Thursday, January 21, 2016

Comment to Paul Graham's Economic Inequality

I read Paul Graham’s ‘Economic Inequality’ (Jan 2016) with interest (See There have been many negative responses to Graham’s views; I offer no remarks on these as they speak for themselves. I merely write to comment that (1) I commend Paul Graham for having the courage to address the issue; and (2) I do agree with Graham that inequality is “not just one thing” and that if you want to understand, and, more importantly, “if you actually want to fix the bad aspects of it” you have “tease apart the components.” With this in mind, I offer some 'war stories.' 

Tale 1. The Outstanding Performer In the 1980s I flew B-52s in USAF’s Strategic Air Command (SAC). We were responsible for responding to Soviet nuclear attack by taking off prior to Soviet first strikes thus ensuring the destruction of the Soviet Union. The whole concept was called mutual assured destruction or ‘MAD’ a very appropriate acronym for such ‘strategy.’

Strategic Air Command was renowned for its strict adherence to its regulations and unforgiving policies for any violation of such. “To err is human, to forgive is not SAC policy” was one of the more popular axioms regarding SAC’s lack of tolerance for error and severe punishments for any violation of its regulations. And there was a SAC regulation and supplement for everything... “If SAC wanted you to have a family, it would have issued you one."

To assess its ability to accomplish its nuclear mission, SAC conducted a yearly operational readiness inspection (ORI) on each of its operational combat units. These are rigorous and intense inspections where an entire team of SAC inspectors descended on a unit and inspected every aspect of the unit’s operation. The possible ratings were OUTSTANDING [an ‘A’ grade]; EXCELLENT [‘B’]; SATISFACTORY [‘C’]; MARGINAL [‘D’]; and FAIL [‘F’]. To pass an ORI, a unit was required to achieve a minimum of SATISFACTORY [‘C’]. Failure was not an option. If a unit failed, heads rolled, careers were destroyed, and the unit was the subject of the most intense scrutiny and micromanagement that you can possibly imagine. Naturally, you are given so many days to come back up to SATISFACTORY [‘C’] rating, while being taken-apart in the meantime.

“Variation in productivity is far from the only source of economic inequality, but it is the irreducible core of it, in the sense that you’ll have that left when you eliminate all other sources.” Paul Graham

During one particular ORI, our wing did not do too well. Largely the culprit was the intelligence division under the Deputy Commander for Operations. The Intel Division failed. Among its many sins, they misplaced some ‘TOP SECRET’ materials for a time [kiss of death]. As a result Operations received a MARGINAL. This was NOT GOOD! In order to be eligible for further promotion, flyers needed to diversify themselves by working in the Wing staff. Not being risk averse, I met with the Deputy Commander for Operations, and told him I wanted to be assigned to the Intel Division to help clean up the mess. Within two days of the meeting, I was taken off nuclear alert and found myself in the Intel division. 

There I became acquainted with one individual noncommissioned officer who prided herself for having been named an “Outstanding Performer” during the ORI. My thought on this: What does an individual outstanding performance mean in a unit rated marginal?  

As a result of the marginal, the unit was placed on 12 hour-days, 7 days a week schedule to prepare for the reinspection; including the outstanding performer. As I delved deeper into the issue, it became clear to me that this individual was focused on only her performance, and would not willingly assist other members of the unit. She was very knowledgeable in her particular area of expertise [target processing] but could not see the forest for the trees. As she prided in her knowledge, I immediately tasked her to develop procedural checklists for every task performed within that particular branch—and ensure that the checklists were in compliance with every SAC and local regulation.

What does this have to do with inequality? The point is simple: we will all swim or sink together.  

“Some of us will do our jobs well and some will not, but we will be judged by only one thing-the result.” Vince Lombardi

Paul Graham is right in saying that it is good to develop entrepreneurs who will advance digital technologies—the internet, mobile phones, and all the other tools to collect, store, analyze, and share information digitally. These are the “Outstanding Performers.”

But as a recent report by the World Bank (World Bank. 2016. World Development Report 2016: Digital Dividends. Washington, DC: World Bank) notes, the expansion of opportunity for the poor and the middle class “has so far been less than expected.” (p. 2)

"Many advanced economies face increasingly polarized labor markets and rising inequality—in part because technology augments higher skills while replacing routine jobs, forcing many workers to compete for low-paying jobs. Public sector investments in digital technologies, in the absence of accountable institutions, amplify the voice of elites, which can result in policy capture and greater state control. And because the economics of the internet favor natural monopolies, the absence of a competitive business environment can result in more concentrated markets, benefiting incumbent firms. Not surprisingly, the better educated, well connected, and more capable have received most of the benefits—circumscribing the gains from the digital revolution." (p. 3)

When I read this passage in conjunction with Paul Graham’s essay, I could not help but remembering New Orleans Mayor Ray Nagin, who during Hurricane Katrina said the Feds were completely unprepared. The Feds disaster evacuation plan essentially envisioned that ‘all New Orleans residents would pump $100 worth of gas into their SUVs and evacuate to safety.’ (Paraphrased)  As events unfolded, it became evident that not all residents of New Orleans had a SUV in which to escape or even $100 to spare.

We can debate the merits of this or that analysis or many others. But the issue is clear: simply, can we have individual outstanding performers in a marginal or failing unit [country/world]? My experience tells me that perhaps for a time, but unless active efforts are made to raise the entire unit, failure will lead to the eventual downfall of the entire unit.  

