Author Archives: aje

Economic Freedom 101

dprk-dmsp-dark

Introduction

This short course provides an overview of what economic freedom is and why it matters. It bridges seminal concepts such as value creation and entrepreneurship with the institutional framework that market exchange requires. As a satellite photo of the Korean peninsula makes clear, socialist planning is literally groping in the dark. We will look at the theoretical reasons behind this claim, and the empirical validation that economic freedom matters.

Prerequisites

The course does not rely on any previous study of economics.

Teaching methods

  • Lectures (3 sessions)
  • Case discussion (1 session)

Textbook

The only mandatory readings are provided in the schedule below. However the course is designed to tie into the following (amazing) textbook:

The website for the book contains an array of other resources: http://econ.anthonyjevans.com/books/markets-for-managers/

An additional reading list is available here: http://econ.anthonyjevans.com/2010/03/course-readings/

An edited list of highly recommended articles from The Economist is here:http://econ.anthonyjevans.com/2011/05/the-economist-an-mba-reader/


Schedule

9am Session 1: Incentives matter*

10:45am Break

11:00am Session 2: Groping in the dark: Why socialist calculation is impossible*

12:30pm Lunch

1:30pm The bag game (depending on numbers)

2:00pm Session 3: Why economics matters: Economic institutions and global prosperity*

3:15pm Break

3:30pm Session 4: Prediction markets at Google 

Coles, Peter, Lakhani, Karim and McAfee, Andrew, “Prediction Markets at Google” Harvard Business School 9-607-088, August 20th 2007 (£)

Discussion questions

5:00pm Finish

Note: Sessions marked with an asterix (*) have a lecture handout available in advance. Cases marked with a pound sign (£) will be distributed in advance.

Online learning

Some WIP resources to help me develop online learning.

The skillset for a lecturer:

  • Knowledge of the content
  • Personable delivery
  • Ability to grade exams

Skillset for an online instructor:

  • Ability to curate content
  • Aptitude with alternative technologies
  • Choice of assessment

HBX Live

HBX Core Curriculum

Group discussion – see Michael Sandel’s course “The Global Philosopher”

Online grading

  • a web form to enter information about Behav. Finance and then WHAM it converts it into a report.
  • they see each others and vote on which are the best ones
  • or it just prints them all out and I grade them in one batch

Free Online Courses: Futurelearn

Other online courses: Udemy

Tyler Cowen Says Online Professors Should Think Like Bloggers

My own course on Analytics (including Numeracy Skills Bootcamp; An Introduction to Game Theory; Collecting and Presenting Data.

My own course on Managerial Economics

See also

Dynamic AD-AS model

I am a big fan of the Cowen/Tabarrok Dynamic AD-AS model. This page contains resources for my students who want more information.

Here is a video:

Here is a presentation:

You can download the slides here.


There are three components to the dynamic AD-AS model.

The first is the Solow curve, which shows the growth rate that would exist (i) if prices were perfectly flexible; (ii) given the existing real factors of production. It can be derived from the Solow growth model and since this treats capacity as being independent of inflation, it is depicted as a vertical line. Improvements in research & development; better infrastructure; increased competitiveness; higher quality education and training; labour market flexibility; or natural events such as more conducive weather would all constitute a positive productivity (or “real” or “supply side”) shock, increase the Solow growth rate, and shift the Solow curve outwards.

The second component is the Aggregate Demand (AD) curve. This can be defined as combinations of inflation and real growth for a specified rate of total spending, and is far more intuitive than the traditional AD curve. This is because instead of being based on other curves (necessitating an explanation of the Pigou effect, for example) it is instead based on a dynamic version of the equation of exchange:

M+V=P+Y

Since the AD curve simply shows how any given amount of (M+V) can be split between P and Y, it will only shift if there is a change in M (i.e. the money supply) or V (confidence).* In terms of what constitutes a velocity shock, we can switch from looking at the left hand side of the equation (our posited increase in total spending) to the right hand side of the equation (how it is being spent). After all an increase in spending must be spent on something. The composition of total spending is household spending, business spending, and government spending.

AD=C+I+G

Potential sources of increased spending are thus fiscal policy (either changes to government spending or changes to taxes) or wealth effects. An important caveat is that generally speaking changes in the growth rate of V tend to be temporary and thus only changes in M can generate sustained inflation.

If prices were perfectly flexible, the Solow curve and AD curve would suffice. For example, if the Solow growth rate were 3% and the central bank increased M from 5% to 10% this would lead to an equivalent increase in inflation (from 2% to 7%).

However if prices aren’t perfectly flexible, the dynamic AD-AS model shows how the economy can deviate from potential GDP growth. This requires the third component, the Short Run Aggregate Supply curve (SRAS). The SRAS shows the relationship between P and Y for a given expected inflation rate. As with the traditional AD-AS model, the labour market plays a key role in economic adjustments, and so “sticky” wages (i.e. those that don’t adjust quickly to new conditions) are problematic. For example, if revenues are rising at a faster rate than wages (which constitute a large share of the firms costs), firms will appear to be profitable and will expand their output. Similarly, if prices fall quicker than wages, production will appear to be unprofitable, and they will reduce output. It is due to inflation expectations that we might expect wages to lag behind prices – if inflation is higher than expected output will rise. If inflation is lower than expected output will fall. This explains the upward sloping shape of the SRAS curve.

