A force at play: the more you pay, the less you get

One of Vanguard founder Jack Bogle’s axioms in personal finance is that the more you pay to buy investments, measured by the fees, the less you get over time measured by total return. This principle is illustrated very well in the PBS Frontline documentary The Retirement Gamble in which Bogle appears to introduce the idea.

Recently I started reading Phishing for Phools (2105) by Akerloff and Shiller, which takes thesis that market competition leads to hoodwinking of consumers. Shiller is known for his work on economic models of housing prices and his most famous book Irrational Exuberance. Akerloff is an economics professor at Georgetown. Both are Nobel laureates.

I hadn’t made it very far into the book when it struck me that Bogle’s axiom could be extended to more than just the trade offs between passively and actively managed mutual funds. In the very first pages, Akerloff and Shiller introduce the concept of reputation mining. In classic economics professor fashion (harnessing the undergraduate cliché of a basket of goods at the supermarket), they use a fruit metaphor:

“If I have a reputation for selling beautiful, ripe avocados, I have an opportunity. I can sell you a mediocre avocado at the price you would pay for a perfectly ripe one. I will have mined my reputation. I will also have phished you for a phool.”

The banal fruit metaphor becomes more provocative when they proceed to apply it to the way in which ratings agencies mined their reputation for credibility in the run-up to the subprime mortgage meltdown. For a good illustration of context of this chapter of American financial history, watch the 2015 film The Big Short.

When most customers get tricked into buying overpriced goods, collapse is possible when some part of the market wises up. My mind immediately leaped to another part of the economy that is arguably engaging in widespread reputation mining: higher education. Many people say that higher ed in the United States represents a bubble similar to the one built on bad mortgages in the United States. A few years ago the amount of student loan debt exceeded credit card debt at more than $1 trillion. Reportedly, more than 40 million Americans are paying down these loans, which tend to have more affordable interest rates than credit cards but cannot be expunged in bankrutpcy.

Have all these Americans been ‘phished for a phool?’

Much research shows that college remains a good investment. Yet as much as I love higher education, particularly the liberal arts tradition I benefited from at Kenyon College, I think a solid case can be made that the higher sticker prices of recent years, combined with the increasing use of part-time adjunct instructors, fit a pattern of reputation mining. According to PBS:   “Adjuncts now make up more than 70 percent of all college and university faculty, often juggling a course load at multiple universities, earning an average of $2,500 per course.” Meanwhile, according to an editorial in the New York Times,  “if over the past three decades car prices had gone up as fast as tuition, the average new car would cost more than $80,000.”

Thus while the job security of the typical university instructor has vanished, which I think is a headwind against teaching quality, the product has (in the case of public universities) quadrupled in price. There are many factors influencing these trends, but they don’t seem sustainable. If tuition remained the same but classes were offered through prerecorded online lessons and proctored via algorithms, teacher salaries could plummet further. This would be blatant reputation mining. It would also mean that students and their families would be paying more for less.

Just like the mortgage market, these macro-trends oversimplify a very complex set of market interactions. I think reputation mining is going on at the same time as many university experiences represent genuine value for each tuition dollar spent. I’m still a big supporter of higher education, and believe that teachers will be more important than ever in our future as many jobs become obsolete through automation. Families now have to be strategic and savvy to avoid being ‘phished.’

In my own educational experience, I believe that my Kenyon degree, though expensive, represented real value. From that base I’ve been able to build a career as a writer and editor. My Master’s in Journalism at the University of Maryland was similar. During my time as a writer working for Georgetown, I got free tuition which I applied to earning a Master of Professional Studies degree in Technology Management. The ten courses I took were taught exclusively by adjuncts. Was this Georgetown mining its reputation for dollars? Tough call. I was glad that many of my teachers in technical subjects were practitioners of those subjects rather than academics,  so I valued that they all had relevant day jobs and moonlighted their expertise. But on the value spectrum between the residential undergraduate experience at Kenyon and the night-school-style Professional Studies degree, I think I got a lot more value in my earlier studies. As much as I enjoyed studying tech at Georgetown, had I needed to pay the tuition out of pocket, I likely wouldn’t have gone for that extra degree.

