Detailed Abstractions

Friday last week, I posted random links including a short story about the current Senate race between Carly Fiorina & Barbara Boxer (here):

…In what has to be either a sign of the end times or a sign of our bright future, Senator Barbara Boxer is in a tight race against former HP CEO Carly Fiorina…

While the true impact of the 2010 midterm elections is still ultimately up to a vote which hasn’t happened, the signs seem to all be pointing to good news based upon selectorate theory (DA post here):

..the theory is also powerful due to its simplicity.  It states that leaders will pay back those people that helped them become leaders in order to stay leaders.  This seems fairly intuitive and agrees with most understanding of incentives, but from here they can make predictions based upon the ration between what they call W, the Winning Coalition, and S,the selectorate or those who can affect who the leader is….

…The corollary with W/S is that when W is small as compared to S, the revenues spent will be mainly private and conversely if W is large compared to S, expenditures will be mostly public….

The basic idea is that the leader will use their power to pay back those who helped them get elected and the larger that coalition is, the less likely that money can come in the form of direct payoffs.

Now theoretically, in a free election system, W is 1/2 of S + 1.  IE – in order to get elected I need 50% of the votes plus one.

What happens however, if the voters through their actions artificially limit W?

How can they you ask?  Easily actually.

Every 10 years post census, each state will redraw district boundary lines based upon population numbers.  The problem is this “redrawing” isn’t done based on some objective science or even just basic math, but based on politics.  The way it currently works is the party in power redraws the districts.

Typically, the only ones who argue against these plans are the parties out of power.  Historically, the minority party would go to court, but courts have answered these challenges by stating that unless specific acts of discrimination or such can be proven, political redistricting is not something the court will actively change.

The reasoning is that voters have recourse already so the court is not necessary.  Their recourse is to elect those who redraw the district boundaries.

Now in states that change majority party from time to time, there are incentives for politicians to not gerymander individual districts too bad, least they be on the receiving end next time.

However, in states like CA or TX, where one party dominates, there are no incentives for the party in power to do anything but draw district boundaries in such a way as to ensure they can maintain power.

This is how we end up with politicians like Barbara Boxer or Nancy Pelosi, who win their individual districts in landslide elections, but whose national approval rating is slightly higher than the IQ of a prune.

This is also the reason (here) “polls showing voter disgust, such as the dismally low congressional approval ratings, only show feelings.  The reality is even with rates of congressional approval as low as 16%, the rate for the election of incumbents is well over 90%.”

But his only works through voter ignorance.  The reality is voters are free to vote for whom they want.  Just because a district is redrawn to include mostly Democrat supporters, doesn’t mean those voters must vote for the Democrat.

We know the truth however for many voters is party loyalty and party identification are much stronger forces in their life than political analysis.

There are reasons for this as well, including the sheer complexity of the government itself.  This level of complexity means for a voter to be truly informed, a good deal of time is needed to sort through the information.  Time most people would rather spend with their families after work.  But I digress…. (read more about The Myth of the Rational Voter here via Cato)

The point is that while voters don’t have to vote party loyalty, the evidence is very strong to suggest they do.

Therefore - back to W/S as a ratio – if voters allow a district to always put a Democrat (or Republican) in that seat, they are effectively making the general election a formality whereas the real election is during the primaries.

This combined with the facts that primary voters represent a very small percentage of total voters & primary voters tend to be true believers, results is an artificial reduction of W in our ratio of W/S, ultimately reducing voter power.

While I tend to stay away from any predictions, the current trending of certain national Senate and Congressional races is showing a promising sign of reversing this trend for at least one election cycle.

Of course for now, these are only polls.  They only tell us what people think during a given time period and nothing more.  The true test for voters will be on election day:

Will voters stand up against incumbents?  Or will they do what they’ve done for the past couple of decades; complain about the worthless government while simultaneously voting to keep the same government?

Over @Rueters Blog, Felix Salmon has a recent post titled, Why the Plutocrats will return where he makes an interesting point:

…Remember too that when you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer….

Now I don’t believe in a big conspiracy, but I do pretty much believe in the selectorate theory… I say pretty much only because I’m still digesting all the information as well as the proofs, but basically the theory utilizes game theory and historical data to model political institutions, governments, leaders, etc, etc & their behaviors.  It has also been used as a predictive tool for the CIA, DOD, and others through one of the primary author’s (Bruce Bruce Bueno de Mesquita) work with amazing accuracy (here).

