Monday, July 20, 2009

Why Winners Win

by Rich Tucker

Nice to see someone else unwinding Gladwell's popular but simplistic formulas below. I have had a few shots at the Gladwell fantasies myself -- e.g here

Fortune, it is said, favors the bold. And best-selling author Malcolm Gladwell is certainly bold. In his latest chart-topper, “Outliers,” Gladwell sets out to change our perception of success by showing that we must “appreciate the idea that the values of the world we inhabit and the people we surround ourselves with have a profound effect on who we are.”

Throughout the book, Gladwell does an entertaining job of peeling back the onion. Bill Gates is a success not simply because he’s smart, Gladwell writes, he’s a success because of when and where he was born, because he had access to an early version of a computer. Because companies in his area needed help programming their mainframes. And on and on and on.

Gladwell digs into the lives of successful people and shows how someone’s life can be changed by when they’re born, by what their parents do for a living, even by the culture they’re raised in. But what’s surprising is that he omits the most important factor: The negative effect of government on people’s lives.

For example, he writes about the importance of being born at the “right” time, and shows that hockey and soccer players born early in the year have big advantages. Fair enough. Then he lists the 75 richest people in human history, and adds that almost a fifth come from “a single generation in a single country,” all born in the United States in the 1830s.

These men came of age “when all the rules by which the traditional economy had functioned were broken and remade,” Gladwell writes. And that’s true. But they were also the last generation to come of age when they were allowed to keep all the money they earned. Congress passed an income tax in the 1890s, and an amendment to the Constitution in 1913 made income taxes a permanent feature of the landscape.

As conservatives have long understood, the heavier you tax something, the less you get of it. Our nation decided to tax economic success, so we shouldn’t be surprised that we’ve produced fewer successful people than we once did.

He also writes about the success of Silicon Valley in its early days, noting that computer programming “was a wide-open field in which all participants were judged solely on their talent and their accomplishments.” That was true in 1976, of course, but not as much today. In the late 1990s the government sued Microsoft for antitrust violations, and today’s Silicon Valley companies hire plenty of lobbyists who attempt to use the power of the federal government to swat down other companies.

Gladwell also takes on the American educational system without zeroing in on the true culprits. Summer vacation, he writes, “is considered a permanent and inviolate feature of school life” even though he cites a study showing it harms lower-income children. “The only problem with school, for the kids who aren’t achieving, is that there isn’t enough of it,” he writes.

Well, the Japanese school year runs 243 days. The South Korean school year lasts 220 days. Why can’t the U.S. expand its 180-day school year to match the Asian tigers? Because American schools are run by the government, and the government is swayed by the lobbying efforts of teacher’s unions.

Most parents would love a longer school year; my children certainly get bored in mid-August. But unions exist to limit the amount their members are forced to work, and teacher’s unions would never approve of adding weeks to the school year.

The interesting thing is that the United States is itself an outlier. The book “The Size of Nations” points out that of the 10 richest countries, only one has a large population. The U.S., now with some 300 million people, is miles ahead of Switzerland, the next largest with a mere 7 million. It’s a lot easier for nations (the Soviet Union, the United Kingdom) to break up than for them to remain united and succeed.

In the past our federal government mostly stayed out of the way, allowing the Rockefellers, Carnegies and Gateses to build huge companies and deliver products and services that benefit all of us. But over the decades it’s become more intrusive through higher taxes and regulations. Year by year it’s eroding the traditional advantages of being an American.

“To build a better world we need to replace the patchwork of lucky breaks and arbitrary advantages that today determine success,” Gladwell writes, “with a society that provides opportunities for all.”

Very true, but we’re going in the wrong direction. The government is buying and propping up failing companies, instead of encouraging innovation. It dominates the housing market, the financial market and the insurance market. It aims to annex health care and subject Americans to European-level taxation.

Soon fortune won’t favor the bold, it’ll favor those with the best lobbyists. Maybe that changing landscape should be the topic of Malcolm Gladwell’s next expose.



