Innovation

Crown of Creation

Life is change.
How it differs from the rocks
I've seen their ways too often for my liking.
New worlds to gain.
My life is to survive and be alive
for you

Innovation requires changes.  But do we reward innovation?

I spent the first half of my career in public service, i.e. government, and the second half of my career in the private sector.  It is my experience that successful innovation was rewarded in the public sector only at the time of promotions or interviews for a new job.  If innovation failed, a government employee was likely to be  punished by being fired.  Under such a system the reasonable expected behavior is not to innovate, not to stick your neck out.

In the private sector, innovation can be rewarded at times other than promotions.  It can take the form of annual awards, performance bonuses, or other rewards.  If the goal of innovation is realistic, e.g. doesn’t violate real rules, then even failures can be, if not rewarded, then at least not punished.

This does not mean rewarding any effort.  A goal that is impossible, such as innovating by seeking a perpetual motion machine which would violate the laws of physics or an elixir that seeks to change lead into gold, is not a change that should be rewarded by anyone.  

If we expect change, then we have to reward efforts to change.

Winning

The Games People Play

Oh the games people play now
Every night and every day now 
Never meaning what they say now      
Never saying what they mean

People might not know they are playing games, but how they play can reveal a lot about them.

Game Theory is concerned about how people make decisions to win games.  The Ultimatum Game in behavioral economics is a very  simple game.  Player One is given an amount, say $100.  Player One must make an offer to a Player Two.  If Player Two accepts the offer, then they both get to keep their respective amounts.  If Player Two rejects that amount, then neither player gets to keep anything.

The User Optimal solution for a single non-repeating game is for Player One to offer as small an amount as possible.  Let’s assume that offer is $1.  Player Two, should accept that offer, because even $1 is better than nothing.

The System Optimal solution is for Player One to offer to split the money equally with Player Two, and for Player Two to accept that offer.  Then they both have $50.

It might sound like the User Optimal solution would be the one chosen.  However in practice those who were Player Two often rejected any offer that was less than $30.  Why?

Player One in the User Optimal solution assumed that the game would never be repeated, and by offering less than $30, both players walked away with nothing.  An offer of greater than $30 to Player Two would normally be accepted.  Player Two recognized that an offer of less than $30 indicated that Player One assumed that the game would never  to be repeated, and the roles would never be reversed.

The difference between the User Optimal offers and the minimum acceptable offer is what economists call the shadow price. This includes not only an acknowledgement that the game might be repeated and the roles reversed,  but also an indication of how Player One values the future.   I.e. what discount rate that Player One applies to future values. That $29 dollar difference is the future value of the $50 that would have been the System Optimal cost.  The fact that we value the future less than the present, i.e. apply a discount rate to future values, is reflected in the adage "A bird in the hand is worth two in the bush". 

So what discount rate does a shadow price of  $29 price imply?.  It implies a discount rate of 42%, if the game is repeated one time.  A $1 offer implies a 98% discount rate if the game is repeated once and the roles are reversed. Player Two won’t play with player One if those are the rules.

Minimum Wage

Working For a Living 

Bus boy, bartender, ladies of the night

Grease monkey, ex-junky, winner of the fight 

Walking on the streets, it's really all the same

Selling souls, rock n' roll, any other day  

Workin' for a livin' (workin')

Workin' for a livin' (workin')

Workin' for a livin', livin' and workin' 

I'm taking what they giving 'cause I'm working for a livin' 

If you work for a living, then should there be a minimum wage? 

A minimum wage  benefits society, which includes both the worker and his employer.  Under unregulated capitalism, the minimum wage should be zero. ( Under unregulated capitalism, there  also should be no child labor laws or overtime laws, but that is another subject.).  If the minimum wage is zero, eventually workers would no longer be able to live and work.  Not only would the employer have no workers, but he probably would have no customers because he probably sells his products to workers of other firms.  An employer who pays zero for wages might profit today, but it is an unsustainable business model, and will fail in the future. 

