Walk into any start-up company in America and you will likely see an almost identical decor: the walls will have been dutifully stripped of paint; the workplace will be littered with the same multicoloured pouffes; and most of its denizens will be wearing a variation on the casual hipster uniform. In an age of hyper-individualism, entrepreneurs strike a remarkably similar pose. The same applies to those who have refurbished their university common areas, set up corporate “chill-out zones”, or stripped their downtown apartments to look like a Silicon Valley unicorn. Everyone wants that creative energy to rub off on them. Disrupters of the world unite!
What happened when the U.S. got rid of guest workers?
A team of economists looked at the mid-century “bracero” program, which allowed nearly half a million seasonal farm workers per year into the U.S. from Mexico. The Johnson administration terminated the program in 1964, creating a large-scale experiment on labor supply and demand.
The result wasn’t good news for American workers. Instead of hiring more native-born Americans at higher wages, farmers automated, changed crops or reduced production.
Mike: You use the writing profession as an example of this.
Megan: You have to accept that being bad is part of learning to write. Most people who end up approaching professional writer status were always better at it than other kids. Then they get into the professional landscape and realize everyone else in the industry was also better at it than the other kids. This can be very traumatic for a lot of writers, and I’ve seen some of them just freeze. They don’t turn stuff in because as long as they haven’t turned it in, it’s not bad yet.
How do you hack that thinking? You say to yourself, “Look, I can rewrite garbage, I can’t rewrite nothing.”
Mike: It’s the iteration paradox. You miss 100% of the shots you don’t take, but you also miss a ton of the shots you do take when you’re first starting out. You have to do a thing over and over to get good at it, while somehow dealing with the fact that it’s really embarrassing and discomfiting to try hard at something and still be bad.
Megan: And the only way around that is to accept that failure is an essential part of the process.
You are not supposed to sit down and be Proust on your first pass. Proust wasn’t even Proust on the first pass. That means you have to see doing something badly as better than not doing anything at all. I won’t get fired for handing in 1,000 bad words. I will definitely get fired for not handing in anything.
After that, the next step is learning to recognize where and why you’re bad without rolling around on the floor, saying, “This is terrible, I’m obviously the world’s worst writer.” And you do that by looking at your bad work as a dipstick that measures where you can improve rather than one that measures your innate talents.
Mike: This speaks to the idea that learning how to do something new is good for you even if it doesn’t necessarily turn into a career.
Megan: We learn by doing stuff not well. That’s how people learn to play tennis. You don’t become good at it by creating a really elaborate theory of tennis ball physics, or else MIT would win Wimbledon every year. You hit a ball, you try to guess where it will go. It doesn’t go where you expect and then on the 100th time you finally hit it right. By hitting it wrong all those times, you learn to hit it right.
If you’ve never done anything you weren’t good at, you can’t learn the valuable skill of sucking at something but continuing to do it, which is how people get good at anything. And we have to make ourselves do it because doing something you aren’t good at is usually less rewarding than things that come more easily.
Mike Riggs: It seems like the best way to hedge against that kind of collapse at the institutional level is to be as diversified as possible at a personal level. Try things that are difficult, save as much as you can, contribute to a 401k. But even that is hard for lots of people.
Megan McArdle: The fact is you can’t assume nothing bad will happen. You could get hit by a truck tomorrow. Your company could go under. We should prepare for failure, which is why I always tell my readers to save 20% of their gross income. As you can imagine, this is not a popular suggestion with my readers.
I also advise people to have a year’s worth of expenses in an emergency fund. This was viewed, even by financial advisors, as quite conservative. But I spent two years being unemployed after getting what was supposed to be the golden ticket to a guaranteed job, which was an MBA from a top-five school. And that taught me there’s no such thing as a golden ticket. You always have to have a plan B. You always have to be thinking about what you’ll do if your company fails. Where will you go next? You should be maintaining connections in that industry, but you should also be living below your means. You should have a smaller mortgage than what you can afford. You should have more savings than you really need.
