Episode #202: Free-Rider Friday - July 2018

Ron’s Topics

“Proposed SF law could force tech workers to actually go out for lunch,” July 24, 2018, San Francisco Chronicle

San Francisco wants to ban employee cafeterias on all new office building construction to help restaurants and small business. Here’s the pull quote from one of the supervisors:

This is also about a cultural shift,” he said. “We don’t want employees biking or driving into their office, staying there all day long and going home. This is about getting people out of their office, interacting with the community and adding to the vibrancy of the community.

The Nanny state run amuck.

“The EU’s 4.3 Billion Euro Fine on Google Will Hinder—Not Help—European Consumers,” FEE, July 20, 2018, Sam Dumitriu

EU Commissioner for Competition Margrethe Vestager imposing 4.3B Euro fine.

Competition takes place between bus models, not just products/services.

EU is favoring tightly controlled integrated platforms (Apple) over more open Android. Google Play, Google Chrome, Search, creates a “lock-in effect” the EU claims, even though 100 million users installed Firefox on their smartphones.

Besides, Android is free, which benefits makers of low-end mobile phones, and lowers barriers to entry. You can buy a smart phone under £50 now. This could crush low end of the market.

Nirvana Fallacy, comparing messy, complex, real-world w/a simplified idealized alternative.

Let consumers decide on which business model is best.

“Shape up, not break up,” The Economist, May 26, 2018

Recent collapse of Carillion, a British contracting firm. Members of Parliament spewed bile against the Big Four, KPMG (the auditor) but also other three—Deloitte, EY, and PWC. They called for a review and asked if the Big 4 should be broken up.

The Big 4 audit 98% of the S&P 500 and the FTSE 350. Yet auditors are paid by the very companies they’re auditing, not by the investors.

The Economist posits that a break up is premature. Here are some proposals to correct incentive problem:

• Regulators pick auditors—[probably lead to cronyism]

  • Mandatory insurance, insurers hire auditors

  • Stock markets pay auditors [Ron’s favored proposal]

  • Rotation after 20 years; tender after 10, in the EU 

    • Average Dow Jones company tenure with auditor firm, a cosy 66 years

  1. Lower the cap on non-audit fee (generous 70%)

     • $47B auditing; $87B consulting and tax for Big 4 as a whole

  2. Add more to audit opinion (they should read like movie reviews)

Another problem: lawmakers, investors and courts all disagree about what an audit should be. Who’s fault is this? The profession has done a lousy job marketing exactly what an audit is, and isn’t.

“How tech’s richest plan to save themselves after the apocalypse,” The Guardian, July 24, 2018, Douglas Rushkoff

Fascinating article. We will let our listeners draw their own conclusions.

“Another California City is Trying a Universal Basic Income: Will it Work?” FEE, July 20, 2018, Andrew Berryhill

In 2019, Stockton, CA joins San Francisco and Oakland in testing a UBI. 100 Stocktonians will receive $500/month, for 18 months, unconditionally.

This test is being 100% privately funded by a $1 million grant from the Economic Security Project co-founded by Chris Hughes (co-founded Facebook).

“In praise of gentrification,” The Economist, June 23, 2018

Gentrifier has become a dirty word—young Yuppies snuffing out local culture. Ta-Nehisi Coates writes: “Gentrification is but a more pleasing name for white supremacy.” This is an urban myth! Gentrification can be more neutrally described as poor urban neighborhoods becoming wealthier.

Economists have failed to find a rise in displacement among the poor; in fact, they are more likely to stay put. In New York, in gentrified neighborhoods between 1990-2014, the number of poor barely moved. The benefits of gentrification include:

• Reduced crime

  1. Better amenities

  2. More investment

  3. Higher property values

  4. Reduces white flight

  5. Lawmakers usually promote affordable housing

  6. Boosts racial and economic integration

  7. Dilutes concentration of poverty

  8. One resident of Logan Circle, downtown Washington DC, bough 1993 $130,000, sold for $1.6M

Those who argue against gentrification want to keep poor neighborhoods poor. What accounts for the antipathy towards gentrification?

