Episode #222: Free-Rider Friday, December 2018

Episode #222 reminded Ed of the old TV show, Room 222, which ran from 1969-1974 (typical bad 70’s TV).

Ed’s Topics

Warren Myer, Coyote Blog, October 2018, the real scandal in climate science.

Andrew Winston, Harvard Business Review article on pending climate catastrophe.

Ed’s brother’s Christmas joke.

[On the take down of the 1984 song “Do They Know it’s Christmas” by Band Aid, see our shows with Father Sirico, Episode #134, and Magatte Wade, Episode #160, and the movie they made, Poverty, Inc.].

From Intellectual Takeout, November 25, 2018, Socialists are more materialist than capitalists.

New York Times, December 21, 2018, “What is Glitter?”

Ron’s Topics

“IBM’s rebel yell,” The Economist, November 3, 2018

• IBM bought Red Hat, $34B, 63% premium

• Founded 1993, $2.9B revenue

• For 22 quarters IBM revenue declined

• Culture clash IBM straight-laced, Red Hat freewheeling

• Watson: disappointment in AI

• Red Hat name: 18th-century revolutionaries in American and France wore red caps.

• Now, open-source looks like the establishment

“Coping with the 100-year-life society,” The Economist, November 17, 2018

More than one-half of Japanese babies can expect to live to 100.

Shinzo Abe talks about a model of how to make ultra-long lives fulfilling and affordable (“designing the 100-year-life society”). The Economists thinks Japan needs to: 

1. Persuade current workers to labor longer

2. Encourage more women into the labor force

3. Let in more immigrants

Even though it has made progress on all three, it’s not enough. The Japanese population is declining at almost 400,000 year, and there are 1.6 vacancies for every jobseeker.

“Baby bust,” The Economist, November 24, 2018

From 2007 to 2017, America’s fertility rate dropped from 2.12 to 1.77, which is equal to England, but well below France. The teenage birth rate has halved in the past 10 years.

“Staying alive,” The Economist, November 24, 2018

Suicide rate in America is up 18% since 2000, largely among white, middle-aged, poorly educated men.

At the global level, suicide is down by 29% since 2000, notable among:

• Women in China and India

• Middle-age men in Russia (stage between communism and capitalism: alcoholism)

• Old people all around world

Why? Greater urbanization; falling poverty; greater employment rates.

515 people survived jumping off the Golden Gate bridge between 1937-1971, 94% were still alive in 1978. 90%+ survivors of suicide don’t try it again.

Suicide is strangely contagious: after Robin Williams committed suicide in 2014, 1,800 more suicides than would otherwise have been expected occurred within the next 4 months.

The Economist thinks doctors should be able to assist. Ron vehemently disagrees with this.

“Take a break,” The Economist, November 24, 2018

The average Americans worker in a typical year works 100 hours more than an average Briton, French, and 400 hours more than average German worker.

Average American worker receives 17.2 days of vacation (it was 20.3 1978); around one-half don’t take full allotment.

In the European Union, there are 20 paid holidays per year (in Spain and Sweden, 36). And HBR study in 2016 found that those who took 11+ days off were twice as likely to get a raise.

But the causation could be the opposite: star workers may feel they can afford to take a break.

Extra hours don’t automatically lead to higher productivity. Parkinson’s law: work expands to fill the time available.

Episode #221: The Subscription Business Model, Part II

Ed and I continue our exploration of the subscription business model. Check out our first episode in this series from November 9, 2018 (Episode #217).

The Automatic Customer: Creating a Subscription Business in Any Industry

By John Warrillow

Buy on Amazon

In this episode, we discussed the book, The Automatic Customer: Creating a Subscription Business in Any Industry, by John Warillow (2015).

The history of the subscription model dates back to the 1500s, when European map publishers subscribed to future editions. Newspapers and magazines began in 17th century Europe. Ron’s first book, The Professional’s Guide to Value Pricing, which was published by Harcourt Brace initially, was sold on a subscription model.

Vijay Ravindran, from Amazon Prime: “It was never about the $79. It was really about changing people’s mentality so they wouldn’t shop anywhere else.” Nothing has been as successful in getting people to shop in new product lines

Nine Subscription Business Models

1. The Membership Website Model—Wall Street Journal, New York Times, The Economist, Financial Times, etc.

2. The All-You-Can-Eat Library Model—Spotify, Rdio, Rhapsody, Netflix, etc.

3. The Private Club Model—Ongoing access to something rare (networking clubs, etc.). Disney’s Club 21 [and Club 33] at Disneyland.