A lot of financial wisdom amounts to ‘avoid getting ripped off.’ Alas, we live in a world where market forces make that a tricky thicket. I’m looking forward to delving further into Phishing for Phools.



Hard Climbing: a Review of Peter Matthiessen’s The Snow Leopard

Matthiessen hikes past Lake Phoksumdo en route to the Crystal Monastery (photo by Carsten Nebel via Wikimedia Commons)
In The Snow Leopard, Matthiessen hikes past Lake Phoksumdo en route to the Crystal Monastery (photo by Carsten Nebel via Wikimedia Commons)

By Dan Wilcock

Reading The Snow Leopard is a bit arduous, but its commanding views are worth the climb. For me, and I suspect many like-minded readers, the book lights upon a trifecta of fascinating topics: the hike of a lifetime, the natural world, and Buddhism.

The book, published in 1978, recounts a trek Matthiessen took into a remote part of Nepal five years earlier. He heads into the Himalayas with a biologist friend who’s tracking a rare species of mountain sheep. His agreed-upon task is to assist with the field work, but his real aims are to experience the transcendence of Zen Buddhism and to find the Lama of Shey, a spiritual leader who presides over the secluded Crystal Monastery.

As the story unfolds, Matthiessen also reveals how torn he is to be separated from his family— from his wife due to her death from cancer, and from his son by taking the trip. Buddha also deserted his family and embarked upon his path to enlightenment, so like Hesse’s Siddhartha this book is an echo of the Buddha’s story.

Despite the makings of a terrific yarn, the pages don’t exactly fly by—or at least they didn’t for me. Although there are some stunning passages describing nature and panoramic vistas, Matthiessen keeps his the narrative portion of the book fairly unvarnished and somewhat plodding as if it were direct transcriptions from his journal. Interspersed with the story is a certain amount of regional history, some of which is truly fascinating. Take for example, this tidbit on the history of the Nepalese Gurkha soldiers, and how far back China’s claim to Tibet extends:

“The legend of these soldiers had its start in 1769, when the armies of the King of Ghorka spread
out from the central valleys, absorbing the small tribal kingdoms and creating the Hindu state
now called Nepal; in their great ferocity, they rushed into Tibet, only to be thrown back by the
Chinese, who considered Tibet to be part of China even then.”

I think a lot of people familiar Tibet’s plight following China’s mid-20th Century annexation would be surprised to learn that that was just one episode in a much longer story. Nepal’s origin story is also something I had no clue about before picking up this book.

More prominently, the roughly half of the book is a “meditation” (har har) on Eastern spiritual practices, primary Zen and the Buddhism and indigenous traditions of Tibet. He has a gift for synthesizing these concepts, such as the following passage—in which the Buddha’s teachings are encapsulated in just one sentence:

“In what became known as the Four Noble Truths, Sakyamuni perceived that man’s existence is
inseparable from sorrow; that the cause of suffering is craving; that peace is attained by
extinguishing craving; that this liberation may be brought about by following the Eightfold Path:
right attention to one’s understanding, intentions, speech, and actions; right livelihood, effort,
mindfulness; right concentration, by which is meant the unification of the self through sitting

Even though it takes some trudging to make it to Crystal Mountain, both for Matthiessen and for the reader, the journey culminates in something like enlightenment, which he finds may not be a permanent condition but rather a falling away of illusions and worldly concerns. Matthiessen returned to bring us this book. I think it’s a gem, but one that may take some polishing to shine.

Big Data’s Humanist Manifesto

(Image: jaronlanier.com)
(Image: jaronlanier.com)

A review of Jaron Lanier’s Who Owns the Future? (2013) Simon & Schuster

By Dan Wilcock

In early 2013, IBM made the mind-boggling claim that 90% of the data in the world had been created in the previous two years alone. Facebook, which crested one billion users in October 2012, is but one of many platforms elevating Big Data’s exponential growth curve.  

Big Data—the vast digital Sahara of trillions of aggregated binary-code sand grains—may well be this century’s fulcrum of wealth and power. The data centers that comprise “the cloud” are now arguably as central to global commerce and security as the hubs of the petroleum industry. The recent revelations about NSA internet surveillance are further confirmation that a new era has dawned. 

