Pete On Rails

I don’t like to write about politics. However, I am glad to see that I am not the only one who thinks of Bob the Builder every time I hear Barak Obama say, “Yes we can!”.

I have just introduced the “has_karma” mixin to VoteFu. It aims to assign a karma score to the owners of voteable objects. This is designed to allow you to see which users are submitting the most highly voted content. Currently, karma is only “positive”. That is, +1 votes add to karma, but -1 votes do not detract from it.

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class User 
  has_many :posts
  has_karma :posts
end
 
class Post
  acts_as_voteable
end
 
# in your view, you can then do this: 
Karma: <%= @user.karma %>

This feature is new and probably going to be enhanced significantly, but useful enough that I’m releasing it now.

Quotes. I love quoting people. I have a ton of quotes saved in text files, on my blog, in my various mood messages on IM platforms, and who-know-where-else.

I decided to build an application to manage, organize, and syndicate quotes. You can read more about it on my project page for MyQuotable.

If you read this blog, you are invited to participate in my open alpha of MyQuotable.com.

Early Alpha image of myquotable.com

I read blogs from time to time. One of my favorites is A VC. I first started reading this blog when I was doing research on Radio’s Changing Business Model.

Today, there’s an interesting discussion going on over there about whether Wal-Mart might be doing us a favor by offering crappy Health Insurance benefits. I do some work in Health Insurance, so I was intrigued by this.

Having worked in consulting for a few health care payors, I have a pretty strong opinion about waste, overhead, and misplaced priorities among insurance companies. I agree with Fred’s post that in order for things to change for the better, we may need to change the insurance model, and employer paid insurance as we know it may have to change.

I can’t agree with Chad’s comment, though. Chad believes pretty strongly in the creation of a single-payor healthcare system in the US. A lot of people do, in fact. It’s not without its strong points. I think that as a matter of politics, it’s good to get that discussion going. But although my politics tend to be liberal, a single payor system like he describes is too ripe for inefficiency of a different kind.

While it’s true that Medicare’s administrative overhead is about 1.4% vs. an industry figure closer to 8 or 9%, there’s something missing in all of the single payor solutions that I have heard about. That is, there is no incentive to provide quality or timely service in a single payor system. Forming a monopoly, whether administered by the government or someone else, will have a chilling effect on medical and pharmaceutical innovation, service levels, and adequate care. The rich will pay private doctors, and the poor will be stuck filling out a dozen forms to get Medicare to pay for an emergency room visit. Meanwhile the overhead that the single-payor consumes will probably rise from the reasonable 1.4% that Medicare uses, to a much higher amount when we start to see that the Medicare model doesn’t scale well past its original design intentions.

The reason health insurance sucks in the US isn’t because we don’t have socialized medicine, or because drug companies overcharge and advertise on TV too much (though as a policy, I think it’s poor medicine to have patients asking for specific medications). It’s because the market is broken: the consumer who uses healthcare is not the same person as the customer who buys the health insurance offering. To make matters worse, we’ve got a marketplace full of consumers that have a low level of expertise. And who outside the industry can really read and understand an Explanation of Benefits for a complex but common procedure like childbirth? Even if you could understand the EOB, would you care that your insurance company was overcharged for something and report it?

I think that the shift toward Consumer-Directed-Health plans (high deductible insurance plans coupled with an HSA or HRA to cover the deductible) are a major step in the right direction. Under these plans, you are issued a debit card with $2500 on it, and an insurance policy with a $2500 deductible. If you don’t use all $2500, you get to roll the money over to the next year tax-free. Did I mention that an HSA is the ONLY type of account in this country where the money goes in tax free, then also comes out tax free? Or that you can invest the contents of your HSA in mutualk funds if you’re bold? Over time, a young person could build up a sizeable account for health care needs in retirement. If we start to offer economic incentives to people that reward them for using healthcare intelligently, learning more about treatment options, and exercising preventive care, we’ll end up being better off in the long run.

The problem is getting the information to healthcare consumers, and getting them to read it. Healthcare is still one of the areas where the information is not readily available in a compiled, free, consistent, accessible easy-to-understand format.

It’s far easier to have an insurance card that you just present at the doctor to pay for whatever services you decided you needed. But if you can make users of healthcare take a stake in their choices, you’re on the way to a better market for care.

During my summer vacation, I read two interesting books.

The first book was the national bestseller Freakanomics by Steven Levitt and Stephen Dubner. The second book was The Language Police by Diane Ravitch.

Today, I’ll talk about Freakanomics. In my next posting I’ll discuss The Language Police.

Freakanomics has been heralded as a groundbreaking examination and rebuttal of the conventional wisdom found everywhere. I must say, I really enjoyed the book. But, I’m really quite frightened.

