Saturday, December 31, 2011

Capitalism and Civics

The tenor of discourse in American conversation1 has run so far into the anti-capitalist, anti-free market vein that we seem to have reached a kind of rhetorical dead end. People in the private sector are now generally viewed as some kind of primitive, unteachable, gibbering ape—with apology to all living apes—who cannot be trusted to know right from wrong, refrain from messing in the house, or even recognize their own best interest. If capitalists were driving down a mountain road, they would be laughing maniacally and steering for the cliffs. They are thought to be people really too ridiculous to be believed.

Now, I am the old-fashioned sort who believes that any group is made up of individuals. While groups as a whole may advocate and pursue mad, impulsive, categorically imperative courses,2 individuals tend to take actions that seem reasonable and justified in terms of their own worldview. That is, I will credit people with the ability to think, reflect, change their minds, and act accordingly.

So, in this context of individual enlightenment, what is a capitalist? As the concept has developed over time, he or she is anyone with liquid resources—that is, wealth not locked up in a house and land, jewelry, or some class of transportation hardware—available to invest. The time value of money3 suggests that leaving dollars under the mattress, where inflation can gobble them up, is pretty stupid. And putting them in a bank savings account, where they earn about 0.02 percent per year under current Federal Reserve policies, is foolish. Of course, the mattress and the savings account are the most risk-free, thought-free, and care-free ways to treat money. Any other use requires more risk, thought, and personal responsibility. And generally, the more risk and thought required, the greater the return that use of the money will command.4

A capitalist invests his or her spare money so as to get the greatest growth, or return, consistent with an acceptable level of risk. Of course, some people see huge returns to be made by guessing into which numbered pocket on a spinning wheel a little ball will bounce, or which horse out of eight or nine can run the fastest, or what string of numbers will come up together in a random drawing. For most of us, however, the risk of losing the principal altogether in these ventures is too great. We prefer a lower level of risk and a more modest return.

Capitalists buy stocks in companies that they think will do well, grow, and tend to increase in value.5 Or they buy the bonds of companies that have a good reputation for honoring their debts and will pay back the principal with interest. In this sense, the mass of employed Americans who participate in 401(k) savings plans and individual retirement accounts (IRAs) are capitalists. They look ahead ten, twenty, or forty years to a time when they will not be able or want to work, and they expect their money to grow on the way to meeting them there. Let’s call these passive capitalists, because they are making investment decisions that will ride the coattails of those who manage the companies in which they invest.

Active capitalists, then, are people who take this money that’s borrowed through bonds or raised through stock sales—plus, usually, some of their own money—and invest it actively in a business. They use the money to buy productive and logistical capabilities such as manufacturing equipment and trucks. They hire workers to use the machinery and drive the trucks. They rent or purchase property for their factories and warehouses. And they hire or contract for support in areas like accounting, advertising, or human resources. If it’s a new business, the stock and bonds usually go to paying the costs of starting up. If established, they may pay for an expansion. Eventually, however, the business has to pay its own way plus a bit more—through profits and sales growth—to reward investors in terms of stock growth and dividends or bond yields and interest.

All of this is basic Microeconomics 101. What seems to have gone off the rails in recent discourse is the expectation that active and passive capitalists will act rationally. The presumption seems to be that, without intense government supervision, goal-setting, and micromanagement, capitalism will explode, poison the earth, ravage people, and destroy society. The sum of all the good things that government management is supposed to achieve through regulation and policy setting is usually described as “sustainability.” By that is meant encouraging or forcing capitalists to adopt social, environmental, and governmental goals that stand above and beyond the basics of earning a profit by providing goods and services that people want at a price they will pay—that is, by satisfying a demand in the marketplace.

Now, granted, the focus of business managers has shrunk over the past couple of decades. I can recall from the early years of my career when corporations rewarded employee loyalty and spent extra time cultivating community values. Companies used to see their role as balancing the natural tensions among four groups: customers, shareholders, employees, and community. Then, in the 1980s, a hardball style of stock analysis came into vogue and the words “shareholder value” became the cry. The term usually meant that a company worked to meet “the Street’s” expectations for stock price, earnings per share, and dividends each quarter. It made American managers less inclined to invest in growth and stability over the long haul. But any company that doesn’t keep one eye on the horizon will die in the long term anyway.6

It is my view that social goals, environmental goals, and government goals (except those represented by actual laws) are all secondary and pretty much unnecessary. If the intent of a business is to maximize its profits, then you do that by obeying the law (i.e., not paying fines or spending idle time in jail) and operating efficiently (i.e., not losing money to waste). Does it pay to treat your workers fairly? Of course. That way, you attract the best talent and generally avoid losses due to theft, obstruction, negligent damage, and downtime. Does it pay to be a good corporate citizen? Of course. If you do bad and hurtful things—such as ignoring social norms relating to racial equality, ethical and humane treatment, or respect for people and the environment—then someone will observe and report it. Then you'll lose money to competitors with a better name, because you’ll have to lower your prices to attract a less thoughtful class of customer.

As a case in point of operating efficiently, I once worked at a large oil refinery and commented to my supervisor that it didn't smell like the refineries I remembered from afar in the New Jersey of my youth. He said that this was by design. In fact, if I did smell anything, the company would pay me to report it. This wasn't simply a case of conscientious environmentalism. The plant’s chemical technology was tuned to such a degree that any odor meant a leak—“and that means we're losing product,” he said. The management’s self-interest made it a more vigilant environmental watchdog than any EPA investigator dropping in for the annual inspection.

Similarly, modern approaches to systems engineering, operating methods, data management, and people management mean that the modern company will run efficiently and effectively by choice, or suffer negative consequences. The focus of public attention in a transparent and open information environment means that a company will operate ethically by choice, or suffer the consequences of lost sales and lawsuits.

Is this approach—through self-interest—better than trying to write a law that covers all cases? Not always, because people are not uniformly smart or thoughtful, and the outcome is not certain. But with a law, the outcome is not certain, either. Laws must always be enforced through continual observation, routine apprehension, and credible penalties operating as deterrents.