And no matter how many people unplug their Facebook accounts, as I did shortly after reading Who Owns the Future?, we can’t go back to a pre-networked world. Short of some kind of unwanted cataclysm that knocks us off our current course, the momentum is just too strong. New developments in networking, such as the ‘internet of things’ which harnesses data and internet connectivity to make our cars, homes, and appliances ‘smarter,’ portend almost limitless network growth.

Nor can we erase the data we’ve already created. “The option to ‘delete’ data is largely an illusion,” write Google executives Eric Schmidt and Jared Cohen in their book The New Digital Age, published less than two weeks before Who Owns the Future?

Lanier’s book presents a caustic but indispensable minority report to such Silicon Valley triumph literature. It takes companies like Google and Facebook to task for driving a new economic order in which wealth and power are consolidated where entrepreneurs, the best computers, and best computer scientists converge to harvest Dig Data. The list of industries being disrupted grows each day.

As a minority report, it also sketches an alternative vision of new economic system in which individuals get paid for the data they generate. There are some problems with this idea, which I’ll detail below, but his aim is respectable. He wants ordinary people to survive and thrive in the new era. He calls himself a “humanist softie,” which I think is an admirable position to take.

 The Rise of the Siren Servers

This moment of ascendant power has long been the dream of technology companies. Lanier identifies himself as someone who helped build today’s commercial and academic internets. The dust jacket calls him a co-creator of “start-ups that are now part of Oracle, Adobe, and Google: and the recipient of a lifetime career award from the Institute of Electrical and Electronics Engineers.

Lanier writes about how the progressive vision of a humanistic digital economy imagined by internet pioneers such as Ted Nelson, whose writings in the 1960s presaged today’s digital sharing and the use of hyperlinks, has been clouded by the rise of what he calls “siren servers.” These he defines as: “an elite computer, or coordinated collection of computers, on a network. It is characterized by narcissism, hyperamplified risk aversion, and extreme information asymmetry.”

 He puts this in slightly simpler terms in the following paragraph:

Siren servers gather data from the network, often without having to pay for it. The data is analyzed using the most powerful available computers, run by the very best available technical people. The results of the analyses are kept secret, but are used to manipulate the rest of the world to advantage.

To what advantage do today’s tech giants slice and dice our data? Riches for company founders and an increasing pile of advertising revenue from companies vying to grab more market share. For companies, the servers offer the ability to get precise and immediate feedback on customers, to whom they sell products and services more efficiently (with fewer employees). For government security agencies, the analysis yields a gold mine of previously-unavailable mission-critical information about threats.  

Jaron Lanier is also a musician who works with rare instruments (Image: Wikimedia Commons)
In addition to being a computer scientist and author, Jaron Lanier is also a musician who plays rare instruments (Image: Wikimedia Commons)

Who Could Argue with “Free?”

Big Data is provided to siren servers “for free” because users get a “free service” in return. Google brings us to the information we need faster. Facebook gives us a window into the unfurling lives of remote family and friends. Skype allows us to video chat without paying them, and thus we can save hundreds of dollars in international long-distance charges in the process.

The word free above is placed in quotations because the exchanging information for a service means the service isn’t really free. The fact that something is provided without cost usually just means that you, as the user, are not the customer. You are the product. You are being sold. The implication from Lanier’s book is that you are increasingly being ripped off.

He points to musicians who now have to sing for their supper each night because they no longer can rely on support from labels and translators whose works get fed into online translation engines without consent. Technology and the lure of free content make it tough for some folks to make a living these days, and Lanier argues that the ranks of such people will continue to grow as servers advance in developing artificial intelligence.

Lanier doesn’t bring them up, but the infamous instant messages sent by Mark Zuckerberg to a friend that describe Facebook’s early users as “dumb fu*ks,” for trusting him with their information confirms the suspicion that the mega servers are conceptually designed to rip people off. But Lanier doesn’t spend time blaming the owners of siren servers for taking their opportunities:

And it’s not Facebook’s fault! We, the idealists, insisted that information be demonetized online, which meant that services about information, instead of the information itself, would be the main profit centers.

