Reflections on Resiliency

Harry S Truman famously had on his desk in the Oval Office while he was President the saying “The buck stops here.” That belief has become mainstream in the United States. As we have learned to say in the last two decades though “It’s complicated.”

Who is accountable for resiliency in the United States? This is something being debated on both social and mainstream media every hour right now, though not in well formulated terms. The United States is a federal nation with a government based on separation of powers. Accountability is divided under our Constitution, whether we like it or not, and it is for good reason. The tenth amendment may not be top of mind for most people, but it is the law of the nation. The powers of the federal government are limited.

The historical reality is that sovereignty lies with the States in the Constitution, and the States are the authorities vested with what the lawyers call the police power. Thus, public health emergencies belong to the States and their governors under their laws. The controlling case law on that dates back to 2005. It does not lie with the federal government or the President.

I have been focused on resiliency now for a decade. I have also been an observer, participant and proponent of the technology change which has been the slow moving tsunami that has transformed our society. I started ruminating on this in the 1970s first helping John Kenneth Galbraith in his course the New Industrial State and then in my own course on Computers and Society at Harvard. The topics then are largely the topics now, and I still have my class notes to prove it. I have written and spoken on this topic sporadically ever since, including three talks at the Vancouver Institute. {You can also read an old paper https://medium.com/@rnomad/a-modern-theory-of-the-firm-1994-6d538fba17be?source=friends_link&sk=c82f9a9c732fb28ecfba6342638c4796]

I was trained as an economist, and I still have an enormous respect for the market and for capitalism. There is no better system to run an economy. Hands down. However, all economic theory was developed in a world where information and technology were considered relatively unimportant. Economic models talk about labor and capital, both of which are assumed to be undifferentiated and available from perfectly competitive markets. As I learned in graduate school, though, the real world is only a special case. [See also https://medium.com/@rnomad/saving-capitalism-77b5ffb154de?source=friends_link&sk=2838205f9b7657ba2bfd137dca4d07e4 and https://medium.com/@rnomad/reforming-executive-compensation-d7645985949?source=friends_link&sk=95cfa06778f49f702ddd8c1a3d57b76d]

However, I am also a statistician by training, and a fundamental lesson of statistics is that you cannot have both efficiency and robustness. You can be very efficient, but if your assumptions prove wrong, you will be very unhappy. You can be very robust, but if the assumptions are right and you do not exploit them, you answer will be worse. The same is true of our economy. I use resiliency instead of robustness, because that is the engineering usage, but the intent is the same.

Finally, I have been deeply involved in technology for nearly six decades, and have both watched how technology has transformed our world and helped do it. Technology rests on assumptions. Eliminating slack is the path to profit. So we build our businesses around assumptions. More importantly, we write our software around those assumptions and accumulate technology debt in astounding amounts while refusing to put it on our balance sheets.

As the chief information officer of Sun Microsystems, I was involved in multiple reengineering efforts. We generated billions of dollars in cash flow by doing so while cutting cycle times and improving customer satisfaction. We were early in this endeavor.

Doing so today is not optional. A combination of aggressive equity markets and well funded startups ensure rapid decline for anyone who does not follow. There is nothing wrong with being efficient. To a point. However, efficiency engenders fragility, and fragility engenders costs. Social costs. Where do you stop?

Today we have a handful of giant technology companies who prowess in collecting, storing and mining information allows them to enter almost area and dominate it. Because the technology generates increasing returns, normal competitive counter forces do not apply, in addition, these firms have an effective monopoly on the scarce talent required.

I argue that a proper, indeed fundamental, role for government is to decide how robust our economy should be. Capitalism today seems to have lost any natural ability to temper this. Maybe government as well. If we do not address this, then our society will lack resiliency. Rebalancing capitalism will not be easy, and the vested interests that will lose will fight it vigorously.

A decade ago we talked a lot about bending the curve in medicine. Not the pandemic curve but the cost curve. Our top priority, for good reasons, was slowing the rate of medical cost inflation. That was a fundamental premise of the Affordable Care Act, and the implementation worked. We were happy. How did we do it? We eliminated excess capacity. We are now learning that excess capacity is a tricky concept. Germany arguably did a better job than most countries in handling the pandemic, but they have three times the hospital beds per capita than do we.

The great economist Ramsey first talked about the social discount rate nearly a hundred years ago. It is a metaphysical question: When one generation makes a decision what moral right does it have to discount the welfare of future generations as it makes those decisions? How greedy can one generation be in kicking the can down the road? Ramsey argued zero. Pope Benedict agreed in recent years. Growth economists argue that the number can be as high as the economic growth rate, which is true as long as maximizing material welfare is the goal.

Making social decisions inherently requires making complex trade offs between future diffuse gains and concentrated current pain. Life. We do that poorly as humans. Our instinct is to favor the present, but there is no free lunch. There are always costs, and it is the nature of the world that the benefits are often seemingly concrete and visible while the costs are diffuse and deferred.

The great statistician John Tukey said that it was far better to have a vague answer to the right question than a precise answer to the wrong question, because you always make the wrong question permit as precise an answer as you want. My corollary to this is a Gresham’s Law of Answers: Precise answers drive out vague answers regardless of the merits of the antecedent questions. We see this everyday. Most tragically, we saw it in the Vietnam War.

This bias towards precision drives up the social discount rate. Television drives up the social discount rate because it can cover concentrated current pain well but not diffuse deferred gain. Social Media amplifies this even more. Politicians win elections by promising free lunches. Managing any organization well requires truth. The same is true for a nation. “Fake news” sums up our challenge.

