Episode #144: Free-rider Friday - May 2017

Ed’s Topics

BitCoin Update

Bitcoin has been gaining value, having doubled its market cap since April 1, 2017. However it has been extrememly volatile. It “opened” today (Friday, May 26 at $2357, hit a high of $2639, and a low of $2067. Talk about your rollercoaster ride.

Two articles for you:

1. Three reasons why this time is different for bitcoin from CNBC

2. What is behind the BitCoin bonanza? from BK Capital Management

Tom Seaver’s Winery

Bill Maddon, sport's columnist for the New York Daily News wrote a piece that combined two of Ed's great loves: the New York Mets and wine. Hall of Fame pitcher Tom Seaver posited that the reason for so many pitching injuries in baseball has to do with too much weigh training. He said he never lifted weights, preferring instead to focus on his legs. In addition, his winery now produces an award winning cabaret, GTS Cabarnet. (Sorry Greg LaFollette, I hope the wine part kept you interested.)

Ron heard an interview on the May 20, 2017 Larry Kudlow radio show with the author of Dinner with DiMaggio, Dr. Rock Positano.

Mark Zuckerberg Advocates Universal Basic Income

Another silicone valley CEO come out in favor of the UBI. Listen to our show on this topic. Ron and Ed agree that as "welfare" programs go, it is the least bad way to implement such programs. 

The Americans TV Show

Ed and Ron are both big fans. Here's the first season trailer. 

Ron’s Topics

Generational Astrology Follow-Up

Our show on the hokum of generations at work  has created quite a stir.

Clemson University’s chief diversity officer, Lee Gill says, “Expecting people to be on time is racist.” University of California, Hasting College of the Law added a “Chill Zone” in its library with mats for naps and beanbag chairs.

The University of Michigan Law School embedded a psychologist in a room with bubbles and play dough to counsel students stressed after president Donald Trump’s election.

University of Arkansas at Little Rock professor of law, Joshua M. Silverstein says, “Every American law school should eliminate C grades, and make the average grade B.”

In a New York Times op-ed, New York University provost Ulrich Baer wrote: “The idea of freedom of speech does not mean a blanket permission to say anything anybody thinks.”

I wish I would have said what Frank Martin did on the generations. Profound!

Ed thinks it is the "adults" who have gone crazy. He shared his thoughts on this interview with Peter Gray on the End of Play.

RIP Economist William Baumol (February 26, 1922 – May 4, 2017)

Creator of the “Cost disease.”

Actors compete in the same national labor market as factory workers.

Hence, as productivity increases lift factory worker’s wages, arts organizations must pay their staff more to keep them from quitting and working in factories.

Productivity gains are not matched in the arts: performing a symphony by Bethoven took the same time and number of musicians in the 20th as the 19th century.

Therefore, technological progress in some industries will raise wages in low-productivity sectors—such as health care, education, and government.

Wage increases are a side-effect of productivity gains elsewhere in the economy, which makes the economy richer overall.

As machines become better, human productivity converges toward zero, and spending will go towards services for which it’s crucial productivity not grow, providing jobs for everyone.

The economy will be characterized by both technological abundance and cost disease. Embrace the contradictions!

“A better pill from China,” The Economist, March 18, 2017

On our January 25, 2016 episode #76: Lessons from the Trading Game, I made a modification at the end of the game: Ask the audience if they’d trade their “gift” for a cure for cancer.

Oh, and it comes from China so this will explode the trade deficit. Well, now it seems this scenario is possible.

The Shanghai laboratories of Chi-Med, a biotech firm, isgetting positive results in late-stage trails of its drug for colorectal cancer, Fruquintinib.

This is the very first drug designed and developed entirely in China.

If other countries purchase this drug, adding to their country’s trade deficit, does it really matter? Does the trade deficit have anything to do with standard of living?

“Teaching Robots Right From Wrong,” 1843, June/July 2017

Robear is strong enough to lift frail patients from bed; so it can crush them, too.

There’s essentially three approaches to teaching ethics to AI/robots, all embryonic and at various stages of testing.