Destroying America's financial capital

In the fifteenth and sixteenth centuries, Florence, Genoa, and Venice were the financial capitals of the Western world. When they declined, financial leadership shifted to Amsterdam, then to London, and finally to New York, whose supremacy went unchallenged from 1945 until the end of the twentieth century. In the new millennium, however, it is showing cracks. A decade ago, companies fought for the privilege of being listed on the New York exchanges, but interest has dropped significantly since the bursting of the tech bubble in 2000. The credit crisis has only made things worse. Will the city be able to retain its title as the world's finance king? What will Wall Street look like in 2015?

Geography alone guarantees that New York will remain one of the world's financial leaders. A globalized economy spanning 24 time zones offers room for at least three major financial centers. With one center likely in Europe or the Middle East and a second in East Asia, New York would be the natural third pillar in a hemisphere that offers little competition for the job.

If we look beyond the Americas to the broader world, however, New York's enduring supremacy is not a foregone conclusion. Besides the power of inertia--people like to trade where others trade, so they trade in New York--the city has benefited from three comparative advantages in the past: a sophisticated and well-trained workforce, reliable but not intrusive regulations, and (at least since Ronald Reagan's presidency) a favorable tax and political environment. All these advantages have shrunk, if not vanished.

New York's skills advantage eroded long before the 2008 crisis. Thanks to its early deregulation of brokers' commissions in 1974, New York took the lead in the quality and reliability of trade. Global companies came to the city to be traded and judged by New York's analysts. But during the 1990s, most European stock exchanges caught on. Their tardiness allowed them to adopt the most recent trading technology easily, and they moved faster and more decisively into electronic trading, creating markets that were at least as liquid as the traditional exchanges. Most of the daily trading in cross-listed companies--companies traded on both the traditional and electronic exchanges--moved back to the country of origin, eliminating one of New York's advantages.

Over the last 20 years, American business schools also helped close the knowledge gap between New York and the rest of the world by admitting more students from abroad, to the point that over 30 percent of the schools' populations were foreign-born. Most of these students chose to return to their home countries after they finished school, bringing new ideas and techniques with them. The financial crisis has only accelerated this process. Restrictions against hiring foreign workers imposed by the federal government's Troubled Asset Relief Program (TARP) ensure that a larger flow of talented people will head back to their native countries, further reducing the skills gap between America and the rest of the world.

New York's competitive advantage has also eroded on the regulatory front. For financial markets to work properly, the regulatory regime must strike a delicate balance between preventing fraud and abuse, on the one hand, and jeopardizing the freedom to innovate, on the other. For many years, the United States appeared to have achieved this balance. No longer. From Enron and WorldCom to Bernie Madoff and the subprime meltdown, the Securities and Exchange Commission's reputation as an effective enforcer is in tatters. Once, foreign companies were happy to list in New York because subjecting themselves to American regulators signaled to investors that they were transparent companies with reliable accounts. But what's the certification value of being listed on a New York exchange if the New York policers don't detect fraud? Meanwhile, the restrictions imposed ex post facto on TARP recipients, Congress's confiscatory tax on executive bonuses, and contemplated populist financial! reforms have made clear that regulators will heavily interfere with private business. In fact, from both a political and a regulatory perspective, the United States of the future will look like a continental European country. That's not an environment conducive to financial innovation.

Finally, the crisis will have major effects on New York's competitive edge in the tax area. Despite New York City's and New York State's heavy taxes, the federal government's low top tax rate and favorable treatment of hedge-fund income long made New York an attractive place for financiers to live and work. Prospective tax increases (at both the federal and state levels) and the likely closing of tax loopholes will make New York very unattractive, especially for resident aliens who can avoid higher taxes by moving abroad. New York's main consolation is that the United Kingdom's fiscal deficits will prevent the British from competing too aggressively on the tax front. But new financial centers, such as Singapore or Dubai--or even old ones, like Zurich--could become a real threat.

One might argue that New York maintained its world dominance during the high-tax years of the Johnson and Nixon administrations, so higher taxes can't hurt more. But the delocalization of trade brought about by technology and the Internet has made global competition much more intense than it used to be. Bermuda, the capital of reinsurance, could easily become the capital of the hedge-fund industry as well.

The biggest threat of all to the Big Apple's financial supremacy, however, comes from Washington. The Founding Fathers wisely decided that the nation's political capital should be separate from its financial capital (in both senses of the word). Now this splendid segregation has ended. If the outcome of the Chrysler bankruptcy is any indication, Washington is willing to flex its muscle in financial decisions, altering the substance of contracts freely agreed to by private parties. In so doing, the national government has undermined the certainty of the rule of law, which was the American capital market's strongest asset.

