A Theory of Scalability

One of the hidden themes of The Feast this past week has been how to scale successful social ventures.  This has been on my mind a lot recently as I have been working informally with both Self Enhancement, Inc. (SEI) and Decision Education Foundation (DEF) on this puzzle.  SEI is extremely successful in the Portland locale where they began 25+ years ago, achieving 98% high school graduation rate (working against hard socioeconomic realities).  Like with many models that are very successful “in the small”, the biggest challenge is to translate that same success to larger scales (e.g. all across America, or all around the world).  DEF is attempting to build scalability into its model from the start, and has found that this is extremely challenging.

In thinking about this I am reminded about a duet of innovators who spoke at the Pop!Tech conference last year about scaling.  Both Bunker Roy and Paul Polack have some profound lessons to teach us about scalability.  You will …

The Trust Ecology

NPR’s On The Media recently had a series of interesting segments on the future of the internet:

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A theme that ran through was how the security and utility of the internet is threatened by the complete lack of built-in trust mechanisms.  How do you know you can trust who you are dealing with online?  How do you know what information to believe that you read online?  How do you know your online accounts are not completely compromised by hackers right now, and that your bank account isn’t being drained as you read this?

Many people rightly fear that legislating or enforcing new internet protocols to address these issues would lead us down a slippery slope, trample our basic rights of free speech and freedom of assembly, and would ultimately toss …

Name That Financial Debacle!

The following quotes are from a book describing a real set of events:

[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.

It’s hard to overstate the significance of a [government-led] rescues of a private [corporation].  If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse?  The government risked becoming the margin of safety.  No serious consequences had come about in the end from the… near-meltdown.

Was the incident:

a) The savings and loan scandal

b) The collapse of Enron

c) The sub-prime mortgage meltdown

d) none of the above

First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!…

Best Reader Comment Award

I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:

Viewed from a thousand miles, the financial system has a incalculably large incentive to fail catastrophically as frequently as it can do so without killing the goose that lays the golden eggs.

As long as there is such a thing as “too big to fail” and trillions of dollars are available for siphoning, according to what logic can this cycle be dampened? Nobody has to explicitly pursue this outcome (although there are many who will) for it to be inevitable; the system obeys its own logic above all else.

[ commenting on Alfred Hubler on Stabilizing CAS ]

Alfred Hubler on Stabilizing CAS

With his permission, I am posting an email thread between myself and Alfred Hubler.  I had contacted him on the recommendation of John Miller when Kevin and I were posting on the possibility of dampening boom-bust cycles in the financial markets through policy or other mechanisms.  Here’s what Hubler had to say:…

The Vanguard of Science: Bonnie Bassler

The import of this talk goes way beyond the specific and stunning work that Bassler and her team have done on quorum sensing.  In my mind, this is the prototype for good biological science:…

Another Must Read on the Origins of the Crisis

Steven Gjerstad and Vernon Smith have published a really nice article that starts out with bubbles in general and goes on to explain why the bursting of this particular bubble hurt the economy so much.  It echoes a lot of themes that I’ve covered before, but is obviously much more soundly though out.

The short version is that the effect of a bubble on the economy is determined by its effect on consumer spending.  The Dot Com Bubble didn’t have much of an effect because it primarily affected institutions and already relatively wealthy consumers. However, the Fed’s attempt to shorten the resulting recession created a loose monetary policy which forced dollars into the most attractive asset class: homes.  This attractiveness stemmed from relaxed lending standards and tax-free capital gains on homes, which created more buyers. But asset appreciation in this class is fundamentally limited by the ability of consumers to repay loans from income, which was not growing fast enough. As the institutions insuring mortgages …

Too Big to Fail = Too Big to Exist?

I asked this question on twitter/facebook and got a lot of variants of “I agree” and only one person who stated disagreement (but provided inadequate reason, IMO).  Jay Greenspan put it this way:

Interesting question this morning, and something I’ve been wondering about. I’ve yet to see anyone really argue that state of non-regulation we’ve been in for the last years has been a good idea.  I’ve heard some thoughtful conservatives talk about how their views have changed radically — coming to understand that forceful regulation is absolutely necessary.

The super-conservatives I’ve seen are talking more about taxes, avoiding the subject. I’d be very interested to see a credible argument for a hands-off approach.

So how about it, anyone game to take up a considered argument for not mandating that companies who get big enough to affect the global economy should be broken up or otherwise handicapped?…