1. The cost of housing: 32% of pre-tax earnings is spent on rent in 2001, which increased to 38% in 2015. The poor spend 52%. This has more to do with supply restrictions on new development. Also, the creation of jobs has outpaced additional housing in New York by 2:1; in San Francisco by 8:1.

2. Culture: Yuppies alter the character (T-Shirts: “Don’t Brooklyn my Detroit). Detroit would do well with a bit more Brooklyn. You can listen to a podcast from NPR On Point podcast on gentrification, which has the journalist on from The Economist, among others.

Ed’s Topics

Bosses are good guys/gals

In Birmingham, AL, an employee walked 20 miles to his first day of work, and his employer bought him a car. 

Lego is bigger than ever due to story telling

“Brick by Brick: How Lego Became the Largest Toy Company in a Digital Era,” FEE, Friday, July 06, 2018, Brittany Hunter

Gene editing is very real as long as the FDA doesn't muck with it

Swift Gene-Editing Method May Revolutionize Treatments for Cancer and Infectious Diseases

From Gina Kolata of the New York Time: Scientists report that they have discovered a way to tweak genes in the body’s immune cells by using electrical fields.

Ethics of autonomous cars

On vacation my family and I discovered this research project at MIT's Museum. Give it a whirl yourself. 

See our Episode #7 on Everyday Ethics: Doing Well and Doing Good, where we discuss Trolleyology, and the book, Would You Kill the Fat Man? By David Edmonds.

It's BACK!

Amazon announces Season 3 of The Man in the High Castle will drop October 5! Ron says he won't be on the show, but I do not believe him. 

Let's Go NUKES!

Why I changed my mind about nuclear power, Michael Shellenberger, TEDx Berlin.

Episode #201: Interview with Jeffrey Tucker

Jeffrey Tucker is an economics writer of the Austrian School, an advocate of anarcho-capitalism and Bitcoin, a publisher of libertarian books, a conference speaker, and an internet entrepreneur.

He is Editorial Director of the American Institute for Economic Research and Chief Liberty Officer (CLO) of Liberty.me. Tucker is also an adjunct scholar with the Mackinac Center for Public Policy, a research affiliate of RMIT University's Blockchain Innovation Hub, and an Acton Institute associate.

Ed’s Questions

What’s your take on the madness that is the Trump presidency?

I don’t know if you’ve read Scott Adams’ (of Dilbert fame) book, Win Bigly, but it’s an excellent take on Trump—he has “weapons-grade persuasion ability.”

The latest rise in Bitcoin: is this the latest rally, or another bump along the road?

Are you long-term bullish on just Bitcoin, or crypto currencies in general?

One of listeners submitted a question. Given your anarcho-capitalism beliefs, what about the free-rider problem, such as national defense? Could it lead to the destruction of what we hold dear?

You are an associate of the Acton Institute, and Father Robert Sirico has been a guest on TSOE twice (Episode #16 and Episode #134). You converted to Catholicism. I want to know what brought you to Catholicism and is [Pope] Francis making you rethink it?

You’re also an amateur actor who starred in a play about Ayn Rand written by Murray Rothbard titled “Mozart Was a Red.” You played a character modeled on Nathaniel Branden. Tell us a little about that play.

Ron’s Questions

Right-Wing Collectivism: The Other Threat to Liberty

By Jeffrey Tucker

Your book, Right-Wing Collectivism: The Other Threat to Liberty, published in 2017, has a Preface written by Deirdre McCloskey, our first guest on TSOE (Episode #6).

You write: “The rise of the so-called alt-right is the most unexpected ideological development of our time.” How so?

You write about how right-wing collectivism wants to control population demographics. Supreme Court judge Oliver Wendell Holmes Jr. wrote in a famous decision: “Three generations of imbeciles is enough.” You point out the absence of dissenting voices on the topic, which is amazing looking back on it. It also corrupted the economics profession in the first two decades of 20th century didn’t it?

