Bob Shiller’s Nobel: Finance IS a Force for Good!

October 15, 2013 in Global Crisis Blog, Innovation Blog | Tags: , , | Leave a comment

Bob Shiller’s Nobel:  Finance IS a Force for Good!

By Shlomo Maital      

                                                                            Shiller

   Together with Eugeme Fama (U. of Chicago)  and Lars Hansen,   67-year-old Yale U. Prof. Robert Shiller won this year’s Nobel Prize in economics for  ‘contributions to our understanding of asset pricing’. 

     Those laconic words don’t begin to do justice to Bob’s contributions.  He was among the few lone voices who warned that America was in a housing bubble, that would soon burst.  He knew this, because he had developed a reliable, accurate measure of housing prices, the Case Shiller Index,  that is widely used.   Earlier he warned that the stock market was in a buble, in his 2000 best-seller Irrational Exuberance (the dot com bubble burst in March 2000). 

    I encounter many MBA students (some here at EDHEC) who are fascinated by the world of finance, but who are pondering whether to remain in the field, because of the downsizing and layoffs in finance, and because finance was given a bad name after the 2008-12 financial crisis, owing to a handful of scoundrels.  I urge them to remain in finance, and to innovate and reform the industry, and reinvent it.  And I always recommend that they read Shiller’s new book, Finance and the Good Society (Princeton U. Press, 2012).   Here is how Shiller frames his pitch:

“… finance should not be viewed as inherently or exclusively elitist–separating people into different income groups, or as an engine of economic injustice. Finance, despite its flaws and excesses, is a force that can help us create a better, more prosperous, and yes more equal society.    In fact, finance has been central to the rise of prosperous market democracies and is unimaginable without them.  Beyond headlines incriminating bankers and financiers as self-aggrandizing perpetrators of economic dislocation and suffering, finance remains an essential social institution, necessary for managing the risks that enable society to transform creative impulses into vital products and services, from improved surgical protocols to advanced manufacturing technologies to sophisticated scientific research enterprises to entire public welfare systems.  The connection between Wall Street and Main Street is as fundamental for society as is the connection between the brain and the nervous system in the human body.” 

    Finance specialists:  Stay the course!  Innovate, create, seek blue oceans.  Finance needs you,  Nobel Laureate Shiller says,  and I strongly agree. 

America’s DEEP Poverty: The REAL Scandal

October 13, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | Leave a comment

America’s DEEP Poverty: The REAL Scandal!

By Shlomo Maital

         deep poverty                  

Deep Poverty

    All eyes, all attention, all media  are focused on America’s government shutdown and debt ceiling crisis, now coming to a head.  This is indeed a scandal – no way to run a country, as the Economist cover claims. 

   But as usual, the real scandal is elsewhere, and is largely ignored by all, including the squabbling Washington politicians.

   According to the Wall Street Journal Europe (Friday Oct. 11-13, p. 7),  “Extremely Poor Fall Further Behind”,    despite the so-called economic recovery,  44 per cent of Americans who live below the poverty line  are in “deep poverty” (i.e. they have income that is half or less that of the official ‘poverty line’, which itself is exceptionally low.     Some 20.4 million Americans live at this level of income!   One American in every 16 lives in deep poverty.  This is up from one American in about 30, in 1975. 

     Some 45 m. Americans live in poverty, defined as an income of $23,492 for a family of four.  So deep poverty is an annual income of $11,750, or about $240 a week.   Some of the biggest increases in deep poverty occurred in the Deep South – Mississippi, Indiana, Georgia, Alabama. 

   Many of the ‘deep poor’ have part-time jobs in retailing, and struggle to get enough hours to get by, because their jobs are for 20 hours a week or fewer. 

     I wonder how many of us could survive in the U.S. on $240 a week, to pay for food, shelter, clothing, education,  and of course paying for health insurance at that income level is out of the question. 

    So while partisan Washington squabble over politics, the deep poor sink deeper and deeper into despair.    What really could help the deep poor?  Sustained economic growth.  Only that can create the jobs they need, and convert part-time jobs into full-time ones.  But we won’t get sustained economic growth, while U.S. government spending is being slashed, because right now the government is the main, even only, source of growth in demand.  And of course the deep poor have no voice – they are silent, unorganized, with no-one to stand up and speak for them.

