Don’t Lower Interest Rates on Student Loans–Raise Them

There has been a lot of press recently about interest rates on federal student loans, currently pegged at 3.4 percent and proposed to be doubled to 6.8 percent.  While many lobby groups and individuals are calling for keeping the rates where they are or even lowering them, the best path forward is increasing them to market rates.  The reason is clear.  Right now the low interest rates encourage both poor choices on the part of students and increased costs on the part of school administrators.

Right now with interest rates so low, students who should focus more on a lower-cost technical education, attend four-year colleges which leave them with a mountain of debt and little to show for it.  Few states have yet addressed the issue of structural reform within higher learning – that is, refocusing the curriculum of state universities to economically and civically productive concentrations (see my various blog posts on this subject), leaving the more esoteric courses to the private system.  This realignment would improve the cost-benefit ratio of educational investment.  Students graduate with a useful degree and practical experience.  University costs are kept down because of a more realistic limitation of courses; and not only are taxes less, but they result in higher value. 

As a result of the status quo, students, enticed by universities who see profit in their matriculation attend low-value institutions.  These public universities can anticipate more students with more money via easy loans which translates into more sports facilities, new auditoriums, and an expanded physical plant.  They are under no obligation to reform the educational curriculum and program.

If students had to pay market rates for their loans – i.e. eliminating the federal loan program altogether – more judicious choices would be made by students, and universities and colleges would be forced to realign their curricula to student demand.  If students agree to pay market prices, then they will choose the school which offers the best value for them, whether a technical school, pre-med, engineering, or pre-law; and these institutions would necessarily reform.

Although I have argued that state-initiated educational reform of higher education is necessary (and still do), a simpler and more realistic way of achieving the same end is to raise interest rates on loans and let the market determine school availability and curricula.  Rather than rely on a state to determine what are productive and non-productive courses, let the market decide; that is, let students decide based on economic choice.

This is not a revolutionary concept.  We, as a country, have consistently rejected central planning, dirigisme, or any other form of state decision-making in the economy.  While we have not been consistent in this (tax ‘reform’ is still and always will be a manipulation of the market), in most cases direct federal investment in a particular segment of the economy has been off-limits.  Why not in education as well?

Today’s (4.30.12) Washington Post http://www.washingtonpost.com/opinions/whats-better-for-college-students/2012/04/29/gIQA8kqKqT_story.html gets at the problem, but does not address all the issues:

It’s no surprise that extending the lower rate now comes at a high price: $6 billion for a year, according to the Congressional Budget Office, and much more if the rate is extended year after year. That spending would be more defensible if the rate cut reflected something other than a number picked in a years-ago campaign pledge. It would make more sense if the alternative were truly bleak, instead of a return to what was still a good deal compared with the rates and terms of loans in the private market. Keeping the federal rate extra-low would be less a concern if it didn’t risk encouraging runaway higher-education costs.

While it is true that the debate over interest rates is largely politically-driven in an election year, it is a debate which must happen; and the Post editorial does not consider the obvious possibility of raising interest rates even further or eliminating the federal subsidy program.  Nor does it raise the most compelling issue of a market-based alternative to state-sponsored educational reform.

The amount of outstanding debt is significant.  As another article in the Washington Post indicates http://www.washingtonpost.com/blogs/campus-overload/post/colleges-visited-by-obama-have-varying-records-on-student-loan-debt/2012/04/25/gIQAEP8BhT_blog.html :

The average University of Iowa senior in 2010 had loans totaling $27,391, higher than the national average of $25,250. The state of Iowa has one of the highest rates of student loan debt in the country ($29,598), just behind Maine ($29,983) and New Hampshire ($31,048).

Student loan debt is an issue that affects millions of people, even more so than credit card debt. For the Class of 2010, at least two-thirds of seniors took on some form of student loan debt. This debt is generally higher at private institutions than at public ones. Last year, the amount of outstanding student loans hit more than $1 trillion [Italics mine].

The biggest question, again not addressed in this or other articles is “What are students getting for their money”?  As importantly, “What are the states getting?”.  The argument for state, taxpayer-supported funds for education is that there should be maximum benefit to the state.  While there can be different opinions on what that benefit might be, few would argue that producing economically and civically viable students is of the highest priority.  While other arguments are posited – a college education, beyond the reach of most people in the earlier days of the nation, should be considered a right; college continues the process of institutionalized diversity, etc. – they should be far down the list.

A companion piece to the Post article entitled Differential Tuition addresses the cost issue in a different way, suggesting that higher tuitions should be charged for programs in high demand, such as nursing, business, and engineering.  This makes sense, for these courses will always be in higher demand than Comparative Literature for which there is no job market.  However if tuition rates and interest rates go up, most prospective students would be priced out of the market.  If interest rates alone were allowed to float into commercial territory, students would automatically choose the most promising and productive courses, forcing the universities to cut unproductive courses and maintaining reasonable tuition costs.

In short, raising interest rates to market values – that is, eliminating all federal subsidy programs – would force a quick and efficient reconfiguring of higher education to the benefit of both state and student.

