Why I Am Leaving Pierce & Pierce

Editor's Note: The Op-Ed resignation of Goldman Sachs' Greg Smith has attracted a lot of attention, and even a few parodies. But a bit of research unearthed that this manner of quitting, while unusual, in not a Wall Street first. In fact, a similarly-worded letter was written over 20 years ago. We present that earlier letter of resignation here in its entirety.

Why I Am Leaving Pierce & Pierce

By Patrick Bateman

TODAY is my last day at Pierce & Pierce. After almost 12 years at the firm — first as a summer intern while at Harvard, then in New York for 10 years, and now in an undisclosed location far from the reach of the law — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as healthy and morally upright as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be elevated in the way the firm operates and thinks about making money. Pierce & Pierces is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but lack of culture was always a vital part of Pierce & Pierce’s success. It revolved around self-interest, venality, narcissism, and creatively screwing over our clients. The superior intelligence and ruthlessness was the secret sauce that made this place great and allowed us to rob our clients blind and have them thank us for it. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with ego and belief that you are the only person that matters.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. In 1986 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied. Sixty-three survived to join the firm. I knew it was time to leave when I realized I could no longer look students in the eye and tell them I was about to decapitate them.

When the history books are written about Pierce & Pierce, they may reflect that the current CEO, Paul Owen, and the president, David Van Patten, disappeared under mysterious circumstances. I truly believe that this decline in the firm’s body count, and the consequent lack of leadership, is a serious threat to its long-run survival.

Over the course of my career I have had the privilege of destroying otherwise viable businesses in the United States, screwing over innumerable clients in the Middle East and Asia, and slaughtering countess prostitutes and homeless people. My clients had a total asset base of more than a trillion dollars before I went to work on them. I have always taken a lot of pride in convincing my clients to do what I believe will benefit me, even if it means less money for them, or the gruesome death of their loved ones. This view is becoming increasingly unpopular at Pierce & Pierce, and among the police who have been pursuing me. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about charisma, never admitting you are wrong, and committing unspeakable acts of violence to stifle the voices in your head long enough to complete your next deal. Today, if you make money for the firm the “right way” (and are not currently an ax murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Pierce-speak, ironically, for not executing your clients with axes. b) “Hunt Elephants.” In English: preserve your clients’ money—and their lives—by finding big opportunities for asset growth. Call me old-fashioned, but I preferred it when “hunting elephants” meant chasing down a fat man at your secluded estate in the Hamptons and butchering him. c) Avoid prosecution for both securities fraud and homicide.

Today, many of these leaders display a Pierce & Pierce culture quotient of exactly zero percent. I attend meetings where not one single minute is spent asking questions about how we can bamboozle or massacre our clients better. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was our exclusive focus.

It astounds me how little senior management gets a basic truth: It is only worth getting clients to trust you if the end goal is to take their money or their life. Otherwise, why be bankers in the first place?

These days, the most common question I get from junior analysts about mergers is, “How’s the client feeling?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “ethics,” “responsible stewardship” and “doing it right” doesn’t exactly turn into the next American psycho.

When I was a first-year analyst I didn’t know where the bathroom was, or how to kill a prostitute with a nail gun. I was taught to be concerned with learning the ropes, listening to Whitney Houston albums, understanding designer suits, getting to know our clients and what their blood tastes like when they’re afraid, learning how they defined success and how we could use that vision to scam them.

My proudest moments in life — graduating from Harvard Business School, getting the best table at Dorsia without a reservation, murdering dozens of people from all walks of life without ever being caught — have all come through hard work, with no shortcuts. Pierce & Pierce today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

I hope this can be a wake-up call to the board of directors. Make money and mutilation the focal point of your business again. Weed out the morally upright people, no matter how much money they make for the firm. People who care about anything other than making money will not sustain this firm — or the high mortality rate of its clients — for very much longer.

Patrick Bateman is resigning today as Pierce & Pierce’s director of murders and executions mergers and acquisitions. He is now going to work in a similar role at Goldman Sachs.

A Cynic's Progress or: How I Learned to Stop Worrying and Love #stopkony

Joseph Kony is now famous: if you haven't heard of him, then you and I clearly don't travel in the same circles. And I'm not sure what circles you hang in, actually, since the half-hour YouTube video that made him famous now has over 76,000,000 views since it was posted on March 5th. (By comparison, an American Idol episode this season gets about 18 million views.)

I actually was introduced to the phenomenon in a work capacity: at Google, a group of us catalogue some of the trending videos on YouTube as part of a weekly summary email, and Invisible' Children's video shot straight to the top. A bunch of people in the office were buzzing about it, and of course saying how awful the situation in Uganda was and how they had already ordered their awareness kits.

I don't know what awful thing this says about me, but every neuron in my brain started firing the same message, "BULLSHIT!" So I watched (ok, skimmed) the video, and saw that the big plan was to plaster a bunch of posters all over the country ("70% of these things are going to be hung in Williamsburg", my terrible brain whispered to me) and, by bringing awareness to the issue, help finally track down Kony in 2012.

So, cynical bastard that I am, I went looking for evidence that this campaign was, in fact, some poorly thought out hipster crap. And it wasn't hard to find. There's even an entire blog that popped up to criticize the campaign. As the writer puts it:

Still, the bulk of Invisible Children’s spending isn’t on supporting African militias, but on awareness and filmmaking. Which can be great, except that Foreign Affairs has claimed that Invisible Children (among others) “manipulates facts for strategic purposes, exaggerating the scale of LRA abductions and murders and emphasizing the LRA’s use of innocent children as soldiers, and portraying Kony — a brutal man, to be sure — as uniquely awful, a Kurtz-like embodiment of evil.” He’s certainly evil, but exaggeration and manipulation to capture the public eye is unproductive, unprofessional and dishonest.

They've even caught some flack for posing with the guns of one of the groups fighting Kony, and in general behaving like wealthy white people parachuting in to solve Africa's problems. (As a random aside, if I'm doing humanitarian work that brings me in contact with a militia, and they'll let me pose with their RPG, I'm taking that picture every time. You're telling me you're not? I call shenanigans.)