Unfortunately, since Washington is the source of the problem, New York City can do little by itself to defend its position. Perhaps the city's best bet is to offer favorable tax treatment to the financial industry--but to do that, it had better first put its finances in order.




Rasmussen: 80% Say Wall Street, Not Taxpayers, Benefited More From Bailout - As Goldman Sachs Announces Record Profit: "Eighty percent (80%) of Americans now say Wall Street benefited more from the bailout of the financial industry than the average U.S. taxpayer. Only eight percent (8%) of adults say the taxpayer benefited more, according to a new Rasmussen Reports national telephone survey. Twelve percent (12%) are not sure. This marks a notable increase in skepticism from October when 63% saw Wall Street as the chief beneficiary as the first bailout of the financial industry was working its way through Congress. In February when the Obama administration announced another bank bailout plan, 67% said Wall Street would benefit more than taxpayers. Goldman Sachs, one of the Wall Street recipients of a bailout, repaid that money in June. The firm, which also has benefited from cheap government financing, is now reporting a record profit for the last quarter and has announced plans for billions in employee bonuses."

From a time when the Episcopal church was still Christian: "On Sunday July 20, 1969 the first people landed on the moon. Neil Armstrong and Buzz Aldrin were in the lunar lander which touched down at 3:17 Eastern Standard Time. Buzz Aldrin had with him the Reserved Sacrament... Later he wrote: “In the radio blackout, I opened the little plastic packages which contained the bread and the wine. I poured the wine into the chalice our church had given me. In the one-sixth gravity of the moon, the wine slowly curled and gracefully came up the side of the cup. Then I read the Scripture, ‘I am the vine, you are the branches. Whosoever abides in me will bring forth much fruit.’ …Eagle’s metal body creaked. I ate the tiny Host and swallowed the wine. I gave thanks for the intelligence and spirit that had brought two young pilots to the Sea of Tranquility. It was interesting for me to think: the very first liquid ever poured on the moon, and the very first food eaten there, were the communion elements.” NASA kept this secret for two decades. The memoirs of Buzz Aldrin and the Tom Hanks’s Emmy- winning HBO mini-series, From the Earth to the Moon (1998), made people aware of this act of Christian worship 235,000 miles from Earth."

Obama's hatred of small businesses on display: "The White House on Wednesday blasted growing, bipartisan congressional efforts to aid closed auto dealers but stopped short of threatening a veto. An amendment to put dealers back in business survived a challenge in the House Rules Committee on Tuesday and is to be voted on as part of the financial services appropriations bill this week. The Obama administration said reversing dealer closings would set a "dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point." The statement is consistent with the administration's position during the bankruptcies of General Motors Corp. and Chrysler LLC, in which the automakers shed more than 3,000 dealerships. Nonetheless, battle lines are being drawn as a number of high-ranking congressional Democrats back a measure opposed by a president of their own party." [Obama likes big businesses only -- ones he can more easily control]

Seattle boondoggle finally operational: "Thousands of people enjoyed free rides Saturday on the first day of service for Seattle's new light rail line. After more than four decades of political wrangling and financial struggles that ran transit rail plans for Seattle off the tracks, trains are finally running. Sound Transit officials estimated more than 30,500 riders had used the new light rail line as of Saturday afternoon. A soccer game and a popular food festival were expected to add to those numbers as the day progressed. The agency offered free rides Saturday, and will do so again on Sunday for the opening weekend of the new line... A dozen two-car trains ran at 7 1/2-minute intervals. Two more trains were in reserve, along with seven other rail cars that also could be used."

There is a new lot of postings by Chris Brand just up -- on his usual vastly "incorrect" themes of race, genes, IQ etc.


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)



rocky said...

i liked how you clarified 'nazi' as 'national socialist'...however i was very concerned about the note erroneously saying most black adults had IQ of eleven year olds?

this is not only wrong. it's terrible and questions the credibility of the rest of your site!

JR said...

An average IQ of an 11 year old is the implication of an IQ that is on average one standard deviation below average

Check the facts. Start here: