George Bailey Wanted to Make Money, But He Wanted to Do More than Just Make Money

(p. 219) Actually, it’s not so strange. The norm for bankers was never just moneymaking, any more than it was for doctors or lawyers. Bankers made a livelihood, often quite a good one, by serving their clients– the depositors and borrowers– and the communities in which they worked. But traditionally, the aim of banking– even if sometimes honored only in the breach– was service, not just moneymaking.
In the movie It’s a Wonderful Life, James Stewart plays George Bailey, a small-town banker faced with a run on the bank– a liquidity crisis. When the townspeople rush into the bank to withdraw their money, Bailey tells them, “You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here.” He goes on. “Your money’s in Joe’s house. Right next to yours. And in the Kennedy house, and Mrs. Backlin’s house, and a hundred others. Why, you’re lending them the money to build, and they’re going to pay you back, as best they can…. What are you going to do, foreclose on them?”
No, says George Bailey, “we’ve got to stick together. We’ve got to have faith in one another.” Fail to stick together, and the community will be ruined. Bailey took all the money he could get his hands on and gave it to his depositors to help see them through the crisis. Of course, George Bailey was interested in making money, but money was not the only point of what Bailey did.
Relying on a Hollywood script to provide evidence of good bankers is at some level absurd, but it does indicate something valuable about society’s expectations regarding the role of bankers. The norm for a “good banker” throughout most of the twentieth century was in fact someone who was trustworthy and who served the community, who was responsible to clients, and who took an interest in them.

Schwartz, Barry, and Kenneth Sharpe. Practical Wisdom: The Right Way to Do the Right Thing. New York: Riverhead Books, 2010.
(Note: italics in original.)

Institutional Improvements Can Sometimes Be Designed, Rather than Only Spontaneous

A distinguished school of libertarian and neo-Austrian economic thought argues, following F.A. Hayek, that institutional improvements only arise from spontaneous order, and never from conscious design. There is something to their argument, but the designs of Alvin Roth provide counter-examples.

(p. A13) Mr. Roth’s work has been to discover the most efficient and equitable methods of matching and implement them in the world. He writes with verve and style, describing many market malfunctions–from aboriginal tribes in Australia arranging marriages for children not yet born to judges bending every rule in the book to hire law clerks years before they have graduated from law school–and how we ought to think about them.

Mr. Roth’s approach contrasts with standard debates over free markets versus government regulation. We want markets to be thick, quick, timely and trustworthy, but without careful design markets can become thin, slow, ill-timed and dangerous for the honest. The solution to these problems is unlikely to be regulation legislated from on high. Instead what Mr. Roth practices is nuanced market design created mostly by market participants. Mr. Roth found, for example, that even though the problems in the market for gastroenterologists and law clerks looked the same (hiring started years before schooling ended), the solutions had to be subtly different because of differences in culture, history and norms.

For the full review, see:
ALEX TABARROK. “BOOKSHELF; The Designer of Markets; In some markets, price isn’t the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first.” The Wall Street Journal (Tues., JUNE 16, 2015): A13.
(Note: ellipses added.)
(Note: the online version of the review has the date JUNE 15, 2015, and has the title “BOOKSHELF; Matchmaker, Make Me a Market; In some markets, price isn’t the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first.”)

The book under review is:
Roth, Alvin E. Who Gets What — and Why: The New Economics of Matchmaking and Market Design. New York: Houghton Mifflin Harcourt Publishing Co., 2015.