Underpinning the SRAS is the concept of the signal extraction problem, which implies that in the short run (i.e. whilst prices are adjusting) there may be a positive relationship between inflation and real growth. The reason the SRAS curve is flatter below Y* is because wages are especially sticky in a downwards direction. Basic money illusion means that workers tend to be hostile to nominal wage cuts. And the SRAS curve is steeper above Y* because there’s a limit to how fast the economy can grow – it can’t indefinitely exceed the Solow growth rate.** Given that the SRAS holds for a given rate of inflation expectations, the only thing that can cause it to shift is a change in those inflation expectations. This may appear to underplay the importance of the SRAS curve, but in fact it clarifies the difference between SRAS and the Solow curve. It is tempting to think of the difference in terms of calendar time, for example that a period of bad weather, causing a poor harvest, will primarily affect the SRAS. This is because it is a temporary event that hasn’t altered the underlying production capacity, and if there is nothing to say that bad weather will cause a reduction in supply in the long run, it shouldn’t affect the long run supply curve. However the dynamic AD-AS model makes it a lot clearer to understand why the above reasoning is incorrect. An adverse weather event – even a temporary one – is a real shock, and will therefore impact the Solow curve and not the SRAS. The SRAS shows how the price mechanism facilitates but also can disrupt the adjustments in response to either real (Y*) or nominal (AD) shocks.


It is tempting to treat M as monetary policy and V as fiscal policy but this wouldn’t be correct. Most central banks use interest rates (specifically a short term risk free rate) as their main policy tool. If the “velocity of circulation” refers to the speed at which money turns over, then this is a function of people’s demand to hold money (relative to their demand to hold goods and services). In other words V is the inverse of the demand for money. If the demand for money is high, people hold onto cash, and velocity is therefore low. Hence central banks can either affect the money supply, or try to influence the demand for money by manipulating the price (i.e. interest rates). This actually helps aid a discussion about quantitative easing. Given that interest rates are very low many central banks have reinstated the quantity of money (through the process of quantitative easing) as a policy tool that can be used in addition to interest rates.

** The above could also be considered a “Lucas” curve, since it follows his islands parable and emphasises the labour market. We might also think of it as a “Hayek” curve if we focus more on the capital market. Entrepreneurs confuse a temporary reduction in real interest rates (due to an increase in the money supply) with a permanent one (or at least one consistent with an increase in real savings) and invest in capital-intensive production plans. The Austrian claim is that this will be self-reversing and bring on a recession. We can incorporate this into the analysis here by stressing that particular increases in AD (i.e. when money supply exceeds the demand to hold it) will – as Cowen and Tabarrok argue happens ordinarily – cause a reverse shift in AD later on, but also end up causing a reduction in Y* through a negative shift in the Solow curve. Monetarists would say an increase in AD ultimately leads to an increase in P. Austrians would say that it increases P and reduces Y*.

Secular hermit

42106984_18c0e2f5c0


According to many, the early hermits were the desert fathers, and are therefore associated with Christianity. But there is a deeper and more widespread spiritual affinity for becoming (not necessarily permanently) detached from society – a walkabout is a contested example from Aboriginal culture, and I assume there’s similar for Native Americans.

I use this page as a think space for a secular hermit manifesto, and I define a secular hermit in the following way:

  • Hermit: thirst for solitude
  • Secular: not supernatural

(1) Intellectual foundations

My secular hermit philosophy is based on three separate movements: (i) scholasticism; (ii) introversion; (iii) Paleo.

Many religious practices had hidden (i.e. evolutionary) meaning, for example Kosher laws and fasting were effective ways to reduce infection. Using them as religious rituals ensures their widespread coordinated adherence, and therefore made them more likely to work. Having said this, there’s obviously lots of religious superstition that is high cost and serves little benefit. Hence we should be open minded about why traditions emerge, utilise the ones where we can understand the value, and drop those that conflict with our scientific explanations.

I believe the link between monasticism and academia is pretty clear. Both involve the study of sacred texts, a detached physical space to think, and ascetic practices (such as silence and in many cases the abstention of physical intimacy). I found it very moving that almost immediately after publishing this article, I learnt that Edward Hugh had passed away,

The economist, born in Liverpool to a Welsh family, never hid the fact that he had wanted to live in a monastery, and this small Empordà hamlet of 60 inhabitants came rather close to this idea of having a place to reflect, read, and write. Satellite television and the internet allowed him to remain connected to the world, while Escaules gave him the peace he needed to work.

My “Thoughts on Administration” makes a conscious effort to integrate monastic practices with programme management. I am a fan of management but working in a team should be seen as an opportunity to develop other people. If you don’t want to coach, then don’t take on such responsibility. Also, I try to be an institution builder, not an organisation builder. It’s easier to respond to sunk costs, and although your output will be less visible you can actually have a deeper impact.

