Make up your damned minds, finance pundits

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Guess what, everybody — we’re ruining the economy by saving too much. Or as it’s called now, “hoarding cash.”

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It wasn’t that long ago that the financial pundits were railing against Americans’ crazed-weasel-on-meth spending habits, pointing out that a significant chunk of the population would be in trouble if faced with a $400 emergency:

So which is it: Are we or aren’t we supposed to buy avocado toast to save the economy?

Life Work

Dan Pink on What Motivates Us

I posted this article to the technical blogs I write – my own Global Nerdy and Microsoft’s Canadian Developer Connection – but the topic of what motivates people would be just as interesting to people outside the field of software. There’s no tech jargon here; if you do work that involves even a modicum of cognitive skill, this is for you!

Here’s a great movie which takes the audio from a presentation by Dan Pink based on the research for his latest book, Drive: The Surprising Truth About What Motivates Us and augments it with video of a whiteboard cartoonist illustrating what Pink is talking about. I have no idea how long it took to film the illustration sequences, but I love the end result – I think it makes for better internet viewing of a presentation than simply watching a video of the presenter on the podium, even when accompanied by slides.

The movie covers the part of Pink’s presentation that talks about an experiment to determine whether higher pay led to better performance. The results:

  • For turnkey, mechanical, just-follow-the-instructions tasks, larger rewards do lead to better performance.
  • For tasks that call for cognitive skills, conceptual and creative thinking — even at a rudimentary level — larger rewards did the opposite: they led to poorer performance.

The sort of work we do calls for cognitive crunching certainly falls into the latter category – as Andy “Pragmatic Programmer” Hunt says, making software is one of the hardest thing humans do.

Money is a motivator, but when it comes to people who do the sort of work we do, it requires more than just money to motivation. Pink’s recommendation is to pay people enough so that they’re not thinking about money, but thinking about their work instead. Once you’ve done that, there are three factors that lead to better satisfaction and performance:

  1. Autonomy: The desire to be self-directed, to direct our own lives
  2. Mastery: The urge to get better at stuff
  3. Purpose: The reason we do something

In the end, what Pink suggests is that if we treat people not like “smaller, better-smelling horses” with carrot-and-stick incentives but like people and set up the appropriate motivations, we’ll make our work and the world a little bit better.

If you enjoyed this portion of Pink’s presentation and want to see the whole 40-ish minutes, I present it below. Enjoy!

If Pink’s name rings a bell, it’s probably because you’ve heard of his other books, A Whole New Mind and the manga career guide Johnny Bunko.


Thinking of a European Vacation?

First, a treat for you Lord of the Rings fans:

Picture of icelandic volcano ash cloud and lightning: "One does not simply fly into Europe"

Even before the eruption of Mount Unpronounceable, prices for flights to Europe were higher this year than last year. The chart below shows the prices for flights from the “top 50” cities in the U.S. and Canada to the “top cities” in Europe:

Chart showing considerably higher prices for flights to Europe in 2010 versus 2009

There’s an article at that attempts to answer the question “I’m flying to Europe this summer – should I buy tickets now or wait?” Rick Seaney, the author, says he’s a gambler at heart and suggests that you keep an eye open for price drops over the next few weeks; if you see a ticket below USD$1100, snap it up. Read the article for more.

Life The Current Situation

“Squeaking By” on a Mere $300,000

Sqeaking by on a mere 300000: "Tonight, we dine at home!"

Squeaking By on $300,000: even in fat times, the headline of that article, which appeared in Sunday’s Washington Post, is far too tantalizing to ignore. What sort of person “squeaks by” on three hundred large?

One such person is Laura Steins, whose life – especially the socio-financial bits – is the subject of the article. She is a a vice president at MasterCard and lives in Birch Hill, a wealthy suburb outside New York City, and a divorcee with the custody of her three children.

I read the article and the the commentary about it on the web about the article and have written my thoughts below.

The Situation

She and her family live in a 4,000 square foot house valued at US$2.5 million; after the divorce, she bought out her husband’s half. The picture below shows both its exterior and interior:


The article’s opening paragraphs flesh out her situation a little more:

"Morning," says Laura Steins, 47, wearing a dark Armani suit and take-charge heels. Her blue eyes are lustrous and her skin is golden, and even with wet hair and no makeup, she radiates confidence.

But she’s months overdue for a visit to her colorist, a telltale sign of economic distress for a woman such as Steins. The smell in the basement could mean a crack in the septic line; unlike a $200 hair appointment, a plumber will be in the thousands. And from the breakfast table comes one more urgent need from a 10-year-old.

"At my birthday party, every single girl had a phone," says Katie Steins, making the case that an enV2 phone with matching cover is just standard in her crowd.