Not all problems can be solved in the present. No matter how much we want to do so. Almost any policy decision has winners and losers. That is why we have democracy. I am not sure what the social discount rate is for our President or our Congress. I know it is not zero. It may be as high as 30%. Maybe in this cycle even higher. [See also https://medium.com/@rnomad/saturday-musings-why-do-we-disagree-de2ad51f18bd?source=friends_link&sk=63127917b8ad15c55acb925223b0a152]

That is not really the problem though. They are elected. We, the people, elect them, so the problem really is the SOCIAL rate of discount. Why has it gotten so high? Do we really not care about future generations? Our young people largely accuse our older generations of having done exactly that, and they have a point. Our older generations have run down the balance sheet.

A major contributor to this was that President Clinton created a new role for the Presidency in America: Mayor-in-chief. There was no evil intent, and it was just a continuation of decades long trends. I learned about this phenomenon more than forty years ago. I had just joined Data Resources, Inc. in their Washington office, and we got a contract to support the Department of Commerce though it was really the White House.

In 1965, Congress passed the Economic Development Act to provide assistance to distressed areas in the United States. Admirable. Formulas in the act determined whether or not a county was distressed. If it was, Federal projects followed. It all seemed very reasonable, but there was a flaw in the Act. There was no way to ever get undesignated as a distressed area, so that by 1978 nearly the entire country was distressed. The Carter Administration wanted to reform that.

Congress loved these projects. They were what they ran on: bringing home Federal money. The Administration negotiated with the chairman of the relevant subcommittee in the House of Representatives and got an agreement to support reform as long as 90% of the country remained eligible INCLUDING his district, which was booming. My job was to find a formula that did that but could pass the smell test so that it was not obvious that the formula was wired to benefit the chairman. That took a lot of computer time, which was very expensive at the time, but there was such a formula. Statistics can lie.

There is a “law” that the efficiency of public expenditure declines as the distance between the people paying for it and receiving the benefits increases. Human beings spend their own money more carefully than when spending someone else’s money. That is a life challenge in any endeavor, and volumes have been written on how to adjust. I have never seen a simple answer.

Today, when anything happens, the news media turn to Washington. We almost ignore the States, the fundamental building blocks of our nation, although as this pandemic goes on governors are gaining more attention. Members of Congress are easily found and love the publicity. Hurricanes, tornados, floods, fires, killings, and now pandemics… — These are not naturally Federal matters, but we have made everything a Federal matter. I am not sure the Federal government will ever have the bandwidth to deal with them all. Comparisons to geographically much smaller and less populated countries are just misleading.

Delegating to the states has a problem. Yes, some states have more ability to pay than others. Germany, Canada and Richard Nixon all have or had the same solution: revenue sharing: Block grants to assure that all states have enough resources to locally address their issues. Unfortunately, this does not suit the political class, because they rather have tangible things to which they attach their name.

Having an informed, rational discussion on these issues is hard. I have written about Halstead Length elsewhere and its contribution to inequality [https://medium.com/@rnomad/inequality-and-technology-64117df5109d], and I will not repeat that here. Essentially, the social Halstead length is a measure of how complex a problem can be comprehended by the voters. This is really a test of public education, but the trend has been greatly exacerbated by technology.

Students today are largely taught to be answer seekers rather than problem solvers. “Google it” is an acceptable answer. But what if Google does not have the answer? Then what? The news cycle. Sound bites. Bitter partisanship.

In a world of deeply fragmented news sources, economic success comes not from being truly fair and balanced but from being shrill and stubborn. Add in confirmation bias, the human tendency to more easily believe things we want to believe, and it is not hard to understand why in depth news is a dying breed.

In the days of my childhood, there were really usually two major news sources on TV, and they had to be centric. Those days are gone. Some blame Rupert Murdoch, but he saw the trend more than he created it. I was privileged to be in a small meeting at Davos with Ted Turner the year he launched CNN. No one in that meeting came close to understanding how far the world would change as a result.

Being shrill is the opposite of building understanding. The result is that public policy is being made by soundbite. That is what I mean by declining social Halstead length.

We are in a very deep hole. The first rule of holes is that, when you are in one, stop digging. I am not even sure how to do that. Brains we know are not rigid at birth. They are programmed slowly over time, but reprogramming them has never been easy.

How do we improve the quality of public education? The answer is simple: better teachers with better leadership and better content. That immediately angers all the teachers and administrators we have, so we default back to giving the current establishment more money as if money alone will cure the problems. Competition is a traditional answer, but it is highly controversial. Schools also may be too late.

How do we teach on a broad scale the fundamental values of sense of duty and purpose that churches once did? Injecting them into public education? That seems to me to be treading on dangerous ground. How do we get families away from their screens and into meaningful conversations? Not simple either.

How do we get reasoned, thoughtful proposals on the issues of the day? No one can seriously believe our current political institutions can do that. Can expert panels also weigh the concerns of the many?

Who should be the chief resiliency officer for the United States? This is a question we need to ask and answer. Resiliency requires that we leave some current needs unaddressed. I am sorry. That is the bottom line. How do we do that? Resiliency requires that we constrain our institutions to protect the future. How do we do that? Robustness may require that we rebalance responsibility between the Federal government and the States? How do we do that? If we do not address these questions we are guaranteeing a future period of national pain worse than our current episode. We have never had a better time to address these questions than now.

[I dealt with some of the governmental changes I would support in https://medium.com/@rnomad/fixing-the-nation-cac336e9d1d8]