Politics, culture, business, and technology

I also blog at ChicagoBoyz.


Selected Posts:
Sleeping with the Enemy
Dancing for the Boa Constrictor
Koestler on Nuance
A Look into the Abyss
Hospital Automation
Made in America
Politicians Behaving Badly
Critics and Doers
Foundations of Bigotry?
Bonhoeffer and Iraq
Misvaluing Manufacturing
Journalism's Nuremberg?
No Steak for You!
An Academic Bubble?
Repent Now
Enemies of Civilization
Molly & the Media
Misquantifying Terrorism
Education or Indoctrination?
Dark Satanic Mills
Political Violence Superheated 'steem
PC and Pearl Harbor
Veterans' Day Musings
Arming Airline Pilots
Pups for Peace
Baghdad on the Rhine

Book Reviews:
Forging a Rebel
The Logic of Failure
The Innovator's Solution
They Made America
On the Rails: A Woman's Journey

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Monday, October 31, 2005  

From the hag and hungry goblin
That into rags would rend ye
And the spirits that stand
By the naked man
In the Book of Moons, defend ye!

That of your five sound sense
You never be forsaken
Nor wander from
Yourself with Tom
Abroad to beg your bacon

The moon's my constant mistress
And the lonely owl my marrow
The flaming drake
And the night-crow make
Me music to my sorrow

I know more than Apollo
For oft, when he lies sleeping
I see the stars
At mortal wars
And the rounded welkin weeping

With a host of furious fancies
Whereof I am commander
With a burning spear
And a horse of air
To the wilderness I wander

By a knight of ghosts and shadows
I summoned am to tourney
Ten leagues beyond
The wide world's end
Methinks it is no journey

(Not specifically a Halloween poem, but it certainly sets the mood, doesn't it? This is Tom O'Bedlam's Song, dating from sometime around 1600. There are lots more verses, and many different versions.)


Dream tonight of peacock tails
Diamond fields and spouter whales
Ills are many, blessings few
But dreams tonight will shelter you.

Let the vampire's creaking wing
Hide the stars while banshees sing
Let the ghouls gorge all night long
Dreams will keep you safe and strong

Skeletons with poison teeth
Risen from the world beneath
Ogre, troll, and loup-garou
Bloody wraith who looks like you

Shadow on the window shade
Harpies in a midnight raid
Goblins seeking tender prey
Dreams will chase them all away

Dreams are like a magic cloak
Woven by the fairy folk
Covering from top to toe
Keeping you from winds and woe

And should the Angel come this night
To fetch your soul away from light
Cross yourself, and face the wall
Dreams will help you not at all

(Thomas Pynchon, in his novel "V")

3:16 PM

Sunday, October 30, 2005  
BOOK REVIEW: On The Rails: A Woman's Journey
Linda Niemann
Rating: 5 Stars
(previously published under the title Boomer: Railroad Memoirs)

What happens when a PhD in English, a woman, takes a job with the railroad? Linda Niemann tells the story based on her own experiences. It's a remarkable document--a book that "is about railroading the way 'Moby Dick' is about whaling", according to a Chicago Sun-Times reviewer. (Although I think a better Melville comparison would be with "White Jacket", Melville's book about his experiences as a crewman on an American sailing warship. Which is still very high praise.)

Niemann had gotten a PhD and a divorce simultaneously, and her life was on a downhill slide. "The fancy academic job never materialized," and she was living in a shack in the mountains and hanging around with strippers, poets, musicians, and drug dealers. Then she saw the employment ad for the Southern Pacific railroad.

When I saw the ad in the Sunday paper--BRAKEMEN WANTED--I saw it as a chance to clean up my act and get away. In a strategy of extreme imitation, I felt that by doing work this dangerous, I would have to make a decision to live, to protect myself. I would have to choose to stay alive every day, to hang on to the side of those freightcars for dear life. Nine thousand tons moving at sixty miles an hour into the fearful night.

Niemann is hired by the Southern Pacific to work at Watsonville, a small freightyard whose main function is to switch out all the perishable freight from the Salinas Valley. Other pioneering women are also joining the railroad at this time, and Niemann soon finds herself a member of an "all-girl team," assigned to work the midnight shift during the rainy season. Their responsibility will be to reorganize all the cars that have come in during the day, positioning them on the correct tracks and in the correct sequence. They will have at their disposal a switch engine and an engineer, but it will be their responsibility to plan the moves as well as to execute them--coupling and uncoupling cars and air hoses, setting and releasing handbrakes, throwing switches. Before work, they meet at a local espresso house.

It was an odd feeling to be getting ready to go to work when everybody else was ending their evenings, relaxed, dressed up, and, I began to see, privileged. They were going to put up their umbrellas, go home, and sleep. We were going to put rubber clothes on and play soccer with boxcars... (continued)

7:16 AM

Saturday, October 29, 2005  

(This week, I'm rerunning a selection of my favorite posts from the last 3 years. Here are two posts that at first glance may appear to have little to do with one another. The first is about academia and particularly about literary criticsm. The second is about business management and involves things like the mix of hat and bra sizes in a department store. But they're really both about the same thing, which is the growing ascendancy of theory and abstraction in American society.)


Professor "X" teaches at a prominent private university. Recently, he taught a course on "Topics in Theory and Criticism." He thought the class was going poorly--it was difficult to get the students to talk about the material--but on the last day of class, he received an ovation.

"I didn't understand what was going on until a few days later," he writes (in an e-mail to Critical Mass.) "Several students came to see me during office hours to tell me that they had never taken a course quite like this one before. What they had expected was a template-driven, "here's how we apply ****ist theory to texts" approach, because that is how all of their classes are taught in the English department here...Not a single one of these students had ever read a piece of theory or criticism earlier than the 1960s (with the exception of one who had been asked to read a short excerpt from Marx.) They simply had never been asked to do anything other than "imitate without understanding.""

In university humanities departments, theory is increasingly dominant--not theory in the traditional scholarly and scientific sense of a tentative conceptual model, always subject to revision, but theory in the sense of an almost religious doctrine, accepted on the basis of assertion and authority. To quote Professor "X" once again: "Graduate "education" in a humanities discipline like English seems to be primarily about indoctrination and self-replication."

The experiences of Professor "X" are far from unique. Professor "Y," chair of an English department, describes his experiences in interviewing for a new job (also in an e-mail to Critical Mass). "How truthful could I afford to be about my growing dissatisfaction with theory? Should I trump up some ghastly theoretical allegiances, or should I just come clean about my desire to leave theory behind to try to become genuinely learned?" He decided to do the latter, cautiously. In his job talk, he said:

"The writings I've published draw on a number of different theoretical perspectives...the overarching goal I've set for myself in my scholarship, though is gradually to lessen my reliance on the theories of others..." He sensed at this point that he had lost the support of about three quarters of his audience, and he was not offered the job. Those who did like the statement were older faculty members--one of whom later told Prof "Y" that she hadn't heard anyone say something like this in twenty years.