If it is accepted that there should be a minimum wage, then what should be that minimum wage?  In 2007, the Federal minimum wage was established as $7.25 per hour.  However there has been inflation since that time.  The Federal Reserve Bank has a goal to keep inflation at less than 2% per year. 

That increase has not been the same on all products.  Since 2007, and especially during the COVID pandemic, inflation has been higher in some consumer categories. According to the Bureau of Labor Statistics, food prices increased by 4% last year, while other products such as energy declined by 7%. 

According to the Consumer Price Index, a wage of $7.25 in 2007 US Dollars, USD,  would be worth only $5.82 in 2021 USD.  Has this real decrease resulted in an increase in jobs?   Most probably, since that wage is closer to zero and thus the cost of labor has decreased for each employer.  But that is not a sustainable model for society, or for those businesses who benefit at the present time.  Increasing the minimum wage to at least the previously accepted value should be justified.  However, that is only if the prices of all products grew at the same rate.  Since the price of those products most likely to be purchased by minimum wage workers has increased at rate higher than inflation, then a higher minimum wage than $9 per hour appears to protect society, including both workers and their employers. Additionally that rate should be indexed to increase, if prices increase.

Strategy and Tactics

 

Culture War

Though we know the culture war     
We don't know what it's for but       
We've lived the southern strategy    
You know it's never  going to last     
So keep it in the past

If there is a Culture War, what are its Strategies and Tactics?

Strategy and Tactics are not the same thing.  Strategy is about winning a war.  Tactics are about winning a battle.  History has numerous examples about winning the battle, but losing the war. This is where the term Pyrrhic victory comes from, as the name for a battle whose victory is so costly that it is the cause of losing a war.

Concentrating on winning only a battle is appropriate  if you don’t believe in a future.  It seems that one side in the culture war, especially the side with a southern strategy, of supporting the existing caste system, does not believe in a future, or they would not risk everything on a single battle. Strategy is planning for a future; tactics are about winning the present.  The Ants who plan for the future may be boring, but Aesop’s fable of the Grasshopper and the Ant, suggests that it is the boring Ants who plan and believe in a future who will ultimately win over the momentarily exciting Grasshoppers who do not plan for the future.  A strategy isn’t a strategy if it does not acknowledge the future.   

There is an apocryphal story,

“A man had offended the king and was sentenced to death. He fell to his knees before the king and implored, “Oh your majesty! Spare me but for one year, and I will teach your horse to talk!” The king was amazed and granted his wish.

 

The man’s close friend and brother upbraided him, saying, “Why did you make such an absurd promise?”

The man shrugged and replied, “In a year, the king may die. In a year, I may die. In a year, the horse may talk!”

This story often features the ancient Persian Mullah Nasrudin as the man and the king is a Sultan, but the point is the same.  The question should be what is the tactical plan IF the king lives, the man lives, and the horse does not talk, because that is a more likely future.  A tactic that counts on an improbable future is  no different than not believing in the future at all.

Short Selling of Game Stop

 Games People Play 

Oh we make one another cry        
Break a heart then we say goodbye         
Cross our hearts and we hope to die
That the other was to blame whoa   

So who won, who lost, and who was to blame in the Game Stop situation

Game Stop was involved in a short selling situation in recent days.  So what happened, who won, who lost, and who is to blame.  Short selling sounds like a complicated financial arrangement, but it is basically simple.  Let's replace the share of stock with a coat that you purchased for $100 at a store.  A short seller borrows it from you, and says he will return it after a month,  He immediately goes to the store, returns the coat, and pockets the $100.  He hopes that the coat will go on sale during the month, say for $60, and he will purchase the coat at that reduced price.  At the end of the month, you have your coat back, the store has received $60 in revenue from the coat instead of $100, and the short seller has a $40 profit.  This requires that no one, except the short seller, knows that he plans to the return of the coat, and that the store put the coats on sale. 