As one who loves understanding critical thinking, I was at first very skeptical towards the idea that math could model international predictions well.   Which isn’t to say I think math is limited, I do not.  For instance, I firmly believe that if we could ever measure all the variables in a dice throw, we could accurately predict the outcome.  Therefore the issue isn’t one of math, but of the ability to model such complex systems.

For the die throw, it’s an issue of accuracy.  Sure, we know the air pressure to the thousandth degree, but why not the millionth?  Billionth?  For predictions through modeling behavior, the complexity is not only accuracy since people’s motives aren’t always clear, but in the interactions with additional groups of people as well.    The number of interactions which might be analyzed in a group of only 5 people is 120, with 6 – 720, with 535 people in congress…. 535!

With computers of course we can crunch very large data sets these days in smaller and smaller amounts of time, but the theory is also powerful due to its simplicity.  It states that leaders will pay back those people that helped them become leaders in order to stay leaders.  This seems fairly intuitive and agrees with most understanding of incentives, but from here they can make predictions based upon the ration between what they call W, the Winning Coalition, and S, the selectorate or those who can affect who the leader is.

To start with, we assume the leaders real ability to incentivize those in the winning coalition is to tax and spend.  They bring in revenues and use those revenues in such a way as to stay in power.  The have only two ways to allocate those resources, either through private expenditures or public spending.

The corollary with W/S is that when W is small as compared to S, the revenues spent will be mainly private and conversely if W is large compared to S, expenditures will be mostly public.

So if we take mainly free societies of today, where the selectorate is made up of the voting population which is usually only constrained by age, the winning coalition is theoretically 50% + 1 voter of the selectorate.  Due to the shear size of W in this case, the leaders incentives line up with public spending because she would be unable to to spend enough on each member of the coalition privately to ensure re-election.

Conversely in more closed systems, where the selectorate is controlled to a great deal (Iran, China, etc) and even if you are a member of the selectorate, the winning coalition is controlled and smaller, spending private money can keep the smaller coalition in tact.

Following the model and Mr. Salmon’s post on returning to a plutocracy, it makes sense that putting people into poverty can actually align with the incentives of our government.  The more people in need of assistance means keeping power is easier as more people are in need of the public expenditures.

I’m not saying I agree with all of this it total just yet, but at first glance Mr. Salmon’s intuitive thoughts seem to be backed up by known game theory modeling to present a interesting conclusion which I think goes to further underscore the idea that limited government is required for long term societal health.

In a story that might have more than it appears, GM announced it will not go through with a deal it announced in early summer to sell their German division Opel.

The story really first appears as the auto company bail-out was in full swing in the US.  GM had pushed a reorganization plan that cut jobs in all countries.  With German Chancellor Angela Merkel getting pressure due to the global economic crisis and facing a re-election, Opel became more important than first assumed (@BusinessWeek):

….On Tuesday, though, German Chancellor Angela Merkel said Opel was not a “system-critical” corporation. “There are system-critical financial institutions,” she told her conservative party’s parliamentary group, according to the Rheinische Post newspaper. “But there are no system-critical industrial firms.” It was Merkel’s indirect way of saying that Opel is less important to Germany than its crisis-stricken banks. Her statements were intended to counter earlier comments made by the head of the left-leaning Social Democratic Party that Opel was indeed “system relevant.” She added, however, that Opel should be given a chance to survive and that like all companies, it has the “right to apply for state aid.”…

It not only became more important, but Chancellor Merkel started treating it as imperative to re-election (@France24.c0m):

NBER has recently produced a working paper titled Game Theory and Major League Sports asserting “Professionals Do Not Play Minimax: Evidence from Major League Baseball and the National Football League”.

By analyzing over 3 million baseball pitches & football over 125 thousand plays, they work to find out if the assumption of minimax holds true and if not, try be able to find any hidden strategies which are currently being used.  According to the research:

…Authors Kenneth Kovash and Steven Levitt find that: “Pitchers appear to throw too many fastballs; football teams pass less than they should.” They also find that the selection of pitches or plays is too predictable. The researchers conclude that “correcting these decisionmaking errors could be worth as many as two additional victories a year to a Major League Baseball franchise and more than a half win per season for a professional football team.”…

Minimax is an assumed strategy that rational players utilize when locked into a zero sum game.  It basically states that each player will attempt to minimize their loss.  For this research, baseball and football are zero sum games in that gaining yards or points, necessitates a loss on the other side (loss of an out or field position).