If you doubt this, consider the California highways. With a speed limit of 65 mph, the average speed is usually above 70 and often closer to 80. Drivers go with the flow, and the California Highway Patrol usually cruises right along with them. The officers are more concerned with reckless and aggressive driving than trying to control the actual speed of the flow. This may be supremely sensible, but it’s not strict enforcement of the speed laws.

But making it in the capitalist’s best interest to undertake a course of action is more likely to have results, because capitalists are very good at looking out for their own interests. They are also very good at finding loopholes and workarounds when a law is not in their interest. And any enforcement strategy must obey another economic principle: the law of diminishing returns.

Simply put, pushing too hard on any one factor in a process reaches a point where more emphasis on that factor won’t achieve much. If you try to improve adherence to or compliance with a rule by enforcement alone, without addressing other incentives, you reach a point where a hundred patrol cars—in the example above—are no more effective than ten in reducing traffic speed. That may be why the California Department of Transportation has resorted to speed control by other, passive, physical means—like narrowing lanes, limiting lines of sight, and designing “weaves” between adjacent on and off ramps. When people have to slow down or risk breaking their necks, they usually comply.

Regulations that work through natural processes and the self-interest of the operator simply have a better chance of achieving their goals.

1. By “conversation,” I’m referring to what I hear from the mainstream media, bandied about in the blogosphere, and readily subscribed to by friends in the social media.

2. Think of the sort of fixation on a single principle that turns a zero-tolerance policy toward drugs or weapons into a scavenger hung for baby aspirin and butter knives in school backpacks, or an abortion rights advocate into an enthusiast for infanticide at the moment of birth.

3. Basic economics: everything is moving; everything is changing. Anything that is not growing is dying. The economy is like an ecology, always growing in one area by dying somewhere else. In such a dynamic environment, any asset that isn’t finding a productive use and growing is going to shrink and die. Money over time should grow in value. Otherwise, why did God give you eyes to see and a brain to think?

4. See Risk Free from December 4, 2011.

5. Speculators, day traders, and others who take a temporary position in a stock, believing it will go up or down in the short term, are less like capitalists and more like gamblers.

6. Managers who intentionally ride their companies to the block and chop them up for the current value of the parts are not really managers. They are corporate undertakers, and the business is already in a terminal state.

Saturday, December 24, 2011

Formula for a Golden Age

Since we seem to be so far from having one right now, I think this is the time to pause and consider what makes a Golden Age in any civilization. Is it something you always have to look back on and discover in hindsight? Is it something that’s more satisfying and fun to remember than to experience? Is it possible to engineer the conditions for a Golden Age? And is it possible, however inconceivable, that we are in the midst of one right now?

Certainly, it is easier to identify a Golden Age in the rearview mirror. Think of the times that have been so identified: the Edwardian period, between 1900 and the Great War; the Elizabethan period, between 1558 and 1603; the Augustan period, between 27 BC and 14 AD; and Periclean Athens from roughly 480 to 404 BC.1 These times have a sentimental glow about them. They make us think of the golden light of late summer afternoons, bountiful harvests, full-bodied vintages, exuberant paintings, epic poetry, and a world at peace—perhaps not least because of the chaos and turmoil that came after them.

Those are image fragments, of course, but they still ring true. For example, the arts were on display in all such periods. The Athenians enjoyed the plays of Sophocles and Aeschylus, and the wit of Socrates. The Augustans were given Virgil’s epic Aeneid on the founding of Rome. The Elizabethans saw a flowering of the theater and the genius of Marlowe and Shakespeare. The Edwardians inherited the Impressionist painters and the Romantic poets and composers from preceding centuries and made the most of them. These were all arts within the reach of the average literate person and anyone with the time to attend the theater or gallery—say, the upper middle classes. In that sense, the arts of these times extended beyond the wealthy patron and his immediate circle, and could be enjoyed by a wider slice of society.

In these periods, like most times, it was good to belong to the upper tiers of society. The wealthy could eat well, drink well, and play well. What marked these Golden Ages was a surface stability and lack of active war, which is a devourer of the leaders of society as well as the other ranks. Edward—whether by intention or through lack of attention—managed to avoid the wars of Queen Victoria’s reign, such as the Crimea and South Africa. He could jolly along his nephew the Kaiser and celebrate English and German rivalry with yachting displays at summer regattas. Elizabeth ended a religious revolt between Catholic and Protestant factions and extended her father’s and grandfather’s buffer against the dynastic politics of the Wars of the Roses. Augustus ended a hundred years of civil strife between contending leaders and their pledged legions, and initiated the Pax Romana. The Athenians existed in a sliver of peace between the Persian Wars and the Peloponnesian Wars.

But under the surface? Edwardian England was the center of a technological arms race in Europe that led to the first of two world wars. Elizabeth was in constant struggles with her ministers over the succession and with France and Spain over the future of Europe, and avoided the latter’s invasion only through a fortunate combination of wind and storm. Augustus maintained the peace only by clamping down an army-backed dictatorship as the last man standing from the civil wars, and he also struggled with the succession. The Athenians were in constant conflict with their neighbors and allies. For anyone paying attention, none of these were idyllic, restful periods.

Each of these periods grew wealthy with trade. The Edwardians prospered from the empire Victoria consolidated in the Middle East and India. The Elizabethans stood at the dawn of New World exploitation and picked the first fruits of Spain through piracy. Augustus welded the corn harvest of Egypt and the riches of the eastern Mediterranean onto the Roman sphere. Athens drew masses of tribute from her Delian League in the Aegean and from colonies overseas.

Although it’s never been a good time to be poor, these periods had something for the lower classes as well. The Edwardian period saw the beginnings of a progressive concern for those in need. It was also, in the United States, a period of massive immigration and new beginnings. The wealth of Elizabeth’s reign was beginning to spill over to benefit the merchant classes.2 Augustus settled legionary veterans on newly conquered lands, rebuilt the City of Rome and ensured its food supply, and reorganized the tax structure. Fifth-century Athens regularly heard the political voice of the average person—so long as he was born in Athens and not a slave or a woman.