4. The Front-of-the-Line Model—Priority access to a group of your customers  (turnaround time, etc.).

5. The Consumables Model—A product that needs replenishing (razors, diapers, socks).

6. The Surprise Box Model—a curated package of goodies, sometimes samples (wine, cholates, etc.). Requires big supply chain, variety products, etc.

7. The Simplifier Model—Hassle Free Home Services takes care of your home maintenance, $350/month. Bigger jobs are provided, 50% of revenue. Don’t need to bundle all your services, just the ones your customer needs regularly (Q&A, tax, compliance, etc., in professional firms). Check out the Porschepassport.com—you can subscribe to a car company!

8. The Network Model—Partial access to expensive infrastructure, value increases as more people subscribe (Zipcar, acquired by Avis).

9. The Peace-of-Mind Model—Insurance against something your customers hope they’ll never need. Tagg is a pet tracking service, or IRS audit representation offered by accounting and law firms, Turnover Insurance, LoJack for laptops and Alzheimer’s sufferers, etc. You earn an underwriting profit, which is equal to the premiums less claims paid, plus the investment of float). Calculating risk biggest challenge, so go slow, only offer to handful of customers, limit your coverage to a dollar amount (# incidents, etc.), reinsure.

Episode #220 : Memorable Mentors: Eric Hoffer

Biography

Eric Hoffer (July 25, 1898 – May 21, 1983) was an American moral and social philosopher. He was the author of ten books and was awarded the Presidential Medal of Freedom in February 1983 (Reagan). His first book, The True Believer (1951), was widely recognized as a classic, receiving critical acclaim from both scholars and laymen, although Hoffer believed that The Ordeal of Change (1963) was his finest work. Hoffer was born in 1898 in The Bronx, New York, to Knut and Elsa (Goebel) Hoffer. His parents were immigrants from Alsace, then part of Imperial Germany. When he was five, his mother fell down the stairs with him in her arms. He recalled, "I lost my sight at the age of seven. Two years before, my mother and I fell down a flight of stairs. She didn’t recover and died in that second year after the fall. I lost my sight and, for a time, my memory." His eyesight inexplicably returned when he was 15. Fearing he might lose it again, he seized on the opportunity to read as much as he could.

His recovery proved permanent, but Hoffer never abandoned his reading habit. By age five, Hoffer could already read in both English and his parents' native German. He was raised by a live-in relative or servant, a German immigrant named Martha. Hoffer spoke with a pronounced German accent all his life, and spoke the language fluently. Hoffer was a young man when he also lost his father. The cabinetmaker's union paid for Knut Hoffer's funeral and gave Hoffer about $300 insurance money. He took a bus to Los Angeles and spent the next 10 years on Skid Row, reading, occasionally writing, and working at odd jobs.

In 1931, he considered suicide by drinking a solution of oxalic acid, but he could not bring himself to do it. He left Skid Row and became a migrant worker, following the harvests in California. He acquired a library card where he worked, dividing his time "between the books and the brothels." He also prospected for gold in the mountains. Snowed in for the winter, he read the Essays by Michel de Montaigne. Montaigne impressed Hoffer deeply, and Hoffer often made reference to him. He also developed a respect for America's underclass, which he said was "lumpy with talent."

Eric Hoffer: The Longshoreman Philosopher, Tom Bethell, 2012

Eric Hoffer: The Longshoreman Philosopher (Hoover Institution Press Publication Book 616)

By Thomas Bethell

Buy on Amazon

Hoover Institution houses Eric Hoffer’s papers.

His early decades are a mystery (DOB: some say 1902, more likely 1898). Grew up in Bronx, blind for 8 years, recovered his sight.

Quite possibly born in Germany and never became a legal resident of the USA. Lili Osborne knew him better than anyone, thought it possible he was born in Germany. His birth certificate has never been found. He had no passport. He spoke with a thick German accent, not American, as most immigrants. His Social Security Application applied on June 10, 1937 shows born in NYC on 7/25/1898. Fellow Dockworkers referred to him as “The one who writes books.” He was turned down by US army in 1942 due to a hernia.

Found himself broke in San Diego in 1934 (he lived on skid row in Los Angeles, then was a migrant worker in California’s Central Valley). His whereabouts from there are well known. He moved to San Francisco permanently after Pearl Harbor and worked as a longshoreman.

He described himself as an atheist (Tom Bethell says his thoughts are too complex to label). He remained very concerned about the fate of the Jews. He became an Adjunct professor at UC Berkeley during the Free Speech movement; President Johnson received him at the White House.

