Ryan Lazanis has been operating Xen Accounting without timesheets for the past five years. Founder of Xen Accounting, an innovative firm in Canada, Ryan embraced the idea of blowing up the old “We sell time” business model of traditional accounting firms. Join Ed and Ron and learn how Ryan’s done it, the lessons he’s learned, and what is it really like to work in a firm where time is merely a constraint, not a measure of anyone’s worth.
What happens when one country’s imports consistently exceed its exports, creating a deficit in the international balance of trade? There is probably no greater misunderstanding about the real nature of wealth than when a discussion turns to the balance-of-trade question.
Justice Oliver Wendell Holmes: “We need to think things instead of words.” Nowhere is this more important than with international trade, so many misleading and emotional words used to describe and confuse things that aren’t very difficult to understand.
Henry Hazlitt, author of Economics in One Lesson explained this phenomenon when he wrote: “… the same people who can be clearheaded and sensible when the subject is one of domestic trade can be incredibly emotional and muddleheaded when it becomes one of foreign trade.”
Ron recently taught an economics course to a group of learned professionals, and this one topic was the most contentious. Most everyone seemed to have an inordinate fear of China, India, and other foreign nations accumulating more and more of America’s debt.
He asked the group a simple question: If China and India become wealthier, is that a threat to America? The general consensus seemed to be yes, illustrating how zero-sum thinking is endemic to this discussion. Adam Smith eloquently wrote about this in 1776 in his seminal book, The Wealth of Nations:
Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.
One of the reasons the United States of America is such a relatively wealthy country is that it maintains a free trade zone among its 50 states. The Constitution prohibits the states from interfering with trade among their respective citizens; there are no tariffs or import, export, or other restrictions within the 50 states. No individual state worries if it is running a deficit with another.
Economist Russell Roberts posed this challenging question in his delightful academic novel, The Choice: A Fable of Free Trade and Protectionism:
Shouldn’t Florida help out Minnesota by importing just as many oranges from Minnesota as Minnesota imports from Florida? Trade flows should be unequal. … if you pick any one state in the United States and look at its trade position with respect to other states, you’d see a lot of deficits and surpluses.
Trade deficits and surpluses are merely accounting conventions with no explanatory relationship to the underlying reality of an economy, which is why accountants and economists have different worldviews. If a free trade zone works internally for the United States, why would it not work internationally among the countries of the world?
It helps to keep in mind that countries do not trade, people do. In any transaction, as Adam Smith pointed out, both parties must gain for it to take place at all—the antithesis to a zero-sum condition.
You buy a Lexus only because you perceive it as being of higher value than the price you are paying. The government, for all practical purposes, has nothing to do with it. Nor is it any of its business.
As individuals, we run trade surpluses and deficits all the time. I run a deficit with my local grocery store, importing more from them than I sell to them. You run a large surplus with your employer, who pays you more than you buy in products or services from them in return. So what? The resulting accounting deficits and surpluses simply do not reflect the economic reality behind these billions and billions of individual transactions around the world.
This is what Adam Smith meant when he wrote, “Nothing can be more absurd than this whole doctrine of the balance of trade.”
The gains from trade are what we import, not export. The purpose of production, in the final analysis, is consumption. The more imports we can acquire for fewer exports, the wealthier we are, either as individuals or as a country.
Other countries face the same realities, and we are no more likely to obtain the goods and services we desire by trading pieces of green paper with other nations than we are to send letters to the North Pole and get gifts from Santa Claus.
Being a creditor or debtor nation simply has no correlation with a country’s standard of living. Thomas Sowell exposes this fallacious concept in Basic Economics:
In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses. The United States was the biggest debtor nation in the world during its rise to industrial supremacy, became a creditor as a result of lending money to its European allies during the First World War, and has been both a debtor and a creditor at various times since. Through it all, the American standard of living has remained the highest in the world, unaffected by whether it was a creditor or a debtor nation.
No one revealed the specious reasoning behind balance-of-trade concerns better than the French economist, statesman, and author Frédéric Bastiat (1801–1850), whom the Austrian economist Joseph Schumpeter said was “the most brilliant economic journalist who ever lived.”
Bastiat used entertaining fables and carried the logic of the proponents of protectionism to their logical extreme, with biting wit. One of his most famous essays, “Petition of the Candlemakers,” was a parody letter from the manufacturers of “candles, tapers, lanterns … and generally of everything connected with lighting,” arguing against the unfair competition—since since its price was zero—of the sun.
Bastiat understood that exports were merely the price we pay for imports, and having to work harder to pay for those imports did not lead to wealth. Using impeccable logic, Bastiat wondered if exports are good and imports are bad, would the best outcome be for the ships carrying goods between countries to sink at sea, hence creating exports with no imports?
Stop worrying about the accounting fiction known as the trade deficit. It’s meaningless, and leads to harmful fallacies in public policy.
Kevin D. Williamson, in Understanding Trade Deficits, National Review, July 29, 2018, points out that a trade deficit is not the same as the budget deficit; it’s not a useful term (it’s a bookkeeping term).
Trade deficits and surpluses are not caused by tariffs and other protectionist policies
USA/EU, on average, have same tariff rate: 1.7% USA, 2% EU
Significant variance by item
Germany has a 10% tariff on automobiles (US 2.5%)
One-half of Europe’s cars are exported to USA (600,000 German cars)
USA imposed a 25% tariff on light trucks, imposed by the Johnson administration in 1964 in retaliation for French and German tariffs on American chickens
China cut tariffs on autos July 1st from 25% to 15%, but could raise them back up to 40% to retaliate against president Trump
Manufacturers can get around tariffs by building factories in the US, such as done by BMW and Daimler. For an auto factory to be productive it needs to produce somewhere between 200,000 and 400,000 cars per year
63% of Japanese branded autos sold in US were made in the US in 2006
Average tariffs have been cut in half since early 1990s
China cut tariffs on average by 90%, from 32.2% to 3.5%, since the 1990s
Trade deficits and surpluses are not driven mainly by consumer behavior, but rather several other factors
Macroeconomic factors, tax policies
Strength of the currency
Attractiveness to investors (Trump’s tax reform could increase our trade deficit)
Largest USA exporter? BMW, which produces SUVs in Spartanburg, SC, and employs 9,000 Americans; our trade deficit with Germany made that possible (100,000 BMWs alone are exported to China)
Trade deficits and surpluses are not an indicator of economic trouble or health
The last time the US ran a surplus was 1975, not a great economic era
The US ran surpluses all through the Great Depression of the 1930s, with both imports and exports lower than 1920s levels
Britain ran a trade deficit from Waterloo to the Great War, a century marking the apogee of its power, and it grew incredibly wealthy
Nigeria had years of surpluses, yet remains one of the poorest countries in world
US factories output doubled since 1990, and are much higher than in the 1950-60s, and employs fewer people
That, not trade deficits, is why manufacturing’s relative share of employment has declined
The US was officially a debtor nation for generations on end (it ran trade surpluses). During WW I it became a creditor nation (running trade deficits). Since then, we’ve been both. Accounting details are not determinants of American prosperity or problems.
Three types of gains from trade
Absolute Advantage—We buy bananas grown in the Caribbean because of nature, geography, or skills (beer and pianos are overwhelmingly produced by Germany and Germans in other countries, even China’s most famous beer—Tsingtao) was created by Germans)
Comparative Advantage—Being able to produce anything more cheaply is not the same as being able to produce everything more cheaply. We’d have to produce everything more efficiently than Canada by the same percentage for each product for there to be no gain from trade.
Economies of Scale—200-400K autos per year, Australia shut down auto plants, can’t cover high costs, even though the number of OZ owned per capita is higher than US, there are 12x more Americans
Over 1,000 economists signed a letter to Senator Smoot, Congressman Hawley, and President Herbert Hoover to protest the Smoot-Hawley Tariff Act, and the last line read: “We cannot increase employment by restricting trade.”
Four measures of how US firms do in China
China % of foreign sales of US firms: 15% (20% would be in line with China’s share of world GDP) = 1% American firm’s global sales
American firm’s aggregate market share in China = 6%, almost double China’s in America
Do US firms underperform other multinationals and local firms? Comp adv in tech, Apple, Intel, Qualcomm, top 50, sales increase 12% compound annual rate, local firms = 9%, European firms = 5%
US firms shut out of some sectors. Yes. Alphabet, FB and Netflix are nowhere
Ed and Ron both made the list, along with VeraSage Fellow Michelle Golden River, and from Sage, Jennifer Warawa, and friends of VeraSage, including:
- August Aquila
- Gary Boomer
- Jim Boomer
- Jim Bourke
- David Cieslak
- Angie Grissom
- Tom Hood
- Allan Koltin
- Mark Koziel
- Gregory LaFollette
- Taylor Macdonald
- Stan Mork
- Jody Padar
- Hitendra Patil
- Darren Root
- Marc Rosenberg
- Donny Shimamoto
- Geni Whitehouse
- Jennifer Wilson
- Joe Woodard
Ron was also voted #6 among the Top 10 Most Influential, coming in one vote less than Donald Trump, possibly due to Russian collusion.
Should Commuting Count as Work?
We noticed this post in LinkedIn and it was picked up absolutely everywhere.
Our Patreon Site
Have you ever wanted to listen to the show commercial free? Just think, no Greg Kite commercials! Not only that, Ron and Ed record weekly bonus episodes and share their conversations during the commercials. All this can be yours for $7 per month.
From the WaPo via Apple News: Soon, the most beautiful people in world may not be human.
“Nudging: Should We Be Wary of the Latest Fad in Behavioral Economics?”, Donovan Choy, FEE, September 1, 2018
Check out our show from August 2014, Episode #8: Mr. Spock and Homer Simpson.
What’s wrong with “nudging”? Two problems:
- Policy makers suffer from the same biases that the rest of us do
- Political institutions are plagued by inefficiencies
“Tucker Carlson Feeling the Bern Illustrates Conservatism’s Hostility to Free Markets,” FEE, August 31, 2018, Tom Mullen
Tucker thinks Amazon, Uber, and Wal-Mart start paying their people more so the taxpayers don’t have to subsidize these workers. We this he is way wrong on this one!