If you end up dying of cancer at the age of 40, you’ll have over-saved. But if you die of cancer at the age of 40, your biggest regret is not going to be that you didn’t spend more money while you were healthy. Your biggest regret is going to be about relationships and the people you didn’t call, so call your mother.
Dan Ariely’s Payoff looks at what companies get wrong about motivating their people:
A few years ago, behavioral economist Dan Ariely conducted a study at a semiconductor factory of Intel’s in Israel. Workers were given either a $30 bonus, a pizza voucher or a complimentary text message from the boss at the end of the first workday of the week as an incentive to meet targets. (A separate control group received nothing.) Pizza, interestingly, was the best motivator on the first day, but over the course of a week the compliment had the best overall effect, even better than the cash. “When I get the money, I’m interested, when I’m not getting the money, I’m not so interested,” Ariely said in a recent interview. “Even relatively small bonuses can reframe to people how they think about work.”
“Purpose” has become a buzzword:
Often what it means is that the CEO picks a charity that they give money to. That’s often corporate social responsibility. But the reality is that a lot of meaning is about the small struggles in life and managing to overcome them and feeling a sense of progress.
Companies often don’t create this kind of sense of connection and meaning. They destroy it — unintentionally — with rules and regulations.
In many companies, in the name of bureaucracy and procedure and streamlining things, we’re basically eliminating people’s ability to use their own judgment. We think about people as cogs. And because of that we eliminate their motivation.
Ariely is largely against bonuses:
I don’t even think we should pay bonuses to CEOs. There’s lots of reasons to give bonuses. Some are for accounting purposes — a company says ‘Let’s not promise people a fixed amount of money: You’ll get at least x, above that we’ll do revenue sharing.’ I understand that. It depends on how much money we make. But when you have performance-contingent bonuses — and this goes back to the book — to motivate people, what you are assuming can hold people back. Imagine I paid you on a performance-contingent approach. What is my underlying assumption? My underlying assumption is that you know what you need to do but you’re too lazy to do it.
How many CEOs are just lazy? Who’d say, if they didn’t have the bonus, that I’m not interested in working? CEOs are deeply involved in their companies. Their egos are tied to it. The second thing they tell you after they say their name, often before they tell you how many kids they have and what hobbies they have is what company they are leading. To think that they’re just working for a bonus is just completely crazy.
Timothy B. Lee explains how Amazon innovates in ways that Google and Apple can’t:
Amazon has figured out how to combine the entrepreneurial culture of a small company with the financial resources of a large one. And that allows it tackle problems most other companies can’t.
Google’s approach — solve the hard technical problems first, worry about the business model later — is rooted in the engineering background of Google Founders Larry Page and Sergey Brin. In contrast, Amazon CEO Jeff Bezos spent almost a decade working for several Wall Street firms before starting Amazon — a background that gives him a more pragmatic outlook that’s more focused on developing products customers will actually want to pay for.
Bezos has worked to create a culture at Amazon that’s hospitable to experimentation.
“I know examples where a random Amazon engineer mentions ‘Hey I read about an idea in a blog post, we should do that,’” Eric Ries says. “The next thing he knows, the engineer is being asked to pitch it to the executive committee. Jeff Bezos decides on the spot.”
A key factor in making this work, Ries says, is that experiments start small and grow over time. At a normal company, when the CEO endorses an idea, it becomes a focus for the whole company, which is a recipe for wasting a lot of resources on ideas that don’t pan out. In contrast, Amazon creates a small team to experiment with the idea and find out if it’s viable. Bezos famously instituted the “two-pizza team” rule, which says that teams should be small enough to be fed with two pizzas.
Ries says that new teams get limited funding and clear milestones; if a team succeeds in smaller challenges, it’s given more resources and a larger challenge to tackle.
But Amazon doesn’t spend too much time on internal testing. “They prioritize launching early over everything else,” one engineer wrote in an epic 2011 rant comparing Amazon’s culture to other technology companies. Launching early with what Ries has dubbed a “minimum viable product” allows Amazon to learn as quickly as possible whether an idea that sounds good on paper is actually a good idea in the real world.