Before I go on, because I feel myself getting into the weeds here, and I have about twenty other links I could share, let me refocus myself by saying this post is not, primarily, about whether Invisible Children are a good and noble organization. What it is about, primarily, is why I would react the way I did, and why some people are so willing to embrace a cause like this uncynically while others are so quick to point out the flaws and potential downsides.

My short answer is that some of us embrace (and are often crippled by) complexity. We want to think things through, look at all the angles and - most importantly - not get caught up in the crowd. But what we end up doing is identifying with the fellow "sophisticates" who also see through the simplistic story that our peers are so passionate about. Let's be honest, this is more about our identity than the rightness or wrongness of the cause in question. For example, check out this post: it all but screams, "I'm informed, I don't just go along with the crowd, respect my intellect!"

I was doing the same damned thing, I realized. And I realized that it was OK not to love everything about what Invisible Children was doing and still have respect for their passion and their skill in bringing needed attention to an obscure cause. I was inspired by Chris Blattman, who was hating on Invisible Children before it was cool, with this post three years ago:

The new IC film clip feels much the same, laced with more macho bravado. The movie feels like it’s about the filmmakers, and not the cause. There might be something to the argument that American teenagers are more likely to relate to an issue through the eyes of a peer. That’s the argument that was made after the first film. It’s not entirely convincing, especially given the distinctly non-teenage political influence IC now has. The cavalier first film did the trick. Maybe now it’s time to start acting like grownups.

This post, cited by many of Invisible Children's present-day critics, combines an aesthetic critique (do they really have to express their cause through t-shirts?) and a worry about the unintended consequences of unleashing poorly informed activism on the world. Well, now that the commentariat has picked up on this complaint, Blattman seems to have had a qualified change of heart:

To give credit where it is due, scratch beneath the surface, and Invisible Children take a more nuanced view than they get credit for (or showcase). Their self-defense is here, and it’s a reasonable one. Also, my (admittedly limited) experience with their programs on the ground is that they are better than the average non-profit in northern Uganda. The bracelets are silly, but you could do worse than to support their field programs.

So, as my parents would say when I screwed up, what can we learn from this? Well, first, that we shouldn't let our predispositions or our aesthetic judgments cloud our view of what a person or group is trying to accomplish when they're out there advocating for a cause. We should judge whether their cause is just and whether they are pursuing it in a supportable way. In this case, I think the words of Michael Gerson are wise:

The criticism is sometimes made of advocacy groups – on Darfur, or conflict minerals, or the LRA – that they oversimplify complex issues. This charge is often leveled by foreign policy experts who multiply complexity for a living. One gets the impression they would rather ignore meddling idealists and write their white papers in peace. But experts and advocates both have important roles. The views of experts should inform the policies of public officials. But advocates help to push officials toward decision and action.  

Second, that what we think of as sophistication is often so much intellectual preening. What good are the Invisible Children critics doing at this point? They aren't putting the #stopkony genie back in its bottle. Unless Invisible Children is misusing funds (a charge that is hinted at but not actually leveled or supported), anything they do to help bring Joseph Kony to justice is a good thing. And while you can argue that there are more worthy causes or better ways to help the people affected by Kony's LRA, it is unfair to expect Invisible Children to care about the cause you care about or do things the way you would do them.

Third, this campaign laid out a blueprint for how to engage a groundswell of support for a cause that a lot of people can learn from. They told a simple, powerful story and gave their viewers some simple actions they could take after hearing the story to lend their support and feel like they did something. Now, I know a lot of people think the Invisible Children's version of the Kony story is too simple, but that's a really unfair criticism. The simplifications they made in telling their story are not lies, they are simplifications made in the interest of telling a clear and compelling story. If you want to inspire people, that's critical.

In the end, I will remember Joseph Kony's name for a long time. If writing a letter to my congressman can help keep the pressure on to bring him to justice, I'll do that. Millions of people have gotten that message on YouTube, instead of watching another cat video. I'm still a cynic, still a bit of a snob, but I nevertheless salute Invisible Children for their creativity and dedication. Let's hope they succeed, and 2012 is the last year the world has to worry about Joseph Kony.

The Politics of Abundance

I was kicking around some ideas about optimism and pessimism when these questions occurred to me: how can we be, in every way that matters, richer than ever, and yet be going broke (both individually and as a nation)? How is it that our demands for more keep exceeding the rapid increase in standard of living we've seen in the last century? And why is it so hard to make political agreements about what we should be spending on when we have so much more than we used to, and so many things (food, energy, technology) are much cheaper than they ever were, historically speaking? 


My short answer: our minds are very poorly equipped for a world of abundance. People have been theorizing about this in the realm of food and diet for some time: if we evolved as a species in an environment when food is scarce, the theory goes, we may have genes that would help us survive in that world, but that might prove harmful if our environment changes and lots of calories are readily available. What if the same thing is true in the way we think about 'goods' more generally? Our minds evolved to help us survive when most of us would only have access to a small amount of clothing, shelter, health care, and luxury items. We would therefore  jealously guard any of those things we could get. But we also would know that (with the possible exception of the odd king or queen) that no one else had much more. 


Fast forward to the late 1800's. It was only then that shopping as we know it was really invented. In the decades that followed, modern medicine was made possible by the development of penicillin, the first malls were developed, the now "conservative" 30 year mortgage was introduced to make home buying much more practical, and the first real suburbs sprang up, enabled by the new Interstate Highway System, which also jumpstarted the tradition of the family vacation. 


So the features of modern life that all seem so entrenched and traditional really only emerged in the decades after World War II. Before that time, very few people would grow up with the expectation of comfortable, modern homes, clothing that expressed their personal style, medicine that could actually cure diseases and extend life in meaningful ways, and myriad leisure activities.


Experiencing all this from a young age, and seeing everyone around you experiencing it, is now the norm for most Americans. (Even in the poorest households in the country, two-thirds have cable TV, and 80% have air conditioning.) So when we struggle to get all these things, for example when our prescriptions become overwhelmingly expensive or when we can't buy a house where we want to live, we don't view it as normal, we think of it as the world screwing us over. And we want someone to DO SOMETHING about it, damn it, which is when we turn to the government for nationalized healthcare or loan programs that help us get our dream house.