     Those of us who are comfortable should try to speak up for those who have so little.  But I just don’t know how to do this effectively.  Do you?    
http://online.wsj.com/article/SB10001424052702304520704579127683358228854.html

Memo to Every Country: Keep Your Bright People!

October 13, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | 3 comments

Memo to Every Country: Keep Your Bright People!

By Shlomo Maital

            Nobel Chemistry

Nobel Winners Warshel, Levitt and Karplus

  This year’s Nobel Prize for Chemistry was won by three scholars, two of whom were Michael Levitt, Stanford Univ., and Ariel Warshel, U. of Southern California.  The latter two are Israelis;  Levitt studied and did research  at Israel’s Weizmann Institute, and Warshel studied at Technion-Israel Institute of Technology.   Both did their Nobel research abroad.  Levitt told the press that he would have preferred to remain at Weizmann, but it was “not his decision”.    The three winners did research that used software algorithms to simulate and predict chemical reactions, now widely used in drug development.  Like many Nobel breakthroughs, their work combined fields not often combined:   in this case, classical physics and quantum physics.  One of the winners was French:  Martin Karplus, of Univ.  of Strasbourg.

    Both Levitt and Warshel studied in Israel; Ariel studied at my university and won awards.  Both say they would have preferred to make their careers in their home countries, but could not get academic positions. 

     I believe that one of the key ways we should judge our political leaders, is whether they do everything possible to keep our bright young people at home, and to attract those who have left to come home.   This is our future; to do less is to damage our future.  I don’t see how Israel’s government is doing anything serious to stem the massive brain drain, or attract home those who left in earlier years.  It is very small comfort to see an expat Israeli win a Nobel Prize, for Stanford or Southern Cal.   We see an exodus of brainpower from Greece, and from Spain, and other nations in fiscal trouble.  The cost of this is simply immense.   

Source:
http://online.wsj.com/article/SB10001424052702304520704579127683358228854.html

Pittsburgh: Last Great Undiscovered American City

October 11, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | Leave a comment

Pittsburgh:  Last Great Undiscovered American City

By Shlomo Maital

UPMC

                              

  On Wednesday I was in Pittsburgh, Pa., and gave a talk at Carnegie-Mellon Univ.  Pittsburgh is perhaps the last great undiscovered American city.  Once a grimy steel town, with steel mills spewing pollution on the three rivers that merge in downtown Pittsburgh (Allegheny, Monongahela, Susquehana), Pittsburgh once saw the mighty United States Steel building tower over its skyline. (Its NFL football team, Pittsburgh Steelers, gets its name from that era).  In the 1950’s, I visited the steel mills that employed thousands of Pittsburgh workers.

  No longer. The steel mills are long gone.  Grimy Pittsburgh is now squeaky clean.  And the steel jobs have been replaced by health care jobs.  In place of the US Steel sign,  UPCM (University of Pittsburgh Medical Center) towers over the skyline.  Pittsburgh has become a health care center, with two great universities at its core, University of Pittsburgh (Pitt) and Carnegie Mellon.  Pitt is unusual; it is one of the only universities in the world whose core building is a skyscraper, the 40 story Cathedral of Learning. 

    Nearby cities, like Detroit, and Cleveland, are in desperate trouble. Detroit has declared bankruptcy.  Detroit lost its auto jobs, Cleveland lost its heavy industry.  Somehow, Pittsburgh fought back and found something to replace the steel jobs.  What we learn from this is simple:  Every individual, organization, city and country needs to ask,  what is it that I can do, to create value for others,  that is done better, faster, cheaper, than others?  What is my ‘differentiator’?  Every company, every city, every country needs one.  Some cities never bother asking that question, and they sink.   Of course, you need to do more than ask the question – you need to answer it wisely and then implement the answer.  Pittsburgh has done that. It is a thriving vibrant city, with a vigorous cultural life,  many young people who flock to the high-quality universities and stay after they graduate, and strong political leadership.  

   

Explaining Obamacare to Grade Three Kids

October 6, 2013 in Uncategorized | Tags: , | Leave a comment

Explaining Obamacare to Grade Three Kids

By Shlomo Maital     

                       grade three

   How would you explain the US government shutdown and Republican psychosis about Obamacare (The Affordable Health Care Act), to a class of Grade Three kids?

   Here is my attempt.

   Kids, sometimes people get sick.  Going to the doctor costs a lot of money. So they buy insurance, just like your mom and dad buy insurance, in case there is a fire at your house.  Insurance means you are paid money when something you don’t expect happens.   A lot of American people, 30 million or more,  don’t have health insurance.  So President Obama and the United States Congress acted to make sure they do.  This was done by a law called the Affordable Health Care Act.   