Why is theory (which would often more accurately be called meta-theory) so attractive to so many denizens of university humanities departments? To some extent, the explanation lies in simple intellectual fad-following. But I think there is a deeper reason. Becoming an alcolyte of some all-encompassing theory can spare you from the effort of learning about anything else. For example: if everything is about (for example) power relationships--all literature, all history, all science, even all mathematics--you don't need to actually learn much about medieval poetry, or about the Second Law of thermodynamics, or about isolationism in the 1930s. You can look smugly down on those poor drudges who do study such things, while enjoying "that intellectual sweep of comprehension known only to adolescents, psychopaths and college professors" (the phrase is from Andrew Klavan's unusual novel True Crime.)

The dictatorship of theory has reached its greatest extremes in university humanities departments, but is not limited to these. Writing 50 years ago, C S Lewis says the following about his sociologist hero in the novel That Hideous Strength:

"..his education had had the curious effect of making things that he read and wrote more real to him than the things he saw. Statistics about agricultural laboureres were the substance: any real ditcher, ploughman, or farmer's boy, was the shadow...he had a great reluctance, in his work, to ever use such words as "man" or "woman." He preferred to write about "vocational groups," "elements," "classes," and "populations": for, in his own way, he believed as firmly as any mystic in the superior reality of the things that are not seen."

It's unlikely that the phenomenon Lewis describes has become any less prevalent in the intervening half-century. But in the social sciences, there is at least some tradition of empiricism to offset an uncontrolled swing to pure theory.

The theoretical obsession has even made a transition from academia into the business world, via MBA programs. Many newly-graduated MBAs have in their head some strategic "paradigm," into which they will fit any business reality like a Procrustean bed. The 4X4 strategic grid, or the mathematical decision tool, are far more real to them than the actual details of manufacturing and selling a particular product. Like Lewis' sociologist, they believe in "the superior reality of things not seen." The attractions of theory-driven kind of thinking in business are similar to those that make it attractive in university humanities departments. By emphasizing theoretical knowledge, an MBA with little experience can convince himself (and possibly others) that he deserves more authority than those with broad experience and "tacit knowledge" in a particular business.

I'm not arguing that theory is useless in business management, any more than I'm arguing that it's useless in academia. I am arguing that theory should be balanced by factual knowledge and empiricism, and that it should never be allowed to degenerate into dogma.

There's an old saying: when the only tool you have is a hammer, everything looks like a nail. In today's world, we have an epidemic of people metaphorically trying to use hammers to drive nails, or to use saws to weld metal. Academia bears a grave responsibility for this situation. Too often, professors have acted not like true scholars, but like preachers believing that their salvation lies in getting people to accept the One True Doctrine, entire and unmodified--or like salesmen who have only one product to sell and will do their best to sell it to you, regardless of whether it has anything to do with your actual needs or not.

The correspondence on Critical Mass gives hope that this situation may giving rise to a reaction within academia. Professor "Y" also tells about a discussion with a senior professor of English at Oxford. "he was recounting the various theoretical steamrollers he'd seen come and go over the past forty years when someone asked him, "What comes after theory?" He paused dramatically, crooked one evebrow, and said, "Honesty."

Bring it on.


About 20 years ago, Peter Drucker wrote a wonderful pseudo-autobiography, "Adventures of a Bystander." It tells his own story only indirectly, via profiles of people he has known. These range from from his grandmother and his 4th-grade teacher in Austria to Henry Luce (Time-Life) and Alfred Sloan (GM).

In the chapter titled "Ernest Freedberg's World," Drucker writes about two old-line merchants. The first of these, called "Uncle Henry" by those who knew him, was the founder and owner of a large and succesful department store. When Drucker met him, he was already in his eighties. Uncle Henry was a businessman who did things by intuition more than by formal analysis, and his own son Irving, a Harvard B-School graduate, was appalled at "the unsystematic and unscientific way the store was being run."

Drucker remembers his conversations with Uncle Henry. "He would tell stories constantly, always to do with a late consignment of ladies' hats, or a shipment of mismatched umbrellas, or the notions counter. His stories would drive me up the wall. But gradually I learned to listen, at least with one ear. For surprisingly enough he always leaped to a generalization from the farrago of anecdotes and stocking sizes and color promotions in lieu of markdowns for mismatched umbrellas."

Reflecting many years later, Drucker observes: "There are lots of people with grasshopper minds who can only go from one specific to another--from stockings to buttons, for instance, or from one experiment to another--and never get to the generalization and the concept. They are to be found among scientists as often as among merchants. But I have learned that the mind of the good merchant, as also of the good artist or good scientist, works the way Uncle Henry's mind worked. It starts out with the most specific, the most concrete, and then reaches for the generalization."

Drucker also knew another leading merchant, Charles Kellstadt (who had once run Sears.) Kellstadt and Drucker served together on a Department of Defense advisory board (on procurement policy), and Kellstadt told "the same kind of stories Uncle Henry had told." Drucker says that his fellow board members "suffered greatly from his interminable and apparently pointless anecdotes."

On one occasion, a "whiz kid" (this was during the McNamara era) was presenting a proposal for a radically new approach to defense pricing policy. Kellstadt "began to tell a story of the bargain basement in the store in Chillicothe, Ohio, where he had held his first managerial job, and of some problem there with the cup sizes of women's bras. he would stop every few sentences and ask the bewildered Assistant Secretary a quesion about bras, then go on. Finally, the Assistant Secretary said, "You don't understand Mr. Kellstadt; I'm talking about concepts." "So am I," said Charlie, quite indignant, and went on. Ten minutes later all of us on the board realized that he had demolished the entire proposal by showing us that it was far too complex, made far too many assumptions, and contains far too many ifs, buts, and whens." After the meeting, another board member (dean of a major engineering school) said admiringly, "Charlie, that was a virtuoso performance. but why did you have to drag in the cup sizes of the bras in your bargain basement forty years ago?" Drucker reports that Charlie was surprised by the question: "How else can I see a problem in my mind's eye?"

From these two encounters, Drucker draws this conclusion:

"Fifty years or more ago the Uncle Henry's and the Charlie Kellsadts dominated; then it was necessary for Son Irvin to emphasize systems, principles, and abstractions. There was need to balance the overly perceptual with a little conceptual discipline. I still remember the sense of liberation during those years in London when I stumbled onto the then new Symblolical Logic (which I later taught a few times), with its safeguards against tautologies and false analogies, against generalizing from isolated events, that is, from anecdotes, and its tools of semantic rigor. But now we again need the Uncle Henrys and Charlie Kellstadts. We have gone much too far toward dependence on untested quantification, toward symmetrical and purely formal models, toward argument from postulates rather than from experience, and toward moving from abstraction to abstraction without once touching the solid ground of concreteness. We are in danger of forgetting what Plato taught at the very beginning of systematic analysis and thought in the West, in two of the most beautiful and moving of his Dialogoues, the Phaedrus and the Krito...They teach us that experience without the test of logic is not "rhetoric" but chitchat, and that logic without the test of experience is not "logic" but absurdity. Now we need to learn again what Charlie Kellstadt meant when he said, "How else can I see a problem in my mind's eye?""

