Botched Processing

In 1753, Ben Franklin was appointed Deputy Postmaster General of the United States. Among his many postal innovations was the “cage” used for the hand sorting of mail. Well over 200 years later, when I worked in the post office as a college student, the post office was still using the Franklin “cage.” Believe me, it was a mind numbing experience. Of course, Franklin’s invention was not quite up the demands of moving literally billions of times the volume of mail that the post office delivered in Franklin’s era. My college education was enhanced by my work at the post office—I gained firsthand knowledge of what the lack of competition produces on both the capacity of an organization to serve the consumer and on the morale of the organization’s employees.

We recently moved to a rural home and found that the post office is still unable to leave behind ancient ways of accomplishing their mission. Although our rural home has a street address recognized by the fire department, the house had never previously received mail. My wife called the local postmaster who explained the procedure for establishing service. We followed the rules; and close to our moving date, we called the postmaster to activate the address. All seemed to go smoothly until we began to change our address. We quickly found out that our new address was “not deliverable;” it was not officially recognized by the postal service national address directory. My wife called back the postmaster who explained that, although she had processed the address in her post office and the address was “valid,” she was unable to link to the national postal address directory. She further explained the post office batch processes new addresses, and it would be at least two months until our new address was in the directory. In the meantime, we would be faced with endless frustration.

I was incredulous! Batch processing? The post office may have moved beyond the Franklin postal cage, but they were still using a centralized data system that required data entry in batches with long time intervals between the processing of the batches. Indeed, before the personal computer, large mainframe computers processed data in batches. Given that computer processing power was at a premium, in the 60s and 70s, batch processing was the most efficient way to handle large amounts of information.

However, the mainframe computer era has long ago passed. The rise of the personal computer has created strong incentives for the decentralized processing of information. Under normal circumstances, changing your address with your bank or for your magazine subscriptions would require little more than going online and entering your new information. No intermediary stood in the way of the consumer being able to instantly update their information. Imagine being told by Bank of America, National Geographic or L.L. Bean that they would take your new information, but it would be several months until they could enter the information in their system. You would take your business elsewhere. Yet, to the post office, it makes perfect sense to prohibit even a local postmaster from entering enter new information in their system. The post office may process information in batches, but they are botching their job.

Of course, the post office is not the only organization where information is not treated in a timely way; and as a consequence, “botched processing” is the norm.

Consider organizations that rely on strict hierarchies to do strategic planning and that treat planning as an annual event. When strategic planning is treated as something that only a few do for the rest of the organization and when strategic planning is an annual event, you can be sure that the organization will be unable to respond effectively to changing market conditions.

Or, consider organizations where large bureaucracies control and delay the flow of information. Employees on the front lines then make botched decisions because they cannot see how their actions fit into the needs of the organization as whole. In her excellent book The Southwest Airlines Way, Jody Gittell explains how Southwest Airlines has a culture of information sharing. The consequence is that all employees understand how their jobs support the needs of the entire organization. In contrast, Gittell explains how American Airlines employees hoard and control information. At American, individual employees have no idea of how their actions impact the whole organization. Not surprisingly, American Airlines employees take much less heed of customer service than do Southwest employees. For example, an American Airlines baggage handler in Chicago may have little appreciation for how their failure to hustle may delay flights in the entire system.

Today, large amounts of inexpensive computing power are available to help facilitate information sharing in decentralized organizations. Of course, many organizational cultures, such as in the post office, are unable to grasp the importance of decentralization and information sharing—they operate under a command and control atmosphere that neither trusts their employees nor their customers. The post office, with its monopoly position, is somewhat impervious to market forces. However, organizations who operate in similar ways, but without a government grant of monopoly, will be early casualties as the current economic crisis deepens.

Deepak Chopra’s Economic Nonsense

Deepak Chopra is a medical doctor from India who has written extensively on spirituality and has done much fine work in body-mind medicine. Through his many popular books and television appearances, he has become one of the most recognizable figures in the modern new-age movement. Like many in that movement, he understands little about economics; and because of that ignorance, he helps to spread beliefs that harm the very things he claims to support.

Listen as Chopra talks in a very soothing voice to a fawning interviewer at CNN Money. A theme throughout his recent interview is that we need to enter an age where the economy is “wisdom-based.” Presumably the wisdom is to be provided by him and those he agrees with.

Early in the interview, Chopra complains, “Of the 2.2 trillion dollars that circulate each day less than 2% go to provide goods and services for humanity, the rest is speculation, money making money for people who have lots of money.”