   But here is the problem.  Medical care costs a whole lot more in America than other places – probably twice as much or more.   And in America health insurance is provided by the companies that your mom and dad work for  (while in other countries it is mostly provided by the government).  So when President Obama makes every business provide health insurance, it means that some small businesses that don’t have much money have to spend a lot to do what the law says, and they don’t like it.   Why doesn’t the government in America provide health insurance?  Well, it’s a long story. It goes back to the days of President John F. Kennedy, who almost did it, but in the end the doctors shot it down. 

    So the Republicans think that Obama’s health insurance law is too expensive and want to cancel it.  The Democrats think it is a good thing and want to keep it.  This is what has caused the shutdown of government, because you can’t pay people without having a government budget and the Republicans in the House of Representative will not vote for this.   The people in America who had health insurance already were mostly satisfied with it.  The people who didn’t have health insurance are mostly happy with the new law but we don’t know for sure, because the law has just begun to work.

    A lot of people outside America are looking at how national parks and cemeteries and Mt. Rushmore and the Statue of Liberty and part of the Pentagon are closed, and are just amazed.  It sure doesn’t make America look good.

   Everybody believes that democracy – where everyone chooses their elected officials by voting, and where everyone gets to have a vote – is a good thing. But when democracy shuts down the government in America, some people are wondering if it is really working the way it should. 

——–

  Boring background:  America spends 18 per cent of its GDP on health care, twice that of most nations, but America’s health statistics are significantly worse than many other modern nations.   The real core problem is:  the Affordable Health Care act has NOT made health care affordable for America as a whole.   To do that, you would have to make drugs cheaper, pay doctors and hospitals less, and take health care out of the for-profit sector.   

Võ Nguyên Giáp: 1911-2013

October 5, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | 1 comment

Võ Nguyên Giáp: 1911-2013

By Shlomo Maital     

           Vo Nguyen Giap, Luiz Inacio Lula da Silva

Gen. Giap with former Brazilian President Lula

  Vietnamese General Võ Nguyên Giáp died on Oct. 4.  He was 102.

   Gen. Giap was a leading commander in two wars:  against the French, and against the United States.   He commanded Vietnamese forces at the key battle of Dien Bien Phu, against the French, which ended French colonial rule of Vietnam.  Giap surprised the French, by hauling howitzers up steep mountainsides, pulled by troops.  While primitive, the howitzers were a surprise to the French and proved decisive in the battle – the French had not expected the Vietnamese to have artillery.  Giap had his 24  105-mm howitzers dug into the hillside on its forward slope (normally artillery is placed behind the crest of the hill, to hide it), to demoralize the French troops and ensure that they see them.  Giap had a series of trenches dug, which encircled the French and gradually enveloped them.

   This was not the first time Giap was underestimated.  In the battle against the U.S., Giap created the Ho Chi Minh trail, which kept supplies flowing to the Viet Cong in the South, despite American efforts to bomb the trail with B-52’s and interrupt the crucial logistical supplies. 

   We in the West consistently underestimate the resilience, inventiveness and dogged determination of Asians.  The Vietnamese people are physically relatively small; this too is a factor in how Westerners regard them.  But I have acquired immense respect for them.   Here is a small story that explains why.

    At MIT, I had a young Vietnamese student in my summer course, which required a great deal of reading.  His English was very poor and he got 50% on a mid-term exam.  I tried to console him.  But he shook his head and told me, “I know half material, I get 50%; end of course I know all material, I get 100%”.  And he did. He simply went without sleep, and got the job done. 

     What are the odds that a fighting general could engage two great powers in brutal wars,  triumph, and die in his bed at the ripe age of 102?    Let us have new respect for Asia and its people.  They are not to be underestimated, in peace as in war. 

Horn of Africa Migrants: Does Anyone Care?

October 4, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | Leave a comment

Horn of Africa Migrants: Does Anyone Care?

By Shlomo Maital     

              migrants

Again – a line of body bags.  No, not from Syrian Army poison gas attacks.  This time, an estimated 300 or more migrants from Africa’s Horn, who perished on a leaky ship bound for Lampedusa, an Italian island,  from Libya. According to the BBC  the ship’s engine failed.  Someone on board lit a fire to attract help. The fire then raged out of control. People on the ship fled the fire, too many moved to one side of the ship, and it tipped over.  Many drowned. All this took place just one kilometer, or 0.6 miles, from shore!    Italy’s conscience was aroused – the Italian Prime Minister declared a day of mourning.