Masayoshi Son, founder SoftBank, Japanese telecoms/Internet
- The Vision Fund = $100 billion venture capital fund
- Alliance with Muhammed bin Salman, Saudi Arabia’s crown prince, $45B + $5B Apple
- Exceeds $64B all VC funds raised globally in 2016
Masayoshi’s bet on Alibaba paid off, but in the dot.com crash of 2001, he lost 99% of SoftBank’s market value.
Less than 5% of companies that pitch receive funding, slightly more generous than most VC firms. He gives them 4-5x more than they ask for! Startups perish more from indigestion than starvation. Wants to create an ecosystem and take them into Asia, etc.
The fund invests in 3 areas:
- Frontier: singularity, IOT, AI, computational biology, genomics
- Bring new tech to old industries (ride-sharing, WAG! Dog walking uber)
- Technology, media, and telecoms
If Steve Jobs brought to Apple an understanding of technology and art, Son’s formula is technology plus finance.
The bigger the VC fund, the harder to make high returns
Even if he loses, the fund will shape technology in future, frontier technologies. It will offer startups an alternative to cashing out to giants (FB, Google, etc.)
In 1957, C. Northcote Parkinson came up with the Law of Triviality: “The time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.”
Bartleby’s Law: 80% of the time of 80% of the people in meetings is wasted.
Corollary: After at least 80% of meetings, any decisions taken will be in line with the HIPPO, or highest-paid person’s opinion.
Start with the most contentious item first, and make sure everyone understands what was actually decided.
“I jumpstarted my productivity in 15 minutes—and you can, too!” AICPA guest blogger, July 13, 2018, Brock Gaucette, Manager, Corporate Communications, AICPA
How a firm got more productive by reading more books, through: increased focus, confidence in communicating, improved memory, and a new, improved addiction—reading.
“Elizabeth Warren’s Batty Plan to Nationalize…Everything,” Kevin D. Williamson, National Review, August 16, 2018 and “Elizabeth Warren Looks to Make Cronyism Great Again,” Daniel J. Mitchell, FEE, August 25, 2018
The Accountable Capitalism Act: Business with more than $1B in revenue would need permission from federal government (the act establishes within the Commerce Department an Office of US Corporations to review & grant charters). The act would also regulate:
- Dictate composition of boards
- Internal corporate governance
- Compensation practices
- Personnel policies
This act is unconstitutional (takings clause), unethical, immoral, irresponsible and utterly bonkers, according to Kevin Williamson of National Review.
Companies are already accountable for everyone they exchange with: customers, employees, suppliers, govt, etc.
This is simply Elizabeth Warren staking out the most radical corner for her 2020 presidential run.
Apple’s shareholders are, collectively, the largest taxpayer in the world. Should we seize those earnings? Isn’t that covetousness and envy?
Businesses don’t have to put up with this? Nearly 50% of the S&P’s companies revenue is from overseas. The USA is home to 64% of the world’s billion-dollar privately held companies, and a plurality of billion-dollar startups.
Economist William Nordhaus estimates that innovators keep just 2% of the social value of their innovations.
A new show, “The White Crow,” currently in production, Rudolf Nureyev, a Russian ballet dancer who defected in 1961.
Also in production, a six-part adaptation of John le Carre’s “The Spy Who Came in from the Cold,” a British spy’s assignments in East Germany, also in production
Simon Cornwell, le Carre’s son, got into the Stasi archives, just like The Americans, creator Joe Weisberg (a former CIA officer), got into the Russian archives.
In lieu of show note, we have opted to post the transcript of our interview with George Gilder about his book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy.
If you would like more on this or want to listen commercial free, please consider subscribing to our premium service at Patreon.
Ronald Reagan: Like a chrysalis, we're emerging from the economy of the industrial revolution, an economy confined to and limited by the earth's physical resources, into the economy in mind, in which there are no bounds on human imagination, and the freedom to create is the most precious natural resource.
Ron Baker: Welcome to the Soul of Enterprise: Business and the Knowledge Economy, sponsored by Sage, energizing business builders around the world through the imagination of our people and the power of technology. I'm Ron Baker, along with my good friend and VeraSage Institute colleague Ed Kless, and on today's show folks, we are talking about life after Google, with the one and only George Gilder, my mentor for 37 years. George, welcome back to the Soul of Enterprise, and thank you so much.
George Gilder: Oh, it's great to be on.
Ron Baker: I have to thank you on behalf of me and Ed for sending us your book a week before it was published [July 17], which we devoured, and just because we know you don't like the free model, we've gone out and bought multiple copies, so I just want-
George Gilder: Oh, thank you so much. I've been quoting you. I don't know how many of my books quotes you, but a couple anyway.
Ron Baker: Well, you've been my 37-year mentor, George.
George Gilder: Okay.
Ron Baker: So, getting quoted in your book Knowledge and Power was one of the highlights of my life. I'm even going to dispense with reading your biography. I'm just going to direct people back to show , which we did with you on September 11, 2015, and you've taken us from the Microcosm to the Telecosm, and now the Cryptocosm, and all the while, you love to cite Carver Mead, who says, "Listen to the technology and find out what it's telling us." George, what's the technology telling you about Google?
George Gilder: It's telling us ... It's expressing Bell's Law, and Bell's Law is that every 10 years or so, the accumulation of Moore's Law doubling its computer power every couple of years leads to a hundred fold or more rise of computing power, which entails and mandates an entirely new computer architecture. Back in 2006, in Wired Magazine, I wrote a tribute to the Google's launch of the era of cloud computing and machine learning and data warehouses. It's now 10 years, 12 years have passed, and Bell's Law is tolling for Google today, because Google has all these big white elephants, bureaucratic data centers all around the globe, and they're becoming obsolete.
Ron Baker: You talk about Google having a materialist, and I love this, neo-Marxist, Burning Man ideology that we humans are nothing but an algorithm, and you reject this, and I just love how you bring in the whole William F. Buckley, "Don't let them ." Can you kind of explain that?
George Gilder: Well, a lot of people don't understand that [Karl] Marx's real error wasn't the celebration of violence or class war or whatever. It was to imagine that the industrial revolution of the 19th century, all those steam engines and railroads and electric turbines and dark, satanic mills were the ultimate achievement of human productivity, and that in the future, the challenge would not be the creation of wealth, but rather the distribution of wealth, and that was the original Marxism. The new Marxism of Google is to say that artificial intelligence, the machine learning, the robotics, the algorithmic biology, all these ... the search engines, all these capabilities are kind of the ultimate human achievement. Eschaton and Bill Buckley's words, or [Eric] Voegelin’s words, a final thing, and that in the future, we can all retire to beaches and receive the guaranteed annual income while Larry Page and Sergey Brin get on a rocket and go out to some remote planet with Elon Musk in a winner-take-all universe. That's sort of the new Eschaton, the new Marxism, the Google Marxism.
Ron Baker: You talk about the priesthood of AI [Artificial Intelligence] and supposedly how it's going to take over the world, destroy all of our jobs, and yet Silicon Valley can't figure out passwords. I love the rant in one of the early chapters in your book where you talk about passwords and asking you for your mother's maiden name and what street you used to live on as a kid. What is the problem here?
George Gilder: I keep forgetting, really ... I discover that my answers change as I grow older. What I really like is when they pop up, give me your ... one of those little boxes, scantily clad boxes pop up in the middle of your screen saying please insert your password, as if you only have one password rather than hundreds of passwords, many of which a combinatorial explosion can paralyze your whole life. An epidemic of passwords, and they want one. It's like you have extrasensory perception or maybe artificial intelligence to identify precisely the password that's relevant in any particular situation. Every webpage imagines that it's the apple of your eye.
Ron Baker: You talk about how security is not an app, it's really an architecture, or at least should be, it's one of the laws or the overriding laws of the cryptocosm, do you think that Silicon Valley has just given up on this issue?
George Gilder: I think that, yes, they regard security as sort of a retro fix or a patch or a video game, to be conducted by SWAT teams of brilliant pony tailed nerds who crack down on hackers. It's a really infantile view of security. Security is an architecture. It's the way you organize the network with a ground state of factuality and substance. If you don't have a ground state, you really don't have a network. You become dependent on all these Leviathan companies at the top.
Ron Baker: Right.
George Gilder: Like Google-
Ron Baker: One of the things that just really struck me about reading the book was when you talked about , and the halting problem, but his basic premise was how every logical system depends on propositions that cannot be proved within the system itself, that computers require Oracles to give them instructions. He refuted the whole premise of AI, didn't he, back in, what was it, the '30s?
George Gilder: 1931, and he's the one who persuaded von Neumann, John von Neumann, who was the greatest figure in computer science of the 20th century. It was Gödel who persuaded back in 1931 to abandon mathematical physics, essentially, and proceed to computer science. The computer science that Gödel launched, he essentially used a software program to prove that all logical systems are necessarily dependent on axioms that cannot be proved within the system. , who conceived the as the ultimate computer, proved the same point for computers by saying that they're necessarily dependent on oracles, and that's why [Larry] Ellison named Oracle Computer after Turing's Oracle, that the oracles have to be us. They have to be human minds that program the computers. The computers cannot run off and program themselves. They're necessarily dependent on informative, creative, imaginative minds.
Ron Baker: Right. If that's been proven, why is it that really smart people, and I know you address this in the book, like [Elon] Musk and [Sergey] Brin, and [Larry] Page and all that, why don't they see this?
George Gilder: I think they're captivated by their immediate technologies, and they never really address the deeper implications. It's amazing to read these people. My favorite is , who's a friend of mine, and a genius, and he wrote a book called , and it's a brilliant book. It brilliantly explains how to create a speech recognizing, pattern recognizing, correlating machine of the computer, but he kind of explains away consciousness. But if you don't understand consciousness, you don't understand mind at all. They imagine that consciousness is a side effect of all these machine learning programs that they understand, but the consciousness is the source of thought. It's not an epiphenomenon or side effect of thought. It is the origin of thought. If they don't understand consciousness or believe that consciousness is something that's going to emerge magically from their machines, it shows they aren't even trying to understand true intellect.