This might be seen as banal, even if interesting, but continued research using game theory will be able to provide insights into fundamental human behavior.  This additional understanding  has truly long range applications especially and hopefully in the dismal field which is economics.

Indeed one of the primary and justified criticisms of current economic policies as it relates to fat taxes and other things, is that it fails to deal with real world behavior.

For instance, from a straight economics standpoint, driving 30 miles to save $100 is a nobrainer regardless of the price of the item itself.    However in research, we find people would drive 30 miles to save that $100 on an item whose normal cost is $300, but almost no one is willing to travel the extra distance if the original price tag was $30,000.

This is the kind of real world actions that bug economists to no end.  Looking at the idea with only logic, it seems that driving 30 miles for $100 is a good idea based upon the $100 dollars, not the item being purchased.  However, intuitively we know that saving 1/3 of an item’s cost versus 1/3 of 1% has different values to the individual.

Why?  Well, the answer to this puzzle will differ greatly among individual economists, but the good news is the research itself.  The more science we can use to help strengthen our basic understanding of humans can lead us to policies more thoughtful and more likely to end in the intended results than past attempt.

At this point, I’d just be happy if the understanding we had was used to understand things such as “tax it more and they’ll use it less” isn’t a strategy to much of anything, but all things in time.

That giant economic think-tank known as Google just announced their 3Q numbers.  Not only were the results good, but they had wonder news for all those worrying:  the recession has bottomed out:

SAN FRANCISCO, California — Google on Thursday declared the worst of the recession over and paved the way for a return to heavy spending on expansion as it reported a surprisingly strong 8 per cent jump in net revenues in its latest quarter….

Fear not friends – they aren’t basing this just on themselves, but all that economic data they have:

The optimism reflected what the company said was an across-the-board recovery in online advertising, with even the struggling financial services sector showing a return to growth….

Apparently though, Google forgot to tell Bank of America about its wonderful news (BoA 3Q):

CHARLOTTE, North Carolina (Reuters) – Bank of America Corp posted a $1 billion third-quarter loss as consumer credit woes eclipsed investment banking earnings, underlining why the bank remains on a government respirator….

I’m sure they just missed that… wonder what a really big blue chip company might be doing?  GE?:

General Electric’s third-quarter results showed just how fragile the U.S. economy remains, as its troubled financial unit dragged down earnings 44 percent, despite gains in divisions that make wind turbines, household appliances and broadcast television shows….

Not only are GE, BoA, and the 9.8% unemployed unaware of this great news, but even Google insiders don’t seem to know.  Looking at the public record, Google Insiders Sales, shows recent transactions for all senior officers dropping approximately 5% of their current Google holdings just last month.

Call me a raving skeptic if you will, but I’m thinking that you need to evaluate your decision making skills if you take your economic news directly from Google press releases.

Don’t get me wrong here, they make a great product and innovate better than almost anyone.   They are and will continue to be a force in computing for sometime to come because of their agile nature combined with some of the best minds in the world.  & I remember webcrawler… wow things are sooooo much better.

Regardless of their product however, it seems their investments into economic modeling & research in respect to business cycles is limited to zero.  I would add that if you’re an investor, that’s a good thing.  Better to let them do what they do best.

Why the press release then?  The only ones who know are those who drafted the press release and those with editing decisions prior to its release.  Without any information directly from one or more of these people, then reasoning is simply impossible to prove.

We can however ask some questions to try to find the likely answer.

(To be fair) The first possibility is simple honesty & stupidity.  Someone might have intended the “recession worst over” as a marketing technique to further enhance their aim to be seen as a very smart company.  All without realizing that overly simplistic analysis, based mainly upon very recent stock market activity and their profits do not make for effective proof.  Really, it’s just another anecdote that Google’s employees share.

Another, far more concerning possibility is their politics and desire to wish to see the President do well.  For years they have given most of their political donations to one particular party.  In 2008, Democratic candidates received 5 times more money than their Republican counterparts from Google.  Their employees, including top executives, gave 10 times more money to Democrats the Republicans.