Of course, this method isn’t foolproof; Amazon has had plenty of failures, like its disastrous foray into the smartphone market. But by getting a product into the hands of paying customers as quickly as possible and taking their feedback seriously, Amazon avoids wasting years working on products that don’t serve the needs of real customers.
This seems to be the approach Amazon is taking with Amazon Go, its new convenience store concept. It’s a technology that could work in many different types of retail stores, but Amazon’s initial approach is modest: a single, relatively small convenience store. Media reports suggest that Amazon plans to open 2,000 retail stores, but the company disputes this. The Amazon way, after all, isn’t to open one store because there’s a plan for 2,000. It’s to open one store and then open thousands more if the first one is a big success.
In the abstract this approach — minimize bureaucracy, start out with small experiments, expand them if they’re successful — sounds so good that it’s almost banal. But it’s surprisingly difficult for big companies to do this, especially when they’re entering new markets.
Over time, big companies develop cultures and processes optimized for the market where they had their original success. Companies have a natural tendency to establish uniform standards across the enterprise.
“It doesn’t matter what technology” teams use at Amazon, one of the company’s former engineers wrote in 2011. Bezos has explicitly discouraged the kind of standardization you see at companies like Google and Apple, encouraging teams to operate independently using whatever technology makes the most sense.
Bezos has worked hard to make Amazon a modular, flexible organization with a minimum of company-wide policies.
(Hat tip to Arnold Kling.)
The NFL relies on college football for its minor league, but that may change:
Don Yee, better known as Tom Brady’s agent, is launching a professional football league that will target young players who don’t qualify for college or just want to make money sooner rather than later. In limiting the player pool to those between 18 and 22 years old, the venture will challenge a nearly century-old system in which the National Football League relies almost entirely on colleges to prepare its future workforce.
The National Collegiate Athletic Association has steadfastly refused to pay athletes but has begun supplementing their scholarships with a monthly living stipend. The amount depends in part on whether an athlete lives on campus but can range from a few hundred dollars to more than $1,000. Also, Northwestern’s football players lost their bid to unionize and be treated as employees of the university.
In light of those developments and an NFL rule that requires players to be three years removed from high school to be eligible, Yee and other advocates for athletes have argued for an alternative route for players who want to make it to the highest level of the sport.
Yee hopes to avoid joining a long list of failed professional football leagues, a group that includes the World Football League, the United States Football League, and the XFL. The NFL folded its own alternative league called NFL Europe in 2007 after 15 seasons. These leagues collapsed amid declining interest and mounting expenses. Beyond paying a minimum of 45 players, owners need training facilities, equipment, coaches and insurance policies — expenses that can reach $5 million to $10 million annually.
“Pac-Pro Football” as its executives refer to it, will have a single-entity structure rather than a franchise model, with the league controlling all team and personnel decisions.
The Pac-Pro league, McCaffrey said, will target players with NFL-level talent that require additional seasoning. Among those players who could fit the bill are those who struggle with academics or lost their scholarships for disciplinary reasons, or junior-college standouts not yet ready for the NFL.
Heisman Trophy winner Cam Newton, for example, spent a year playing at tiny Blinn College after a series of problems forced him to leave the University of Florida. Though Newton later thrived at Auburn, he is the type of athlete the Pac-Pro founders hope will see the new league as a viable option.
Those athletes will be able to get jump on learning the professional style of play, which requires a different skill set than big-time college football.
Well, there is a decent pool of players, I suppose. Fans though?
Kidnapping is hard — because of problems of trust, problems of bargaining, and problems of execution — but there is a well-organized market for hostages:
The first principle that insurers adopt is that safe retrieval of hostages is paramount. The second guiding principle is that kidnapping cannot become too wildly profitable, for fear of further destabilization. In the language of economists, there must be no “supernormal profits.” If victims’ representatives quickly offer large ransoms, this information spreads like wildfire and triggers kidnapping booms. A good example is Somalia, where a few premium ransoms led to an explosion of piracy that could only be stopped by a costly military intervention.