Ron Baker: You say that consciousness depends on faith, the ability to act without full knowledge and the ability to be surprised, and to surprise, and I just ... This is kind of an out there question, but how much of this is just due to secularism or atheism?
George Gilder: Well, it's hard to say, but made what I regard to be a wonderful observation among many wonderful observations when he said that people who don't believe in God don't believe in nothing, they believe in anything. They grope, and that's what Silicon Valley is doing in its current nervous breakdown. It's groping for explanations of the world that correlate with their own desiccated secular vision of multiple parallel universes, infinite numbers of universes they have to postulate, in order to explain our one unique singular universe. Many people in Silicon Valley will earnestly tell you that in all likelihood we're just part of some alien race's, some advanced alien race's simulation, 3-D simulation. They actually believe in the material of superstition, that human beings are nothing but ... and nothingbutery is another concept of Chesterton, I believe, that we're nothing but material, we're nothing but chemistry and physics. It's what I call the flat universe theory.
Ron Baker: Well, George, this is great, and I know Ed wants to pick up on the consciousness question with you, but unfortunately, we're up against our first break, and folks, I'd like to remind you, check out . We will post our full interview with George Gilder along with books and links to where you can find more of his work, and now we want to hear from our sponsor, Leading Results.
Ed Kless: And Ed Kless here on The Soul of Enterprise, and we are with George Gilder, author of the fantastic book . George, I want to just pick up where Ron left off, and from a quote from the book, it says, "The blind spot of AI is that consciousness does not emerge from thought. It is the source of it." Are you aware of the work of a guy by the name of ... I think he's done a , who has posited-
George Gilder: No.
Ed Kless: ... in proof that-
George Gilder: Well, is Donald Hoffman ... Who is he? I may have heard of Donald Hoffman.
Ed Kless: Yeah. He did a TED Talk about three or four years ago, and his book has been anticipated since 2017. It hasn't come out yet, but his position is basically ... He goes through this mathematically, that it's consciousness that creates the reality that we see, and he's got a really-
George Gilder: Yeah.
Ed Kless: It's an interesting position.
George Gilder: Yeah. Well, I think it's an interesting position if it understands that our consciousness is a reflection of the greater cosmic consciousness that we call God. The idea that somehow our consciousness is kind of an artificial construct doesn't appeal to me, but I do believe we are in a hierarchical universe, and our consciousness reflects a larger consciousness of our creator in some sense. This is not some religious affirmation, essentially. It's a scientific observation that corresponds to all the evidence we experience, which is that consciousness is a fundamental property of life, and infuses the universe with life, and that human beings in some sense are created in the image of their creator.
Ed Kless: Yeah. He, at least in the interviews that I've seen, kind of takes an agnostic approach to that, but I suspect, just in seeing him, that he would agree that it's a greater consciousness that has started all of this. So, it's pretty interesting.
George Gilder: It all depends what kind of thinking you're doing. Human beings only live for awhile, and we only have a limited perspective. So, if we're going to make any serious decisions or choose any particular path of behavior, we got to have faith, and we have to act in the faith of incomplete knowledge. That's just the predicament of the human being. So, I think ... So, to say that you're agnostic, of course we're agnostic, we can't really know of the mind of God in a profound way, at least short of some ecstatic revelation, but at the same time, we have to act in the darkness of time, and in order to act in the darkness of time, we have to have what's called faith, and faith precedes knowledge. Faith precedes action. Faith precedes meaning.
George Gilder: This is really what Gödel discovered. He discovered you can't have any logical, rational systems without faith. You've got to have some actions outside the system that can't be proven within the system. And then, in case Gödel wasn't enough and von Neumann wasn't enough, two of the great minds of the 20th century, Alan Turing went and proved it again, and then went and proved it [with] algorithmic information theory, and essentially proved it again. They all have shown that this dream of a hermetically sealed package of complete knowledge imparted through some mathematical set of algorithms is delusional, and people who believe in it are victims of Chestertonian delusion.
Ed Kless: It's interesting. When I've been discussing your book with, well, basically everybody I run into for the last month or so, and one of the things that does come up on more than one occasion is somebody said, "Well, what about IBM's Watson and its ability to create a recipe? Wasn't that creative?" As I was thinking about it, I said, well, I guess it was creative, but at some point somewhere in the code, in the innards of Watson somewhere, there was an if/then statement coded by some human being that said if cilantro seems to be a good ingredient, include it. That's how I kind of meant it to understand. There has to have been a decision that was pre-made that ultimately manifested itself in what the decision that Watson makes.
George Gilder: Well, they had to choose a bounded area of deterministic behavior, and of course, the computer can run through a set of algorithms that covers some defined set of degrees of freedom. It's a deterministic domain. Chess, for example, or , or one of these games that computers can play, and are functioning in a deterministic domain, where there's one answer in essence. Of course they can explore a deterministic regime, but creativity, by definition, comes as a surprise to us. It's the unexpected bits that constitute information, and Claude Shannon's information theory that's the foundation of computer science and the internet. This is ... It's unexpected bits, surprisal, and if a machine starts surprising you, it's breaking down…surprise is bad news in a machine.
Ed Kless: Yes.
George Gilder: The Google philosophy, the way they think they compensate for determinism of their programs, is to insert randomness, but randomness subtracts information. It doesn't add information. It doesn't provide imagination. It doesn't endow creation. So, it just ... wherever they go, they end up in the Gödel trap, and when they're in the Gödel trap, they fantasize infinite multiple universes and simulations of aliens and other bizarre illusions.
Ed Kless: I love that. I wanted to ask you, we've got about three minutes until our next break, and picking up on the non-deterministic piece, you talk about this in the book, that applying it to self-driving cars, that this technology would ultimately fail without new sensory and human guidance. You talk about so many technologies in the book, but you don't really address this. Do you think that we will have fully autonomous vehicles in relatively short order, or is that not something that's ever going to come, or is driving deterministic enough, I guess is the question?
George Gilder: We can certainly ... if we create a bounded arena for these cars to function within, we can obviously have self-driving vehicles. We already have self-driving vehicles in lots of private kinds of parks and home residential neighborhoods. If you have essentially a controlled environment, you can have self-driving cars. As the self-driving technology improves, and the point I make in Life After Google is the improvement will not just be in machine learning. It's not just that the cars learn how to drive. It's also that the technologies of have to improve as well, and that's a major challenge. One of the companies I describe, , which is started by a fellow, lured out of college by a $100,000 , a guy named , launched the company called Luminar, which is improving the effectiveness of Lidar by a factor of 50 or something, which gives the car as much as seven seconds to respond to unexpected events. It takes that kind of improvement in hardware in order to make it possible for these software programs to arrive at coherent solutions.
Ed Kless: Yeah. It's like-
George Gilder: It's not something that's going to happen all at once. It's something that will incrementally occur as cars gain increasing capabilities, but it doesn't usurp human minds. It's not a singularity that this displaces human beings. It's just, as technology improves, human productivity increases, and human beings become more employable, not less employable. This is the whole history of technology. It's as if these people have amnesia of some kind and can't understand the manifest experience of hundreds of years of human creativity and progress.
Ed Kless: Yeah. No, absolutely.
George Gilder: Jobs get better, and more productive, and safer, and more creative, and more interesting, all the time.
Ed Kless: No, absolutely. Great stuff. Well, we're up against our break at the bottom of the hour. We want to remind you that you can contact Ron or me by sending an email to email@example.com. The website, www.thesoulofenterprise.com, with show notes and also preview shows, as well as the one that we did with George Gilder back on September 11th of 2015 I think it was, but now a word from our sponsor.
Ron Baker: All right. Well, welcome back, everybody. We're here with the author of Life After Google, George Gilder, and George, you do a really good job in the book of taking down the whole free model of Google. Not only does it give them an incentive not to worry about security, because who wants to steal free stuff, but it's not free, because we're not paying in money, but we're paying with our time. It's kind of like a barter system that we've left behind in the Stone Age, as you point out. It's a real problem, isn't it? Not to have customers.
George Gilder: Yeah. Well, I think it's a problem for Google. It's a problem for Google that they don't have prices. It's a problem for Google that they don't have lessons that a real market imparts to companies and guides their investment and their future. It's a problem for Google that they don't have real customers, that ... to whom they have obligations and incur liabilities. It's a problem for Google that they don't have the whole process ... They talk about machine learning all the time, but the fact is that machines can't learn, but humans can, that in order for humans to learn, they’ve got to have experiments that can go wrong. They can't have a guaranteed world where everything's free and no learning experiences really can arise.
George Gilder: My whole theory, the information theory of capitalism, is that wealth is knowledge, and we know that because the conservation law says that all matter that ever existed, existed in the Stone Age. The difference between our age and the Stone Age is entirely the growth in knowledge, and if knowledge is wealth, then economic growth is learning, and that's what it is. So, if you prohibit learning by not having any prices for your goods or any real relationships with your customers, or you restrict your customers to a few big corporate offices that buy your advertising or even hundreds of thousands of small businesses who purchase your advertising, you restrict your market and you restrict your learning process, and that is what will ultimately bring Google down, because there are all these companies out there that are confronting real markets and getting real price signals and conducting real Popperian experiments [named after ], which yield new knowledge.
Ron Baker: Right. No, your equation there is brilliant, wealth is knowledge, growth is learning. So, okay, Google's doomed. Its business model is doomed because of this new layer of the internet that we're going to get because of the cryptocosm, and I love how you profile some of the entrepreneurs and the Thiel Fellows, and you talk about all this new technology that's coming out that I guess will be the new architecture of the blockchain economy. Can you kind of unpack that? You say the clouds are going to disburse across the sky and everything's going to move down to the decentralized blockchain. Is that the essence of the cryptocosm?
George Gilder: Yep. The key point is that in order for capitalism to really to work, you have to maximize the creativity of individual human minds, and individual human minds are disbursed, and we're distributed, we're separate. We function largely peer to peer. Internet architecture that corresponds to the disbursal of human intelligence, of humans' minds, is the blockchain and all the other technologies that have erupted around the blockchain and some of them even obviate specific blockchain structures, they have other similar structures, but they all are identifiable by their disbursal of information and intelligence. They don't try to create a porous internet stack, where all the knowledge and money rise to the top. Instead, you have a block stack, you have a system at the bottom that retains personal data, personal content, personal creativity, on the foundation. This is the foundation of security that the blockchain offers for a new internet that correlates with the very nature of the human mind, and its disbursal around the planet.