The Post raises the issue of Pell Grants, suggesting that these should not come under any scrutiny and in fact be increased; and the argument in principle is sound.  There are many talented young people who cannot afford higher education.  Yet, if recipients of Pell Grants are allowed to use the money indiscriminately (as above selecting institutions and courses irrelevant to their own and the national interest), the money will be wasted.  If there are to be federal full-subsidy grant programs, then there must be certain conditions for their use.

Open Immigration -The Myth of Cultural Homogeneity

There have been a number of articles recently on the aging of the population of developed countries.  Some, such as the Manchester Guardian’s, below, focus on the economic consequences of declining birth rates and restrictive immigration policy, such as in Australia; while others, such as the New York Times’, discuss the more far-reaching changes in society caused by a distortion of the normal age distribution, such as in Japan.  Few discuss the major issue underlying the persistent and increasingly xenophobic demands for cultural purity.  Members of the old guard – the French who have for centuries viewed the country as a cultural and spiritual leader of Europe; traditional Japanese who have retained the ancient traditions of the Shoguns, strong family and societal structures, and Shinto and Buddhist principles; white, Anglo-Saxon Americans who trace their cultural lineage back to the Puritans and the Calvinist fundamentals of the new nation – all resist the changes that would result from a more pluralistic society.

The anti-immigration movement uses three arguments, two understandable, the other not so.  The first is economic.  Illegal Mexican immigration, it is often repeated in the United States, is depressing wages, adding to welfare roles, increasing public service costs, and increasing taxpayer burden.  This same scenario is played out in Europe with different dimensions.  France, Denmark and even socially tolerant Netherlands are realizing that the labor market can be, at least in the short run, altered, often with negative consequences for the native population. 

The second argument is that the rapid influx of immigrants will cause social unrest.  This has been especially true in Europe where Muslim immigrants from North and Sub-Saharan Africa are from vastly different cultures.  Worse, because of radical Islam, the demands of these marginalized and ghettoized populations become aggressive and dangerous.  They will not abide by white European traditions of assimilation and homogenization, and have been empowered to demand what they see are their civil rights. While this is indeed a problem, countries have been slow to realize the dimensions of the problem. 

Africans in France were largely concentrated, isolated, and mostly forgotten in the suburbs of Paris and other major cities.  Unlike in the United States where urban ghettoes are close, visible, and frightening, these poor and increasingly dysfunctional communities were far from the majority’s view.  Old-school French families in the tony 7th arrondissement went about their business shopping for fashion, wine, baguettes and cheese with little thought to the turmoil raging in Neuilly-sur-Marne, Aulnay-sous-Bois, and Trembley-en-France, neighborhoods with traditional names evoking a pastoral existence on the banks of rivers or under shading elms.  The French government ignored the simmering resentment and hostility until it was too late, and the suburbs erupted.  After a token expression of regret and conciliation, France is back to measures which will only further isolate, enrage, and harden these communities.

The third and most compelling argument is that immigration will destroy ‘traditional culture’ – our American way, our French way. But what exactly is the culture that these diminishing majorities want to extend? And how will a more diverse population diminish it?  Few people have convincing answers. America is the hardest to understand, since we are a country of immigrants, easily and quickly assimilated, and within one or two generations speak English and more importantly subscribe to the American work ethic.  The sons and daughters of Mexican, Guatemalan, Salvadoran, and Honduran immigrants want the same thing as ‘traditional’ citizens – to get ahead, to make money, to be a success.  No argument makes sense.  Most first or second generation Americans speak English.  All are Christian.  Few practice barbarous rites.  Yet the idea of a largely Hispanic population is still threatening.

The French cultural resistance is easier to understand but just as hard to accept.  France has always considered itself ‘The Elder Sister of the Catholic Church’ thanks to the valiant efforts of Charlemagne to keep the Muslim hordes out of France.  Because of its strong intellectual traditions, it has ascribed to itself a certain intellectual and cultural supremacy; and because of the past elegance and luxury of the French courts, it has preserved its national talents for fashion and cuisine.   When the French say that their culture is being perversely altered, it is likely to be comprised of these elements.  At least the French of the 7th arrondissement who have the money and social status to preserve them.  Not so for the vast majority of French who work in factories, ports, railroads, farms, and post offices throughout the nation.  For them – if they think about it – culture is more indefinable.  A café-cognac at the neighborhood bar, perhaps; or two- or three-stop shopping at the butcher, grocer, and baker.  In any case, both classes revolt in their own ways.

In any case French primacy in culture and the arts has long since suffered a decline.  The arts have moved across the Atlantic, futuristic innovations occur from California to India.  When one thinks of fashion, it is the runways of New York, Italy, or the boutiques of hipster San Francisco that first come to mind.  The world is smaller, more competitive, more integrated and more flexible.  The traditional French have not yet learned this lesson.

So, again, what is this culture that the French are trying to preserve? The current received wisdom is as old as the Revolution – “We are all French citizens, equal in being and opportunity”.  Within that official worldview, there are no boxes for race or ethnicity to be checked on census forms; no affirmative action; no cultural preferences.  The current policies to forbid hijabs and non-‘French’ cultural practices in public institutions are an extension of this principle. Yet no one – except traditional French – accept this principle any more.  Racial and ethnic differences, far from diminishing or dissipating, are increasing.  Only countries like Britain and the United States have realized this and accepted it.