Insurers have therefore created institutions to make sure that ransom offers meet kidnapper expectations and produce safe releases but that do not upset local criminal markets. Insured parties obtain immediate, free access to highly experienced crisis-response consultants in the event of a kidnapping. These consultants find out whether the person demanding the ransom actually holds a live hostage to bargain over, they advise on the appropriate negotiation strategy, and they reassure families when they inevitably receive dire threats of violence.
Because insurers can communicate outcomes confidentially, they can stabilize ransoms — as well as discipline rogue kidnappers. One kidnapper summarized this perception in the criminal community as “No one negotiates with a kidnapper who has a reputation for blowing his victims’ brains out.” Crisis responders also manage the ransom drop, removing a further obstacle to a successful conclusion. About 98 percent of insured criminal kidnapping victims are safely retrieved.
Of course, this “protocol” for ransom negotiations is costly. Tough bargaining takes time, imposing huge psychological costs on negotiators and on the victim’s family and tying up productive resources in firms. Experienced consultants are paid a substantial daily fee. It is very tempting to conclude negotiations early. Most of the cost of quick ransoms that are bigger than they ought to be is borne by future victims and their insurers, not the current victim’s stakeholders. An effective governance regime for kidnapping resolution therefore requires rules to prevent anyone’s taking shortcuts.
It would be impossible to prove beyond reasonable doubt that an insurer’s crisis responder deliberately cuts corners because ransoms are naturally variable. This makes it impossible for insurers to formally contract with each other and punish those who “overpay” kidnappers.
Insurers resolve this through an ingenious market structure. All kidnapping insurance is either written or reinsured at Lloyd’s of London. Within the Lloyd’s market, there are about 20 firms (or “syndicates”) competing for business. They all conduct resolutions according to clear rules. The Lloyd’s Corp. can exclude any syndicate that deviates from the established protocol and imposes costs on others. Outsiders do not have the necessary information to price kidnapping insurance correctly: Victims are very tight-lipped about their experiences to avoid attracting further criminal attention.
The private governance regime for resolving criminal kidnappings generally delivers low and stable ransoms and predictable numbers of kidnappings. Most kidnappings can be resolved for thousands or tens of thousands of dollars. This makes profitable kidnapping insurance possible. When the protocol fails, insurers sustain losses and must innovate to regain control.
The outcomes of privately governed “criminal” kidnappings (where private firms or individuals pay the ransoms) contrast starkly with those of “terrorist” kidnappings (where governments are asked to pay ransoms or to make concessions). Here, insurers are prevented by law from ordering the market, leaving governments in the firing line.
Governments struggle to contain ransoms, and they often end up making concessions to terrorists despite their public “no negotiation” commitments. Government negotiators have no obvious budget constraints. They often prioritize quick settlements over containing ransoms. Finally, there is no international regime for preventing spillovers to subsequent negotiations. Citizens of nations who refuse to negotiate with terrorists are often tortured or killed to raise the pressure in parallel negotiations. Multimillion dollar ransoms in terrorist cases are therefore not really surprising — and such settlements reliably trigger new kidnappings.
Peter Thiel, the billionaire venture capitalist and conservative libertarian, has long been a misfit in Silicon Valley, Rolfe Winkler and John D. McKinnon note, and now he is playing a central role in shaping the Valley’s relationship with a president most of them didn’t want:
Mr. Thiel’s ascendancy as one of the president-elect’s trusted advisers is a surprising twist that shifts Silicon Valley’s political power center. Mr. Thiel is already playing an important role as a member of Mr. Trump’s transition team, helping recruit people to fill some 4,000 jobs in the administration and helping craft policy that could impact the most highly valued sector of the American economy.
He is also working closely with Mr. Trump’s son-in-law and adviser Jared Kushner. Together, the two helped broker the meeting in New York scheduled for Wednesday afternoon, when about a dozen chief executives from Apple Inc., Alphabet Inc. and other tech rivals with a combined market value of over $2 trillion parade into Trump Tower to meet with the president-elect. Mr. Trump is expected to emphasize job creation and making the government run more efficiently, according to a person familiar with the meeting agenda.