Additionally, their search site has self-imposed constraints for arbitrary reasons.  For instance, Google refuses to allow gun dealers to advertise.   As a little experiment, slip over there real quick and run a quick search on swords or strippers.  Take note of the small advertisements to the right side of your search results.  Now do the same for guns and see what ads show up… I’ll wait.

They state their policy is to not allow advertising of weapons, but I think swords should qualify.

That could be an outlier, so let’s move forward assuming their ban on gun adverts is a true policy against weapons in general.

Then why did they also restrict advertising by Pro-life groups until forced by a judge to change their policy:

After a legal conflict between Google and The Christian Institute, filed when one the of religious foundation’s ads were rejected from the Google Adwords system, Google has changed their religious advertising policy to allow pro-life advertising to appear along with their secular and pro-choice advertising…

They did change their policy, but only after being sued.  Even giving them some credit for reversing their decision, their originally stated policy reeks of political and personal opinions:

The decision changes the former Google policy which excluded any ad containing a combination of “abortion and religion-related content“…. [emphasis added mine]

Putting all of this together, it’s hard not to reach the conclusion that Google is using its outstanding press relations due to their history as a vibrant and smart company to help those with which they agree.

Which is completely and totally their right.  It’s their right to put their money where they wish, to make internal policies as they see fit, and to accept contracts for advertising from those they want for any reason they want.  None of this freedom for me, but not for thee crap.  Let them do as they will I say.

Just make sure your informed and know who you’re doing business with as well.

PS:  If you’re not doing anything on a Saturday night and there’s positively nothing on TV including uninteresting infomercials about idiots unable to use blankets, then you can check out some pretty heavy economic think tanks.  First and foremost, the recognized economic powerhouse, generally recognized as the institution who makes the call on things like, when is it a recession?  When did it start?  When did it end?

NBER, or the National Bureau of Economic Research, has long been the a standard bearer in economic research in all kinds of aspects of life ranging from health care to labor studies.  They are the largest non-profit economic research organization in the US and boasts about the great minds working there.  In fact, 16 of the 31 American winners of the Nobel Prize in Economics, have been associates NBER, including one of my heroes: Milton Friedman.

PSS:  They could turn out to be right.  The luck of life sometimes means you can do the wrong thing and end with the correct result and vice versa – you can do the right thing and end with the wrong result.  Therefore, to correctly analyze thought patterns over time, any one result isn’t necessarily a deterministic factor.

Over time I’ve come to the conclusion that where news entities fail miserably is in their analysis with international politics.  Most pundits, writers, journalists, etc, seem to be able to semi-grasp domestic policies, albeit still in the usual, overly simplistic, fits-to-the-narrative type of way, but lose all rationality with respect to international affairs.

Interestingly enough, I think their failures in both domestic & international analysis stem from the same basic cause, oversimplification.  But it would seem that the degree to which it effects each type of analysis differs due to the lack of incentives private interests have in resolving inaccurate reports on international issues.

Thinking about the counter thought to international policy, domestic policy, we see incentives existing to resolve press inaccuracies.  For instance, if the press pushes inaccurate opinions and analysis which oversimplifies a given topic, a special interest group or two, plus at least one political party, and finally non-profits everywhere will try to enlighten by showing the fallacy of the common narrative.

This is because people rightfully see domestic issues as more directly impacting their lives.  The corollary is that our politicians, our leaders, our special interests, and our non-profits tend to focus where we as a society focus.

The problem that can stem from this seems intuitive – inaccurate press on international issues should be held as highly suspect, but get printed without much serious disagreement.   Since very little counters popular wisdom, this gives the press a power to change opinions and as well as spread myths.

This leads to all kinds of odd conclusions, with large swaths of people all over the planet prone to believe in things without substantial proof nor any degree of rational logic.

For instance believing that western countries are somehow to blame for poor countries with constant internal strife and corrupt governments which inefficiencies and lack of resources.  Or said another way, people all over believe in a zero sum game.  This is true not only in the international sense, but also when dealing with immigration and free trade issues.

Mistaken assumptions such as zero-sum games also lead to beliefs about what one thinks a President can actually do, versus what reality tends to dictate what will actually be done.  This leads to politicians making believable, yet highly impossible claims about given international situations.  This has been done to all recent Presidents, including President Obama when pulling a missile defense shield out of Poland & Czechoslovakia was made to appear as a rash decision amounting to abandoning our allies, when in fact it wasn’t a bad decision when concluding what options were open and what were the greatest threats to our security and security in the region (wrote about it here, though Mr. Obama went and said it had nothing to do with Russia… which was just amazing… wrote about that here).