Instead of people getting paid, they get pumped for data for which, by express consent in the user agreements that everyone signs without reading, they are blocked from seeking payment. Lanier writes:

Even the most ambitious outcomes in the most fabulous futures articulated in the moneyed dreamspace of Silicon Valley, those where the world isn’t utterly wrecked by nuclear war or some other disaster, tend to leave people behind. Even the optimism is dismal for people. People will be suppressed and left behind.

The Experimental Path Away From Creepiness

My own decision to quit Facebook had been brewing for some time. I absolutely hated the AT&T ad campaign that launched the Facebook Phone, which in one ad featured dancing freaks on an airplane and a smirking guy who keeps using his phone to “like” things after the flight attendants tell him to turn off his phone. It reminded me of all the idiots who can’t stop using Facebook, even when they are behind the wheel.

Then Facebook started using friends’ faces on advertisements for Amazon.com and other companies. It exemplified what Lanier calls the creepiness of siren servers:

Creepiness is when information systems undermine individual human agency. It happens when you feel violated because the flow of information disregards your reasonable attempts to control your own information life.

At the book’s conclusion, Lanier makes the following suggestion for anyone beginning to have doubts about the value of siren server services like Facebook:

My suggestion is, experiment with yourself. Resign from all the free online services you use for six months to see what happens. You don’t need to renounce them forever, make value judgments, or be dramatic. Just be experimental. You will probably learn more about yourself, your friends, the world, and the Internet than you would if you never performed the experiment.

I took Lanier up on this suggestion with regard to Facebook. This kind of decision is just a part of a larger technology-related journey on which most people are traveling these days. As a master’s degree student in technology management at Georgetown University, part of my aim has been to learn how to manage technology and not be managed by it. This is just part of my journey.

Lanier’s Economic Model and the Porn Problem

Enough about me, and back to the book (and I’ll explain what the latter part of the above sub-headline is about in short order). Lanier’s book isn’t merely an accusation. It also points toward what he thinks would be a better way for our economy.

In a nutshell, Lanier wants to foster an expanding economy based on humanist values rather than what he perceives to be a contracting economy characterized by disruption of middle class livelihoods and wealth consolidation. In the long run, he argues, both people and businesses will be better off with a system that helps ensure broad-based prosperity and rewards individuals for bringing value to the digital marketplace.

Lanier’s website contains a useful four-point condensation of this plan:

  • Universal micropayments
  • All information is valued, and valued in connection with the people who enabled it to exist
  • Individuals are 1st class participants, just like big players
  • Two way links; no copies needed

The fourth point refers again to tech visionary Ted Nelson, who argued that hyperlinks should be read in both directions. Links should do more than point. They should also record what is pointing at them. Thus there is more historical accountability to how the original content gets used and there’s less need for mindless copying. Lanier calls his model “Nelsonian” in tribute.

He admits that he doesn’t have the technical expertise to fully formulate this plan and that implementing it would entail a lot of painful trial and error. I’d like to see him team up with a cogent economist and produce a sequel to this book that would spell out how it all might work.

Yet a couple of problems spring to mind that I’m sure Lanier has thought of (his imaginativeness is his great strength—he refers in several places to the outlandish sci-fi-type projects he works on for Microsoft Research). My guess is that he didn’t want to unwind these balls of string. The first might be called the “porn problem.”  If universal micropayments are made and all information is valued based on usage patterns, adult-film industry workers might become phenomenally wealthy.

The other, perhaps more elementary, problem is that such a system of micropayments might reward many people for ‘being,’ rather than ‘doing’—an inversion of classic values (at least in America) An example of this might be the rise of digital loafers who make a career of gaming the payment system (wait, on second thought, I realize that SEO analysts and social media experts are already pioneering this space).

In order to provide commensurate payments for online activity that really advances humanity, the market and civil society will need to make judgments. Yet there is deep precedent for exactly that—extending back to John Locke’s version of utilitarianism that placed higher values on certain moral outcomes.

Conclusion: Will We Be Reading This Book in 20 Years?

