Wednesday, March 1, 2017

Technology Isn't the Problem

I'm tired of people blaming technology for America's problems.  Apple, Amazon, and Facebook have grown rapidly, lessening America's dependence on oil prices and oil discoveries for economic growth.  Without technology, we wouldn't be talking about driverless cars, disease eradication, or personalized medical advances.  Just when we are close to implementing the Jetsons lifestyle (sans jetpacks), we screw it up by turning on each other.

I'm particularly troubled by pundits and regular people picking on "millennials," branding the latest college grads as lazy or self-entitled. If you spend close to 100K on a piece of paper, it's perfectly reasonable to think it should lead to a decent-paying job in the absence of a recession.  Let's try to agree on at least a few principles so we're not always speaking past each other:

1.  An economy based on consumer spending--especially on unnecessary items--needs more and more consumers, so if population isn't growing steadily, especially among middle and upper classes, then you have two choices: 1) increase legal immigration; or 2) make it easier for your businesses to sell abroad, especially to countries with growing populations (i.e., the probable rationale behind President Obama's "pivot to Asia").

None of the above means you have to support illegal immigration.  It just means if you want a wall, you have to ask yourself whether you'd rather spend x billion on the massive number of police and federal employees required to maintain and patrol it rather than spending x billion on more healthcare subsidies, lower college tuition, stronger Social Security, etc.

I suppose such a choice depends on whether you believe illegal immigrants bring crime with them, which is contingent on what you see.  Do you live in a city where they work in restaurants keeping your discretionary food prices low, or do you see them loitering outside, up to no good or engaging in what you believe to be drug sales?

In any case, you cannot possibly be against legal immigration because it is undisputed America has a low population density outside its fifteen to twenty largest cities, which is why its highway and public transportation systems are such a mess. (Too much space begets sprawl.)  All this means we either have to figure out a way for native-born women to have at least two kids, especially higher-earning college educated women, or we need to attract law-abiding immigrants into mid-sized and smaller cities.  As an American, you cannot be against the aforementioned statement if you have both logic and facts--and that's without even discussing how entitlement programs like Social Security and Medicare work.

2.  Why aren't more American women having at least two kids, especially college-educated women?  About 65% of American women have at least two kids, but only 30% have at least two kids by the time they're 29 years old. (Fertility issues also exist in Europe.) 

In addition, about 20% of native-born American women never have kids, and about 30% to 42% of women with at least a bachelor's degree never have kids. Interestingly, 80% of women without a bachelor's degree have at least one child in their lifetimes.  Basically, less education in developed countries means more kids, and more education means fewer kids.

The reason college-educated women are having fewer kids than lesser educated women is obvious--college takes a long time, is expensive, saddles many women (and their partners or spouses with debt) and doesn't guarantee a middle-class job.  Why would anyone favor a system where more ambitious women have fewer opportunities to raise the next generation of citizens?  And yet, here we are.  It's not just lawyers who need grad degrees now--even social workers in many large cities need master's degrees to be competitive. (By the way, what logical relationship does sitting in a classroom and studying macro-social issues have with working in a hospital and dealing with people one-on-one every day?)

Evidence shows college now helps student loan creditors--which include the federal government--more than graduates in terms of practical or job-related skills.  Yet, we keep demanding more of our taxes go to K-12 and university systems without any incentives linked to increased employment or some system of checks and balances imposing discipline on admissions counselors (such as partial refunds of tuition if a grad is unemployed 6 months after graduation).  Americans now owe $1.19 trillion as a result of student loans.  Don't voters know that "insanity is doing the same thing over and over again and expecting different results"?

(Bonus: “I've been making a list of the things they don't teach you at school. They don't teach you how to love somebody. They don't teach you how to be famous. They don't teach you how to be rich or how to be poor. They don't teach you how to walk away from someone you don't love any longer. They don't teach you how to know what's going on in someone else's mind. They don't teach you what to say to someone who's dying. They don't teach you anything worth knowing.” -- Neil Gaiman, The Sandman, Vol. 9: The Kindly Ones.)

[Update on November 2017: a counterargument is here, but notice that the data used concerns families making over 500,000 USD annually and/or women with graduate degrees, i.e., outliers.) 

3.  When your profit and investment structure incentivize short-term goals, why would you expect long-term success?  Having about 25% of innovation, especially in tech and biomedical sectors, backed by venture capital guarantees anti-trust problems because profit, not competition or lasting change, is the primary goal.  (VCs back "more than a quarter of the total government, academic, and private U.S. R&D spending of $454 billion.")