Ron Baker: And George, when you look at all these entrepreneurs that you profile, they're all really young. Some are college dropouts, Thiel Fellowship winners. They all seem to be in their 20s. I know we've talked about Charles Murray's book, . One of the striking things in that book is all of these great leaps forward in learning take place from people below the age of 40. Is there something to that still, that innovation is really a young person's game?
George Gilder: It is, because anybody's capabilities are limited, and you gain your power over the environment by focusing, and by developing specific modes of behavior, habits and disciplines. The new generations stand on the shoulders of the old generations, but it's hard to stand on your own shoulders. So, it is true that Thiel, Peter Thiel, had a brilliant insight when he decided to lure the best entrepreneurs out of college before they graduated, because these colleges were becoming sclerotic and bureaucratic and sort of houses of political correctness, chambers of diversity, politics ... It's just no longer serving the future, sort of clamping down on new generations, stultifying new generations.
George Gilder: One of the first Thiel Fellows was , who created a new blockchain, imitating the Bitcoin blockchain with a number of improvements that allowed it to be extended into a new global computer platform that could use a new software language called to create smart contracts that could function with a new currency called , which in turn fed on a new value metric called and this Ethereum blockchain has already accumulated some $20 billion of new ICOs, initial coin offerings, and people keep stressing that 46% of them have already gone bust and a number of them are frauds, and yeah, there's a lot of chaos and a lot of mischief in the blockchain world, but there's also an efflorescence of creativity that closely resembles the initial efflorescence of creativity around the internet itself. It really constitutes a new architecture for the internet based on a new concept of security, which is derived from distributing information everywhere rather than concentrating it at the top in a few giant data centers.
Ron Baker: George, is it safe to say that you have more faith in virtual reality than artificial intelligence, because VR tends to augment the human?
George Gilder: Yeah. The virtual reality challenge is trying to accommodate human consciousness and allow us to see the universe in new ways. Photons ... Virtual reality is essentially manipulating photons and Jules Urbach, who as the founder of with me and Alissa Grainger and Ari Emanuel and a bunch of people, but Jules is really the genius. He points out that the big bang was an explosion of photons and what virtual reality has to do is simulate little bangs of photonic explosions that impinge on human consciousness and give us a new perspective on reality. That's a great challenge. It doesn't try to usurp human minds. It tries to serve human minds.
Ron Baker: Right, right. My last question, George, and then Ed will take us out, but Google is full of really smart people, so I have a two-part question for you. One, have they invited you internally to speak to them about this book?
George Gilder: No, they haven't. I've sent messages. I think they'll get around to it. I really believe that the word of this book and ... It's been the number one book in digital currencies and the number one book in computer science theory or whatever on Amazon for much of the last month, and I don't think it's entirely a coincidence that Google has been yacking about their concern with security increasingly as the days pass. We'll see. I expect to speak at Google at some point. I don't think that they're that intimidated that they think they can't learn from me, but maybe ... We'll see. It'll be interesting. I respect them tremendously. I think they're the dominant company of this era. They've made a huge contribution. They just have exaggerated the significance of their contribution. They've tried to inflate it into an Eschaton, a final thing, and it isn't. It isn't. Artificial intelligence does not eclipse human intelligence at all. It has nothing to do with human intelligence, really. It's an extended function.
Ron Baker: Right, right. Well, that's a great note for me to leave it on, George, as we enter our next break, and folks, like to remind you if you want to send Ed or myself an email, send it to firstname.lastname@example.org, and now we want to hear from our sponsor, Sage.
Ed Kless: And we are back with The Soul of Enterprise. Unfortunately, we have lost George Gilder. Ron.
Ron Baker: Yes. Oh, he's back.
Ed Kless: Oh, he's back. He's back. Okay. Hi, George, you back?
George Gilder: Yeah, I'm back. I don't know what happened.
Ed Kless: All right, awesome. No, clearly Google does not want this interview to continue. That's what it is. In all seriousness, I'm going to take you through to the last segment. We've got about six minutes left.
George Gilder: Okay.
Ed Kless: A couple things you and Ron were talking about got me to thinking. What are your thoughts on what Apple is doing from a security standpoint? They at least seem to be attempting to shift it down to the device, to make it a little bit more personal, a little bit more human. Do you think that's going to be an assistance in the future, or do you think that that's going to be blown up with the whole new security realm itself?
George Gilder: Well, the first place, I think Apple and Amazon are both different from Google in that they spurn the free temptation. They are brilliant at collecting money from real customers. I think they're not part of this Google system of the world in the same way. That said, I think Apple is deteriorating, to some degree. Their constant passwords, their PINs, their constant harassment of their users, their increasing closure of their systems, where you can't repair them. The right to a repair is an important phenomenon, and to try to create a closed, essentially, company store where their customers can't be creative anymore, I think Apple is deteriorating since the times of Steve Jobs. I think they need ... Their leadership has to open up a bit. I don't think they've solved the security problem at all. They're just compounding it with more security busy work, more pettifoggery that really chiefly stops their customers from using their own devices.
George Gilder: If you make a slight mistake with your Apple drive, they can't retrieve it for you. If you forget your special password for your Apple drive, you got to wipe it clean before you can proceed, and you lose everything you haven't stored at the Apple Cloud. This whole security model that these companies are pursuing where they try to create their own little secure walled garden, while leaving all the intersections between the various separate walled gardens open to hackers to play, is futile and quixotic and will have to end.
Ed Kless: Agreed. We have about two minutes left, George. What I do want to ask you, first of all, thank you for the recommendation on the . I've actually started playing with it myself, and I think I see where it's going, probably not as clearly as you, but it's pretty fascinating technology. What I wanted to ask is, do you think that the blockchain or some variant form of it might be a potential answer for the challenges that we see with voter fraud?
George Gilder: Yeah. I think voter fraud ... to the extent that we really can't solve voter fraud with the existing technologies, I don't think we've got an awful lot of voter fraud in the United States. Maybe I'm wrong about that. But blockchain is a complex technology that's being developed along many different tracks at the moment, and one of the applications is voting, and it’s being used in Estonia and several other countries, and Singapore wants to use it. There are lots of experiments going on using blockchains in politics, and we'll see how they turn out.
Ed Kless: Yeah, no, well, and then the other side of that question is as security becomes more personal, and we've got about one minute left, do you think that disrupts the NSA from their "spying" on us as well?
George Gilder: Yeah. I don't mind NSA doing metadata churning or metadata through their computers. Does not threaten me. FBI agents pounding on my front door or breaking into my garage, threaten me. I think computer intrusions are sort of benign and necessary in an age where nuclear weapons can be potentially put in small boxes and deployed. They're just real terrorist threats that the NSA has to address, and I think this paranoia about privacy with the NSA is misconceived.
Ed Kless: Interesting. Well, thank you, George Gilder.
Ed Kless: No, that's okay. Sorry, we just have to wrap up. We've got about 30 seconds left, and Ron's got to read the outro. Want to really appreciate you being on the show once again. You're a fabulous guest, and thanks for handling all my rapid fire subject changes at the end there. Hopefully you're willing to appear again next time.
George Gilder: Oh, I certainly will. Thank you so much.
Ron Baker: Thank you, George.
George Gilder: Love your show.
Ron Baker: Thank you.
Ed Kless: Thanks.
Ron Baker: Ed, what's on store for next week?
Ed Kless: Next week we're on Free-rider Friday.
Ron Baker: All right. See you in 167 hours.
Ron Baker: This has been The Soul of Enterprise: Business in the Knowledge Economy, sponsored by Sage, energizing business builders around the world through the imagination of our people and the power of technology. Join us next week folks on Friday at 1 p.m. Pacific. In the meantime, check out thesoulofenterprise.com. We'll post full show notes with our interview with George Gilder. Also, you can contact Ed or myself at email@example.com. Thanks for listening, folks. Have a great weekend.
David Meikle’s career in marketing communications spans more than two decades during which time he has worked with Grey London and Ogilvy & Mather and for some of this biggest brands and brand owners including Unilever, Ford, GlaxoSmithKline, Nestle, American Express and BP.
In 2003 David joined Ogilvy Russia as Group Managing Director. In less than four years Ogilvy Russia had become WPP’s largest creative group in the Russian Federation, increasing agency revenues by more than 500%.
Returning to the UK, David founded the marketing consultancy and intermediary, Salt Partners. While working for clients such as the Post Office, Bayer, BMI Healthcare and several leading creative and media agencies, he developed the strategic framework that would become The Monkey House and wrote his first book: How to Buy a Gorilla (2017), renaming his business after the book in 2017. David lives in Oxfordshire, with his wife, his son, a Russian-born Welsh terrier called Knopka, a whippet called Molly and a couple of chickens.
Marketing in Russia: Is that like selling snowballs in hell?
Put it in historical context for us. The famous ad “First Over the Wall,” by Saatchi & Saatchi. [You can see this in Paul Arden’s book, Whatever You Think, Think the Opposite, 2006]. In 2003, how long had Ogilvy been in Russia?
How long were you in Russia?
So you’ve been out of Russia for 10 years. Do you still have friends over there?
Has it significantly changed in the last 10 years for advertising, with Putin, etc.?
One of things going on here in the US with Trump and Tariffs, and all that, one comparison I heard is we could have free trade with Russia but it wouldn’t stop the need to pay bribes to get things done.
This is one of the few books I’ve read, that actually mentions the theme music we use here at TSOE.
I work for Sage, the brand name is well known in the UK, but less well known in the USA. Many of the organizations, and listeners to the show, are partners of Sage. Let’s do a deep dive on the Spider Monkey, which is probably the type of advertising that these organizations should be doing. Do you agree with that?
The way Peter Drucker looked at risk, most small companies miss the risks they can’t afford not to take.
I’m going to steal where Ron was probably going to go: What’s it like to work with Rory Sutherland?
Why do I want to buy a gorilla, and why did you write this book?
Explain the Gorilla ad for our listeners.
