Read Fiction to Learn Business

When I was studying engineering in college, our mathematics courses were taught by the mathematics department located on a next door campus in the university’s liberal arts college. Dutifully we schlepped to the math classroom several times a week to endure hours of mind-numbing blackboard lectures displaying various mathematical pyrotechnics that the professor manipulated to produce an “answer,” never sure why an answer was important in the first place.

It turned out that the mathematics professors weren’t sure why an answer was important either. As we got into the complexities of real engineering problems in fluid mechanics, kinematics, and electromagnetics, the vapor of calculus, differential equations, and vector analysis had long since blown away, and the mathematics had to be retaught in the context of real problems that couldn’t be solved unless certain mathematical tools were employed.

As an adult the futility of acquiring knowledge in a vacuum was driven home when I tried to teach my children how to tell time. “What time is it when the big hand is here and the little hand is there?” In fact, they learned to tell time when they went out to play with friends, watches strapped to their wrists, and were told to be home not later than 6:15 p.m. for dinner – or else. Like mathematics, learning to tell time succeeds as applied knowledge.

These two experiences came to mind as I’ve read a spate of reports in recent months bemoaning the decline of humanities – literature, poetry, and social sciences – as more students and college resources shift to science, technology, engineering, and mathematics (STEM) courses. One op-ed critic this past summer essentially declared good riddance; “literature has been turned into a bland, soulless competition for grades and status.”

As a former university professor of business, my two cents worth is that literature, a relatively recent addition in college curricula, is studied as a contextless subject, not unlike the way I learned mathematics (badly at first) or attempted to teach time-telling to my children. There once was a time when all education was taught under the rubric of philosophy – i.e. as an integrated whole. That, after all, is the way the world’s knowledge exists. Then some education genius came along and said, “Hey, how about we split this up into separate courses of study, say, mathematics, science, history, literature, and …” Well, you get the point. But the world’s knowledge isn’t split up into disciplines as it’s taught today. It’s still an integrated whole.

One of our companies is studying literary fiction and plays in a way I think gives literature a sensible place at the table. Their goal is to gain a greater understanding of themselves and others as human beings and to learn how people in literature struggle with complex problems. The literary fiction they are studying is not the popular genre of Tom Clancy, Clive Cussler, and Frederick Forsyth whose flat characters are formulaic and whose predictable plots are designed to carry readers on exciting journeys that whipsaw their emotions. Popular fiction is entertainment. Literary fiction draws the reader to struggle with the characters in their dilemmas and to teach moral lessons.

How could fiction be the basis for a serious study of human behavior? How could fictional predicaments equip everyone in the company I’ve mentioned to deliver a better customer experience – their ultimate aim? Because a make-believe story about make-believe people in a make-believe place is not make-believe. The reader’s suspension of disbelief (a term coined by Samuel Taylor Coleridge) causes a story and its characters to become real. It allows readers to participate vicariously in the choices fictional characters make without suffering the consequences they suffer in the story. Notwithstanding the popular aphorism, reading fiction is gain without pain.

Kazuo Ishiguro’s award-winning novel, The Remains of the Day, was recently read by our company and discussed as a case study in loyalty. Loyalty is normally a virtue sought in organizations. But Ishiguro’s principal character, Stevens, takes it to a fanatical extreme. As an English butler serving Lord Darlington, he never questions what he’s told to do, among which was to fire two of Darlington Hall’s Jewish maids during World War II, essentially a death sentence since without jobs they were likely deported to Germany.

Stevens’ job as the loyal head of Lord Darlington’s household consumed so much of him that he had no emotional reserve to understand and return the affection of Miss Kenton, the house keeper of Darlington Hall. Near the end of his career, if not his life, Stevens realizes he has misspent his life and in “the remains of the day” will die in lonely remorse.

The novel, which went on to become a film with eight Academy Award nominations, is a warning to every busy executive who is “married” to his job and has nothing left for his family.

Our company also studied Antigone, the 2,500-year old play by Sophocles, which pits two characters, Antigone and King Creon, against each other as they take unrelenting stands on their principle. Both are inflexible ideologues who spurn the counsel of those with opposing views, and this leads Antigone and Creon to a predictable and tragic end. The occupant of the White House would have done well to read Antigone and understand its moral lessons.

The Secret Sharer is Joseph Conrad’s short story about a newly appointed ship captain. He possessed all of the technical skills his job demands and indeed possessed all of the experience needed except “the novel experience of command.” His insecurities threaten to upend his new career as a leader. But during his first night onboard, he volunteers to take the anchor watch from 8 p.m. to 1 a.m. – unheard of duty for a captain. Walking the deck during his watch, he is alone. He discovers that the rope ladder over the side of the ship has not been hauled in. When he pulls on it, he finds a mysterious stranger clinging to the ladder in the water. He allows the stranger to come aboard without alerting any member of the crew – a breach of procedure.

Thus begins a cat and mouse game as the captain, whose name is never given, hides the stranger’s presence from his crew. The stranger – Leggatt – swam over a mile from the nearby ship Sephora where he was the first mate. But during a storm at sea he had killed an insolent crew member for refusing an order to reef a foresail during the storm. The Sephora’s captain, an inflexible rulebook officer, had locked him in his room to await trial for the unwitnessed incident. Leggatt refused to submit to this kind of “justice” and escaped while his ship was at anchor.

Conrad uses Leggatt as a doppleganger for the insecure new captain. Leggatt possesses all of the personal attributes the new captain lacks. His quest to keep Leggatt hidden from his crew forces the young captain to take risks that steel his backbone. When the wind lifts the sails, the rookie captain orders the anchor hoisted and undertakes a daring feat of seamanship to tack close enough to land for Leggatt to swim ashore to freedom. The new captain’s technical skill allows the ship to catch a land wind in a maneuver that frightens his first mate into virtual paralysis. Asserting his authority by ordering the paralytic first mate to take charge of the crew, the new captain finds himself. That act and his seamanship win the admiration of the crew.  

The Secret Sharer is a case study of a new manager in a new role with a new team. No Harvard business case could teach the struggle as well.

People do not read fiction or watch films as observers. Rather they are drawn to participate in the story, making it reality. This has several benefits. It lets them experience how others deal with problems – how their dilemmas confuse them, engage them rationally and emotionally, challenge their values, and force them to balance competing issues. Reading fiction nurtures skills in observation, analysis, diagnosis, empathy, and self-reflection – capacities essential for good customer experiences, for caring about others, and for promoting good leadership practices. Fiction helps its readers to develop insights about people who are different from themselves. As they ponder what they might have done if confronted with a character’s situation, fiction helps its readers to gain insight about themselves as well.

Literary fiction, in contrast to popular fiction, focuses on the psychology of their characters and their interrelationships in the story. The authors of literary fiction reveal their character’s minds only vaguely, leaving out important details. The omission requires the reader to fill in the gaps if the character’s motives are to be understood. Literary fiction is rarely explicit about the internal dialog running inside each character’s mind, which consequently forces the reader to imagine it. This is the way the real world works.

Real world people are complex and multi-dimensional. Their experiences transform them. The same thing happens in literary fiction. Author/critic E. M. Forster calls such characters “round,” distinguishing them from the “flat” characters of popular fiction. The inner lives of round characters are only partially understood by the individuals themselves. Little wonder that readers also struggle to understand them. They can be confusing because they don’t match the reader’s expectations and prejudices about who they should be and how they should act.

Even our children can learn important life lessons from fiction. In his book, The Uses of Enchantment, author Bruno Bettelheim asserts that fairy tales help little children learn how others – often children themselves – work through their problems. To that end, G. K. Chesterton said, “Fairy tales do not tell children that dragons exist. Children already know that dragons exist. Fairy tales tell children dragons can be killed.” 

The dragons of the business world, however, do not appear as Grendel or Humbaba the hideous antagonist of Gilgamesh. They appear as Enron, Tyco, Global Crossing, WorldCom, and Xerox. How did the leaders of these organizations allow such scandals to happen? Surely, Enron CEO Jeff Skilling did not graduate in the Harvard MBA class of 1979 with the goal of spending years in prison. He was happily married, successful, had three young children, and probably a dog who wonders where he went.

Sociologist Robert Jackall explored how good people make bad decisions in his book, Moral Mazes. He notes that the managers interviewed in his research were not “evil” people in their everyday lives. But in the context of their jobs, they had developed a separate moral code, which Jackall calls the “fundamental rules of corporate life.” It was an altogether separate life – almost a form of non-pathological schizophrenia – needed to resolve the dissonance of their bipolar world.

It’s fair to ask what the study of fictional characters, their dilemmas, and decisions have to do with the customer experience – the goal of our company’s study. I could argue at least three reasons.

First, a customer’s experience is emotional. To deliver it successfully, every member of our company must get into the characters of their customers – never an easy task because most of us lean toward some degree of narcissism. The Secret Garden by Frances Hodgson Burnett tells a story of Mary, a bratty little self-centered orphan girl sent to live in the English manor house of her uncle. She discovers a secret garden which was created by her uncle’s wife and locked when that aunt died ten years before. Discovering the key, she enters the overgrown garden and, as she begins transforming it, it transforms her.