If someone gets wind of this need, and the price of the coat is reduced to $80 after halfway through the month, then a second owner buys the coat at $80, and lists that coat for resale at $120. The short seller will have to buy that coat at $120 to be able  to return the coat that he borrowed.  In this case, the original owner of the coat still has his coat, the short seller’s loss is $20 for his repurchase of the coat, the store has received $80 for the coat, which is a loss of only $20 in sales, and the second owner  has received a $40 profit for the resale of the coat.  The total value over all individuals is still the same, but the store is $20 richer, and second owner of the coat has a $40 profit, and the short seller has a $20 loss instead of a $40 profit.  It is hard to see how society has a dog in this fight since the net cost is still zero.   The store experiences a $40 loss of revenue in the first case, and a $20 loss in the second case.  The short seller experiences a $40 profit in the first case, and a $20 loss in the second case.  The second owner is not involved in the first case, but has a $40 profit in the second case, by reducing the store's loss of revenue by $20 and taking $20 from the original short seller.  Does it surprise anyone that many of these second owners purchased their stock (coats) through an app called Robinhood?

The situation could not have existed if the knowledge that the short seller would need a stock (a coat) was known only to the short seller.  Since the knowledge that the short seller would need the stock (a coat) became known, then the new owner of the stock (a coat) has profited,  the original owner ( the store) has less of a loss, and the short seller has a loss, instead of a profit. The game has changed from the original short seller profiting to the short seller having a loss.

The Arts

Vincent (Starry, Starry Night)

Now I understand      
What you tried to say to me 
And how you suffered for your sanity          
And how you tried to set them free   
They would not listen, they did not know how        
Perhaps they'll listen now

It takes a very long time to listen to artists, but art is forever.

A Vincent Van Gogh painting was worth very little during the artist's lifetime.  The value of Starry Night has increased by an unbelievable amount since Van Gogh’s death.  During Van Gogh’s lifetime, the news was dominated by rulers, politicians, and the rich.  But I am sure that it would take a lot of effort to determine who were those rulers, politicians or the rich during Van Gogh’s life.  We have forgotten them while we remember Van Gogh.

I can remember only one king in ancient Greece, Oedipus and that is because of the Sophocles' play Oedipus Rex.  I remember King John, Edward III, and Richard II because of the plays by William Shakespeare.  I visited and admired the Coliseum in Rome despite not knowing who fought in, or attended, that stadium.  The Parthenon in Athens and the Pantheon in Rome are famous for their architecture, not their religion.  In the long run it is the arts that endure. 

We may place more attention on politics, sports, finance in the short term, but like in the fable of Tortoise and the Hare, it is not who is fastest in the short term, but it is he who endures to win the race that is remembered. We will be remembered for our arts, not our finance or our politics. 

Patriotism

 I Love My Country

I'm loud and proud

Rolling into town

Hanging out the window

Like a blue tick hound

Ain't sorry, ain't nothing to be sorry about

I love my country
And I love my country up loud 

Loving your country does not mean hating another country.

Go watch https://www.youtube.com/watch?v=cOeFhSzoTuc.  In that scene from Casablanca, the French national anthem, Les Marseille, was led by Victor Lazlo, a Czechoslovakian, whose wife Ilsa  was a Norwegian, at Rick’s Cafe American.  Yvette, the crying French woman who shouts Viva la France, was dating a Nazi soldier earlier in the scene.  The Nazis were fearful of inspiring the love of a country other than their own.

Now listen to Tchaikovsky’s 1812 Overture to see how ironically the same song, Les Marseilles, was used to indicate Napoleon’s attempted conquest and failed invasion of  Moscow. The Marseilles fades as a Russian folk song becomes triumphant.  This overture of the Russian love for their country has become a fixture of America's Independence Day since Arthur Fidler picked it for Boston’s celebration of the Fourth of July. 

Love of one’s country is to be something to be admired, even if you yourself are from a different country.  Loving your country can be perverted and confused into hatred and domination of another country.  We may not all like the same music, but love of country is not a matter of musical taste.  It also does not mean that we prove our love by hating another country.