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Saturday, May 27, 2017

Weapons of Math Destruction

Today, like it or not, all of us live in the age of the algorithm. Some fairly big decisions in our life--be it a choice of university, getting a home mortgage, a reasonable car loan and the cost of our health insurance are now made by mathematical models, not human beings.

Banking titan J.P. Morgan testifying before congress over 110 years ago stated that credit was something that a person brought with them when they applied for a loan. It was as much about character as it was about financial creditworthiness. Not so any longer!

A model, often grouped under the term “Big Data,” determines whether a loan is approved and what terms you will pay. Early on, many of us thought that this would be a wonderful situation as bias, cronyism, and discrimination would be eliminated.

In a recent book entitled WEAPONS OF MATH DESTRUCTION (Crown, 2016), Cathy O’Neill says that the reverse is happening. The subtitle to the book is “How big data increases inequality and threatens democracy.”

Now, be aware that this book was NOT written by some bomb tossing emotional left winger. Ms. O’Neil has a Harvard PHD in Mathematics and has served as a quant at the prominent hedge fund D.E. Shaw. Disillusioned with the world of finance, she has shown involvement and sympathy for the Occupy Wall Street Movement. What she does, for sure, is expose the dark side of Big Data.

Her principal thesis and it is a very well reasoned argument is that many people are stuck where they are in America today because Big Data has, to a certain degree, locked them in a life of mediocrity. Smart kids from certain zip codes will not get approved for student loans, or may pay significantly higher rates for car insurance and auto loans.

Hourly workers are sometimes victims of modeling according to Ms. O’Neil. Take someone working at a fast food restaurant or even a casual dining establishment. Employees sometimes get their hours the day before the next day’s schedule is announced. This becomes a child care nightmare for many. Others close a store and then open it the next morning but do not know that until midday. The firm, often a franchise, has a sophisticated algorithm that determines the optimum use of employees. Great for them but it messes with the lives of many staffers. When Starbucks was alerted to this issue, they began publishing workers hours a week ahead of time which was a great help to many.

On the plus side, Big Data is a marvelous thing to those of us who are affluent. We can get great deals on airfares, sales on high ticket items, or reviews of hot new and reasonably priced restaurants that many Americans would never be able to afford. Amazon knows our every move in purchasing but we do not mind much as their logarithms place us in certain demographic and lifestyle “buckets” and we are offered prohibitively great deals on many items. The WALL STREET JOURNAL reported recently that even Neiman Marcus loyalists are now abandoning their favorite store and buying the same luxury goods online at a significant discount to the set price of the high end Dallas retailer.

Do I buy Ms. O’Neil’s thesis? Yes and no. As a marketer, Big Data gives you an edge that is incomparable to any tool that you could work with in the past. It is far easier to forecast who will buy certain items if you have a plethora of data points about a prospect and his or her lifestyle. If you are loaning money, it only stands to reason that you charge more to someone who has a lower probability of paying you back.

To me, Ms. O’Neil’s most powerful point is that there is no human element involved anymore in so many financial agreements. Some people have errors in their credit history and no machine double checks the veracity of them or tries to clear them up. Also, some people regardless of the health of their personal balance sheet are highly trustworthy.

Ms. O’Neil writes with great clarity. I highly recommend it and encourage you to reach your own conclusions. If you work in any aspect of marketing or finance, Big Data is here to stay and needs to be evaluated carefully.

If you would like to contact Don Cole, you may reach him at doncolemedia@gmail.com
or leave a message on the blog.

Saturday, May 20, 2017

Is Working Hard The Silver Bullet?

Constantly, wildly successful people are often asked the secret to achieving great things in life. Invariably, at the top of their lists is simply “work hard.” It is difficult to argue with that succinct statement. Most people at the top of the heap have worked hard, sometimes very hard. When I hear that statement, my knee jerk response is to agree and go to the famous quotation of my hero, Teddy Roosevelt, who said, “Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty...I have never in my life envied a human being who led an easy life. I have envied a great many people who led difficult lives and led them well.”

My man, TR, was an advocate of what was known as “the strenuous life.” It makes sense that he thought everything was a struggle when, as a sickly child, he had to overcome some difficult illnesses and succeeded. As the years have passed and with much observation, I have done some revisionist thinking on hard work and see it as important but do not see it as the guaranteed pathway to success.

Over the years, I have seen people who put more quality hours in than anyone around them and they remained stuck in their dead end jobs. Some were too low key to rise, others were content, but many bristled as newcomers came in above them. I vividly remember telling a client contact that he was not promoted as he always made his boss look good.

Three years ago, I flew back back to Rhode Island to visit a sibling and see another who was visiting. It was a nice time. At the airport, a voice called out, “Don, it can’t be.” The speaker was someone whom I had not seen in perhaps 30 years. We both had a good hour before our flights were called so we had a great talk. My old acquaintance was known for not tolerating fools well so it was clear why we did not work together for very long. He worked in a different discipline than I but we crossed paths a lot and I respected him greatly. He bounced from job to job compared to many of us but always seemed to land on his feet better than anyone whom I have ever met. I asked him how he did it and he gave me some real gems in terms of career advice for young people (he reads MR and corresponds with me regularly these days).

Here is some of his advice:

“Have your OWN vision. Don’t waste you hard work on someone else’s. Find your path and stick to it.”

“Run your own career; don’t let anyone run it for you.”

“Have your psychological bags packed at all times. Be ready to leave within an hour. You may have to!”

“Forget who signs your paycheck. Work hard but never forget that you really work for yourself.”

“Andy Grove of Intel had it right when he said that, ‘only the paranoid survive’. Trust yourself.”