My guess is that Lanier the internet futurist is again ahead of the times. He’s seen the writing on the wall, and he cares enough about fellow human beings to initiate a conversation about how to build a more productive alternative the emerging era of winner-take-all server wars. Time will tell if the book will be as important as Silent Spring was for environmentalism. The geeky aspects of the book may be a strike against him in this regard, but there’s a strong chance that this minority report will increasingly win converts.

This is a challenging book for anyone immersed in today’s data-driven world (perhaps especially for anyone who loves their Facebook account). Many people may not care about the implications of using social media or Google’s “free” tools. They just want their free stuff. This book isn’t for them. Others, when confronted with issues such as the government’s online surveillance, may find the need to take nuanced positions. This book may help think through the implications of Big Data.

It’s not about purism or self-righteousness. Almost everyone uses Google tools every day and I don’t see a good alternative coming about any time soon even though I realize their business model is very similar to Facebook’s. There’s no escape from Big Data short of moving to rural Bhutan.

Thus I highly recommend this book, which I think of as Big Data’s humanist manifesto—it’s hard to imagine a recent book more relevant to the future of information technology.

5 wise books about money

By Daniel Wilcock

A lot of financial media aimed at the general public are little better than carnival barking. Now that the Dow and S&P are back at pre-recession levels, the carnival has returned to town.

Like many wiser than myself, I think it’s best to ignore the noise and stick to a fundamental strategy: living below one’s means, acquiring a balanced portfolio of appreciating assets, minimizing fees.

Short of hiring an enlightened advisor (on a flat fee rather than commission basis), which is probably the preserve of more affluent individuals, I think most people are best off schooling themselves with some basic books that inspire wisdom and good choices.

I’d love to hear your suggestions for this list. Here are my five favorites, with a few words about each:

MNDThe Millionaire Next Door by Thomas J. Stanley and William D. Danko

At the top for the laser-like precision with which it cuts through illusions about wealth. In a few words: persons whose net worth rises above $1 million in a single generation are usually frugal and self-sufficient. The authors back this up with a lot of data. This runs counter to what marketers, particularly those who sell luxury, would have us believe.

YMOYLYour Money or Your Life by Vicki Robin, Joe Dominguez and Monique Tilford

This is unashamedly a self-help book, and a very good one at that. The authors observations about how our money decisions have lifelong impacts on our well-being (at each level from individual to global environment) are compelling and, for most people, life changing.

InfInfluenceluence: The Psychology of Persuasion by Robert Cialdini

This book is a skeptic’s delight. Not a book about money per se, but nonetheless an indispensable guide to the mental minefield in which we live. Were you ever curious why surveys are so often deployed by people who want our money or our votes? Ever feel the need to reciprocate a token gift? Ever wondered why the higher-priced item is more alluring? Cialdini’s book exposes the mechanics or persuasion and helps us step back from money traps.

RandomA Random Walk Down Wall Street by Burton G. Malkiel

A manifesto aimed squarely at investors who might otherwise be ripped off by Wall Street profiteers. Malkiel claims that a monkey throwing darts at the markets page could make the same quality picks as most fund managers, and backs the assertion up nicely. His book made me a proponent of low-fee “no-load” index investing. Like John Bogle, the founder of Vanguard who helped invent index investing, Malkiel’s the little guy’s friend.

BabylonThe Richest Man in Babylon by George Clason

Humans love stories. As Joseph Campbell taught us, our culture is infused with parables. These are parables that feature characters in ancient Babylon and teach timeless wisdom. Admittedly, some of the language, such as “Start thy purse to fattening,” is kind of corny. Yet simple stories stay with us, and this is about as simple as it gets.

P.S. To get a head start on actualizing the lessons in these books, check them out from the library!

Long strange trip: 8 marketing strategies the Grateful Dead deployed to lasting success

Image: Hubspot.com

By Daniel Wilcock

Marketing Lessons from the Grateful Dead: What Every Business Can Learn from the Most Iconic Band in History (2010, John Wiley & Sons).

Marketing and the Grateful Dead are  two nouns that don’t sit well in the same sentence—like sticking the positive poles of two magnets together. But do our stereotypes deceive us? Could the suits upstairs learn a lot from the longhairs and bearded iconoclasts of Uncle John’s Band?