He worried about automation; later, he saw his fears were greatly exaggerated.

“I cannot get excited about anything unless I have a theory about it.”

Murray Rothbard was critical of Hoffer. He wasn’t interested in economics. Though he was a neoconservative.

He did say in the 1970s: “Russia’s day of judgment will come sometime in the 1990s. And when the day comes everyone will wonder that few people foresaw the inevitability of the end.”

Two contemporary writers did impress him: George Gilder, especially an article in Commentary, “In defense of Monogamy,” and Malcolm Muggeridge on Sidney and Beatrice Webb.

Jean Paul Sartre: […intellectuals enjoy the privilege of being] “scandalously asinine without harming their reputations.” Hoffer wondered what would America have been like if only college graduates had been allowed to enter the country?

He wrote that prior to FDR if you failed, blamed yourself; after FDR, you blamed the government and the system. America’s decline began with FDR and it’s absurd to think of him as a great man. He’s buried at Holy Cross in Colma, (as is Ron’s Grandmother).

The True Believer: Thoughts On The Nature of Mass Movements, 1951

The True Believer: Thoughts on the Nature of Mass Movements (Perennial Classics)

By Eric Hoffer

Buy on Amazon

Summary: President Eisenhower cited it during one of his earliest TV press conferences (Look profile stated he was Ike’s favorite author). A highly provocative look into the mind of the fanatic and a penetrating study of how an individual becomes one. Mass movements and political fanaticism.

Bethell: True believers are disappointed men—disappointed in their own lives. But instead of recognizing this they seek to reform the world. [Nazi leaders initially had artistic or literary ambitions, failed at them]. Only a handful mentioned in book: Hitler, Stalin, Luther and Gandhi, St. Paul and Jesus.

Richard Pipes: “the masses don’t make revolutions, they make a living.” Revolutions are started by intellectuals. Hoffer originally thought Communism was a mass movement, and highly productive.

Quotes

• Fear of the future causes us to lean against and cling to the present, while faith in the future renders us receptive to change.

• A man is likely to mind his own business when it is worth minding. When it is not, he takes his mind off his own meaningless affairs by minding other people’s business.

• Our frustration is greater when we have much and want more than when we have nothing and want some.

• Unless a man has the talents to make something of himself, freedom is an irksome burden. …We join a mass movement to escape individual responsibility, or, in the words of the ardent young Nazi, “to be free from freedom.”

• The genius of a great leader consists in concentrating all hatred on a single foe…We do not usually look for allies when we love. But we always look for allies when we hate.

• The best and worst is observed in the case of language. The respectable middle section of a nation sticks to the dictionary. Innovations come from the best—statesmen, poets, writers, scientists, specialists—and from the worst—slang makers.

The Ordeal of Change, 1963

The Ordeal of Change

By Eric Hoffer

Buy on Amazon

Summary: Essays on the duality and essentiality of change in man throughout history. In Chapter One, titled Drastic Change, he begins: It is my impression that no one really likes the new. We are afraid of it.

Quotes

• Intellectuals have been imprisoned and liquidated in Communist countries. What the intellectual craves above all is to be taken seriously, to be treated as a decisive force shaping history. He would rather be persecuted than ignored.

• There can be no real freedom without the freedom to fail.

• The intellectual derives his sense of usefulness mainly from directing, instructing, and planning—from minding other people’s business—and is bound to feel superfluous and neglected…in any social order that can function with a minimum of leadership will be anathema to the intellectual.

• To adopt the role of the pioneer and avant-garde is to place oneself in a situation where ineptness and awkwardness are acceptable and even unavoidable; for experience and know-how count for little in tackling the new, and we expect the wholly new to be ill-shapen and ugly.

• We know that words cannot move mountains, but they can move the multitude; and men are more ready to fight and die for a word than for anything else. Words shape thought, stir feeling, and beget action; they kill and revive, corrupt and cure. The “men of words”—priests, prophets, intellectuals—have played a more decisive role in history than military leaders, statesman, and businessmen.

Reflections on the Human Condition, 2006

Reflections on the Human Condition

By Eric Hoffer

Buy on Amazon

Epigraph: If anybody asks me what I have accomplished, I will say all I have accomplished is that I have written a few good sentences.

Summary: A collection of poignant aphorisms taken from his writings.

Quotes

Nature attains perfection, but man never does.