As Graham states inequality is particularly unacceptable:

“… if there are people getting rich by tricking consumers or lobbying the government for anti-competitive regulations or tax loopholes, then let’s stop them. Not because it’s causing economic inequality, but because it’s stealing.” Paul Graham

Well then, what is to be done?

Paul Graham suggests that “If we want to fix the world behind the statistics [like statistical measure that is inequality], we have to understand it, and focus our efforts where they’ll do the most good.”

A number of thoughtful books and articles have been written on the subject. In this regard, I highly recommend the January/February 2016 issue of Foreign Affairs, Inequality: Causes, Consequences, Cures, which contains a series of articles on the subject. But what can be done… I certainly don’t pretend to know any better. Again I only offer a couple of war stories.

Tale 2. The First and the Last
General Frederick M. Franks, Jr., 4-star general and commander of US Army VII Corp during Desert Shield/Desert Storm was a war hero having been awarded a Silver Star for bravery in Vietnam; he also lost a leg there. More to the point, General Franks was well-known in the Army for his concern for his soldiers. 

For example, General Franks had a rule in his command: None of his senior officers and senior non-commissioned officers ate before all of his privates, junior non-commissioned officers and junior officers had been served first. The last to eat was always General Franks.  

I was fortunate to attend US Army Command and Staff General College in 1994-1995; and General Franks was the speaker at one presentation. He told the story that prior to engaging the Saddam’s Republican Guard Divisions; he was going around the various units of his corps. He was talking to the soldiers to ensure that they understood his plan of attack and trying to quell nerves. General Franks told us of the emotion he felt when instead of him reassuring his soldiers, they reassured him, telling him: “Don’t worry about us, General. We trust you.”

Tale 3. McMurphys
I joined the US Air Force at the ripe old age of 18. I wanted to fly, fight, and to see the world. As a young enlisted guy I trained to repair radars on F-4E Phantom II fighters. After becoming an officer, I flew B-52 bombers, serving as the crew’s Electronic Warfare Officer; I jammed radars such as those that I had learned to repair. True poetic justice methinks.

Among other places, I was assigned to the 51st Tactical Fighter Wing at Osan Air Base, Korea. I fell in love with Korea and stayed there for 3 years. 

Now, a fighter wing is a very busy place. Aircraft are constantly taking off and landing on training and operational missions. Osan AB was at the tip of the spear so it was a very busy place. 

The chow [dining] halls at Osan AB were open for lunch between 1100—1300 hours [11:00 a. m. to 1:00 p. m.]. If you didn’t get there in time, you missed lunch. Unfortunately, a lot of F-4s flew and recovered during this time; and the crew chiefs had to be there to launch and recover their aircraft. The problem was that the chow hall was rather far away from the flightline. To get there on time and be back on time, the airmen had to take a bus – which may or may not make it. Many individuals missed their lunch breaks… Sometimes they would bring out box lunches to the line for those that had missed their lunch—but these were poor substitutes. But a soldier’s lot is not an easy one; stuff happens we thought and life went on…

Enter Colonel Crawford O. Murphy, the new Deputy Commander for Maintenance at the 51st TAC Fighter Wing. Colonel Murphy quickly became known as the scourge of any commander who dared to chastise or otherwise not respect his troops. Among his troops, Colonel Murphy was also known as a commander that you did not lie to or otherwise try to put anything over him. All of the maintenance officers and senior NCOs were scared to death of him; to say nothing of us younger troops.

When Colonel Murphy found out about his crew chiefs having to miss lunch; he was not happy. He shared his unhappiness with the entire wing command, and especially with the Base Commander, who was responsible for the Services Squadron—the cooks. A few weeks later, some building began to take place in one of our large hangars. It appeared that new offices were being built; but that was not the case. 

One day, a notice came out stating that between 1100 and 1300, Dinning Hall personnel would serve lunch there at the new dining facility that had been constructed in the hangar. All crew chiefs and other maintenance personnel could eat there rather than having to skip lunch. 

In honor of Colonel Murphy, the place became known as “McMurphys” [with arches built by some chiefs—and no, McDonalds never filed for trademark infringement action against McMurphys].

Methinks if some folks in Silicon Valley would arrange for some ‘McMurphys’ outside of the Valley…

Tale 4. Charles Schwab’s Webinar
Sometime in 2010, at a webinar for shareholders / clients, Charles Schwab told the audience that if every company in America hired just one more worker, this would solve the unemployment problem at that time. 

Charles Schwab’s call really got to us at our small firm. We had not been in a hiring mode, but without further ado, we decided to hire an additional assistant. In the end, we wound up hiring additional three people. Yes, it affected our individual earnings initially but we felt it was worth the hundreds of dollars less we got, as we hired some really nice and talented people. NOTE: The number one criteria we use in hiring people is enthusiasm; and willingness to learn/work. We feel that can teach/train people in all aspects of the work, but we cannot teach them to be enthusiastic self-starters.

In any case, by hiring these people, in the end it helped our bottom line as we were able to take on additional work. It was well worth the initial investment. Thank you, Charles Schwab, for the great advice.

Paul Graham states: “Economic inequality is sufficiently far from identical with the various problems that have it as a symptom that we’ll probably only hit whichever of the two we aim at. If we aim at economic inequality, we won’t fix these problems. So I say let’s aim at the problems.” 

Two observations are worth noting: “The extent to which inequality increases or decreases is ultimately a political question.” Ronald Inglehart, Foreign Affairs; and

THE BOTTOM LINE "If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin." Charles Darwin