I’m not frightened because the book was particularly insightful. And it’s not the implications of any of Levitt and Dubner’s observations that alarm me. In fact, once you apply rational thought to observations of social phenomena, most of the conclusions in this book just simply make sense.

What bothers me is the reaction to this book. Critics everywhere are beside themselves. Steven Levitt is evidently some kind of hero (or rogue economist) because he examined facts, analyzed data, and drew logical conclusions about topics that people typically fail to explore because they are uncomfortable. Since when do you get to be a hero for telling the truth?

I suppose it took bravery to ask the diffcult questions asked in the book in the first place. Unfortunately, the truth of the matter is that Levitt and Dubner are among the last of a dying breed. They don’t decide the answer ahead of time and reverse engineer the data to fit their theory. Many of today’s scientists and statisticians have bastardized the scientific method such that it is easy to define data sets that will support any outcome. Or worse: with a single data set, different methods can be applied to support different outcomes.

I see evidence of this type of behavior every day in my professional career as an IT Strategist. Most heinously, I see reverse engineering in the area of software and project estimation. In future articles, I will explore this area of rampant fact-bending and mis-application of mathematical technique.

Now, back to Freakanomics. You should read it, but read it with a critical eye. The book makes no apologies for not drawing any overarching conclusions from the several related-but-not-in-an-obvious-way studies that are outlined in its chapters. Ironically, that is left as an exercise for the reader. Just be careful if you choose to arrange the facts in order to support whichever societal implications you find most emotionally pleasing.

Today, I received an email from my bank promoting their new Identity Guard service designed to help “protect” me from identity theft. For $12.99 a month, my bank proposes to monitor my credit reports and react quickly to any indication that my personally identifiable information has been stolen and used without my permission.

This is reactive. It’s alarmist. And it puts the burden on me, rather than on the companies that are doing a poor job protecting my data in the first place. I am annoyed.

What if banks do a good job protecting my personal information in the first place instead? Most of the recent identity theft stories in the media relate to the large scale theft of personal information from banks, credit card issuers, online retailers, or transaction processors.

Yet when my credit is hijacked because a financial institution is lax with security measures, I pay for it by having to deal with the fallout. The banks do not. And they ought to.

So to the banks and credit card issuers offering “Identity Guard” products, I say this: Step up to the plate and take some responsibility. Protect my data, and insist that all of your transaction processing partners do the same. Until they do that, I’m hanging on to my $12.99 a month. I’m not going to pay banks for doing a lousy job protecting personal information in the first place.

If “Identity Guard” were free, I’d be more likely to accept it as a potential solution. But financial institutions, transaction processors, and other data collectors have created this problem for us. I’ve never seen a sign in a trinket shop that read, “If we break it, you bought it…” My bank shouldn’t say it either.

It’s been a little over a week since I published my first story on Eminent Domain. I spent some time and energy deconstructing the philosophy of eminent domain, property rights, and capitalism. I concluded that the Supreme Court made a royal mistake when they allowed the New London Development Corporation to claim an acre of land from 7 holdout families in New London, CT. I still stand by that assertion, but I want to illustrate the other side of the issue.

I do believe that Eminent Domain has its place. Consider the most recent news about a man in the everglades who held out while the state wanted to restore the everglades using his property. In short, an ex-Navy SEAL (and a patiot, no doubt) was living a rural lifestyle on a 160-acre parcel of wetlands in the everglades. He had no electricity, no utilities, and was 40 miles from civilization.

In order to protect the everglades, Florida decided that they needed to run some bulldozers around his land, erect berms, dredge here and there, and generally screw up his rural lifestyle. In return for his 160-acres of swampland, he was paid $4.18 Million. That equates to roughly $26,125 per acre. To put that into perspective, the going rate for arable farmland in Iowa is between $10,000 and $20,000 per acre (if you can grow something on it). Now, I know that Iowa isn’t Florida, but as strange as it seems, I am heaving real trouble finding comparable lots. It seems that nobody has a bunch of swampland in Florida that they are willing to quote me a price on.

In any case, I think the reaction of Mr. Hardy (the ex-Navy SEAL multi-millionaire) to his forced relocation is particularly stunning: Jesse Hardy said he doesn’t know where he’ll go after his Dec. 1 deadline to move. “I’m just trying to enjoy every minute I can of what I have left out there,” he said. (CNN)

I think Mr. Hardy won’t have much trouble finding remote rural land. He could probably even find some in Florida. Failing that, he could relocate to West Virginia, where you can still get large tracts of land from MeadWestVaCo for a pittance. He could move to Alaska where they actually pay you to live there (residents receive a royalty check from oil companies every year.) Both of these states will allow you to live in a clapboard house. But, it’s cold there. Perhaps west Texas would be more suited to Hardy’s love for hot weather and dangerous creatures. You can still get cheap land there too.