The Gorilla is high-impact, original, engaging, creative, transformative work. The rest of the Monkey House is:
- Orangutan—some brands need to play it safe (defending market share)
- The Spider Monkey—lower available media investment; punch above weight (growing/stealing market share)
Why is Gorilla advertising so rare? I was in Australia earlier this year presenting to advertisers, and I spoke with a creative from Saatchi and asked him which country was most creative in advertising. He said, hands down, New Zealand. What’s your take on that?
I love the “unholy trinity” analogy. In the book, you call it the Mexican standoff: each of the three—agencies, marketers, and procurement—are exclusively in pursuit of his own interest, prepared to kill the others to get it. Rather than focus on wishes/interests of agencies, marketing and procurement, you want focus on business problem that the three need to solve, but that doesn’t seem to happen?
Speaking of confessions of plagiarism, when you spoke in Toronto, and in your book, you talked about leading a class full of procurement people, and you asked two questions:
- How many are personally incentivized to save money on marketing?
- Keep your hand up if your bonus is any way contingent on the value of the marketing services you produce?
[That’s brilliant since Brand ROI > agency price + media + production, etc.]
You say we need to hold procurement to the same KPIs as marketing. But we don’t do this. Why not?
A lot of time we don’t say “no” to procurement, which is really frustrating.
There has to be a risk/return tradeoff with procurement, since it’s an investment.
You quote Stephen (M.R.) Covey’s book, The Speed of Trust:
“Without trust we don’t truly collaborate; we merely coordinate, or cooperate at best. It’s trust that transforms a group of people into a team”
How do you think the billable hour has played into the erosion of trust and the unholy trinity?
One of things I love about your book is that you continually say that marketing is about persuasion, it’s an art not a science. You wrote hourly billing is easy to measure, but we might as well evaluate an artist based on the amount paint they say they’ll need. It’s an input measure, not an outcome measure.
Should the marketing community get over this conflict of interest concept, that if we work for Coke we can’t work for Pepsi. But these companies both hire McKinsey?
Have you finished The Americans?
Mark Skousen, Ph. D., editor of Forecasts & Strategies, is a nationally known investment expert, economist, university professor and author of more than 25 books. In 2018, he was awarded the Triple Crown in Economics for his work in economic theory, history and education, and has been identified as one of the 20 most influential living economists (superscholar.org). He earned his Ph. D. in monetary economics at George Washington University in 1977. He has taught economics and finance at Columbia Business School, Columbia University, Barnard College, Mercy College, Rollins College and Chapman University, where he is currently a Presidential Fellow. He also has been a consultant to IBM, Hutchinson Technology and other Fortune 500 companies. He is the producer of FreedomFest, “the world’s largest gathering of free minds,” which meets every July in Las Vegas. (www.freedomfest.com). FreedomFest attracts several thousand people from around the world.
Ed and Ron are honored to interview economist Mark Skousen, one of Ron’s favorite economics author. He is a former analyst for the Central Intelligence Agency, a columnist to Forbes magazine and past president of the Foundation for Economic Education. His economic bestsellers include: The Structure of Production, Economics on Trial, Puzzles and Paradoxes on Economics, The Making of Modern Economics, The Big Three in Economics, EconoPower, and Economic Logic, a market-friendly textbook. In 2009, The Making of Modern Economics won the Choice Book Award for Outstanding Academic Title. Based on his work The Structure of Production, the federal government began publishing a broader, more accurate measure of the economy, Gross Output (GO), every quarter along with GDP. It is the first macro statistic of the economy to be published quarterly since GDP was invented in the 1940s.
In honor of his work in economics, finance and management, Grantham University renamed its business school, “The Mark Skousen School of Business.” Dr. Skousen has lived in eight nations and traveled and lectured throughout the United States and 70 countries. He grew up in Portland, Oregon. He and his wife, Jo Ann, and five children have lived in Washington, D.C.; Nassau, the Bahamas; London, England; Orlando, Florida.; New York, New York; and Orange, California.
What We Discussed Before Mark Came On
Mark’s Economics in One Page Essay, which we discussed in the first segment before Mark came on the show.
We also discussed Mark’s book, The Structure of Production: New Revised Edition, Mark Skousen, published in 2015, which explains the U.S. Department of Commerce’s new data series, “Gross Output by Industry.”
- Cato Podcast with Mark Skousen, George Gilder, Steve Forbes
- The production process, not consumption, is most important aspect of economic life (Marx’s wanted to nationalize the means of production, not consumption)
- On April 25, 2014, the Bureau of Economic Analysis (BEA) at the U.S. Department of Commerce announced a new data series as part of the U.S. national income accounts, and the BEA began reporting “Gross Output by Industry.”
- Measures spending throughout the entire production process, not just final output.
- Measures total sales volume at all stages of production, includes all business-to-business (B2B) transactions that GDP leaves out.
- Third quarter of 2014, GO hit $31.3 trillion, almost twice the size of GDP, which was $17.6 trillion. GDP measures the “use” economy, GO measure the “make” economy.
- According to Mark, GO is now approximately $43 trillion dollars (GDP is $20 trillion), and is a leading indicator, it’s more volatile than GDP.
- GDP is comprised of consumer spending, government spending, investment, and net exports, with the first two of these being the biggest contributors.
- Overemphasizing consumer and government spending as the driving force behind the economy, ignores supply-side benefits of saving, business investment, and technological advances.
- “Household spending generates more than two-thirds of total economic output, latest U.S. data on GDP, $17.6 trillion, consumer spending $12 trillion (68%), government spending at $3.2 trillion (18%), Private investment $2.9 trillion (16%), (Net exports at -2 percent.)
- GO consumers less than 40 percent ($31.3 trillion), Spending by business $16.6 trillion, more than 50 percent of economic activity.
- Consumer spending is largely the effect, not the cause, of prosperity
- GO over $23 trillion in 2014. GO significantly more sensitive to the business cycle than GDP. 2008–2009, nominal GDP fell only 2 percent, GO fell by 6 percent and B2B spending collapsed by 10 percent.
- BEA’s measure of GO does not include all sales at the wholesale and retail level.
- Wholesale and retail trade figures are included in GO only as “net” or value added.
- Serious omission, more than $7 trillion dollars in business spending in 2014.
- We need to include gross wholesale and retail trade figures. They are legitimate B2B transactions that deserve to be counted.
- I created my own aggregate statistic, Gross Domestic Expenditures (GDE), includes gross sales at the wholesale and retail level and is therefore significantly larger
- GDE in 2014 at over $37.5 trillion, 25 percent higher than GO and 120 percent more than GDP.
- Consumer spending actually represents only about 31 percent of the U.S. economy.
- Adoption of Gross Output most significant advance in national income accounting since World War II.
- GO is a reflection of Say’s law, a supply-side statistic, while GDP is a symbol of Keynes’s law, a demand-side number
- “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts”
Mark, we met at Laissez-Faire Books in San Francisco upon the publication of your book, The Making of Modern Economics: The Lives and Ideas of the Great Thinkers, now in its Third Edition (2016). It’s a fantastic book. You discuss the economist’s ideas, but also their little peccadillos.
Explain the Gross Output statistics? (See discussion above).
With this measure, you destroy that old trope that consumer spending is 2/3 of the economy, which is absurd. Either consumers aren’t spending enough, or they’re not saving enough.
Behavioral economics has become a massive field of study within economics. What is your take on behavioral economics and its findings so far?
You wrote your own economics textbook, Economic Logic, which is excellent. What does it tell us about the state of economic education that Alexandria Ocasio-Cortez can get a degree in economics and be a devout socialist, without being able to coherently explain it, other than that everything is free and the wealthy should pay for it all?
Economics on Trial is another fantastic book you wrote. What about the compromise idea that you are responsible for health care up to 15% of your income, and after that, single-payer?
From an economic policy perspective, what grade do you give to the first 20 months of the Trump presidency. Another way of saying it is do you think your colleague Larry Kudlow is pulling what’s left of his hair out?
You’re one of the few economists who have successfully integrated micro- and macro- economics. Since most of our listeners are business owners, what economic principles do you think are most important for small and medium business owners to understand?
What are your thoughts on blockchain technology, and Bitcoin?
What are your thoughts on the “Gig Economy,” is this a major shift, or just a tweak on the way things are done?
What does A.E.I.O.U stand for?
Mark has signed a couple of Ron’s books with A.E.I.O.U. It comes from the tombstone of Frederick III, the first Hapsburg emperor. Many believe it is Latin or German for “Austria will rule the world.” For Mark, it means, “Austrian Economics Is Overall Universal.”
Thank you, Mark Skousen, for appearing on The Soul of Enterprise!
John Stossel is an American consumer television personality, author, and libertarian pundit, known for his career on both ABC News and Fox Business Channel. Stossel's style combines reporting and commentary. It reflects a libertarian political philosophy and views on economics which are largely supportive of the free market.
He began his journalism career as a researcher for KGW-TV, was a consumer reporter at WCBS-TV in New York City, and then joined ABC News as a consumer editor and reporter on Good Morning America. Stossel went on to be an ABC News correspondent, joining the weekly news magazine program 20/20, going on to become co-anchor.
In October 2009, Stossel left his long-time employment at ABC News to join the Fox Business Channel, as the host of a weekly news show on Fox Business, Stossel, which was broadcast from December 10, 2009, to December 16, 2016.
You went from a crusading consumer reporter—who won 19 Emmy’s and lots of other awards—to a leading voice in the libertarian movement. How’d that happen?
Were there certain books, or authors, who influenced you towards libertarianism?
In your book, Give Me a Break (2004), you discuss the FDA announcing a new heart drug that will save 14,000 lives per year. Not one journalist asks: does that mean you killed 14,000 people per year delaying the approval. Why do you think that is—that people think the government can do no harm?
I think of all the government regulations—like the Consumer Product Safety Commission, the ultimate in mamby-pamby-eat-your-vegetables Nanny statism, designed to create a riskless world. But as you point out in the book, it’s not the Nanny State: It’s the Nurse Ratched State (from the movie, One Flew Over the Cuckoo’s Nest). It seems like regulations have gone too far to the other side. Do you agree with that?