Steins kneels down to face her daughter. "If you continue to tell the world how undesirable your phone is — it’s not a flip, it’s not a swivel, it’s not an LG — you will not have a phone."

Steins takes a breath. Life in this $2.5 million house was built on the premise of two incomes, not the income of a divorced mother of three in a tanked economy. Her property taxes are $35,000 a year, the nanny is $40,000 and the gardener is $500 a month.

"I can ride this storm out," says Steins, which means having tiger-striped hair and getting her kid a generic cellphone and ignoring the stinking basement.


Follow the Money

Although Steins probably considers herself to be part of the middle class – perhaps upper middle class, but middle nonetheless — her circumstances put her farther ahead in the game than most people in her situation. Consider her sources of income, which the article lists as:

Source of Income Amount (US$)
Salary $150,000, plus bonus. She’s taking home 10% less this year because bonuses were downsized.
Child support from the ex-husband $75,000
Money from a personal investment account to “pick up the slack” $50,000
Total $275,000


At $275,000, she’s making 5.5 times the 2007 median U.S. family income (according to Wikipedia’s page on median household income) and almost 7.5 times the 2007 median income for a family run by a single woman (according to this article in the Washington Area Women’s Foundation blog). It’s almost $100,000 more than the lower limit of the top 5% of U.S. household incomes for 2007.

As far as assets go, Steins has a treasure trove compared to most of us. She doesn’t just have a house on a nice lot in a tony neighbourhood, but all the accoutrements: furniture, appliances, electronics, clothes and so on. On the more liquid side, there’s her personal investment account. If it’s providing $50,000 to “pick up the slack” (her words, as quoted in the article) this year, I have to ask:

  • What companies is this account investing in?
  • If $50,000 is this year’s payoff, what’s the principal?

You Can’t Go Back

It’s easy for us to ask why Steins doesn’t sell her house. She explains that she doesn’t want to uproot the kids and that it’s near her work. There’s also the issue of the current economic climate: it’s hard to sell a house right now, especially one worth $2.5 million.

Her explanations, while reasonable, sound like rationalizations. As Chris Rock put it in one of his stand-up routines (in a very funny, very vulgar way which I’ll leave you to discover for yourself): once you get used to a certain lifestyle, it’s hard to go back. It’s a fair bet that when she was still with her husband, the household income was closer to a half million per annum.

Steins may also be holding on to her lifestyle, and especially the house, as a source of comfort in the wake of her divorce. In times of overwhelming, unpleasant change, we look for comfort in the familiar, and what’s more comforting and familiar than home?

Keeping Up Appearances

Keeping up appearances is also a factor. There’s a couple of telling anecdotes in the article, the first of which is Steins’ daughter complaining about her mobile phone wasn’t an LG enV2 — a model name so appropriate for the article that it’s downright Dickensian – which is the standard phone among her friends.

The other notable story about the importance of appearances is about a theme party in Steins’ neighbourhood. Its theme was the recession, the food and drink came from Costco, and guests were asked to dress down in old clothes and bring something non-perishable to be donated to the food bank. One guest violates the rules and shows up wearing a blazer and khakis, explaining that he wanted to show up in jeans but his wife wouldn’t let him. “They were so vintage,” she says by way of explanation, “I couldn’t bear it.”

Funny Because It’s True

There’s a quote in the article that made me laugh out loud. It comes from Kathy Shellogg, Steins’ live-in nanny, who in describing the Steins’ food preferences, says “They are big mayonnaise people.”

Violating the Unwritten Rule

Steins is breaking the rule that you learn by osmosis if your parents are professionals and have at one time or another owned a Swedish automobile or a sailing vessel at least 20 feet long: You should appear in the newspaper three times at most – your birth announcement, your wedding announcement and your obituary.

I wonder what she was thinking when consented to be covered in this story.

Wife 2.0

One of the photos in the gallery accompanying the article shows Steins with her daughter Katie, her ex-husband and her ex-husband’s new wife. Wife 1.0 and Wife 2.0 look eerily similar, right down to the way they dress:


Rorschach Test

rorschach_testThe article makes a pretty good socio-political Rorschach test. People from different points on the political spectrum reacted to the article differently.

There were over 1,000 comments made directly to the article. Most of the commenters seem to have trouble feeling sorry for Steins, and some asked why the article even made it past editorial.

On sites like OpenLeft, there’s not much sympathy for Steins either; author David Sirota considers the article part of a larger stealth marketing campaign “designed to make us believe that very wealthy people are suffering the most”. A commenter on Brazen Careerist went so far as to question the wisdom of having three children: “That’s expensive and not necessarily ideal, on the kids or the parents, or society.”