Throw in quarterly rather than annual earnings or semi-annual reporting requirements, and you have a recipe for disaster.  Need more sales?  No problem--increase the discount, cannibalizing future sales, or borrow money to hire commission-based workers you'll let go the second they're not profitable.  When debt is so readily accessible and a significant percentage of creditors or founders focused on short-term gains, then the private sector becomes a feast-or-famine circuit for large companies to pounce upon.  There's no one left except for military R&D--which lacks fiscal checks and balances--to take a long term view.  The lessons are simple: public companies must be incentivized to reduce, not increase non-R&D-allocated debt; accounting rules must become stricter and globally consistent (I rue the day "pro forma" earnings gained any sort of credibility); and reporting earnings must be reduced from quarterly to at least mid-annually. 

4. Promoting long-term romantic relationships requires job stability, but not in ways that promote factions.  Most Americans don't understand the following principle: the more groups able to negotiate terms separate from everyone else means some costs must fall on persons not able to access the group rate and therefore disadvantaged. Such a dynamic harms the individual and incentivizes factions and a fractured society as some people care more about their "in-group" than the public trust or the individual.

Such faction-building--which inevitably facilitates corruption by reducing accountability and then trust--is particularly problematic within America's government unions.  Such unions have used their insider knowledge of complex hiring and political procedures to negotiate separate and unequal compensatory and disciplinary terms exclusively for their members, but without any direct benefit to the taxpaying public.  In doing so, they--and other fiefdom operators--have made America into a complex web of laws favoring only certain connected groups, causing dissension and the mainstream media's suppression of politically unfavorable facts.  Such suppression--rather than honest, thoughtful dialogue--inspires rebellion in any free person, leading to oppositional forces--such as Fox News's political pundits (excepting the wise Judge Andrew Napolitano) and Breitbart--that increase rather than heal growing divisions. Viewers forgive the divisive bombast because pablum and condescension are not features, and the material taps into a visceral belief that honesty and integrity no longer lead to success.  The outrage is really because fiefdoms promote system-gaming, but the complexity of how this occurs is difficult to get across in any kind of 30-minute dialogue, so we are left attacking factions receiving different benefits from the general public rather than the system itself.

Let me try to explain how this dynamic can work against the individual.  Group A has lots of members and, through a broker, approaches a health care provider or insurance company and negotiates a discount or shops around for better deals.  The ability to get an excellent insurance broker is somewhat dependent on the fees paid to the broker, and broker fees can be more easily spread out over groups if paid directly, or indirectly if commissioned based on overall value.  [My friend says, "Brokers make a first year bonus form the actual insurance based on number of lives insured. If they maintain the account, they get a yearly retention bonus based on the number of lives insured. If new employees are added, they get a bonus for each new addition.] Therefore, the group rather than the individual is able to better attract the finite time of the better negotiator because the fee system tilts in the group's favor--even if the services requested are essential on an individual level.  The better the broker, the better the discount or research, but without an in-depth medical examination of every single plan member, no one really knows whether the larger size of the group helps insulate the plan or provider from excessive costs in the future.  [According to my friend, an employee census of the business is obtained by the broker and given to the rate-runner or insurance fiduciary.] The future, as always, is unpredictable, especially when individual assessments aren't done, but the group generally ends up with a better or more cost effective plan if the age ranges are comparable.  (Imperfect metrics like age and zip codes are used in the absence of individual assessments.)

In contrast, an individual who wants to buy a health insurance plan must generally choose a more costly plan because he or she is an individual and cannot demand an individual health checkup and negotiate a discount based on good health.  [My friend adds, "True, but it's like picking a single stock vs. a mutual fund with 100 stocks--more people insured spreads risk, lowering premiums by a group on a per capita basis.]  Insurance is tricky--it needs both healthy and unhealthy people to be possible.  If insurance companies were able to identify and sign up only healthy people, insurance wouldn't work--no one would insure the more costly unhealthy people, or they'd put in so many exemptions as to make coverage inadequate.  [My friend adds, "ACA depended on 'young invincibles' signing up to pay for the sicker patients but this didn't happen, which led to dramatically increased premiums.] The reason insurance works is because a healthy person today may be unhealthy tomorrow, and an unhealthy person today may be healthy in a year, and no one can predict with any certainty the future.  Key takeaway: the system is not designed to evaluate the individual, whether alone or in a group. ["The system is designed as a risk pool with ratios of healthy to sick people being the factor for solvency."]

In any case, if the projections for a group's negotiated costs turn out not to be true and more than expected, the provider can try to pass on those costs in the future, but chances are, because of their greater numbers and therefore greater revenue potential, the health care provider or insurance company will generally pass on unexpected costs to them and dispersed individuals, eventually raising premiums for everyone.  The minute you allow separate groups within systems that provide either essential services or that serve all persons, you must be an oracle when it comes to costs or try to pass those costs into the future. [My friend adds, "Not necessarily.  You use predictive analytics and population-based health models."]  The same dynamic applies to private vs. public schools, but such factions are tolerated because education, while essential, isn't geared towards the best performing students, and no one wants to argue that such students should be short-changed if they can pay voluntary and additional fees.  In the case of health care, the argument for allowing fiefdoms is much less clear because insurance requires healthy people to be part of the system, and segregating them would cause the collapse of the insurance plan.