What the French have not realized is that it is almost impossible for cultural traditions to expire because immigration is gradual.  If you travel to some of the ethnically diverse outlying neighborhoods of Paris you will find both boulangeries, charcuteries, and epicieries alongside felafel, couscous, and pita.  Second generation immigrants read Le Monde and Arab weeklies.

The point is that French cultural traditions will not disappear.  Many will be changed to incorporate non-European perspectives, and many will simply co-exist with newcomers. Countries all have certain characteristics which guide if not propel newcomers without their realizing it, or without banners being waved about cultural values.  America is and will always be ‘The Land of Opportunity’.  Regardless of who comes or goes, what political party is in office, the business of America is business.  All else – our fashion, cuisine, and artistic and intellectual endeavors – are secondary.  France – regardless of who come and who goes – should retain its high valuation of intellectualism and the high arts as necessary and welcome contributions to society (I say should because its radicalized Muslim immigrants hold views antithetical to even this generic principle). Germany will always be fundamentally Protestant in outlook. 

Yet, the older powers that be in the Elysee still retain an old-fashioned gestalt of Jean-Paul Sartre sitting at Le Café des Deux Magots – the Paris recently limned in Woody Allen’s recent Midnight In Paris.  As Allen concludes, every generation thinks the present one is worse than those past, and that there is greater sanity, value, and heroics then rather than now.  Immigration – refreshing the cultural and gene pool – is out.  Backward-looking, unrealistic policies are in. 

The problem is made infinitely more difficult because of the demographic profile of the very countries which are most defending conservative cultural values.  

Ross Douthat writes in the New York Times http://www.nytimes.com/2012/04/29/opinion/sunday/douthat-incredible-shrinking-country.html?_r=1 about Japan which because of extreme xenophobia and the almost insurmountable barrier of language continues to be hermetically sealed:

“THE Children of Men,” P. D. James’s 1992 novel, is set in a future where the world’s male population has become infertile, and an aging Britain is adapting to the human race’s gradual extinction. Women push dolls in baby carriages. Families baptize kittens. There are state-run “national porn shops” to stimulate the flagging male libido. Suicide flourishes. Immigrants are welcomed as guest laborers but expelled once they become too old to work. The last children born on earth — the so-called “Omegas” — have grown up to be bored, arrogant, antisocial and destructive.

James’s book, like most effective dystopias, worked by exaggerating existing trends — the plunge in birthrates across the developed world, the spread of voluntary euthanasia in nations like the Netherlands and Switzerland, the European struggle to assimilate a growing immigrant population.

“Gradually but relentlessly,” the demographer Nick Eberstadt writes in the latest issue of The Wilson Quarterly, “Japan is evolving into a type of society whose contours and workings have only been contemplated in science fiction.”

The expressions of this phenomenon are indeed scary:

These trends are forging a society that sometimes evokes the infertile Britain in James’s dystopia. Japan has one of the highest suicide rates in the developed world, and there were rashes of Internet-enabled group suicidesin the last decade. Rental “relatives” are available for sparsely attended wedding parties; so-called “babyloids” — furry dolls that mimic infant sounds — are being developed for lonely seniors; and Japanese researchers are at the forefront of efforts to build robots that resemble human babies The younger generation includes millions of so-called “parasite singles” who still live with (and off) their parents, and perhaps hundreds of thousands of the “hikikomori” — “young adults,” Eberstadt writes, “who shut themselves off almost entirely by retreating into a friendless life of video games, the Internet and manga (comics) in their parents’ home.”

Douthat suggests reasons for this phenomenon:

Japan is facing such swift demographic collapse, Eberstadt’s essay suggests, because its culture combines liberalism and traditionalism in particularly disastrous ways. On the one hand, the old sexual culture, oriented around arranged marriage and family obligation, has largely collapsed. Japan is one of the world’s least religious nations, the marriage rate has plunged and the divorce rate is higher than in Northern Europe.

Even despite these frightening trends, Japan refuses to admit immigrants.  In other words, the dark, foreboding handwriting is on the wall, and no one is willing to even look at it, let alone read it.

Other countries like France and Australia have offered incentives to the native population to reproduce.  A recent article in the Guardian http://www.guardian.co.uk/commentisfree/2012/apr/28/ageing-australia-young-immigrants reports:

Policymakers in Australia have to balance the public's desire for continued tightening of immigration controls versus maintaining a steady population growth against a background of an ageing population. It is predicted that by 2036 more Australians will be retiring from the labour force than joining it. By 2050 there will only be 2.5 working Australians for every citizen over 65 – in the 1970s that figure was 7.5. The main solution policymakers seem to have come up with is to throw money at the problem.