We hear a lot about the dehumanizing effects of the machine. Actually, the large-scale dehumanization of the Stalin-Hitler era was the work of ideological machines. In Russia the doctrinaire appliances work better than the mechanical.

A concern with right and wrong thinking is the manifestation of a primitive, superstitious mentality.

In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.

Noncomformists travel as a rule in bunches. You rarely find a noncomformist who goes it alone.

It almost seems that nobody can hate America as much as native Americans. America needs new immigrants to love and cherish it.

Action is released by emotion, and emotion is stirred by words.

An empty head is not really empty; it is stuffed with rubbish. Hence the difficulty of forcing anything into an empty head. (Ron wonders is this was a prescient quote about AOC.)

When a genuine leader has done his work, his followers will say, “We have done it ourselves,” and feel that they can do great things without great leaders. With the noncreative it is the other way around: in whatever they do they arrange things that they themselves become indispensable.”

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.

People who bit the hand that feeds them usually lick the boot that kicks them.

There are no chaste minds. Minds copulate where ever they meet.

A man’s worth is what he is divided by what he thinks he is.

More Quotes

It’s disconcerting to realize that businessmen, generals, soldiers, men of action are less corrupted by power than intellectuals...You take a conventional man of action, and he’s satisfied if you obey. But not the intellectual. He doesn’t want you just to obey. He wants you to get down on your knees and praise the one who makes you love what you hate and hate what you love. In other words, whenever the intellectuals are in power, there’s soul-raping going on. –Eric Hoffer

The best education will not immunize a person against corruption by power. The best education does not automatically make people compassionate. We know this more clearly than any preceding generation. Our time has seen the best-educated society, situated in the heart of the most civilized part of the world, give birth to the most murderously vengeful government in history. Forty years ago the philosopher Alfred North Whitehead thought it self-evident that you would get a good government if you took power out of the hands of the acquisitive and gave it to the learned and the cultivated. At present, a child in kindergarten knows better than that. –Eric Hoffer

The monstrous evils of the twentieth century have shown us that the greediest money grubbers are gentle doves compared with money-hating wolves like Lenin, Stalin, and Hitler, who in less than three decades killed or maimed nearly a hundred million men, women, and children and brought untold suffering to a large portion of mankind. –Eric Hoffer

The central task of education is to implant a will and a facility for learning; it should produce not learned but learning people. The truly human society is a learning society, where grandparents, parents, and children are students together. In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists. –Eric Hoffer

Other Program Notes—Third Segment

Five-Star Review on iTunes from Scott The Locksmith. Thank you Scott and welcome to the TSOE Community!

Email from Liz Farr on New Mexico: One of our 50 is missing, December 1

Hi Ron and Ed,

Thanks for sharing the piece on the NM resident who had to convince someone that NM is part of the US. 

This happens all the time. For decades, New Mexico Magazine has had a column called “One of our 50 is missing.”  I’ve had experience with this myself. Here are some of my personal experiences:

I’ve been told that my English is very good and that my skin is lighter than they expected. 

Back in the 80s, when I was living in Albuquerque, I sent off to the University of Chicago for information on their graduate program in neuroscience. I received a package plastered in stamps, with “Air Mail” stamped all over. Inside that package was information on the Test of English as a Foreign Language, which I would have to pass before I could enroll.

Also in the 80s, my then-boyfriend applied to grad school at Brown University. He forgot to include a check for $20 for the application fee. He got a letter back, also covered with stamps and also stamped “Air Mail,” that noted they needed his application fee. Since the fee had to be paid in US dollars, they suggested that perhaps he had a friend in the US who might be willing to pay on his behalf. 

No problems with TSA, but I did run into a BC border patrol agent who asked if I had made the NM license plate on my car myself. 

Thanks for the chuckle!

Liz

Email from Tim

Ron,

I am reading your book [Implementing Value Pricing] and have written you once before.

This is a sincere question: I am 57 years old and have had my own marketing firm since 2002. (Pricing and billing by the hour no less).

What do you say to people when they read your implementing value-based pricing book, look to the heavens and cry out in frustration “Why the hell didn’t I swerve into this book and value pricing 20 years ago?”

Is there any sentiment that gives them peace?

Even though I’ve started implementing this thinking in the last six months, I need it.

Thank you, TIM

Ron’s reply to Tim

Hi Tim,

Thank you so much for your email.

I know it is cliche to say, “I wish I had a nickel…” but it’s true nonetheless.