“Rest for a scientist, Vavilov said, should be regarded as another way of furthering creative work” Polonsky, R., 2010 ‘Molotov’s Magic Lantern’, Faber and Faber, p.137

Quiet (Susan Cain, Penguin 2012) is an excellent survey of introversion. Introverts often feel pressured into conforming with a society that seems built on extrovert principles. The book helped me to understand my own introversion and gain strategies to deal with it. It also gave me confidence to shape my social interactions around my preferences, and to communicate better with friends. I also strongly recommend Create your own Economy (Tyler Cowen, Dutton 2009) which ventures more into the autism debate but makes a compassionate argument for why OCD tendencies should be better understood and the value they serve.

Finally, there’s many points of tangency between being a secular hermit and the increasingly popular Paleo philosophy. For a general overview I recommend John Durant’s book, The Paleo Manifesto. I don’t follow a Paleo lifestyle strictly but I do recommend making marginal changes in that direction. Here’s what works well for me:

Diet  Exercise
        • Paleo inspired (see Durant Chapter 8)
        • As little refined sugar as possible
        • Here are some simple substitutes that I make to move in a more Paleo direction:
          • I don’t understand Bullet Proof coffee but breakfast is usually just coffee, maybe a natural yoghurt as well. On the odd occasions I have toast or cereal that counts more as a brunch
          • Kerrygold instead of margarine
          • Tortilla wraps instead of bread (“I can walk away from their bread, not needing it at all… I can go into the forest and survive there on mushrooms and berries” Father Ferapont, in ‘The Brothers Karamazov’)
          • Wine instead of beer
          • Cake on birthdays and major festivals only
          • Full fat milk: be like the peasants of Vologda, who “will not thin their milk even if the world is being destroyed around them” (Polonsky, R., 2010 ‘Molotov’s Magic Lantern’, Faber and Faber)
        • I eat meat and agree with John Durant’s point that creating a niche market for ethically sourced meat would do more for animal welfare than boycotting it entirely (p.270). A meat eating guideline would be:
          • Make animal welfare part of your buying decision
          • Eat animals with low pain thresholds (e.g. fish, insects)
          • Eat invasive species
          • Eat nose to tail
          • Eat lab grown synthetic meat
  • Walk where possible (i.e. < 30 mins) – “it quiets the mind without silencing it completely. With the volume turned down, we can hear ourselves again” Weiner, 2016, p.59
  • Opting for stairs instead of lifts/escalators (and never standing on escalators)
  • Swimming (front crawl)
  • Trail running (wearing one layer less than is initially comfortable)
  • Be cool – “far more calories are used to heat the body than to move it” (Durant, p.216)
  • Turn down the thermostat
  • (You should also take cold showers but I am too attached to very warm ones)
  • SUP (my goal is to SUP on a canal)
  • Going barefoot as much as possible
  • Polar bear dips on New Year’s Day
  • At some point I want to learn the Tummo Technique and get a standing desk for my study

I like the phrase: There is no such thing as bad weather, only bad clothes. In England this is mitigated by the fact that so much bad weather is rain, and rain does curtail a lot of outdoor activities. It also deflects criticism. Hence my mantra is: There is no such thing as bad weather, only bad clothing choices.

Durant (p.231) suggests that for short periods of time in the sun suncream is unnecessary. Indeed applying it can be dangerous because it will prevent the warning signs that damage is occurring without actually stopping it (i.e. it’s better to feel burnt and get out of the sun then to feel bronzed and stay in it). For sunbathing use a broad spectrum cream that blocks UVa and UVb.

I’d love a standing desk but I need depth when I’m working and elevating it would be ludicrous. If only there were a standing desk that folds down…

An addendum to the “exercise” plan is a sleep plan. I try to nap and also have a sleep plan based on this cartoon:

_64420550_sleep-illustration-final

I am a big fan of the Gro clock and it’s amazing how many years it’s taken to suspect that an adult version might be useful as well. I do appreciate a key difference in that the former intends to make morning a binary issue, whilst the latter does the opposite. But still, it’s about the light – make sure that nightlights are yellow (i.e. sunset) and only use blue tones for morning.

I also have an evening alarm clock – my watch beeps at 9:45pm which is a signal to avoid electronic devices, stop consuming food, and consciously start winding down.