GoodAI, a company that specializes in educating AI says it’s not about pre-programming robots to follow prescribed rules in every possible situation. Robots are like kids, a blank slate

1. Good AI trains them to apply knowledge to situations they’ve never encountered by watching how others behave. Ron Arkin, a roboethicist at Georgia Tech believes robot soldiers are superior to humans since they can’t rape, pillage, or burn down a village. But how does a robot soldier decide whether to strike a high level target while he’s  breaking bread with civilians? Or decide whether to support five low-ranking recruits, or one high-ranking officer on opposite sides of a conflict zone?

2. Arkin’s approach is called the “ethical adapter,” which attempts to simulate human emotions, rather than human behavior, and learn from its mistakes. Can a robot experience guilt? He thinks they can be programmed to do so. Of course one problem with this approach is it requires the robot to do something wrong first.

3. The third approach is to use stories. Robots might be like kids but do we have 20 years? Load in thousands of different protagonists dilemmas, then the machine can average out the responses and do what a majority of people would do in that circumstance.

We’re never going to have a perfect self-driving car, but the goal should be to be no worse than humans.

I’d say at least 50% better than humans.

Episode #143: Accounting Innovation - it's not an oxymoron

Ron and Ed were at Sage Summit 2017 in Atlanta and recorded an episode (or two) featuring a great panel discussion on the premise that accounting and innovation are not opposites (i.e. not an oxymoron). While the job description for accounting professionals has largely stayed the same, technologies and laws have come into play to change the way business is done. It is time that accountants alter the way they do business to keep up with the shifting tide.

Panelist biographies

• Jodie Padar is CEO and Principal of the New Vision CPA Group, a public accounting firm based in the Chicago area. Jody joined her father’s firm a decade ago, bringing her expertise in the areas of taxation, QuickBooks, and small business accounting. As one of the profession’s emerging thought leaders, Jody has transitioned New Vision to New Firm status—adopting advanced technologies and best practices that support web-based client services. This allows Jody to manage her firm at peak efficiency with transparency at the heart of all engagements. Jody and her team provide financial insight and practical strategies to their clients in real-time, not just at tax season.

• Gail Perry is the editor-in-chief of CPA Practice Advisor. She also speaks at many accounting events, trade shows, and webinars. She is the author of over 30 books (including Mint.com For Dummies and QuickBooks 2014 On Demand), and she maintains a small tax practice. Gail is a graduate of Indiana University where she earned a bachelors degree in journalism. She returned to school to study accounting at Illinois State University, earned her CPA, and worked for Deloitte in the firm's Chicago tax department. She has taught college-level accounting principles and personal finance, and was on staff for 10 years at the Indiana CPA Society as a computer applications instructor. Gail was the publisher and editor-in-chief of AccountingWEB before joining the CPA Practice Advisor team.

• Gary Boomer, Visionary & Strategist of Boomer Consulting, Inc., is recognized in the accounting profession as the leading authority on technology and firm management. He consults and speaks around the globe on several topics including strategic and technology planning; mindset, skillsets and toolsets for the future; change management and developing a training and learning culture. He also acts as a planning facilitator and coach to some of the accounting profession's top firms.

• Tom Hood has been executive director and CEO of the Maryland Association of CPAs since January 1997. Armed with a passion for the profession and the drive to move it forward, he manages a staff of more than 30, works closely with the Executive Committee and Board of Directors and oversees the work of numerous committees to promote and protect the CPA brand in Maryland.

Episode #142: In What Year Were You Born?: Generational Astrology

See if the following story is consistent with so much that has been written about Generation X, Y, and Z in the recent past by countless “generational consultants:"

• "They get restless after a little while in one place,” said an employer. “For the last few years I haven’t counted on keeping the ordinary fellows more than six months. I just let them go and take the next one who is always dropping in."

• "Madam, I assure you I could just cross the street tomorrow and be paid as much as you give me.” Selfish, satisfied, and capricious, these young people newly emancipated into economic freedom are seldom idle; they work, but they are marking time on the spot they have reached, for they do not perceive any options desirable enough to lead them beyond those they are now enjoying.

An enormous amount of ink has been spilled on this topic, usually along with the different characteristics of the Baby Boomers and Generation X, Y, and Z.

One reason for this increased attention is there are simply more generations interacting in the workforce today than in the past. One reason is life expectancy.