So, what are the ingredients of a Golden Age? One part a period of fragile stability, usually with war and political upheaval as bookends. One part growth in trade and public prosperity. One part a flowering of the arts. One part opportunity for the common man. These conditions generate a spirit of public confidence. People are willing to speak their minds. People look ahead to better things.

But a Golden Age is not just about having a full belly and personal security. That way lies relaxation and a long nap. The spirit of confidence is tinged with just enough insecurity and doubt that people are inspired to scramble. And there must be a promise of improvement, so they know how to direct their steps. In this sense, living through a Golden Age might provoke more anxiety and require more hard work than people are likely to remember later.

Can a ruler or the leaders of society engineer these conditions? They can try. Political stability is well within a ruler’s or society’s grasp. Ironically, this usually requires a projection of strength rather than the cautious desire to avoid conflict: Enemies are more likely to avoid a snarling dog than a cowering one. Elizabeth, Augustus, and Pericles were all rulers who projected confidence and strength; Edward seems to have inherited the reputation from his mother. Trade and opportunity are usually within the control of government—if, that is, its ministers will release their grip a bit and trust in the efforts of entrepreneurs. The arts can always be publicly encouraged.3 Harder yet is to enlist the common people and capture their imagination: The average person is incredibly sensitive to what’s blowing on the wind.4

I would maintain that, despite all appearances, we are now living in a Golden Age, one that started with the end of World War II and persists up to the present. Consider these conditions:

War and political unrest: Yes, we have endured a cold war between various ideologies, first between free-market capitalism in the West and totalitarian communism in the East, then between tolerance of religious belief in the West and consolidation of a single belief in the Middle East. And yes, we have experienced numerous small wars at the edges of these greater conflicts: Korea, Vietnam, the Balkans, Iraq, Afghanistan. But we have not experienced massive invasion into the heartland of either set of beliefs and a final resolution by conquest. Communism collapsed peacefully under its own inadequacies; religious consolidation will eventually do likewise under the onslaught of trade and education. The wars we have experienced are on the scale of the border conflicts of Imperial Rome and the skirmishes of Elizabethan England.

Trade and prosperity: The Second World War left the United States as the last man standing, like Augustus after the civil wars. It also offered the former combatants, Germany and Japan, the chance to rebuild their destroyed, 1930s-era industrial bases with modern, postwar technology.5 The U.S. encouraged this and made them trading partners. The fall of communism in Russia and eastern Europe, and its commutation to a form of state capitalism in China, opened up global markets. Advances in computer technology and automation improved productivity and made possible a flood of inexpensive goods and efficiently delivered services. The Green Revolution expanded the global food supply. Countries like China and India ceased being economic failures and became global exporters.

Flowering of the arts: Technology—especially computers and the internet—have opened a floodgate of the arts. Books, music, movies, and the ideas they represent are readily at hand to anyone. More than that, the barriers to producing art have never been lower, because the same technology also allows anyone with a computer, a video camera, a microphone, and internet access to become a writer, musician, or moviemaker. While we may not yet have found the age’s Sophocles, Virgil, or Shakespeare, we still are experiencing a period of tremendous creativity.

Welfare of the common man: In the developed countries of the West, the life experience of the average person has never been better. Yes, there are still poor people,6 and yes, we are still in a recession. But most people expect and live a middle-class life. In the developing countries, there is more opportunity for growth and achievement. In the long view, science and technology have enabled levels of education, communication, nutrition, travel, leisure, entertainment, and personal satisfaction once reserved for kings and courtiers.

That looks like a Golden Age to me. Yes, we still have instability and anxiety. Yes, there are reasons for thinking the road ahead might be going over a cliff. But then, the Edwardians had some inkling of the Great War ahead, and the Athenians were already sliding into the war with Sparta by the time Pericles died. But the lights still shine and the music still plays.

The question is, what will people in a hundred, a thousand years, or more be looking back on? The last six decades as a time of relative peace and plenty? Or the quiet before the storm?

1. It’s interesting to note that these periods are all named for monarchs. But then, most of history has been identified with the person nominally in charge, from native American war chiefs to U.S. presidents.

2. Shakespeare’s grandfather was a tenant farmer. His father started a retail trade in wool and corn, took up leather working, and became a glover. By the third generation the family was fully employed in the theater arts.

3. Promotion of the arts may be a necessary but not a sufficient cause of a Golden Age. Certainly, the Works Progress Administration in the 1930s promoted and paid for the arts vigorously, and that wasn’t anyone’s idea of a Golden Age.

4. As one of the smartest people I know—a former journalist—once said, “People ain’t stupid.” That might be the founding stone of democracy. It links to Lincoln’s quip about fooling some of the people all of the time and all of the people some of the time. John Brunner in Shockwave Rider caught the flavor of this with his projection of the Delphi poll: “While nobody knows what’s going on around here, everybody knows what’s going on around here.” The Germans call it the spirit of the times, Zeitgeist: what everyone knows and recognizes.

5. To cite just one example: in the 1950s, new technologies in steelmaking became readily available, from the Linz-Donawitz (LD) oxygen process to electric-arc furnaces to continuous casting. Germany and Japan rebuilt with these technologies and leapt ahead of U.S. steelmakers, who were still working with open hearth furnaces and rolling mills built in the 1920s and ’30s.

6. Consider that people in America who live below the “poverty line” actually live better than most of India’s or China’s middle classes. We simply cannot conceive of letting our poor live at the level of their poor.