You also document that eugenics was the origin of the minimum wage, which was a policy designed to erect a high wall to the “unemployables,” and also to control women: imposing maximum work hours, marriage licenses, immigration quotas and controls, and so on.

You take on some rich people in the book, such as Donald Trump, George Soros, Ross Perot, and others. Someone once quipped “The problem with socialism is socialism. The problem with capitalism is capitalists.” Why do you think so many rich people don’t understand free market economics?

What is your view on a Universal Basic Income? (See our Episode #95).

Are you optimistic with respect to the future of liberty, or pessimistic?

Episode #200: Interview with Reginald Lee

Welcome to our 200th episode! Four years on the air! Thank you!

George Gilder was suppose to be on the show today to discuss his latest book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy, but a change in his schedule would not allow it. George was kind enough to send us an advance copy, which we highly recommend. He will be on the show on August 31, 2018 to discuss this important book.

For our 200th show, we brought back Dr. Reginald Tomas Lee, author of Lies, Damned Lies, and Cost Accounting: How Capacity Management Enables Improved Cost and Cash Flow Management. Reginald first appeared on October 7, 2016, Episode #112.

We focused on his upcoming book, Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management, which is due out this November or December.

Biography

Dr. Reginald Tomas Lee is an advisor and researcher in the areas of cash flow, capacity management, and profitability. Using a deep background in engineering and math, he has created tools and models that have helped executives in businesses of all types improve the management of cash flow and other financial data.

Professionally, Reginald has worked in industry, academia, and consulting including leading global companies such as EY, GM, IBM, and Oracle. He has advised many marquee names such as Bristol Myers Squibb, Disney, DuPont, Home Depot, Lockheed, Office Depot, Raytheon, Toyota, and United Healthcare. Reginald has a PhD in mechanical engineering from the University of Dayton, and is the author of three books and over 40 published articles and white papers. He is a feature writer for Journal of Corporate Accounting & Finance and a contributor to the Cincinnati Business Courier, and a professor at Xavier University, and is a senior fellow at VeraSage Institute.

Ron’s Questions

What do you teach at Xavier University?

In Lies, Damned Lies, and Cost Accounting: How Capacity Management Enables Improved Cost and Cash Flow Management, 2016, you argue that there are three reasons cost accounting is a bad practice:

1. It creates and forces math and relationships don’t exist

2. You lose touch with operations

3. It creates meaningless numbers that people consider gospel

I know you’re teaching more and more CPAs, what’s there reaction to this?

Engineers developed cost accounting, not accountants. Further, they issued several warnings about how inexact it was, but no one paid attention—it just became gospel. I do blame accountants for that, for educating that cost accounting is some type of exact science.

Your upcoming book is Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management, due out in November [Ron is writing the Foreword]. You start this book by stating: “We’ve been fooled. Bamboozled.” How so?

What is so profound in both your books is the difference between metrics and measurements. Measurements are not dependent upon a choice (e.g., the choice of cost accounting method generates different amounts).

In the new book, you lay out four common cost-related sacred cows:

1. Costs equal money

2. Reducing costs saves money

3. More profit equals more money

4. Costs and profit are measured

The above looks reasonable to me. Why are they wrong?

Your distinction between cash costs and noncash cost is much better that cost accounting’s distinction between fixed and variable costs that cost accountants use since that still requires you to make arbitrary allocations.

You say that Strategic cost transformation (SCT) shifts focus of cost analysis from accounting-based to a corporate-wide system that models and aligns cash, operations, and accounting, comprised of:

Business Domain Management =  Operations & Cash Domain (OC) + Accounting Domain (AD)

You point out that no new information is created in the Accounting Domain! The OC domain is information without the drama.

The OC Domain answers such questions such as:

• How much spending on capacity?

• How efficiently and productively is it being consumed?

• What is consuming it?

• What output is being created?