(emphasis added)

Update 10/30/05: I want to make it clear that I'm not attacking theory and abstraction. Without theory and abstraction, we couldn't build and fly airliners. Without theory and abstraction, it wouldn't be possibe to run a business much bigger than a single store. But when theory is not based on observation and reasoning; when it becomes dogma, then it does more harm than good. When people using an abstraction forget that it is an abstraction--that "the map is not the territory"--and treat it as something concrete, then there can be malign consequences. Professor Drucker's advice that "we again need the Uncle Henrys and Charlie Kellstadts" is, I believe, correct.

9:08 AM


I started a discussion of Peggy Noonan's recent (and rather depressing) column over at Chicago Boyz? The question for discussion: Are things really that bad? Lots of worthwhile comments so far. (Link to the column itself is there, too.)

7:24 AM

Friday, October 28, 2005  

(This week, I'm running a selection of my favorite posts from the last 3 years. This one was originally posted 7/11/04.)

I read about this incident in December, 2001, and have been thinking about it ever since. (The article appeared in Information Week, of all places.)

In May 2001, the writer went to see a movie in the upscale NYC neighborhood of Chelsea:

Before the movie started, the coming attractions included a public-service ad--you might have seen it on TV--showing a mother and small child in a home, then the outside of the home, then into the air to show the neighborhood, then higher to show the city, then miles up into the sky showing the whole country. And then it showed a pilot in a jet high above the earth from whose perspective the earlier scenes were viewed: a pilot in the U.S. Air Force patrolling the skies while the audio played the gentle song, "All Through The Night." When the audience realized that it was an ad for the military, many people hissed, booed, or laughed derisively.

Several unpleasant forms of human behavior were on display here--for starters, ingratitude, class snobbery, and a generally jaded and sneering attitude. It strikes me that no society in which such attitudes prevail is likely to long survive.

And something else strikes me. The probability of individuals behaving in the way that these people did is directly proportional to their educational level. It's very unlikely that people with only high school diplomas would have responded to the film in the way that these theatergoers did. It's more likely that college graduates would respond in such a way. And it's very likely indeed that those with graduate degrees (in the "humanities," not the hard sciences) would respond as this audience did.

(I have no proof for the above conclusion, but it seems pretty obvious based on the way that attitudes in our society tend to be distributed across educational levels.)

In C S Lewis' novel That Hideous Strength, the principal character is captured by a sinister cabal. He is put through a process of training which is aimed at killing "all specifically human reactions" in a person.

To kill the "specifically human reactions" in a person and substitute something else...is that the effect of higher education--especially graduate education--as often carried out today?

Please understand that I am not arguing against education in general or against humanities education in particular. Judging by its fruits, however, something is much amiss with higher education as conducted in America today (and, I suspect, in Europe as well.) It often seems to create and/or reinforce in an individual a set of unloveable attributes such as:

--An unmerited assumption of superiority toward his fellow citizens
--An inability to appreciate skills other than the ones he himself possesses (such as, for instance, the ability to fly a jet fighter)
--An inability to engage on an emotional level

In the Information Week article, the writer (editor-in-chief Bob Evans) expresses the hope that the attitudes expressed at the movie would, in the light of 9/11, become a thing of the past.

This undoubtedly was true in some cases (as evidenced from the stories of many denizens of the blogosphere.) But the positive reactions to the Michael Moore movie (which almost certainly come mainly from the same class of people who jeered at the film in Evans' article) indicate that the malign spirit of which he wrote is still very much alive.

2:30 PM


Interesting thoughts on the relationship between Fed policy and venture capital investing, at the blog of BusinessWeek chief economist Michael Mandel.

8:09 AM

Thursday, October 27, 2005  

(This week, I'm running a selection of my favorite posts from the last 3 years. This one was originally posted 5/29/03, and it seems less and less like a parody every day.)

Several months ago, a Federal court threw out a lawsuit in which McDonald's was charged with contributing to obesity. But don't think this is the end of the story. Lawyers are salivating about the potential damages which could be extracted from the restaurant industry. Approaches are being fine-tuned, and new lawsuits are being filed.

Most of these lawyers claim that what they want is for restaurants to do a better job of disclosing ingredients and associated risks. But does anyone really think it would end there? Suppose some of these suits prevail, and the McDonald's menu board is loaded up with nutritional information. The next wave of suits will allege that the type size is too small...or, if the type size is large, that the data is too summarized and not detailed enough. And if a restaurant puts data in their menu that is both detailed and in a large type font, they will be sued for overloading their customers with more information than they can possibly comprehend.

In such a litigious environment, of course, restaurant companies will move to protect themselves as best they can. What form might this self-protection take? Let's skip ahead a few years...you've gone to a favorite restaurant to enjoy a steak.

WAITPERSON: Welcome to Snarfer's Steakhouse. I'm Stacy, and I'll be taking care of you today. Could I scan your smartcard now? (Swipes the card). Now, what would you like to have?

YOU: I'll have the sirloin steak and a baked potato..and a salad to start, please.

STACY: Well, let's see (types on her handheld)...Gee, I'm sorry, sir, but your cholesterol intake over the last month has been kind of high...how about the roast chicken instead?

YOU: I really was in the mood for steak...say, I've lost about ten pounds lately. Doesn't that count for anything?

STACY: It might...if you could just step over to the scale. (You walk over to the scale and insert your smartcard. Stacy checks her handheld again.)

STACY: I'm really sorry, sir...maybe if you're really good for another week...but for tonight, you need to think about the chicken or one of our vegetarian entrees.

Seem improbable? Yes. But many of the outcomes of today's litigation boom seemed highly improbable before they happened.

One point that's often missed is that harm done by tort law excesses isn't limited to economic damage. The fear of lawsuits erodes personal freedom in dozens of ways. It's an erosion for which many civil libertarians fail to show much concern...due in part, probably, to their own preference for lawsuits as a vehicle for social change.

I don't mean to suggest that there are never cases in which a restaurant should be held liable for health effects of menu items. For example: if a restaurant used a cooking process which it knew to be highly carcinogenic, and withheld the relevant information from customers, liability would be justified. But that's something very different from attempting to collect damages for every overweight person in America.

2:30 PM

Wednesday, October 26, 2005  

Cathy Seipp attended the opening of the Liberty Film Festival. She reports that when David Horowitz went to the podium to say a few words, "protestors" stormed the stage, shouting You have no right to speak. (Horowitz is despised by many on the Left, in part because he was once himself a noted leftist.)

A kid in my high school was fond on inverting Voltaire: Death to what you say and I disagree with your right to say it. He was kidding (I think). These people aren't.

We have an incipient totalitarian movement in the United States, consisting of people who believe that their superior wisdom gives them the right to shut down speech and writing by those who are less enlightened. These totalitarians call themselves "progressives" (usually), leftists, or even liberals.

This totalitarian movement has received aid and comfort--indeed, it has received considerable impetus--from far too many of America's universities, which themselves often have an anti-free-speech culture enforced by specific speech-control policies. Indeed, FIRE President David French refers to academia as a set of "uniquely oppressive institutions in our society." (You can listen to an interview with French by following the link here.)