David Brooks, in his recent appreciation of James Q. Wilson, stated his belief that Americans have lost the moral sense that helped us make good political decisions. He writes: 

During the 1960s and ’70s, [Wilson] noticed that the nation’s problems could not be understood by looking at incentives. Schools were expanding, but James Coleman found that the key to education success was the relationships at home and in the neighborhood. Income transfers to the poor increased, but poor neighborhoods did not improve; instead families disintegrated. 

The economy boomed and factory jobs opened up, but crime rates skyrocketed. Every generation has an incentive to spend on itself, but none ran up huge deficits until the current one. Some sort of moral norms prevented them.

I would suggest that the moral norms were largely the residue of living in an age of scarcity. In the time before modern pharmacology, consumer finance and government-supported home ownership, the only chance of eventually acquiring the trappings of the good life was decades of frugality. That is no longer the case: even if the consequences of debt destroy many lives, it is hard to think about that when someone will give you the money to get what you really want or need right now. Despite what Republicans like to think about Americans' desire for balanced budgets, our government debt is a true reflection of how most of us, as individuals, choose to live.


When I Googled "The Politics of Abundance", the few results I got talked about how government could encourage more abundance in our society. That'd be nice, but I think the real political challenge is to balance the desire of nearly everyone to take part in the abundant health, wealth and comfort of our modern society with the need for people to work hard and earn these goods for themselves over a lifetime.


Maybe our politics are so screwed up because this is basically impossible.

An Organized Mind

We so want to make sense of things, don't we? The first thing when we meet a new person or see a new place is to try and bucket this new experience in with the old. What is this person like? What does this restaurant remind me of? We are insatiable organizers of our own experiences.

This categorization of everything we encounter is of course useful, because otherwise we would be adrift without the ability to make connections or properly react to the new. But it also makes us qucker to judgment than we sometimes should be, and at risk of over-simplification. Thus, some of our best ideas come from resisting our initial impulse to label and looking at stimuli without preconceived notions.

I was reminded of this by two quite disparate articles. The first was a reflection on the meaning (or lack thereof) of the races that we have lumped the human race into. In the course of noting that these racial categories are largely artificial, he notes that this is also true of other classifications that are much less controversial:

Do races exist in human biology? Is it a useful concept? That depends on criteria in both cases. The reality is that I’m not sure I know what a species is in an axiomatic sense, let alone race (many biologists don’t, that’s why there’s a whole area devoted to studying the issue of the definition). Rather, for me species are evaluated instrumentally. Is the classification of a set of individuals as a species useful in illuminating a specific biological question? Species are human constructions, categories which are mapped upon reality. That doesn’t make them without utility. Many of the same “where do you draw the line?” questions asked of race can be asked of species. In a deep ontological sense I don’t believe in species. But in a deep ontological sense I don’t accept the solidity of a brick (most of the volume is space of any object of course!).

Of course our catalogue of species gives a useful shorthand of evolutionary branching, but it is easy to forget that the idea of species predates evolutionary theory, and was meant to capture the distinct types of creatures that had existed in their current forms for all of history. So the idea of distinct, hard-and-fast species can lead us into some false assumptions.

A similar idea crops up in a totally different area: our depiction of the mind. In this piece, provocatively entitled "The Mind is a Guess", the author notes that some cultures do not understand the mind as a singular thing that controls all our thinking function.

In traditional Haitian culture, there is no direct equivalent of the mind. The self is made up of a three components. The corps cadavre is the physical body; the ti-bon anj or ‘little good angel’ loosely represents what we would consider as agency, awareness and memory; while the gwo bon anj or the ‘big good angel’ is the animating principle that manages motivation and movement. Incidentally, a traditional Haitian zombie is created when a sorcerer steals the ‘little good angel’ leaving a coordinated body capable of understanding and following instructions but without reflective thought, clearly demonstrating a split where we see a single mental realm.

The idea of a single mind is so fundamental for most of us that trying to imagine it split or otherwise defined differently is almost impossible. We think of the mind as one thing (generally housed in our brain), but different types of thought could function differently enough that it makes more sense to talk about two minds, or four, or twelve. The usefulness of the 'mind idea' might be blinding us to a more nuanced understanding of how we think.

Who knows what other things that we think we know, that we perhaps even think are proven, that are in truth flaws of our mental organization?

Evolution, Brain Scans, and Just So Science Stories

When it comes to trying to answer questions about human nature (or even human behavior) scientifically, our reach consistently exceeds our grasp. Often times what we believe is a new understanding of the world is, at best, a theory, and at worst speculative imaginings meant to bolster a certain world-view. A chronic offender in this regard is Steven Pinker, who is, in fairness, an excellent explainer of the latest science of the mind. His book How the Mind Works is, overall, very helpful in walking the lay person through these issues. However, the later chapters are marked by an effort to rope that science into supporting a materialist ideology, a flaw that is much more in evidence in his shorter writings, like this New York Times article on morality, when he expounds upon where our altruistic impulses might come from:

Community, the very different emotion that prompts people to share and sacrifice without an expectation of payback, may be rooted in nepotistic altruism, the empathy and solidarity we feel toward our relatives (and which evolved because any gene that pushed an organism to aid a relative would have helped copies of itself sitting inside that relative). In humans, of course, communal feelings can be lavished on nonrelatives as well. Sometimes it pays people (in an evolutionary sense) to love their companions because their interests are yoked, like spouses with common children, in-laws with common relatives, friends with common tastes or allies with common enemies. And sometimes it doesn’t pay them at all, but their kinship-detectors have been tricked into treating their groupmates as if they were relatives by tactics like kinship metaphors (blood brothers, fraternities, the fatherland), origin myths, communal meals and other bonding rituals.