In 2002, perhaps in response to Australia's Total Fertility Rate (TFR) reaching an all time low, the government introduced a baby bonus scheme. For every child born or adopted by a citizen or permanent resident of Australia the government will award them $5,000. Australia's TFR has risen since then, yet it still remains below replacement levels of 2.1 births per woman. If the baby bonus wasn't enough, the government is now introducing a jobs bonus, where employers will be offered $1,000 for each employee they hire and retain over 50 years of age. These seem like desperate measures from a government running out of ideas.

Desperate measures indeed, and not even well-conceived.  Anyone who has had children and who takes childrearing seriously knows that the $5000 is nothing compared to the lifetime investment in a child; and for those who have children indiscriminately, the money is wasted.

In conclusion, the battle over immigration is superficially one about jobs, tax burdens, and social divisiveness; but it is really about preserving a perceived way of life, a Woody Allenesque romantic dream of Le Temps Perdu. Yet the greatest vitality of cultures comes from their inclusiveness; and for those who are worried about making a buck or where to get their baguettes, those timeless truths will never change.

Recipes–Pappardelle a la Crème

Pappardelle – thin, long, wide egg noodles – are a bit difficult to find and you can easily use fettucini.  However, pappardelle are special because when made the Italian way are almost translucent, delicate, and flavorful on their own; and it is a special treat to use them.

The foundation for the recipe is a simple cream sauce – that is a mix of cream, sour cream, and yoghurt; and the other ingredients can be either beef, pork, or sausage.  Especially when made with pork or sausage, this dish is classically Tuscan.  The following recipe is for beef or pork.  I will discuss sausage later.

Pappardelle a la Crème

1/2 lb. pappardelle (they usually come in half-pound packages, enough for two people

3/4 cup half-and-half

2 Tbsp. sour cream

1 Tbsp. whole milk yoghurt

1/4 lb. lean beef or pork, chopped by hand into small (1/8” pieces)

1 tsp. thyme

1 tsp. oregano

1 tsp. rosemary

3 lg. cloves garlic, chopped medium-fine

2 Tbsp. olive oil

Salt and ground pepper

1/4 cup freshly grated parmesan cheese

- Sautee the garlic and spices in the olive oil for about 8 minutes

- Chop the meat and add to the sautéed spices

- Cook until the meat is thoroughly cooked, but not dry and overcooked, about 10 min.  Stir frequently to assure even cooking

- Add the cream, sour cream, and yoghurt, and stir well.  Add about 10 grindings whole black pepper.  Simmer for about 15 minutes stirring occasionally.  Adjust for taste

- Cook the pappardelle which should require about 5 minutes, but check for al dente

- Serve over pappardelle, add grated cheese, and few grindings of black pepper and serve.

Sausage is particularly tasty with this recipe.  Take two Italian-style sausages, hot or mild to your taste, and remove the meat from the casings.  Then follow the recipe above, sautéing the sausage in olive oil and garlic,  but do NOT add any spices since the sausage is already spiced. 

Chicken Retirement

Uncle Guido has always been amazed at the ‘Love Your Chicken’ movement in the United States.  He has wondered, mouth agape, at the fawning (or chickening) over poultry, especially in Portland which has led the way in over-the-top bleeding heart misplaced feelings for them.  There was a restaurant in Portland reported on not long ago in which chickens were guaranteed to be coddled (this is a great way to eat eggs, by the way) from birth to ’passing over’.  Each chicken served in the restaurant had been given a name, so to the familiar routine of “Hi, guys.  My name is Bruce, and I’ll be your server tonight” was added, “And your chicken tonight is Bob”.

A new report in the generally respected New York Times, is about chicken retirement in Portland http://www.nytimes.com/2012/04/26/us/new-homes-beckon-for-city-chickens-in-retirement.html?

Hindus regard the chicken as a vessel for evil spirits. The Chinese cook them to honor village deities. But here, chickens are a symbol of urban nirvana, their coops backyard shrines to a locavore movement that has city dwellers moving ever closer to their food. And the increasingly intimate relationships have led some bird owners to make plans for their chickens’ unproductive years. Hence a budding phenomenon: urban chicken retirement.

We all agree this is ridiculous, but it is important to deconstruct this paragraph a bit:

* Hindus may regard the chicken as a vessel for evil spirits, but will Murgh Masala get rid of them?

* Were the Chinese deities also chickens?  The point is not made clear

* How much closer to food are locavores trying to get?  Should they live with them?  This would give a new twist to the old saying, “You’ve made your bed.  Now lay in it”.

Here is how the Portland scheme works:

While many Portlanders still pluck aging birds for the broiler, others seek a blissful, pastoral end for them. Because most chickens lay the majority of eggs early in life, and can live about 10 years, the quest for a place where chickens can live out their sunset years has brought a boom to at least two farm animal sanctuaries and led Pete Porath, a self-described chicken slinger, to expand the portion of his business that finds new homes for unwanted birds.

“I would say I’m a halfway house for chickens on the move,” he said.

This is American entrepreneurial spirit at its best – finding a market niche and exploiting it.  Portland locavores, seeing their pullets move on into their infertile years, pay Mr. Porath to take them away and give them happy sunset years. This enterprise has spun off others.  Lawyers as usual have gotten into the game:

Karen Wolfgang of Independence Gardens, a consulting firm that helps clients build sustainable gardens, has meanwhile become an expert on end-of-life issues for chickens. She teaches a course to help urban farmers plan a wholesome end for their chickens, including referrals to retirement farms.

