Not at all surprising

In this post from last December, I wrote about the move to make kids meals healthier.

My wife predicted that the political class and the restaurants would get political props for providing healthier choices. She also predicted that people would buy fewer kids meals and just order ala carte to get the food they wanted.

This story appears to support those predictions.  As a follow-up, we have ordered many fewer Happy Meals since then, opting instead for ala carte to get more fries and to avoid the accumulation of cheap toys. And, as I mentioned then, my kid eats plenty of fruits and vegetables.

This is a lesson politicos know well. They can make it look like they are achieving great things, when they really just helped the restaurants sell other food and/or caused more packages of apples to be thrown in the trash. I wish more folks would wise up to the game.

The greatest and most skilled tricks of magicians and politicos is to divert your attention from what is really happening.


Et tu, John Roberts?

That’s not the first time I disagreed with a Supreme Court decision. Probably won’t be the last.

It is a good reminder me that you can’t count on a small group of folks — no matter who they are — to agree with you. Just ask those who felt the Supreme Court put Bush in power in 2000.

And, after all, they don’t even agree with each other. It was a 5-4 decision. That means 4 Supreme Court justices disagreed with 5 other Supreme Court justices.

I found something a bit humorous while listening to the radio on the way home from work. Several news outlets were featuring folks who were elated by the Supreme Court decision. Several said that they now would be able to afford health insurance.

There’s an old saying in poker, if you don’t know who the patsy is, you’re the patsy.

These folks are the patsies. They currently choose not to buy health insurance. They will soon face a $2,000 fine for making that same choice. Congratulations to them.

It’s as if while cheering a decision upholding someone’s right to slap you, they proceed to slap you. You get a stunned look on your face, then realize, that’s exactly what you were cheering for a second ago, so you raise your hands and cheer again. Hooray! Then they slap you again.

As far as John Roberts goes, perhaps he took the Intrade odds, got rich and figured if the American people really don’t want it, they’ll vote in November.

For all those who ask, what then?

Several times over the past few weeks I’ve heard something like, “So, if Obamacare is struck down by the Supreme Court, what then? Health care still needs reforming. What should we do then?”

The irritating implication seems to be that opponents of Obamacare have never offered, or maybe even considered, any alternatives.

Or, perhaps the people who asked that question don’t understand or have considered the alternatives that have been offered — or, at least, the alternatives that I recommend.

Here are three easy ones:

1. Eliminate the favorable tax treatment given to employers to provide health insurance.

This gets rid of much of the pre-existing conditions problem that caused (and later attempted to be solved by government action) much of this problem. Imagine buying health insurance in a similar fashion to car insurance. You stay with the same company for a long time.

You may also see insurance return to being insurance, instead of a medical subscription plan. When a tree falls through your roof, your insurance company cuts you a check less your deductible and you get it fixed.

Maybe insurance companies will do the same. You have a major medical condition, you get it fixed and your insurance company cuts a check.

2. Reduce or eliminate state mandates.

I don’t prefer to do this with a federal mandate that overrides state insurance mandates. I think states should have the right to set their own mandates. But, voters in states with costly mandates (like NY and MA) should take a hard look at states with much less costly mandates (like MO or ID) and ask why insurance in those states cost so much less.

3. Move medical services more toward a free market.

The medical industry is heavily regulated. This regulation ranges from medical licensing, control of number of beds and medical machines in a market, ownership restrictions in some areas, heavy drug regulations, and so on.

These regulations reduce supply, increase costs and constrain innovation, that can lead to dramatic and organic improvements in effectiveness and costs over long time frames.


The Business Cycle

Stage 1: Entrepreneurs experiment and take risks to make things to satisfy customers.

Stage 2: When they discover something the consumer values — aka value proposition– the experiment turns into a going-concern, or a business, and the business becomes self-funding.

Stage 3: If that value proposition is strong enough, the going-concern grows and comes to generate a safe and steady income stream.

Stage 4: Eventually, the safe and steady income stream attracts bureaucrats who use it to satisfy their own desires to boss people around and self-importance.

The focus of the going concern shifts from satisfying consumers to satisfying bureaucrats.

Stage 5: And not just the bureaucrats that take residence in the corporate offices. Outside bureaucrats will come seeking to hook up their bureaucratic organizations to the safe and steady business streams generated by those successful customer value propositions.  These bureaucrats will come from government at all levels, non-profits, foundations, consulting groups, lobbying groups, industry associations, employer organizations, unions, education, self-governing bodies, franchise owners and regulatory agencies.

Stage 6: Fortunately, competition is there to continue to find ways to satisfy customers. And when they do so, they have an advantage to the organizations that are satisfying bureaucracies. Remember, a start-up need only satisfy customers. Big, successful businesses must satisfy its bureaucracies, often which is a higher priority to satisfying the customer, no matter what the bureaucrats in-charge pay lip service to the customer.

Stage 4: But, if competition is successful, it too will attract bureaucrats.