Let's dive into another example of a fiefdom in America: local government unions.  In most major American cities, 50% to 70% of all local tax revenue is spent on "public safety" aka cops and firefighters. Many of these taxes go to pension obligations, i.e., paying gov employees who no longer work and who haven't paid into the retirement fund in sufficient amounts to sustain it without higher taxes or cutting other local programs.  As a result, not only do police officers lack full-time partners riding with them in patrol vehicles due to the increased expense in paying a six-figure pension while also generating sufficient, sustainable tax revenue to pay for an active-duty officer, but working hours are extended, leading to higher stress, which creates greater likelihood of mistakes and impatience.

What's the upshot?  America's military spending is not subject to any real audits due to the federal government's ability to borrow almost unlimited debt, and even local entities are forced to divert their taxes into strengthening a police state because by law, pension interests--at a guaranteed 7.5% ROI, regardless of GDP growth--are vested and therefore untouchable.  Instead of discussing these issues--which require nuanced, fact-based dialogue--American mainstream media leads the public into the morass of useless, emotion-based dialogue about Black Lives Matter or All Lives Matter, which will do nothing to resolve any substantive issue.  It's like Laurence Fishburne's line in Boyz in Da Hood--"They want us to kill ourselves," except in this case, they want us to be confused so we don't rock the (political) boat.

When your educational system lacks any real connection with the job market, despite receiving the lion's share of taxpayer dollars in most states; your government employees are insulated from accountability through laws and procedures they themselves helped pass; and your private sector, which drives most employment, is subject to a completely different set of employment rules from your public sector, what could possibly go wrong?

My proposed solutions?  For companies of at least 100 people and over a certain revenue threshold (adjusted for inflation), I like the idea of IBM's peer review panel. It used to be that IBM would not generally terminate a post-probationary-period employee until a peer review panel of three managers and worker representatives evaluated the facts and heard testimony from the manager and the employee. (The difficulty would be determining which "side" held the majority vote, even under a rotating power setup, or how to guarantee a cost-effective way of bringing in a truly independent third person with enough knowledge about the company.  Highly respected ex-employees who left voluntarily might be the best bets.)

Witnesses would be restricted to co-workers with personal knowledge of the employee's work and managers participating in any performance review or termination.  Testimony would be confidential--but an opinion must be published with a chance for dissents--and the number of days of the hearing could be set at a minimum of one and then increased (up to a cap) based on the number of years of the employee's tenure. The written opinion would be inadmissible in court.  The overall number of employee and company "wins-losses" must be publicly available for each location in a simple two-number chart (e.g., Due Process Outcomes: Termination Upheld = 20 in 2014, 10 in 2015; Reversed = 10 in 2014, 5 in 2015; link to opinions here, etc.).

Ideally, the turnover rate within every employer above a certain size--both governmental and private--should be publicly available for each division.  A simple chart would suffice: one row for the division (sales and marketing, engineering, etc.); one column for the number of years of employee tenure (less than one year; more than one year; more than two years, etc.).  To promote full transparency, companies relying on contractors (rather than W-2 employees) must publish the same chart but with a twist--they must show how many contractors became employees, and after how many years.  (Of all my employment-related ideas, I'm most optimistic of the ones directly above.)

What's the incentive for a business to allow such meddling in its employment processes, especially in a rapidly changing competitive landscape?  In exchange for due process, employees would agree that if they lost at the peer review stage and sued in court for any claims relating to their termination, they would be liable for the employer's attorneys' fees, capped at some reasonable amount--perhaps a percentage of the employee's annual salary at the time of termination.  Such a process would provide a way for companies to save on litigation costs as well as give their lawyers insights into the employee's credibility, while capping the downside for the employee if s/he lost in court.

One problem would be if a company wanted to do a mass layoff (say, at least 50 people at one time), indicating it wasn't intending to terminate a specific employee for performance-based reasons.  Perhaps it wanted to dedicate more resources to software rather than hardware or do something else that would increase its competitiveness and protect jobs in the rest of the company.  In such a case, each employee should receive 6 months' worth of salary or at least double the minimum wage multiplied by six months.

Current laws in California try to protect employees above 40 years old from being included in mass layoffs as pretext for removing older workers, but once again, an American law has managed to accomplish very little in preventing age discrimination while increasing the power of lawyers and the public's reliance on them.  It is far better policy to accept that if discrimination occurs, then the idea should be to provide some automatic and substantial benefit to mitigate the effects of pretext.