Sunday, December 18, 2011

Trust No One

We’ve recently had revelation 2.0, the second-anniversary outpouring, in the undying story that is “Climategate.” Whether by theft, internal leak, or public request under the Freedom of Information Act, we are getting a look inside the ruminations and not-for-public-consumption exchanges of opinion among the experts in the new field of climate science. Not having read more than the snippets that appear embedded in internet stories, I can’t say that the revelations are damning proof of anything. The consensus about human-made, or anthropogenic, global warming (AGW) may be God’s own truth, or a cynical hoax, or merely misplaced enthusiasm about some worrisome trends.1 But what the revelations do seem to show is disappointing.

Before I get into that disappointment, some caveats. First, I am thrilled by the internet and the access and transparency it makes available to the average person. The news of the world is no longer the private product of three broadcast networks, two wire services, and half a dozen major metropolitan newspapers. Now everyone can blog and respond online both to the mainstream media’s postings and to other bloggers, expressing personal opinions and beliefs that may or may not always be firmly fixed in the provable facts. The sunshine of the open exchange of ideas and beliefs is really the best disinfectant for private obsessions, hatreds, and manias.

Second, I am depressed by the internet and the access and transparency it makes possible under the rubric that “information wants to be free.”2 Everyone needs to have some secrets: the salary figure you’ll really accept in a job interview; your rock-bottom price for that car; what you actually do in the bathroom and the bedroom. Governments and other organizations also need secrets: what wild-guess alternatives they might discuss before deciding on the actions they officially take; how much risk they’re prepared to tolerate in pursuing those courses of action; and when the diplomacy will stop and the war begin. Some secrets and illusions are simply necessary to a functioning society. Total exposure to media and internet attention 24/7 is now burning up every public figure who’s even brushed by the spotlight.3 Public certainty about facts and findings, discoveries and statistics, is disappearing into a raging sea of personal beliefs, manias, and unpublished agendas.

Third, I’ve worked most of my adult life with engineers and scientists as a technical writer and corporate communicator. I have tremendous respect for these people. They are admirable because, in a world of opinion and fantasy, they treat data seriously and scrupulously. They have to, because if an inconvenient fact intrudes on their formula for a new medicine or biological assay, their design for a dam or nuclear reactor, then really bad things can happen, and their signature is on the reports and drawings. They may have opinions about statistical outliers and obvious errors—why some data can be ignored safely because, for example, the instrument or reporting conditions were known to be suspect—but such doubts are always revealed, addressed, footnoted, and explained for all to see and understand.

In the matter of anthropogenic global warming, that level of publicly available scrutiny does not—according to the email fragments I’ve seen—appear to have taken place in reaching the consensus among climate scientists. In order to make clear the picture of human carbon burning as the main cause of rapidly rising planetary temperatures, these scientists seem to have been cavalier about some inconvenient facts and findings. The scientists involved mention these facts privately but, in order to keep the picture clear and simple, they appear to agree among themselves that they will not treat such facts as meaningful.

In this matter, they step beyond the bounds of science and into the realm of science fiction.

The scientist’s job is to make observations, draw preliminary conclusions, make hypotheses about these observations, and devise experiments that will test and prove them—which means trying to falsify them, if possible. The final step is to open the whole question to other scientists, who are then invited to examine the original data, reproduce the experimental work, think of and try other tests, and finally either support or reject the hypothesis.

Only in science fiction does a scientist become the popular hero leaping into the breach. Only in stories does he or she become a partisan for the implications behind his or her test results and rush to a microphone in order to save humanity from disaster.4 In fact, to the extent that a scientist becomes a partisan for any particular point of view, his or her credibility declines. The scientist as advocate is distrusted, whether he or she works for a panel that reports to a drug company, a tobacco company, or an agency of the United Nations.

Consider Charles Darwin. If any scientist had ever fashioned a dagger to plunge into the heart of divine creation, he did. Darwin presented a convincing argument for the natural, cause-and-effect changes in environment and opportunity that transform one species into another. This was implicitly a criticism of the idea that each species was created in its perfection by an all-knowing deity. Yet Darwin merely presented his ideas and let them speak for themselves. He did not move on to attack the church or the country’s education system. In fact, he remained a churchman and, apparently, a believer throughout his life. His business was with the science, the knowing, not with changing his society’s attitude toward it.

One would imagine that, in describing a possible global catastrophe, a person of honest and humane intent would naturally include a discussion of variability in the data—what are called “error bars” on a graph—and any possible alternative conclusions to be drawn from the data. And if there is a recommended course of action that is difficult or demanding, then the importance of open and free discussion of the variables rises in direct relation to the difficulty of the task. We all want to be sure we’re right before causing major disruptions.

However, as I understand it, the scientists who report so absolutely on anthropogenic global warming have:

1. Chosen to track the concentration of one gas, carbon dioxide, out of a complex atmospheric mix, including water vapor and methane among other greenhouse gases. The choice was apparently made because CO2 is the one gas whose concentration has been widely affected by human activity in the last 100 years and it’s also the one that scientists can actually show to be increasing.

2. Tracked regularly and reliably recorded temperature fluctuations from only about the last 100 to 150 years. The rest of the temperature data points are estimates, interpreted from other data series like tree ring patterns, which are themselves susceptible to other influences.

3. Fed these concentrations and temperatures into various models of the planet’s climate. Weather and climate are complicated phenomena, with many variables in play. So the construction of these models, including the assumptions they make and the dependencies they describe, is critical to shaping the results.

4. Come up with a prediction, within a span of degrees and with narrow error bars, of conditions that will exist 100 years into the future.

5. On the basis of this temperature prediction, prophesied a number of possible related effects on conditions like ocean level, rainfall, storm severity, agriculture, and other phenomena of interest to humans.5

Making a prediction based on a model is what I would call a conjecture. A conjecture about the Dow Jones Industrial Average for a century from now, based on similar data sets and model types, is not something I’d bet on. A prediction is not a fact, like the tested strength of a steel bar or the measured activity of an enzyme.