End-of-life issues, Uncle Guido presumes, are significant.  For example, there must be government regulation of chicken retirement homes, just as it regulates old people’s homes.  The regulation would specify chickens’ rights.  Although it hardly seems possible that a chicken could get any dumber, the issue of Chicken Alzheimer’s has raised its ugly head.  Retirement home staff have to be given special training to recognize Chicken Alzheimer’s.  The signs are not obvious.  Memory loss? Just about all other animals – songbirds, dogs, pigs, horses – have the ability to memorize some basic words or instructions.  Chickens, with their pea brains are waaaaay more stupid and just peck and squirt anywhere anytime.  Imagine this: “Come here, Daisy, come to Daddy.  Atta girl!” You can’t imagine it because it is unimaginable.

Incontinence?  Refer to the above about pecking and squirting.  Disorientation?  Have you ever seen chickens bob and weave around the barnyard with no sense of any direction or purpose?

The abuse of old people in institutions is well-documented.  Poorly-educated, poorly-paid, barely literate women from the Third World surely lose their patience quickly.  I once heard a Jamaican woman telling a patient that she had to get up for her physical therapy – at least that’s what I thought she was saying; but her Island English said something entirely different.  “It don’t take no phy-si-cal ex-er-shun”, she lilted and sang, “To take a bloody di-ur-eh-tic”.  The poor patient could barely make sense out of Fox News let alone Dorothea Levy.

So, you can imagine the abuse of chickens.  Which makes you wonder who does Mr. Porath employ?  “Instead of going upscale”, he said, “I go down.  My workers have to be as….” Here he paused, obviously trying to phrase his comments delicately for the press.  “…intellectually challenged as the chickens.”  It must be a real circus in there.

Not only does Mr. Porath have to intend with government regulations on client care, hygiene (whew! can you imagine that job?), space requirements, and ventilation (All chickens stank, but old chickens really stank), he has to put up with former chicken owners.  Actually they are not called ‘owners’ because that is too insensitive; and the  preferred term is ‘colleagues’).

These former colleagues have treated their chickens to a high-and-mighty life style, and get all pissy if Daisy is not getting her due:

They have personalities,” [a former owner/colleague] explained. “And they each have different ways of interacting with you, and they make different sounds.”

Mr. Finley said the five birds he now owns are a home-based food source that complements a vegetable garden. But they are also pets, he said, part of a family that includes his partner, Ray Frye, two dogs and two cats.

“We name them and we hold them,” he said. “I know it sounds kind of crazy, but we kiss them.”

The couple also buy toys for their chicks, and enjoy watching the older birds jump for Cheerios and chase one another around the yard.

Their stunning multilevel chicken coop was featured in the 2011 Tour de Coops in Portland. The event showcases the most spectacular of bird lodgings. Last year’s featured coops sported green roofs, rainwater systems and towers with panoramic views

Please note the comment of Mr. Finley: “I know it sounds kind of crazy, but we kiss them”.  In America, anything goes, so Uncle Guido is not at all surprised at the kissing part, he just wonders where and how.  Chickens are pretty much all feathers and beak and they do a lot of twitching.  In an off-the-record comment to the Times, Mr. Finley admitted that he held them in his arms, pinning the head to his chest and giving it a light peck.  “Nothing sexual here”, added Mr. Finley.  “All very above board.”

In any case, these former owner/colleagues are always at the Retirement Home, almost as bad as liberal parents who send their kids to a shitty public school on principle, then spend hours each week supervising bad teachers.  “Why aren’t you giving Daisy more stimulation?”; or “I don’t think Daisy is not getting enough quality time”. 

Apparently the burn-out rate for caregivers is extremely high, and who can blame them?

Now for the elephant in the room question: “What happens to the retired chickens when their time to pass over has come?”.  Is life support removed, and if so, who gives permission?  Are they allowed to just flap around one last time, pirouette in the dust, and drop dead – a death as natural as they come?  What happens to the remains?  Uncle Guido doesn’t want to even begin to contemplate chicken cemeteries, but he assumes they are there.  And the tombstones?  “Here lies Daisy, our beloved colleague, who left this life after ten glorious years.  She leaves 3420 children and 10,223 grandchildren.  She will be missed”.

Competition vs. Innovation

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

David Brooks has written an interesting article in today’s (4.24.12) New York Times about the difference between competition and innovation; or more accurately, how a competitive environment, far from stimulating innovation, discourages it.  http://www.nytimes.com/2012/04/24/opinion/brooks-the-creative-monopoly.html?_r=1&ref=opinion He cites the example of Peter Thiel who initially went the competitive route, moving quickly and easily up the legal ladder from one competitive institution to another.  Only when he hit his first and only brick wall – he was refused a Supreme Court judgeship, did he reflect and go back to his initial, creative Stanford roots.  He founded PayPal.