The average knowledge worker today will outlive their employer, with an average active work life of approximately fifty years compared to the average organizational life of thirty.

This translates into the average worker today having many more jobs—and even careers—than those of their ancestors a century ago.

Differences exist, but what is the cause and does it matter

It may be an interesting academic and historical exercise to create lists of the differences between the Baby Boomers and Generation X, Y, and Z, but knowing the nature and nurture traits between the generations does not necessarily assist a company in attracting or inspiring its knowledge workers.

All of this “generational astrology” has all the explanatory power of asking people their signs—it is an incredibly weak theory. And, it is nothing new. Plato complained that the young people of his day “disrespect their elders and ignore the law.”

A more robust explanation for today’s workers—no matter when they were born—is the fact that they are knowledge workers, who are far wealthier than their parents—they grew up in what economist Brink Lindsey calls “The Age of Abundance.”

Wealth provides more options, from extending education, traveling the world, living with parents longer, or simply delaying gainful employment.

John Adams, America’s second president wrote: “I must study politics and war that my sons may have liberty to study mathematics and philosophy and they in turn must study those subjects so that their children can study painting, poetry, music, architecture, statuary, tapestry, and porcelain.”

In an intellectual capital economy there is a far greater range of talents that can be rewarded. America’s best-paid chef, Wolfgang Puck, earned $16 million in 2005 while Takeru “Tsunami” Kobayashi earned more than $200,000 a year for holding the title of the world’s hot-dog eating champion.

It is not the year they were born in, it is their age (that's different)

Another crucial difference in today’s workers is they own more of the means of production in their heads than ever before, which gives them enormous market power in the economy. They understand this fundamental fact better than their predecessors.

When I entered the CPA profession, I believed I was a service worker; today’s students understand they are knowledge workers.

Organizations can lament the fact that Generation X, Y, and Z are not as loyal as their parents, but the fact of the matter is loyalty is a two-way street; it must be earned. No business deserves any loyalty, either from its customers or its associates, until it does something to earn it.

Loyalty is not dead in the business world, but a reason to be loyal may be. The real question is, does the organization deserve the loyalty of its workers? 

In tribute to Mark Twain’s quip that history may not repeat itself but it does rhyme, the story above is from 1907. I suppose one generation has always had issues with the next, but it is hardly any reason to treat human beings different. To believe otherwise is to take astrology seriously.

Additional resources

Monty Python Four Yorkshiremen

Appeal a parking ticket in New York or London

Blog post: We Need Less Generational Nonsense and More Leadership

Episode #141: Memorable Mentors - Freidrich Hayek

Friedrich Hayek (1899-1992) was one of the most prodigious classical liberal scholars of the 20th century. He won the 1974 Nobel Prize in economics, published 130 articles and twenty-five books on topics ranging from technical economics to theoretical psychology, from political philosophy to legal anthropology, and from the philosophy of science to the history of ideas.

The focus of our conversation was around the essays published in the free eBook entitled The Essential F.A. Hayek, published by The Foundation for Economic Education, and available for free.

The book contains six chapters.

The Case for Freedom

If we knew our wants/desires, there would be little case for liberty. Liberty is essential to leave room for the unforeseeable and unpredictable

Freedom for the sake of only producing future beneficial effects is not freedom. Freedom is frequently abused, but on balance the good outweighs the bad.

Freedom used by one out of one million could be more important to society than the freedom we all use.

We can’t plan the advance of knowledge—the mind can’t see its own advance. We are dependent on the vagaries of individual genius and circumstance. Freedom in action is as important as freedom of thought.

The use of reason aims at control and predictability, but the process of the advance of reason rests on freedom and the unpredictability of human action.

The Use of Knowledge in Society

The economic problem is not how we allocate “given resources.” Rather, it is that the utilization of knowledge is not given to any one person.

Hayek believed mathematics obscured this issue rather than shed light on it. He wrote:

The various ways in which knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining economic process.

Scientific knowledge is not the sum total of all knowledge. The knowledge of the particular circumstances of time and place is often just as important, even though not scientific.

Central planning, or statistical information cannot take into account circumstances of time and place.

