can’t waive the fee because:

1. You can’t believe everything you read in the newspaper so until the U.S. State Department issues a Travel Warning, they can’t waive the fee. It doesn’t count if the U.S. State Department has only issued a Public Announcement warning of the chaos. It has to be something severe like what is occurring in Iraq or Lebanon to change my tickets without a penalty.

2. The airport is still open. The fact that roads from the airport are blocked and tourists are being barricaded in their hotels is irrevelant. If the plane can land, then Delta will not waive the $500 ticket change penalty.

3. Your travel dates aren’t until December. If things are still bad by then, there is a chance Delta would waive the penalty⎯because then it will be so close to the departure date Delta will be able to charge a $1000 more per ticket.

4. If we waive the fee for you, even though you’re Platinum Medallion and a Million Miler, then we will have to waive it for everyone who decides they don’t want to go to their original destination because of some “sporadic protests.” Besides you can’t believe everything you read in the newspaper.

Posted by jd at 7:14 PM | Permalink | Comments (8)

by Camden
My son Camden and I spent the weekend in Ohio. Our visit included a stop at the Ohio Renaissance Festival. For those who have not attended a Renaissance Festival, it is essentially a carnival in costume. The participants and many of the spectators dress in their finest 14th century outfits. Musicians play ancient instruments like the ocarina, the dulcimer and the crystal glasses filled with water.

by Camden

Spontaneous dancing breaks out in the street. Vendors hawk swords, capes, jewelry and medieval treats like funnel cakes. Games include axe throwing, tomato pelting and fishing for fake wooden goldfish. All in all a good time for everyone.

We flew home on 9/11. The airport was surprisingly crowded. One of the books I am reading is The Culture Code. The author's thesis is we apply unconscious meaning to items around us⎯cars, food, relationships⎯that arise from the culture in which we were raised. He believes cultures change very slowly and when "cultures do change, the changes occur in the same way as our brain⎯via powerful imprints. These powerful imprints alter the reference system of the culture and the significance is passed down to subsequent generations."

It is too soon to tell if 9/11 has changed cultural imprints in the U.S. or around the globe. If the events that day have, then how? In the weeks following 9/11, I remember telling clients, perhaps naively, that horrendous things had occurred in the past, yet normalcy returned. I felt it would be the same this time. But I was speaking in the context of investments and markets.

I stood atop the World Trade Center with my family in July 2000. I returned to a different city in December 2001. Five years later, day to day living appears normal, but perhaps our sense of normalcy has been altered. Jared Diamond in Collapse refers to creeping normalcy⎯the concept that slow trends are hidden due to noisy fluctuations and the plodding pace of change. Day-to-day living seems normal because we don’t remember what things were like in the past. Yet, it is our responsibility to remember and then to act if the changes that have occurred since 9/11 have not been for the better.

Posted by jd at 4:30 PM | Permalink | Comments (2)

I visited Portland, Oregon earlier this week. It is one of my favorite towns because the city center is so walkable with an eclectic mix of shops and restaurants. Sometimes when I travel I am in a reflective mood and don’t go out of my way to find conversation. Other times, such as on this trip, I am more open. Here is what I learned from a few of people I met.

Sweets is a 64 year old man who wears a baseball cap and a Tommy Bahama shirt with holes over the right breast from seat belt rub. For 12 hours a day, he is harnessed to a taxi cab. He loves it. He has worked since he was nine, starting with a lawn care business in which he pulled a push mower behind his bicycle and charged $2.50 a yard. After graduating from college, he realized what he liked to do more than anything was drive. A taxi has been his office ever since⎯39 years later.

Most cabbies in the U.S say very little, even if English is their first language. Sweets is the exception. He begins talking the minute you sit down, starting with a friendly reminder to fasten your seatbelt. Then he rehearses about being a new man, now that he has discovered a new prescription drug to stabilize his heart condition. He says he hasn’t felt this good since the sixties. He talks about his children, grandchildren, and his ninety year old mom, who has lived with him since his wife died. He muses about college football⎯his other passion besides driving. He’s an Oregon Duck fan. Occasionally, he asks a question, but then seems to use the answer as an excuse to continue his ebullient monologue. I learned more about this man in the twenty minutes I rode with him than I know about some of my business partners after ten years of working together. When I mentioned I needed a ride to the airport later that afternoon, he agreed to return at the stated time. That isn’t unusual. What is remarkable is he actually came back and he was early.

When we reached the terminal, I shook his hand⎯another taxi first for me, but I felt I’d known him for so long it seemed like the natural thing to do. His parting advice was to tell my kids the nugget of wisdom he gleaned from a fortune cookie many years ago: Kindness is the only investment that never fails.

Sean Koreski is a clean shaven, twenty five year old who has the same determined look of a guy who has finished up an MBA and is ready to conquer the investment banking world. Except Sean has opted out of a traditional career. He is standing on the corner of Yamhill and Broadway, strumming a guitar and alternating between singing and creating an exotic melody from the Bolivian wood flutes that are positioned just below his mouth. The music has a tropical flare and reminds me of the marimba band my son Camden and I listened to many years ago on a plaza in Chiapas. When he finishes up the song I approach him to peruse the CD’s that are displayed in the guitar case at his feet. He is surprised I came up and browsed without first passing by three or four times. He says Portland ordinance only permits him to perform on the corner for an hour, but he has been there for three because an hour doesn’t give him enough time to make any money. Most people walk by numerous times before they get up the courage to buy a CD or put money in his jar. He thinks they are afraid he is going to accost them. Kevin learned to play the flute in Bolivia, after a friend invited him down. Now he tours with a band there, but returns up North to make money on the corner during tourist season. I buy a CD. The music is beautiful.

The owner of Vegetropolis has tattoos on her hands and arms that remind me of the marbled paper on the inside covers of 19th century books. She is in her late forties, which means she got the colorful tattoos well before they became popular again. They are the mark of a nonconformist.

Her restaurant has been open for eighteen months. She originally had a lunch cart, but her patrons were so enthusiastic about her vegetarian fare that she opened the restaurant on 4th near Stark. The hardest part about eating vegetarian is it takes so long to prepare the food, which is why a vegetarian restaurant is such a treat. This one is a gem. I order the almond pate on wheat bread. It is the best sandwich I have had in months.

Three Portland folks, all opting out of traditional careers, none making a ton of money, but all with the contented smiles of people who have found their passion, their bliss and are living it.

Posted by jd at 5:08 AM | Permalink | Comments (6)

I woke this morning to the news Steve Irwin, the Crocodile Hunter, had been killed by a stingray along the Great Barrier Reef off the coast of Port Douglas, Australia.

Last year, my son Bret and I visited Irwin’s Australia Zoo and we snorkeled in the same waters off Port Douglas that took Irwin’s life. Irwin is what inspired Bret to visit Australia. Irwin was his hero. He hoped to get his autograph. Bret has never cared for sport celebrities, but something about Irwin’s bravado, his understanding of nature, his charm won Bret over.

It is still early on Labor Day and I haven’t broken the news to my son. He is asleep. I am not sure how he will react.

UPDATE: Bret is sad, but he is taking it well. He says it stinks.

Posted by jd at 8:10 AM | Permalink | Comments (8)