Posts filed under “Philosophy”
Dan Alpert is a founding Managing Partner of Westwood Capital. He has more than 30 years of international merchant banking and investment banking experience, including a wide variety of work-out and bankruptcy related restructuring experience. Dan’s experience in providing financial advisory services and structured finance execution has extended Westwood’s reach beyond the U.S. domestic corporate finance market to East Asia, the Middle East and Eastern Europe. In addition to his structured finance expertise, Dan has extensive experience advising on mergers, acquisitions and private equity financings. He has additional expertise in evaluating and maximizing the recoveries from failed financing vehicles affiliated with a common borrower/issuer.
Principal Plot: Inflation Is Not Proceeding from Large Scale Money Growth as Monetarists Would Expect. Keynesians Are Not Providing a Complete Enough Explanation to Laymen as to Why That Is So. Frustration and Name-Calling Ensues.
And a Subplot: Warren Buffett Walks into a Bar . . .
Over recent months, an intense debate between two opposing schools of economics has reached a crescendo. The relationships—at least in print—among members of the so-called saltwater school of economists (those leaning towards Keynesian fiscalism, and more-managed forms of capitalism) and economists in the freshwater or Chicago school (broadly favoring less-regulated, free-market economies with an emphasis on monetary matters) has never been overly warm. But the degree of name calling and apparent unwillingness to find common ground has come to a head since the beginning of the year—especially following the U.S. economic profession’s annual conference the first weekend after the New Year’s break.
With the World Economic Forum at Davos on tap for this week, providing yet another occasion to read tea leaves and tout theories, it is a good time to consider whether polarization of opinion isn’t as much of a problem as polarization of income and wealth in the developed world. Is the almost complete absence of consensus among mainstream economists yielding drama but paralyzing decision?
To my view, the answer to the foregoing is a decisive yes. So, I have decided to tackle the issue with a bit of humor, together with my own explanation of the underlying problems and suggestions for how to go about reaching a very elusive meeting of great minds.
The debate as it proceeds each week in what I now title Real Economists of the Ivory Tower provides an often amusing diversion for its wonkish audience—but I am afraid it will never be successful mass entertainment.
Its cast—Paul, John, Robert, Brad, Simon, Scott, Tyler, and others—can fling their credentials and arguments at one another, but if you don’t know who I am referring to in this sentence, I doubt you would DVR the series. (Fortunately, we all have a guy named Mark—who happens to be a new colleague of mine in our work at The Century Foundation—to keep everyone honest, so you can always head over to his invaluable blog if you miss any episodes.)
Economist cat fights, alas, seem never to involve sex. There’s money, but no bling. And the typical insults run the gamut from “you weren’t listening during Econ 101″ to “you are so out of it that you can’t even understand what I am saying.”
That economists don’t understand what each other are saying, of course, comes as no surprise to laymen—as everyone else can’t understand them either.
So, with that in mind, and as technical as the subject matter may be (this is, actually, a serious essay), I’ll do my best to present in plain language the problem that is the source of the foregoing drama. For more advanced readers, I will provide a somewhat unconventional explanation of a possible middle ground that I will call, for now, an Exogenous Supply Incongruity (so named as to make certain no one understands me either until they read on).
The Synopsis to Date
In the major nations of the developed world—first in Japan, over a period of nearly two decades, then in the United States, beginning in 2008, and now (however reluctantly) in Europe—monetary authorities (central banks) have been massively increasing the portion of the money supply over which they have direct influence in an effort to revive their economies. In a conventional cyclical downturn, it is received knowledge that looser money encourages additional economic activity (spending, investment, employment, etc.) by making money cheaper and discouraging saving/hoarding.
Cheap and ample money would also encourage lending, and thereby would be expected to increase broad money supply—and, ultimately, to induce inflation across economic sectors.
In response to economic collapse, central banks have now gone well beyond conventional methods of expanding money supply, including purchasing investment assets (typically government issued or insured) in the open markets and pushing cash out to the sellers of those instruments, in the expectation that they will do something with that that cash to improve economic activity. This action is known as quantitative easing, which is a fancy term for what desperate central banks must resort to when they’ve already dropped short-term interest rates to essentially zero (the so-called zero lower bound, beyond which conventional monetary policy is obviously useless).
A limited amount of re-inflation itself is generally regarded as being a net positive to the recovery of an economy, especially after a debt binge such as we experienced in the 2000’s. The principle concern in this regard, however, is not to induce runaway inflation—something that is bad for a whole host of reasons that I do not need to go into here (especially because a majority of Euro-American economists and politicians appear to be preternaturally so afraid of inflation that one must assume that they all must know exactly why that is—or perhaps not, but I digress).
In any given developed nation, along with inflation, one would expect to see the value of that nation’s currency fall in relation to those of others that are not experiencing similar rates of inflation—thus furthering inflation in imported goods and making the inflating economy more competitive relative to those other countries. One would also then expect interest rates to rise in order to maintain levels of real (inflation adjusted) returns, thus getting things off the zero bound and back to normal.
The problem today is that, not only have conventional and extreme/unprecedented forms of monetary easing failed to restart brisk growth in developed economies, but massive monetary growth has not resulted in sustainable inflation, either. To be sure, there have been spikes in U.S., U.K., and European inflation (and slowing deflation in Japan—which is how you need to measure things over there), but they have arisen from expectations that quantitative easing would surely result in sustained inflation—not the actual thing itself.
