Just a reminder

With Obamacare, here we again find ourselves with a government-made disaster on our hands. There’s much discussion about how ‘we’ fix it or change it, how to make it workable, how the GOP has no solutions…etc.

I hear very little discussion about why we even want these buffoons to touch this stuff.

It’s a good time to remind folks of some wise words from Walter Williams.

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Good news and bad news

Good news: I get to keep my health plan (even before the new ‘Keep Your Plan’ act).

Bad news: My premium will increase by 23%.

If it can help just one…

A common political sales tactic is the ol’, “Even if this government action helps just one person, then it’s worth it” snow job.

It seems we are beyond that snow job now with Obamacare. Apparently, if it only hurts 5% of the population, that’s acceptable.

One reason bottom-up does better: Try, try, try again

In this post, I wrote that bottom-up systems tend to do better than top-down systems. In the following post, I expand on the #1 reason why I think that is.

I use to think feedbacks were the most important difference between productive and unproductive organizations or systems.

I don’t anymore.

I still think feedbacks are important and much can be gained from addressing feedback problems. But, I think something else makes the difference between good and bad: The number of trials.

I credit Nassim Taleb for planting this thought in my head. In one of his books he said something like capitalism doesn’t work because of profits and losses [feedbacks], it works because it induces a lot of trials and some of those happen to work.

I think Jeff Bezos understands this idea about trials. But, I don’t think many others do.

We see success stories after the fact and credit visionary leadership, brilliant insights and clever innovations, but this is too simple of a view of what really happened.

Since Taleb planted this idea I started noticing other things about success stories.

I noticed that for every success, there were dozens or more failures. Successful people are often brilliant. We conclude that to be the cause of their success, but that doesn’t account for the failures that are often led by equally bright people. Why did one succeed while the others didn’t? That gets tougher to distinguish.

A story Taleb tells about dolphins illustrates this well. We hear about dolphins pushing to shore people who are stranded at sea and conclude dolphins know what they’re doing and are kind and gentle. Maybe that’s true. But, we don’t hear from the folks when the dolphins took them the other way. Maybe the dolphins that pushed to shore just got lucky.

I also started noticing that success stories often includes information about how the discoveries were not planned, but were accidentally stumbled upon while the great leaders were trying to do something else. Sometimes these leaders even resisted going the direction the discovery led them because it didn’t fit their original vision.

Finally, I started seeing the dumb luck that is a part of almost every success.

When I look at success, I try to remember its causes can be elusive and that the easy explanations are usually incomplete.

Capitalism works well for us because it encourages a lot of trials.

I believe organizations can improve (not guarantee) chances of long-term success by employing the same incentives as capitalism. Encourage a lot of trials. Let failures fail and reward success.

We even have evidence of this respect for trials embedded in common, inspirational phrases like:

  • If at first you don’t succeed, try, try, try again
  • Fail often to succeed sooner
  • If you fall off the horse, get back on

But, perhaps one quality of the successful that I may have overlooked is that they aren’t afraid to fail.

You miss 100 percent of the shots you never take. – Wayne Gretzky

I didn’t fail the test, I just found a 100 ways to do it wrong. -Ben Franklin

I’ve never been afraid to fail. -Michael Jordan

Planned blockbusters

A timely blog post from Seth Godin. It’s timely because it addresses the number one reason I think bottoms-up systems work better than top-down. I happen to be working on a blog post to expand on that reason.

Seth G. says it well. This is about working on a big budget movies in a top-down environment:

Every meeting is about avoiding coming anywhere near the sentence, “this might not work,” and instead giving ammunition to the groupthink belief that this must work.

And as soon as you do that, you’ve guaranteed it won’t.

Every bestseller is a surprise bestseller, and in fact, nobody knows anything.

(And of course, it’s not just movies, is it?)

Of course, it isn’t.

Entrepreneurship vs. politics

From Arnold Kling’s Fantasy Despot Syndrome*:

Consider the story of Kemmons Wilson, which can be found in David Halberstam’s historical retrospective, The Fifties:

Some motels, Wilson later recalled, were godawful; some were very pleasant. The only way you could tell which was which was to see for yourself … Wilson was enraged to find that every motel charged extra for children. The fee was usually $2 per child, even though his children had brought their own bedrolls … Even worse, there was rarely a place to eat nearby, and so he and his family would have to pile back into the car and hunt for a decent family restaurant.