That entire paragraph is a great example of what I call (with all credit to Rudyard Kipling) Just So Science Stories. In Kipling's book, of course, fanciful yet plausible explanations are given for how animals ended up looking as they did. The elephant got his long trunk by a crocodile pulling it, the leopard got his spots from a hunter who put dark fingerprint smears on his fur to help him blend into the shadows. Just so with Pinker: we have a sense of community because our kinship detectors are tricked by wordplay and having dinner together. I suppose that could be true, but it certainly seems a lot like he's trying hard to make challenging data fit a one-size-fits-all explanation: your genes did it! Here is a great retort to Pinker:

If Pinker could break out of his evolutionary innate approach to human capacities, he would be able to explain more easily why people reason so differently about pushing someone over the edge versus having a train run someone over.

Lakoff makes a central distinction in how people think about causality, of billiards-ball causality versus human action.  We treat billiard-ball causality and human causality as very different things.  And for good reason, since this distinction builds from everyday experiences and is mediated by language and cultural models. There is a dramatic but quite real difference between pushing someone off a ledge and watching some people get run over.  In the latter case, the train—that massive billiard ball—is the immediate cause of death.  But pushing?  That’s human doing, and it lights up all sorts of systems in the brain that generally light up when people think about doing stuff and what that might mean in the real world.

That last quote alludes to bran scans, another area where Just So Science Stories seem to be told with impunity. It seems like once a week I'm reading an article touting the latest amazing finding from these windows into our brains. And yet, all too often, all these studies have really proved is that certain stimuli tend to make neurons in a certain area of the brain activate at higher levels. Susan Krauss Whitbourne, a Professor of Psychology at UMass Amherst, brings some needed skepticism to these studies:

Brain scans are clearly an advance over phrenology, but they also have their limitations. The biggest problem is that we can't precisely localize specific brain functions. Though it's possible to speak in general terms of a "reward center," it's not possible to pin down the exact nature of which reward goes with which set of neurons. Neurosurgeons discovered many decades ago that there is redundancy in the brain and that there are substantial variations from person to person.

It's important that think hard about these studies, because pretty soon we're going to be asked to make societal decisions based on their findings. For example, scientists have begun to look at whether criminal behavior may be linked to underdeveloped or damaged areas of the brain. They point to reduced brain activity in parts of the brain that, they say, are important for regulating emotion, and link this to poor impulse control that leads to crime. This could potentially be used to argue that certain criminals aren't culpable for their acts. But should we make this leap based on the number of neurons firing in a person's brain, without understanding why those neurons are or are not firing?

Let me make an analogy. Brain scans are creating a visual representation of the brain's electrical activity. We could similarly make a heat map of a car, which would light up most around the engine, and much less so around the person driving it. But drawing the conclusion that the engine then determines where the car goes would, of course, be completely wrong. And our heat map would almost completely miss the GPS system sitting on the dash, which might be more significant in determining where the car goes than even the driver. Similarly, parts of the brain that light up on scans might not be the only parts that contribute to a certain behavior.

We all like direct, satisfying answers to the big "Why?" questions in life, but we have to maintain our skepticism to avoid falling for trendy, persuasive, but ultimately false or incomplete Just So Stories.

The Genius and Madness of Culture

The failures of large, previously successful companies offer endless opportunities for outsiders to feel superior. Geez, any moron could have seen their business model was broken a decade ago! How could they think anyone was going to buy that clearly inferior [insert hyped product that no one ended up wanting here]? It's easy, fun, and I've done it way too often to offer any criticism of the impulse.


But once we get past the schadenfreude of criticizing these seemingly obvious business blunders, we may be left with an uneasy feeling: If that company, which everyone once thought was God's gift to business, could screw up that badly, is my company doing the same thing? The good news is that, if you allow yourself to be honest and objective about it, you can probably figure out if your company is circling the drain. The bad news is that it will be incredibly hard, perhaps even impossible, to do anything about it.


At least, that's the conclusion I drew after reading Megan McArdle's piece in the Atlantic about the role of culture in business failure, and the human tendencies that keep us from turning away from the precipice. I was particularly struck by the notion of the 'founder effect': 

Even a dysfunctional culture, once well established, is astonishingly efficient at reproducing itself. The UCLA sociologist Gabriel Rossman told me, “If new entrants assimilate to whatever is the majority at the time they enter, and if new entrants trickle in slowly, then the founding culture can persist over time, even if over the long run they make up a tiny minority.” This is why Americans speak English even though more of us are ethnically German or Yoruba. In linguistics and sociology, it’s known as the “founder effect.” In corporations, it’s known as “how we’ve always done things.”

That gave me pause because I have often been in an environment where, everyone will tell you, what's needed is 'new blood' or 'fresh thinking'. Business people will readily acknowledge that what they're doing isn't working, and bring in an outside perspective (as I discussed in my last post) only to either disregard that new perspective as foreign or, perhaps more commonly, absorb that person into the collective so they end up parroting back the same old company line. The implication here is that, to truly get away from old, bad habits, it is best to bring in a lot of new people and allow them to work, at least for a while, apart from the existing structure and the accompanying pressures for conformity.


Another way of addressing this problem, at least partially, would be to select a devil's advocate in meetings, and especially when there are big decisions about products or corporate direction to be made. Instead of hoping someone will have the courage to challenge the group consensus (not a position most people want to be in), there would be a person assigned to make the opposing case in the most compelling terms possible. If that case seems persuasive, then maybe the group's direction is unsound.


At any rate, it seems clear that businesses need to vigilantly guard against their culture ossifying in a way that pushes people to conform. And yet, a strong corporate culture is a good thing, right? So far I've essentially made an anti-culture case, but culture, and even a conservative culture, is often a major part of a company's success. McArdle again:

One possibility is that firms don’t change because inertia is in their DNA—indeed, it’s a gene that once made many of them successful. In their 1989 book, Organizational Ecology, Michael Hannan and John Freeman argue that organizations are actually selected for inertia by their environment, and “rarely change their fundamental structural features.” Change is risky, after all, since it definitionally involves doing something that isn’t already working—and even product lines that have grown lackluster still have somecustomers. Firms that are prone to frequent large changes will probably have more opportunities to kill themselves off with bad choices than firms that resist big changes. 