Now Silicon Valley will need to contend with a president who has railed against globalization and threatened to dismantle free trade, issues that are important to the tech industry. Mr. Thiel, a fierce contrarian, largely agrees with Mr. Trump’s views.
Mr. Thiel has spoken out against free trade and remains skeptical of globalization—worrisome for a tech industry that gets most of its revenue overseas. He wrote in his 2014 book, “Zero to One,” that globalization enables the developing world to copy existing technologies, which he says is unsustainable and inferior to finding new technology solutions. He also riles some free-speech advocates by bankrolling wrestler Hulk Hogan’s invasion-of-privacy lawsuit against Gawker Media, which ultimately went bankrupt.
But Mr. Thiel could also be an ally for Silicon Valley, especially as an advocate of entrepreneurism after co-founding PayPal Inc. and making a fortune through his venture firm Founders Fund with well-timed investments in internet companies, notably Facebook Inc., where he sits on the board. Mr. Thiel says government can play a central role supporting big tech projects such as the Apollo space program. He views monopolies as a positive force for the economy, which could portend weaker antitrust enforcement, and he expects Mr. Trump to push for less regulation and more fiscal stimulus which could help businesses, he said in the interview.
“Everyone in Silicon Valley is better off having Peter in the room because he will offer a perspective around innovation and venture capital and startups that no one else right now on the transition team can offer,” said Venky Ganesan, a managing director of Menlo Ventures and chairman of the National Venture Capital Association. It is unclear how much influence Mr. Thiel will ultimately have. He isn’t expected to take an official role with the new administration, and some people who know him say he might not even spend much time in Washington.
Some observers expect Mr. Thiel to focus on overhauling government spending in areas including science, technology and defense. Higher education may also be a target. He argued in the Journal’s November interview that there is an “education bubble” and offers grants to young entrepreneurs so they can skip college and build a company.
Mr. Thiel has recruited several associates to help with the transition at agencies like the Treasury, Defense and Commerce departments.
The key to Trump is reading him like a celebrity:
Trump became a star in the 1980s by acting out the dream of the revitalized American male: reassurance of American capitalist acumen, coupled with the sort of guile and glee that made making money seem, well, fun. That revelry was essential: Before 1940, businessmen like Henry Ford had become their own sort of celebrity, what cultural theorist Leo Lowenthal calls “idols of production,” celebrated for their ingenuity, their hard work, their embodiment of the American spirit. The problem, however, was that most of them were boring: All work and no play made them dull men indeed.
Which is part of why coverage began to shift, over the course of the first half of the 20th century, toward “idols of consumption”: men and women who don’t make things so much as live lives of privilege. When you read about them — in the gossip columns, in magazine profiles — the focus was on where they went for lunch, what they were wearing, the lusciousness of their homes, how they spent their seemingly endless leisure time. (Today we have the same focus, only most of it plays out on Instagram instead of being filtered through the mainstream press.)
Trump was at the center of the Venn diagrams of these two types of idols: a self-styled dealmaker who used the wealth from those deals to consume conspicuously. Yet Trump didn’t drink, smoke, or even have a morning coffee; he loved an expensive steak, but had little concern for fine dining. Trump cares far less about actually enjoying luxury, far more about others knowing he’s enjoying luxury. Which is why he doesn’t live in a private home, but Trump Tower: a place where his lifestyle is written in bold, unmistakable print for anyone who walks in off the street to see.
Flaunting his wealth may have been perceived, in some quarters, as gauche, but Trump figured his flamboyance could become the central engine of his business. The more his image became one of shameless decadence — of Playboy Trump — the more he could use that same image to make deals, sell properties, attract people to his casinos, which in turn allowed him to be more brazen, more decadent, and attract more people, across the globe, to the Trump brand. Decades later, one of his advisers crystallized Trump’s appeal to the working-class: “If you have no education, and you work with your hands, you like him. It’s like, ‘Wow, that’s how I would!’ The girls, the cars, the fancy suits. His ostentatiousness is appealing to them.”