Meanwhile, “Freepers” – participants on the right-wing Free Republic message boards – tend see the article as a ham-handed attempt by the Washington Post, part of that cabal known as the Liberal Media, to engender class envy and foment class warfare. Some of them wondered if she or her ex-husband were benefiting from TARP money (they apparently don’t), most praised her for having a good job, a couple said that their employees don’t make as much money as Steins’ nanny and a few wondered if she voted for Obama, being one of them no-good east coast lib’ruls.

The one thing shared by commenters on both ends of the political spectrum was the statement that they could squeak by on far, far less. Since Steins’ income is certainly in the top 5% and likely even in the top 3%, that’s probably true.

Life The Current Situation

Where Does the Money Go?

Here’s a chart that shows where the average American’s money goes (click to see it at full size):

Where Does the Money Go?

The Current Situation Work

A Wall Street Trader Tells All

Martin Sheen as Gordon Gekko in "Wall Street"

The Independent has a great article by former Wall Streeter Philipp Meyer titled American Excess: A Wall Street Trader Tells All. I’ve included some snippets from the article below, but you really should read the whole thing.


I didn’t fit the typical profile of a trader. I was an English major working on a novel at night. Most everyone else was a maths or economics major, most everyone else had relatives or family in banking. I’d spent a year walking around studying flashcards with maths problems, multiplying random licence-plate numbers in my head, just to prepare for the interviews. I memorised The Wall Street Journal every morning. I didn’t care what I had to do. At Cornell University it was well known that after five years on Wall Street, you could expect to be making half a million a year in salary and bonus; after 10 years you could expect a million or more. I had 60 grand of university debt and my parents had no retirement. I needed that money.


…while derivatives, and the financial industry more broadly, had started out serving industry, by the late 1990s the situation had reversed. The Market had become a near-religious force in our culture; industry, society, and politicians all bowed down to it.

It was pretty clear what The Market didn’t like. It didn’t like being closely watched. It didn’t like rules that governed its behaviour. It didn’t like goods produced in First-World countries or workers who made high wages, with the notable exception of financial sector employees. This last point bothered me especially.


The easiest thing was buy into the system, convince ourselves that there was no other way to live. A few semesters worth of economics classes certainly helped; the in-house economics classes taught by the bank helped even more. The financial markets operate on the principle that, at our core, we’re all basically shit: selfish, self-interested creatures. There’s a whole branch of economics devoted to proving that if you help someone, say, run in front of a speeding train to push another person out of the way, you are actually acting out of self-interest, not altruism; that what most of us would consider humankind’s cardinal virtues – love, honor, compassion – do not actually exist.

The idea that we’re nothing more than selfish animals is an attractive philosophy to a person pulling down a few million dollars a year. It is a philosophy that negates guilt. The guilty feeling a normal person gets while visiting a Third World country is the same feeling a senior investment banker gets when they see a working class neighborhood in Birmingham or Philadelphia. When your paycheck could cover the salaries of a few hundred nurses or teachers, you need some explanation for why that’s okay. The only one that really works is that life is a pure meritocracy. That whether rich or poor, we’re all getting what we deserve.


One of the reasons we allowed the financial industry so much control over our lives, starting in the 1990s and continuing until the meltdown of 2008, is the propaganda smokescreen of The Market. This idea of the God-like Market – all-seeing, all-knowing, and beyond question – is what allows CEOs to put a few thousand people out of work while giving themselves a $40m paycheck. It’s what allows certain hedge fund managers to take home half a billion (yes – billion) in a good year, while schools and bridges fall apart.

In reality, The Market is nothing more than the people who comprise it. Access to trading markets is very tightly controlled – it is not like a shopping mall. And it is certainly not magic. It’s just people. A very small number of people, in fact.


It is crucial to realise that what motivates those people – collecting their million or hundred million dollar bonuses – has nothing to do with the job they actually perform. People used to do it for a lot less and it’s not like there’s a shortage of candidates – I turned away 10 good recruits at Cornell for every one we hired.

The reason we’ve ended up in the spot we’re in today is not so much our failure to understand economics as our failure to understand human nature.

Give a small number of people the power to enrich themselves beyond everyone’s wildest dreams, a philosophical rationale to explain all the damage they’re causing, and they will not stop until they’ve run the world economy off a cliff.

It’s not that people in the City or on Wall Street are necessarily bad people, it’s just that they, like almost anyone, will do anything to keep their million or ten million dollar paycheck. They’ll creatively interpret data, they’ll understate risks, they’ll put the best spin on things. Some will lie, cheat, and steal. But most of them, like most of us, will simply resist looking at the world from any perspective other than their own. And if we are intelligent, we will keep a careful watch on them – both now and into the distant future.

[Thanks to for the link!]