What I am getting at is that in this case, the state had a legitimate public use for the land in question, and paid what appears to me to be a more than fair market value. Further, this guy has enough money to live where ever he wants, from Manhattan to just outside Denali National Park. Yet he’s trying to portray himself as a martyr who has been run over by the government.

Fair enough. He’s got to move and that is lousy. But the people who got the short end of the stick are the middle class landowners in New London, Ct, who are going to be paid $100,000 for a postage stamp sized house. These people will then be forced to watch New London Development Corporation build a Wal-Mart on their land, and make a fortune doing it.

em·i·nent (m-nnt) adj. Towering or standing out above others; prominent: an eminent peak.
do·main (d-mn) n. A territory over which rule or control is exercised.

“The true foundation of republican government is the equal right of every citizen in his person and property and in their management.” –Thomas Jefferson to Samuel Kercheval, 1816.

The only eminent thing about the Supreme Court’s activities last week is how prominently wrong their decision on Eminent Domain was for this country. They have made a particularly distinguished mistake. An outstanding travesty of justice. Indeed, they’ve hurt us more than the last ten policy mistakes combined.

In case you missed the story, the town of New London has condemned the property of several homeowners in a well maintained, middle class neighborhood in order to clear the way for a private redevelopment consisting of townhomes, condominiums, and offices. After lengthy negotiations, the owners refused to sell their homes and businesses to the developer, and that developer had the government invoke eminent domain. This is one of the first examples of the government taking from one private party, and giving to another private party for a development project.

My good friend, talented author, master story-teller, and fellow thinker had a few things to say about the recent Supreme Court Decision on Eminent Domain. I must say, I agree with Steph, as you can see in my comment to her journal entry.

Countries that accumulate economic wealth generally have several distinct characteristics. There are several characteristics that I consider the most important:

1. An economic systems that rewards and promotes competence and performance
2. A government that establishes a set of rules that are fair, knowable, and generally not corrupt.
3. A suitable climate and geography to facilitate trade.
4. Access to education and other mechanisms for skills improvement
5. Protection of private property rights, both real property and intellectual property

These aren’t just my crazy ideas. The National Center for Policy Analysis agrees, along with Bernhard Heitger of the Kiel Institute for World Economics. Classical economists like Adam Smith and Keynes didn’t just think property rights were an important element of an economic policy, but rather an assumed pre-requisite. That is, without property rights, you don’t have a functional capitalist economy. You have something else.

Peter Boettke, of the Viginia Institute, says in this article that there are four important reasons for private property rights:

• Recognized private property rights provide the legal certainty necessary for individuals to commit resources to ventures. The threat of confiscation, by either private individuals or public officials, undermines confidence in market activity and limits investment possibilities.
• Clear property rights tend to make decision makers pay close attention to resource use and the discounted value of the future employment of scarce resources. Absent private property rights, economic actors will tend to be short-sighted in their decision making and not conserve resources over time.
• Property rights are the basis of exchange and the extension of ownership to capital goods provides the basis for the development of financial markets that are essential for economic growth and development.
• Secure private property rights, as indicated in the above quote by Thomas Jefferson, is the basis for limited and civilized government. The elimination of arbitrary confiscation and the establishment of regular taxation at announced rates enables merchants to calculate the present value of investment decisions and pass judgment on alternative allocations of capital.

The thinkers mostly agree, which is a rare occurence, that private property is a central pillar of capitalism. It is also a crucial element of The American Dream. In this case, do the needs of the many really outweigh the needs of the few? Or, perhaps more appropriately, are we really concerned with the needs of the many here? Or with the needs of the rich?

No matter what the rationalization, it seems to me that taking someone’s only valuable asset, while paying an unfair market rate (because the property is “blighted”), then giving it to a developer who will probably make 30 or 40 times the price paid from the project is an ethical travesty. It doesn’t matter that it’s legal. It’s unethical no matter how you slice it. That’s probably why the “moral values” crew is speaking up against it.

In the liberal state of Maryland, The Rouse Company was forced to build Columbia, MD around the properties of holdout families that refused to sell their land. Columbia, MD did just fine, and the holdout families either coexist peacefully or have cashed out at better market rates. And The Rouse Company still got rich beyond belief.

The Supreme Court, however, has handed developers a shortcut. Why would any big developer even try to negotiate a fair price with a landowner now? If I want to build 100 houses on your grandmother’s farm, why wouldn’t I just try to get my County Executive to condemn your family farm and cut out the pain of negotiating with you?