Mary, the orphan girl, discovers the manor house hides another secret – a secret room in which her cousin, heretofore unknown to her, lives bedridden, the victim of a mysterious spinal ailment that is more psychological than real. Mary smuggles her cousin Colin into the secret garden, and he too is transformed by the garden and the outdoors. Convinced by Mary that his handicap is psychosomatic, he leaves his wheelchair permanently. The children run and play in the secret garden like any healthy children. When his neglectful father returns from traveling and mourning his wife’s death, his son’s newfound health gives the widowed father a reason to get on with his life. He is transformed and becomes a loving father, a role he has shirked for ten years.

A true customer experience can only be delivered by real people who believe in its power to transform its recipients. We’ve all been contaminated by the sour dispositions of some people and we’ve all been lifted up by the sunny dispositions of others. For good or ill, we tend to pass on what we get from others. The Secret Garden uses the regenerative quality of an untended and overgrown garden as symbolic that all life is regenerative. No better argument can be made for the regenerative quality of a customer experience delivered by sensitive people who believe in its power. If there weren’t a scintilla of economic benefit in doing it, why wouldn’t we?

Second, in B2B businesses there isn’t “a customer” – there are multiple customers. Each customer is a type incomparable to other customer types. One size won’t fit them all because their needs are different. We can identify how the experience for one type of customer should be different from that of others. But can we identify how the experience of one individual should be different from that of another? That requires insight into individuals and their differences. It takes judgment to decide how much accommodation of their differences is justified. And it takes patience and sensitivity to deal with the complexities of people who are often unaware of how their behavior comes across to others. As Ethyl Thayer counseled Billy Ray after the fire scene in the play and later film, On Golden Pond:

You mustn’t let Norman upset you, Billy … He wasn’t yelling at you … he was yelling at life … he’s like an old lion … he has to remind himself he can still roar…

Billy, sometimes you have to look hard at a person and remember that he’s doing the best he can. He’s just trying to find his way, that’s all. Just like you.

You don’t find that kind of insight in business books.

The third reason is a general belief. I can’t be persuaded that a company of people steeped in the knowledge of a wide range of literary fiction could deliver anything less than a world-class customer experience to their customers. They would treat each other differently. And they would relate to the complexities of family and friendships better. They would be more effective human beings. I don’t think this oversells the value of reading literary fiction. Fiction is a hothouse of human behavior told in the terms of its context.

All of the laws, the lectures, and the sermonizing about evils of racism will never have the same influence to change minds that a single reading of Harper Lee’s To Kill a Mockingbird has. But it is an obscure incident in which Scout Finch has a bad day with a teacher in her school and wants to stay home that brings the wisdom of her father, Atticus, to bear on this seemingly trivial problem:

First of all, he said, if you can learn a simple trick, Scout, you'll get along a lot better with all kinds of folks. You never really understand a person until you consider things from his point of view – until you climb into his skin and walk around in it.

Lee’s entire story could be encapsulated in that summation.

Your sins may find you out but that doesn’t seem to prevent people from trying to get away without their sins being discovered. In Dostoyevsky’s Crime and Punishment, Raskolnikov, committed what seemed to be the perfect crime. His doppleganger Svidrigailov gives Raskolnikov a glimpse of where his life is headed. Readers get the sense that Raskolnikov could have gotten away with the murder he committed but his conscience gave him no peace and he voluntarily confessed his deed. A moral spark remained in his soul. He was sent to prison, happily content that redemption only comes through suffering. Too bad Jeff Skilling didn’t read this novel before becoming CEO of Enron. Too bad he didn’t read it in prison. He has yet to admit his guilt and will have no peace until he does.

I predict a bright future for fictional literature if it moves over to the right context: the classrooms of business (and perhaps other professions.) There are many tens of thousands of business books published every year. Only a relative handful of them are worth reading and the scope of each is narrow.

In contrast there are hundreds of thousands of works of literary fiction. Most are worth reading and their scope is broad enough to serve multiple interests.

If I were asked to suggest a good business book for business leaders to read, I’d say read fiction.

Why ObamaCare Will Fail

Hubris, the overestimation of one’s competence and ability, especially among those in positions of power, has sent mankind on many a fool’s errand and has been the cause of much anguish through the ages.

One of the earliest recorded instances of it is in Genesis 11. In the days following the biblical flood, people spoke a common language, allowing them to collaborate in joint ventures, such as the building of the great tower of Babel in modern day Iraq. “Come let us build ourselves a city and a tower with its top in the heavens,” they said, in order “to make a name for ourselves.” God observes their hubris – the desire to be like Him – and confuses their language so they can no longer communicate with each other; then He scatters them so that their construction project is left incomplete.

Farther down mankind’s timeline Solomon, allegedly the wisest man who ever lived, warned that “pride goes before destruction, and a haughty spirit before a fall.” Sage advice. Hubris is accompanied by a willingness to take excessive risk. It was at the root of the Challenger disaster, the Bay of Pigs catastrophe, and a couple of years ago, the Deepwater Horizon oil rig explosion.

When Barack Obama assumed the office of the presidency, our country was facing high unemployment, a meltdown of financial institutions, two foreign wars, a near-nuclear Iran, the misadventures of a tyrant in Korea whose sanity was questionable, and a fulminating conflict in Palestine. Yet despite all of these challenges, Obama and his minions in Congress chose to “reform” the American healthcare system which represents one-sixth of the economy and was not a smoldering problem. We are left to guess his motivation in this risky undertaking, but one thing is certain: Obama is not burdened with excessive modesty. His self-image borders on messianic. Like the ancient builders of the tower of Babel, one wonders if this large scale government reengineering was driven by the desire to “come; let us make a name for ourselves.”

However, even if it had the noblest motivations, ObamaCare is doomed to fail because of its sheer scale and risk. Here’s why.

The American healthcare system is, well, a system. A system by definition is the aggregation of interdependent parts, activities, or functions – very few of which, are superfluous. Shut down one part, activity, or function and the system or a subsystem of which it’s a part will cease to function. In complex systems, a failure in one part can cascade throughout the system causing failures in related subsystems.

In mid-July of 1977, for example, a New York City blackout occurred because a lightning strike at a substation tripped two circuit breakers. A loose locking nut in one breaker box together with a tardy restart cycle ensured that the breaker was not able to reengage and allow power to begin flowing over the lines again. This caused the loss of two more transmission lines, which caused the loss of power from the Indian Point nuclear power station, which caused two major transmission lines to become overloaded, which caused automatic circuit breakers to trip, which reduced power on the grid, which put the city in total darkness one hour after the lightning strike, which caused widespread looting and rioting.

Note the cause and effect linkages.

Such is the nature of systems. Their greatest strength is their greatest weakness: i.e. their interconnectedness. Our inclination to think there is symmetry in causes and consequences – that disastrous system failures are caused by equally monstrous blunders – is usually wrong. The root cause is most often quite benign and accelerates to a catastrophic ending. A lightning strike on a remote box worth less than $25 caused hundreds of millions of dollars in riot and looting losses and damages almost 100 miles away.

Unlike many technological and organizational systems, the American healthcare system is not the product of a master design. It has evolved over many decades and continues to evolve. It is so vast that there is no person who understands how it works. There are people who understand how parts of the system work – relatively small parts. There are people who possess a global view of how the system works. But there is no one who possesses a ground-level understanding of how inputs are converted to outputs from end to end throughout the system. No one.

Into this unknown world of cause and consequence fools rush where angels fear to tread. Yet Obama and his Democrat lawmakers, academics, and policy wonks with unbounded hubris proposed to improve the effectiveness and reduce the cost of this system that no one fully comprehends – a system with perhaps billions of micro-connections and work-arounds, most of which are invisible to people working in the system, let alone people outside of it, a Pick-up Stix web of relationships whose equilibrium can be put into a tailspin of unintended consequences by small disruptions of it.

The flagships of the ObamaCare invasion will be over a hundred new government bureaucracies under the commands of managers who will face implementation problems they have never confronted before, de novo bureaucracies with no legacy of precedent, whose operating procedures will have been composed by unrelated small armies of regulation writers, who have never worked in the administrative environments their rules are prescribing, each anthill of activity laboring independently of the other regulation writing anthills, thus assuring there is no coherency in their collective work product. There will be, however, a bumper crop of unintended outcomes, some of which will require years to erect adequate organizational defenses preventing their recurrence. As has happened with Social Security, Medicare, and Medicaid, costs will exceed the most pessimistic CBO estimate, perhaps two-fold or more, jeopardizing the U.S. economy for decades, if not forever. The bureaucracy managers will fail, although there will be few objective standards to reveal how badly they are failing. Their failures will not be due as much to the fact that they have not ever dealt with the issues facing them, but that no one has.

Orbiting any new government program with the scale and intrinsic risks of ObamaCare will be two potentially fatal threats. One is the naïve optimism that things will go as planned. They won’t. However, instead of launching initiatives as trial projects with the intent of adapting as new learning is acquired, as well-run business organizations do, they will be launched with a bureaucratic rule book whose effectiveness is believed to correlate with its weight. Immeasurable resources and time will be spent trying to make the system work as planned. In predictable bureaucratic behavior, breakdowns and bottlenecks will be “fixed” with patch upon patch, rule upon rule – repairing rather than replacing defective operations.

The second fatal threat is that ObamaCare is not customer-centric. It is procedure-centric. Customer satisfaction was never its goal. This is by design. In their arrogant hubris Obama and his Democrat legislators assumed as an article of faith that government makes better decisions – certainly more rational ones – than the recipients and providers of healthcare services. The recess appointment of David Berwick in 2010 to head the Centers for Medicare and Medicaid Services and its $900 billion annual budget made that abundantly clear. Berwick is an academic technocrat who has publicly stated multiple times his lack of confidence in private enterprise solutions for healthcare delivery. Yet one need only look to public education, Amtrak, and the U.S. Postal Service to see how Procrustean government-designed and government-managed services are. These institutions have “survived” because there are competitive alternatives to using them. The aim of ObamaCare is to eliminate competitive alternatives and have only a single payer.