Trump’s ‘80s brand rose to prominence alongside celebrations of consumption like Lifestyles of the Rich and Famous and Wall Street, with its ruthless antihero Gordon Gecko proclaiming “greed is good.” The valuation of unmitigated greed of course had everything to do with American masculinity and the nation’s still-fragile understanding of itself amid the Cold War. But Trump was no movie character: He was a real person, and thus proof that this sort of masculine capitalist potency was still alive and thriving.
But in the early ‘90s — with the Cold War over, the Gulf War stalled, and Trump overextended and in bankruptcy — he became a symbol of the past, not the present. And so the self-styled avatar of American success became a punchline. In the late ‘90s, Trump loved to recall the story of looking at a homeless person on the street and realizing that man had more money than he did. For Trump, that moment was one of great sadness: because he’d lost his fortune, but also because he’d lost his relevance. Suddenly, he was a loser.
While Trump’s ‘90s melancholy had something to do with not having money to spend, it had far more to do with no one wanting to watch him spend it. The core of his celebrity image — and, by extension, his power — had been compromised, and he spent the bulk of the ‘90s trying to regain it. He endured the humiliation of bankruptcy. He released The Art of the Comeback. He divorced Marla Maples and started dating a rotating carousel of supermodels, which had something to do with his “love of beautiful women,” but was also a reliable way of getting his name in the tabloids and gossip columns.
And Trump still had his casinos — which, even more than his massive New York construction projects, made millions of gambling Americans associate his name with their own ideals of wealth and decadence, no matter how precarious. It didn’t matter if many actually wealthy people thought those casinos (and his newly acquired beauty pageants) were trashy, so long as millions of Americans thought otherwise.
By 1999, Trump’s rebound was in full swing. He teased a run for president on the Reform Party ticket, but pulled out before ever officially announcing his candidacy — because the cost would be too much, but also because he knew, as a third-party candidate, that he couldn’t win.
And Trump, as we now know, is obsessed with who gets to be winners and losers, and he’d only just pulled himself out of loserdom. So he exploited the idea of a presidential run just long enough for it to promote his new book, The America We Deserve — and a series of paid speaking engagements with Tony Robbins — and then pulled the plug.
His businesses may have been healthy again, but Trump, as a celebrity, was still out of fashion. Steve Jobs in his black turtleneck, Bill Gates in his nerdy glasses — those were the men who seemed to embody the American capitalist spirit. Not Trump, who didn’t know how to use the internet and largely ignored the dot-com boom because he thought it would pass.
There was a new type of celebrity, however, that had started to resonate with the American public: the reality star. In Trump, Mark Burnett — the producer behind Survivor — saw the potential for a different sort of reality program. It would be a competition like American Idol, but instead of charisma and natural talent, the driving skill would be business craftiness. Not acumen, or knowledge, but cunning: a particularly American understanding of how capitalism should work, and also an ideal ingredient for reality drama.
Trump was the perfect fit for Burnett’s vision. The Apprentice would be his path back to exposure and, by extension, relevancy: The rhetoric, framing, and shooting style of the show suggested he was the smartest, most skilled, most important businessman in America. Its popularity accomplished the thing for which Trump was most desperate: the broad, global re-visibility of his image, effectively surrounded by dollar signs.
The image-making apparatus around Trump has never been subtle, but The Apprentice took its bluntness to a new level. The theme song consisted of one word: “Money,” reiterated at different lengths and with difference punctuations. The logo featured Trump’s face as a Mount Rushmore monument amid the New York skyline. Most episodes involved some iteration of Trump talking or gesturing toward his wealth (in models, in property holdings) and judging the contestants on their ability to help him inflate it.
No matter that the show’s “boardroom” was a simulacrum, or that the “management jobs” in Trump Inc. intended for the winners were a sham: Reality television succeeds not when it depicts reality, but when it suggests that reality is actually a game with clear winners and losers. Trump wasn’t a contestant in this world, as he had already won all the spoils — a proposition the show never questions, and an image that has now been solidified through 14 seasons.