We hear a lot about “market failure.” But I’ve learned from economists that a lot this failure is due to no market existing (KFC is not going to let chickens become extinct). In the book, you talk about fires, and today in California fires are burning 455 square miles. A UC Berkley study said there are 100 million dead trees, which is kindling. [Private forests are not likely to burn. If it did, the CEO of International Paper would be public enemy number one, and his company would face bankruptcy, etc.] And yet people will call for government to control more land. Isn’t it frustrating?
We have a mantra here at TSOE: The only antidote to poverty is wealth creation, and you point out that poverty is the number one killer on the plant, more so than smoking, driving, murder, fires, toxic waste, flying, etc. Capitalism has lifted nearly 1 billion people out of poverty in the past 10-15 years, yet this story is unreported in the main-stream media. Why do you think that is?
In the book, you write “I told Donald Trump he was a bully when he tried to force Vera Coking out of her home so he could expand his casino in Atlantic City.” “Nobody talks to me that way,” he said. She kept her home. How would you grade President Trump so far?
The moral hazard of government: FDA, SEC, etc., gives its imprimatur, and consumers/investors think all is well, engage in the risky behavior.
In the book, you quote H.L. Mencken: “The urge to save humanity is almost always only a false-face for the urge to rule it.” What is your take on Climate Change?
Do you think there’s a strain in the environmental movement—the so-called water melons, green on the outside but red in the inside—since the call is always for more taxes, government, etc.?
When you see the popularity of Bernie Sanders, and Alexandria Ocasio-Cortez (the person that would result if Chauncey Gardner had a child), and she’s got a degree in economics and international relations from Boston University, and a majority of young kids support socialism, are you optimistic with respect to liberty and freedom in the future expanding?
You had a piece on Reason.tv yesterday on the economic ignorance of Bernie Sanders. Sometimes it seems as if the libertarian party can’t get out of our own way. What’s your observation?
One of the first reports you did for Reason.tv was on saving the rhino, and you confront the environmentalist on the use of artificial horns. You seemed to get very perturbed with her, since she insisted on a total ban.
In a more recent interview with Jordan Peterson, he seemed more angry than anywhere else I’ve seen him. Do you think he’s being worn down by all that is happening to him?
Another piece I just love you did around June, you had a confrontation with the Mayor and City Council of Edgewater, New Jersey about a housing development they are not allowing to be developed because they didn’t know the right people. Any update on that situation?
Another challenge many people have is seeing the difference between capitalism and cronyism. I think these terms have been conflated. Is that your observation as well?
Bill Gates seems to have been chased away by the Department of Justice, accused of giving away a product to consumers for free.
One of the things that just makes me crazy around the holidays is the notion that businesspeople have to give back, which implies a taking that never took place.
There’s a great theory that economist Mike Munger makes [See our interview with Michael Munger, Episode #190]: The Unicorn Theory of Government. How the government is going to solve their problems. We also have to be open to the fact that the libertarians have our own unicorns—the free market will solve everything. Do you see some role for government, or are you moving more towards anarcho-capitalism?
Clearly what you do is incredibly creative process, tell me how you work—how does your team go out and vet stories, what’s that process like for you guys?
What do you try to do differently than what you did at the larger networks; is there anything different to the process?
How many videos are you working on at any given time?
Do some not make it at all?
Looking back on the last year, what were some of your favorite videos?
When did you first read Ayn Rand’s Atlas Shrugged?
Some of her insights were so prescient, and seem to be becoming a reality?
Are we going to get another book from you, or are you mostly going to concentrate on the videos?
Check out the “commercial free” edition of The Soul of Enterprise at www.thesoulofenterprise.com/patron, where you can subscribe to the show, receive each episode commercial free, and listen to bonus episodes.
Stephan M. Liozu is Chief Value Officer of the Thales Group (www.thalesgroup.com) and Chief Marketing Officer of Thales North America. He is also an Adjunct Professor & Research Fellow at the Case Western Research University Weatherhead School of Management. Stephan holds a Ph.D. in Management from Case Western Reserve University (2013), an MS in Innovation Management from Toulouse School of Management (2005), and an MBA in Marketing from Cleveland States University (1991). He is a Certified Pricing Professional (CPP), a Prosci® certified Change Manager, and a Strategyzer Business Model Innovation Coach. Over the past few years, Stephan published academic articles in the Journal of Revenue & Pricing Management, Business Horizons, MIT Sloan Management Review, and Industrial Marketing Management.
He has also written several articles on strategic pricing issues for the Journal of Professional Pricing and is a regular presenter at Professional Pricing Society conferences in Europe and North America as well as the Strategic Account Management Association conferences. He authored four books, Value Mindset, (2017), Dollarizing Differentiation Value (2016), The Pricing Journey (2015) and Pricing and Human Capital (2015). He also co-edited three books, Innovation in Pricing – Contemporary Theories and Best Practices (2012) and The ROI of Pricing (2014), and Pricing and the Salesforce (2015).
Tell us about your background, and what led you to become a pricing expert in the first place?
Do salespeople make lousy pricers?
One of the things I’ve learned in consulting is to replace advice with curiosity, looking at your online videos on YouTube, one of things you mention is curiosity one of the most important characteristics of people who value sell. Why is that? It’s not something businesses normally look for in the hiring process.
You make a distinction between value-based selling and negotiating around value. Explain?
In addition to being the CVO at Thales Group, you’re the author of several books and an adjunct professor and research fellow at Case Western Reserve University, how do you see the intersect between your background in academia and private industry, how do they complement each other?
You do a lot of work with leadership development, and I’m interested in the overlap between that and your work in pricing?
Another key success factor you talk about is finding the right customers. What are your thoughts on the marketing aspects of trying to attract those customers who get value and want to have that conversation about value?
Our colleague Tim Williams teaches that a brand can stand for only one thing—you can’t be both Ruth’s Chris and McDonalds at the same time.
You were once a CEO. How did that work out, did you have control over pricing?
Do you think pricing is more art or science?
Do you believe pricing is now a profession? Only 9% of universities offer an emphasis on pricing.
Why do you think it is the case that, according to data from the Professional Pricing Society, that fewer than 5% of the Fortune 500 have a full-time function exclusively dedicated to pricing [Stephan’s believes it’s now 10-15%]?
How important is the CEO and C-Suite support to the pricing function?
I know you have the title of Chief Value Officer, how do you define that role, what does it mean to you?
Ideally, who do you think the CVO, or CPO, should report to?
(2nd edition, 2018) which you edited with Andreas Hinterhuber, you have a chapter with Kellie Ecker titled “The organizational design of the pricing function in firms: a center-led management approach,” wherein you lay out four possible designs of the pricing function:
You prefer Center-led, why?
Tell me about your book Pricing and Human Capital (2015), since that’s a big theme of this show and Human Capital is some 80% of the world’s wealth?
Since the Great Recession of 2008, corporate profits have done relatively well, even up over historical levels. Do you attribute any of that to the pricing skills that have entered organizations?
The incidence of price wars has also decreased due to these skills.
During the break, we asked Stephan what industry he believed is the best at pricing. His answer: chemicals.
“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
- Lower the cap on non-audit fee (generous 70%)
- $47B auditing; $87B consulting and tax for Big 4 as a whole
- Add more to audit opinion (they should read like movie reviews)
- Regulators pick auditors—[probably lead to cronyism]
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
- Better amenities
- More investment
- Higher property values
- Reduces white flight
- Lawmakers usually promote affordable housing
- Boosts racial and economic integration
- Dilutes concentration of poverty
- 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?
- 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.
- 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.
Bosses are good guys/gals
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
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.
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.
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.
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.
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?
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.
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.
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:
- It creates and forces math and relationships don’t exist
- You lose touch with operations
- 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:
- Costs equal money
- Reducing costs saves money
- More profit equals more money
- 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.”
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?
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.
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:
- The assumptions about environment, mission, and core competencies must fit reality.
- The assumptions in all three areas have to fit one another.
- The theory of the business must be known and understood throughout the organization.
- 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
“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
This was the last book he published before passing away.
It details the five practices of the effective executive:
- Managing your time;
- Focusing your efforts on making contributions;
- Making your strengths productive;
- Concentrating your efforts on those tasks that are most important to contributions; and
- 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:
- Marketing and Innovation
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.
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
In four years, should Ed buy his 12-year son, Sean, a car or give him an Über account with a $400/month allowance?
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.
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.
Jeff Kanter is the co-founder of HealthExcellencePlus.com, which provides a holistic approach to healthcare and wellness. They help individuals and groups including small entrepreneurs save money on medical expenses, everyday needs and wellness solutions.
They "MPower" their members to choose their own doctors, healthcare professionals and allow for alternative solutions by educating, communicating and creating community around all aspects of health and wellness so you can make the best decisions for you and choose the healthiest lifestyle that suits your needs.
What is healthexcellenceplus.com and your role in it?
The people most supportive of your initiatives have been doctors, is that right?
The healthcare system was broken long before the Affordable Care Act (Obama Care), is that true?
Where did it start? Was it with wage & price controls in World War II that brought us employer-provided health insurance?
Large companies are reluctant to alter their health insurance because it will cause turnover?
There’s been an increase in on-demand workers (the “gig economy”), and I would think that would create a larger pool of individuals that will need what you’re offering?
If you want to stump your doctor, don’t ask him a medical question. Ask him the price of something.
The number of people who work in a medical office who don’t provide medical care is amazing, sometimes 2 to 3 to 1.
Most healthcare is not done on the free market, since there is no real price transparency. It’s all tied back to Medicare prices isn’t it?
Now that we’ve depressed our audience, and diagnosed the problem, what’s the prescription to get ourselves out of this mess?
Most of our audience is small business, or sole proprietors in the USA, what are some things they should be looking for?
What do I get when I get to www.healthexcellenceplus.com?
Tell us about how one of your organizations is dabbling with its own cryptocurrency.
Do you think that the more people do this, the more government will have to pivot and open up the healthcare market to more patient choice?
The only way it could be stopped is if we moved to a single-payer system, right?
Employer-provided health insurance locks people into their jobs. We don’t get our auto, home or other insurance from them, why should we get our health insurance from our jobs. We could reform this pretty easy, and make the health insurance companies compete for one customer at a time. Wouldn’t that be a better system?