The failure to make ObamaCare customer-centric could be its undoing. Absence of a feedback loop from the market and alternative choices assures that healthcare services will be substandard. Americans, with their legacy of enjoying the best products and services in the world, may suffer this for a while, but not for long. Democratic society works because of the consent of the governed. People pay their taxes, follow society’s rules, and accept civil authority voluntarily. The few that don’t are manageable because they are a few. This country has not had to deal with large-scale civil disobedience since the Civil War, but it would be foolish to think that civil disobedience is not a possibility if society believes its public institutions are not serving the interests of the majority. Hopefully society’s frustration with ObamaCare will be resolved at the ballot box, not riots.

These criticisms of ObamaCare do not mean that the American healthcare system has no room for improvement. It does. But the system seems to work for about 85% of its users. Instead of focusing on the 15% that doesn’t work well, the hubris of ObamaCare is its redesign of the entire system.

Why not take insurance and focus on improving it? Small scale highly focused interventions would produce improvements in a relatively short period of time. At least new knowledge would be produced concerning what works and what doesn’t, and that new knowledge would lead to improvements. Such an approach is experimental, flexible, and adaptable. Notwithstanding Berwick’s lack of confidence in private enterprise, a private sector partnership would be critical to the success of the undertaking. Once insurance is “reformed” perhaps unnecessary testing and treatment could be addressed next, followed by improvement initiatives confronting other failures of the healthcare delivery system.

This piecemeal approach has worked in improving business processes. It would work in improving the cost and quality of healthcare delivery. If performance improvement had been Obama’s aim, he would not have undertaken a large-scale, high risk overhaul that has no chance of succeeding. He would have taken a more modest, less visible, and less risky approach.

The hubris of his claim that while he wasn’t the first president to try reforming the American healthcare system he intended to be the last revealed an aim that is ages old: “Come; let us make a name for ourselves.”

***

The preceding blog was posted in July 2010 – 40 months ago. I’ve re-posted it today not to show its clairvoyance, but to show that ObamaCare’s recent and well-publicized failures are, as the original post asserts, due to the arrogant belief that large scale change can succeed despite the complexity of the problem it attacks if only the “right people” can be assembled as the change agents. A remarkably good piece of investigative reporting appearing over last weekend reconfirms ObamaCare’s conceit.

One of its architects, Dr. Ezekiel Emanuel, who made a fool of himself on Chris Wallace’s Fox News Sunday program, wanted a project leader with proven expertise in business, insurance and technology. Instead, Obama chose Nancy-Ann DeParle, a Clinton political hack with no expertise to lead a project like this.

“They were running the biggest start-up in the world, and they didn’t have anyone who had run a start-up, or even run a business,” David Cutler, a Harvard health economist and adviser to ObamaCare observed. “It’s very hard to think of a situation where the people best at getting legislation passed are best at implementing it. They are a different set of skills,” Cutler said.

In 2008 voters gave Democrats the keys to the kingdom – a once-in-a-lifetime bullet-proof majority in both houses of Congress plus the White House, letting Democrats have a free hand to run the government without Republican interference. ObamaCare was the result. It was rammed through the legislative process without a single Republican vote. Many of the Democrats who voted for the health reform law have since lost their seats or opted to retire, victims of voter remorse. Among the retirees is Max Baucus, the Senate architect of ObamaCare. Three years after its passage, a majority of Americans oppose the law – and by double-digit margins in many polls. False promises and a bush-league launch of a key element in the healthcare takeover have pulled Obama’s approval down to 40% and pushed his disapproval figures up to 53% according to the latest Gallup poll. And for what?

For political gain. ObamaCare was never about improving healthcare delivery. It was about ideology – a scheme to lay the groundwork for a single payer health system, the Holy Grail of liberalism.  That was a prize worthy of Obama’s overreach … and his political aspiration.

“Come; let us make a name for ourselves.”

Working Longer

The first of 78 million baby boomers began reaching age 65 years a couple of years ago. Their impact on society will continue to be felt over the next two or three decades. Boomers are that cohort of people born between 1946 and 1964. Their parents had put their lives on hold to fight World War II, after fighting the Great Depression, and with the war over they returned to a “normal” life, which among other things meant getting married and starting a family. They succeeded at both more than any previous generation.

In the depression decade prior to the war, families produced an average of two children. But in the years following the war, family sizes jumped almost immediately to three and peaked at 3.8 children in the late 1950s. Average family size would not settle back to the pre-war level until the early 1970s. US population increased 44% during the 20-year span of the baby boom.

The baby boom became a veritable “pig in the python” as it has moved through the various life stages of society to the present. When the firstborn boomers reached school age, it started a school building boom. They entered the workforce from the mid-1960s through the late 1980s and created a boom in white collar jobs and led the transition from a manufacturing to a service economy and then an information/knowledge economy.

As the “pig in the python” has begun to reach age 65, what’s next? Retirement? Don’t count on it.

The age of 65 as the milestone age for retirement was conceived by Otto von Bismarck of Germany in the late 1800s when old Otto was conniving to find a way to combat the German Socialist Party. He created a social security system to appeal to his country’s working class but being the ethically-challenged politician that he was, Bismarck knew his program would cost very little. The average German worker of the time never lived to age 65, and the few Germans who did only lived a year or two beyond.

Franklin D. Roosevelt, one of Bismarck’s most ardent admirers, saw the political gimmickry in the German social security system and fobbed off the Social Security Act of 1935 on Americans whose life expectancy was then 61 years. Life expectancy began exceeding 65 with the end of WW II. Recently it’s about 78 and will soon be 80. The Census Bureau projects life expectancy to rise to 86 by 2075 and to 88 by the end of the century. One in every nine baby boomers (nine million of the 78 million people born between 1946 and 1964) will survive into their late 90s, and one in 26 (or three million) will reach 100.

Boomers were a rebellious bunch in their teen years, and they won’t go quietly into retirement. If anything, they will reinvent what retirement means. The notion of a golden age of leisure following a career of work is heavily glossed by mid-20th century values when work was physically demanding and about as intellectually stimulating as reading the Manhattan telephone directory. Boomers are better educated and healthier than their parent’s generation and many will continue working well past age 65 – either in their current career or in a second, which may be unpaid volunteer work.

Twenty years ago just one in ten people older than age 65 were still working but today that figure has reached almost one in five – and it's continuing to grow. A study of people who retired and then returned to work found that over half were employed in full time paid work five years later and one in five worked more than 41 hours a week. Over one in ten men over 75 years of age in a recent study continued to work, whereas half of all women in that age cohort were still working.

This is good economic news. The over-65 population will grow from 13% of the population recently to over 20% in about 25 years. Remaining in the workforce boosts economic growth, reduces demand for public assistance by those who lack the resources to retire at 65, and increases income tax revenues. While there is only anecdotal evidence of it, those continuing to work have better physical and mental health than those with time on their hands who are inclined to overeat, abuse alcohol, and die prematurely.

Delaying their application for Social Security means working seniors can increase the size of their future check by 8% each year. This continues until age 70 when everyone must draw Social Security. There aren’t investments today that pay 8% yields, so continuing to work has a double benefit – a wage income and a yield on deferred retirement income. It’s clear to see why those who have the health and disposition to do so defer retirement and even then, for many, don’t make a complete exit from work.

With the percentage of over-65s growing while the percentage of prime working age adults (i.e. 25 to 54-year olds) have little growth, the US workforce can only grow by extending the date of retirement. This comes at an opportune time because the number of workers per retiree is positioned to drop from 4.5 to 3.0 by 2030 if people retire at 65. (The ratio was 160 when FDR foisted the Social Security shell game on gullible Americans and it was still 42 at the end of WW II.) Social Security taxes are low at these ratios. The Social Security Ponzi scheme “works” as long as more people pay in than are paid out, although Social Security taxes must rise as the ratio falls.  Therefore the fact that a growing number of post-65s continue to work helps the ratio.

Labor force participation among older workers fell in the five decades following the enactment of the Social Security Act. But it began to grow in the late 1990s, helped by a shift in the perception of what “old age” meant. A recent survey reported 60% of the over-55s polled felt younger than their age. This positive attitude correlates with their income and job responsibility.

The idea that seniors who continue to work deprive younger workers of jobs is without merit. Employed older workers with deep experience are more likely to create jobs by facilitating business expansion than they are to produce a zero-sum outcome. Their knowledge makes others more productive, which produces jobs. Many in post-retirement years also create businesses. Harlan Sanders comes to mind.

Still, there are dark clouds for some on the retirement horizon. Nearly half of the workforce at age 50 will be required to extend the age they expected to retire when they were 40. They now know they must work an additional three years, according to a recent study. Financial health is the cause of most of these extensions.

For example, 40% of homeowners over 65 had mortgage debt in 2010, more than double the percentage two decades earlier. The refinancing boom prior to the 2008 Great Recession induced many to capitalize on Fed-driven low mortgage interest. Unfortunately, many chose cash-out refinancing instead of paying down mortgage balances and shortening mortgage duration. Some equity cash-out was needed to finance education loans for children, but some was for vacations and cars when the economic future looked bright. Now nearing retirement age, senior couples are stuck with mortgage balances and home values that are underwater.