• How do we project cash?

You write that the AD information is “dangerous to the untrained eye.” But really, it’s just as dangerous to the trained eye, providing a false sense of accuracy and control. Imagine the three of us are lost in New York City. Ed says, “I have a map!” And you say, “But it’s of Los Angeles.” And I say, “Yeah, but it’s better than nothing.”

Ed’s Questions

One of the influences on my career in project management is Eliyahu Goldratt, author of The Goal, and he also influenced you on cost accounting.

Time is really a constraint, not a resource. What you’re saying is that cash is not really a resource, it’s a constraint.

The title of your new book is Strategic Cost Transformation. What does that mean?

How does the Operations and Cash Domain differ from just running your business on a cash basis?

Cost accounting is just a derivative of logical positivism, a philosophical term that says just because we have numbers it’s scientific. But it’s not. What about the work you’re doing at the Cash Flow Innovation Lab. How does it translate into the field?

The Goal: A Process of Ongoing Improvement

By Eliyahu M. Goldratt, Jeff Cox

Buy on Amazon

Episode #199: Memorable Mentors - Peter Drucker

Peter F. Drucker is one of the truly serious thinkers the management consultant industry can point to with justifiable pride. Even though Drucker passed away November 11, 2005, at age 95, it does not mark the beginning of the end, but the end of the beginning, since he has left such a rich legacy. Along with the economics profession, Drucker alone is responsible for introducing, and being among the first to recognize, the knowledge worker and knowledge economy to the business world. Join Ron and Ed as they discuss the ideas, writings, thinking and influence of the most seminal management thinker of our times.

Peter Drucker is often invoked as saying, “If you can’t measure it, you can’t manage it.” Yet, you cannot find this as a direct quote of Drucker’s. In our research looking for this quote, I found the following:

Reports and procedures should be the tool of the man who fills them out. They must never themselves become the measure of his performance. A man must never be judged by the quality of the production forms he fills out – unless he be the clerk in change of these forms.

He must always be judged by his production performance. And the only way to make sure of this it by have him fill out no forms, make no reports, expect those he need himself to achieve performance. – Peter Ferdinand Drucker, The Practice of Management, 1954, page 135.

Someone once wrote that you should read Drucker just to learn how he thinks.

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Nowhere is that more true than this gem of a book: Technology, Management, and Society. A collection of 12 essays, dating from 1957 to 1969, which are so evocative all we can say is we are still grappling with the issues Drucker was so prescient in foreseeing over 50 years ago.

The essays are best summed up by Drucker himself, "…they stress constantly the purpose of management, which is not to be efficient but to be productive, for the human being, for economy, for society."

Drucker discusses the vital role of risk and profit in enterprise, as well as the brilliant observation that of all the institutions in society (family, church, government, professions, unions, not-for-profits, etc.) only the business enterprise is designed to create change:

Indeed, in the business enterprise we have the first institution which is designed to produce change. All human institutions since the dawn of prehistory or earlier had always been designed to prevent change—all of them: family, government, church, army.

Change has always been a catastrophic threat to human security. But in the business enterprise we have an institution that is designed to create change. It means that every business, to survive, must strive to innovate.

We can only provide a few examples of Drucker’s thinking, which do not do this little book justice. Here are some of our favorites:

But it should be said that in human institutions, such as business enterprise, measurements, strictly speaking, do not and cannot exist. It is the definition of a measurement that it be impersonal and objective, that is, extraneous to the event measured. A child’s growth is not dependent on the yardstick or influenced by being recorded.

 But any measurement in a business enterprise determines action—both on the part of the measurer and the measured—and thereby directs, limits, and causes behavior and performance of the enterprise. Measurement in the enterprise is always motivation, that is, moral force, as much as it is ratio cognoscendi.

This is another way of expressing [Ed] Kless’ Law: All measurements are judgments.

On youth, Drucker wrote this, "The young are always in the right, because time is on their side. And that means we have to change."