8:19 AM

Tuesday, October 25, 2005  

Tuskegee Airmen in Iraq.

See also the Stars & Stripes article.

(hat tip: Student News Daily, which is focused on current events for high school students)

9:12 AM


(Yesterday was Photon Courier's third anniversary, and I'm rerunning a selection of my favorite posts. This one was originally posted 3/14/03, and sadly, it's still as relevant now as it was then--or as it was in 1940 when C S Lewis published the article which is referenced.)

The Episcopal Bishop of Chicago, William Persel, used his Ash Wednesday homily to call for the nation to repent its sin of arrogance and put more effort into seeking peace and justice. At a time when the government pleads scarcity of funds for health care, education, and the environment, he said, there appear to be unlimited funds "for buying allies, for weapons and for deployment of an expensive missile system that has not been proven to even work." He noted that those who choose to question a war with Iraq are often belittled. "If we cannot convince other nations that we are right, we threaten them or seek to buy their support," he said. There is more along the same lines.

Bishop Persel needs to read a little essay by C S Lewis (an Anglican, by the way) on the "Dangers of National Repentance." When Lewis wrote (March 1940), there was evidently a movement among Christian youth to "repent" England's sins (which evidently were thought to include the treaty of Versailles) and to "forgive" England's enemies.
"Young Christians especially..are turning to it in large numbers," Lewis wrote. "They are ready to believe that England bears part of the guilt for the present war, and ready to admit their own share in the guilt of England...Most of these young men were children...when England made many of those decisions to which the present disorders could plausibly be traced. Are they, perhaps, repenting what they have in no sense done?"

"If they are, it might be supposed that their error is very harmless: men fail so often to repent their real sins that the occasional repentance of an imaginary sin might appear almost desirable. But what actually happens (I have watched it happen) to the youthful national penitent is a little more complicated than that. England is not a natural agent, but a civil society...The young man who is called upon to repent of England's foreign policy is really being called upon to repent the acts of his neighbor; for a foreign secretary or a cabinet minister is certainly a neighbor...A group of such young penitents will say, "Let us repent our national sins"; what they mean is, "Let us attribute to our neighbor (even our Christian neighbor) in the cabinet, whenever we disagree with him, every abominable motive that Satan can suggest to our fancy." (Emphasis added.)

Lewis points out that when a man who was raised to be patriotic tries to repent the sins of England, he is attempting something that will be difficult for him. "But an educated man who is now in his twenties usually has no such sentiment to mortify. In art, in literature, in politics, he has been, ever since he can remember, one of an angry minority; he has drunk in almost with his mother's milk a distrust of English statesmen and a contempt for the manners, pleasures, and enthusiasms of his less-educated fellow countrymen."

It's hard to believe that this was written more than 50 years ago--it's such a bulls-eye description of a broad swath of our current "progressives." (The only difference being that many of them today are a lot older than "in their twenties.")

But now Lewis comes to the real meat of his argument. "All Christians know that they must forgive their enemies. But "my enemy" primarily means the man whom I am really tempted to hate...If you listen to young Christian intellectuals talking, you will soon find out who their real enemy is. He seems to have two names--Colonel Blimp and "the businessman." I suspect that the latter usually means the speaker's father, but that is speculation. What is certain is that in asking such people to forgive the Germans and Russians, and to open their eyes to the sins of England, you are asking them, not to mortify, but to indulge, their ruling passion." (emphasis added.)

And here is the two-by-four, right between the eyes. "The communal sins of which they should be told to repent are those of their own age and class--its contempt for the uneducated, its readiness to suspect evil, its self-righteous provocations of public obloquy, its breaches of the Fifth Commandment."

Exactly. Many "progressives"--and not just the religious ones--have uncritically and without reflection adopted the ideas and values of "their own age and class"--and, while doing so, they have congratulated themselves on their courage and independence of thought. Thus, they can enjoy a great feeling of righteousness without running the risk of condemnation by those whose opinions really matter to them. Who cares if the Bush Administration and its supporters would disapprove of your statements (if they ever heard of them, which they likely won't), when there are so many nods of agreement in the faculty lounge or among the other associates at the law firm? Those are the people you see ever day, after all, and the ones who really matter for your career...

Read the whole essay. You can find it, together many other insightful pieces, in the collection of Lewis essays titled The Grand Miracle.

Thanks to Midwest Conservative Journal for surfacing the Persels item.

8:56 AM


Ben Bernanke has been nominated to run the Federal Reserve. Marginal Revolution has an extensive set of information on his intellectual attainments, which are indeed pretty impressive.

7:17 AM

Monday, October 24, 2005  

(This is Photon Courier's third anniversary, and I'm rerunning a selection of my favorite posts. This one was originally posted 10/22/04, shortly before the election.)

In her book The Burden of Bad Ideas, Heather MacDonald tells about an education class at a well-known university. The title of the course was "Curriculum and Teaching in Elementary Education." The name of the professor is a pseudonym.

As with most education classes, the title of Professor Nelson's course doesn't give a clear sense of what it is about. Unfortunately, Professor Nelson doesn't, either. The semester began, she said in a pre-class interview, by "building a community, rich of talk, in which students look at what they themselves are doing by in-class writing." On this, the third meeting of the semester, Professor Nelson said that she would be "getting the students to develop the subtext of what they're doing." I would soon discover why Professor Nelson was so vague.

"Developing the subtext" turns out to involve a chain reaction of solipsistic moments. After taking attendance and--most admirably--quickly checking the students' weekly handwriting practice, Professor Nelson begins the main work of the day: generating feather-light "texts," both written and oral, for immediate group analysis. She asks the students to write for seven minutes on each of three questions: "What excites me about teaching?" "What concerns me about teaching?" and then, the moment that brands this class as hopelessly steeped in the Anything But Knowledge credo: "What was it like to do this writing?"

This last question triggers a quickening volley of self-reflective turns. After the students read aloud their predictable reflections on teaching, Professor Nelso asks: "What are you hearing?" A young man states the obvious: "Everyone seems to be reflecting on what their anxieties are." This is too straightforward an answer. Professor Nelson translates into ed-speak: "So writing gave you permission to think on paper about what's there."

And so on, in an infinity of mirrors.

Remember, this is an elementary education class. These students are going to be elementary school teachers, not professors of hip pseudo-philosophy. How could anyone think a class like this could equip someone to face a classroom? And, I'm afraid, this isn't just some kind of isolated exception. (See Ed School Follies, by Rita Kramer, for a comprehensive look at what goes on in America's colleges of education. See also my earlier Ed School Confidential post.)

Can anyone seriously believe that major improvement can take place in America's primary and secondary schools when the system is so dominated by people who think like this? Add more dollars to the already-vast river of dollars being spent, and, without structural change, you'll merely get more gabbling about things like "permission" and "rich of talk."

I think the Democratic Party is completely in bed with the educational powers-that-be that have created this kind of thing, that enjoy it, that profit from it, and that care not at all about the human wreckage that it leaves in its wake. A Democratic win in this campaign would be a major setback for any serious reform of American's educational system.

