Unpeeling the Onion

One of the many lessons I learned from Joe Dionne, the then CEO, when I was at McGraw-Hill, was that when problems seem insoluble it is usually because you are at the wrong layer of the onion. In such a situation you must resist the human instinct to peel further and go back up towards the top. I believe that is where America is today.

I will skip the litany of what many perceive as the issues. Many I have addressed elsewhere. I am among the very first Baby Boomers. Indeed, when I first started going to Japan, I would encounter knowing smiles when I told my birthdate, as nine months earlier was roughly V-J Day. I have been a close student of both history and current events. I now recognize that there were many hidden flaws in what we see today as better times, and I lived the 1960s like everyone else. However, civil discourse was much better. Indeed, it was civil.

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 in my course on Computers and Society at Harvard. The topics then are largely the topics now. I have written and spoken on this topic sporadically ever since, including three talks at the Vancouver Institute.

Here I argue that are problems are deeper than we realize but maybe over time far more soluble than we think. I want to focus on four trends:

1. Increasing Social Discount Rate.

2. Maximizing Efficiency at the Expense of Robustness.

3. Increasing Fiscal Distance.

4. Declining Social Halstead Length.

None of these really have a seminal event. That would be too easy. None of these happened overnight. Indeed, all happened very slowly over decades accelerated by information technology and its byproducts.

SOCIAL DISCOUNT RATE. The great economist Ramsey first talked about this subject 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 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 Vietname 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.

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%.

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?

There is no question in my mind that the decline of religion in American life is a contributor. I am not making any editorial comment here. I am just observing reality. Religion communicates and promotes values by definition, and those values almost all imply a moral duty to the future. Where else are they taught?

EFFICIENCY VERSUS ROBUSTNESS. I am 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. 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 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.

FISCAL DISTANCE. 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. 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 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.

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. Members of Congress are easily found and love the publicity. Hurricanes, tornados, floods, fires, killings,… — 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.

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.

DECLINING SOCIAL HALSTEAD LENGTH. I have written about Halstead Length elsewhere, 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, success comes not from being truly fair and balanced but from being shrill and stubborn. Add in confirmation bias, 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.

WHAT DO WE DO NOW? Honestly, I don’t know. 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. 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, but programs in the early years have mixed reviews.

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?

I don’t know the answers. I truly don’t, but I think agreeing on the problems is a first step towards finding them. It starts with we the voters. Not with President Trump or Speaker Pelosi or Senator McConnell. It starts with us.