In truth, Trump was a reality star just waiting for the reality age: No other medium portrays his impulse toward conspicuous consumption and conspicuous demonstrations of power as effectively. With The Apprentice, Trump solidified the reality era–tinged understanding of the American dream: It’s not actual hard work that makes you successful, but the ability to evince the feeling and effect of power and wealth.
To make a real impression, pull out a pen:
“A handwritten note is elegance incarnate,” said John Z. Komurki, author of “Stationery Fever” (Prestel), a new book detailing the renaissance of writing-related paraphernalia such as pens, pencils, paper and desk sets—not to mention the specialty shops that have popped up globally to serve people who seek the new status of script. These objects and the act of writing, said Mr. Komurki, are “an affordable luxury in a time of crushing vulgarity.”
Colleagues do take note. A Choosing Keeping customer who bought a raw-aluminum Kaweco AL Sport Ballpoint Pen (about $68) returned to buy another because his tax lawyer had admired it. The finish on the chunky, hexagonal ballpoint, originally designed in 1930s Germany, patinates with use. The store has seen this sort of compliment-driven sale played out numerous times.
Quoted companies, he wrote, have a grave flaw: “an absence of effective monitoring of managers”. Shareholders are too dispersed and too ill-informed to exercise proper control of chief executives. This causes several nasty problems.
One, said Professor Jensen, is that bosses will want to build up cash piles to give themselves freedom from capital markets. If companies held no cash, they’d need to raise funds in the market every time they wanted to invest. This would give investors control over the company’s plans. If, however, companies can invest internal funds, this control is lacking and so bosses are freer. Events have vindicated Professor Jensen; in both the UK and US, corporate cash holdings have soared in recent years.
Secondly, he said, when companies do invest the job is likely to be badly done. Bosses will prefer grand schemes that gratify their ego rather than humdrum projects that maximize shareholder value. Perhaps the worst economic decision of our lifetime was RBS’s takeover of ABN Amro – a move that was due to shareholders’ failure to control Fred Goodwin’s megalomania.
To these failings we can add that bosses plunder directly from shareholders by extracting big wages for themselves. The High Pay Centre estimates that CEOs are now paid 150 times the salary of the average worker, a ratio that has tripled since the 1990s – an increase which, it says, can’t be justified by increased management efficiency. “No countervailing forces have been deployed to stop this,” it says.
Failures such as these, said Professor Jensen, would cause quoted companies to be supplanted by private equity, as this permits a few well-informed investors to properly oversee managers. This is what has happened.
If you’ve been wondering what ever happened to Aretae, he’s been busy — with many things, including writing a book. What kind of book? A children’s book. About agile software (and business) practices, of course:
Once upon a time in a land far, far away lived a princess who had lots of gold. One day she decided, “I am going to use my gold to make my kingdom the most beautiful place in the world.” But as she went, she discovered that she needed to learn some new tools to help her succeed.
Aretae may have to change hats to match his fictional counterpart:
How did the University of Alabama became a national player?
The university is spending $100.6 million in merit aid, up from $8.3 million a decade ago and more than twice what it allocates to students with financial need. It also has hired an army of recruiters to put Bama on college lists of full-paying students who, a few years ago, might not have looked its way.
The University of Alabama is the fastest-growing flagship in the country. Enrollment hit 37,665 this fall, nearly a 58 percent increase over 2006. As critical as the student body jump: the kind of student the university is attracting. The average G.P.A. of entering freshmen is 3.66, up from 3.4 a decade ago, and the top quarter scored at least a 31 on the ACT, up from 27.
Each year, about 18 percent of freshmen leave their home state for college in another. They tend to be the best prepared academically and most able to pay, said Thomas G. Mortenson, senior scholar at the Pell Institute for the Study of Opportunity in Higher Education, who tracks this data. Achieving students are likely to be bound for successful lives, enhancing their alma mater’s status and, the hope is, filling its coffers with donations. Schools want them.