Executives who believe they can change one aspect of a company without affecting others are ignoring the reality of a firm being an interdependent system. Drucker explained the phenomenon this way:

There is one fundamental insight underlying all management science. It is that the business enterprise is a system of the highest order: a system whose parts are human beings contributing voluntarily of their knowledge, skill and dedication to a joint venture. And one thing characterizes all genuine systems, whether they be mechanical like the control of a missile, biological like a tree, or social like the business enterprise: it is interdependence.

The whole of a system is not necessarily improved if one particular function or part is improved or made more efficient. In fact, the system may well be damaged thereby, or even destroyed. In some cases the best way to strengthen the system may be to weaken a part—to make it less precise or less efficient. For what matters in any system is the performance of the whole; this is the result of growth and of dynamic balance, adjustment, and integration, rather than of mere technical efficiency.

This seems to be lost on advocates of Lean Six Sigma, whether in professional knowledge firms or factories.

There’s also an excellent discussion of why knowledge workers are different than manual workers, and why this requires leaders to change their thinking.

Our only quibble is Drucker gives far too much credit to Frederick Taylor, who recent scholarship has determined was a fraud. 

Peter Drucker on Business Models

One of Peter Drucker’s (1909–2005) many articles published in the Harvard Business Review (September-October 1994) was entitled “The Theory of the Business,” which laid out what he considered to be the essential elements executives would have to define in order to create wealth:

Not in a very long time—not, perhaps, since the late 1940s or early 1950s—have there been as many new major management techniques as there are today: downsizing, outsourcing, total quality management, economic value analysis, benchmarking, reengineering.

Each is a powerful tool. But, with the exceptions of outsourcing and reengineering, these tools are designed primarily to do differently what is already being done. They are “how to do” tools.

Yet “what to do” is increasingly becoming the central challenge facing managements, especially those of big companies that have enjoyed long-term success.

What accounts for this apparent paradox? The assumptions on which the organization has been built and is being run no longer fit reality. These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results.

These assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses. These assumptions are about what a company gets paid for.

They are what I call a company’s theory of the business.

In fact, what underlies the current malaise of so many large and successful organizations worldwide is that their theory of the business no longer works.

It usually takes years of hard work, thinking, and experimenting to reach a clear, consistent, and valid theory of the business. Yet to be successful, every organization must work one out.

What are the specifications of a valid theory of the business? There are four: 

1. The assumptions about environment, mission, and core competencies must fit reality.

2. The assumptions in all three areas have to fit one another.

3. The theory of the business must be known and understood throughout the organization.

4. The theory of the business has to be tested constantly. It is not graven on tablets of stone. It is a hypothesis. And so, built into the theory of the business must be the ability to change itself.

Peter Drucker’s autobiography: Adventures of a Bystander, 1978, 1994

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“I realized that I, at least, do not learn from mistakes. I have to learn from success.”

Socrates wasn’t a teacher, but a “pedagogue”—a guide to the learner.

The Socratic method isn’t a teaching method, it’s a learning method. For the teacher, the passion is inside him; for the pedagogue, the passion is inside the student.

A Functioning Society: Selections from Sixty-Five Years of Writing on Community, Society, and Polity, 2003

More of Drucker’s books deal with community, society and polity than management.

Marxism was the God that failed. “I once, in 1932, heard Hitler say in a public speech:

‘We don’t want higher bread prices; we don’t want lower bread prices; we want national-socialist bread prices.’ And 5,000 people in the audience cheered wildly.”

He coined the term re-privatization, from which Margaret Thatcher derived her policies of privatization.

The only successful policy of the Megastate is avoidance of World War III.

We no longer expect results from government. Only two things effectively: wage war and inflate the currency.

One thing red-tape is good for: to bundle up yesterday in neat packages.

“In the knowledge organization every knowledge worker is an “executive.” The number of people who have to be effective for modern organization to perform is therefore very large and rapidly growing. The well-being of our entire society depends increasingly on the ability of these large numbers of knowledge workers to be effective in a true organization. And so, largely, do the achievement and satisfaction of the knowledge worker.