It leads to pundits everywhere snidely remarking how this action wasn’t “tough” or that action was going to anger others because it was “unilateral”.  With little recourse, journalists  print all sorts of things without taking into any account the actual framework through which any given action action was taken, under what circumstances, with what available options, or really they just leave out anything resembling actual analysis.

Unfortunately, it seems no organization is immune.  A recent piece published in the Economist titled  Even greater expectations discussing the idiotic Nobel Prize Committee decision, is a far cry from the analysis for which the Economist is known.

They rightfully begin with the question the world was asking, “Is it premature to give Barack Obama the Nobel peace prize, less than a year into his presidency?”, but delve quickly into non-international events dressed up to seem as if change had already happened:

…Most broadly, he has sought to engage with opponents, saying that America would “extend a hand, if you unclench your fist”, for example to those who were earlier dismissed as an “axis of evil”. Somewhat to the discomfort of Iran’s president, Mahmoud Ahmadinejad, who had bolstered his domestic support by vilifying America as an aggressor, Mr Obama has proposed holding talks about nuclear affairs, removing a precondition that Iran first abandon enrichment of uranium. Mr Obama made withdrawal of American forces from Iraq one of the main pledges of his election campaign and has since overseen a slightly quicker run down of troops than was envisaged by Mr Bush. Towards North Korea, too, Mr Obama has dangled the prospect of bilateral talks and closer engagement.

Regarding Russia Mr Obama has developed a policy of notably warmer ties, dubbed “hitting the reset button”. Relations had become especially frosty towards the end of Mr Bush’s presidency when war broke out between Georgia, an ally of America, and Russia…

Continuing with this as reasoning:

…Yet Mr Obama’s main achievement is a change of tone in foreign policy. A speech given in Egypt in June was an eloquent call for a new understanding between America and Islam. It was designed both to assure Muslims, now thought to number 1.6 billion around the world, that America is not set on a crusade. Similarly it was intended to convey to any Americans (and others) who believe in the notion of a “clash of civilisations” that friendly ties between religions is eminently possible.

Similarly, American policy towards small and repressive regimes, ranging from Myanmar to Cuba, has shifted in mood, if not yet substance, by offering the prospect of engagement if governments demonstrate progress towards democracy…

Which to date has not only done absolutely nothing to help international cooperation, but has made our interests tougher to protect.  In nearly every UN Conference on whatever, for instance the G-20 dealing with the economic crisis, the US asks for a lot of cooperation and everyone goes their separate ways.

In some ways this is to be completely understood.  American solutions for economic issues will differ from that of Germany or the UK.  Even though the same basic problem afflicts most countries during the global recession,  their banking industries are setup with much different regulations, making the solutions for one country not necessarily compare to another country.  The separate policies might even be attempting the exact same “type” of solution, for instance increasing capital requirements, but under different systems any one specific solutions will affect different countries differently.

When it comes to reaching our hand out to those regimes, we see that North Korea, Russia, and Iran have been openly hostile to any US intents.  Iran’s deadline of October the 1st to fess up or face sanctions has come and gone, even while it was precipitated by Iran admitting to an additional enrichment facility.

And all this, including that all important warming of US-Russian relations, Russia has stated publicly the will continue to trade with Iran, meaning they will back them, if the UN, lead by the US impose stricter sanctions against Iran.

Now these situations are fluid to some extent, especially between cautious friends such as US-Russia and most of the controversial moves taken by Iran & North Korea would likely have happened to test any new US President’s resolve.

The issue is that by glossing over the realities we end up believing in myths.  Think about all that talk about “unilateral” action as if it’s a huge negative due to the controversy surrounding the last semi-unilateral decision to be made, without understanding that this is exactly as we should expect it.

No country should do something the US requests if they know in the end the analysis states otherwise.  On the international stage, Europeans, Cechs, Persians, Africians, indeed every person deserves the same representation we deserve – for their representatives to look out for their interests.

Now this can and does lead to all kinds of international policies from all different governments that appear wrong or unseemly when in truth it’s a playing field for which no one actor controls the rules which leads to countries making decisions that seem antithetical to their stated morals or goals.

