Rolling Back the 80/20 Rule

Talk is in the air that the 80/20 rule should truly become or replace the 90/10 rule. I'm not so sure.

I had always read the Pareto Principle as something that was lamentable – you have all these people working, and you get most of your productivity out of a small set of people. If that is how you want to read it, then in a way the greater concentration is even more lamentable.

In terms of fundraising, it might actually be an advantage. One way is to be looking at the potential donors as being a pyramid, with a broad base and a small amount of people who are at the top and can potentially give you a lot of money. In terms of trying to be targeted, it might be better if you can just target those ten percent of people that you know will give you the 90% of your donated funds.

But here’s the catch: those people have to be both identifiable and consistent. One worry is that your organization’s 10% might shift from year to year. Another related issue is that people die without planning ahead for their death and including your agency in the will.

What makes the bottom majority important is that this is where your future twenty or ten percent is coming from. People move up in the world and get better jobs and access to more resources (and connections to people who also have resources).

To just rely on the minority that is giving the majority now is short-sighted. You need to be constantly developing your development pipeline.

Those Closest Must Set the Pace

Ultimately what this comes down to is belief in you mission. It is possible to see work at a nonprofit as just another job, and to justify that you don’t give because you may already be working at below market rates to be able to work at a nonprofit. The key thing here is optics. As someone who works at a nonprofit, you can be visible in your community – both the place you live or work and the people you serve. Your work can be taken for granted, especially if you are not in a direct service role. 

What is needed from staff is buy in to the agency and the mission. This means that you don’t just work there because it is just a job, but you accept that you will face below market rates and you still give both your time and money to the cause whenever they need arises. 

I was thinking of this as a potential board member when I was reading as well, and the same applies. There are many reasons to work on a nonprofit board, but ultimately you are serving the cause the nonprofit serves as well. You have to give not just your time but your money as well.

Why do we have to do this as both workers and board members? Outside people look and see what the people closest are doing. If you’re going to ask someone for money or time and they will receive no extrinsic reward, you have to model that for potential donors and volunteers. 

It’s pretty simple but easy to lose track of. If I worked for a Ford Manufacturing plant, I’d buy a Ford.

Regulators Need a Better Defender: Joseph William Singer's "No Freedom Without Regulation"

I came across this book on one of my journeys through the library shelves.

I’m not familiar with Singer or his work.

Turns out he’s not a real stylistic writer, but he does get his point across.

Markets are structures of human interaction.

And they’re good.

What’s interesting about this book is that it takes the argument on from the right, trying to convince people who are nominally anti-regulation to the pro-regulation side. I picked up this book as a firm believer in the necessity to yoke the invisible hand.

I just don’t feel he did. I think the core of the book is the end of chapter three, as Singer is summarizing - “Laws prevent us from making demands of each other that should not be made in a democratic society that treats each person with equal concern and respect” (93). Basically I read this that regulations are in place to prevent the race to the bottom that I see in capitalistic markets and what I imagine is the end-point of the libertarian dreams, a war of all against all. So we take this premise, but it is argued with huge blind-spots and counter-arguments that aren’t addressed.

I have to get on one of my particular hobby horses here, but Singer uses the subprime crisis as the central point (It’s right there in his subtitle) showing that if we would have had more and more effective regulation, the subprime crisis wouldn’t have happened. I kept waiting for him to mention the ratings agencies. He mentioned them once.

No matter your viewpoint on the crisis, these middlemen failed - they didn’t verify the riskiness of so many derivatives and they helped create demand and all that made banks and originators make loans to people that shouldn’t have gotten that sort of credit. It was this failure that to me was the crux of the whole problem They are private companies that exist to look at financial products and tell the outside world how good those products are.  They are private, but several of them have been written into laws, so that some institutional funds, for example, can’t buy products that are risky. The ratings agencies say something is bad, and they can’t buy it - and vice versa.

This means that there were regulations in place that could have stopped it, but the enforcers of one part of the system failed and then boom. (None of this exonerates mass failures of supervision at the Federal Reserve, the SEC, or the Comptroller of Currency, I just think this part is missed too often). What this means is that the regulations have to be in place and they have to work and be supervised by indifferent regulators - in terms of having no conflicts.

A parallel issue is regulatory capture. The way the incentives work, a lot of people at the agencies that are regulators will move to the private sector after their stint of supervision is over, This is not just congressmen becoming lobbyists, but it is also Justice Department lawyers going to big polluters or SEC professionals taking their turn on the street. If you have people watching the game who will join the game in a lucrative manner, the incentives as a human are to maybe go just a bit easy on these people, this time.

These are real issues, and to pull back for a moment, as a fan of regulations, Singer doesn’t hit on them. I think he’s more worried about how they work in theory, but there are very real implications to how they work in practice.

Stiglitz et al's "Rewriting the Rules": How do we get from here to there?

Two of the left’s leading lights in terms of economic thinking have books that came out recently. I’m not sure what the order was, but Robert Reich blew up my Facebook timeline promoting his new book “Saving Capitalism from the Capitalist”. Stiglitz hits many of the same points here in “Rewriting the Rules of the American Economy”.

This book has its roots in a report from the Roosevelt Institute, and its layout and overall tone belie the audience. It was written more towards policy makers and a popular audience than towards students of economics. It was a team effort too – they just slapped his name right up front because he’s the one with the Nobel Prize, and if you forget that they also put that on the cover too.

