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The Palo Alto System

Courtesy of the Review – subscribe and invest in media, whatever it is you read. The NYRB works for me – a review/discussion of two new books about the history of Silicon Valley. You’ll never guess the rationale behind the creation of Stanford the University. Wait – yes, sure you will:

Stanford wanted to breed stronger horses, faster. There was a clear business rationale: at the time, horses were essential for transportation, agriculture, and war. He proposed transforming horse production in the same way that the production of so many other commodities was being transformed during the second industrial revolution: with modern techniques and technologies. This modernizing mentality, as Harris demonstrates, was visible everywhere in California, which has been “a high-technology zone from the beginning of Anglo colonization.” Because there were never enough wage workers, the state relied particularly heavily on “labor-saving machinery” in agriculture, which by the 1860s had overtaken mining as its main economic driver.

The Palo Alto Stock Farm turned out to be a big success. The principal innovation was the Palo Alto System, which involved teaching horses to trot when they were young. That way, Stanford and his operatives could identify the promising ones early, train them intensively, and then use them as studs to produce more promising colts, thereby transmitting talent via superior genes. “Instead of optimizing for adult speed, they optimized for visible potential,” Harris writes.

The Palo Alto System didn’t stop with horses. It became the guiding philosophy of the university that Stanford carved out of his estate in 1885. Harris focuses in particular on David Starr Jordan, the university’s first president, whom Harris credits with bringing the Palo Alto System “out of the barn and into the classroom.” Like many self-styled modernizers of the period, Jordan loved eugenics. Under his direction, Harris argues, “the small, young university became a national center for controlled evolution.” Young white people with potential would be identified and intensively trained, in the hope of staving off racial decay.

One of the features of the Palo Alto System as it applied to horses was an obsession with quantification. As the system migrated to humans, this quantifying impulse turned toward intelligence testing. Lewis Terman, a psychologist who joined Stanford University in 1910, helped popularize the notion that intelligence could be expressed in a single number, such as an IQ score. He was especially interested in high-IQ children. “Budding geniuses needed to be identified and elevated,” Harris writes, “while young degenerates needed to be corralled where they couldn’t dilute the national race or turn their underachievement into social problems.”

And… once again, here we are. Racism continues to be our fundamental foundation, regardless of region. There is no realm in which the wealthy can’t channel their profits into their hatred. Great job, everybody.

Image: Palo Alto Stock Farm (Photos: Stanford Archives)

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News Profit

papersI guess that could be prophet, but that’s a bit cheeky and I already miss the Amatriciana.

The impetus of media properties to destroy their product marches on. Bottom-line news gathering, a strict misnomer, has become the new if nonsensical metric. Where can this be headed, other than the obvious? The Washington Monthly looks at the future of cross-subsidies:

In the past, when media companies funded labor-intensive journalism—foreign coverage, investigative projects, beat reporters who spend days tracking down leads—we believed this reportage was very valuable, even financially. Readers wanted to know, advertisers liked the prestige that high-quality reporting brought, and the publications made plenty of money.

Occasionally a wiseass would say something like, “The box scores are paying for the Baghdad bureau,” and we thought, Well, maybe that cross-subsidy exists, maybe it doesn’t—but the whole package seems to be doing just fine.

The Internet blew apart the package and eliminated the cross-subsidy. Now readers can go to ESPN and get box scores, and they can go to a separate site to get news. Sports scores no longer subsidize the foreign correspondent, and the comics no longer support the city hall reporter.

This has led us to confront the ugly reality of just how lousy—financially speaking—many of our journalistic projects were. Media managers can now produce a profit-and-loss statement not only for the news division as a whole, but for each reporter—and each piece of content.

That is a dangerous sort of urgency. Immediate returns on investment is just instant gratification by [barely] another name. It’s not a viable practice for anything.

More broadly, news can be boring. What we are convincing ourselves to be true is merely self-fulfilling, and an indication that any number of things could be. But once information and news reporting become just more ‘content’ that has to compete for eyeballs, then we really need to keep one eye on the till. But beyond certain levels of comfort, even paranoia is not a sufficient motivating force. The challenge to education is ignorance; the need to know, in order to inform our assent or rejection, only grows with the complexity shrouded in simple choices. Re-discovering self-interest can be brutal and unforgiving, but it’s the only thing that will liberate the buyer’s impulse.

 

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Two centrist, nonpartisan organizations walk into a pension

Matt Taibbi in Rolling Stone brings some light to the sad, frustrating, infuriating story of how public pensions have been invited to a dinner where they are the main course:

There’s an arcane but highly disturbing twist to the practice of not paying required contributions into pension funds: The states that engage in this activity may also be committing securities fraud. Why? Because if a city or state hasn’t been making its required contributions, and this hasn’t been made plain to the ratings agencies, then that same city or state is actually concealing what in effect are massive secret loans and is actually far more broke than it is representing to investors when it goes out into the world and borrows money by issuing bonds.

Read the whole thing. Green has made (some of) us very mean.