I intend to do a monthly 20 hour fast using the following schedule:

FullSizeRender

(2) Advice for social interaction

Here are some steps on how to become more of a secular hermit:

  • Don’t be afraid to ghost
  • Avoid phone calls
    • A phone is fine for interacting with complete strangers (I quite enjoy battling with customer services and sabotaging nuisance calls), and I like phoning my parents and siblings. However, generally speaking, the telephone is a horrible way to communicate (see Cowen 2009, p.72). You miss out on social clues and have to think quickly. It’s very hard to say “leave that with me and i’ll think about it” and so a business call in particular can generate tension (I’d love to see experimental evidence on negotiations conducted via phone vs. face to face). Over the phone I am concentrating on not committing to something I don’t want to do, and therefore I find it very difficult to establish where mutual gains are.
    • In addition, you are left without a record of what has been said. If like me you follow up a business call by taking notes and sending agreed to do lists over email, the call is a waste of time.
    • Having said this, if you are frustrated that emails aren’t being responded to, have an urgent query, or are hitting a stalemate, picking up a phone may be the mature and wise thing to do. However if face to face and email contact are options, I just struggle to see the purpose of a telephone call.
  • Social media: Facebook started out as a way to track down acquaintances (the first rival that it killed was Friends Reunited, after all) but is now like calling home (it really is about “updating” friends and family). Twitter is the type of side-to-side conversation that occurs if you’re in the pub (Cowen 2009, p.78). You just shout a few things, a couple of people might respond, and a few more will listen to it. Message boards are like a pub when you’re drunk. They are perfect for in jokes/banter but also confrontation and love ins (depending on whether you’re an angry drunk or happy drunk).
  • I don’t believe in the cloud (“not quite visible, not quite tangible, but awfully real; amorphous, spectral: hovering nearby, yet not situated in any one place”, (Gleick 2011, p.395)) – instead I opt for a well-ordered vault.
    • My backup strategy is threefold: (1) a constant USB link to a hard drive; and (2) a wireless link to a WD My Cloud. This protects me from me two biggest concerns (that I accidently delete a file and need to recover it, or that my computer gets stolen). Since I don’t feel fully protected against the risk of a natural disaster (if my study floods or burns down my wireless back up would be affected), I (3) copy an annual backup onto a portable drive and store it in my office. This seems a more reasonable strategy than using a fireproof safe. All three are WD products and they integrate seamlessly with a Mac. They are much better than Apple’s products.
  • This quote from Arcadia terrifies me:

    “We shed as we pick up, like travellers who must carry everything in their arms, and what we let fall will be picked up by those behind. The procession is very long and life is very short. We die on the march. But there is nothing outside the march so nothing can be lost to it. The missing plays of Sophocles will turn up piece by piece, or be written again in another language. Ancient cures for diseases will reveal themselves once more. Mathematical discoveries glimpsed and lost to view will have their time again.”

  • I keep all of my photos within Photos for Mac, categorised into albums and folders for each year. I don’t believe in a “Photostream” and shake at the thought of having a single file outside of my purview. My computer is well ordered and I spend a lot of time filing electronic and physical documents. I’m fighting against a tide when it comes to photos, but I have a system that I like:
    • A selection of photos from some albums are posted onto Flickr and shared with friends and family (and all of my photos on Flickr must be in an album).
    • An even smaller selection of photos are shared on Facebook. I make use of the albums in Facebook, but I “keep” them in Photos

Thus I don’t shed as I pick up, at all. I don’t have a stream in the cloud, I have a well-ordered reservoir in a vault. For me it is: archive and share.

(3) Travel & epistemic architecture

The advantage of travel is that when you move between time zones, you lose touch with each. Consider this account of the Trans-Siberian railway:

“In the great, monotonous spaces, the measures of time are lost; they cease to have any force, cease to have any meaning. The hours become formless, shapeless, elastic like the clocks in the paintings of Salvador Dali. Moreover, the train passes through various time zones, and one should be constantly adjusting the hands of one’s watch, but what for, what is there to gain by this?” Kapuscinski, R., Imperium, (Granta, 1994) p.32

Or Rachel Polonsky,

Russian literature is full of trains, because (like prostitutes, who also populate the literature) they bring together places, social worlds and life stories that would otherwise never touch. Trains are vehicles of plot and destiny, adventure and tragedy, surprising thoughts and conversations, uniting the squalid and the sublime, iron and plush, making intimacy possible across the great reach of space” Polonsky, R., 2010 ‘Molotov’s Magic Lantern’, Faber and Faber

My idea of heaven is sitting down with a couple of cans of lager and a good book right here:

DSCF10021-X2

Photo from MKY Transport Media

“Something about train travel – the rocking motion and the passing scenery, there for you to admire or ignore – lends itself to creative breakthroughs” Weiner, 2016, p.175

The key ingredients for travel are the mode of transport and the hotel room (see My Guide to Travel). Whilst train journeys are my preferred mode, they are usually prohibitively costly. So my staple is to pass through airport and hotel. These spaces are much maligned, but I love them.

All the time, and especially at home, we all have a mental “to do” list. Even if not tempted to do anything on this to do list, we must still spend mental energy deciding not to do it. One way to escape this pressure is to find a neutral territory where there isn’t much that we can do. Airports, the plane itself, and hotels perform this function admirably. The decor is uniform and predictable and you could be anywhere. But that is the point. That is their beauty. Their neutrality is sophisticated because it wipes clean your mental fatigue and allows you to concentrate and focus on the book that you’re reading, or the thought process you have. It is very hard to replicate this at home, when the burden of “other things to do” is so strong. And it’s almost impossible to replicate it at the office, when interruptions are expected, and note that interruptions per se aren’t productivity killers, it’s the threat of an interruption. I’ve always recognised that I am at my most productive late at night (typically 10pm – 3am) or when there’s few students or staff on campus (i.e. after classes or during holidays). I’d previously attributed this to being a night owl, but now realise that these are times when the potential for interruption are lowest. Once you enter the airport/airplane/hotel realm the potential for interruption falls dramatically.