In terms of content, the stronger part is the first half, where Joe and company look at various issues facing the national economy today like increased monopoly power, and the idea of shareholder value, and low taxes for the rich all while marginalizing the worker and minorities. Structurally, this book is nice and symmetrical, as it is not one of those where 90% is problem and 10% is resolution. Fully half of the book is proposals on what needs to be done.

Basically, what needs to be done is to make the economy more like it was in the golden age of capitalism, but this time with less racism and sexism. The problem with both this book and Reich’s book is that there is no sense of a mechanism of how to do this. Of the people in my generation, we look and see that Capitalism has always been this way, so it doesn’t make sense to roll back some of the bad things when they will creep back when you’re not looking.

Both authors mention Gailbraith’s conception of the “Countervailing Powers” that are absent, and they remain away from the scene and political decisions that are happening right now are trying to make it such that workers lose their separate identities as workers and lose their ability to collectively bargain. The left only has one branch of the federal government, and they re-pick that every four years. What hits me is that Stiglitz doesn’t want anything new, but the economy in terms of what we do to create the GDP is vastly different than it was 70 years ago. At least Reich is looking at how to come to terms with a post scarcity sort of economy in the first world by proposing a basic income, but as much as I like Stiglitz, I was missing any sense of something new.

Even then, so many of the rollbacks would involve large political movements just on their own that they would have to have some sort of mass movement behind them to pull them through as a whole plan, like new New Deal. As it is, the political process is such that you have blood of children running in the street and nothing gets done because of partisan priorities. There’s money involved in stopping any rollbacks. I’m just not sure how we get from here to there, even at the margins.

Finkler et al: Financial Management for Public, Health, and Not-for-Profit Organizations - A Review

Finkler et al: Financial Management for Public, Health, and Not-for-Profit Organizations

4th Edition

This was the book assigned to me for my class specifically for Nonprofit Financial  Management as I pursue my MBA  specifically for Nonprofit management.

As textbooks go, it is serviceable. The writing is clean and clear, and is easily understandable for someone that has some background in accounting. I am the Director of Finance at a nonprofit, and I was able to pick up a number of useful things from this, though a lot of it was review.

A couple of things bothered me a bit. There is a chapter about the time value of money (here it is chapter five). The book teaches the student how to approach the problems from a point where the unknowns are plugged into excel. This may just be me being old fashioned, but to me it skipped a step in being overly reliant on technology instead of going back one step and showing the derivation and making the student go through the motions to get an understanding of where excel is coming from. It’s not that it isn’t there - for example the derivation of finding the value of the annuity is footnoted, in small print. Again, a small concern, but one nevertheless.

A second thing is to look at the cost. Due to a mix up with the professor’s syllabus, I had first bought the third edition of this book, before being told that the fourth edition was the only acceptable one. The problem is that at the time, the third edition was less than half the price of the fourth edition. The kicker was I ended up with both of the editions side by side, and looking at the first three chapters I noticed no discernible difference. This may not be true in later chapters as I didn’t make the comparison. If you are assigning the text, have a look at the third edition for the student’s sake.

Gun Control in Our Time

Here's an idea.

If you want to keep a legal gun, you have to join the national guard or reserve. There is that sticky clause in the first part of the second amendment that gets ignored. Maybe have a one-time amnesty, where you can turn in your gun and get compensated for part of its cost.

It may sound harsh, but freeing the slaves was done without any compensation on the former owners. From an economic standpoint, it was one of the largest exportations of wealth in that didn't involve a revolution.

That represented a different turning, one where we collectively said that this was no longer a moral way to order society, I think we are at that same point with weapons that exist solely to kill in the most efficient way possible, No other machine has one use that we allow private citizens to hold but that one use is against the law.

Perhaps have some carve out for smaller-caliber single action rifles used for subsistence hunting, but the past week has been too much and federal action is needed.

Prayers don't stop bullets, nor do laws, but a large scale manufacturing industry can be curbed.

An Economic History of How the Sausage is Made: Lowenstein's "America's Bank"

I had recently read “The Summit,” a book who’s subtitle explains that it is a book about how the Bretton Wood agreement came about to be, and enjoyed it. I read a lot of economics, but not that much economic history of how the sausage is made.

Therefore, when I saw that Lowenstein was putting out a book about the founding of the Federal Reserve, I jumped at the chance to read it. It is right up my alley – heck, it should be up everyone’s alley, popular nonfiction about monetary policy being important.

The book itself is a story well told. The first part basically is setting up the history of banking for the first part of the republic, with federalists sparing against Jacksonian anti-federalist and chomping at the same urban / rural divide that is still with us. This first part is the more compelling part. The second part is about the drafting of the bills that would become the Federal Reserve act and the personalities behind the drafting. For me, this is where it broke down. I wanted more of the details about the policy, and less about Carter Glass being a bit of a hick (though he did have a big hand in both the Federal Reserve and later New Deal Legislation).

For me, one of the strengths was that the book didn’t give too much credence to the various conspiracies surrounding the Fed. The first part of the book is in itself strong enough to support the need for a central bank, even if 100 years ago our ancestors weren’t ready for a kind of European central bank like the bank of England, having centralized deposits was important for the country’s development as a global capitalist power. It does address these various cranks – on one page – and then moves on. I thought that was a brilliant rhetorical move by Lowenstein. I’m still not entirely sure why Missouri has two branches of the Fed, but the book is rich in detail and an interesting read for everyone who hasn’t bought into various anti-centralization conspiracies.