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None Dare Call It Maize

Matt Taibbi has been on a roll with these “Everything is Rigged’ articles and blog posts on the RS site. And now he rolls out another doozy on the ratings agencies, which I would call corrupt if the word retained any meaning whatsoever:

Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation’s two top ratings companies, Moody’s and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

“Lord help our fucking scam?.?.?.?this has to be the stupidest place I have worked at,” writes one Standard & Poor’s executive. “As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it,” confesses a high-ranking S&P analyst. “If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value,” complains another senior S&P man. “Let’s hope we are all wealthy and retired by the time this house of card[s] falters,” ruminates one more.

Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

Their primary function is to help define what’s safe to buy, and what isn’t. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It’s supposed to be sacrosanct, inviolable: According to Moody’s own reports, AAA investments “should survive the equivalent of the U.S. Great Depression.”

Late capitalism is about all you can say. Every single descriptor is one that paints the picture of this crazy ‘system’ only working alongside dynamic constraints on human weakness and greed. Absent those, and we are absent most of those, we get this. It’s as indefensible as a plantation wedding in 2013, and everyone involved knows it. Read and share, especially enjoyable alongside the high-value TV commercials for multinational financial services corporations that support most programming these days.

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Grrr… utilities

Investor-owned utilities, that is. It remains an outrage that power utilities continue to tout their efficiency in delivering us as much power as we want to use, when we want to use it. That’s it. That’s where the conversation is and that’s why nothing about our carbon output changes, except for its ever-upward trajectory. But there is much more they/we can do, because the government sets their rates and other guidelines. Charge us for using more. create incentives for power companies to get us to use less energy. Loosen Pry them/us from the reality that solar is bad for profits:

Solar panels have dropped in price by 80 percent in the past five years and can provide electricity at a cost that is at or below the current retail cost of grid power in 20 states, including many of the Northeast states. So why isn’t there more of a push for this clean, affordable, safe and inexhaustible source of electricity?

First, the investor-owned utilities that depend on the existing system for their profits have little economic interest in promoting a technology that empowers customers to generate their own power. Second, state regulatory agencies and local governments impose burdensome permitting and siting requirements that unnecessarily raise installation costs. Today, navigating the regulatory red tape constitutes 25 percent to 30 percent of the total cost of solar installation in the United States, according to data from the National Renewable Energy Laboratory, and, as such, represents a higher percentage of the overall cost than the solar equipment itself.

In Germany, where sensible federal rules have fast-tracked and streamlined the permit process, the costs are considerably lower. It can take as little as eight days to license and install a solar system on a house in Germany. In the United States, depending on your state, the average ranges from 120 to 180 days. More than one million Germans have installed solar panels on their roofs, enough to provide close to 50 percent of the nation’s power, even though Germany averages the same amount of sunlight as Alaska. Australia also has a streamlined permitting process and has solar panels on 10 percent of its homes. Solar photovoltaic power would give America the potential to challenge the utility monopolies, democratize energy generation and transform millions of homes and small businesses into energy generators. Rational, market-based rules could turn every American into an energy entrepreneur. That transition to renewable power could create millions of domestic jobs and power in this country with American resourcefulness, initiative and entrepreneurial energy while taking a substantial bite out of the nation’s emissions of greenhouse gases and other dangerous pollutants.

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Graphic Inequality

Height

So… after stumbling upon a rather devastating piece by Hitchens on JFK and the Camelot business, I’ve been mining some other back issues of the Atlantic that I found around the house – must’ve had a subscription in 2006. I am no fan of that magazine – the trove seems to run out in 2007 – but this piece on inequality by Clive Crook is worth mentioning for a few reasons, not the least of which is the above graphic and his use of the 1% coinage from this, several years back. Surely things have gotten better, right?

In 1971, Jan Pen, a Dutch economist, published a celebrated treatise with a less-than-gripping title: Income Distribution. The book summoned a memorable image. This is how to think of the pattern of incomes in an economy, Pen said (he was writing about Britain, but bear with me). Suppose that every person in the economy walks by, as if in a parade. Imagine that the parade takes exactly an hour to pass, and that the marchers are arranged in order of income, with the lowest incomes at the front and the highest at the back. Also imagine that the heights of the people in the parade are proportional to what they make: those earning the average income will be of average height, those earning twice the average income will be twice the average height, and so on. We spectators, let us imagine, are also of average height.

Pen then described what the observers would see. Not a series of people of steadily increasing height—that’s far too bland a picture. The observers would see something much stranger. They would see, mostly, a parade of dwarves, and then some unbelievable giants at the very end.

As the parade begins, Pen explained, the marchers cannot be seen at all. They are walking upside down, with their heads underground—owners of loss-making businesses, most likely. Very soon, upright marchers begin to pass by, but they are tiny. For five minutes or so, the observers are peering down at people just inches high—old people and youngsters, mainly; people without regular work, who make a little from odd jobs. Ten minutes in, the full-time labor force has arrived: to begin with, mainly unskilled manual and clerical workers, burger flippers, shop assistants, and the like, standing about waist-high to the observers. And at this point things start to get dull, because there are so very many of these very small people. The minutes pass, and pass, and they keep on coming.