He once asked me some 20 years ago in a phone call whether I had prepared business cards listing myself as a consultant. When I said no, he burst in to a diabolical laugh and said, “I have one. Get one, Don.”

My friend’s comments seem to betray both the concept of hard work and loyalty to his employers. Actually, he worked hard and still does. And, while he has had more jobs than most of us, I have never heard him utter a derogatory remark about any of his bosses or past companies. His point is that you are the CEO of your own life regardless of your current title. So, he is a Horatio Alger type telling you to strive and succeed but, at the same time, have no illusions. Do not drink the corporate Kool-Aid and never get comfortable.

In a world of downsizing and constant mergers, maybe my aging friend is on to something. He has never played politics and stubbornly remains his own man. And, to this day, he works hard. His only regret was that the job shifts and multi-state moves were difficult for his wife who also had to switch jobs and his children who had to adapt to a new school on several ocassions.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Tuesday, May 9, 2017

Poverty In America

As many of us, I was rattled when, a few months ago, I read accounts of how 45-47% of Americans did not have access to enough money to cover a $400 emergency expense. It might have been a serious car repair or a visit to the emergency room. When I bounced the statistic around to a few people, to a person they shook their heads and said that the figure had to be wrong. People may not have had 400 extra dollars in their checking accounts but they could go to relatives or friends or simply put the expense on a credit card.

So, I worked to find the source of the $400 statement. I found two--The ATLANTIC magazine and the Federal Reserve. Both sources have some credibility with me. The ATLANTIC is known for great writing, in depth analysis, and a strongly progressive tilt. I often do not agree with their conclusions or solutions to the issues that they raise but they almost always provide well reasoned arguments. The Federal Reserve perhaps should have raised interest rates earlier but they do look at FACTS and I am confident that their assertion that 46% of Americans would be hard pressed to come up with $400 for a surprise expense is likely quite valid.

In 2001, I read a then new book by Barbara Ehrenreich. It was entitled, Nickel and Dimed with the subtitle, On (Not) Getting by in America. Ms. Ehrenreich went "undercover" as a waitress and chambermaid to see how difficult it was to survive on minimum wage and tips. It was an eye-opener to any who read it. She talked of how hard it was physically to survive as well as financially when one was part of the underclass.

When I saw the $400 articles and commentary, I thought it might be time for an update so, in the great Don Cole tradition, I read three books of recent vintage with a similar theme:

1) Hand to Mouth by Linda Tirado
2) The American Way of Poverty by Sasha Abramsky
3) $2.00 a Day: Living on Almost Nothing in America by Kathryn Eden

The books vary in quality but all give real life stories that tear at your heart if you have one. Ms. Tirado's HAND TO MOUTH received the most publicity and is an easy and breezy read. She recounts her personal struggles and the many indignities that she and her family have had as they have dropped from the middle class to the underclass. Also, she is perceptive, very intelligent and quite angry. The anger and her vulgarity gets in the way of telling the tale.

She also loses points as she rationalizes many things. For example, she smokes cigarettes as a "five minute vacation" from her rough life and openly admits that after a hard day at work, she may eat all the wrong foods. In nearly the same breath, she complains about lack of funds. Well, stop smoking and you will be healthier and have more cash. She also talks of being fired repeatedly and candidly admits that she "lost it" with the boss in public. We all have to exercise verbal discipline on the job. She does not seem to get that. Still, the book is powerful. Her stories about dealing with insensitive landlords are deeply moving.

Sasha Abramsky’s THE AMERICAN WAY OF POVERTY is not a personal story. He does a nice job of using individual people’s stories to capture the hopelessness many impoverished people must feel. And, he offers a great many ideas for government programs that he feel can turn the tide. I am not so sure. When I go back to Lyndon Johnson’s “Great Society” of the mid-1960’s, we find that well intended programs often miss the mark. It does not seem to matter which major party is in power. Poverty, measured by the government, seems to be 12-14% of the population.

The final book is $2.00 a Day: Living on Almost Nothing in America by Kathryn J. Eden. This book seems unbelievable at first but as she takes you through anecdote after anecdote you soon realize that there are perhaps a few million people in America living as many do in a developing country (two billion people live on less than $2.50 globally). Reading it had a shock effect that I suppose we all need now and then.

Okay, what does this have to say to Media Realism readers. A few things hit me. Number one, most of the working poor work very hard. Some have made a few bad choices early on in their lives and are on a very rough treadmill simply trying to survive. Others had some bad luck and never recovered. Few are simply “too damn lazy to work” as many have been saying for years.
Secondly, some are in tight spots due to lack of discipline. If you are struggling to survive it may feel good for a minute to tell off the boss but you wind up out of a job soon. Also, you need to take of yourself physically and be sure to get to work on time. Basic stuff that many of us take for granted. Additionally, children are usually involved in most of the stories told in all three books. What can we do to help them so the vicious cycle of lifelong poverty does not continue?

The technological changes going on are apt to leave this underclass almost totally behind. Many of the minimum wage jobs that they are currently doing will be executed in large part by robots in a decade or so. Also, Amazon and fellow travelers are killing many retail outlets which have been a large employer for many struggling Americans for decades.

Finally, what will happen to TV? The underclass does not have cable, satellite, or Netflix or Amazon Prime. Most do not have credit cards and many, such as Ms. Tirado (at the time she wrote the book) are unbanked. So, conventional TV is going to become the only entertainment option of those living in poverty. The demographics of over the air TV and radio have been weakening for years. They will only get worse.
Reading these books made me realize the economics of poverty better than I ever have. You, my readers, along with me may not be satisfied with our current financial situation despite the NASDAQ seemingly breaking records almost daily. Yet, what if you had no skin in the game and no prospects for advancement? Think about it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com