There would be more variety and choice in policies with more competition.
How do you deal with the fact that we really don’t have health insurance in the actuarial sense, we have pre-paid health care. We buy insurance we don’t want, but when it comes to health insurance, we want $5 co-pays, free drugs, etc. That’s not insurance is it?
Mandatory benefits also raise the price of the plans, because they are trying to fit everyone into a one-size-fits-all plan.
I asked my dad’s hip replacement surgeon how much it was going to cost my dad. It did, indeed, stump him. He had no idea. Could you imagine if you were in a Lexus dealership and got that answer you’d walk out. Why do we tolerate this lack of price transparency in such an important industry?
I know it’s not a perfect analogy, but if the health care sector ran like the hotel industry, there would be price points attempting to cover every customer need, based on what they can afford. But the objection is that not everyone would get the same quality care. How do you deal with that objection?
It’s a good point that reputation is more important than regulation. Perhaps a better analogy is the airline industry. It’s life and death as well, and they offer many price points.
You mentioned the price of an MRI. But if you have insurance, and get an MRI, you receive the EOB (Explanation of Benefits) statement that shows a $5,000 price, but that’s not what the insurance company actually pays the hospital. They won’t disclose what they actually pay because they consider it a trade secret. It’s lunacy, isn’t it?
Look at outfits like LabCorp, they offer very reasonable prices, since they are competing for the customer one at a time, and offer price transparency.
You mentioned cryptocurrency, have you selected one yet? (yes: www.organictoken.info)
Along with the cryptocurrency, you also mentioned blockchain. How do you see this technology unfolding in the medical world?
You also mentioned Direct Primary Care physicians. Do you know how many are out there now?
I actually read Milton Friedman’s PhD thesis, a study of five difference occupations. He railed against licensure for them because it kept prices high. Do you think we could do away medical licensure?
When you look at medical services that are provided on the free market, where the patient is spending their own money, such as with plastic surgery, Lazik surgery, and even veterinarian medicine. Those prices have been coming down. Wouldn’t the same thing happen if the consumer was spending their own money?
You’re going to be at Freedom Fest in Las Vegas, July 11-14, 2018?
We are sorry folks. John Stossel had to cancel because an injury. We wish him a speedy recovery and look forward to having him on in the future.
We decided to discuss a Ron’s Pricing Masterclass that he presented in Melbourne, Australia on May 30, 2018 at the launch of our VeraSage colleagues’ (Liz Harris, John Chisholm, and David Wells) new consulting firm, Innovim.
Ron presented his Top 10 Pricing Lessons, and John wrote a fantastic recap of this presentation, including additional links, etc.
I asked Ed to list his Top 10 Pricing Lessons over these past years, so we will present both of our lists below, along with specific links to prior shows where we covered these topics.
Ron’s Top 10 Pricing Lessons
- Hourly Billing is a Lousy Customer Experience
- The Transition from Hourly Billing to Value Pricing Requires Liminal Thinking, see the book Liminal Thinking, by Dave Gray.
- Strategy and Positioning Dictate Your Pricing Strategy
- The Value Conversation is the Most Important Skill in Our Business
- My Five Favorite Key Predictive Indicators, see Episode #110: How to Use Key Predictive Indicators
- Cost Accounting is Opinion; Cash is Fact
- Laughter is Confession, see BBDO Time$hits Video
- The Best Learning Tool Ever Invented: After Action Reviews
- We Need to Embrace Risk, Not Run from It, see Episode #87: Risk is NOT a four-letter word
- All Transformations are Linguistic, see Episode #6: Interview with Distinguished Professor of Economics, Deirdre McCloskey
Ed’s Top 10 Pricing Lessons
- Good Fences Make Good Neighbors (Robert Frost’s poem, “Mending Wall”)
- Don’t Forget van and von (referring to Peter van Westendorp’s Price Sensitivity Meter Questions, and Barron von Joseph Neinbach Model, see Ron’s book for the latter, Implementing Value Pricing: A Radical Business Model for Professional Firms, see Episode #65: How to be a Price Searcher, not a Price Taker [where we discuss Westendorp’s Price Sensitivity Meter Questions]
- Bundles, not Line Items, see Episode #3: The Second Law of Marketing: All Prices are Contextual
- Offer a Guarantee, see Episode #179: The Value Guarantee
- Business is Not a Zero-Sum Game
- Without a Value Conversation there is No Value Pricing
- Offer Choices
- Time is Best Thought of as a Constraint, Not a Resource
- All Value is Subjective and All Prices are Contextual
- Prices are not Derived from Cost; Prices Justify the Future Expenditure of Costs, see Episode #66: The Death of Standard Cost Accounting
Building technology companies is in Alessandra's DNA, as she has led transformational changes as CEO of three previous companies. Since joining Abacus in 2013, she has propelled the business from a $5 million on-prem legal case management software offering to the fully integrated technology suite it is today. Alessandra has driven the company through this transformative shift at an industry-focused pace, taking advantage of the company's 30-plus years of experience and evolving its products into a mature, robust portfolio. Alessandra is an entrepreneurial CEO, COO, and Executive Vice President with a legacy as a 'Rain-Maker', and has enjoyed a high impact career in Telecom, Datacenter, Managed Services and other technology and non-technology companies, taking dysfunctional companies and turning them into a superbly functioning, highly profitable organizations.
Ed and Ron were honored to interview Alessandra Lezama, CEO of AbacusNext—a sponsor of The Soul of Enterprise. Alessandra possesses strategic hands-on leadership skills, drawing on extensive cross-industry experience, sustainable strategies, thorough growth and market analysis, and a focus on process improvement. She has extensive and significant expertise in start-up and under-performing businesses, revitalizing organizations and scaling business operations cost effectively. She has built high-performance teams, developed executive-level client relations, and drove top and bottom-line growth. She has a consistent record in building, and turning around, private equity backed business, ranging in size up to $33 million. She enjoys being part of, as well as leading, a successful and productive team, and thrives in highly pressurized and challenging working environments.
San Diego Business Journal honored Alessandra as the most admired CEO of 2018, out of 100 CEOs nominated!
What are some items not in your Bio, were you born in Spain? How many languages do you speak?
The company’s tag line is “Take the bull by the horns,” because Alessandra’s father was a bull fighter.
What is “Technology as a Service,” and how does it manifest itself at AbacusNext?
You’re almost becoming an App store for professional organizations so they can work more seamlessly than they have in the past?
There seems to have been an overemphasis on strategy in the past decade, and one things that is coming up more and more in talks I give around the world is Peter Drucker’s great quote, “Culture eats strategy for lunch.” Looking at your website, the emphasis on culture comes up over and over. What is the importance of culture, and the role of a leader with respect to making that culture happen, in an organization?
What is it about the hiring process that’s different when hiring for culture? Is it just a gut feel, or are there certain questions you ask to ascertain if they’ll fit from a cultural perspective?
Who is a hero of yours, and why are they are a hero?
AbacusNext origins started in the legal profession, is that right?
What are some of the major challenges and opportunities in the legal sector these days?
- Cybersecurity and compliance
What are the challenges and opportunities in the accounting sector?
- Cybersecurity and compliance
- Workflow for ongoing relationships
How do you see the diffusion of being in the cloud among law and accounting firms?
We have an axiom here that growth without profit can be perilous. As CEO, how do you manage the trade-off, in your strategy and even in your mind, between growth and profitability?
How do you see blockchain technology impacting the professions in the future?
What would be your advice to an aspiring entrepreneur?
We discussed the five process groups of project management as defined by the Project Management Institute, where are:
- Controlling & Monitoring
We then turned our attention to using an issues list for project tracking. You can download it here.
Here are links to our previous shows on project management
- Episode #68: Proper Project Management
- Episode #79: Project Management - Project Initiation
- Episode #186: Your Customer Defines Quality, Not You
And our next project management show will be on the Change Request!
- Groupthink on climate change ignores inconvenient facts. What do the Flat Earther’s call global warming?
- Immigration policy is your firewall, an idea from Conversations with Tyler (economist Tyler Cowen) podcast, Episode #39, and his interview with Balaji Srinivasan.
- New Studies Find Aliens May Well Exist in a Parallel Universe. What do the Flat Earther’s say?
- He Makes a Joke. She Isn't Laughing: 'Lingerie' Comment in Elevator Leads to Uproar Among Scholars
“Why Is the EU Celebrating Karl Marx’s Birthday,” Daniel J. Mitchell, FEE, April 30, 2018
One hundred million people died under communism, as documented in The Black Book of Communism.
Jean-Claude Juncker, President of European Commission, will travel to Trier, Germany, to deliver a speech at the opening ceremony of the Karl Marx exhibition in the city.
An EC spokeswoman said: “I think that nobody can deny that Karl Marx is a figure who shaped history in one way or the other.”
So did Hitler.
Marxism and Communism is not treated same way as National Socialism. Six million dead vs. “the mistakes” of Communism or of Stalinism.
“Some assembly needed,” The Economist, April 21, 2018
In 1997, it was about computers playing chess; in 2016 it was playing Go. Now we have robots assembling IKEA furniture. Robots assembled a chair, STEFAN, which contains 19 components, in nine minutes.
Prior to the assembly, the robots spent 11 minutes scanning the environment and planning their movements.
The new idea: Machine learning by watching humans. Does mean that robots will eventually toss the screwdriver against the wall and reach for the Scotch?
Only in California
Elon Musk is not the only American build his own rockets. In the California Mojave desert, “Mad Mike” Hughes, a limousine driver, rode a homemade steam-powered rocket 1,875 feet into the air and descended successfully with a parachute.
The purpose? To see how the Earth looks from above, to disprove the false theory that the world is round [Mad Mike is a member Flat Earth Society]. Members crowdfunded the flight.
He could have done better on a tall building, climbing a mountain, or flying in an airplane, since 1,875 feet is not high enough to measure the curvature of Earth.
If he simply remembered his high-school geometry class, he would have realized…oh, wait, never mind.
Oh, and he’s running for governor of California.