       The migrants were mainly from Somalia and Eritrea.  Somalia is a failed state, has been for years, suffering from drought and famine, and is often in the news. Eritrea, on the other hand, is nearly invisible, run by a brutal dictator who does not allow journalists into his country.  The result:  Eritrea is rarely in the news, despite the brutal violence imposed against its citizens.   Until Israel built a high fence along its long border with the Egypt’s Sinai Peninsula, many Eritreans fled to Ethiopia, north to Sudan, thence to Egypt, from there to Bedouin smugglers across Sinai, to Israel.  They suffered enormous hardship, extortion, blackmail and much worse.

      Total annual world military expenditure amounts to $1.75 trillion.  Suppose just five per cent of that amount,  $87.5 b.,  were allocated to programs that helped Horn of Africa migrants study and resettle in Western countries.  Ultimately, Somalis could return to rebuild their country.  Eventually, when the murderous dictator is removed, Eritreans could, too.   These migrants are full of energy, hard work and the desire to contribute. All they seek is a chance.  We have more than 50,000 of them in Israel, mostly in South Tel Aviv.   Why do 300 of them have to die, in order to arouse the world’s conscience, for an Andy Warhol 15 minutes – only to be forgotten again in no time?

Tom Clancy: April 12, 1947 – October 1, 2013

October 3, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | Leave a comment

Tom Clancy:  April 12, 1947 – October 1, 2013

By Shlomo Maital

            P612300 RED

Tom Clancy died on Oct. 1, age 66.  His first published novel was The Hunt for Red October, published in 1984, about a Russian submarine.   More than 100 million copies of his novels are in print, and 17 became NYT best-sellers.  

  We can learn much from Clancy’s life.  He was an insurance salesman in Baltimore, but had a lifetime fascination for the Navy and for military technology, from an early age.   He read books about ships and the Navy when he has a child. In his spare time he wrote “Hunt for Red October”. It had a great many details about Soviet submarines, weaponry, satellites and fighter planes; Navy Secretary Lehman asked Clancy, in 1986, “who the hell cleared it?”  The answer: Nobody. All the data came from technical manuals, interviews and published books.    A lot of great intelligence simply comes from gathering openly published material. 

    Clancy sent his manuscript to the Naval Institute Press in Annapolis, MD.  An editor, Deborah Grosvenor, was mesmerized by it, but had trouble persuading her boss to publish it.  She finally got Clancy to cut 100 pages and remove some technical descriptions.  The Press paid $5,000 for the book.  It became a smash best seller when President Ronald Reagan said it was “my kind of yarn” and mentioned that he couldn’t put it down. 

   We can learn an important lesson from Clancy and his life.  He was 36 when his first book was published.  That means he spent long years selling insurance, while pursuing his true passion in evenings and on weekends.  Clancy died relatively young – but he had 30 good years doing what he loved and doing it well.  We should all pursue our true passions, after finding out what it is, and at least try to make our living from it, even while earning a living from something else.  Rest in peace, Tom.  Thanks for all those great books – and the movies based on them.

Meet Your Neighborhood Bee – Up Close!

October 3, 2013 in Global Crisis Blog, Innovation Blog | Tags: | Leave a comment

 Meet Your Neighborhood Bee – Up Close!

By Shlomo Maital

         Bee closeup

 Ever wondered what a bee looks like, up close – really close?   New photos of insects using new technology, published in Bloomberg Businessdaily,  are highly revealing. The photographs are by  by Sam Droege/USGS Bee Inventory and Monitoring Lab.  The US government monitors bees because mysterious diseases have been depleting bee colonies in the US and abroad. 

   Bees are miraculous creatures (See Harun Yahya,  The Miracle of the Honeybee, available online at http://fs.fmanager.net/files/flashpages/index.php?bookid=4193

   Here are a few amazing facts about bees:

* A beehive contains thousands of larvae, at many different stages. The worker bees will visit each larva 10,000 times!  In its first 6 days of live, each larva increases its weight by 1,500 times, feeding on royal jelly for the first three days. Royal jelly is an exceptional compound, comprised of  67% water, 12.5% crude protein, including small amounts of many different amino acids, and 11% simple sugars (monosaccharides), also including a relatively high amount (5%) of fatty acids. It also contains many trace minerals, some enzymes, antibacterial and antibiotic components, pantothenic acid (vitamin B5), vitamin B6 (pyridoxine) and trace amounts of vitamin C. 