The corrective course that these scientists are advocating will be neither easy nor undemanding. They suggest that carbon burning in the developed western world has already caused irreparable damage to the Earth’s climate. They and the politicians, economists, government administrators, and citizens who accept their findings are demanding immediate and rapid changes in our energy infrastructure. They want to replace coal- and oil-based electric generation (currently about half of our installed capacity) with wind and solar (currently just a few percent) over the span of a decade or so—much faster than any economic replacement program.6 They also want to increase the prices of motor fuel and electricity so that the average customer will use less. These actions will result in misallocation, deprivation, rationing, lower economic activity, and declining lifestyles.

It won’t be a global catastrophe to ask Americans, Europeans, and upscale Chinese and Indians to accept these hardships. Certainly, a lot of people in less developed parts of the world already live that way. But the sudden collapse of economic activity will be a dislocation approaching within one or two orders of magnitude the projected dislocations that might occur, a century from now, because of a warmer climate.

Now, if all this advocacy is based on scrupulous attention to and treatment of the data—collected, evaluated, annotated, open to discussion and dispute—and based on the operation of models whose variables, source code, dependencies, and assumptions are open to review, criticism, and reproduction, then it would still be advocacy, and so suspect.

But if the advocacy is based on a belief or predilection that comes before the data and the models—that is, if the climate scientists are no better than tobacco company scientists—then who can you trust?

We have a long-standing tradition in our democracy that anyone has the right to scream, wave his arms, and call for massive and immediate societal changes right now! in order to correct some perceived injustice or avoid some prophesied catastrophe, based purely on personal opinion and belief.7 But we also have a tradition of letting the average citizen look critically at the screamers and arm-wavers, decide whether or not their arguments are persuasive, and vote accordingly.

If the climate science consensus is based on sincerely held belief and a willingness to trim the data and nudge the model in the direction of that belief, then the public is in danger of accepting a false proposition. The proposition is that the conclusions are the result of good, honest, respect-the-data science—such as has provided us with new views of and advances in biology and medicine, physics and electronics, chemistry and materials over the past two centuries. But the honest intent may not be present in climate science and its predictions. Even if these scientists are pursuing the noblest of motives to avert the direst of catastrophes, the published emails hint at a basic dishonesty in their approach. And anyone who accepts the consensus because it has been couched in the language of science and attested to by scientists is in danger of accepting that false proposition.

Trust no one. If these physical scientists can disrespect the data to prove their point, then who can you trust? Not some politician or social scientist who has joined hands with the physical scientists because he or she shares their viewpoint. Not a government of such people elected by a population of voters who blindly accept whatever a scientist says and writes. And if we can’t trust the scientists on this, a scientific question, then how will we ever know? Anthropogenic global warming may be God’s honest truth, a cynical hoax, or misplaced enthusiasm about some worrisome trends. Who is to say?

Frankly, I’m more afraid of certain economic collapse brought on by massive infrastructure change attempted over the next nine years than I fear possible collapse due to predicted temperature and environmental changes over the next ninety. But then, I’m not a scientist.

1. My personal belief? It doesn’t much matter what humankind does. As a greenhouse gas, carbon dioxide is only one of several atmospheric components regulating heat re-radiation. And greenhouse gases are only one of several factors influencing climate. Solar output is a bigger factor, and we seem to be ending a recent sunspot maximum (where more sunspots yield higher energy output) and heading into some kind of sunspot minimum. Whether that minimum is short-lived or prolonged, no one can predict. But even if we could prove—unequivocally, undeniably, without the slightest doubt—that every shovelful of coal burned serves to dig the grave of an innocent human being, it still wouldn’t change a thing. No society—not ours, nor the Europeans, Chinese, nor Indians—will seriously handicap their economy to prevent a temperature rise of a few degrees over the next century, no matter what the predicted effects. Individuals may be smart and have free will, but societies are like a wave in the ocean: a million water molecules pushing and pulling each other along, all going somewhere—and eventually getting there.

2. I also firmly believe—although it’s off topic for the discussion here—that the information an individual or group has worked to produce must be adequately compensated. Yes, the novelist has used the language’s public-domain words and the society’s publicly discussed themes to create his or her new and exciting story that others want to read, but the novelist’s effort in arranging those words and displaying those themes is a product that should no more be stolen and handed around than the products of Ford and GM should be stolen off the streets and taken for a joyride. The same goes for the work that a scholar does in uncovering old facts and presenting them in support of new conclusions; or a musician does in putting together common notes and song lyrics to create new music; or a photographer does in framing a public sight and capturing it in values of light exposure, contrasts, and shadows to express a new vision. Intellectual property is not theft, and it shouldn’t be forced into surrendering its labors as a gift.

3. For example, as a young man I enjoyed the inspiration of John F. Kennedy’s speeches without having to know he was, apparently, an oversexed, promiscuous cad who routinely cheated on his beautiful and articulate wife.

4. And yes, my characters have done that—most notably the geologist Ariel Ceram in The Doomsday Effect. But that was science fiction.

5. And when they do change—when sea level rises against the shore and the band of arable land moves north and upslope—what will happen to people? They’ll adapt. Will there be dislocations? Disruptions? Hardship? Yes, certainly. But consider that much of the investment we’ve made in sea-level infrastructure and current farming methods did not exist a century ago. Or it existed in more primitive forms, like wooden docks or horses and plows, all of which have since been rebuilt to handle changes in technology like containerization and factory farming. If sea level were going to rise twenty feet in ten months, that would be a screaming catastrophe. But if it rises that much over 100 years, then sea level simply becomes another factor in your investment decision and lifestyle choices: move or stay, put down roots along the shoreline or go live inland? And believe that the climate and sea level will change, one way or another, in the next century. Go ask the Ephesians.

6. Personally, I think coal, oil, and natural gas are all too valuable as chemical feedstocks to be burned for electricity or motor fuel. My preferred energy solution is to take solar power from orbit, where the number of available kilowatts per square meter is about ten times the number that reach the ground. For a possible way to do this—and kick start our entire use of space in the process—see my novel Sunflowers.

