reading review - the fifth risk (riff offs)

The second half of Michael Lewis’s Fifth Risk was a more detailed look at how some of government’s long-term investments manifest in the real world. It covered a number of specific topics so I thought I’d bring it all together here in a traditional TOA riff off.

A private company will hype the same information that a government agency will downplay.

Companies that can choose on which criteria it will be judged often appear to outperform those who are judged on anything.

One topic I mentioned in my last post was weather forecasting. There are some obvious benefits to involving the private sector in what has traditionally been a public concern. However, the limits of the market are very obvious in the context of weather. A private company can choose its range of focus in order to define itself as successful without serving public interests. Sure, we got that thunderstorm wrong, but our specialty is blizzard forecasting.

It can also market itself according to recent performance by trumpeting accurate predictions or remaining quiet after a poor forecast. Over time, this cycle is sure to create a skewed impression of the company in the mind of anyone who isn’t paying close attention to the company’s predictions (which is to say, pretty much everyone).

There is a point where complacency turns to alarm and alarm turns to action. How far away from a tornado does the calendar need to be before these transitions take place?

Learning about a threat without understanding the mentality of those being threatened makes it very challenging to help people respond to the threat.

It’s very threatening to learn that someone can use an algorithm to replicate the results of someone with decades of experience.

Another limit of the private sector’s ability to meet public concerns is the nature of specialization. A company that expertly collects, aggregates, and synthesizes data can make a decision – do we profit by sticking to what we do well or do we extend our business into areas of lesser expertise such as analysis and application? It works the same way for considering short and long term – should we ignore the short-term gain if it will leave a long-term mess for someone else?

The public sector rarely enjoys the luxury of considering these dualities. For a government, data isn’t collected unless it will be applied and no one magically shows up in twenty years to clean up the externalities from today’s profits. This reality positions government to solve problems that the vaunted private sector almost by definition cannot address – how to provide good enough storm shelters without discouraging most people from evacuating, for example, or implementing job training programs for those made redundant by new processes and technologies.

Leadership teams must always know where they are going to be intentional. These are the things that continue to be worked on throughout busy periods.

I remember from Alfred P. Sloan’s My Years with General Motors that this was one of the three biggest problems in corporations – how to stay focused on long-term goals throughout a busy period. He may have been correct in the sense of it being a problem but what I’m not so sure of is whether it applies just to corporations.

People used to measuring everything in terms of progress struggle to adapt to environments where the relevant concern is keeping up.

People who like their work should find ways to keep doing their work.

I thought these two insights were related in the sense that the pace, rhythm, and style of work is often an important consideration (especially for those who don’t necessary have a preferred or defined line of work). The type of person who likes to see consistent and regular progress is probably well suited for the short-term considerations of the private sector while those who enjoy the challenge of maintenance might find themselves at home in the public sector.

All I ever wanted to be... was an elevator operator, can you help me, please?

I won’t even pretend this is something other than a Courtney Barnett lyric. If you get bored today, though, ‘Elevator Operator’ is a jam – here’s the best version I found.

Is there any better way to end a riff off?

reading review - the fifth risk

The Fifth Risk by Michael Lewis (August 2019)

Michael Lewis, firmly established on the TOA’s ‘read everything by this author’ list, released his latest work in late 2018. Unlike with some of his other work, I had no idea what this book was about, but eventually a definition rolled along – the fifth risk is consistently implementing short-term solutions to mitigate long-term risks. It essentially means filling in the potholes on a crumbling bridge; broadly speaking, we could just call it infrastructure.

As I learned in this book, the government takes on much of the work addressing this risk. For example, governments have traditionally funded most early stage innovation. This accounts for the free market’s failure to create incentives for people to go into labs and try things that may or may not work. Governments also understand that people generally respond better to what just happened as opposed to what might happen and respond accordingly by allocating resources into protecting people from the unseen or unpredictable risks.

There are many constant pressures against these ideals, however. One is simply that governments are themselves staffed by those subject to the same human responses, biases, and temptations that define decisions within the free market. If a government can pay later rather than pay now, historically it will opt to pay later and this generally comes at the cost of our infrastructure progress. Government transitions are also critical and Lewis focuses the early part of this book on the subject. Many of the experts he highlights in The Fifth Risk cite botched transitions as a major factor when governments struggle to keep up with change. The Trump Administration in particular comes under significant fire for repeating this error (though they are hardly the first to underestimate the complexity of government while dismissing the competence of those most recently tasked with its operation).

Though there are many nuances involved, my first thought after reading this book was the understated importance of keeping up our government’s involvement in R&D. America’s advantages in the short-term are unassailable but a push to privatize research brings short-term market thinking into a long-term domain; inevitably, the market’s inability to function as a tool for meeting long-term objectives will be exposed. The USA has always successfully assembled its building blocks but taking advantage of this strength requires having blocks available to put together. If we do not ramp up investment into early stage research, it will mean fewer available blocks for our future. Let’s get our act together on this before we fall behind in the race to discover the next great idea.

One up: I referenced the first half of the book above but chose to ignore its latter half – we’ll cover it in an upcoming post. In short, the second half took a closer look at the applications of the government’s infrastructure investments and in the process I found quite an abundance of interesting observations.

For now, I’ll highlight the thought that weather forecasts should reflect more about their uncertainty. Most of us expect a five-day forecast but sometimes a two-day forecast is more appropriate (as would be a two-week outlook on certain days). The consistent five day outlook creates a false sense of certainty about certain forecasts made during unstable weather periods and we would all benefit from an understanding that predictions will be made only when it meets a high threshold of certainty.

One down: Without getting into the details (reader, read the book), I must wonder – is it legal for a private weather forecasting company to withhold information from the nonpaying public about an impending disaster?

Just saying, part one: My first thought about this book was overwhelmingly positive and for a really simple reason: the book started on page 17! More of this, please! It should be against the law to have extended openings, introductions, and prefaces that are numbered so that I turn the page onto the main work and learn that I’m on… page 3??? How could I be on page 3 when I’ve been reading for two hours? I say The Sixth Risk is idiotic numbering within books but I applaud Michael Lewis for starting this book on page 17 and getting us off to a great start in the fight.

Just saying, part two: I laughed at the observation that when things go wrong in an organization, the best and brightest leave first merely because they can generate good job offers relatively easier than their less skilled colleagues.