7:13 PM


(This is Photon Courier's third anniversary, and I'm rerunning a selection of my favorite posts. This one was originally posted 5/2/03)

Over at Critical Mass, there's recently been much discussion of Brooklyn College. This is the institution at which English professor Frederick Lang was removed from the classroom--evidently in large part due to his hard-nosed grading policies and his unpopular habit of writing honest comments on student papers.

The devaluation of standards in academia has been going on for a long time. Eric, a commenter at Critical Mass, reports on a conversation that took place at SUNY--Stony Brook when he was a professor there. Faculty members were discussing the math final grades:

"What should the minimum D be?"

"180 out of 420."

"No, we'd fail too many people."

They eventually decided on 140 out of 420. At this point, Eric asked:

"Bernie, would you trust someone who got 140 out of 420 to do your taxes?"

"Eric, that's not the point."

"Would you trust him to be your doctor?"

"Eric, that's not the point."

"Would you trust him to build a bridge for you?"

"Eric, that's not the point."

So what is the point?

Of course, we all know what the point really is. The point is for students to obtain a piece of paper--a diploma--which is viewed as a passport to economic success. Increasingly, the perceived value of this diploma is decoupled from any knowledge or accomplishment that it actually represents. It is valued for the circular reason that--it is valued.

This situation is reminiscent of other pieces of paper--stock certificates in certain dot.com companies. At the height of the boom, people were acquiring these certificates without much consideration of the current or potential business results of the companies they represented. ("I don't know what it does," said one investor of a stock, "but I know it's moving.") The hope was simply that a popular stock would become more popular and hence increase in price--that is, these certificates were valued because they were valued.

A bubble is not infinitely sustainable. In the market, stocks will eventually collapse if there are no earnings to support their price levels. And, in academia, degrees will not be valued indefinitely unless they represent genuine knowledge and accomplishment. The collapse may not be as immediately dramatic as a market collapse--but it seems inevitable that it will eventually happen.

(Note: the Frederick Lang link doesn't work anymore, but the link to the main Critical Mass site is still very much active.)

6:06 PM


Photon Courier is three years old today.

I think I'll celebrate by rerunning a few of my favorite posts.

3:07 PM


The New York Times (10/23) has an interview with Keith Reinhard, who is Chairman of the ad agency DDB Worldwide and is President of something called Business for Diplomatic Action. Reinhard believes that America's image in many other countries is so bad that it is harming sales of American-branded products, and offers some data to support this contention.

Why the negativity? Responsing to the interviewer's question, Reinhard cites the Iraq war as one of the four root causes. As the second root cause, he cites the arrogance, ignorance and insensitivity of American people.

No research or analysis is offered to support a conclusion that Americans are on average any more arrogant, ignorant, and/or insensitive than people of other nations. He just goes on to root causes number three and four.

One might expect that at this point, the interviewer would have asked a follow-up question: "Hey, wait a minute. What makes you think we're such obnoxious people?" But no such follow-up question appears in the interview. I guess for the typical New York Times writer, such a conclusion must be so obvious that it doesn't need to be justified, just like a group of religious believers would not find it necessary, when talking among themselves, to justify their belief in the core tenets of their faith.

(Reinhard does offer--much later in the interview--one example of an action he believes was perceived as American ignorance: Wal-Mart requiring the singing of their song every morning by their employees in Germany. This is one company, as perceived by one particular executive in one particular country--hardly a basis of for generalizing about perceptions, and certainly no warrant for asserting that those perceptions are correct.)

I think that what Reinhard is trying to accomplish with his Business for Diplomatic Action is worthwhile, and he did offer some good specific ideas (like a World Citizens Guide for American kids who study abroad.) But I wouldn't want someone in charge of marketing my products or services if that someone had a low opinion of those products or services. How could someone work effectively to improve the image of America if he himself believed that the American people were noteworthy for their arrogance, ignorance, and insensitivity?

Hopefully, what Reinhard meant to say is not that he believes that Americans are unduly possessed of those obnoxious characteristics, but that too many people in other countries have such a belief. He really needs to clarify that. And I'd like to see some hard, cross-cultural research data. Maybe X% of the people in the world think Americans are arrogant--what do they think about the citizens of (insert other country name here)? Is the number for that country greater or less than X?

And the fact that the NYT let a line such as the arrogance, ignorance, and insensitivity of American people pass, without comment or followup question, speaks volumes about the culture of the NYT.

2:23 PM

Sunday, October 23, 2005  
(or anything else)

The destruction wrought by Hurricane Katrina included serious damage to the Norfolk Southern rail bridge over Lake Pontchartrain. Five miles of track and ballast were washed off the bridge, cutting a vital rail link to the west. After the storm, “The bridge was covered with debris, some of the concrete spans were damaged and some had shifted. Many of the crossties were missing, and most of the track was on the bottom of the lake,” said Jimmy Carter, a Norfolk Southern chief engineer who works out of Atlanta.

Another Atlanta-based chief engineer, Jeff McCracken, was put in charge of the recovery effort. Fortunately, NS had prepositioned repair equipment in Birmingham, Alabama; just getting the equipment from Birmingham to the bridge site required removal of 5000 downed trees from the right-of-way.

McCracken decided to try to recover the track, rather than replacing it with new rail. “It was worth a try, even though it was something we had not done before,” McCracken said. If the decision proved correct, it would save weeks in repair time.

Teams of divers located the track. More than 400 NS employees and contractors worked around the clock to repair the bridge. Nine cranes on barges were used to lift the track from the water and repair the concrete decks. Just 16 days after Katrina devastated the area, the first train ran across the restored bridge.

(See the Norfolk Southern web site, also WSJ Career Journal

Another Katrina story appears in the current issue (11/05) of Fast Company magazine. Michael Eskew, Chairman & CEO of UPS talks about the importance of teamwork, improvisation, and individual initiative:

Fifty-three UPS sites lost their primary data networks after Katrina, and 31 lost backup networks. In some cases, we reconfigured routers so data could be transmitted via our private voice network. In a few areas, DSL or cable modems were brought in. And a few employees saved package data to CDs, drove them to a neighboring facility that had network access, and transmitted to our data centers.

The aspects of organizational culture demonstrated by NS and UPS are strongly related to the factors that allowed the British fleet to achieve dominance over the French and Spanish fleets in the late 1700s and early 1800s. (See my previous post on this.)

Tragically, these attributes seemed to be largely missing from the governmental response to Katrina, at all levels. If FEMA had been in charge of fixing the railroad bridge, I bet it would have taken 3 months. Had the New Orleans city government been in charge, I'd bet 6 months. And with the Lousisiana state government in charge, under the current Governor, I suspect it never would have been completed at all.

Many will suggest that the difference is accounted for by the fact that NS and UPS are profit-making businesses, while government is government. It's certainly true that on the average, businesses perform more effectively than government, because of the existence of a market test. But even among businesses, there are huge differences in effectiveness and efficiency, and the same is true of government agencies.

After all, Nelson's fleet was a government organization.

9:28 AM

Saturday, October 22, 2005  

Oh, Snap! says "I am a student at a graduate school of education. Unfortunately, I am also smart and care about education."