 * Worker bees produce “propolis”, an anti-bacterial substance they produce by combining their saliva with sticky resin collected from trees, in the pods they use to gather pollen.  When there is ‘junk’ in the hive that is too heavy to be carried away, the workers cover it with propolis and seal it.  They basically mummify it. E.g., invading wasps.  Somehow the worker bees know that dead bodies in the hive will decay and cause disease, and through evolution have developed an effective method for preventing this.  Imagine if we humans were able to produce our own antibiotics – inside our own bodies.

* Guard bees release a strong odor, known as pheromones, when they sting an intruder.  This acts as an alarm or siren for the entire hive to mobilize and defend itself. 

* Bees protect their hives with their lives.  Their sting sacs are amazing weapons. The stinger detaches itself, with its poison, from the body of the guard bee, which quickly dies.  But the stinger continues to inject the poison into the intruder, even though detached from the bee’s body.  If you’ve ever been stung by a bee, you may have seen this in action. 

* When a hornet invades a Japanese bee hive, it is too large to be killed. So the bees envelop it in a ball of 500 bees, and with their wings rotating rapidly, generate immense heat – high enough to kill the hornet. 

    Bees have very very tiny brains.  How then do they do all these miraculous things, that seem to require very high intelligence?   Evolution.  The power of evolution through accidental mutations generated bees adapted to survive. 

    Some believe teaching evolution is anti-religion.  But the result of evolution, those amazing honeybees, are simply Divine in nature.  We humans have much to learn from them.   

Destroying Our Most Precious Resource – (It’s Not Air or Water)

September 28, 2013 in Global Crisis Blog, Innovation Blog | Tags: , | Leave a comment

 Destroying Our Most Precious Resource – (It’s Not Air or Water)

By Shlomo Maital

creativity decline

98% geniuses, age 5;  2% geniuses as adults

  In an interview with the AARP (retired persons) magazine, Warren Buffett warns against investing in gold, and in doing so, informs us how much gold there is in the world:  170,000 tons, which if melted together would form a cube 68 feet on each side, worth $9.6 trillion (at $1,750 per ounce).  Wow…that’s a lot of cash, more than half America’s annual GDP.  

   Now – imagine reverse alchemy:  Irradiating that cube until it becomes…lead.  $10 trillion in value disappears instantly. Gone forever. 

  Insanity?  We are doing the equivalent every day to our children.

  Studies show that nearly all (98%)  3-to-5 year-olds score as creative geniuses, when measured by their divergent thinking skills (ability to envision multiple solutions to a problem – matching the definition of creativity as ‘widening the range of choices’).  [The test is used by NASA to measure creativity among its employees].  By age 10, only 32% scored at genius level. By age 15, 10%.  And by adulthood:  2% !    ***   [See Figure above].

    We can only blame the way kids learn in schools for this.  Rigid, regimented, this-is-the-right-way convergent thinking, my way or highway. 

    What is the value of this destroyed creativity?  Far far more than that cube of gold.  Imagine all the wonderful ideas we will never have, to enrich our lives and change the world, because our young geniuses have their creative sparks extinguished.   And we can never get it back.

    If only there were awareness of the problem. If only we could stop destroying creativity in our children, by a few simple ways to foster divergent thinking. 

    Is anyone listening?

 

***     Education researcher Y. Zhao notes, in a 2009 book:    “In their 1992 book Breakpoint and Beyond: Mastering the Future—Today, Land and Jarman (1992) describe a longitudinal study on creativity beginning in the 1960s. Land administered eight tests of divergent thinking, which measure an individual’s ability to envision multiple solutions to a problem.  NASA uses these tests to measure the potential for creative work by its employees.  When the tests were first given to 1,600 three- to five- year-olds, Land found 98% of them to score at a level called creative genius. But five years later when the same group of children took the tests, only 32% scored at this level and after another five years, the percentage of geniuses declined to 10%. Figure 0.1 illustrates the sharp decline in one measure of creativity as children get older. By 1992, more than 200,000 adults had taken the same tests and only 2% scored at the genius level.”

Blog entries written by Prof. Shlomo Maital

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