Yours is a common reaction. We had one guy sit in a course on Value Pricing with his arms crossed and was silent the entire time. We wrote him off as a skeptic with no hope of changing his mind, let alone the behavior in his firm.

We shouldn’t have. He went back and implemented everything, almost immediately, including eliminating timesheets.

When we asked him how he was able to do all this so quickly, he replied (paraphrasing here, but it’s close): “I was so damn mad sitting in your course and computing how much money I had left on the table over my career that I swore I would change.”

So the sentiment that should give you peace is this: it’s never too late to change.

It’s one thing to be wrong; it’s quite another to stay wrong.

You’ve taken the first giant step.

Keep in touch and let me know your progress. Thanks, Tim.

Regards,

Ron

Forbes Article Quotes Ron on Auditor Independence

Hat tip to Liz Farr for letting me know about this Forbes article on auditor independence (spoiler alert: auditors aren't independent, no matter all the lip service paid by the profession to this claim). 

I'm quoted by the author, Mike Whitmire—CEO and Co-Founder of FloQast’s, and leads its corporate vision, strategy and execution—on a proposed remedy: have the stock exchanges select and pay the auditors, and also open up the attest function to competition, such as insurance companies that could offer financial statement insurance, and other firms that could attest to blockchain transactions (one startup already exists to attest to smart contracts on blockchains). 

I first came across the stock market exchange idea from an excellent book: After Enron, by William A. Niskanen. It is chocked full of sensible diagnosis and prescriptions on this issue that you won't find in the mainstream accounting media.

Economists don't like monopolies, and there's no reason to have the attest function locked into CPAs only. It stifles innovation and new ways to offer the attest function that would be far more effective, and more truly independent. I've been writing and teaching about this in our ethics course for over 20 years. Great to see Forbes pick up on it.

You can see the 50+ comments on Ron’s LinkedIn blog on this article, with over 16,000 reads.

Episode #219: Free-rider Friday - November 2018

Ron’s Topics

“Pinot or pot?, The Economist, October 13, 2018

Winemakers worry that people’s “intoxication budgets” could be diverted to pot—they are substitutes, not complements.

Wineries complain they can’t afford seasonal labor to harvest grapes—cannabis farms pay more

Sonoma County imposed restrictions on who may grow weed, and where

Legalization will encourage more women, baby boomers and high earners—the demographic that buys a lot of wine—to smoke weed.

Legalization and medical marijuana are associated with a 15% drop in alcohol consumption (72% Americans think weed is safer).

“Polish airline asks passengers to chip in for plane’s repairs before takeoff,” news.com.au, November 22, 2018

Seen and not seen. What incentives are being created here?

“A Selection from the trolley,” The Economist, October 27, 2018

From a paper published in Nature, MITs “Moral Machine” website asks the general public and gathered nearly 40 million decisions from 233 countries, territories, or statelets. Ed and his family were among those who participated.

Strongest preferences:

• Saving human over animal lives

• Save many rather than a few

• Prioritizing children over the old

Weakest preferences:

• Saving women over men

• Pedestrians over passengers in cars

•  Taking action rather than doing nothing

•  Criminals subhuman, below dogs, but above cats!

Differences by countries: Western, Eastern, Southern. Autonomous cars may need to download new moralities when cross national borders.

So far, Germany only country to propose ethical rules, one that discrimination by age should be forbidden.

All sort of choices will affect who lives and dies, e.g., staying relative close to cycle lane. Repeat that over hundreds of millions of trips, and you’re going to see a skew in the accident statistics.

For our show on ethics, and the trolley thought experiment, see Episode #7: Everyday Ethics: Doing Well and Doing Good.

“General Motors Restructures,” National Review, The Editors, November 28, 2018, and “The Bailouts at Ten: I Told You So,” National Review, Kevin Williamson, November 28, 2018, and “A hard bargain,” The Economist, November 3, 2018

See Ron’s review of Car Guys vs. the Bean Counters.

Ed’s Topics

D.C. Agency Is Sorry Its Staff Didn't Know New Mexico Is a State

Reason story on a mistake at a Washington, DC agency denying marriage license for New Mexico resident, asking for a New Mexican passport.

Here's how climate change will impact your part of the country - CNN

refuted by Warren Meyer in

Knowledge and Certainty "Laundering" Via Computer Models

Our show with Warren Meyer

Another Economics Joke - David Friedman’s Idea Blog

Our show with David Friedman

The Importance of Local Knowledge

Don Boudreaux’s friend, Frayda Levin, recently sent the following excellent letter to the New York Times. Our show with Donald Boudreaux.