7. In fact, we’re seeing some of that behavior in the Occupy Wall Street crowd.

Sunday, December 11, 2011

The Great Secret of Time

Most of us can be focused, creative, and brilliant for an hour or for a day. We can conceive of a burst of energy that would let us, if we had the talent, write and finish a short story or a song lyric, paint a small canvas, or shape a bust in clay. But faced with something much larger—a novel, an opera, a mural, or a Mount Rushmore—we quail. The task is too big, the effort too great. We can’t even get started.

The secret is time. In order to do great works, you have to parcel it and marshal it. That’s easy enough to say, but for most of us nearly impossible. The effort to control our time takes too much discipline and patience. But there are tricks to help anyone attain great things.

1. Do a Little Every Day

If the task is too much to accomplish at one sitting, then the only thing to do is break it up into bite-sized—or sit-sized—chunks. This is how any artist works, by doing a little bit every day. Some artists can do a lot in a day, but that’s not the way to start out. Until you are sure of your energy level, it would be a disaster to commit yourself to an overly ambitious schedule. Commit, instead, to achieve something, then adjust the content and the effort until you find a sustainable level.

Of course, this approach applies to more than creative efforts and works of art. Every paying job is based on doing so much each day. No one would try to process all the orders coming into a company, ship all the products made in a factory, or answer all the customer queries by one superhuman effort for one hour a day, or one day a week or a month. You gauge the flow and keep on top of it.

The same applies to the kind of effort and practice it takes to master a musical instrument or any other skill. Despite the ideal of accelerated training shown in The Matrix, you can’t learn Kung Fu in one fifteen-second blast of neural stimulation and visual imagery. You must practice every day, learn and absorb and perfect new techniques at a regular pace, layer new skills and experiences on top of ones already mastered.1

2. Have a Plan

It may be possible to write a novel by sitting down at the keyboard every day and writing just whatever comes to mind. To some extent, this is what any novelist actually does, but if the mind is a blank and subject to curious vagaries when you sit down, the novel won’t be much good. It will wander all over the landscape, turn back on itself, and generally bore the reader.

The novelist, the painter, or the team carving the Crazy Horse Memorial in South Dakota all need a plan for the work at hand. The plan might be quite detailed—a run-through of the story, or canvas, or mountain in miniature. Or it might be more like a framework, a generalization of the structure, like the bamboo scaffolds with which Asian builders cocoon a skyscraper in progress.

The outline or framework may be completely finished before the writer or artist undertakes the actual product. Or it may come into being as work-ahead, executed just a few days or months before the actual writing or application of paint, groping toward a final image that’s still relatively plastic in the artist’s mind. Either approach can work.2

There are also traps in either approach. If the plan is too detailed and precious, the daily effort might follow it right out the window without seeing any inherent flaws in the structure. If the plan is too loose, the daily effort might become mired in creative detail. I think of the book outline as planning a road trip on a map, viewed from the 30,000-foot level. You know enough about where you’re going to leave town in the right direction and not wander in circles in the desert, but you don’t have such a hard pencil mark that you follow the state line and drive into a box canyon.

3. Have a Clear Vision

Separate from creating and following an outline, vision is a matter of knowing what your heart and intellect are doing. You can follow the book outline exactly but still wander in tone and be false to intent.

You need to be clear about whether your book or play or symphony is meant lightly or seriously. Some books invite the reader to laugh, make plays on words and inside jokes, and take the comic view of life; some compel the deeper emotions, ask for greater commitment from the reader’s attention, and intend to inspire or frighten. Some music is ebullient and grandiose, some somber and majestic. It’s important to know from the beginning what you are doing and stick with it. Books that start out as great emotional voyages and devolve into a fit of the giggles get thrown across the room with great force.

If you are feeling light and playful when you sit down to write, but the book at hand is a political thriller or a tragedy—or vice versa—then some days you will not be able to honor your commitment and push the word string forward. It’s important to know these times, consciously refrain from writing or painting, and avoid messing up good paper or canvas with work that will only have to be ripped out and done over. And if too many days end up that way, it may be a clue that the book and your heart are following divergent paths.

Of course, some writers and artists can school their emotions and do the necessary work under all conditions. They can turn from an evening of drink and merriment to write or paint the death of a beloved character. Or they can turn from personal tragedy to spin a tale of fun and laughter.3

4. Keep Your Eyes Below the Horizon

As you proceed to do your daily quota of words or paint or bars of music, it’s also important to focus downward and inward. You have to turn your gaze away from the arc of the story, the distant goal, the climax and denouement, the bright sunrise at the heart of the canvas—and write the scene you’re working on today, to paint the patch of shadow that is under your brush.

This may sound like conflicting advice—have a clear vision, but don’t look at it—but the principle is simple enough. If you are hiking on a crest line or climbing a rock face, you must occasionally look up to see where you are going, but you mostly look down at where to put your feet and what your next handhold should be.

The daily task is a particular piece of the work. It must share in the whole, but it still have its own internal logic, emotional context, rhythm, and purpose. The reader might be aware of the entire sweep of the book, but he or she is still reading this one patch of words, this one character’s experience, this one piece of the story at a time. A person listening to a symphony might remember what came before and anticipate what will come after, but he or she is only hearing the musical phrases being presented at this particular instant.

Only the painter, sculptor, or architect—a practitioner of the visual arts—can expect the viewer to take in the entire work as a single pattern, at a glance, as a gestalt. But even so the single glance is made up of disparate parts: light here and shadow there, an arch here and a cornice there. And each of these details has its own being and deserves individual respect and attention.

5. Harness Your Desires

Commitment to maintaining a daily schedule is one thing. Actually attaining it is often something else. What works for a week or a month may not last a year or a decade.

We all would like to be an accomplished musician, a writer with a stack of books behind us, or a painter with a collection of canvases. Thinking and dreaming about this level of accomplishment is one thing, desiring it enough to put down the television remote and go to the daily practice, or writing or painting session, is quite another. That requires a heartfelt desire, a sense of personal destiny, a life decision that lets you see your days and your purpose on this planet become focused on this choice and not others—often at the expense of others.

Fortunately, this is a decision most easily made when we’re young and full of energy and dreams. Then it’s easy to form habits of mind and body, of daily schedule and seriousness of purpose, that carry over into the hectic years of marriage and child-raising and endure through to the quiet years of maturity, attainment, and retirement. This is why so many music and arts programs are directed at the young, to capture their imaginations and their hearts.

6. Live an Orderly Life

The final requirement of meeting the daily commitment is to live an orderly and purposeful—and usually sober—life. To set aside an hour a day for painting or writing or musical practice requires that your days not be chaotic with other events.

This can be easier than it seems. Some people have jobs that require unexpected demands such as on-call periods and frequent travel. But the doctor or medical technician who is on call often has “down” periods of simple waiting. The traveler has empty hours in airports and hotel rooms. These can be filled with work at a keyboard if the passion is writing. Admittedly, it’s a bit harder to fill this time with work at an easel or practice on a musical instrument.

The great danger of making these spare hours work for you is the eventual interruption. To begin working on a chapter or scene while waiting for a flight can be dangerous. Any artistic endeavor is one of immersion, and your flight might be called when you are deep in the story. Then the choice is to break off your thought, or let the gate close and find a later flight.4

Notice that in all of this I’ve left out two elements that most people consider vital to creative effort: talent and inspiration.

Talent is, of course, a prerequisite. If your brain cannot generate a word string or the pitch-and-toss of dialogue on command, if your eye and hand cannot draw a fluid line with purpose, then it’s going to be difficult to write or paint. But usually these things can be learned; all it takes is practice and desire. And if you simply are not good at them, you won’t go far and will quickly look for something else to try. The daily task that is the secret of time simply won’t enter into the equation.

Inspiration is overrated. If you have prepared yourself with desire, a plan or outline for the story or painting in hand, clear vision of your purpose in tackling it, and the quiet mind that comes with an orderly life, then inspiration is a matter of sitting down and addressing the task. Inspiration comes from the work itself.5

It’s just a matter of putting down the remote and getting busy. And you know there’s nothing worth watching on television anyway, don’t you?

1. This applies not just to artistic endeavors and martial arts training. I know a man who used to quail at the thought of painting his house: doing all those rooms and hallways and moldings and doors in two or three days of backbreaking effort. Instead, he made painting a part of his weekend effort, for an hour or two on Saturday afternoons. He would commit himself to painting one wall of one room, or one side of a hallway, then quit. He probably spent more total time cleaning brushes than if he had tried to do the whole house in two days, but he got it done eventually and relatively painlessly. I also knew a couple who had an iron bedstead that needed to be chipped down to bare metal through several layers of old paint. Rather than try to do it all at once—with consequent hand cramps and blisters—they set the thing up in a back hallway and, every time they passed through, took two or three whacks with a scraper. It took them several months, but they got it clean. A little bit every day.

2. I’ve written books both ways. Ideally, I would like to have the outline complete down to the level of chapter and scene before I start, or shortly after I have the book idea set up with an encouraging first chapter or two. (In the old days, publishers might buy a novel on the basis of sample chapters and a finished outline—but no more. Now they want the entire book finished on spec.) I’ve also written books where I knew generally where the story had to go but worked up the outline in chunks, usually one or two sections ahead of what I call “production writing.”

3. Some people would say this is the sign of a defective character, of someone too emotionally facile or insincere to be trusted. Actually, it’s a matter of practice and discipline. The work lives apart from the artist.

4. One technique I’ve found useful when interrupted right at the critical point in a scene is to space down a couple of lines and do a quick sketch of what comes next: key words, key thoughts, key action steps. This takes perhaps thirty seconds and precedes saving the file and closing down the computer. Having that fragment to work from makes starting back up much easier.

5. Sometimes what looks like inspiration does raise its head. There are times when I am supposed to be working on a story, know more or less what should come next, but can’t make myself write. I can’t even look at the keyboard. Almost always, in this situation, the “what should come next” is wrong. I know at a subconscious level, which I cannot at first put into words, that something is missing or inverted or false. Then I need to stop and rework the outline. But otherwise, let me think of the opening sentence—the phrase, emotion, sensory image, or what have you that starts the scene—and my little word generator kicks in. And then we’re off to the races.

Sunday, December 4, 2011

Risk Free

Ain’t so. Humans have never found a way to live without risk. And our current economic system cannot provide a better than purely miserable return on your money without undertaking some risk. That’s not for want of trying, of course. And these days it seems that financial people, investors, and governments take on huge risks and blow off the possible consequences as if they were living on a permanent cloud. What has happened to sanity?

From my memory of things, as a long-time reader of business magazines and the Wall Street Journal, we started going off track back in the 1980s. Then the smartest, most persuasive of the financial people invented the “high-yield” or “non-investment-grade” or “speculative-grade” bond. This was a way—and still is, to some extent—for the largest, most solid of U.S. corporations to raise more money than would normally be possible in the financial markets.

Credit rating agencies like Standard & Poor’s, Moody’s, and Fitch Ratings exist to study the conditions under which corporations and governments raise money by selling bonds.1 Based on the stability and strength of the entity borrowing the money, the size of its other obligations, and its history of honoring its debts, the agencies assign a rating to the bond. The scale goes from the highest, AAA, down through AA to A, then through the Bs and Cs, with pluses and minuses, just like a school grade. A rating of D indicates a debt that’s already not being repaid as promised.

These rating systems don’t try to eliminate risk, simply categorize it. If you want minimal risk, buy AAA-rated bonds like U.S. Treasurys. You won’t make much in interest, but your money is secure. The high-yield bonds, in contrast, were and still are offered under conditions and promises to pay that make them about the last thing on the borrower’s mind. If things go badly with the corporation and it has to line up its creditors in the order by which they’ll get paid, the high-yield investor is standing at the end of the line and likely can whistle for his money. The attraction of these bonds, for the buyer, is that they pay really well. With a greater risk that the bond might become just a piece of paper, the buyer expects to earn a whole lot more for taking and holding it. You expect to be paid well to hold a hot potato, too.