Chopra’s implication is absolute nonsense. The bulk of transactions that occur in modern financial markets are essential to a healthy and vibrant economy. Chopra’s numbers are about as meaningless as numbers that say that farmers receive only a small percentage of the food dollar. A farmer does receive only a small percentage of the food dollar because the middleman that the farmer sells the food to, the shipping company that transports the food, the manufacturer that processes the food, and the supermarket that sells the food are as essential to feeding the public as is the farmer. Centuries ago, the farmer received 100% of the food dollar as he sold directly the consumer. However, both the farmer and the consumer were much poorer than they are today. And with that poverty, a much higher percentage of the world’s population went hungry.

Specialization is one of the key ingredients of a modern economy and so are modern financial markets. Eliminate specialization and eliminate modern financial markets and I assure you that there would be a very small market for Chopra’s books. We would all be back to subsistence living.

Later in his interview, Chopra claims, “If we use money wisely we can get rid of war, terrorism, social injustice.” This is about as trivial a statement as saying that if we use food wisely, we can get rid of obesity. But Chopra is not talking in such trivial terms—the unspoken premise of his statement is the totalitarian view that “wise” people should direct us in the “wise” use of our money.

Still later in the interview, Chopra describes how he is helping Frito-Lay switch to selling nutritious food. Again, nonsense. Frito-Lay is indeed improving their offerings in the supermarket, but this has everything to do with changing demands on the part the consumer—it has nothing to do with Chopra. If Chopra showed up in 1960 asking Frito-Lay to sell more nutritious food, he wouldn’t get through the front door. But again, his false claim reinforces the belief that “wise” people, such as he, should direct the economy.

Chopra then claims, “The purpose of business has always been to improve value for the shareholder but now the purpose of business is to nurture the needs of society.” However nice the sentiment, again, this is nonsense.

There have always been only two ways to earn profits. One way for a business to earn profits is to satisfy the most urgent needs of the consuming public better than another business does. This is the entrepreneurial way of earning a profit. And the interesting thing about the entrepreneurial way of earning profits is that the interests of the shareholders and the interests of the consumers they must serve are one and the same.

However, this harmony of interests frequently breaks down because of the second way to profits, that is, the political means to profits. Instead of serving the consumer, a firm lobbies government for a subsidy, a tariff, or other measures that prevent competition. In that way, the link between the interests of the shareholders and the interests of the consuming public is broken.

Thus, we really don’t need Chopra pronouncing which firms are “nurturing the needs of society.” We need government to stop protecting businesses from competition. When that happens, all businesses will compete to “nurture the needs of society.” Chopra can stick to what he does best; there are many individuals who benefit from Chopra’s body-mind medicine. Chopra does not need to expand into areas about which he knows nothing.

On Treating Fevers and Economies

A recently released medical study has detailed the widespread overtreatment of childhood fevers. Doctors at Johns Hopkins Children’s Center found that up to 70 percent of parents treat their children for minor fevers of less than 100.4 F degrees. They also found that 53 percent of parents give fever reducing drugs, such as ibuprofen, too frequently; parents even wake their children up in the middle of the night to overdose them.

Of course, most fevers should not be treated at all. Fevers are simply a symptom of the body fighting off an illness. The fever is a sign that the body is working well; treating the fever does not treat the illness. In most cases, treating the fever slows down, rather than enhances, the body’s ability to heal itself. Unfortunately, health illiteracy is widespread in this country; and the urge to treat even trivial fevers is widespread.

As our physical bodies have a built in capacity to heal themselves, so do our economic markets. In the same way that treating a non-life threatening fever will slow down the capacity of our body to heal itself, “treating” the economy will slow down the market’s ability to heal itself.

This Monday, Timothy Geithner, President of the Federal Reserve Bank of New York, spoke before the Economic Club of New York. In his speech, Geithner called for broad and new Fed authority over the financial system. The current crisis, he said, “is going to require significant changes to the way we regulate and supervise financial institutions.”

Geithner’s claim that the Fed needs more power over the financial system makes about as much sense as saying that McNeil (the manufacturer of both Tylenol and Motrin) should increase the safe dosage labels on its products in order to accommodate indiscriminate consumers.

Mish Shedlock, writing in his excellent blog Mish’s Global Economic Trend Analysis, has been a very knowledgeable observer of the economic distortions caused by the Fed. This is Mish’s “Fed Uncertainty Principle, Corollary Number Two”:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Where Mish predicts that the Fed will attempt “a big power grab,” I would add, “and they will enjoy widespread public support for doing so.” Why do I predict widespread public support? The general public is simply using a different lens than Mish. Einstein wrote: “Whether you can observe a thing or not depends on the theory which you use. It is the theory which decides what can be observed.”

We live in an economic environment where the stock market is falling, the dollar is falling, food prices and energy prices are rising, and unemployment is rising. At the same time, we are told we live in a capitalist free-market economy. Sadly then, the bulk of the population blames free-markets for their hardships. No wonder, they are told incessantly by the media and the politicians that their misery is evidence that free-markets are not working—they are told that their misery is evidence that government needs to take a stronger hand.