Don’t worry. You’ll get fair market value.

I read three interesting articles today. One is an old article, but I thought it was spot-on in pointing out that often we have a conscious attitude of racial tolerance, while harboring an unconscious racial bias without even knowing it. The second article is a more recent publication that reinforces the findings of the first: that we have some built in racial discrimination processing logic in our brains. That last article says to me that this “built-in” logic wasn’t just put there by our maker: social and cultural factors put it there, and that same mechanism can take it back out.

NYU/Yale Research Team Explores Neural Basis of Racial Evolution

Brain Activity Reflects Complexity Of Responses to Other-race Faces

New Study Suggests Race Fear Isn’t Hard Wired

While I think that the studies may have the ill-effect of giving the unenlightened (i.e. the “Davids” from The Color of Fear) a hook to hang their white guilt on, the last article shows that perhaps the key to undoing the cognitive damage of race bias lies in actively retraining your brain to recognize people as individuals, rather than members of a class or race. That’s something that sounds reasonably easy to do, but I haven’t found any studies yet where someone has tried to measure the effectiveness.

So as an MBA student, this raises an interesting question. When do we generalize and when do we individualize? It is a tough lesson to learn in MBA school. We take the management lessons from diversity and ethics courses: “Diversity is important. It is an asset. People deserve respect. Generalizations about people are dangerous.”

Then we go over to a marketing class where we learn how to sell useless widgets to “black mothers between the ages of 21 and 35 with teenagers in the home (!) ” by speaking to certain emotional concerns of a generalized group of people. We can certainly say we know the difference between treating people like individuals who deserve respect and treating people like a market to be targeted, tapped, and harvested. But do we really know what that means? Marketers make outrageous statements sometimes. Even though there is demographic data to back those statements up, I think that the language they use creeps into the organizational culture.

Do you think the traditional marketing function reinforces certain biases people have about women, black people, or any of the other groups of people that marketers use to segment markets? Have you seen any effective material on how the marketing and management functions of an organization can be designed to clearly differentiate between targeted market segmentation and discrimination within the organization itself?

I think that MBA schools ought to discuss the relationship between organizational goals, ethical concerns, and social factors in more depth. How do we balance marketing strategy with management factors, operational concerns, financial strategy, and other organizational issues? The more I learn in B-school, the more it seems like running the business of any one organizational department is the easy part. Sitting on the senior leadership team and representing your department is easy too. In order to be a great executive, you have to have a broader skillset that knits all of the organizational factors together and finds the right balance. That’s what I’ll be looking for in my last few courses at Loyola.

I have been reading quite a bit lately about the Radio industry. It’s a particularly interesting topic because the business model could potentially change based on technological advancements. Now, more than ever, audio broadcast technology is available to the average person. Podcasting, internet music streaming, and other technologies promise to empower more people to produce content the same way that the printing press and the Internet spread written knowledge.

Invariably, this has people thinking about how to make money under the new paradigm. Heather Green’s Blog and Om Malik’s Blog have an interesting examination of Yahoo Music’s new subscription service. Om Malik postulates that Yahoo Music could make a killing if they turned into an advertising-only service. I think Malik misses one key point, though: the interesting thing about the internet music model, as opposed to the broadcast model, is that the customer is the listener.

In over-the-air broadcasting, the advertiser is the customer, the audience is the product, and the individual listener is a supplier. Broadcast radio is all about giving away content “free” to listeners in order to supply them to advertisers.

Satellite radio, podcasts, and streaming music subscriptions seem to be more about pleasing the listener at an individual level. That is, treating them like a customer.

I haven’t seen any examples yet of a successful business model that merges the two concepts: “listener as customer” vs. “advertiser as customer.” I think that most subscription service listeners join because they want to be a customer instead of an audience to advertisers.

Though I haven’t thought all the way through the subtle differences in the mind of the customer, I think that’s exactly where the answer lies for a successful blend of the two revenue streams. That is, until we understand the psychology of the radio listener a little better, we can’t mix advertising and pay services.

After all, if HBO, Showtime, Cinemax, and other pay TV channels started running commercial advertisements, wouldn’t you rethink your $10 monthly payment for the service? It’s a tough problem to crack.

For what it’s worth, in order to have a profitable advertising business in streaming media you need a lot of listeners. According to David Frerichs, founder of iM Networks: “The reason that many of these stations aren’t profitable is simply because they’re not big enough. To create a profitable streaming radio business, you need about 10 million listener hours per month.” I am betting that the introductory offers Yahoo is putting out there are aimed at building that critical mass.