“Jeff Bezos Banned PowerPoint in Meetings. His Replacement Is Brilliant,” April 25, 2018, Carmine Gallo, Inc.com.
Instead of bullet points, executives spend 30 minutes reading a narrative, which they then they all discuss.
Why storytelling is better than Powerpoint:
- Our brains are hardwired for narrative (retention better, etc.)
- Stories are persuasive—ethos (character and creditability), logos (logic), and ethos (emotion). When the metrics and anecdotes disagree, the anecdotes are usually right
- Bullet points are the least effective way of sharing ideas—bullet points don’t inspire, stories do. Inform, illuminate and inspire.
“Catching the bitcoin bug,” The Economist, April 14, 2018
A Barclay’s bank study describes crypto-technology as a “solution still seeking a problem.”
It identified four challenges:
- Trust (most trust govt currency)
- Sovereignty—tax avoidance, financial control, govt not keen on
- Privacy—not as anonymous as cash, purchase history revealed
- Ability to undo transactions case of error/fraud
Existing alternatives work well.
Only 8% buy bitcoin for purchases or payments; most is speculation
It’s hard to model bubbles—Crypto through the tulips.
The study makes an ingenious parallel to an infectious disease. A small number of owners get infected, while new buyers are drawn in (catch the bug). A large share of population will never succumb.
The faster the price rise, the more infectious, but then it starts to slow as the price drops, and then the epidemic dies out. This fits the Bitcoin history pretty well, so far.
My favorite podcast. by SMBcents
I love this show and wait all week for the next episode with well deserved anticipation. Ron and Ed are a perfect fit, their commentator styles definitely compliment each other. Guest speakers are always outstanding! Thank you guys!
Thank you so much, SMBcents.
From Michelle in Australia. Do you prefer Chief Pricing Officer or Chief Client Value Officer?
Ron votes for Chief Value Officer, since it is outward focused.
From Michael: The biggest issue with ditching timesheets is very peculiar and not something I’ve heard on TSOE before. Partners voiced a concern that without timesheets they won’t be able to track NON-CHARGEABLE hours.
Check out the new book by John Doerr, Measure What Matters, which details the use of OKRs—Objectives and Key Results.
We were honored to interview Dr. Mary J. Ruwart, a research scientist, ethicist, and a libertarian author/activist. She received her B.S. in biochemistry in 1970 and her Ph.D. in Biophysics in 1974 (both from Michigan State University). She subsequently joined the Department of Surgery at St. Louis University and left her Assistant Professorship there to accept a position with The Upjohn Company of Kalamazoo, Michigan in 1976. As a senior research scientist, Dr. Ruwart was involved in developing new therapies for a variety of diseases, including liver cirrhosis and AIDS.
She is the author of Healing Our World: The Compassion of Libertarianism, published in 2015, and the focus of our interview is her latest book is Death by Regulation: How We Were Robbed of a Golden Age of Health and How We Can Reclaim It, published this year.
You can learn more about Mary and her work at: http://www.ruwart.com.
Your book Death by Regulation is more horrific than a Stephen King novel, because it’s real. It all starts with children of thalidomide doesn’t it?
Before the 1962 Amendments a drug had to be “safe for the intended use.” But after the Amendments a drug had to show it was “safe and effective.” Why is this difference so important and what has it done for us?
Makers of water could not advertise that it alleviates dehydration [due to FDA regulations]. But how are Cheerios and cherries drugs?
Even the Centers for Disease Control and the FDA contradict one another in some cases?
There’s so many therapies where you’re using your own cells, stem cells, etc., will these be regulated as a drug?
One of the things we’ve noticed about many leaders in business is that they treat data as if they have a substance abuse problem. Like drugs, they get a little data and they more and more. The FDA demands more and more data from every study. Does the FDA has a data substance problem?
You write prescription drugs, properly prescribed, killed 106,000 in 1994 alone (the 4th to 6th leading cause of death in the USA). I guess drugs, even approved ones, are controlled poison?
You conservatively estimate at least half of the Americans who died since 1962 have lost more than a decade of their lives because of the 1962 Amendments to the Food and Drug Act. Unpack for us why researchers look at years off of live rather than number of deaths.
You discuss off-label use of a drug, such as aspirin to help prevent heart attacks and strokes, yet the FDA doesn’t allow drug companies to market this fact, or even to inform doctors. Is that right?
You discuss the high price of drug prices and how many people attribute this to greed, which is a terrible theory—like blaming gravity for airplane crashes. Greed and gravity are a constant, so we can’t blame change on a constant. You say the real culprit is the FDA approval process, and because of the 1962 Amendments the average price of drugs increased 40 times. Real drug prices fell 32% from 1949-61, prior to the Amendments. Drug companies are constantly maligned and impugned in the press, by politicians, the media, etc. You worked for Upjohn for 19 years, how did you put up with these negative accusations?
As you say, the first patent holder to market usually captures 90% of the market, so that approval is really important.
Another statistic you point out is how drugs lower other health care costs: $3.65 saved in medical expenses for every $1 invested in drugs. It’s something of which most people don’t seem to be aware.
The FDA can make two types of errors: approve a drug that kills people (like Vioxx), or not approve a drug that could save the lives of many people. One of the economists we interviewed, Steven Landsburg, proposes that the FDA commissioner be paid in pharmaceutical stock as a way to lessen the incentive to only commit the second type of error. What’s your take on that proposal?
You recommend three remedies:
- Repeal the 1962 Amendments
- Revoke FDA’s ability to approve new drugs. Instead, it makes reviews, recommendations, or certifications
- Pass the Health Freedom act (HR 2117) to nullify court decision that making a health claim for a food or nutrient makes it a drug
You point out that desperate patients make drugs in their kitchens, enter the black market, or buy from foreign countries. You also point out that surgeons didn’t need FDA approval for knee and hip replacement surgeries, important innovations. Of course, there are downsides: cardiac bypass was overused, etc. But it leads to more innovation which ultimately saves more lives than it costs.
You quote Dale H. Gieringer, a Cato Analyst: “FDA regulation certainly cannot be proved ‘safe and effective,’ thereby flunking its own approval criterion.” I don’t know how anyone can read your book and not come to the same conclusion.
Science isn’t good enough no matter who the decision maker is—the FDA, patient, or doctor. The best we can hope for is an informed decision.
Phil Rosenzweig is professor of strategy and international business. He is Co-director of Transition to Business Leadership, and is also Co-Director of the Dual Executive MBA Program with CKGSB. His areas of expertise include strategy, firm performance, and complex organization design. He is also author of numerous case studies on firms including Microsoft, Daimler Benz, Matsushita, and Heineken. More recently, Phil Rosenzweig has focused his attention on critical thinking and managerial decision making. His 2007 book, The Halo Effect and the Eight Other Business Delusions that Deceive Managers, takes a critical look at the errors that pervade much business thinking. It was named Best Business Book of the Year by get Abstracts, and was favorably reviewed in Harvard Business Review, the Financial Times, The Wall Street Journal, USA Today, and dozens of other newspapers and magazines. His 2014 book, Left Brain, Right Stuff: How Leaders Make Winning Decisions, extends research about decision making into the world of strategy and management. Prior to joining IMD, Phil Rosenzweig was assistant professor at Harvard Business School from 1990 to 1996.
Phil’s book, The Halo Effect…and the Eight Other Business Delusions That Deceive Managers, published in 2007, is one of Ed’s and Ron’s all-time Best Business Books.
His most recent book is Left Brain Right Stuff, published in 2014.
You started your career at HP, how did you get into academia?
What is the halo effect and what was the brainstorm that inspired you to write the book with that title?
During World War I, an American psychologist, Edward Thorndike researched the ways of superior rated subordinates
If they were handsome, good posture, shoot straight, etc. These attributions were inferences he called the Halo Effect: The tendency to make inferences about specific traits on basis of a general impression.
In business, the Halo Effect is the tendency to look at a company’s overall performance and make attributions about its culture, leadership, value, and more.
In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.
Does employee satisfaction lead to strong financial performance, or is it the other way around?
Shortly after I read your book, I was interviewed by Harvard Business Review and they quoted me: “Business ain’t science.” What are your thoughts on business benchmarking?
Often when leaders find out they are below the benchmark, they question the data. When they are above, they say, “We’re doing pretty good.”
Another guest from TSOE, Jules Goddard (Episode #27), said in his book, “Strategy is the rare and precious skill of staying one step ahead of the need to be efficient.” Thoughts on that?
Turning from the firm to the individual, do you have any thoughts on using personality profiles, especially in the hiring process?
Let’s discuss performance evaluations.
You talk about measuring customer satisfaction (such as NPS), or employee satisfaction. Financial information is looked at frequently (monthly or quarterly), should customer and employee satisfaction be looked at more than once a year?
You quote Richard Feynman: “Many fields have a tendency for pomposity.” Are most Business books overrated, or just wrong.
The best-selling business books seem to overstate their case.
You ask in the book, “Do business questions lend to scientific investigations?” And answer: “in many instances, yes.” What kind of things in business lend themselves to “scientific study?”
You write: “We have no satisfactory theory of effective leadership that is independent of performance.” I don’t know if you’ve read Jeffrey Pfeffer’s book, Leadership BS; do you think leadership is overrated?
Quick story: Shortly after your book came out, I gave a talk to a group who the next day was going to hear from the author of the best-selling book that you take to task in your book. I quoted George Anders of the Wall Street Journal who said that Good to Great offered a picture of business somewhere between Norman Rockwell and Mister Rogers. I presented a few of your critiques of the book, and recommended they read your book. I got slammed for this, so I can only imagine what you had to deal with. What was the response from the academic community to The Halo Effect?
You quote Michael Porter in the book who says that company performance is driven by two things: Strategy and execution, both fraught with uncertainty. We hear it all the time: We need to execute better; let’s all do a better job. It’s easier to blame lack of execution than a poor strategy. You write: “Whenever someone says ‘We have the right strategy, we just need to execute better,’ I make sure to take an extra-close look at the strategy.” What’s more important in your opinion, given that there’s no good way to execute a bad strategy?
You wrote a follow-up book to The Halo Effect, titled Left Brain Right Brain: How Leaders Make Winning Decisions. Would you provide us an overview of that one?