Millions of people, who couldn’t be identified, move in right direction just by price signals. Hayek called this a “marvel.” We take it for granted, but if it had been the result of human design, it would be the greatest triumph of the human mind.

The Pretense of Knowledge

This was Hayek’s 1974 Nobel speech, where he said, “As a profession we have made a mess of things.”

Economics has tried to imitate physics—“scientistic attitude.”

Our theories are formulated in such terms that they refer only to measurable magnitudes, yet the actions of millions cannot be measured.

“I confess that I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.”

In other words, Hayek rather be approximately right than precisely wrong.

He thought that economists needed to cultivate growth by providing the appropriate environment, like a gardener.

Intellectuals and Socialism

Hayek defined an intellectual as a “Professional secondhand dealer in ideas.”

Socialism was never a working class movement, rather it was a construction of theorists, intellectuals.

The philosopher has grater influence over intellectuals than any other scholar or scientist.

Socialists have the courage to indulge in Utopian thought, it’s a source of strength traditional liberalism lacks. No one marches in the streets for capitalism. We must appeal to the imagination.

The Moral Element in Free Enterprise

A free society lacking a moral foundation would be very unpleasant, but it is still better than an un-free and immoral society.

The value of services as determined by the market does not convey moral merit. This is probably the chief source of dissatisfaction with the free enterprise system. It’s why we see continuous calls for “distributive justice.”

Hayek thought this a great merit, since no one would be dependent on their fellow humans to like them personally.

We don’t know in advance if a brilliant idea is the result of years of hard work or luck, so we must allow a man to get the gain even if luck was the cause.

It’s argued that a free market system is more materialistic. It might be, but it also leaves us free to choose other paths.

The way to prevent this is not to have the material means placed under a single direction.

Look at North Korea, Cuba, USSR, or any other communist/socialist country: they are some of the most materialistic societies you’ll ever see.

Free enterprise deals with means, not ends.

Why I Am Not a Conservative

Tug of war between conservative and progressives only affect the speed, not direction of developments.

Conservatives have a fear of change, and use the power of government to prevent or slow change. They have a fondness for authority and lack of understanding of economic forces, are frequently protectionists, a hostility to internationalism, and a strident nationalism.

Conservatives have a distrust of theory, and have a lack of imagination except where experience has already been proven.

Hayek didn’t like the term “libertarian.” Whiggism, historically, is the correct term for ideas he believed.

Whig principles guided James Madison, Thomas Jefferson, and the signers of the Declaration of Independence, and the members of the Constitutional Convention.

Indeed, Washington’s soldiers were clad in the traditional “blue and buff” colors of the Whigs.

Conservative author and National Review editor Jonah Goldberg counters the arguments in Hayek’s essay, offering the conservatives rejoined.

“Conservative” means different things in different cultures—Saudi Arabia, Russia, France, even the UK.

True conservatism demands comfort with contradiction. Notice Hayek doesn’t call himself a libertarian—he rejected the label. He described himself as an “Old Whig.” So did Edmund Burke.

Hayek did say the USA was the one place in the world where you could call yourself a conservative and be a lover of liberty, because conservatives want to defend the those institutions that preserve it. In other words, American conservatism is simply classical liberalism, which ideas inspired the likes of John Locke, Edmund Burke, and Adam Smith.

William F. Buckley, Jr., no shrinking violet when it came to political philosophy, contributed a chapter to the book What Is Conservatism?

The title of that chapter is “Notes towards an Empirical Definition of Conservatism; Reluctantly and Apologetically Given by WFB.”

Conservatism isn’t a single thing. It’s a bundle of principles married to a prudential and humble appreciation of the complexity of life and the sanctity of successful human institutions.

Yuval Levin, another National Review author, defined it thus: “To my mind, conservatism is gratitude for what is good and what works, and strive to build on it, while liberals tend to begin from outrage at what is bad and broken and seek to uproot it.”

Liberty above all else undermines the development of character and citizenship, which Hayek understood.

Conservatives love people for what they are, not what they could be.

Other Resources

Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Change

$13.62

By Jonah Goldberg

Buy on Amazon

The Essential Hayek, by Donald Boudreaux, available for free on Kindle.

Liberal Fascism, Jonah Goldberg.

The World’s Smallest Political Quiz: The Nolan Chart.