Moreover, the need for accountability and reliability in the modern economy selects against constant radical experimentation—people like knowing that their bank has cumbersome and invariable procedures for keeping track of deposits, for instance. Think of McDonald’s, where a core premise is that no matter where you go, the food and decor will be reliably, exactly the same. Or consider what happened to Coke after it tried to change the recipe of its iconic product, even though taste tests showed that most people actually liked the new version better. The larger and older the firm is, the heavier the selection for stability.

The need for stability is fundamental, both for employees who want to believe that their jobs are secure and their companies won't lurch dangerously from one position to the next (think of how disconcerting 2011 must have been at Netflix). Customers want to know they can rely on companies to provide consistent goods and experiences. A strong culture helps meet these needs. 


So culture is good until it is bad. Consistency is critical but leads to stubborn repetition of behaviors that have stopped working. Perhaps the (frightening) truth is that companies have a natural life cycle, and it is smarter to take the resources of an old, faltering firm to start dynamic new ventures. Don't attempt to reform culture, but allow new ones to blossom. (I think, in some ways, this is similar to Clayton Christensen's advice on how to deal with disruptive innovation.) Culture, like the human mind itself, seems remarkably resistant to quick fixes.

The Psychic Value of Consultants

I have long wondered how so many consultants do so well creating reports that find their way to the bottom of desk drawers at prestigious companies around the country. I have had plenty of clients laugh bitterly about the hundreds of thousands of dollars spent on a report from McKinsey or BCG that was completely wasted, either because it was un-implementable or because it was so obvious in its recommendations that it was totally unneeded.

But I had never stopped to think about what benefits a client might be getting from consultants besides the economic value of their actual advice. But a recent string of posts from very smart guys explored just that question, and came up with some interesting conclusions about the psychic and persuasive benefits of hiring consultants. Take, first, Tyler Cowen: 

The rest of the world is increasingly specialized, so the returns to your general intelligence, as a complementary factor, are growing too, in spite of your lack of widget knowledge.  “Hey you, think about what you are doing!  Are you sure?  How about this?” often sounds bogus to outsiders but every now and then it pays off and generates a high expected marginal product.

 Cowen makes a simple point: sometimes having an outsider who can credibly claim to be really smart challenge the conventional wisdom, even in obvious ways, can be helpful to an entrenched organization. In my experience, this does happen, but rarely, and it requires an organization that has struggled enough that most of its leadership are willing to take a sledgehammer to the familiar way of doing things. More often, that what about this? idea gets dismissed as unworkable (usually because of the internal politics of the organization) and the report gets shelved.

But one response to Cowen's original post, from Robin Hanson, captured an important truth about consulting:

My guess is that most intellectuals underestimate just how dysfunctional most firms are. Firms often have big obvious misallocations of resources, where lots of folks in the firm know about the problems and workable solutions. The main issue is that many highest status folks in the firm resist such changes, as they correctly see that their status will be lowered if they embrace such solutions.

 Hanson captures something real about the psychology of organizational change. As corporations get larger, executives get more and more autonomy to run their little fiefs the way they want to, regardless of whether all the parts are working together to optimize profits. To these chieftans, it is better to protect what they have built for themselves than take a risk on change that may make things better for everyone but also makes their position near the top less secure. In that world, a consultant can provide a spiral-bound kick in the pants that energizes those who would benefit most from change and neutralizes those with the most to fear. However, I think Hanson is slightly off in describing how this works:

The CEO often understands what needs to be done, but does not have the resources to fight this blocking coalition. But if a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant.

 I may be splitting hairs, but what it seems Hanson is describing is a world in which a CEO has a great idea, but can't get support for it. Then a consultant comes to the rescue by backing up the CEO. This seems a bit off to me: in my experience, consultant reports are usually used by one of the other C-level executives (say the chief marketing officer), who tells the consultant firm what 'recommendation' he wants the report to make, and then uses that document as part of his up-sell. In this case, it is less the prestige of the consultant that helps make the sale (though that does add credibility) and more the perceived neutrality.

To challenge the notion that consultants are primarily pimping out their Ivy League pedigrees to help pathetic clients make obvious decision, Jim Manzi of National Review offers some first-hand observations of how consulting firms are set up:

No competent consulting firm is going to have a bunch of unsupervised “kids fresh out of college” standing in front of a Fortune 500 CEO telling him what they think. In a typical CEO-level final presentation, a good senior partner will let the engagement manager do a lot of the meat of the presentation, so that he or she gets experience. The partners lay out the overall recommendations at the start of the meeting, and then fly air cover for the rest of it.

 This is undoubtedly true, but I doubt anyone thinks the 'kids' are making the recommendations. But the 'engagement manager' Manzi describes is probably not much past 30, if that, and that person is probably doing the bulk of the brain work on the project. So why should this hypothetical CEO listen to someone with 5-7 years of experience, much of which is probably not directly relevant to the problem at hand?

In the end, my belief is that we develop a certain amount of contempt for the people we work with on a day to day basis. We stop hearing each other, stop listening when we think we can anticipate our colleague's ideas and objections before they articulate them. So when a 29 year old consultant comes in in his (or her) nice suit, with the backing of a prestigious firm and a prestigious degree, the novelty and perceived neutrality of the recommendation gets it a better hearing than it could hope for if it came from in house. In other words, you pick a consulting firm not because of how good their ideas are, but because of how receptive they will make your organization to those ideas.

What is Mind Pried Open?

For as long as I can remember, I've been fascinated by the question of why people think what they do. Why is it so hard for us to really understand each other? What happens between when we learn a fact and when we try to share it with someone else that so often leads to the information getting mutilated? Why are most of us so easily distracted, so engrossed in the ephemeral?

One of the interesting aspect of these questions is that there is a debate, not just about the answers, but about which discipline properly should try to answer them. At first, they were the realm of philosophy. About a century ago, the social sciences began to weigh in. Now, in our time, neurologists and biologists have entered the discussion, armed with brain scans and genetic studies. This cacaphony of voices could make us despair of reaching any final answers, but it certainly keeps the discussion interesting.