Retirement savings were also battered in the Great Recession. Companies have abandoned defined benefit pension plans in favor of 401(k)-type plans which aren’t as generous. The Great Recession reduced defined contribution plan values below the amount needed to support retirement without a radical lifestyle change. The fear that many facing retirement rightfully have is that they will outlive their assets and become a burden on their children or be forced into some form of public assistance. Consequently older workers continue to work in order to rebuild retirement asset values, assuming continued employment is an option. For some it isn’t, and they must seek part-time work, often in multiple jobs.

The “age 65 retirement delusion” causes too many people to ignore the actuarial fact that men are living to 76 years and women are living to 81 years. Longevity will continue for both sexes because a natural limit for life may be well north of 90. The generations of people in the workforce would do themselves a service to forget retirement at 65 unless they are unusually well off.

Yields on stock and bond funds have been squeezed by Fed policies so that traditional “rules of thumb” about saving no longer apply. There was a time not so long ago that financial advisers told clients to save eight times their last year (presumably the highest) of income for retirement. Today, advisers are more likely to say eleven times, and that’s probably too little. Fifteen and or twenty is more likely to become the norm, especially since no one knows the inflation beast Ben Bernanke’s reckless money printing schemes may release.

But do the math. A person earning $100,000 the last year of work would need to have saved $1.1 million according to the “11 times” rule before retiring. In years past, another “rule of thumb” was to expect yields of 4% to 5%. If those yields existed today, which they don’t, a retiree could make withdrawals of these amounts without encroaching on the saved corpus. Withdrawing 4% to 5% per year would pay out $44,000 to $55,000 per year – hardly a kingly amount (the median US income is $51,000.) But in a zero yield environment, the corpus is gone in 25 years at 4% and 20 years at 5%.  Yields above zero would pay part of the annual withdrawal, but until yields get to 4% or 5%, some portion of each year’s pay out depreciates the corpus. I don’t know investment instruments today with 4% to 5% yields, nor do I know many who could cut their lifestyle in half in retirement – i.e. from $100,000 to about $50,000.

Blame the Fed for its profligate bond buying stimulus that helped cause this retirement environment, and blame reckless government spending. But also blame the boomers themselves for saving too little toward retirement. The recent savings rate has been about 4.5¢ per after-tax dollar – down from 12.5% in early 1970s when it began its almost 40-year decline.

While some continue to work because they must, others continue working for other motives. At age 82 Warren Buffett is among the many who have worked well past the traditional retirement age. One wonders why with his wealth, but he isn’t alone. One reason that the rich get richer is that many of them don’t stop working. A recent survey revealed that, among those earning incomes in categories from $100,000 to $750,000, the highest earners were likely to keep going. The wealthiest are most likely to attribute their success to hard work. After a life of hard work, why stop? They keep working.

Others, earning considerably less income, keep working for the enjoyment of what they do. The old saw that if you do what you love you’ll never work a day in your life is true for many. Why stop doing something you’ve spent a professional lifetime learning how to do well? The converse is also true: why do something for a career that you can’t wait to get away from in retirement?

One of the most professionally rewarding careers is apparently university teaching. An amazing 81% of professors in a recent study cited job satisfaction for continuing their careers beyond 65, and with the 1994 elimination of mandatory retirement at 70 in higher education, many contented professors have no plans to retire.

A dimension of the retirement issue that is often ignored is the brain drain it represents to companies and organizations which lose valued employees. For example, about half of the nurses in hospitals and elsewhere are over 55. As they retire, their “manpower” can be replaced – we hope – but their expertise and instincts can’t. A young nurse graduate will spend 35 years getting to the point that he or she can intuitively respond to patient needs, especially in specialized care like the neonatal unit where the patients can’t answer questions and intuition may save lives.

Efforts to combat “brain drain” losses exist but rarely as a well-conceived response to a strategic threat. Some companies redesign their work environments to induce valued employees to stay beyond retirement and disincent early retirement. The impending nurse shortage, for example, has led administrators to put nurse stations closer to patients. Trucking companies, already dealing with a shortage of drivers, especially long haul drivers, are working with cab manufacturers to create more comfortable sleep spaces; they are organizing driving teams and modifying work schedules. Flexible scheduling, part-time work, and telecommuting are becoming more commonplace to accommodate workers with skills a company wants to retain among its employees.

As a practical matter the most important assets in business and other organizations walk out the front door every day. Leaders should be asking themselves what is being done to capture the institutional knowledge and industry know-how that resides in those mobile heads – particularly the older workers who employ intuitive intelligence more than job skills in work.

The true knowledge people gain with age can’t be found in textbooks or corporate documents any more than Grandma can write down a recipe for a dish she has been honing and preparing instinctively for decades. Long after a key employee has departed for the golf links on earth or in heaven, there may be questions where an ancient document is filed or how a complex procedure should be performed or reasoned out. Yet, preserving institutional intelligence in a knowledge base is among the most neglected acts of corporate self-preservation. Even small organizations of 500 or less employees have a hard time knowing who among them knows what.

Social networking platforms, internal wikis and blogs, email archives, employee knowledge/expertise profiles, collaboration and sharing procedures, internal chat rooms and forums are all attempts to snag floating corporate knowledge but they are in their infancy and usually not a mission-critical priority in most organizations.

The key leaders of one of our companies recently spent several days off-site. Among other things they worked in small groups to give narrative to the company’s business strategy and, most importantly, to diagram the business model that would execute that strategy. Their work product was impressive and will, of course, be preserved.

What won’t be preserved is a description of the process, much of which was extemporaneously developed on the fly, that led to their outcomes. A preserved detailed record of their process – their false assumptions, the blind alleys, the breakthroughs and failures, and the thought processes – would be a treasure map. It would enable future generations of leaders, as well as today’s leaders in our other companies, to be virtual eye witnesses now and in the future to their struggle. A record of the process is more important than a record of the product. Given a understandable description of the process, the product could be reproduced even if future business circumstances compel a very different product. But this engine can’t run in reverse. Knowledge of the product won’t produce the process, which will be soon lost in the haze of time if not written down. Even the original participants in this meeting will have difficulty repeating their efforts in a year or two.

Most of the boomers are still working. They converted the American economy from the manufacturing age to the service age to the information and knowledge age. They have worked more differently and longer than any previous generation. They are changing what retirement means. But ultimately they must retire. The greatest transfer of wealth in the history of the country will be passed from the boomers. But they cannot pass on their intellectual assets as they will their physical assets.

Before they shake off their mortal coil, we must find a way to preserve what they spent almost 80 million adulthoods learning.

Learning Differently

A pediatric patient with a heart valve problem receives an MRI in Columbus, Georgia. The image is read using tele-radiology technology by an expert in neonatal cardiology in Atlanta, 250 miles away.

A 63-year old man presents with stroke symptoms to a Knoxville hospital emergency room at 2 a.m. The neurologist on call is at home, sensibly asleep, and 45 minutes away. Time is everything with a stroke. The neurologist is phoned, he orders a CT scan, and the neurologist, still in his pajamas, reads the scan on his secure laptop using a tele-neurology software application. There is no stroke. The patient is ordered to be held in an observation bed overnight and the neurologist returns to bed. The patient will be released the next morning if he remains asymptomatic.

A primary care doctor seeing a diabetic patient senses she is anxious and possibly depressed. In times past he would hand her off to an assistant to schedule an appointment with a psychiatrist. Most patients never keep such appointments. This doctor, however, has a special tele-video room with a secure link that allows her to receive a remote psychiatric examination on demand with the assistance of a local nurse. The video camera, operated remotely by the psychiatrist, can zoom in on the patient’s pupils or any other body feature.

These three examples of the growing use of telemedicine are important trends in healthcare. They admit the fact that medical expertise and medical need are not always required to be in the same place. With the proper access points, medical expertise can be exported anywhere, bringing healthcare to people who would otherwise be deprived of it, or who need it immediately. The tele-video room mentioned above was used earlier in the day to allow a cross-town dermatologist to examine a lesion discovered during a routine physical exam of a patient and suspected to be melanoma.

Virtual places and remote presence applications are spreading to other industries as well like security, manufacturing, and education. It could potentially revolutionize the delivery of educational content around the world, reaching the poorest and most educationally deprived places on the planet.

One of the most recent innovations in educational content delivery is Massive Open Online Course (MOOCs). They are massive because there’s no limit to how many students can concurrently take a course. Often students are scattered around the world. They are open because anyone with browser access can enroll in the course, most of which are free at this time. Obviously they are online and the courses I’ve taken follow a curriculum. Many of the courses are archived, so a person could take a course that has been completed and closed and go through it at his own pace.

With college tuitions rising faster than inflation, innovations like these are sorely needed. Teaching pedagogy hasn’t changed since the beginning of time and we need to find ways to make students smarter faster and at less cost. Reducing the number of years required to obtain a college degree would reduce the cost. There’s nothing magic about four years, and if colleges operated year-round, it would be possible to graduate in three years. A number of colleges now do that.

Moving courses online that don’t receive a benefit from classroom delivery is another way to cut cost. Faculties howl at this idea, predictably refusing to be insignificant in all content delivery. But it’s hard to make a case that a classroom and professor add much to courses like introductory statistics, basic economics, math, and computer programming whose “learning” mostly involves the mastery of fundamentals.