A company that has suffered deterioration in its attention to value proposition, sometimes is able to attract turnaround entrepreneurs and refocus on the customer. However, many of the outside bureaucracies will stay interested and impede progress as long as the business has the resources to help them, which usually causes further deterioration and continues to give advantage to start-ups.

Executive Pay

We spent a fair amount of time in b-school talking about aligning manager interests with shareholder interests. It seems like the simplest way to do that is to have the managers be owners.

I wonder how many executives would choose to stay in their jobs if their salaries were dropped to $100,000 and the Board of Directors told them if they want to make money, then they should invest their own funds in the business and they will make money when shareholders make money.

Now, I realize executive pay is a free market and a good manager is worth a good salary and much of CEO pay is really the cost cover the legal risk of being an executive, but still, I think it’s an interesting thought experiment.

It’s a thought experiment modeled after Warren Buffet, who takes a salary of $100,000 for running Berkshire Hathaway, but has become a billionaire by owning a fair size chunk of that company.

If this became the norm in executive pay, I would guess that we would see a different group of people occupying the executive suites. Speaking of executive suites, I’d bet those suites would not be as well-appointed if the managers were owners.

Now, some folks might argue that executives often do have significant portions of their pay and bonuses tied to the stock performance. On the surface, that seems like a logical way to align the interests. But, experience has proven otherwise and the explanations are simple.

For example, managers with stock options, stock grants and stocks bought with non-recourse loans from the company help align executive interests with shareholders on the upside, but not the down side. Managers personally lose nothing, except potential profits, for taking big risks to try to move the stock price up.

Not only that, but executives often have severance agreements that reward them relatively handsomely for getting fired. So, the only downside to taking big risks is the executive’s ego.

So, what happens under such pay schemes? Executives take big risks.

Framing matters: Pick a number

I wonder if fewer people would buy lottery tickets if instead of picking a set of numbers, you just had to pick a single number between 1 and 175 million.

Picking a set of numbers seems to disguise the true odds. This is very good for the lottery folks, because if people could more easily decipher their true odds of winning, they may not buy as many chances.

One might argue that the set of numbers easily allows for prizes other than the jackpot, like matching 3 or 4 numbers for a lower prize amount.

That’s easily corrected with range prizes. For example, in the Powerball, if you match 5 numbers, you win $1 million. In my ‘Pick Your Number’ lottery, you would have to guess the winning number to within 17.

That means if you picked 10,134,210 in my lottery, you would win the $1 million prize if the winning number falls anywhere between 10,134,193 to 10,134,227.

In the Powerball, you win $4 if you pick the Powerball. To win that in my lottery, you only have to get within about 1.5 million of the winning number. So, with your pick of 10,134,210, you could win $4 if the lottery draws anywhere from about 8.6 million and 11.6 million, again out of 175 million.

The genius of the picking the set of numbers format in most lotteries is how it frames the game to mask the odds. Even when you tell folks their chance of winning is 1 in 175 million, they don’t easily translate that back to picking a set of numbers.

Disclosure: I do occasionally buy lottery tickets.

“We can’t afford to wait”

I’ve heard this phrase many times to get support and approval for making big, untested changes.

Many of the people who said that eventually lost their jobs precisely because they didn’t wait and test to see if their big idea was worthwhile.

I agree that we often can’t afford to wait. That’s why I wonder why so many leaders put off testing things so they will have the answers when they need them, rather than waiting until they are backed in the corner with no more time to wait.

How do we waste less genius?

About 51 minutes into this EconTalk podcast with Jonah Lehrer about creativity, the discussion turns to how we get these ages of excess geniuses, or periods where there seems to be a high number of geniuses.  Lehrer says:

Well, the last part of the book, I focus on so-called Ages of Excess Genius, these periods throughout history, like ancient Athens, Renaissance Florence, Elizabethan England, where you don’t just get one genius–you get this sudden cluster or clot of geniuses. You get Shakespeare, Christopher Marlowe, John Donne, Ben Johnson, Francis Bacon. The list goes on and on. Basically all these geniuses living in the same zipcode at the same time. It is quite eerie, and befuddling.

One explanation he offers:

T. S. Elliot had this great line, when he was trying to explain it in England; his version of the story was there wasn’t somehow this sudden flourishing of talent or genius in the 1580s in London; they simply found ways to waste less genius, to waste less human capital. So, that was his explanation. I think that when you look at these Ages of Excess Genius, that does seem to be one thing they all have in common. Which is, in general, they found ways to waste less human talent. Often by improving the educational system.

Personally, I think it has more to do with what we consider genius and how their ideas get transmitted. I know many people who have demonstrated genius , but will never be known for it.

They never sought to be known for it. They didn’t write down their findings or ideas, it never occurred to them that they were all that smart. To them, it seemed like common sense.

I believe what we recognize as genius is conveniently in a form that is easy to recognize as genius. But, I think that’s just the tip of the iceberg.