My hope for this blog is that it can navigate, and sometimes add to, that discussion. I work within the advertising industry, a business that is predicated on the belief that a good message well delivered can make people think differently. So one area I will return to frequently is why some ads work: not just whether they are clever or visually arresting, but how they might act on a mind.

But the scope of this blog will be somewhat broad: I want to explore how we prioritize, gather and retain information, how we use that information to form, support or challenge our beliefs, and how we transmit it to others. Much of what I write will be inspired by my reading on this topic, but also personal observations and, from time to time, some poorly substantiated opinions.

This is a bit of a departure from what I have blogged about in the past, so any feedback, criticism, or suggestions of topics to cover will be most appreciated.

I hope you enjoy what follows,

Dan

Doing some (over)thinking

So those of you who stop by every once in a while have no doubt noticed my lack of posting and perhaps assumed that I've given up blogging. And, in the sense that I haven't, you know, blogged, you'd be right. However, I don't intend this to be a permanent state of affairs. Rather, I'm trying to think of a way to make this blog more useful than it is in its current format.

 When I started, my intention was to focus on longer term trends that would define the future we're all going to live in. However, the craziness of our world in the last few years, especially politically, has made it hard to confidently predict what is coming even a week from now, never mind what may occur in 2200, as I once tried to do. So I made the blog more personal, even changing the name from Sketches of Tomorrow to Mister Overthinker. But I really don't think that personal blogs can sustainably be much more than exhibitionist journal-keeping, and I couldn't care less about that, so my interest rapidly faded.

 So I've been taking a breather, thinking about topics and themes that I'd want to explore. Here is my partial list:

1) Healthcare
2) Communications and Marketing
3) Cultural Trends
4) The (Potential) Collapse of Western Civilization
5) Technological Development
6) Whiskey

 There is some interplay of those topics that would make a blog that I would want to read. Just have to figure out what it is. And when I do, I'll be back at it.

 Thanks for reading,

 Dan

Two Links and a Plug: 10/16

Sometimes you read a piece by a writer you really admire (and I do greatly admire Williamson's work) and are disheartened to discover you find his latest argument ridiculous. I don't know if we should tax Wall Street investment earnings as income, but to contend that this is going to lead to them all getting 70% raises is absurd. If the money was there for them to be paid 70% more, would they be leaving it on the table now out of goodwill? Are their clients not sensitive to any price increases that would support a 70% raise? To imply that raising taxes on finance guys will just cause those evil magicians to conjure up more income ascribes to them a level of power that would make leftist critiques of capitalism a lot more valid. Hell, if I thought these guys could collectively jack up their salaries like that, I'd be sitting in a drum circle with the hippies downtown right now.

Is your city Greece? Pennsylvania's capital city (Harrisburg, for those of you who have forgotten 4th grade geography) is going bankrupt, and it looks like many other cities in the Northeast, California and elsewhere could be right behind. So ask yourself: if you think debates in Congress are ugly, what is it going to look like when your town council announces they can't pay the police force? (Bonus link: Michael Lewis captured the despair of bankrupt cities magnificently in this piece for Vanity Fair.)

PLUG: Many of you probably saw Arcade Fire's customizable video for "The Wilderness Downtown". Now that same technology has been used by State Farm to blow up your house. Check it out here.

Two Links and a Plug

For months, I've been meaning to start directing people to some of the many interesting things I find myself reading. I've also wanted to share some of the cool stuff that's happening at Google. Thus, this format. As often as I have the time and material, I'm going to share two articles I think are worth your time, and one Google or YouTube creation you might enjoy experiencing. I won't be promoting these too often, so please check back if you're interested.

For stimulus to work, we must be stupid: I've been reading a lot about why we seem out of tools to fix the economy. I even wrote a piece about it about a month back. But I think this article on the limits of Keynesianism, and in particular how the theories of this year's Nobel Prize winners tell us that we should expect our traditional economic levers to fail as people start paying more attention.

An article I am too afraid to send to my wife: Is this finally proof that baby brain drain is real? (And does the same thing happen to men? Because it feels like it sometimes.)

PLUG: Spacelab channel launches on YouTube: This is a great use of the Internet's power to inspire and encourage people (in this case young people) to open their minds to new ideas and new possibilities. And how awesome would it be if some kid's experiment actually leads to a significant discovery?

Enjoy, and if you have any suggestions for stuff to feature, please send it my way.

All Patriotism is Local

Peggy Noonan writes, teasingly, about a resurgence of patriotism in our country. As someone who thinks the Samuel Johnson line, "patriotism is the last refuge of a scoundrel", is one of the most abused sayings in English, I would welcome such a development. But I say teasingly because there doesn't seem to be any data to support that proposition, and my personal experience hints that, if such patriotism exists at all, it is an inch deep. She writes:

The untapped patriotism out there—if it were electricity, it would remake the grid and light up the world. And it’s among all professions, classes and groups, from the boardroom to the Tea Party meeting to the pediatric ICU.

We think patriotism reached its height after 9/11, but I think it is reaching some new height now, and we’re only beginning to notice.

But how is that patriotism manifesting itself? In ever-more-bitter national politics? In endless wrangling over a government solution to economic problems that are fundamentally due to our failure as a people to work hard, be thrifty and innovate? If the result of this patriotism is that 2012 becomes a year remembered for the most bitter presidential election in history, then I say our patriotic energies were wasted no matter the outcome.

What we seem to have forgotten is that "love of country" is an abstraction until it is tied to particular behavior in a particular place. The college grad who does "Teach for America" is helping a small number of kids in a certain city. Same with the person who does Habitat for Humanity on the weekends: it's not 'humanity' that they help, but a small number of families who get much-needed homes. We only talk about these larger abstract terms because we want a convenient shorthand to describe similar actions taken by thousands or millions of people.

So the reason I think Noonan's patriotism is so paper-thin is that most people will not be doing anything concrete to act on it. There's simply no outlet for their energy, because all of the focus is on who's running the show as President, and what the federal government should do (or fails to do). Well, guess what: anyone reading this is not going have any influence on whether Obama or Republican X becomes the next leader of the free world, or what they do in that role.