I started reading The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks last weekend. Coincidentally, I come across this great quote yesterday: “I confess, I think about the future. So do my colleagues. If someone who’s spent decades investing doesn’t have an opinion about what lies ahead, there’s something wrong. I believe…Read More
There is a very interesting article in Wired this month, ostensibly about the tribulations of the modern scientific method, big pharma’s drug development approach, etc. But within the article is an excellent digression about the complexities of causation: “Causes are a strange kind of knowledge. This was first pointed out by David Hume, the 18th-century…Read More
In this weekends Barron’s, Michael Santoli asks this question: “Is it possible that an Obama victory wouldn’t, in itself, be unfriendly to market returns? Re-election of an incumbent is rarely jarring for financial markets and usually requires an improving domestic economy. And second presidential terms are about legacies, rather than heavy-handed policy-making. It’s fair to…Read More
This morning, I want to address the issue of externalities, and managing risk in an era of ever-increasing complexities. Equity investors deal with a variety of risks: Earnings, Business Cycles, Execution, and Valuation. These are the traditional risks that are, for want of a better word, ordinary. Whether you want to call them typical or…Read More
The “Sprinter” Method of Increasing Productivity
Tony Schwartz notes:
Our most fundamental need as human beings is to spend and renew energy.
When I began to crash in the early afternoon following my red-eye flight, I took a 30-minute nap in the room we have set aside for that purpose in our office. The nap didn’t give me nearly enough rest to fully catch up, but it powerfully revived me for the next several hours.
At the other end of the spectrum, exercise … positively influences our cognitive functioning, and our mood.
The truth is that we ought to be exercising nearly every day, ideally for at least 45 minutes, including strength training at least twice a week.
The secret to optimal well-being and effectiveness is to make more rhythmic waves in your life.To build the highest level of fitness, for example, it’s critical to challenge the heart at high intensity for short periods of time, and then to recover deeply.
The bigger the amplitude of your wave — the higher your maximum heart rate, and the more deeply you recover — the more flexibly you can respond to varying demands and the healthier you likely are.
The same rhythmic movement serves us well all day long, but instead we live mostly linear, sedentary lives. We go from email to email, and meeting to meeting, almost never getting much movement, and rarely taking time to recover mentally and emotionally.
Even a little intentional recovery can go a long way. It’s possible, for example, to clear the bloodstream of cortisol just by breathing deeply — in to a count of three, out to a count of six — for as little as a minute. Try it right now. See if it changes the way you feel.
Paradoxically, the most effective way to operate at work is like a sprinter, working with single-minded focus for periods of no longer than 90 minutes, and then taking a break. That way when you’re working, you’re really working, and when you’re recovering, you’re truly refueling the tank.
Making rhythmic waves is the secret to getting more done, in less time, at a higher level of engagement, with a better and more sustainable quality of life.
Schwartz explained last year:
In the renowned 1993 study of young violinists, performance researcher Anders Ericsson found that the best ones all practiced the same way: in the morning, in three increments of no more than 90 minutes each, with a break between each one. Ericcson found the same pattern among other musicians, athletes, chess players and writers.
For the first several books I wrote, I typically sat at my desk for 10 or even 12 hours at a time. I never finished a book in less than a year. For my new book, The Way We’re Working Isn’t Working, I wrote without interruptions for three 90 minute periods, and took a break between each one. I had breakfast after the first session, went for a run after the second, and had lunch after the third. I wrote no more than 4 1/2 hours a day, and finished the book in less than six months. By limiting each writing cycle to 90 minutes and building in periods of renewal, I was able to focus far more intensely and get more done in far less time.
The counterintuitive secret to sustainable great performance is to live like a sprinter. In practice, that means working at your highest intensity in the mornings, for no more than 90 minutes at a time before taking a true break. And getting those who work for you to do the same.
Obviously, it’s not possible for every employee to work in multiple uninterrupted 90-minute sprints, given the range of demands they face. It is possible for you as a leader and managers to make a shift in the way you manage your energy, and to better model this new way of working yourself. Make it a high priority to find at least one time a day–preferably in the morning–to focus single-mindedly on your most challenging and important task for 60 to 90 minutes. Encourage those who work for you to do the same.
In addition, encourage your employees to take true renewal breaks intermittently through the day. It’s possible to get a great deal of renewal in a very short time. Try this technique, for example:
Build a more rhythmic pulse into your workdays and you’ll increase your own effectiveness and your satisfaction. Support this way of working among those you manage and you’ll fuel both loyalty and huge competitive advantage.
Exercise, Lose Weight, Quit Smoking or Drinking, Pay down debt, Stop [insert nasty habit here] . . . The typical New Year’s resolutions are well intentioned but hollow gestures, forgotten by February. May I suggest something that might be longer lasting and more fruitful resolution? Knowledge. Pick an area of study that truly interests you,…Read More
Around this time of year, people begin making New Year’s resolutions. They are invariably doomed to failure for the same reason most diets don’t work: One-offs fail to change the underlying habits and beliefs that drive our daily behaviors. That is why I found this list of Zen Habits by Leo Babauta so enchanting. The…Read More