From a recent post: If you don't believe me that 11th graders don't know anything about the American Revolution, here are some student guesses I received today as to who fought who: 1) The colonists were fighting the Indians. 2) The British were fighting the English. 3) The whites were fighting the British. 4) The whites were fighting the English. And we can't forget 5) The Indians were fighting the Native Americans.

Two interesting blogs from Egypt: The Big Pharoah and Miss Mabrouk.

Risawn is an American soldier serving in Kosovo. She's an artist and a writer, and also has some great photographs from her recent European trip.

Seriously Clueless is a venture capital associate in India; lots of interesting observations about India, together with thoughts about the venture investing world in general.

Reflecting Light is an new and eclectic blogger; here's a good post about the force-feeding of music in public places.

8:07 AM

Friday, October 21, 2005  
OCTOBER 21, 1805

Today is the 200th anniversary of the Battle of Trafalgar. I wrote last week about some of the management lessons to be drawn from the superiority established by the British fleet over the French and Spanish fleets, as analyzed incisively by a Spanish official.

Everyone is familiar with the signal sent by Lord Nelson to his fleet: England expects that every man will do his duty. This was not, however, precisely the message that Nelson originally wanted to send. According to John Pasco, flag lieutenant on the Victory, Nelson originally ordered the signal England confides that every man will do his duty. (Confides in the sense of having confidence in.) He also asked Pasco to "be quick for I have one more to make, which is for Close Action." Conscious of the need for haste, Pasco pointed out to Nelson that the signal could be simplified "if your Lordship will permit me to substitute the expects for confides...because the word expects is in the vocabulary and confides must be spelt." (The signal book had designated flags for commonly-used words; other words were spelled out using a numeric code.) Nelson approved the alteration, and the signal was sent.

As Adam Nicolson points out in his book Seize the Fire, Nelson's original instinct for 'confides' rather than 'expects' was psychologically correct. "To 'expect' is to command but to 'confide' is to trust. It is the binding word, it represents the community of honour, and the mythical 'England' to which it appeals is a place where duty is a matter of trust, not of instruction or obedience."

Nicolson points out another aspect of Trafalgar which deserves to be remembered. After the battle, a severe storm blew in. Amidst the chaos, British seamen went to great lengths, and took great personal risks, to save the lives of their former enemies. Nicolson refers to the rescue as one of the most unbrutal and humane actions ever undertaken by the Royal Navy, and continues: It is thought that about 2,000 men drowned in the Trafalgar storm, but there is no case of a Spanish or French crew drowning without men of an English prize crw drowning at the same time. In other words, there was no abandoning of the prisoners. When they could be saved, they were. Uncounted numbers, perhaps amounting to about 8,000, were rescued. When you consider the sheer hazard of what Henry Bayntun (Captain of Leviathan--ed) called 'the vast rolling sea' bowling into the Gulf of Cadiz from the southwest, and when you consider what the men had gone through in the preceding days, their state of exhaustion, what they managed was a miracle.

9:06 AM

Thursday, October 20, 2005  

Financial Times has an ongoing contest called "World's Toughest Briefs." Participants create advertising approaches for products, services, and/or ideas that are viewed as being really hard to sell.

This month's challenge: Persuade 18-25 year olds to put money in pensions.

First prize is 1000 pounds sterling, and the winning entry will be published in the Creative Business section of FT. Based on a quick reading, anyone can participate--you don't have to be in the industry.

More information here.

3:02 PM


An Associated Press story contains the following paragraph:

Armed Palestinians have long been a source of dangerous instability and violence in Lebanon. But some Palestinians - who came here as refugees after the 1948 war that created Israel - have strong feelings against surrendering any weapons amid Lebanon’s rapidly changing political climate.

Note that line "the 1948 war that created Israel." As Meryl notes, this is simply untrue. Israel was not created by the 1948 war; Israel was created under the UN 1947 Partition Plan. The war was due to the rejection of this plan--and of Israel's right to exist--by neighboring Arab states. (See "Establishment of the State" in the Wikpedia article.)

We hear endlessly about the "layers of review" and "fact-checking" that are supposedly in place at the mainstream media. Where are the fact-checkers at the AP?

8:53 AM

Wednesday, October 19, 2005  

Compare the trial as reported by Christiane Amanpour of CNN with the same event as reported by Mohammed, who blogs from Iraq.

Also see what Michelle Malkin has to say about this trial and the media coverage thereof.

(via Roger Simon)

8:30 PM


I've updated the post below; note particularly the links to the Washington Post article on the increasingly rule-driven behavior of many Americans, also RareKate's work on improvisation and bureaucracy.

8:08 PM

Saturday, October 15, 2005  

What attributes of an organization make it possible for that organization to accomplish its mission in an environment of uncertainty, rapid change, and high stress? This question is pointedly raised by the recent failures in hurricane response. But it's also a vital question in business, governmental, and non-profit organizations of all types. Some interesting answers are suggested by a document written by a Spanish government official in 1797.

In that year, a British fleet surprised a Spanish fleet off Cape St Vincent, on the northern edge of the Bay of Cadiz. Following the ensuing battle, which was a significant defeat for Spain, these thoughts were written down by Don Domingo Perez de Grandallana, who had been with the Spanish fleet:

An Englishman enters a naval action with the firm conviction that his duty is to hurt his enemies and help his friends and allies without looking out for directions in the midst of the fight; and while he thus clears his mind of all subsidiary distractions, he rests in confidence on the certainty that his comrades, actuated by the same principles as himself, will be bound by the sacred and priceless principle of mutual support.

Accordingly, both he and his fellows fix their minds on acting with zeal and judgement upon the spur of the moment, and with the certainty that they will not be deserted. Experience shows, on the contrary, that a Frenchman or a Spaniard, working under a system which leans to formality and strict order being maintained in battle, has no feeling for mutual support, and goes into battle with hesitation, preoccupied with the anxiety of seeing or hearing the commander-in-chief's signals for such and such manoeures...

Thus they can never make up their minds to seize any favourable opportunity that may present itself. They are fettered by the strict rule to keep station which is enforced upon then in both navies, and the usual result is that in one place ten of their ships may be firing on four, while in another four of their comrades may be receiving the fire of ten of the enemy. Worst of all they are denied the confidence inspired by mutual support, which is as surely maintained by the English as it is neglected by us, who will not learn from them.

The quote is from Seize The Fire, by Adam Nicholson.

The various kinds of organizational behavior that de Grandallana identifies are still very much with us. In some organizations, people are "preoccupied with the anxiety of seeing or hearing the commander-in-chief's signals." In other organizations, they "fix their minds on acting with zeal and judgment upon the spur of the moment." And in a few organizations, they act the aforesaid with zeal and judgment while also knowing that they will be supported by colleagues who are "bound by the sacred and priceless principle of mutual support."

One could simply say "for best results, combine individual entrepreneurship with a high degree of teamwork." But I think de Grandallana says it much better.

UPDATE: By the time of the battle of Trafalgar (1805), de Grandallana had become head of the naval secretariat in Madrid. Imagine his feelings when reading the reports from that engagement, which was a catastrophe for Spain and its ally, France. He had accurately diagnosed the key problems of his side, but had been unable to bring about the sweeping changes necessary to address them. Cassandra, in real life.