Which brings me, I suppose, to both why I am a conservative and why I'm something of a hypocrite. I think the best hope for our country is to get back to people directing their patriotic and political energies to the local, to the concrete. If Mitt Romney or Rick Perry or Herman Cain wins an election in 13 months, that doesn't mean anything has been solved, or improvement in our economy or culture is much more likely. People need to start making changes locally that can bubble up and improve the country as a whole. I'm a conservative because I think that government, at the national and sometimes even at the state level, impedes that happening by nationalizing every problem and convincing people that someone in Washington will 'do something' for them. I'm a hypocrite because I don't do enough locally to back up that conviction. (But, I hope to here in beautiful Maplewood.)

A million people doing something for their town or their neighbor is going to accomplish a lot more than a million people campaigning for a president or a party. If you love your country, help your neighbor.

Won't You Be My President?

My wife has had to put up with my enthusiasm for Chris Christie for a while now: she strongly suspects that he was the reason we bought a house here in New Jersey. I think he is the rare politician who makes his position crystal clear in almost all circumstances, and I think he understands the severity of the financial problems that plague our nation and is prepared to do something about them, even if it is difficult.

I was a bit disappointed when he dismissed the idea of running for President earlier this year, but I respected that he thought he wasn't ready for the job. And at that time, I thought Mitch Daniels would be the best possible Republican candidate. And hey, I'm selfish: I wanted to keep him as my governor, if only to protect me from additional property tax hikes.

Now, of course, there are rumors swirling that Christie is reconsidering his earlier decision. (And it would be a reversal of some very clear statements that he was not running.) On the one hand, this would cut against one of the most appealing aspects of his personality: that you can really believe what he says. On the other hand, I am reminded of a scene in the movie Gladiator:

Emperor Marcus Aurelius (to General Maximus): I want you to become the protector of Rome after I die. I will empower you to one end alone: to give power back to the people of Rome...and end the corruption that has crippled it. Will you accept this great honor that I have offered you?
Maximus: With all my heart, no.
Emperor: Maximus...that is why it must be you.

Now, Chris Christie isn't an action hero. (He doesn't have the physique for it...) But I believe this moment calls for a man who has a sense of duty, a man who doesn't necessarily want the Presidency for reasons of vanity or to wield power, but because he sees a job that must be done and is willing to do it.

I think the financial foundation of this country is crumbling, and I am willing to do what I can to support someone who understands that and will give it his all to fix the problem, especially if that person has a track record of making progress on these types of issues. I'm also looking for a person who can articulate the problem and its solution in a way that might inspire people to support the difficult choices that must be made. Which is why I am so heartened by a speech Christie gave tonight at the Reagan Library, and especially by this quote:

I believe in what this country and its citizens can accomplish if they understand what is being asked of them and how we all will benefit if they meet the challenge.

There is no doubt in my mind that we, as a country and as a people, are up for the challenge. Our democracy is strong; our economy is the world’s largest. Innovation and risk-taking is in our collective DNA. There is no better place for investment. Above all, we have a demonstrated record as a people and a nation of rising up to meet challenges.

Today, the biggest challenge we must meet is the one we present to ourselves. To not become a nation that places entitlement ahead of accomplishment. To not become a country that places comfortable lies ahead of difficult truths. To not become a people that thinks so little of ourselves that we demand no sacrifice from each other. We are a better people than that; and we must demand a better nation than that.

I don't know if a politician like Chris Christie can become our President. But I hope he takes the daunting step of running, so we can find out. Because the candidates we have now, including our current President, are far more likely to perpetuate our problems than to solve them.

My Son is Making Me a Girlie Man

The latest scientific study to get big press is one from Northwestern University that demonstrates men undergo a large drop in their testosterone levels when they become fathers. Previous studies did not show if testosterone dropped when children arrived, or if men with lower testosterone were likely to have children. But now there is proof that becoming a father sucks the manliness right out of you. And the effect is even more pronounced if the father takes a significant role in child rearing, meaning that my cute little son is actually a diaper-soiling male hormone remover. (See! I publicly used the word 'cute'.)

Maybe I wouldn't be so distraught, but the researchers make testosterone sound pretty damned awesome:

While scientists still argue over testosterone's exact function, it's fairly clear it provides a boost to confidence, increases competitiveness, and orients men to achieve more in the social world, said Christopher W. Kuzawa, co-author of the study and a faculty fellow at the Institute for Policy Research at Northwestern.

Don't worry, though, because I can't imagine any downsides from being less confident, competitive and outgoing. Nope, everything should be just fine.

All joking aside, the article, and apparently the underlying research, do a terrible job of thinking through what this drop in testosterone might mean, instead going with the pat answer that having less of the quintessentially male hormone will make men more 'nurturing' and 'caring'. First, hormones (like most of the other inputs into our biological functioning) aren't simple dials. You don't turn the testosterone way down to make men take on traditional feminine roles. Second, it seems unlikely evolution would be geared to radically lower a 'confidence' hormone when a man is going to have to take on a big new challenge and provide for a growing family. So let me offer some more nuanced takes on why testosterone levels might drop in new fathers:

1) Fewer stupid risks: It seems apparent that young men are often primed to be daredevils, taking crazy chances with little thought to consequences. Maybe this originally evolved to give males the courage to charge into battle when provoked. At any rate, dialing down the big T might help a new father pause before he charges someone with a club, or goes out racing on his dirt bike.

2) Open a bonding window: Children are likely to get more paternal affection and protection through life if they form a connection early on, and a lowering level of testosterone level could bring down the desire to socialize enough to keep dad around more. Less time at the pub means more time with the new baby.

3) Aid to fidelity: Let's be honest: new baby time isn't sexy time. Maybe evolution or a merciful God brings down testosterone levels in new fathers so they don't go crazy during the time when their wives can't imagine using the bed for anything other than sleeping.

Whatever the full explanation, I've decided to forgive my son for any decline in testosterone he might be inflicting on me. And I've realized another benefit of this study: if we can make sure the male cast members of Jersey Shore hear about it, we can be pretty confident they'll never procreate.