To speak of “social responsibility of business assumes that responsibility and irresponsibility are a problem for business alone. Clearly, however, they are central problems for all organizations. The least responsible org today is not business, it’s universities.”

“Organizations don’t act socially responsible when concern themselves with social problems outside of their own sphere of competence and action. They act the most responsibly when they convert public need into their own achievements.”

“We need to what performance means. We need to be able to measure, or at least to judge, the discharge of its responsibility by an institution and the competence of its management….justifies their existence and power. Everything beyond is usurpation.”

“Knowledge workers cannot be supervised effectively. Unless they know more about their specialty than anybody else in the organization they are basically useless.”

Harvard Business Review Article, 1991

“Professional management hasn’t earned an ROI equal to its cost of capital. The raiders thus performed a needed function. Old proverb: If there are no grave diggers, one needs vultures.”

German and Japanese management don’t “balance” anything. Rather, they optimize the wealth-producing capacity of the enterprise (market standing, innovation, productivity, people and their development).

In his book The Landmarks of Tomorrow, 1957 is where Drukcer first used the term knowledge economy, and knowledge worker.

From Management Challenges for the 21st Century, 1991: The most important contribution management needs to make in the twenty-first century is to increase the productivity of knowledge work and the KW.

Knowledge work is unisex, equally well by both sexes. Corporations need knowledge workers more than they need them. Ultimately, knowledge workers are volunteers. Knowledge workers are more loyal to their profession than any organization.

Profits Come From Risk

Drucker’s three types of risks:

• The risk a business could afford to take

• The risk a business could not afford to take

• The risk a business could not afford not to take

The Effective Executive in Action, 2006

This was the last book he published before passing away.

It details the five practices of the effective executive:

1. Managing your time;

2. Focusing your efforts on making contributions;

3. Making your strengths productive;

4. Concentrating your efforts on those tasks that are most important to contributions; and

5. Making effective decisions.

“An organization that is not capable of perpetuating itself has failed. It has to renew its human capital.”

“Strong people always have strong weaknesses too. Performance can only be built on strengths.”

“Character and integrity by themselves do not accomplish anything but their absence faults everything else.”

"Are you a reader or a listener? Trial lawyers are both."

“Good executives focus on opportunities rather than problems. Problem solving does not produce results (reverts to status quo). Exploiting opportunities produces results…”

“A decision is a judgment—a choice between alternatives. Rarely a choice between right and wrong. It is at best a choice between ‘almost right’ and ‘probably wrong.’ Untested hypotheses are the starting point. One does not argue with them; one tests them.”

“There’s too much about leadership and not enough on effectiveness. The only thing you can say about a leader is somebody who has followers. The most charismatic leaders of the last century were Hitler, Stalin, Mao, and Mussolini. They were misleaders.”

“I have yet to see a knowledge workers who couldn’t consign one-fourth of the demands on his time to the wastepaper basket without anybody’s noticing.”

There’s no such thing as business ethics

It is common today to speak of “medical ethics,” “bio ethics,” “accounting ethics,” and so forth.  Yet some thinkers deny there are different ethical theories for these various functions. 

In his 1981 article in The Public Interest, “What is Business Ethics”?, management thinker Peter Drucker challenges the concept of a separate ethics for business:

If “business ethics” continues to be “casuistry” its speedy demise in a cloud of illegitimacy can be confidently predicted.  Clearly this is the approach “business ethics” today is taking. Its very origin is politics rather than in ethics.  It expresses a belief that the responsibility which business and the business executive have, precisely because they have social impact, must determine ethics––and this is a political rather than an ethical imperative.

What difference does it make if a certain act or behavior takes place in a “business,” in a “non-profit organization,” or outside any organization at all?  The answer is clear:  None at all.