How Home Solar Panel Subsidies Increase Inequality

(p. A13) Well-meaning–but ill-conceived–federal, state and local tax incentives for rooftop solar give back between 30% and 40% of the installation costs to the owner as a tax credit. But more problematic are hidden rate subsidies, the most significant of which is called net metering, which is available in 44 states. Net metering allows solar-system owners to offset on a one-for-one basis the energy they receive from the electric grid with the solar power they generate on their roof.
While this might sound logical, it isn’t. An average California resident with solar, for example, generally pays about 17 cents per kilowatt-hour for electric service when the home’s solar panels aren’t operating. When they are operating, however, net metering requires the utility to pay that solar customer the same 17 cents per kilowatt-hour. But the solar customer still needs the grid to back up his intermittent solar panels, and the utility could have purchased that same solar power from a utility-scale solar power plant for about five cents per kilowatt-hour.
This 12-cents-per-kwh cost difference amounts to a wealth transfer from average electric customers to customers with rooftop solar systems (who also often have higher incomes). This is because utilities collect much of their fixed costs–the unavoidable costs of power plants, transmission lines, etc.–from residential customers through variable-use charges, in other words, charges based on how much energy they use. When a customer with rooftop solar purchases less electricity from the utility, he pays fewer variable-use charges and avoids contributing revenue to cover the utility’s fixed costs. The result is that all of the other customers have to pick up the difference.

For the full commentary, see:
BRIAN H. POTTS . “The Hole in the Rooftop Solar-Panel Craze; Large-scale plants make sense, but panels for houses simply transfer wealth from average electric customers.” The Wall Street Journal (Mon., May 18, 2015): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date May 17, 2015.)

Mobile Tech Drives Social Revolution in Saudi Arabia

(p. 6) RIYADH, Saudi Arabia — Life for many young Saudis is an ecosystem of apps.
Lacking free speech, they debate on Twitter. Since they cannot flirt at the mall, they do it on WhatsApp and Snapchat.
Young women who cannot find jobs sell food or jewelry through Instagram. Since they are banned from driving, they get rides from car services like Uber and Careem. And in a country where shops close for five daily Muslim prayers, there are apps that issue a call to prayer from your pocket and calculate whether you can reach, say, the nearest Dunkin’ Donuts before it shuts.
Confronted with an austere version of Islam and strict social codes that place sharp restrictions on public life, young Saudis are increasingly relying on social media to express and entertain themselves, earn money and meet friends and potential mates.
That reliance on technology — to circumvent the religious police, and the prying eyes of relatives and neighbors — has accelerated since it first began with the spread of satellite television in the 1990s. Saudis in their 30s (and older) recall the days of unsanctioned courtship via BlackBerry Messenger.
But the scale of today’s social media boom is staggering, with many of the country’s 18 million citizens wielding multiple smartphones and spending hours online each day. Digital has not replaced face-to-face interaction, but it has opened the door to much more direct and robust communication, especially in a society that sharply segregates men and women who are not related.
The spread of mobile technology is driving nothing short of a social revolution in the lives of young people. In this rich but conservative kingdom that bans movie theaters, YouTube and Internet streaming have provided an escape from the censors and a window to the outside world. A young Shariah judge, for example, confided that he had watched all five seasons of “Breaking Bad.”

For the full story, see:
BEN HUBBARD. “Young Saudis Find Freedom on Smartphones.” The New York Times, First Section (Sun., MAY 24, 2015): 6 & 11.
(Note: the date of the online version of the story is MAY 22, 2015, and has the title “Young Saudis, Bound by Conservative Strictures, Find Freedom on Their Phones.” )

To Maintain Enrollments Professors Are Often Pressured to Inflate Grades

(p. 198) Dedicated college professors demand that students do the difficult reading and writing necessary to become skillful in understanding the complexities of the world. But the university distributes resources like research funds and new faculty positions based in part on how many students populate classes and how positively students evaluate courses. How much do you simplify to keep up enrollment and keep resources flowing into your department?

Schwartz, Barry, and Kenneth Sharpe. Practical Wisdom: The Right Way to Do the Right Thing. New York: Riverhead Books, 2010.