These days the constant connectivity of social media and email means that a chief source of potential interruption is your phone. So recognise that flight safe mode works on the ground as well. I routinely turn it on if I know there’s little chance of a genuine emergency (e.g. if I’m at home with my wife). If I need to keep a possible communication line open I’ll use “Do Not Disturb” (and ensure that close family would still come through). My preferred method of watching Everton games (other than being at the match) is to turn flight safe mode on at 3pm and then wait until the 10pm extended highlights without knowing the score. Routinely disconnecting every Saturday is a nice way to find focus on other things (such as writing, or spending time with family).

On average I make a foreign work trip once a month and this isn’t enough to be productive. So I supplement the airplane/hotel room dyad with train/coffee shop. When booked in advance off peak train journeys are cheap and quiet so every month I try to take a 1 hr + journey with a book. There’s a very good independent coffee shop near where I live but my go to place is Starbucks. Starbucks is brilliant – loads of chairs, good coffee (and flat white pioneers), subtle design, not chaotic, great app and loyalty programme. I love it.

“For me, cafes are a kind of second home, a prime example of what sociologist Ray Oldenburg calls a “great good place.” The food and drink are irrelevant, or nearly so. What matters is the atmosphere – not the tablecloths or the furniture but a more intelligible ambience, one that encourages guilt-free lingering and strikes just the right balance of background din and contemplative silence.”

Weiner, 2016, p.16

Ultimately, though my travel dream is to spend time on a container ship. I first had the idea when I saw Michael Palin “repeat a day” on Around the World in 80 Days, and it combines two of my passions in life – global trade and detachment. There’s a fascinating photo-journal called “Live and Work on a Container Ship” (via Things Organized Neatly):

For almost five months now, I have been living and working as a deckhand on a 906 foot container ship making 57 day runs from New York to Singapore, while hitting many ports in between. We are importing/exporting goods from the Middle East, Asia, and America. As I am writing this we are making our way through the Gulf of Aden on what will be my last trip. Here is a little description of what its like to go to sea in the merchant marine.

I thought the photo of the Emma Maersk was mind blowing, but take a look at this:

01.Cargo


Updated: February 2016

Enlightened Management

Ar1beZvCEAIj0gP

“Progress is sustainable, indefinitely. But only by people who engage in a particular kind of thinking and behaviour – the problem-solving and problem-creating kind characteristic of the Enlightenment. And that requires the optimism of a dynamic society” (Deutsch, 2011, p.423)


Management is the process by which people control resources, and the ultimate resource is people. So management is predominantly about how we try to influence and affect the actions of other people, typically in an organisational setting. If you want to develop your skills as managing people, you need to understand those people and how they do their jobs. Therefore a critical prerequisite for management is a broad understanding of business. This is the value of an MBA education – it gives managers the background knowledge to improve their management skills.

One of the biggest misconceptions with management is that it is a necessary component of career progression. This is because companies tend to have hierarchical structures and promotion involves moving upwards. Therefore you advance my taking on more managerial responsibilities. This is a critical mistake because there is a difference between (i) creating organisational value; and (ii) being a good manager. Good managers create organisational value, but there are plenty of other ways to create value that don’t require management. Although management requires a broad knowledge base it is a specialist skillset and not everyone wants to be or should be managers. The goal of a manager should be to develop a team that excels at their job. This will create value for the organisation, reflected in compensation for the team members, and compensation for the manager. Managers should see themselves as an enabler and developer of talent (i.e. a coach). If you are a good manager you will assemble a superb team of superstar employees who probably create more value than you do. You shouldn’t expect to earn more money than team members, or enjoy a higher status. Your broad skillset which is in large part intangible and multifaceted is adept at cultivating a winning team, but you are not the hero.

I believe that management matters, and that we can teach it. There is strong evidence that MBA programmes generate social value. [1] The purpose of this article is to assemble some resources to argue that management can and should more fully incorporate the principles of scientific discovery and the optimistic outlook upon which the enlightenment occurred.

According to David Deutsch the basic regulating principle of the enlightenment is the quest for good explanations. This implies that we should not judge scientific merit as being akin to accurate predictions, and also that we need should cultivate a tradition of criticism and the rejection of authority. He advocates that we deem something to be real if it is part of our best explanation of something.

The mark of a good theory is that it is hard to vary, and not if it is testable, “bad explanations are equally useless whether they are testable or not” (p.25) and “we do not test every testable theory, but only the few that we find are good explanations. Science would be impossible if it were not for the fact that the overwhelming majority of false theories can be rejected out of hand without any experiment, simply for being bad explanations” (p.25). We cannot know what constitutes truth, but we can know that it exists:

“Scientific theories are hard to vary because they correspond closely with an objective truth, which is independent of our culture, our personal preferences and our biological make-up” (p.353)

These methodological positions resonate with me because of my background in Austrian economics, and there are very important interplays between Austrian economics and strategic management.