Clearly, one major element of the peculiar stew that goes by the name of “business ethics” is plain old-fashioned hostility to business and to economic activity altogether––one of the oldest of American traditions and perhaps the only still-potent ingredient in the Puritan heritage.  There is no warrant in any ethics to consider one major sphere of activity as having its own ethical problems, let alone its own “ethics.”  “Business” or “economic activity” may have special political or legal dimensions as in “business and government”..., or as in the antitrust laws.  And “business ethics” may be good for politics and good electioneering.  But that is all.  For ethics deals with the right actions of individuals.  And then it surely makes no difference whether the setting is a community hospital, with the actors a nursing supervisor and the “consumer” a patient, or whether the setting is National Universal General Corporation, the actors a quality control manager, and the consumer the buyer of a bicycle.

Altogether, “business ethics” might well be called “ethical chic” rather than ethics––and indeed might be considered more a media event than philosophy or morals (Drucker, 1981:  22-23; 31; 33-35).

Other Drucker Books

Drucker’s Lost Art of Management, Joseph A. Maciariello, 2011. This book details Drucker’s calling management a “liberal art,” and linking it to the humanities disciplines.

A Class with Drucker, William A. Cohen, 2007

Drucker on Marketing, 2012

The Practical Drucker, William A. Cohen, 2014

People complained Drucker didn’t tell them “what to do” or “how to do.” Rather, he asked questions.

This book details 40 important concepts on:

1. People

2. Management

3. Marketing and Innovation

4. Organization

Peter Drucker: Shaping the Managerial Mind, by John E. Flaherty;

The Definitive Drucker, by Elizabeth Haas Edersheim

The World According to Peter Drucker, Jack Beatty

Disagreements with Drucker

He gave Frederick Taylor too much credit.

He believed CEO pay was too high.

He did refer to people as assets [but also volunteers].

He believed time is the executive’s scarcest and most precious resource, and organizations are inherently time wasters. We believe time is a constraint, not a resource.

Episode #198: Free-Rider Friday - June 2018

Ron’s Topics

Fawning Press for Elon Musk

Elon Musk Just Gave the World’s Best Productivity Advice in a Single, Short Sentence: and we all owe him a debt of gratitude for pointing out the obvious. April 28, 2018, Geoffrey James, Contributing editor, Inc.com

Recent memo from Musk to Tesla employees proposes a number of actions to increase performance with Model 3 MFG:

• Avoid large meetings and keep them very short

• Avoid acronyms and company-specific jargon lest you confuse contractors

• Ignore corporate rules if they are obviously idiotic

But this suggestion takes the cake: “Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value.”

In a related article, “Driving to the next circle of hell,” The Economist, April 7, 2018, on April 1 Elon tweeted: “We are sad to report that Tesla has gone completely and totally bankrupt.”

• Tesla share price has fallen by 16% since end of February 

• On March 23, a Tesla crashed and the driver killed

The new Tesla Model 3

• Price: $35,000

• Range: 200+ miles

• Deposits: Over 400,000

In July 2017, Musk claimed production would be 20,000/month by December 2017, however fewer than 2,500 were produced in entire 4th quarter. By April 2018 they had ramped up to around 2,000 a week was actual production. Tesla reportedly lost $2 billion in 2017.

The company boasted, “Model 3 assembly line is now providing the fastest growth of any automotive company in the modern era. If this rate continues, it will exceed that of Ford and the Model T.” The Economist replied, “Such bluster does not withstand scrutiny.”

Musk wants his factory to be a machine that makes machines. But auto companies have found a mix of man and machines is best.On March 17th, Moody’s downgraded Tesla’s debt. Others predict Tesla will need to $2.5B to $3b cash this year.

“Not Finished,” The Economist, April 28, 2018

Finland ran a trial Universal Basic Income program on Jan 2017 whereby 2,000 people received $680/month. The experiment ended December 2018. It was planned to end after two years, but had hoped to expand it beyond, but the legislature denied funding. It was not universal as all recipients were unemployed, and no results have been published yet.