It also allows one country to look at another as particularly egregious, regardless of their country’s current international policies.   It should be obvious that while beating up on your own politicians on domestic policy makes sense, doing so on the international stage is just beating yourself up.  Even if well-deserved, it’s easier to beat up on other country’s policies than it is to self reflect.

In some ways, national feeling probably affects this as well.  When most countries populations have enough information to dislike a number of other countries, going against that grain can be seen as being unpatriotic.  You certainly wouldn’t see a major political figure like Tony Blair coming to the US to air Britain’s dirty laundry or Putin to do the same in the US against Russia.

It also allows for journalists to paint country X with any brush they choose.  This helps some countries as the press will like some allies, but can obviously hurts or diminish countries for which popular sentiment doesn’t exist.

In the end, what it does is allow for a type of international superiority by enhancing nationalistic feelings.  When only reviewing other countries’ by hand picking policies, self-selecting cultural attributes, last recent controversy, crazy politicians, one can get the opinion of their general greatness over all those “other” people.

Lastly, and in my opinion, the most unfortunate consequence of this misinformation, is our inability to actually analyze international issues.  In between these simplistic news stories real trade-offs on the international stage are being made and constantly simplified.  From a high-level view the policy might appear to be utterly wrong, but in reality  might not be so.  It might simply be the least bad of all the bad options.  & it might really be the policy itself which is wrong.

For real analysis however, historical context, actions taken versus realistic options available, trends, and a number of other data points are required.  Without honest sourced information cost/benefit analysis simply isn’t possible.

Today, MO Congressmen Todd Akin – R (and I’m sure others) released a statement concerning a change the President is making in foreign policy arena:

“The President’s decision to back away from our plans to put missile defense sites in Poland and the Czech Republic effectively abandons two of our allies who had worked hard and taken political risks for the sake of European and American security. The Administration has sent a clear signal to our central and eastern European allies that the United States, under this President, cannot be counted on to stand by our commitments.”

“With the Iranian regime continuing its aggressive pursuit of nuclear weapons and Russia’s commitment to reassert its regional hegemony, the United States must strengthen, not weaken, their commitment to the safety of our friends and allies around the world. The technology changes proposed may be of some merit, but the Administration needs to fully brief the Congress and our NATO allies before proceeding with this dramatic change in course.”

“Given our desire and need for a stronger commitment by our NATO allies in Afghanistan, President Obama’s decision to abandon our Polish and Czech allies will only make that effort all the more difficult.”

Not to attack Mr. Akin directly on this view as he is ranking Member of the House Armed Services Subcommittee on Seapower and Expeditionary Forces, the rhetoric is simplifying a more complex issue.  As Russia tries to reassert itself within the region and the question of giving missile defense technology to Poland and Chech is tricky.  These countries are seen by Russia as inside their historical sphere of influence (Eastern Bloc).

Additionally, Russia has used these countries as a man made border to reduce any potential opponents ability to invade.  They do this and are concerned by it because they have no real natural borders such as the US with two oceans.

So while it’s true that this move strengthens Russia, what we need right now is Russia’s help to control Iran from building nukes.  When the UN passes embargo’s against Iran, but Russia and others continue to trade with Iran, we basically haven’t done anything that is likely to deter Iran from their current stated goal of obtaining nuclear weapons.

Realistically and by all known analysis, Iran isn’t anywhere near being able to build an actual weapon.  They are close to having the fuel required, but the technology to actually make that fuel into a weapon is very complex and not something with which they have experience.

Additionally, even if Iran could build a nuclear war head that could result in a very large explosion, they still don’t have good missile technology, circuits capable of withstanding the radiation, and many other technologies required to make all of it useful.

Having said that, Iran is a threat and as a proactive supporter of terrorism, remains a country we have to be cognizant of.

So my personal opinion is that our fear of Iran right this second might be overblown which would make this decision unnecessary, but I also know what I don’t know… like whether Russia has given us assurances of help with Iran, whether the existing publicly available analysis is correct, or any number of other factors which should be used in the calculus for deciding on any given action.

Either way, taking knowns & the unknowns together, the decision itself isn’t as easy as the “abandoning our allies” rhetoric would make one think.

Over the last couple of decades business leaders, researchers, and writers everywhere have been discussing what they see as a positive move in business from a standard top down organizational chart to a more decentralized decision making systems.