Government agencies could still investigate and bring claims against companies but an employee who filed such a claim--say, for termination based on racial discrimination--would waive his/her right to collect monetary damages. (European companies have a similar set-up where they appoint a management and worker representatives to a panel that hears issues of importance, but I'm unsure if such panels also hear employment disputes.)  Note that claims not related to termination would still be viable, such as sexual harassment, civil assault, invasions of privacy, etc.

Basically, post-probationary employees in businesses with 100 employees or more should have some form of due process before losing their livelihoods, which would incentivize relationship-building, and the process should be the same in the private as well as public sector to prevent faction-building.  In other words, for any entity with 100 or more employees, any legal change to the due process system would apply to both the private and public sectors.

Combine a due process system with an ESOP that cannot be leveraged or borrow against its assets (retirement assets would increase based on governmental bond rates with additional returns, if any, from some capped percentage of annual profits)--and you would create a private sector employment and retirement system not overly dependent on Wall Street. After a certain size, a credit union for your employees could continue to keep the money "in house" and revitalize Main Streets everywhere.

Another idea includes recruiters going to major city hubs and having one-on-one interviews with persons terminated 150 days or less.  Think of it as "speed dating" for job applicants.  Such interviews would be much more useful than post-termination resume building workshops, which are sometimes included in severance packages for employees.

We've covered the employment side of the "stability" equation, but we're still bound by other factors, such as marriage and child support laws.  From my own perspective, marriage under American laws becomes riskier over time, as both men and women gain more assets than can be used by a random judge to give to a less ambitious or unjustifiably greedy former spouse.  One problem is that the judge--who is paid out of the public purse--has incentives to prevent any spouse from going on welfare, thereby minimizing the government's own obligations.

No logical person with assets would get married under these circumstances, where there is no upside and extensive downside.  Such a system discriminates against lower-earning and middle class persons by making marriage the resort of the ultra-rich--who can afford lawyers who draft airtight prenups and update them as laws change every year--or the cult of sameness, where people from similar backgrounds are incentivized to marry or couple together, increasing class and educational segregation rather than encouraging people to focus on personal qualities like integrity, patience, and resilience.  When the laws of a nation expressly discourage an emphasis on personal honor and render a life's savings contingent on the discretion of random government employees, contempt for such a society cannot be far behind. It is no wonder that in such a system, even the elites believe that government should be a mere referee rather than a more active participant in enforcing predictability and financial stability.

5.  If we cannot agree on the general principles above, there is no point in discussing anything of substance.  European and other countries may have issues with immigration and escalating social welfare costs, too, but they continue to make their political structure work for them by using the majority of their tax dollars to implement essential programs for all residents. Thus far, European countries, for the most part, are not set up structurally to encourage specific factions for purposes of siphoning substantial tax dollars from the public purse for benefits that apply only to a small number of politically-connected residents.

Like Americans, Europeans have ample and complex laws, and they, too, have problems with segregation and upward mobility, but continue to show ample common sense, such as Sweden's linkage of old age pension benefits to annual GDP.  In Sweden, public retiree benefits are adjusted annually according to changes in prices--which means benefits can be reduced if overall GDP declines. Other retiree benefits are based on an annual index of trends in average wages (including social insurance benefits); an annuity factor depending on average life expectancy at the time of retirement for the appropriate age cohort (based on the most recent 5-year average of unisex life expectancy projections); and the expected increase of average wages in future years.  Under such a system, sustainability is the goal, which minimizes the need for emotion-based drivel.  To have a discussion means knowing your metrics and data, and because everyone is on the same system, "good data" becomes incentivized.

Meanwhile, in America, retiree benefits are assigned an arbitrary increase--never a reduction--every year called COLA, which is manipulated by political parties depending on the need to fund other programs.  Over time, politicians exhaust arbitrary means of manipulating existing metrics, which forces them to start excluding persons from the programs or to make it more difficult to apply for the same level of benefits.

Welcome to America in the year 2017: factions galore, and a political system designed to either become a police state or to collapse eventually because of demographic headwinds or through laws that increase segregation and lead to less accountability. In just ten or fifteen years, my optimism has gone missing, much like America's institutional integrity.  Why?  It's becoming apparent America's current laws and debt restrict the primary engine that made it so successful--the ability to absorb immigrants, even uneducated ones, and assimilate their children in ways that benefit everyone. At least I can say, at the age of 39, I've already lived through the highest of the high--a national budget surplus and the dot com boom in Silicon Valley--and the lowest of the low--9/11, the 2008-2009 financial crisis, and the aftermath.  Since it appears I've lived in exactly the right place at the right times to see the highs and lows, I wonder what my future holds.  To paraphrase W.H. Auden,

When the future comes, will it come without warning
Just as I'm picking my nose?
Will it knock on my door in the morning,
Or tread in the bus on my toes?
Will it come like a change in the weather?
Will its greeting be courteous or rough?
Will it alter my life altogether?
O tell me the truth about my future. 

© Matthew Mehdi Rafat (2017) 

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