California Incubator Y Combinator in the USA is using randomized control trial for a UBI in Oakland, CA, and Kenya is launching one, run by Give Directly. There’s another in Ontario, with 4,000 participants in 4 towns, and one in Scotland, Glasgow and Edinburgh working on pilot UBI programs.

Is Adam Smith spinning in his grave?

“Thinking outside the police box,” Buttonwood, The Economist, May 12, 2018

In writing the his final column the author surmises "what useful knowledge would he impart if he could go back 12 years (550 columns)?"

Avoid confusing financial markets with the economy (S&P Index doubled from 2006)

• The market has incredible resilience: corporate profits, pre-crisis levels rapidly regained, and surpassed 2008 levels.

• Less competition means globalization of suppressed wages.

• Never underestimate the power of central banks: quantitative easing did not cause expected inflation.

• Relax about China!

• Microeconomists are wrong about specific things, whereas macroeconomists are wrong in general. 

Ron would add professional pricers are getting better.

The Economist, Exclusive access, Special Report, Financial Inclusion, May 5, 2018

Mobile tech brought hundreds of millions into financial system, such as bKash in Bangladesh, began in 2011, with 30 million users, known as the collective mattress.

In 2012, The World Bank created “Findex,” a financial inclusion index (the Gates Foundation funded). The Unbanked numbered 2.5 billion in 2011, 2B in 2014, and 1.7B in 2017.

Adults with a bank or mobile money account: 69%. Though access is not the same as inclusion, since 25% of all accounts are inactive.

Mobile tech also pays crop insurance (e.g., when rainfall is below a certain level).

Also, credit scores: GPS can tell is someone has steady job, permanent address, social media data, shopping data, etc.

A Findex survey asked this question: why do those 1.7 billion people remain unbanked? Two-thirds replied because of having too little money. Technology is essential, but obviously not enough.

Carved into the Post Office building in New York: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.: A graffito was once scrawled alongside: “What is it, then?” It’s time to privatize the US Postal Service.

Updates on Venezuela

“Venezuela’s Future—And Ours,” Kevin D. Williamson, June 24, 2018.

“Venezuelans Shrugged. Ayn Rand Was Right,” Townhall, Marina Medvin, June 4, 2018

According to Newsweek, Polio has returned to Venezuela. Other reports now dispute this.

Ed’s Topics

In four years, should Ed buy his 12-year son, Sean, a car or give him an Über account with a $400/month allowance?

Children of a couple who were Russian spies who lived in Canada are fighting to keep their Canadian citizenship. Will the FX TV show, The Americans, have a spin-off?

Should California be broken up into three states?

According to Bloomberg News, millionaires now control one-half of the world’s personal wealth, up from slightly less than 45% in 2012. Estimated world-wide wealth is $201.9 trillion. This does not mean that the poor are getting poorer, but that people are getting richer, especially in China.

ASKTSOE: Email Question from Listener

Dear Ron and Ed,

Hello from London UK.

Thanks for your eye opening programmes and books. I read your book on "Implementing value pricing” and I’m trying my best to implement your ideas in my business. I am a UX design consultant and in progress to build with a design consultancy.

One of the points I struggle with, isn’t the fixed price itself, but how to justify the direct relationship between business value (say revenue) and my services. See, the client is suspicious when I get too deep into their business model and think “this guy wants to see how much we earn to charge us more”. I see the suspicion in their face.

Wondering how you’d turn that perspective around. I’d appreciate giving us some hints on your podcast.

Best wishes,

Spyros Zevelakis
Director
www.2xUX.com

Digital Product Design

Ed suggested listening to our show on Consulting Theory, We Are All Consultants Now, Episode #40. The key is to recognize that ones purpose as a professional is to help people make the best possible decisions.

Ron suggested that we have to infer value through better questioning in the value conversation. Also, you must consider not just the materialist value (that which can be measured, such as cost savings, tax savings, etc.), but spiritual value—those things that cannot be measured. Relationship, brand, social capital, etc.