The argument about competition trumping innovation makes immediate sense – once you are in a commercially competitive environment, whether your own start-up or working within a larger firm, you tend to become focused on the incremental changes that will keep you just ahead of the competition, increasing market share by fractions.  You lose the desire or motivation to think within a revolutionary world of big ideas.

One of his core points [Peter Thiel, the subject of the article] is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.

In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.

I have written a post recently on how innovation recedes once creative people enter big business (Innovation – Why Facebook Had To Pay $1b For Instagram).  In it I argued that the creative people emerging from Stanford or MIT with a great idea quickly get co-opted by big business.  In the case cited, Instagram got bought up by Facebook; but as the Brooks article illustrates, even if Instagram had remained small and independent, the innovative ideas that they brought with them from the insulated rarified air environment of academia, would soon dissipate and get transformed into much smaller, less creative but more financially rewarding increments.

Thiel expands on his theory:

Think about the traits that creative people possess. Creative people don’t follow the crowds; they seek out the blank spots on the map. Creative people wander through faraway and forgotten traditions and then integrate marginal perspectives back to the mainstream. Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows.

Now think about the competitive environment that confronts the most fortunate people today and how it undermines those mind-sets.

First, students have to jump through ever-more demanding, pre-assigned academic hoops. Instead of developing a passion for one subject, they’re rewarded for becoming professional students, getting great grades across all subjects, regardless of their intrinsic interests. Instead of wandering across strange domains, they have to prudentially apportion their time, making productive use of each hour.

Then they move into a ranking system in which the most competitive college, program and employment opportunity is deemed to be the best. There is a status funnel pointing to the most competitive colleges and banks and companies, regardless of their appropriateness.

Brooks sees the inevitable move of these talented students to competitive big business like the move of idealistic social reformers who go into politics – the same need to think down and small, incremental changes required by competition and market share: 

[Students] move into businesses in which the main point is to beat the competition, in which the competitive juices take control and gradually obliterate other goals. I [Brooks] see this in politics all the time. Candidates enter politics wanting to be authentic and change things. But once the candidates enter the campaign, they stop focusing on how to be change-agents. They and their staff spend all their time focusing on beating the other guy. They hone the skills of one-upsmanship. They get engulfed in a tit-for-tat competition to win the news cycle. Instead of being new and authentic, they become artificial mirror opposites of their opponents. Instead of providing the value voters want — change — they become canned tacticians, hoping to eke out a slight win over the other side.

Competition has trumped value-creation. In this and other ways, the competitive arena undermines innovation.

Neither Brooks nor Thiel have any answers, but conclude:

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

Everybody worries about American competitiveness. That may be the wrong problem. The future of the country will probably be determined by how well Americans can succeed at being monopolists.

This is a tall order.  The clash of cultures – thinking big and creatively, focusing on revolutionary inventions and taking big risks vs. thinking incrementally – is unlikely to be resolved.  At the same time, visionaries do come along and not that infrequently.  Bill Gates, Steve Jobs, Sergei Brin and Larry Page, and Mark Zuckerberg are products of our current generation.  The personal computer, easy access to the Internet, powerful search engines, and social networking were revolutionary ideas; and while Microsoft, Apple, Google, and Facebook are now focused on predictable incremental changes, they all began with the pure, creative, innovative idea of their founders.  All of them developed their ideas ‘in cramped garages’ or in the labs of graduate school.  Each had a vision, a passion, superior intelligence, and a powerful desire to succeed.

The conclusion is not that large corporations can be reformed to become innovative laboratories – even Google’s famed secret research facilities are focused on the incremental changes that will make their search engine progressively more powerful – but that creative geniuses will always out if they have the right environment in which to develop their ideas; and that environment begins in kindergarten.

The current primary and secondary education systems do not favor creativity, innovation, or risk-taking; and favor the least-advantaged over the most promising.  Many public universities have become diploma mills, lowering standards to promote diversity, and tightening their academic offerings because of limited taxpayer funding.  Only fundamental structural reform can begin to reorient education to encourage what has always been America’s long suit – innovation. In order to turn out a slew of the likes of Bill Gates, Steve Jobs, and Sergei Brin, the way we educate those promising students must radically change.

The elite institutions which have provided the intellectual environment in which these innovative geniuses have flourished – Harvard, MIT, Stanford (which seems a particularly rich breeding ground for innovation) – are national treasures and should be the model for educational reform as should the few public universities like Berkeley which approximate the intellect- and intelligence-rich student bodies of the best private schools.

In America, perhaps especially during an election year, charges of elitism abound; and yet it is from those elite institutions of learning that the best and the brightest emerge.  There is something sniffy in our reaction to the overwhelming number of Ivy League graduates in the White House; and yet the mission of these institutions is not to teach learning but thinking.  I recently had a look at the Harvard ‘Red Book’ published for each class before decade reunions.  It is not only remarkable to see the impressive career paths of most students, it is their risk-taking and innovation.  The number of career changes was significant.  These students were confident enough of their abilities and had been trained to think large, that such changes, intimidating to some, were completely reasonable.