Seeking good explanations is what constituted the enlightenment – it was “how they began to think. It is what they began to do, systematically for the first time. It is what made the momentous difference to the rate of progress of all kinds” (p.23).

The implication for management: seek good explanations and cultivate a tradition of criticism. 

Deutsch presents an optimistic scenario of where a focus on finding good explanations might lead. He refers to the beginning of infinity as “the possibility of the unlimited growth of knowledge in the future” (p.164).

Some insights for management

  1. Go easy on motivation

I like motivational sayings but mainly the ones that I have written for myself. Ones that are meaningful. I sometimes hear other people’s sayings and they resonate with me, but this is rare. I feel that corporate slogans are worrying purely because they seek to impose their meaning on you. And I have a deeper concern, which is that slogans are a form of propaganda, and serves to stifle freedom of thought. In Imperium, Ryszard Kapuscinski writes about how “interrogative language was appropriated by the police” (p.146), leading to people asking fewer and fewer questions:

“In their place appeared an infinite number of sayings, catch words, and turns of phrase expressing approval of that which is, or at least indifference, lack of surprise, humble consent, resignation… A civilization that does not ask questions, one that banishes from within its compass the entire world of anxiety, criticism, and exploration – the world that expresses itself precisely through questions – is a civilization standing in place, paralyzed, immobile. And that is what the people in the Kremlin were after, because it is easiest to rule over a motionless and mute world” (p.146)

2. Go easy on meetings

Why do large companies have so many meetings?

I think it has something to do with a movements from hierarchical organisation to network organisation, and (clumsy) efforts to maintain monitoring because incentive structures have become anachronistic. Here are some excellent comments from the team at 37 signals.

3. Be a Secular Hermit

4. Be grumpy, sometimes

“An Australian psychology expert who has been studying emotions has found being grumpy makes us think more clearly.

In contrast to those annoying happy types, miserable people are better at decision-making and less gullible, his experiments showed.” Source.

5. Don’t be afraid to contradict yourself

6. Encourage dissent

“Groups that tolerate dissent generate more ideas, and good ideas, than groups that don’t… This holds true even if those dissenting views turn out to be completely wrong. The mere presence of dissent – even if wrongheaded – improves creative performance.” Weiner, 2016, p.171

7. Plan

I tend to dislike plans but I like the mental clarity that comes when planning. Behaviour gap have a wonderful article on the distinction between the two:

Think of this as the difference between a flight plan and the actual flight. Flight plans are really just the pilot’s best guess about things like the weather. No matter how much time the pilot spend planning, things don’t always go according to the plan.

In fact, I bet they rarely go just the way the pilot planned. There are just too many variables. So while the plan is important, the key to arriving safely is the pilot’s ability to make the small and consistent course corrections. It is about the course corrections, not the plan.

8. Choose the right filters

We are living in an information age, and as T.S. Eliot said,

Where is the wisdom we have lost in knowledge?

Where is the knowledge we have lost in information?

According to James Gleick, “Strategies emerge for coping. There are many, but in essence they all boil down to two: filter and search”  (see Gleick, 2011, p.409-412). The blog I co founded in January 2004 was called “The Filter” and our slogan was “the Liver on the web”. This was a homage to the city of our adoption and affection, but also the function we intended to provide. One of my best academic publications was on the differences between search and browse. The main point was that search theory was trivial because people actually acquire information through browsing. But you can only browse things that have been filtered.

Note that Apple music is about curating. Newspapers are about editing. We wish to browse content that has been filtered. We don’t search for information, we browse.

As Clay Shirkey has pointed out, the modern problem is not information overload but filter failure. We need to spend time choosing the right filters.


The key texts for Enlightened Management are:

  • Postrel, V., 1999, The Future and Its Enemies, Free Press
  • Cowen, T., 2009, Create Your Own Economy, Dutton
  • Deutsch, D., 2011, The Beginning of Infinity, Penguin – in particular “Optimism” (Chapter 9)
  • Ridley, M., 2011, The Rational Optimist, Harper
  • Gleick, J., 2012, The Information, Fourth Estate
  • Fisman, R. and Sullivan, T., 2013, The Org: The Underlying Logic of the Office, Twelve – in particular “What Management is Good For” (Chapter 5)
  • Weiner, E., 2016, The Geography of Genius, Simon and Schuster

Footnotes:

[1]

  • “companies that use the most widely accepted management techniques, of the sort that are taught in business schools, outperform their peers in all the measures that matter, such as productivity, sales growth and return on capital.” The Economist
  • Some 98% of corporate employers report that they are satisfied with their MBA hires, a figure that has not changed since 1998.” The Economist

Updated: April 2016

Favourite puns

Here are some of my favourite shop names:

  • Tanarife (Sunbeds, Liverpool)
  • Foamula 1 (Car wash, Liverpool)
  • Fry Days (Chippy, Watford)
  • Injeaneus (Clothes, Radlett)

Personal finance MOT

john_vernon_lord_ant_grasshopper


In a field one summer’s day a Grasshopper was hopping about, chirping and singing to its heart’s content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.
“Why not come and chat with me,” said the Grasshopper, “instead of toiling and moiling in that way?”
“I am helping to lay up food for the winter,” said the Ant, “and recommend you to do the same.”
“Why bother about winter?” said the Grasshopper; we have got plenty of food at present.” But the Ant went on its way and continued its toil.