Day by day on the trip, Wilson became more irritated until he finally turned to his wife, Dorothy, and announced that he was going to go into the motel business … “How many of these motels are you going to build?” she asked nervously. He felt she was laughing at him. “Oh, about four hundred,” he answered. “That ought to cover the country.” “And,” he added, “if I never do anything else worth remembering in my life, children are going to stay free at my motels.”

Wilson did not call for a regulatory agency to ensure that all motels were pleasant for families. He did not seek legislation requiring that children sleep free in motels. Instead, he created Holiday Inn, the first national motel chain.

*Fantasy Despot Syndrome defined (also from Kling’s article):

“Wherever people discover that money is being spent, either privately or by public officials, they commonly develop opinions on how it ought to be spent … each person thus becomes his own fantasy despot, disposing of others and their resources as he or she thinks desirable.”  — Kenneth Minogue, The Servile Mind

Ah, but it’s so much easier to talk about it than to do something.

Bottom-up vs. Top-down

Forget comparisons like ‘government vs. free market’ or ‘public vs. private’. We can all pull out examples from each realm that works and doesn’t work.

I think a better distinction of human interaction systems can be drawn between ‘bottom-up vs. top-down’. Bottom-up systems tend to be driven by decisions and interactions very close to the individual. Top-down systems are driven by decisions made by a few individuals at the top of the hierarchy.

I often hear proponents of a central government — a top-down system — cite bottom-up examples to support their view, demonstrating that they don’t understand the top-down/bottom-up distinction.

Fire departments, police departments and roads are prominent examples of this and sound like, “These things are run by government and they work pretty well, let’s expand Federal government.”

Yes. These are usually run by government entities. But local government is not equivalent to Federal government. Local government is more bottom-up than top-down.

I think it’s helpful for discussion and policy-making to be able to recognize the two different systems. Here are a couple of thoughts.

  • To what degree do individuals have the ‘power of voice’?
  • To what degree do individuals have the ‘power of exit’?

Power of voice is an individual’s vote, purchasing decision or the ability to have the decision-makers hear your voice. Votes carry more weight in local elections than national elections. It’s easier to get in touch with city councilmen or the mayor than it is the Congressman or President. A purchase is a vote indicating that the individual values the product at that price.

Power of exit is the individual’s ability to leave or not choose a certain product. If I choose not to buy a product, I’m signaling that it’s not worth it. If I don’t think the city council is steering my city in the right direction, I can move a couple of miles to the next city over. Same if I’m looking for a better a school district.

Power of exit is a function of how many choices are available to me and the dynamics of competition among those choices.

I have lots of choices of products. Competition among those products is generally high. I can incur little cost for choosing one store over another or one product within a store over another.

In my area, I have lots of choices on cities, townships and counties that I can live in. Not as many choices as I have for different types of beer, but still quite a few. Since I do have a fair amount of choice, competition is relatively high and these cities and townships try to do things to voluntarily attract residents — like providing good fire departments, police departments, schools and roads. The cost to move is higher than the cost of choosing one product over another, but still not terribly high if things get really bad (this is why suburbs suck the life out of mismanaged urban areas).

I have 50 states to choose from, but the costs to move between states is relatively high. I have many countries to choose from, but the costs to change countries is even higher. So, competition goes down as these costs increase and so does my power of exit. I still have it, no doubt, but things have to get really bad before exercising that power.

I think there are a couple other elements of the bottom-up vs. top-down systems that are worth mentioning. I don’t think they are as useful in helping us recognize these systems, but I think they explain why bottom-up system work better than top-down.

1. Lots of independent trials/experiments. It’s hard to tell what will work and what won’t, so it’s best to try a lot of stuff.

2. No single point of failure. Since it’s hard to tell what will work, it’s best not to have a single point of failure, which top-down systems have.

3. How far apart are the benefits and the costs? Or, another way to think about it, how far removed are the decision-makers from the consequences of their decisions? This gets down to, how much skin-in-the-game do decision-makers have?

I will discuss more about these last three in future posts.