America will always be a creative, innovative nation; but there is no better time than now to rethink our institutions and to reorient them towards the future.  The renewed culture of individualism is not the anti-progressive phenomenon pilloried by the Left.  On the contrary not only is it the promise of the future, it is the future.  The relationship between the individual and the state, business, religion, education, and politics is changing dramatically as responsibility and accountability are shifted from corporate structures to the individual.  It is time to value the individual in a more complete and comprehensive way, and move from the simplistic and conventional view of freedom, liberty, and independence to a more comprehensive and nuanced one which sees the individual as a productive economic unit.

The Decline Of American Institutions And The Rise Of Individualism

An article in the Atlantic ('How Americans Lost Trust in Our Greatest Institutions) describes the decline of American institutions – church, government, school – and refers to the increasing alienation of those who have not adapted to a world ‘without’ them.  This alienation, the author proposes, is the reason why this disaffected group has turned away from the Democratic party which used to be the party of help and support to the middle class.

However, institutions always have and always will exist.  It is just that in the 21st Century there has been such a radical transformation of them from brick and mortar to cyberspace, it seems as though evolution has speeded up and little time has been afforded ordinary citizens to adapt.  Nevertheless, evolution is unstoppable, and most of the changes in our institutional framework have been good.

Whitmire [the subject of the article] is an angry man. He is among a group of voters who was most skeptical of former President Obama: non-college-educated white males. He feels betrayed -- not just by Obama, who won his vote in 2008, but by the institutions that were supposed to protect him: his state, which laid off his wife; his government in Washington, which couldn't rescue homeowners who had played by the rules; his bank, which failed to walk him through the correct paperwork or warn him about a potential mortgage hike; his city, which penalized him for somebody else's error; and even his employer, a construction company he likes even though he got laid off. "I was middle class for 10 years, but it's done," Whitmire says. "I've lost my home. I live in a trailer now because of a mortgage company and an incompetent government."

Mr. Whitmire has not kept pace with rapid change.  In these days of deficit, debt, and suspicion of inefficient government programs, an FDR government is impossible – unthinkable in fact.  ‘Protection’ is now increasingly an individual matter and the word ‘trust’ is fading from the lexicon.  Not only does Mr. Whitmire not know where to turn – that is who will support him in his time of need – he does not realize that the institutions that did that are disappearing.  Moreover, in this new brave and harsh world, he realizes he does not know whom to trust.

This, however, is not a failure of institutions; it is the unfortunate failure of individuals like Mr. Whitmire, with relatively little education and isolated from the larger arena in which structural changes are debated and effected.  He knows that his rock-solid, marble-and-Corinthian pillared local bank is no longer, but he has no clue about entering the new financial world of complex investments – a world, which if understood, would reward him more than the marginal interest rates paid on savings.

He is dismayed at the decline in local public education, but as in the case of banking, is ill-equipped to navigate the increasingly complex world of vouchers, charters, for-profit education companies, and home-schooling which could offer him a better education than the one he has relied on. 

Mr. Whitmire sees empty pews in his traditional church, but feels emotionally and socially ill-equipped to move to the more dynamic and socially-attuned alternative churches in which an alien form of religion is practiced.  He does not realize that these churches are far more in tune with a media-focused, socially networked, and highly individualized congregation.  Moreover, they are particularly suited to the 21st century and could afford the support he is looking for:

Union Chapel's pastor, Gregg Parris, speaks in phrases you'd expect from an M.B.A. ("I'm in the word business") or a sociologist ("We're going from a Gutenberg world to a Google world"). He keeps his sermons simple because "you can't assume everybody knows the Lord's Prayer," and he strives to make the liturgy relevant to life's challenges. His church offers counseling for depression, anxiety, eating disorders, marriage problems, alcoholism, and sexual abuse. Union Chapel heavily promotes its social clubs to buoy connection-starved people. The services are casual, hip, and focused on middle-class Muncians who feel abandoned amid economic change. "My job," Parris says in an interview at his office, "is to fill in the gaps where our institutions have failed us."

In short, there is nothing intrinsically wrong with the decline of traditional institutions because they will always be replaced by others which simple include, organize, and serve people in different ways.

Government, politics, corporations, the media, organized religion, organized labor, banks, businesses, and other mainstays of a healthy society are failing. It's not just that the institutions are corrupt or broken; those clichés oversimplify an existential problem: With few notable exceptions, the nation's onetime social pillars are ill-equipped for the 21st century. Most critically, they are failing to adapt quickly enough for a population buffeted by wrenching economic, technological, and demographic change.

This statement is almost right, but fundamentally off-key.  It implies that old institutions are simply ‘ill-equipped’ for the 21st century, and that they are failing to adapt and to serve their old constituency.  It is not that the old institutions have to be reformed; it is in the nature of social evolution that they be replaced.

Much has been written about the hopelessness of the inner-city ghettos – places which have been left in the backwaters of the mainstream – but little has been written (with the notable exception of Charles Murray in his book Coming Apart - The State of White America) about the hopelessness of the Mr. Whitmires of the country who feel the same sense of despair and aloneness.

The answer to both – to the dismay of those like Mr. Whitmire and his political allies who still feel there is a role for big government – is individual economic and especially intellectual enterprise.  This is a matter of necessity, not programs.