The goal stated from the beginning of moving down this path was to replace slow, ineffective bureaucracies with more nimble, versatile companies who can move with the new rate of change.  Thanks to the internet and other advances in sharing human knowledge throughout the world, the pace of change & innovation today is far greater than the pace of innovation a century ago.

As a society though, it seems we have yet to fully adjust.  Using standard logic, allowing decisions to be made at the lowest possible level in a corporation, does allow it to be more efficient and more responsive to their clients.  It allows them to see problems faster to find solutions faster and empower employees with a sense of belonging to a real team.

Continuing that logic however, allows us to look at the potential negative possibilities as well.  Allowing just anyone in a company to make any decision of course would result in complete chaos.  We’ve also seen that  by allowing those with good corporate political abilities to make tough decisions, without questioning their ethics or actual critical decision skills has led us down the wrong road.

The question we must ask ourselves then becomes, should power still be concentrated in the hands of a few, moral citizens, or should we continue on the path of decentralization that helped lead us to our current fiscal crisis?

What we do know, is that businesses and individuals both support more entrepreneurial thinking and training starting at younger ages (Junior Achievement Study here):

Gallup then asked the question, “If entrepreneurship means, ‘Taking the initiative and assuming risk to create value for the company or business, either as an owner of your own business or in your place of work,’ would you consider yourself to be entrepreneurial?”

Using this definition, nearly six in 10 (58%) of the employees surveyed and two-thirds (65%) of those responsible for hiring describe themselves as entrepreneurial….

The vast majority (96%) of employees feel it is important for the American workforce to become more entrepreneurial in order to keep America competitive in the global market…

Going further about education itself:

Finally, nearly half of employees (46%) and four in 10 (41%) of those responsible for hiring believe the best place to learn entrepreneurship is in grades K-12, surpassing all other options.

Along that same trend, Purdue recently decided to change their entrance requirements to allow only students who have taken a full 4 years of math at the high school level (here).  Their decision demonstrates the importance of logic and critical thinking skills that math helps to reinforce:

“We just wanted to make sure Purdue students are ready for the rigors of a Purdue education,” Horne said, noting studies show more math education correlates with college completion rates. “It’s not about getting in. It’s about succeeding once you’re there.”

We also know through the practice of government, the dynamic system of the United States might have felt more pain that other countries during this crisis, but due to the mostly decentralized economic model, we will recover more quickly than most.  As the Economist recently noted (here):

Second, one can look at America’s admirable record of dealing with turmoil. A study by the Ewing Marion Kauffman Foundation, a think-tank that studies entrepreneurialism, found that America’s high rate of economic “churning” boosts productivity and hence material well-being. Between 1977 and 2005 some 15% of all American jobs were destroyed each year as firms closed or cut back. Thanks to the expansion of successful firms and the entry of new ones, however, many more jobs were created than destroyed. Start-ups (ie, firms less than five years old) provided a third of the new jobs during this period.

This “creative destruction” process, both in the macro form of the economy and in the micro form of managing a team involves allowing people to fail.  Only from our failures, do we truly become successful.

So for business leaders, or educators, to honestly pursue this strategy, it means at least two things need to change:

1. People need to be able to let go of control
2. People need to be more tolerant of failure

At this point, it appears businesses are getting this message, however the government seems to be falling back on top down control.

• Enron – bad company, fraudulent business model – went bankrupt, business leaders jailed.
  • Government solution?  Overreaching regulation in SOX.
• GM – bad company, bad decisions – should go bankrupt (it’s a feature not a bug),
  • Government solution – prop up companies who should have failed.
• Economy gets hurt because of loose monetary policy, combined with quasi-government backing of securities and lax business ethics -
  • Government solution:  cheaper money, quasi-government backed institutions deemed “too big to fail”…

So while it might be true that in recent times business leaders have proven themselves to be unworthy of trust and decentralized decision capabilities, I believe fully we must understand that the solution to that problem is not in removing the current structure and go backwards in time.

The solution ultimately comes down to both us an individuals and the incentives of the game.  Are we willing to live with the consequences of our decisions and as a society? Are we willing to live with some level of risk that large companies might “fail”?

Or will our fears keep us locked into a governmental cycle of pushing more top down control, doomed to repeat a past that has failed all societies who have tried it?