There is a very interesting article in The Washington Post on the increasing propensity of Americans to be driven by rules and procedures, rather than doing what makes sense. There are certainly trends in our society which, if not reversed, will make us increasinly similar to the (French / Spanish) Combined Fleet of 1805, rather than Nelson's victorious fleet. (And in case it's not obvious, I'm talking about all aspects of our society, including education and business, not specifically about military matters.)

Anyone interested in these matters should definitely read the WP article referenced above. Also, read RareKate, who thinks and writes about improvisation and bureaucracy.

8:21 PM


Read about how the BBC views its own importance.

I think I'd rather keep the electrical grid, actually.

(via Natalie Solent)

4:02 PM

Thursday, October 13, 2005  

Here's a playground...actually, a whole school district's worth of playgrounds...without swings, or teeter-totters, or merry-go-rounds, or sandboxes--or running. Because of fear of lawsuits.

Many people have pointed out the economic harm brought about by excessive litigation. We also need to emphasize the damage that occurs to the spirit of an overly-litigious society, as reflected in policies like those in this school district.

Not that the lawyers are the only ones to blame. Why don't teachers and school administrators spend some energy on working for tort reform, rather than spending most of their political capital on the attempt to suppress performance testing?

(via Kimberly)

8:34 AM

Tuesday, October 11, 2005  

To be loved for what one is, is the greatest exception. The great majority love in another only what they lend him, their own selves, their version of him.


(Original German) Geliebt zu werden, für das, was man ist, ist die größte Ausnahme. Die große Mehrheit liebt an anderen nur, was ihnen gefällt, ihre eigenes Selbst, die Version ihrer selbst.

Previous Worth Pondering

8:45 AM


Carnival of the Capitalists is now two years old.

8:39 AM

Monday, October 10, 2005  

Jalal Talabani, the President of Iraq, has an article in the (London) Times. Definitely worth reading.

6:53 PM

Sunday, October 09, 2005  

It began in Europe, at the end of the eighteenth century. Joy thinks we are still living in it...or at least in the hangover resulting from it.

A multi-part series, of which she's posted 3 installments so far. Just start at the top and keep scrolling.

3:45 PM


Financial Times (10/8-9) writes about the emerging trend toward a manufacturing and distribution technique known as "fast fashion." The idea is to manufacture clothing close to the customer, in small lots, and with very frequent design changes. Bebe, for example, makes about half of its merchandise in the U.S. Clearly, there's a tradeoff between flexibility and cost. According to Bebe's CFO,
"We would much rather have a shorter lead time and be able to interpret the fashion closer in, than be buying 12 months out and take 12 months to fix what's wrong." (Forever 21 and Charlotte Russe are other companies mentioned as pursuing fast fashion strategies in the US)

The fast fashion model is more common in Europe, exemplified by companies such as Zara. Retail consultants at Bain & Company estimate that fast fashion accounts for 12% of the market in the UK and 18% in Spain, compared with only 1% in the US. Bain's head of US retail research points to two major advantages of the model: increased store visits by customers who want to see what's new, and a reduction in price cutting. (Zara ends up cutting prices on about 15% of items, compared with 50-60% in typical US clothing stores)

Manufacturing close to the customer, in small lots, with an emphasis on speed and flexibility, seems to be emerging as a complement to offshore sourcing with an emphasis on low costs. See also my post on a furniture company pursuing this strategy, here.

8:01 AM

Saturday, October 08, 2005  

Our friends show us what we can do; our enemies teach us what we must do.


Previous Worth Pondering

8:44 AM

Friday, October 07, 2005  

Betsy tells us that the state motto of North Carolina is "to be rather than to seem." She suggests that the inverse of this would be a good motto for the United Nations.

"To seem rather than to be." Yes, it does sound appropriate.

Roger notes that Kofi Annan has decided to retain his former chief-of-staff as an adviser despite accusations that this individual authorized shredding three years of files on the corrupt oil-for-food program for Iraq.

I am sure many devotees of the UN will be unfazed by this, and indeed by anything at all that the UN does or fails to do. It's all about seeming, not being.

12:55 PM

Thursday, October 06, 2005  

Financial Times (10/5) reports that increased use of ethanol as a fuel is driving increases in the price of sugar, which is one substance from which ethanol can be made. Raw sugar prices have nearly doubled since the beginning of 2004.

"Sugar is switching from being a food commodity to one strongly influenced by ethanol production," according to Ann Prendergrast, a commodity analyst. Sugar prices are also being influenced by a poor havest in India, and hedge funds have built extensive long positions in the commodity.

The FT article also cites a study by General Motors, which argues that ethanol production from corn and sugar cane will be less attractive over the long run than ethanol from other forms of biomass, such as straw and stover (the dried stalks and leaves of cereal crops).

12:08 PM

Wednesday, October 05, 2005  

Sheila O'Malley was riding the subway, and tears were rolling down her cheeks.

If anyone noticed I was crying, I am sure they would never have guessed the reason - and would have thought I was insane if they had asked:

"Ma'am, are you all right? Why are you crying? Did your boyfriend break up with you?"

and I had answered:

"Oh ... uh ... no. I'm crying because of Vaclav Havel's speech to the Czech people in 1990."


Much more.

3:06 PM


At Bucknell University, the campus Conservative Club sent out an e-mail announcing a speaker, Major John Krenson, who had been in Afghanistan "hunting terrorists." The students were summoned by a university administrator and were lectured about the use of inappropriate language like "hunting terrorists."

(There's a World War II book with the title Hunting the Bismarck. Will Bucknell administrators now remove this book from their library and burn it?)

People have been contacting Bucknell about their actions in this matter, and this post discusses Bucknell's response. I'm not very impresssed with Bucknell's argument about a "casual conversation," particularly in view of the cited e-mai from Bucknell's President himself. (As Glenn points out, it's also kind of scandalous that a university President can't use the word "inferred" properly in a sentence.)

What Bucknell has done in this matter, if things are as they appear, is very damaging. It encourages a kind of walking-on-eggshells mentality in which everyone must be constantly on guard about what they say--which is harmful both to academic freedom and to the broader cause of free speech and open debate throughout our entire society. And it's also harmful to the cause of defending civilization against attack by terrorists. Osama bin Laden has observed that people tend to prefer the "strong horse." How strong a horse does our society look like if people dare not even use a phrase like "hunting terrorists" for fear of hurting someone's feelings?

Here's a Bucknell alumnus who says that the President of Bucknell, who has been there for a relatively short time, is actually a pretty good guy who has already done much to support the true diversity of ideas. Let's hope he's right. When it comes to academic administrators these days, I'm pretty much from Missouri.

Seems to me that Bucknell should make a formal, public apology to the students involved, and should reinforce its committment to freedom of speech.

2:33 PM


Cursive, foiled again

2:30 PM

Tuesday, October 04, 2005  

Some advice for those planning a trip via stagecoach, from 1877.