Online course-taking can be self-paced – a big plus, since the pace of traditional classroom teaching is pitched to the average student, meaning half of them struggle to keep up. Mini-exams could be inserted after each online learning unit, which are computer graded with prompts that help students understand their errors. Until a unit is mastered, the student would not be allowed to proceed. And teaching assistants would be available to help students who need it either in special chat rooms or face-to-face remedial classroom sessions.

MOOC providers like Coursera and Udacity offer these kinds of courses online and free. Students who take them and master the content should be allowed to take comprehensive exams that exempt them from taking the college’s traditionally taught course offering. Some colleges already allow exemption exams. Others, protective of turf and brand, don’t. But the fact is about half of the first two years of college could easily go online.

The curriculum of a college was once a unique differentiator among competitive colleges. No more. Curricula are becoming commoditized and delivery methodology will become the future differentiator. Computer simulation now allows students to experience content impossible with a chalkboard or PowerPoint presentation. In the “old days” the jaw-dropper for an Excel spreadsheet was its ability to show how a model responded to changes in inputs – immediately. With enough computer horsepower, online simulation allows an even more robust demonstration of complex model behavior. Crowd panic behavior, weather patterns, engineering failure analysis – any rule-based model can be integrated into online studies – a functionality unknown in traditional classrooms a decade or two ago.

Open online course critics like to point out that online courses don’t allow the professor-student interaction possible in a classroom. Well, yes. And a person would have a hard time cutting down a tree with a nail file. It’s the wrong tool. Online courses won’t replace every college course taught. Those requiring Socratic give and take are an obvious example. But many courses can be a blend of online and classroom.

An online lecture offers students in colleges too small to attract a faculty steeped in, say, Greek literature of the third century to hear one of the premier lecturers in subject matter speak as a “guest lecturer” via an online presentation, after which the class would discuss the material facilitated by the professor or instructor. An entire semester of guest lecturers could be cobbled together in a course that some colleges wouldn’t otherwise be able to offer.

The main obstacle preventing open online courses from being more of a threat to traditional classroom content delivery is the inability to get transferable college credits for courses taken online. Students would like to take and transfer inexpensive online courses, but college faculties are a hurdle. They assert their resistance is based on quality concerns, but exemption exams are a way around that objection. The real issue is turf and a concern that faculty positions would shrink if more courses went online. The rising cost of college and the crippling debt students or their families must underwrite never rise to the same level of concern among these faculties. Interestingly, their college-age children don’t worry about rising tuitions. If they choose, they may attend the college employing their parent tuition-free or at a substantial discount. That’s a nice bonus in after-tax dollars.

Well, all of the faculty resistance may be changing. Online courses are politically popular because they allow legislators to switch money from college subsidies to other state programs. Governor Rick Scott of Florida signed a bill this past July that originally would have expanded the implementation of MOOCs in the state’s primary, secondary, and college educational systems.

The primary and secondary teacher unions were able to reduce the scope of the original bill and the college faculty union was able to delay it – at least for a while.

The United Faculty of Florida were quoted as mounting an “intense and feverish” opposition to a generation of “cheap and dirty” online courses offered to students before they entered college. “No matter how many times they use ‘quality,’ this is a cheapening of what higher education is all about.” Luddite leaders probably said something similar.

But Florida college leaders have been given two years in the bill to come up with rules to grant credit for online courses, and K-12 students are required to use open online courses in four subject areas beginning the next academic year.

This past May, Georgia Tech announced it would get in front of the MOOC movement rather than fight it. Next year it will begin offering an online Master of Computer Science degree in partnership with AT&T, which ponied up $2 million for the project. Those who don’t want to earn the degree may take the MOOC Master of Computer Science courses free. For those who want a degree, the cost will be $6,600 compared with the $45,000 price tag for the on-campus model. AT&T will use the course to train employees and recruit candidates for its jobs.

Initially, enrollment will be a few hundred. But it’s expected to expand to over 10,000 annually, many of them students in other countries who can get a graduate degree but don’t need a visa to attend. Degree candidates will take proctored exams. Tutoring will be available as well as online office hours and other help.

An estimated three million STEM (science, technology, engineering, math) positions must be filled in the next half dozen years in this country. It’s hard enough to find STEM graduates because of the poor job public education does in preparing high school graduates for college in STEM curricula. Therefore, it’s stupid to throw cost obstacles in the way of students who are qualified to enroll in STEM degrees but can’t afford them. Georgia Tech has shown itself to be a leader in solving the cost barrier problem, while other college leaders and faculties are more concerned about college revenues and job security trotted out under the red herring of “quality.”

Last November Clay Shirky, an NYU professor, issued a warning to his colleagues in a blog entitled “Napster, Udacity, and the Academy.” He said it was fish or cut bait time for faculties to get onboard with online education. They had best take a lesson from Napster, which proved that music file sharing was a big market to Steve Jobs who developed iTunes to legitmize it. The music industry previously forced consumers to buy CD-based music they didn’t want in order to get the one or two tracks they did want. Along comes iTunes and cuts a pay-by-the-song deal with the record industry, which received two-thirds of 99¢ price of a song. A two-thirds cut is better than nothing, but the music industry could have owned the download business if they had only gotten out in front of the 10X trend driving file sharing instead of fighting it. The same thing will happen to traditional universities which fight online course offerings instead of adapting.

I’ll add my own two cents worth to Shirky’s warning.

A surprising number of innovations in business come from outside an industry. That’s because the industry is so wedded to its current business model that it considers everything that threatens it “the enemy” instead of “the future.” If the new business model cannibalizes the current one it’s bad. Or so the traditional thinking goes.

Example.

The music industry was wedded to vinyl records, which went through a succession of improvements from 78 rpm to 33 rpm and from high fidelity to stereo. You’d have expected the compact laser disc would have come from the vinyl record industry’s search to put more music on a smaller medium with better fidelity. It didn’t. The CD came out of the computer industry which stored data in digits. The record industry, preoccupied with vinyl, was replaced almost overnight.

Another example.

Nortel and Lucent were the leaders in the voice communications where parties spoke with each other through a telecommunication network that connected them via a sequence of switches. Once connected, the hook-up of phone lines and switches was “in use” until the call ended. Reliability was everything – telecom engineers spoke of “five nines” meaning 99.999% of the time, everything worked perfectly.

Data was a different matter. Users don’t connect to each other. They connect to a network through which data is broken up into packets and sent. These packets get mixed up with packets of other people’s data messages, but each packet has an address that allows the data message to be reassembled at its destination. Speed and the capacity to handle high volumes of data traffic are more important in data transmission than the reliability so important in voice transmission.

Data, however, was the red-headed stepchild of the telecommunications industry in its early years and voice was king. Then a little company, Cisco, came along. Their router wasn’t good enough for voice so they staked out territory on the data end of the market and continued to improve their product’s performance and quality.

Then the Internet became mainstream. The world of communications changed forever. No longer were users pushing data through private corporate networks within their building or to the building next door. They were pushing data to a computer on the opposite coast through the worldwide web, a network of servers connected through public telephone lines and switches. The telecommunications system – designed to handle an average voice call of three minutes – was paralyzed by long Internet data sessions.

Telephone networks began carrying more data than voice traffic. In time it was discovered that voice could be broken into packets like data. The quality was not as good as the traditional telephone voice call, but that would come with technical progress. Nortel and Lucent refused to play the data game. They chose to fight it. Cisco continued to improve to the point that voice-over-Internet Protocol (VoIP) became free phone service.

Then, in the 2000s, cell phones became mainstream and today half of the homes have no landline – the once rich domain of Nortel and Lucent. Lucent, a shell of its past glory, was acquired by a Canadian company. Nortel filed for bankruptcy and was disassembled for parts.

Oh, how the mighty have fallen.

In 1975 Theodore Levitt published an article in the Harvard Business Review entitled Marketing Myopia. It was profound for its time, and some of his ideas still are. The railroads, Levitt observed, were replaced by airlines because the former saw themselves in the “railroad” business rather than the transportation business.

Nothing prevented newspapers from creating eBay or Craigslist, which gutted their classified sales. But they saw themselves as being in the newspaper business. There is no reason that Wikipedia couldn’t have been created by Encyclopedia Britannica, which is no more, except the way Britannica defined itself.

Universities had best take note that history shows disruptive innovations almost always come from other industries. They blindside unsuspecting industries wedded to old business models and who have defined themselves too narrowly. And they usually win

University faculties should be asking themselves what business they are in.

Debt Default Lies

A liar is a person who makes a statement knowing that it’s not true. Simple enough.

How about a person who makes a statement that is superficially or partially true but made in the spirit of misleading others to believe something not true? Well, I’ll let God sort that one out.

The good book says that liars have their place in Hell so there should be a lot of politicians there.

Obama, Reid, Pelosi, Treasury Secretary Lew, and the media have been a Greek chorus of late, warning of the perils ahead if the limit on Congress’ credit card is not immediately and unconditionally raised. They falsely claim that the federal government will default on its debt unless the debt ceiling is raised, they falsely claim that King Obama can raise the debt ceiling on his own authority if he chooses, and they falsely claim that entitlement programs are constitutionally protected. All lies.

Let’s take them in order.