“Nimble” Account of the Creative Destruction of the Music Industry

(p. C1) Stephen Witt’s nimble new book, “How Music Got Free,” is the richest explanation to date about how the arrival of the MP3 upended almost everything about how music is distributed, consumed and stored. It’s a story you may think you know, but Mr. Witt brings fresh reporting to bear, and complicates things in terrific ways.
He pushes past Napster (Sean Fanning, dorm room, lawsuits) and goes deep on the German audio engineers who, drawing on decades of research into how the ear works, spent years developing the MP3 only to almost see it nearly become the Betamax to another group’s VHS.
. . .
(p. C6) Even better, he has found the man — a manager at a CD factory in small-town North Carolina — who over eight years leaked nearly 2,000 albums before their release, including some of the best-known rap albums of all time. He smuggled most of them out behind an oversized belt buckle before ripping them and putting them online.
Mr. Witt refers to this winsome if somewhat hapless manager, Dell Glover, as “the most fearsome digital pirate of them all.”
. . .
Into these two narratives Mr. Witt inserts a third, the story of Doug Morris, who ran the Universal Music Group from 1995 to 2011. At some points you wonder if Mr. Morris has been introduced just so the author can have sick fun with him.
The German inventors and Mr. Glover operate as if they unwittingly have voodoo dolls of this man. Every time they make an advance, and prick the music industry, there’s a jump to Mr. Morris for a reaction shot, screaming in his corner office.
. . .
Mr. Witt covers a lot of terrain in “How Music Got Free” without ever becoming bogged down in one place for long. He is knowledgeable about intellectual property issues. In finding his reporting threads, he doesn’t miss the big picture: He gives us a loge seat to the entire digital music revolution.
He is especially good on the arrival of iTunes and the iPod.

For the full review, see:
DWIGHT GARNER. “Books of The Times; That Download Has a Back Story.” The New York Times (Tues., JUNE 16, 2015): C1 & C6.
(Note: ellipses added.)
(Note: the online version of the review has the date JUNE 15, 2015, and has the title “Books of The Times; Review: In ‘How Music Got Free,’ Stephen Witt Details an Industry Sea Change.”)

The book under review is:
Witt, Stephen. How Music Got Free: The End of an Industry, the Turn of the Century, and the Patient Zero of Piracy. New York: Viking, 2015.

Computers Lack Intuition about How to Handle Novel Situations

(p. A29) It seems obvious: The best way to get rid of human error is to get rid of humans.
But that assumption, however fashionable, is itself erroneous. Our desire to liberate ourselves from ourselves is founded on a fallacy. We exaggerate the abilities of computers even as we give our own talents short shrift.
. . .
Human skill has no such constraints. Think of how Capt. Chesley B. Sullenberger III landed that Airbus A320 in the Hudson River after it hit a flock of geese and its engines lost power. Born of deep experience in the real world, such intuition lies beyond calculation. If computers had the ability to be amazed, they’d be amazed by us.
. . .
Computers break down. They have bugs. They get hacked. And when let loose in the world, they face situations that their programmers didn’t prepare them for. They work perfectly until they don’t.
. . .
We should view computers as our partners, with complementary abilities, not as our replacements.

For the full commentary, see:
NICHOLAS CARR. “Why Robots Will Always Need Us.” The New York Times (Weds., MAY 20, 2015): A29.
(Note: ellipses added.)

Army Corps of Engineers Blamed for Hurricane Katrina

(p. 13) NEW ORLEANS — Nearly 10 years on, one might assume that the case of Hurricane Katrina is closed.
That the catastrophic flooding of this city was caused not merely by a powerful storm but primarily by fatal engineering flaws in the city’s flood protection system has been proved by experts, acknowledged by the United States Army Corps of Engineers and underscored by residents here to anyone who might suggest otherwise.
But the efforts to establish responsibility with ever more precision — to ascertain just how many of those flaws were due to engineering, politics or money — have not stopped.

For the full story, see:
CAMPBELL ROBERTSON and JOHN SCHWARTZ. “Decade After Katrina, Pointing Finger Firmly at Army Corps.” The New York Times, First Section (Sun., MAY 24, 2015): 13 & 16.
(Note: the date of the online version of the story is MAY 23, 2015, and has the title “Decade After Katrina, Pointing Finger More Firmly at Army Corps.”)