(From the Omaha Herald of 1877, posted by Vox Baby, linked by Asymmetrical Information)

Note: Snopes, the website that specializes in checking out rumors/legends to determine their truth or falsity, isn't sure this document is genuine. But they haven't put it in the "definitely false" category, either.

7:52 PM

Sunday, October 02, 2005  

"I invest in the stock market," said the woman who was cutting my hair, "But I don't understand bonds."

I waited. I knew what was coming.

"I just can't understand why bond prices go down when interest rates go up, and the other way around."

It's a common point of confusion. According to a survey by the National Association of Securities Dealers, only 40% of investors understand the relationship between bond prices and interest rates.

Let me take a whack at it. This will be a simplified explanation of a complicated subject, but the essential point isn't really hard to grasp.

For an example, let's take our old friend Amalgamated Entities, Inc. The gerbilator product line, manufactured by one of Amalgamated's divisions, has been enjoying great success, and a new factory is needed. It's estimated that it will cost about $225 million to build (gerbilator production equipment is not cheap). Only about $25 million can be spared from the company's cash accounts, leaving $200 million to come from somewhere else.

The CFO recommends a bond issue. The board of directors agrees, and the bonds are issued in various rates and maturities. You buy $20,000 worth of Amalgamated bonds, with a coupon yield of 5% and a maturity of October 2010.

What has just happened here is that you have made a loan to Amalgamated. You have given them $20,000 and they have agreed to (a)pay you $1000 per year (5% of $20,000) in interest, and (b)pay the original $20,000 back when the bond matures. The purchase of the bonds does not give you an equity interest in the company--even if Amalgamated succeeds beyond anyone's wildest dreams, you will still get your $1000 a year and eventually your $20,000...nothing more. On the other hand, if the company runs into trouble, its obligations to bondholders take precedence over its obligations to shareholders. (I'm speaking in general terms here; specific protections vary from bond to bond)

Now, let's assume that interest rates go up. Other bonds are being issued with maturities and risk levels comparable to the ones you have, but with interest rates of 6%, as opposed to the 5% that you are getting. What happens?

As long as you hold your bonds, nothing happens. You will still get your $1000/year in interest, and you will still get the original $20,000 back when the bonds mature. But, suppose that you decide you don't want to hold the bonds to 2010. Either you would like to reinvest at a better interest rate, or you simply need the money. You can sell the bonds on the bond market. But, you will now find that no one is interested in a pathetic 5% yield. Why would they be? They can get 6% elsewhere.

That doesn't mean you can't sell the bonds, though. What Amalgamated is actually obligated to pay you is a fixed dollar amount for each interest payment. If someone buys the bonds from you for, say, $18,000, they will still be getting that same $1000/year in interest...which for them will be a current yield of 5.5%. Plus, the buyer will still get the original $20,000 when the bonds mature. There will be some price at which the bonds are attractive to a buyer, and the higher the current interest rates, the lower this price will be, simply because dividing by a smaller number yields a higher percentage. (Also, the longer till the bonds mature, the greater will be the effect of the interest rate increase on the bond prices.)

If interest rates go down, the same process happens, but in reverse. Let's say we enter a period of serious deflation, and yields on bonds comparable to yours fall to the 3% range. Now, your 5% looks terrific. People will pay a premium for your Amalgamated bonds...because they can pay more than $20,000 and still achieve the 3% which is what the market will currently bear. (The amount that they will pay must take into account the fact that, whatever they pay you, what they will get back at maturity is still $20,000. The formulas of bond mathematics take these factors into account)

I've used a corporate bond as an example, but the same principles apply with Treasury bonds--indeed, it's with treasuries that the relationship between price and interest rate appears in its purest form, since these bonds are not influenced by the creditworthiness factors which play a role in corporate bond prices.

The bond market interacts closely with the stock market. Corporations needing capital have the alternatives of getting it from bond issues or stock issues, and investors with capital to invest have the option of investing it in either of these markets (as well as in the various government bond alternatives)

Additional information about how bonds work is available at the NASD web site, here, and many books on the subject are available in the business section of any good bookstore.

As always, nothing on this weblog should be considered as investment advice.

UPDATE 6/10/08: Title of post changed to avoid confusing search engines.

7:58 AM

Saturday, October 01, 2005  

I've written before about the failure of the FBI's project to develop a "Virtual Case File" system. The system was intented to provide improved information sharing among agents, so that terrorists, as well as other criminals, could be more readily tracked down, and it received a high priority in the wake of 9/11.

Spectrum, a magazine for electronics engineers, has a long and disturbing article about the development of this system. (Not terribly technical: you don't have to be an EE or a computer scientist to read it.) And here's something else which is very disturbing:

After it had become clear that the project was in serious trouble, the FBI hired Aerospace Corporation to analyze the code that had been developed by the FBI's contractor, and the resulting report was circulated on Capitol Hill. In researching the article linked about, Spectrum (which is published by the Institute of Electrical and Electronics Engineers) tried to obtain a copy, and was denied. In April, Spectrum filed a Freedom of Information Act request regarding this matter. It is now being litigated. According to the lawyer retained by Spectrum, who is experienced with FOIA matters: "The FBI's refusal to expedite this request is probably the most outrageous I have ever encountered. Even as it was trying to spin the VCF situation by issuing press releases, the FBI was disputing our claim that the report's contents were 'newsworthy.' The bureau is clearly trying to manage the coverage of an embarrassing issue."

To the extent that there are parts of the report that could reveal truly sensitive security matters, they must obviously be redacted. But I doubt if there is much of this, particularly now that the project has been cancelled. There has to be a lot that could be released without compromising security.

The American people paid for the VCF project, and will pay for whatever successor projects finally emerges. More importantly, it is the American people whose lives may be placed at risk by the delay of adequate information-sharing technologies. Don't they have the right to know what went wrong here? True, most Americans aren't equipped to understand the technical details--but among the readers of Spectrum, there are many people who are so equipped, and can provide their best judgment to the broader population.

The blogosphere should raise the visibility level on this issue.

8:00 PM


The Wall Street Journal (9/28) has a story on the offshoring of legal services to India. The general counsel of one company, for example, needed to create a database of key terms in about 200 different contracts in order to monitor contract compliance. He estimated that it would have cost about $60K for a U.S. law firm to have done the work: it was done in India for $5K. At DuPont, Indian lawyers help draft patent applications. Another company says that they use Indian lawyers to do legal research on litigation matters. "The people to whom you are outsourcing are well-educated and can work at an hourly rate that is 10% of what large-firm lawyers change," according to the company's general counsel.

The article says that because Indian law is--like US law--rooted in British common law, Indian lawyers can work on many matters without much additional training. It also says that Indian lawyers will work with much lower overhead--fancy offices, etc--than American lawyers. And there are a lot of them. Every year, 200,000 Indians graduate from law school. Technology plays a role, of course: improvements in communications make it faster, easier, and cheaper to transmit documents--even massive ones--for review.

Offshoring of legal services is still small when compared with areas like customer service or computer programming: Forrester Research estimates 12000 jobs worldwide at present, increasing to 29,000 by 2008.

It will be interesting to see how this trend develops.

7:30 PM

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