A debt default means that a contractual obligation to service a debt was not performed at the time required. If the debt ceiling isn’t raised, it means our government, which borrows 40¢ of every dollar spent is going to have to make some choices. But servicing the national debt is not one of them. The revenues taken in as taxes are ten times the interest on the national debt – ten times! About $250 billion per month is received as government revenue and about $23 billion in interest is paid to the holders of the national debt. Maturing obligations that require the redemption of debt principal are simply rolled over into new debt using the proceeds to redeem the maturing debt without a net increase (or decrease) in debt.

The assertion that a debt default will occur unless the debt ceiling is raised is laughable. The money is there and there’s no choice – payment of national debt obligation is a constitutional compulsion. It’s called the 14th Amendment, Section 4.

Let’s just check that Section out for the benefit of the Greek chorus, shall we?

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned …

Hmm. Not a lot of wiggle room there.

The 14th Amendment was adopted in 1868 as part of post-Civil War Reconstruction. The “debt shall not be questioned” clause was put in to assure that if the new Southern members of Congress were to gain a majority, they couldn’t repudiate the Northern war debt. In other words, “shall not be questioned” meant a Southern legislator couldn’t challenge that his constituents shouldn’t be paying taxes to reduce a debt that was created to defeat the South, kill Southerners, and destroy their property. Taken as a generalization, it means debts must be paid.

So, why do you think the Greek chorus is lying, claiming that a failure to raise the debt ceiling is tantamount to a debt default? I’ll give you three guesses and the first three don’t count. To scare the pants off of a public that is marginally literate in how its government works – of course!

Conceivably, the debt ceiling might have to be raised in the future to pay obligations on the national debt. Let’s hope that day never comes. The country would be in economically sad shape. Thankfully that isn’t the case today because there is sufficient cash coming in to pay the debt with a lot left over. But not enough is left over to pay all of the obligations at the current level of spending. So, excluding debt payments, spending obligations must be prioritized. Gee. Isn’t that what families do until they can reduce their spending to align it with income?

Establishing a debt ceiling was one of the few intelligent things Congress has done. It forces the issue to the forefront periodically, usually grabbing the headlines for a few weeks and rousing the public from its slumber. The people’s representatives are forced to do combat over what price will be exacted and how much will the ceiling be raised. But the ceiling always gets raised.

Raising the debt ceiling simply allows Congress on both sides of the aisle to run up new debt, which lately they’ve been able to do pretty quickly, and then the hogs are back at the trough and locked in another debt ceiling fight. But eliminating the debt ceiling altogether and allowing Congress to spend as it wishes, which some have suggested, is sheer folly. There are no adults in Washington and giving kids a credit card with no limit is stupidity on stilts.

As much as I hate this periodic kabuki theater of closing public parks and pretending the economic sky is falling, it fills a useful purpose. Who knows? Maybe one day the public will wake up, realize debt default isn’t possible, and that spending reductions are a more sensible way to reduce the frequency of these charades. The Left is terrorized that this might happen.

And the Left says, “Well, if you're going to get “constitutional” about this, show me where in the Constitution a debt ceiling is established.” Can’t. It’s not in there. The debt ceiling is a congressional procedure, not a Constitutional provision.

So, why can’t King Obama raise the debt ceiling on his own authority, the Left whines? Because he doesn’t have the Constitutional authority. The power of the purse resides exclusively in the House – not the President, not the Senate. The power to tax the credit of the United States with debt was meant by the Founders to rest with the people’s representatives, who could throw those representatives out of office every two years if they disagreed with the Representative. (Oh, that we might have an electorate so informed.)

The debt ceiling is the step-child of a bygone era in which every issuance of public debt had to be voted on and its purpose challenged. Laziness and expediency have rolled the individual obligations into a general “debt ceiling” number that gets fought over when Congress spends itself to the limit. We would be better off if every bill funded by debt had to be fought out on its merits. The fact that we have to raise the debt ceiling so often suggests rolling all borrowing into one ball isn’t working.

King Obama apparently looked into the possibilities of by-passing Congress on the debt ceiling debate several years ago. His lawyers told him that taking over the role of Congress wasn’t a winning play. Hmm. Just when he was considering Congress irrelevant.

This brings us to the third false claim by the Greek chorus – that entitlements are Constitutionally protected, presumably under the 14th Amendment mandate to service the public debt. Ahh. Nice try. But the Constitutional wording says “debts” not obligations. The original draft of the Amendment used the word “obligations,” but an astute Congressman replaced it with “debts” which not only zeroed in on the real intent of Article 4, but also narrowed the focus specifically to debts – transactions that involved borrowing and repayment.

Entitlements never involved borrowing and are not debts. They represent a future liability – unfunded mostly, such as Social Security, Medicare, and Medicaid – but never transactions with Constitutional protection. The debts incurred by one Congress bind future Congresses under the 14th Amendment. Not so with entitlements, which are political programs. Entitlements passed by one Congress can be repealed by a future Congress, defunded, expanded, or modified in scope. Each Congress may have its way with entitlements because they aren’t debts, even though they are implicit promises.

FDR knew Social Security lacked Constitutional protection and he may have had enough foresight to know future Congresses would try to repeal or diminish the program. Responding to a critic who questioned the economic soundness of the program, he said,

I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions … With those taxes in there, no damn politician can ever scrap my social security program.

Well, notwithstanding the fact that payment on the national debt was never in doubt by the shutdown, the Republicans led by McConnell the Dinosaur and Boehner the Weak caved and gave the Democrats a new credit card until early next year. They are busy running up its balance to the limit.

Twenty-seven Republicans signed the surrender document in the Senate along with 87 House members. I hope they can explain their perfidy to the folks back home. Of course, all House and Senate Democrats voted “aye” before rushing for their Committee checkbooks.

Not so subtly hidden in the voting stats is this: 40% of McConnell’s caucus and 62% of Boehner’s voted against their leader. I’d say both have cause to worry when they stand for reelection as the Senate and House leaders – assuming they have the gall to run.

Oskar Schindler Remembered

Oskar Schindler could well be called an accidental hero. A petty scoundrel, a chronically unfaithful husband, and consistently unsuccessful in every business venture he undertook, something happened to him while he lived in German-occupied Poland during World War II. Whatever it was, it briefly redeemed his flawed life until the end of the war, when he resumed being the pre-war Schindler. His momentary transformation redeemed the lives of 1,200 Jews, one of whom made it his mission to tell Schindler’s story to the world.

This week is the 39th anniversary of Oskar Schindler’s death.

He was born in the Sudeten region of Czechoslovakia where German was the lingua franca. Expelled from secondary school for forging his report card, Schindler was allowed to reenroll and graduate. He married and pursued several vocational trades. His personal life was as unremarkable as his business life – several arrests for public drunkenness and an affair with a school friend who bore him a daughter and son. He was always in debt.

Hitler’s invasion of Poland was bad news for Polish business owners but good news for German carpetbaggers eager to appropriate their companies and properties. Schindler arrived in Krakow, Poland the month following the invasion and acquired the rights to an enamelware factory, complete with inventory and workforce – the latter mostly Jewish slaves who, according to Nazi provisional law, could not be paid.

Beginning with about 45,000 sq. ft. of production space and a hundred workers, Schindler scaled up operations to almost 500,000 sq. ft. and 800 workers half of whom were Jews. The nearby Krakow Jewish ghetto would in time provide all of the workers that Deutsche Emaillewaren-Fabrik would need, helped by Itzhak Stern, Schindler’s Jewish accountant and manager who doubled as his workforce recruiter.

Schindler lived lavishly in Krakow in an apartment appropriated from a Jewish family. Mila Pfefferberg, one of Schindler’s Jewish workers, redecorated it to his tastes. Her husband, Poldek, also a worker, would become Schindler’s chief scrounger among the Jewish black market for bribe merchandise. Poldek would also become his patron’s lifelong friend and the person determined that the world would know Schindler’s one bright shining moment. With Schindler’s wife Emilie remaining in Czechoslovakia, he was able to have active extramarital affairs with his Polish secretary and with a woman who merchandised the company’s products.

Itzhak Stern was initially circumspect about his German employer. But Schindler treated his workers as well as possible under wartime circumstances. In time workers pressed Stern to let their families join them in the factory labor force, which not only got them out of the ghetto during working hours, but also made them less likely to be deported to death camps as was happening to those who were unemployed.

Deutsche Emaillewaren-Fabrik in time became a sought-after haven among the ghetto Jews, and Schindler helped his workers by doctoring the worker records to show the youngest as older workers and the oldest as younger in order to fool periodic German inspections. Trained professionals – doctors, lawyers, engineers, musicians, and professors – were shown in the records as pre-war blue-collar laborers and tradesmen. Trade skills, essential to the war effort, shielded them from extermination.

Had they known, it might have alarmed Schindler’s Jews that their charming boss spent his evenings socializing with German officers and political technocrats to curry their influence and burnish his. He grew popular among the Krakow Nazis, greasing those with influence to help him sell products to the German war machine while corrupting them with bribes. The factory door swung from morning to evening as Wehrmacht, SS, and civilian bureaucrats visited Schindler to booze and trade. Claiming he knew how to get Jews to work harder than other carpetbaggers, the Germans were not suspicious of the growing Jewish workforce at Emaillewaren-Fabrik.

In March 1943 the Germans launched a horrific liquidation of the Krakow ghetto. Hundreds were killed as they were relocated to a nearby concentration camp, Plaszow, or to Auschwitz for extermination of the sick, young, and elderly. Schindler’s connections allowed him to learn of the German ghetto plans in advance. Therefore, he kept his workers at the factory, out of harm’s way during the initial sweep. But he couldn’t keep them out of the Plaszow labor camp. Conditions were awful and many workers suffered and died.