The magic trick that financiers in the 1980s pulled off was convincing buyers that, because of the high yield and despite the low rating, these were great deals. After all, the companies floating these bonds were all solid earners, among America’s biggest corporations, and nothing really was going to go wrong. Hey, you can trust these guys! Even though these bonds soon picked up the name “junk,” people forgot about that and snapped them up. It looked like a way to make big money without real risk.

Suddenly corporations had a lot of cash from selling junk promises to pay. Some used it wisely, but many went on buying binges, snapping up smaller companies and undertaking expansions that—in previous times and with less money in play—might not have looked so attractive. But the concepts of “debt” and “obligation” are so Puritan. The smart financial people called it “leverage”—making a little bit of your money and a lot of other people’s do the work of a long stick.2

The trouble with an environment like this is that Gresham’s law, that bad money drives out good, still operates. People who are playing fast and loose with their promises tend—over the short run—to do better than, have an advantage against, and out-compete the dullards who play it safe and won’t jump into the pool. Companies like Enron and WorldCom puffed up and suddenly became as big as, or bigger than, old established companies like Chevron, AT&T, or GM, Ford, and Chrysler. Until the bubbles burst, that is, and they disappeared.

In the mid-1990s, the smart financial people invented another couple of concepts to address risk and keep the party going: the hedge and the derivative. These are simple concepts that became incredibly complex and mysterious.

A hedge is just what it sounds like—hedging your bet. If you undertake a risky gamble on a stock going up or down, then make a simultaneous bet against that happening, or a bet on some other, inversely probable occurrence. This is like betting both red and black on the roulette wheel, or betting on both fighters in a boxing match. The bets are never exactly equal, because that would be pointless. The idea is to recoup some of your loss if the situation goes south. Very smart people work up statistical relationships and use a stunning amount of math to gauge the risks and rewards between the original investment and the hedge. A company called Long Term Capital Management was founded in 1994 to employ these strategies so that money would grow fast and without risk. The tower of complications it constructed collapsed and the company closed in 2000.

A derivative is just a form of bet. Two financial parties agree to pay each other certain sums of money based on the movement of some reference variable like a stock market index, the future value of gold or some other commodity, or any complexly dynamic phenomenon. The derivative is not an investment in the market or the gold or any underlying value; the parties are simply using it as a condition of the bet. This is not very different from betting on the order in which cards will come out of a deck.

Not surprisingly, derivatives are often used as hedges for actual investments in the market for stocks or commodities or real estate.

As noted elsewhere,3 I am not a mathematician, or statistician, or any kind of trained scientist, but I am plagued with a great deal of caution and common sense. I don’t like to jump into a pool until I know how deep it is. I don’t like to undertake an obligation unless I have a clear view to how I’m going to fulfill it. And my guts tell me you can’t avoid all risk over the long term. You can hedge a bet now and then. You can dodge the consequences of risky behavior once or twice. You can build a house of cards up to two or three levels. But sooner or later you have to come back to a ground state with respect to risk. You have to equilibrate4 and return to a condition of balance.

While the economy may not be a zero-sum game,5 every person and organization operating within it ultimately leads a zero-sum existence. You are born into this world with nothing of your own, and you will leave it the same way.6 Electrons absorb energy and rise from one shell level to the next, then release that energy and drop back. A person’s getting and spending ultimately equal out. A company’s stock and debts ultimately equal its assets and profits. Risks and rewards ultimately balance out. And nobody cheats the hangman.

Every speculative fever—from the tulip mania of the 1630s and the stock market boom of the 1920s, to the tech boom of the 1990s and the housing bubble of the 2000s—goes through predictable phases. From being a new thing that only the rich, the smart, and the daring will invest in, the prized commodity—whether bulbs or stocks or houses—becomes something that everyone is willing to borrow to acquire, because there’s really no risk, because the demand is infinite and the price will never go down.7 Sooner or later, however, risk catches up, everyone steps in a hole, and the market collapses.

It always has, and it always will. But it is our nature to believe that this time, just this once, things will be different and we can cheat the hangman. … Isn’t hope a beautiful thing?

1. A bond is nothing more than a portable form of loan. It represents a corporation’s or government’s obligation to pay back the money it borrowed. A bond differs from a simple loan in that anyone holding the bond can sell it anytime in an open market to someone else, who will eventually receive from the borrower the principal money plus interest. Depending on how people feel about the bond and its issuer at the time of sale, the price may be a bit more or less than the principal-plus-interest to be paid back. This difference establishes a “yield” for the bond.

2. Among the probably unwise uses was the “leveraged buyout.” The managers of a company would decide they didn’t like being custodians, having shareholders, and obliging themselves to meet the shareholders’ and stock analysts’ quarterly expectations. So the managers floated a lot of unusual debt, bought up shares of the company’s own stock, and ended up owning the company—plus a mountain of owed money that hung over these companies, swinging back and forth and descending over time like Poe’s pendulum.

3. See my blog Fun with Numbers from September 19, 2010.

4. To borrow a word from the sciences.

5. See The Economy as an Ecology from November 14, 2011.

6. Yes, of course, sometimes Mummy and Daddy are rich and can set you up with a lot of advantages, but you yourself are born as naked as any pauper’s child. And yes, you may leave behind a great fortune for the benefit of your heirs, but you die as penniless as any husk on the burning ghats.

7. It didn’t help that, in the latest bubbles, the U.S. Federal Reserve, which manages the country’s money supply and sets the basic rate at which money can be borrowed, has kept that rate low for reasons other than providing easy money for everyone to get drunk on. They thought low interest rates would keep inflation from taking off; instead other things took off. Managing risk is like packing a partially inflated weather balloon into a suitcase: if you push it in here, it pops out somewhere else.