The example of Eastern Europe is a good one although not exactly homologous to the one of the white middle class addressed in this article.  Romania after the fall of Ceausescu was in a period when all the supports of communism, however feeble and inadequate, were being dismantled, destroyed, or removed.  The very intellectual foundations of society were broken in one blow. 

The principles espoused by communism – a supposed no-class, egalitarian society which depended on the state for everything – were gone.  People were individuals responsible for their own well-being and in competition with others for it.  European and world history as taught had to be relearned according to fact rather than to ideological perspective. The same scenario repeated itself throughout the region, and Poles, Bulgarians, Macedonians, and Ukrainians faced the same challenges.

Now, a little over twenty years since the purging revolutions of the 90s, these countries and their citizens have quickly changed.  It is a remarkable story of human adaptability, courage, persistence, and intelligence.  What made the challenge even more difficult was that these countries had to make the leap from the 19th century to the 21st in a few years.  There was certainly a dalliance with old-style institutions such as the Church which, especially in Poland, had been a heroic supporter of revolution, but in general the young people look to cyber-institutions just like their Western European counterparts.

The point is in the sink-or-swim environment of post-Communist Europe, most people swam.  At the beginning Romanians turned to their rural relatives for food, some of which they sold.  When the exchange rates were freed up, their little revenues, turned into dollars, bought foreign goods which were sold at a higher profit.  First there were sidewalk vendors, then kiosks, then stores, then superstores.  Few young people talk in Communist-speak but in the language of MBAs, Google, Mark Zuckerberg, and Apple.

The author cites recent history to suggest that this social dislocation has happened before:

We've been through this before, and Muncie is again instructive. Nearly nine decades ago, sociologists Robert and Helen Lynd moved here to document the transition away from an agrarian economy. Americans were battered by unbridled commercialism, stymied by an incompetent government beholden to special interests, and flustered by new technologies and new media.

The Lynds found a loss of faith in social institutions. But, somehow, institutions adapted or gave way to vibrant new ones. The Catholic Church took on poverty, illness, and illiteracy. The Progressive movement, embodied by Theodore Roosevelt, grappled with the social costs of modernization and equipped the government to offset them. Labor unions reined in the corporate excesses of the new economy. Fraternal organizations, a new concept, gave people a sense of community that was lost when knitting circles and barn-raisings died out.

Once again, the author is right, but still off-key.  Old-fashioned adaptability – e.g. the Catholic Church becoming more socially-attuned, or new social groupings such as labor unions constituted and organized to play an advocacy role – is not the issue here.  These institutions corresponded to an old social order – one in which social organizations were still given primacy for support and progress over the individual.  Today, that paradigm has been reversed.  It is the individual increasingly responsible for his/her own destiny and well-being.   

The move from an agrarian society to an industrialized one happened in glacial terms relative to the quantum leaps in social interaction today.  Not only has the paradigm shifted from communal to individual; and not only have old institutions been replaced by new ones; the pace of change has been staggering and hard to deal with by many.

When people trust their institutions, they're better able to solve common problems. Research shows that school principals are much more likely to turn around struggling schools in places where people have a history of working together and getting involved in their children's education. Communities bonded by friendships formed at church are more likely to vote, volunteer, and perform everyday good deeds like helping someone find a job. And governments find it easier to persuade the public to make sacrifices for the common good when people trust that their political leaders have the community's best interests at heart. "Institutions -- even dysfunctional ones -- are why we don't run amok in the woods," Hansen says.

The word ‘trust’ again has become archaic.  It is no longer a question of trusting institutions; it is developing the skills to deal with a highly competitive world where opportunities must be identified among vying companies and contracts negotiated individually.  ‘Trust’ on Facebook is a non-term; protection of privacy is.  That is, we the FB consumers lobby as online individuals to assure that our information is not too seriously violated.  We don’t want or need to ‘trust’ Facebook.  We need to keep them in line.

This is not to say that all traditional institutions have gone or will go.  Government, for better or worse, will be around for a long time; but it will be reduced in scope and intent, and in particular its relationship with individual citizens will be redefined.  We will still need police and fire departments.  We may or may not need the old-fashioned groupings the author describes to ‘perform good deeds’, although it is unimaginable that such groupings will not be increasingly virtual.

It is unlikely that Mr. Whitmire will survive the upheavals in American society without pain and difficulty.  He is too old, too uneducated, and too isolated to even make a decent go of it.  His income is just too high for the safety net.  He does not know where to turn.  He will be a casualty of the revolution. 

At the same time, the younger, better-educated, urban generation will not only do quite well, but they will thrive.  They see social networking as the key to individual learning, expression, and influence.  They see online commerce, political action, and religion as liberating.  They anticipate the coming interface between mind and computer as ultimately fulfilling; and synthetic genetics as even more revolutionary in terms of human nature and society as anything ever before.

In conclusion, one can feel sorry for Mr. Whitmire, but happy with the substantive structural changes that are occurring.  Not only are they inevitable – life is nothing but change – but they promise a level of individual and social fulfillment that only has been dreamed of.