Learning that other Polish labor camps in the region were being shut down and their inmates were being shipped west to death camps, it was obvious that the same fate was inevitable for Plaszow. Stern and other leading Jews persuaded Schindler to lean on his contacts in the German military war materiel command structure and get Plaszow converted from its current mission as a uniform repair work camp to a war materiel work camp. A high-ranking German general got behind the idea allowing Plaszow to escape closure and making its inmates essential workers in the war effort.

The Plaszow camp commander was Hauptsturmfuhrer (Captain) Amon Goeth, a sadistic killer who shot camp inmates for recreation. The conversion of the camp to an essential materiel work camp had elevated Goeth’s status in the command ranks, and Schindler’s influence among generals elevated his status with Goeth. The original plan was to move all local essential factories into Plaszow. But Schindler’s charm, bribes, and diplomatic wrangling allowed him to persuade Goeth to let him build a sub-camp for his Jews so they wouldn’t have as far to walk and could begin the work day earlier. The sub-camp, completed near Emaillewaren-Fabrik at company expense, allowed Schindler to house his workers as well as house 450 additional ones from nearby factories whose owners held anti-fascist views similar to Schindler’s. With a sub-camp sufficiently distant from Plaszow, it became possible to smuggle food and medicine into the barracks without Goeth ever suspecting the true motive for constructing it.

By the spring of 1944 the Germans were soundly losing the war on the Eastern Front. All Polish camps were ordered closed including Plaszow. Inmates were to be shipped west to certain death. Schindler had to call upon all of his skills in negotiating, bribing, charming, begging, and even some threatening to prevent a human tragedy – at least among his workers. Protesting that his ability to “win the war” on the industrial front was being hamstrung by German liquidation orders, he asked to relocate his factory south of Poland in Sudeten Czechoslovakia where it would be out of the path of the retreating Germans and advancing Russians.

Failing to persuade officials in Krakow and Warsaw, he took a train and his proposal to Berlin. There he worked connections in the German command hierarchy. Possibly because the German High Command was so distracted by its collapsing war machine, someone with sufficient authority gave Schindler orders to transfer a thousand workers out of Plaszow to a new plant location no doubt believing it was a fool’s errand. Except for these select few, all others were loaded into locked trains and sent 30 miles west to Auschwitz and the certain death that millions had found there.

Four months following the D-Day invasion, Schindler began preparing his famous list helped by Goeth’s secretary, Mietek Pemper. A list of 1,200 Jews was compiled, 1,000 of whom were Schindlerjugen – Schlinder’s Jews – plus 200 from a nearby textile factory owned by another sympathetic German. German bureaucracy and arcane logistics caused a train that left on October 15, 1944 with all male inmates to be rerouted to a Polish concentration camp. There the inmates remained a week before being sent to the new plant location. Another train with females was sent to Auchwitz where they were in daily danger of being gassed. Schindler dispatched his secretary with black market bribes of food, goods, and diamonds to secure their release. It would be November before all Schindlerjuden were united in Czechoslovakia.

The region in which the new plant was located was in German hands and German officers were in and out daily. While the purpose of the factory was to make German war munitions, it made nothing. When the factory’s paltry output came to the attention of German officials, Schindler spent his dwindling resources to buy munitions on the open market and fobbed them off as his own. Until the war ended, Schindler and his Jews were in daily danger.

The war ended in May 1945 and Schindler and his Jews heard Churchill announce it via a radio on the factory floor. All area German troops fled west to escape the advancing Russians, who arrived two days after war’s end. Schindler also escaped west with his wife and a small company of Jews who went with him to corroborate his story when he surrendered to the Allies. Months afer leaving Czechoslovakia the Schindler party surfaced in Austria in Allied hands.

The Schindlerjuden adjusted to post-war life and scattered throughout Europe, with those who could returning to Poland. For Schindler, the transition to post-war life was difficult. He was penniless and a former German employer of slave labor. Moreover, he informed on his former army drinking companions and industrialists who had abused their Jews, making him a pariah among Germans who might have been inclined to help him.

Schindler’s main source of financial help became the Jews he had saved. Individual Jews and a post-war Jewish organization provided the charity he needed to emigrate to Argentina with his wife. There he attempted to farm and raise animals for their fur. But as had happened so often before the war, his attempts at business were failures. In 1957 Schindler left his wife for the final time. She continued living in Argentina and he returned to Germany. Yet, they remained married, never divorcing, although they would not see each other again. When he died, they had been married for 46 years.

Schindler’s economic fortunes were no better once back in Germany, now booming in its post-war years. Several businesses failed as did his health, suffering a heart attack in 1964. He was reduced to living off of handouts from his appreciative Jewish survivors – the Schindlerjuden – now scattered throughout the world. The post-war Israeli government, settled almost two decades in its ancestral homeland, declared Oskar Schindler “Righteous Among the Nations” and after he died, the government paid to have his body reinterred in a Catholic cemetery on Mount Zion in Jerusalem.

Despite the fame among the Jews for his efforts during the war, Schindler’s exploits were relatively unknown among the non-Jewish world. Poldek Pfefferberg made several attempts to have film producers turn the Schindler story into a motion picture. He had no success, since there was little post-war interest in “good German” stories.

Mila and Poldek Pfefferberg emigrated to California where he established a luggage shop. Quite by accident in 1980 an Australian author, Thomas Keneally, stopped in the shop as he returned home from a European trip. Pfefferberg regaled Keneally with the Oskar Schindler story, giving him copies of papers he had compiled to preserve the details. Keneally did his own research, interviewed survivors, and satisfied that the story was true, decided to write a fictionalized account of it so that he could put it in the form of a novel with dialog. It was published in 1982 under the title Schlinder’s Ark. In the US the book title was Schindler’s List. Steven Spielberg acquired the screen rights and produced the Academy Award-winning motion picture Schindler’s List. The film was released in November 1993 – 20 years ago next month.

In the final months before his death 39 years ago this week, Schindler had stayed with friends in their house in Hildesheim, Lower Saxony. A suitcase containing papers and photos remained after his death. In 2000 it passed into the hands of a Stuttgart couple who were relatives of Schindler’s Hildesheim friends. The suitcase was discovered to contain the original Schindler’s list on Emaillewaren-Fabrik letterhead with the names of the 1,200 Schindlerjuden.

Another list was drawn up by Schindler a month before the war ended. He used it to persuade the Czechoslovakian SS that the names on the list were vital to the war effort. The job listed next to each name was fictitious.

In 2009, among the work papers of Thomas Keneally on file in the State Library of New South Wales, was found a faded carbon copy of a Schindler’s list. It was in the document file Poldek Pfefferberg gave Keneally as background for the Schindler story. Thirteen pages long, this list contains 801 names and is dated April 18, 1945. It is Schindler’s Czechoslovakian list or a copy of it.

Two other copies of Schindler’s list are known to exist, one in a private collector’s hands. It had been kept by Itzhak Stern, the Jewish factory manager shown typing it in the film, Schindler’s List.

Is College Worth It?

Failure to Launch, a report just out from the Georgetown University Center on Education and the Workforce, is worthwhile reading for parents and grandparents whose children and grandchildren are facing critical decisions about college and careers.

Among its several observations, the report quotes a shift in an important statistic. The median income, the division of the upper and lower halves of American incomes, is a major milestone marker for young people to pass in their march toward financial independence. But they aren’t reaching it until age 30 now compared with age 26 three decades ago when the data point was first tracked.

So what? This shift is important for several reasons. Passing the median income later reduces lifetime income which can only be made up by working for more years than past generations. It also means that at any year during a person’s income-earning years consumption is likely to be less. On a broader front it means a smaller future economy.

Arriving late to financial independence has no doubt been impacted by the recession and tepid recovery. But the labor participation rate for 20 to 24 year olds has been falling since the mid-1980s and is now at a level not seen since 1971. Over that 40-year period the number of jobs requiring more education than high school has grown from 28% to 59% and is projected to grow to 65% by the end of this decade. And while more people as a percent of population are in college than 40 years ago, they aren’t graduating fast enough to keep up with the demand as evidenced by the growing wage premium paid to undergraduate and graduate degree-holders – now 80% more than high school diploma-holders, double the figure 40 years ago.

Notwithstanding these long term trends, many college graduates currently have difficulty finding good paying jobs and are underemployed in jobs that don’t require college degrees. Whether it is true or not, it’s commonly asserted that 80,000 bartenders, waiters, and cab drivers and an additional 155,000 janitors have college degrees. Never mentioned is how many of them are educated in science, technology, engineering, or math. Still, the careers for which they were educated, whatever they are, remain on hold but their education loans aren’t.

Others in college saw the career fates their friends were experiencing and dropped out to get a job and begin to pay down college debt. About 40% of college students fail to get a four-year degree even in six years. While graduation rates are highest at private colleges, still a third of those students fail to graduate. The dropout rate is 45% at public colleges. And it is almost 80% at for-profit colleges like University of Phoenix, DeVry, and Strayer which cater to working adults you’d expect are motivated to complete.

Dropouts often get on with their lives, marry, have children, and find it difficult to later resume their education. Yet we know from experience that families whose breadwinner is less educated are also less mobile, less stable, and may perpetuate under-education to later generations.