When the winter came the Grasshopper had no food and found itself dying of hunger, while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew: It is best to prepare for the days of necessity.

Source.

See Martin Wolf’s re-telling of the Ant and the Grasshopper as a modern fable here.


I endorse Chris Dillow’s four general principles of investing:

  1. Live within your means. The safest way to get rich is to save. How you invest your savings – cash, shares, gold, whatever – is a secondary consideration, unless you are really silly.
  2. Minimize taxes and charges. Most people can save tax-efficiently through ISAs and pensions, and should do so. Also, don’t be tempted by high-charging funds – they are usually not worth it. And if you hold shares directly, don’t trade much
  3. Remember that high prices, on average, mean low expected returns. Don’t jump on bandwagons
  4. Remember G.L.S Shackle’s words: “knowledge of the future is a contradiction in terms.” Don’t pretend you can see what’s coming. And don’t pay others in the belief that they can do so. The essential fact about the financial world is risk (and/or uncertainty). The key question is: what risks are you prepared to take, and which aren’t you? This paper by John Cochrane discusses this well.

I also like Harold Pollack’s attempt to put financial advice on a 4×6 index card:

Photo by Harold Pollack

Photo by Harold Pollack

Many people will say that they want to take more control over their current spending and future financial security, but often find it difficult to actually achieve this. I’m not wealthy, and am not promising you riches. All I can offer is a process by which you can gain a better understanding of your personal finances.

You probably don’t have time to follow these steps now. So find a date a few weeks or months from now and put it in your diary. Don’t shift it. Treat this seriously. Do it when you have time…

Start

Picture yourself at 65, and make it as vivid an image as possible – not so much what you look like, more where you are and what you are doing (for more see Chapter 9 of this book). A large reason why people are careless with their financial situation (and constantly undermine their future happiness), is because we’re conditioned to focus on immediate rewards. But we need to shift perspective and think about what actions your present self needs to take in order to make your future self happy. What resources do you need to deliver to your 65 year old self? Picture your children at 20. What do you want to be able to give them? Don’t adjust your future goals to meet your financial resources. Adjust your present behaviour to hit your targets.

Practice self-control and delayed gratification. If you want to watch a movie, try waiting a few days. Treat it as a reward.

Dashboard

Create your own version of my Personal Finance Dashboard (download a PDF here).

  • Fill in the date at the top – do this at least once a year.
  • Go through your last 6 payslips and use your typical (i.e. not including bonuses) net (i.e. after tax) income. Unless bonuses are a significant part of your regular income treat them as a bonus and save them. This goes in the “In” box (top left). Put the total in the yellow box.
  • Then look at your outgoings. All of the sections in the thin black boxes should be summed together in the yellow box where it says “Out”. There’s probably some categories that I’m missing out, and so use it as a basis. Check your direct debits to make sure there’s nothing that you’re regularly spending money on that isn’t being captured here. There will be lots of expenses that aren’t on this list (e.g. food, clothes, etc), but I find that if you try to be too exhaustive it becomes arbitrary. These are all essentials and are a lower bound of monthly outgoings.
  • Use a blue pen to complete it. As you can see for the mortgage entry write down the provider in the left half and the amount in the right. If relevant, put the interest rate being paid above the amount (in red).
  • Finally, your wealth is captured in “Shake it all About”. These can be estimates but if it takes a long time to find a current balance then you’re not checking it often enough. The dotted line signals that the top part is current wealth, and the bottom is the current value of savings that will be accessible to the children when they’re older.
  • The three yellow circles are some metrics that I like to monitor.
    • Months of imports covered is =(wealth/out). It shows how long you can keep spending money at the same rate if your income dried up.
    • Savings as % of income is =[(wealth/in*12)]*100.
    • Pension % is your monthly pension contribution as a percentage of monthly salary. This can be calculated from your payslip and should be >10%.

Some general comments:

  • Get a good credit card. Make sure you pay it off each month but make sure you’re getting rewards for spending. An easy way is to link it with Airmiles.
  • For advice on what type of pension, life insurance, savings vehicle are appropriate for you consult a professional financial advisor (this is helpful). If you don’t think it’s worth paying a few hundred quid to sort our your financial future then you’re an irresponsible idiot.
  • It is really important to start saving early. “Someone who starts saving at the age of 21 and then stops at 30 will end up with a bigger pension pot than a saver who starts at 30 and puts money aside for the next 40 years until retiring at 70“. Also look at the calculators here.
  • Have a look at the interest rates you’re paying. Make sure that you pay off your most expensive loans first (you don’t want the “loans” box to outgrow anything in the “shake it all about” box). For that reason the “Adult 1 and Adult 2” sections in “savings” is blank because we’d rather pay off mortgage than add money to ISAs.