By about halfway through the parade, Pen wrote, the observers might expect to be looking people in the eye—people of average height ought to be in the middle. But no, the marchers are still quite small, these experienced tradespeople, skilled industrial workers, trained office staff, and so on—not yet five feet tall, many of them. On and on they come.

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Six Less Votes

That’s how many votes the millions Romney spent in Iowa this year (30,015) won him, versus how many he garnered (30,021) in a second place finish in 2008.

Pathetic on many levels, and yet gratifying on some others – the extent to which the Republican candidates cannot move the needle. Again, the inability of the Republican party to put forward a candidate who espouses the tenants of the party AND that people will like/vote for is scandalous. The country needs (at least) two viable governing parties; the Republican party is determined not to be one of them.

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Rich morons: still morons

This has been ably dispatched here, here and elsewhere, but you still may have missed it. Lou-weeeze:

“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” the JPMorgan Chase & Co. (JPM) CEO told an audience member who asked about hostility toward bankers. “Sometimes there’s a bad apple, yet we denigrate the whole.”

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. (HD) co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

So… who’s the imbecile? This is not even being tone deaf – I think they’re just dumb. Why would you ever feel it necessary to go on the war path about this? You’re tough enough to create all those jobs and bank all that dough but you can’t take criticism for being rapacious windbags and now must be called petulant, too? This is a gross extrapolation of the argument that people making $400K are barely getting by – and also that more money you make, the harder you work. Neither of these things is remotely true. Krugman’s right: get rich enough to surround yourself with sycophants and no one will tell you you’re being an asshole.

Camel through the eye of a needle and all – the real moral is: We all really need close friends.

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Awe… M’art

cb

With all of its localized shenanigans, it’s important to take a step back and see what big-picture Big Box looks like:

The brand-new Crystal Bridges Museum of American Art in the small northwest Arkansas city of Bentonville is the creation of Alice Walton, the daughter of the late Sam Walton, who founded Wal-Mart Stores Inc. (WMT), the largest retailer in the world.

Alice Walton, who is worth about $21 billion, has achieved her dream of building a top-tier museum that unabashedly celebrates American art in the American heartland. Crystal Bridges, in many ways, is an aesthetic success.

It’s also a moral tragedy, very much like the corporation that provided Walton with the money to build a billion-dollar art museum during a terrifying recession. The museum is a compelling symbol of the chasm between the richest Americans and everyone else. In 2007, according to the labor economist Sylvia Allegretto, the six Walton family members on the Forbes 400 had a net worth equal to the bottom 30 percent of all Americans. The Waltons are now collectively worth about $93 billion,according to Forbes.

Touche, monsieur. But what say you of the art?

But many of the paintings in Crystal Bridges hang in eloquent rebuke to the values of the company that has made the Waltons so very wealthy. Three paintings, in particular, struck me as especially pointed commentaries on the perverse values of Sam Walton’s heirs.

The first was Asher B. Durand’s “Kindred Spirits,” one of the greatest paintings to emerge from the Hudson River School. It celebrates the friendship of the painter Thomas Cole and the poet William Cullen Bryant, who are portrayed standing in an enchanted Catskill gorge.

“Kindred Spirits,” bought by the Walton foundation in 2005 from the New York Public Library for an estimated $35 million, is, in the words of the critic Rebecca Solnit, a tribute to “friendship freely given, including a sense of friendship, even passion, for the American landscape itself.”

It’s really worth re-acquainting oneself with the Saint-Just, Cardinal de Rohan and Charlotte Corday.

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Formidable Powers of Intervention

This is some incredibly confusing news to decipher, but given the players and subject that’s not too surprising.

The European commission underlined the negative impact of David Cameron’s summit gambit by pledging that the City’s financial institutions would be subject to new regulations hatched in Brussels.

So… the City, as it were, is England’s version of Wall Street, Charlotte and/or wherever else calls itself the center of the financial industry. Cameron evidently went to bat for it, protecting London’s sprawling financial sector from ‘excessive regulation’ at the European summit last week. He either vetoed the EU treaty or it proceeded without him. Whichever, it moves on now without the UK.

Cameron’s move isolated Britain in Europe as seldom before, producing weekend headlines and comment across Europe that the UK was on the way out of the EU.

“We want a strong and constructive Britain in Europe, and we want Britain to be at the centre of Europe, and not on the sidelines,” said Rehn. “If [Cameron’s] move was intended to prevent bankers and financial corporations in the [City of London] from being regulated, that is not going to happen. We must all draw lessons from the financial crisis, and that goes for the financial sector as well.”

It’s almost like a glimpse into the future, where industries sponsors national governments to protect their interests, couched in proprietary language that conflates the country with the industry, and makes their interests one and the same. The future, or the recent past – I can’t figure which.