Answering affirmatively are authors and lifelong Deadheads David Meerman Scott (who also wrote The New Rules of Marketing & PR) and Brian Halligan (Founder and CEO of Hubspot, a marketing software company).

In this enjoyable pocket-sized volume, they posit that the Grateful Dead were decades ahead of the curve in terms of how B2C businesses should relate to customers.  Their marketing-guru careers have been inspired by the Dead and their passion for both subjects shines through.

Jerry Garcia of the Grateful Dead (image: Wikimedia Commons)

The band’s actions, from their encouragement of bootleg recordings to their liberal brand licensing practices, foretold today’s social-media-driven world of sharing and consumer empowerment.

By raising a freak flag for millions to follow, they pioneered “inbound” marketing (Hubspot’s specialty), where customers and clients drive themselves to the information they seek.

Throughout the book, the authors use examples of current companies such as New Belgium Brewing and MySQL that demonstrate how such actions can lead to real success in today’s business world.

Meerman Scott and Halligan keep things light and entertaining . They team up with longtime Grateful Dead artist Richard Biffle, who contributes some nifty illustrations throughout.  You can sense the authors’ internet design expertise spilling over into this neatly designed little text.

On Amazon.com, the book ranked #77,450 in books on Oct. 30, 2012. Out of 38 customer reviews, it averaged four out of five stars. The biggest beef of negative reviewers is that, in their opinion, the ideas presented are a simplistic rehash of another writer, business professor Barry Barnes, who one year later published his own book on the same topic, Everything I Know About Business I Learned from the Grateful Dead: The Ten Most Innovative Lessons from a Long, Strange Trip.

Some folks think that Barnes is the true expert on this subject and that Meerman Scott and Halligan scooped him by quickly putting out a book first. Since I’ve never read Barnes, I don’t know where I stand on that issue. But the discussion does make me want to read Barnes’s book too.

The greatest value of Meerman Scott and Halligan’s book can be found in the counter-intuitive strategies it presents. Below is my distillation of 8 of these strategies, which are exemplified by the Dead’s long  strange career:

1)      Be yourself and do what you love – by following their own “Dark Star” and indulging their musical (and other) passions, fans came to view the band as not only talented, but also authentic and honest.

2)      Create and nurture a community –  Deadheads often use the word “kind.”  The band encouraged a massive following by putting fans first in many ways. That community soon took on a life – and a momentum – of its own, following the band endlessly around the world.

Grateful Dead fans at Red Rocks (image: Wikimedia Commons)

3)      Don’t control people – one of the best examples of how fans came first was the band’s attitude toward bootleg recording at concerts. Their openness to this practice turned casual fans into evangelists, a precedent for success in today’s file-sharing social media marketplace.

4)      Judge not – this openness extended to the ‘everyone’s welcome’ vibe at their concerts. Eccentric and straight-laced music lovers alike could feel at home (as long as they didn’t mind a bit of wafting smoke).

5)      Don’t rip people off, they are your best customers – The Dead set up their own ticketing system to help ensure that their fans would not be price gouged by profit-driven companies. This gave them a mysterious degree of control to reward the biggest fans (who would mail to the band postal money orders in elaborately decorated envelopes) the best seats. This  built intense loyalty.

6)      Let others riff on your brand  – liberal licensing agreements with vendors using their artwork to sell merchandise at concerts allowed a diverse community of artists to strengthen, refine and redefine the brand. The authors argue that today’s companies should encourage their employees to do the same.

7)      Ride the technological wave – The Grateful Dead were famous for their custom-engineered sound systems, mixing-board recordings and encouragement of sharing. As a result, their business transitioned seamlessly to the web and then web 2.0.

8)      Remain open to all kinds of innovation – the living band members still perform together and are not afraid of pushing the envelope — from creating cutting edge tour apps to selling concert goers live recordings of the performance they just heard only minutes after the show.

If you’d like to experience Meerman Scott and Halligan’s message directly, here are some action items:

Buy the book.

Watch the author’s free webinar on Hubspot (registration required).

Fellow Georgetown University students: Read a digital copy of the book for free online through Georgetown’s library website.