Charity

I don’t enjoy being asked to make donations to charity, and not solely because I’m a tight, selfish bastard. It’s because it’s a form of bullying – you are put under social pressure to make a quick decision.

My response is to have an articulated approach to charitable donations, which serves as a defense mechanism and means I can avoid treating each request as something that requires my attention. I prefer to have a charity rule, rather than have to judge each request on its case-by-case merits. In a nutshell here it is:

charityPerhaps some points of explanation and elaboration are in order:

  • I believe that the best way to help people out of poverty is through economic liberalisation. I find the empirical and theoretical evidence compelling, and devote my career to pursuing it. This sounds glib and self-satisfying but writing a book about the power of markets is my chief contribution. Economics is my Ikigai and when my children ask my what I’ve done to make poverty history, my response is “public education”. And I sleep well at night.
  • Of course, I can do more. However I’m very concerned about inefficiencies within the charity sector. Since they exist largely outside the profit and loss framework that I deem to be the cause of the success of markets, it is to be expected that they are subject to bureaucratic inefficiencies. I suspect that the charities I’m most familiar with, are not necessarily the most important. I suspect that the causes that generate most media coverage, are not necessarily the most pressing. So I try to discount charities that have good branding, good PR, and are emotionally draining.
  • I think it’s important to have direct debits to charities that you believe in. I set a percentage of my income that I feel is appropriate and split that between a few well known charities. One is focused on democracy and basic human rights. One is focused on humanitarian assistance and medical aid. If another charity wants me to contribute to them, they’ll need to convince me either that (i) they are more deserving than a charity I currently support; or (ii) I should increase the percentage of my income I assign to charitable giving. A Tithe requires 10%, but I already donate more than that to the UK government to administer charitable giving on my behalf. So I don’t give 10%. Less than that. If the state shrank, I’d give more.
  • I never donate based on cold calling, be it at home or in the street. This is a rule and the more you encourage me to break it, the more resolute I will be. Don’t bully me!
  • I regularly make donations of clothes, toys, DVDs etc to my favourite local charity shop.
  • Whenever I bet on beliefs I suggest to donate proceeds to charity.
  • I am not as skeptical of government-to-government foreign aid as most free market economists, because I believe that even with large scale bureaucratic inefficiencies the end result could still be beneficial. If for every £1 that gets sent abroad 50p is lost to bureaucracy, 25p goes to prop up a bad regime, and only 25p goes to intended recipients; that may be better than 0. But there’s important incentive effects that should be considered.
  • As an alternative to foreign aid, I’m delighted that the practice of giving cash transfers is generating more coverage. The economic logic is simple, and it seems that it’s working. Yes, they may spend it on booze. But as Chris Blattman points out this pessimism and paternalism is pretty unfounded (do read that whole article). Other good articles on cash transfers are this one and this one.
  • There are also important incentive effects with direct charitable giving. I don’t give money to beggars or homeless people. It’s not because I believe that they’re most likely to be under cover police officers. But if there are rents, I expect rent-seeking. I also expect beggars to invest resources to acquire primer begging locations. And I don’t want to encourage self-mutilation. I assume that any dogs I see are borrowed or rented, and whilst I am tempted to give warm clothes or a cup of tea I find this to be too much hassle. That sounds awful, but I also try to place more weight on the needs of starving people in underdeveloped countries than those where I live, so I don’t feel too guilty from walking on by.
  • I try to tip generously, but mostly when abroad. In many countries the service providers you encounter – taxi drivers, waiting staff, housekeepers – will be on low incomes, and so it’s directed at deserving people. This is a nice way to administer cash transfers. But in richer countries tipping is a horrible practice and I favour mandatory 18% service charges.
  • I have an annual budget to use for sponsoring friends that ask for sponsorship. I don’t keep a close record but this generally means that if it’s someone dear to me I will sponsor. This is a nice way to ensure that I have a wider range of giving than if I chose the charity myself
  • I don’t wear ribbons and resist social media gimmicks. I find these expressive gestures to be hollow and that genuine charity should be understated. Having said that, I’m also aware of evidence to suggest that the more public people are about their charitable activity, the more it encourages other people. Which is why I wrote this post. (Indeed just after writing it I went into town and would have ordinarily bought a Starbucks coffee. Instead, I realised that I’ve fallen below my voluntary “Tithe” and set up a new Direct Debit).

If you’ve never given a cash transfer before, I recommend https://www.givedirectly.org. Here’s what I used to think of charity.

Decision making framework

6a00d83451620669e20133f351e64f970b

The following is a great template for requesting decision rights within an organisation:

  1. Describe the authority that is being requested
  2. Provide a background and summary of the value proposition
  3. Outline the objective with the strategic fit
  4. Prepare an economic summary with the base case, as well as other plausible scenarios that could make the project much better or worse
  5. Identify they key value drivers
  6. Describe the key risks and mitigants
  7. List alternatives considered and why they’ve been ruled out
  8. Project the timeline for future steps

See Koch, C., 2015 Good Profit, Crown Business