Despite the short term outlook for college graduates, tuition has continued to rise faster than the general inflation rate and faster than beginning salaries, forcing students or their families to go into debt. If student debt at the time of graduation were rank ordered, the lower two-thirds would owe $25,000 or less. Since the top third has no cap it contains figures from $25,000 up, and “up” can be some truly astronomical six figures. The amount owed by all students for college loans totals $1 trillion.

The cost for attending a public college in real (inflation-adjusted) dollars is twice what it cost since data began being kept 45 years ago. The cost for attending a private college is more – up 137%. Nevertheless, college enrollment as a percentage of the population has grown during the period from 2.2% to 3.7%.

What’s going on here? Shouldn’t enrollment be going down? Should we be questioning whether college is worth the time and money it consumes? Some critics are. But if the jobs of the future will require college and perhaps post-graduate education, what can be done to control cost and access? Should colleges be required to inform students their job prospects if they major in, say, sociology? Those are the questions students, parents, and grandparents should be considering as they go on the hook for the expense of college education.

Historically, education has been a good investment. The average college graduate today will earn $600,000 more than a high school graduate over a typical career. The ROI on an investment in a college education beats the ROI of most financial investments – about 15% over the past 40 years.

But there’s little evidence to substantiate that the added cost of top brand schools is returned in career earnings. Obviously, the field of study is more important than the college that granted it. And any attendance in college study helps. People with some college earn more than those with none and people with advanced and professional degrees earn more than those with only undergraduate degrees.

If history is an indication a college degree will continue to be a good investment of time and money. And it’s a given that complexity has a bright future in the world and will require bright people to solve the problems it creates.

What, then, can be done to control the cost of college so that it is accessible to qualified students, not just those who can afford it? And what is driving up the cost of college?

The main public college cost driver is state budgets. As they are squeezed, less money is available to subsidize the state’s public colleges and more cost is shifted to students. Private colleges are subsidized by endowment income, which suffers in slow economic times.

Costs and cost shifting are different depending on the tier in which a college is classified – private, public, and community. Additionally private and public colleges are either research-focused or teaching-focused. Private colleges are usually more expensive than public; research-focused (about a third of colleges) are more expensive than teaching-focused (about two-thirds of colleges). Community colleges are often the least cost but not always the best value in terms of cost and quality. In the competition for students, more than a small percentage of spending by college administrators in all tiers is for resources that don’t improve education quality – amenities, sports, and dorms, to mention a few.

The fact that college costs have exceeded the general inflation rates has been blamed by college dons on the formidably-sounding affliction known as Baumol's cost disease. Proponents argue that teaching is labor-intensive and therefore not amenable to productivity improvements that leverage skills and know-how and reduce cost. Professors who have become brand names in academic circles are sought after by competitive colleges anxious to have the brand associated with their institution. Competition bids up salaries and perks, at least for the brand names, increasing education cost. This, it’s argued, is truer in research colleges than teaching colleges.

It’s a nice theory but largely specious because, as anyone who has taught in college or university knows, big brand professors spend most of the time in research and publication and use teaching assistants to meet their classes. Oh, sure, a doctoral class may see the old prof in class occasionally but rarely the undergrad students. The big brand professors can’t burnish their brands in the classrooms. They burnish them in the refereed academic journals. Journals are where research findings are reported and are the arena of big brand competitors and big brand wannabees. And they are not a bad place to market themselves to potential colleagues who can prevail upon their department chairman to put a bid in for a big brand and lure Professor Whatzizname away from the current employer.

Baumol’s notwithstanding, big brand professors are not the cause of tuition cost inflation. There aren’t enough of them. But there’s a glut of Ph.Ds chasing a limited number of tenure slots, which has driven down their salaries and forced many into adjunct instructor roles, lower tier colleges, and private prep schools. Moreover, the cost of instruction delivery is only about 15% of college spending.

Two Wall Street Journal reporters last year published an eye-opener about where the costs are in college spending – administrators. While the article focused on the University of Minnesota – a public research-focused university – as a former university professor, I can attest to the fact that Minnesota is not an outlier. There are too many deans, assistant deans, directors, and non-teaching staff, mostly Ph.Ds who don’t want to teach. Minnesota has one employee for each 3 ½ students – 19,000 employees in all. The growth in administrative staff outstripped the growth of faculty there by 51% over the previous decade. 

And it isn’t just the number of administrators that increase tuition costs, it’s what they are paid. At Minnesota 353 administrators make over $200,000. Seventeen make over $300,000, up from just seven who earned that much in inflation-adjusted dollars a decade earlier. University of Florida executives got five-figure raises last year and the students got higher tuitions. The presidents of Ohio State University and Texas A&M earned $2 million each, even as OSU is selling off property to offset reductions in state subsidies. The former president of Penn State University, Graham Spanier, who was forced out in the Sandusky sex scandal, was the highest paid public university president last year. Spanier’s compensation for the 2011-2012 academic year was $2.9 million, including $1.2 million in severance and $1.2 million in deferred compensation.

The arcane accounting systems of universities and colleges are not structured in a manner that allows cost to be managed. Therefore, even when a reformer like Eric Kaler, who assumed the presidency of the University of Minnesota last year, attempts to rein in tuition by cutting administrative costs, he couldn’t find out what it cost to run the place.

Out of control spending is compounded by the fact that universities are non-profit organizations. There is no incentive to save; in fact there are disincentives in many cases because unspent funds are lost by public colleges and return to the funding source. Absence mechanisms for allocating costs in terms of benefits, as exists in businesses, colleges and universities are woefully inefficient in educational content delivery. They are also unlike many other labor-intensive professions – medicine, law, and accounting come to mind – in which profit motivation forces innovation into the delivery of professional skills.  Mid-level staff and technology in labor-intensive business organizations leverage highly skilled people and confine their work to activities that yield the highest value.

As the Wall Journal reporters noted in their article, hikes in tuition pose a real economic hardship on students whose parents aren’t able to help them. In 1975, a Minnesota undergraduate could work six hours a week at minimum wage throughout the year and cover tuition. Today 32 hours at minimum wage would be required to cover tuition.  That’s almost a full-time job. It explains why many university night programs are growing rapidly even as their day programs are shrinking.

I’ll mention one more dimension of a college education that makes its costs hard to contain. It’s not a “normal good.” When the price of normal goods goes up, consumption goes down. In education higher prices may actually cause increases in consumption. There is a false perception that a quality education must be expensive. Not so. But hard to prove.

Because it’s not a normal good, it’s impossible to experience an education before consuming it, and dissatisfied customers can’t return it for a refund. We can test drive multiple cars, tour multiple houses, try on multiple outfits, and then pick the one that seems to be the best value – the best quality for the price. No way to do that with education.

The way most students and their families pick a college is the way they pick a bank or lawyer – the sizzle, not the steak. Go into a bank lobby or the trappings of a law firm and what you see is the wrapper around an intangible service. If the cosmetics look good, the quality of banking or law delivered there must also be good. Or at least that’s what the consumer thinks. It’s a flawed measure, but it works. If it didn’t, profit-motivated banks and law firms wouldn’t spend money on image creation. College administrators do the same thing. More spending goes into non-educational experiential resources than into educational resources, including instruction quality and content delivery productivity.

Don’t get me wrong. I think the college experience is important – probably more so at the undergraduate level than the graduate level. I collected four degrees and attended four colleges – two traditional campuses (one private and one public) and two concrete campuses (one private and one public.) The traditional campuses were a better experience – gyms, glee clubs, sports facilities, several grills to choose from, on-campus playhouse theater, nearby parking decks almost anywhere on campus. The traditional campus colleges were also more expensive and the quality of education was no different. Was the experience worth what it apparently added in tuition cost? Not to me.

Here are suggestions I would make to the parents and grandparents facing the prospect of college choices and costs. The most important choice is to get a marketable education. That would exclude majoring in sociology, history, literature, music, philosophy and religion – even business administration. These are not rigorous disciplines. I taught graduate students in the College of Business Administration of a major university and considered undergraduate degrees in business to be useless. Harvard, which has one of the top graduate business programs in the country has no undergraduate business degree. None of the soft majors I’ve listed (and lots of others) prepares a person to do anything in the world of work. Look around at the industries that are booming. They employ people educated in rigorous disciplines – science, technology, engineering, and math – and all of their derivative subsets – healthcare, computer sciences, energy development, biochemical and biotechnology development, programming, data management.

Don’t get hung up on making the “right choice” of a major out of the gate. Most people make multiple career changes. Mine changed four times. The most important thing is to keep the most important thing the most important thing. And the most important thing is for the graduate to get started in a career. With maturity and experience he or she will see new opportunities that invariably lead in different directions and careers.

The second most important choice is the college. Don’t get snookered by brand name colleges. Very few companies recruit on the basis of undergraduate college attended. People change jobs many times. After the first one, no one really cares where the undergraduate degree was earned. I would pick a public college over private and a teaching focus over research. The cost is usually less in both cases and the education quality is no different.

These two choices have the greatest impact on getting the best value for the education dollar. If student aid – grants and scholarships – is available it could slant the public-private choice because they don’t have to be repaid. Loans do.

The third choice is this: if in doubt, start at a community college. Some people aren’t ready for college, and the best way to test the water is to get a two-year Associate degree. It’s better than no degree, it’s a mark of achievement, and it’s a ticket into a major college later if the student wants it and has the grades. And in most states, community colleges have to admit students by law. Not so with four year public state colleges.

Here’s to choosing well!