The truth is that our current economic troubles provide evidence that free-markets are working. Think of it this way. If you drink excessive alcohol and then throw up, isn’t that evidence that your body is working? If your mind is focused on angry, unforgiving thoughts, would you be surprised if you experienced sharp stomach pains or chest pains? Aren’t those pains signals that you need to examine your how you are living your life? If the Fed distorts interest rates and thus creates artificial bubbles, what does the corrective aftermath signal? Is it evidence that markets are working? Of course, the answer is yes—the bursting of our economic bubbles is evidence that markets are working. And just as overtreating a fever creates delays the return of health, overtreating an economy delays the return of prosperity.

That the public should be confused is indicative of something larger than just economic illiteracy. As with parents overdosing their children with Motrin and Tylenol, it is evidence that the public wishes for magical solutions to their discomforts. Rather than increase their own understanding of basic principles of health or the basic principles of economics, they ask “why don’t they do something about it?” In the case of health issues, the drug manufactures will be only too happy to exploit ignorance and sell another pill. In the case of economic problems, the Fed or the politicians are only too happy to exploit ignorance and provide solutions that will increase their powers.

Be Kind

Plato advises us to always be kind, “for everyone you meet is fighting a hard battle.” It is easy to forget this advice; it is easy to assume that others should have known better or that they should have made a better choice than they did.

Consider the heartbreaking story of Tom and Betty West reported on in the Wall Street Journal and summarized in this short video. In 1959, Tom and Betty placed their developmentally disabled three-year old son Richard in a state institution in Oregon. Richard, who was deprived of oxygen at birth, was diagnosed as severely mentally retarded. The doctor told Tom and Betty that Richard “would always have the mentality of a three-year-old and needed 24-hour care;” he urged that Richard be institutionalized at Oregon’s Fairview home.

Like most institutions at the time, Fairview was a cold, stark place. When the Wests brought Richard to Fairview, “an administrator recommended that Mr. and Mrs. West kiss Richard goodbye and leave quickly.”

The Walls Street Journal describes life at Fairview:

An old black-and-white film called “In Our Care” describes Fairview, showing a porch crowded with children clapping and rolling a ball. “This child spends most of her time tearing paper into shreds,” the narrator says.

Eventually, Oregon moved Richard to a different facility without informing the family of his new location. The family then went over 40 years without seeing their son and brother.

Now in their 80s, Tom and Betty had strong urges to find out what happened to Richard. Initially, the state resisted their inquiries. Finally, through the efforts of Jeff West, the youngest of the West siblings, the family found Richard. At age 52, Richard is living in a group home and has progressed far more than his original diagnosis had said was possible—among other things, he can dress himself, feed himself, catch a ball, and fish.

We can only imagine the immense feelings of loss and guilt that the Wests have suffered these many years. They have been fighting a hard battle.

The late Thomas Hora defined compassion “as understanding the lack of understanding.” We all lack understanding. Hora writes:

We have compassion for ourselves and we say, “Well, I may have these feelings and I may have these thoughts, but I don’t have to be involved with them, because there is something higher and better for me to pay attention to.” This is forgiveness.… This is important because unless we have compassion towards ourselves, how will we ever have compassion for others?

Now, Hora is not encouraging us to repress, suppress, or express our faulty ideas and feelings. Instead, he is asking us to recognize them and to reorient our focus of attention to a higher plane.

Polly Berends, one of Hora’s students, points out that we all allow unquestioned assumptions to live through us:

Day by day, year after year, we live our lives out of certain fundamental assumptions of which we are almost completely unaware. These assumptions govern our lives, yet they are so universal and unquestioned as to be virtually unconscious.

We are all fighting a hard battle, and we can all understand how unquestioned assumptions were expressed through the Wests:

1. First, relying on one expert to tell them what was possible in Richard’s life.
2. Then, relying on that same expert to tell them what was the best course of action.
3. Next, allowing the norms of society to dictate their course of action.

I’m not implying that the Wests made a “faulty” choice—I do not know. Yet, I would not deny anyone the responsibility for their choices. Taking responsibility simply means we acknowledge that mistaken ideas and thinking have impacted our experience of life. In that, we are all in the same boat. Yet, we can take responsibility without blame. Blame is harsh—by condemning and judging ourselves, we keep our faulty thought patterns in place. Keeping faulty thought patterns in place, we will never make a better choice.

Instead of condemnation, we can feel kindness and compassion for ourselves and for others for the choices we make. Ignorance lives in all of us, and kindness is one antidote that should be liberally used.