Some Learn in Order to Gain Competence, Others Learn to Gain Direct Rewards

(p. 184) Think about two different tennis pros giving you tennis lessons. The first pro says things like “good shot” and “good swing” all the time, to encourage you. The second one says “good swing” only when you make a good swing. If hearing “good swing” gives you a hedonic charge, then you will prefer the first instructor to the second (more gold stars, more encouragement). But if what gives you the charge is getting better at tennis, you will prefer the second instructor to the first. That’s because the second instructor’s feedback to you is much more informative than the first one’s. You’re not after “good swing” gold stars; you’re after a better tennis game. So feedback is essential to the development of a complex skill– whether it be empathy or a strong forehand. But he-(p. 185)donic feedback, in the form of incentives, is not. It may even be counterproductive, as in the case of instructor number one.
In schools, tests provide an extremely important source of feedback– of information– to the teacher and the student– about how things are going. Tests, or something like them, often offer the best way to diagnose problems and correct them. So tests as a source of information are good and important. The problem is that in addition to providing information, tests provide outcomes that students, and their parents, and their teachers, want and like– outcomes like approval, prizes, awards, honors, special privileges, and school ratings. The hedonic character of these outcomes is what gets students and teachers to orient their work to passing the tests, and to regard what they do in the classroom as merely instrumental, as merely a means to various rewarding ends.
There are important differences between children oriented to getting A’s and children oriented to learning from their mistakes. Psychologist Carol Dweck and her associates have spent thirty years studying the incentive systems that govern the learning of children throughout the educational process. They have uncovered two fundamentally different approaches to learning in kids that can often lead to profound differences in how well kids learn. One group of kids has what Dweck has called performance goals; the other group has what she has called mastery goals. Children with performance goals are primarily interested in gaining favorable judgments of their competence. They want to do well on tests. They want social approval. They want awards. Children with mastery goals are primarily interested in increasing their competence rather than in demonstrating it. They want to encounter things that they can’t do and to learn from their failures. As Dweck puts it, performance-oriented children want to prove their ability, while mastery-oriented children want to improve their ability. Children with performance goals avoid challenges. They prefer tasks that are well within the range of their ability. Children with mastery goals seek challenges. They prefer tasks that strain the limits of their ability. Children with performance goals respond to failure by giving up. Children (p. 186) with mastery goals respond to failure by working harder. Children with performance goals take failure as a sign of their inadequacy and come to view the tasks at which they fail with a mixture of anxiety, boredom, and anger. Children with mastery goals take failure as a sign that their efforts, and not they, are inadequate, and they often come to view the tasks at which they fail with the kind of relish that comes when you encounter a worthy challenge.

Schwartz, Barry, and Kenneth Sharpe. Practical Wisdom: The Right Way to Do the Right Thing. New York: Riverhead Books, 2010.
(Note: italics in original.)

Woodrow Wilson Violated Free Speech

I viewed part of a CSPAN presentation on June 27, 2015 by Margaret MacMillan, based on her book The War that Ended Peace: The Road to 1914. (It was probably a rebroadcast.) The presentation seemed serious, well-informed, and judicious in trying to be fair and balanced to Woodrow Wilson. MacMillan is more sympathetic to Wilson than I am, but she made it quite clear that he enacted serious violations of free speech.

MacMillan’s book is:
MacMillan, Margaret. The War That Ended Peace: The Road to 1914. New York: Random House, 2013.

Feds Paid New York Journalist to Not Grow Crops in Oregon

(p. 11) As for the foolishness of agricultural subsidies, until recently, the federal government paid me, a New York journalist, $588 a year not to grow crops in Oregon. I rest my case.

For the full commentary, see:
Nicholas Kristof. “Our Water-Guzzling Food Factory.” The New York Times, SundayReview Section (Sun., MAY 31, 2015): 11.
(Note: the date of the online version of the commentary is MAY 30, 2015.)