Merit aid given to achievers has a magnetic effect. “If we recruit five students from a high school, we will get 10 students the next year and they may not all be scholarship students,” said Stuart R. Bell, president of the University of Alabama.
Instead of layoffs and cuts, some public universities facing budget challenges are following this blueprint for survival: higher charges to students, and more of them. Nowadays, the real money comes from tuition and fees. The average for four-year public colleges rose 81 percent in constant dollars between 2000 and 2014. At Alabama, tuition and fees have about doubled in the last decade, to $10,470 for residents and to $26,950 for nonresidents.
Even when it awards full-tuition scholarships, the university makes money — on dorm rooms and meal plans, books, football tickets, hoodies and school spirit items like the giant Bama banner Ms. Zavilowitz and her roommates bought for the blank wall in the suite’s common area. All told, these extras and essentials brought in $173 million last year — on top of $633 million in tuition and fees, up from $135 million in 2005.
“I hate very much to use this analogy, but it’s like running a business,” Dr. Whitaker said.
What is the relationship between high-frequency traders and liquidity?
Ever since high-frequency trading rose to prominence, a debate has raged over whether the ensuing arms race between super-fast traders helped or hindered markets. One side argues that it helps because the massive number of transactions the fastest traders engage in lower costs by reducing the spreads between bids and offers. Critics counter that, in reality, spreads widen since slower traders need to charge higher spreads as insurance against getting caught flatfooted by a fast-moving event.
Starting in 2010, high-frequency traders began using ultrafast microwave links to relay prices and other information between Chicago and New York. To begin with, only some traders had access to microwave networks. Until 2013, others had to rely on less speedy fiber-optic cable.
But microwave transmissions are disrupted by water droplets and snowflakes, so during heavy storms traders using the networks switch to fiber. Messrs. Shkilko and Sokolov used weather-station data from along the microwaves’ paths to determine when storms occurred and then looked at what happened to bid-ask spreads in a variety of securities during those periods.
They narrowed, suggesting that the slowing down of the fastest high-frequency traders improved market liquidity.
There are plenty of stories of how U.S. corporations live for the short-term, obsessing over the next quarterly earnings statement to the neglect of their longer-run prospects:
Still, it’s not been established that American corporations are on average more short-term in their thinking than they ought to be.
Perhaps most importantly, it is often easier and better to plan for the shorter term. In information technology, the average life of a corporate asset is about six years, in health care it is about 11 years, and for consumer products it runs about 12 to 15. Very often it is hard for a company to plan its operations beyond those time periods, as the U.S. economy is no longer based on durable manufacturing machines. Production has shifted toward service sectors with relatively short asset lives, and that may call for a shorter-term orientation in response.
Companies often see their short-term problems staring them in the face — think of the need to fire an incompetent manager or lease more office space. It is harder to predict the market 20 years hence, especially when information technology is involved, and thus planning so far out can involve a lot of expense and risk.
Plenty of companies have made big mistakes from thinking too big and too long-term; for instance, a lot of mergers were based on notions of long-run synergies that never materialized. In reality, short-term improvements are often the best way to get to a good long-run plan.
Equity markets do not seem to neglect the longer run. Amazon has a high share price even though its earnings reports have usually failed to show a profit. Possibly the market judgment is wrong, but it’s hardly the case that investors are ignoring the long-run prospects of the company.
Many tech startups have high valuations even though revenue is zero or low. Again, those judgments may or may not be correct, but clearly investors are trying to estimate longer-run prospects. During the dot-com bubble of the 1990s, there was too much long-run, pie-in-the-sky thinking and not enough focus on the concrete present.
Economics Nobel Laureate Eugene Fama once said, “In hindsight, every price is wrong.” With electric and driverless cars, investors are thinking long and hard about what the future might look like and investing in equities accordingly, with share prices to be revised as events develop. If the long-run thinking of the market were systematically defective, it would be possible to profit simply through superior patience. But it is not an easy matter to see further than others.