Why Stimulus isn't Stimulating

Obama's jobs bill (so named, presumably, on the theory that no one could be against jobs) (and yes, I know the Republicans do the same sleazy thing, for example with the Patriot Act) has renewed the debate over stimulus: whether we need it, how much good it does, and how big it should be. Conservative writers I respect, like Ross Douthat have offered measured voices of approval, but generally reaction to the plan breaks along partisan lines. The Wall Street Journal offers the conventional conservative perspective:

With $4 trillion in debt in three years, it is hard to see how another $400 billion in debt will lead to more economic growth and job creation. We've already had the biggest Keynesian stimulus in 60 years, and the result has been more than a million job losses since January 2009.

That $4 trillion number really jumps out, but in this case the conservative desire to bash Obama is hiding the true scope of the problem. While borrowing has accelerated since Obama was elected, G.W. Bush was borrowing on a scale almost as extreme. By looking at Obama's decisions in isolation, we lack the context to ask a fundamental question: are these stimulus measures doomed to failure because our economy was already highly stimulated before the recession even started?

The chart above shows the annual level of borrowing from 1990 through 2010. During the early 1990's, we see the level of borrowing peak at the end of Bush the First's presidency, and decline until we actually had a small surplus at the end of Clinton's second term. And then things reverse, the line trending up almost as steeply as it does during Obama's time in office. Why? Because Bush the Second decided to 'give back' the surplus in the form of tax cuts, and then the 9/11 attacks both hurt the economy and led to unpaid-for wars.

If the essence of stimulus is that the government borrows to increase overall demand in the economy, than the 2002-2004 saw a massive, if unnamed, stimulus effort. And perhaps it worked. The economy didn't go into a severe recession after 9/11, so perhaps it had some sort of effect. Add to that the historically low interest rates and loose borrowing standards that led to a massive injection of private credit spending into the economy, and we had a truly massive "stealth stimulus."

Now, before those borrowing levels even had a chance to go down much, the crash of 2008 hit and government borrowing quickly spiked to the trillion-plus levels to which we've now sadly become accustomed. But why hasn't deficit spending, this time specifically structured to be 'stimulative', had the desired effect?

I think there are three potential explanations:

1) The fundamentals of the economy are so bad that much more deficit spending is needed to have an effect. (The Krugman thesis)
2) Stimulus doesn't really work, especially if the numbers we're borrowing are so high that lenders and investors doubt we can pay it back (The Republican thesis)
3) Stimulus has to be temporary to work, and we already had one last decade that we haven't even started to pay off. (My lonely theory)

Whether the first explanation is true or not is really academic: to borrow a significantly higher amount was never going to be politically feasible. (And could any recovery be strong enough to pay off the incurred debt in a reasonable period?)

But I think the second explanation, much loved by conservatives, risks positioning the Republican party as do-nothings who aren't trying to help the jobless. As Jacob Weisberg wrote recently on Slate.com, "Pick up any standard economics textbook, and it will explain how governments respond to cyclical downturns with temporary deficit spending." You can fight this argument, or you can concede it and point out that we have had a decade of unprecedented stimulus, and there is no longer anything temporary about our deficit spending. A simple question to ask your pro-stimulus friends (or for the eventual Republican nominee to ask Barack Obama), "In what year do you foresee the government taking in more money than it spends, and how will you get us there?"

Since 2002 (or maybe even since Reagan began large-scale peacetime borrowing in the 1980's) that we have been using government borrowing to mask weaknesses in our economy. The sad truth is that doing so made those weaknesses more severe, and now our problems are worse and the tools we have previously used to juice the economy have lost their effectiveness. Which should tell us that, just maybe, we should not act as if we know how to control something as complex and unpredictable as the nation's economy in the first place.

One Economy or Two?

Good writing can expose you to something new, or it can organize thoughts and facts you already have into a more coherent picture. That happened to me the other day when I read David Goldman (who often writes as "Spengler) explain that we have a 'winner' economy and a 'loser' economy.

The main thrust of his argument is that for a significant portion of the country, things are actually going quite well. But instead of success at the top pulling everyone along into economic revival, the successful are pulling away and leaving a significant group of Americans behind. So far this sounds like the standard liberal critique of the economy since the days of Reagan. But Goldman is no liberal, and he is making a more important and unusual point:

Perhaps we should think about America the way we think of an emerging market, except that America is submerging instead. The Chinese have warned for years that they are two countries, a First World country on the seacoast and a Fourth World country in the interior. We know that India has two economies, a small modern one and a vast backward one, and we are not particularly concerned with the GDP of impoverished rural people (if indeed we could measure it). We want to know what Tata Industries or Reliance Industries are up to.

China and India have become a dual economy because a portion of their population has clambered up into prosperity; America has become a dual economy because a portion of their population has tumbled into destitution. But the fact that larger American corporations have had a strong recovery should reassure us that America is capable of a broader recovery.

The suggestion here, I think, is that none of the typical efforts to get the economy as a whole moving again are likely to work as king as some people (and maybe some entire regions) lack the skills and resources to compete in the modern global economy.

We have enjoyed almost seven decades since the end of World War II where our country was the center of the economic universe, which allowed us to find something to do for nearly everyone who wanted to work. In the past few decades, though, as stiffer economic competition has emerged, our advantages have lessened. The acceleration of our borrowing in recent years can be seen in part as an effort to delay dealing with that fact by handing out benefits that the country hadn't earned. But now that game is up.

As a thought experiment, let's imagine 70% of people can partake of the modern 'winner' economy, while the other 30% bump along in the uncompetitive 'loser' economy. Will the 70% subsidize the others when doing so means higher taxes instead of just more borrowing? Or will the 30% be left to fend for themselves, making the divide that much more apparent?

The myth Democrats tell themselves is that they can find ways to subsidize the poor without bankrupting the country and disincentivizing work further. The myth Republicans tell themselves is that removing the support will encourage effort and individual initiative among the 'losers' and ultimately help them more than the subsidies. But the reality is that a large and growing number of Americans probably don't have the skills and talent to compete, and without some sort of assistance will live more miserable, unfulfilling and unhealthy lives. As will their children.

Our divided economy doesn't look to be going away any time soon. But what do we do about it?