Fairhaven, The River

Book Review, Due Diligence

 

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Table of Contents

1. History

2. Service and Operations

3. Regulatory breakdowns

4. New Technology

5. Summary

Due Diligence, by David Roodman, is an examination of the results of various microfinance efforts. Microfinance is a larger category that includes micro-lending. It also includes micro-insurance, micro-saving, etc. Roodman examines the widespread claim that micro-finance reduces poverty.

His results are:

• There is not sufficient evidence to claim that microfinance reduces or increases poverty levels. There are myriad anecdotes about the subject, but with millions of people involved it’s easy to find great anecdotes. When economic statistics are examined, the data does not show a reduction in poverty.
• Microfinance does meet a significant need of the poor. If instead of asking "does it reduce poverty" you ask "does it provide a financial service that is valued by the poor", the answer is yes. There are important regulatory requirements for microfinance to succeed. Without these, it will break down. With these, it is a valuable service for the poor.
• Microfinance can be one part of building an economic infrastructure for development and poverty reduction. On its own, it is insufficient. It is mostly an urban solution, due to the operational realities, and it needs other developmental elements to make a significant change.

The book is well written, easy to read, and appears to be very carefully sourced.

1. History

Microfinance has a much longer history than I realized. Jonathan Swift, writer of Gulliver’s Travels, was a major organizer of microfinance services to the poor in Ireland in the 1700’s. Swift is credited with starting the Irish Loan Funds (pdf), a major microlending operation that had widespread use and lasted about 200 years. It’s history is also informative regarding flaws and regulatory requirements. The Prudential Insurance company in the US began as a micro-insurance operation in the US during the 1800’s.

Micro-finance also exists in many more times and locations than the current press excitement would indicate. It is found all around the world. This means that there are enough examples to provide good statistical analysis and a variety of implementation variations.

2. Service and Operations

The root of micro-finance is two-fold:

• The poor have the same needs for financial services as the rich and middle class. They need the same kinds of saving, borrowing, and insurance as the middle class and rich.
• The transaction sizes of the poor are tiny by comparison. Micro-finance radically restructures the transactions so that the administrative overhead is correspondingly small. Examples of what this means are scattered through the book.

Social factors, cash flow factors, and resource differences make micro-lending the easiest to simplify. A micro-loan can be structured and standardized to make the administrative cost tiny. For example, a loan can be standardized to a fixed amount, like ten dollars. This is the only available loan amount. A pre-printed index card with 40 boxes is filled out with the borrowers name, and the borrower is given nine dollars. Then every week, the lender visits the borrower, gets 25 cents, and checks one box. When all the boxes are checked, the loan is paid.

Note all the cost reductions. The total infrastructure requirement is a pre-printed piece of paper and an indelible pen. The infrastructure is auditable. There is no time spent negotiating amounts. The labor time needed for the lender remains significant. They must pay someone to visit each borrower every week. But each individual transaction time is very small, since it’s just collect a coin and check a box. In an urban environment, the travel time can be kept small.

When the interest per transaction is one cent, the collection cost must be kept to around a 100 millicents. This is done by employing staff who are also paid poverty level wages. When the tracking is simple check boxes, a minimally educated person can do the job.

There are many variations and adjustments to this approach for different cultures and economic environments.

3. Regulatory breakdowns

Micro-lending has broken down and become severely abusive in some countries. Borrowers have been hounded into suicide or flight by abusive lenders. Local lenders have been known to break into borrowers homes and steal as needed to cover missed payments.  Lenders have used violent enforcers to coerce borrowing.

In some countries the abuses have led to prohibitions on micro-lending. In others, there have been government takeovers, management replacement, etc. This is sometimes combined with intrusive local politics and corruption, where it’s unclear where the real abuse and corruption resides.

There is a strong pattern observed here:

• The worst abuses have been in countries where more than 50% of the lending funds are from outside the country. The correlation between percentage outside funds and abuse is strong. This has significant implications for foreign aid policies that try to encourage micro-lending.
• Appropriate regulation is crucial. Traditional banking regulations are far too expensive for the tiny transactions needed by micro-finance. But, absence of proper financial regulation has led to frauds, bankruptcy, and many other abuses. Designing appropriate regulatory structures requires considerable creativity.

4. New Technology

There is lots of press about new technology. This is too new to be subject to analysis in this book. He does mention it, and early indications are that the changes will be important. Some of the systems mentioned are:

1. M-PESA is radically revising all sorts of financial transactions in Kenya. This goes far beyond traditional micro-finance. The combination of cell phone transactions, micro-banking relationships between local shops and tradition banks, and regulatory changes has allowed the cell phone to be used to transfer money, pay bills, save money, etc. This has a bigger impact on the upper poor and lower middle class, but the transactional flexibility does flow through to the really poor who lack phones.
2. Brazil has used satellite links to allow local post offices and corner stores to act as "correspondent banks" and provide services to thousands of small towns.
3. South Africa and Namibia are using Net1 and an advanced smart card system for financial transactions. It is designed to operate despite erratic power and intermittent communications connections. This is a complex hybrid of dispersed and centralized control, so that financial integrity is preserved while providing access to small and remote locations.

5. Summary

The overall conclusion is that the various forms of micro-finance do meet important financial needs for the poor. They do not eliminate poverty, but that’s not a reason to deny the poor these services. These services do significantly improve their quality of life.

The proper regulation of micro-finances is a challenge, but it is needed. The long established banking regulations are much too burdensome for the tiny transactions involved, so substantial changes are needed. This challenge is one that can be met if regulators, politicians, and lenders can work together.

The impact of cheap communications (the mobile revolution) was not covered. It’s still very early. The impact can be large if the costs can be reduced to a level competitive with the highly cost optimized paper systems that are traditional.

Shield of Achilles - Book Review

 

Shield of Achilles

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The Shield of Achilles describes a political theory for nations and uses the past 500+ years of European history to justify it. It is a reasonably well written semi-academic work. At 960 pages I doubt many will actually read the whole thing. So I’ll summarize his thesis here. There is a lot of material in the book that explains this in more detail and defends it.

His goal is to answer one important question:

• What is the purpose that makes a state legitimate?

This question is to be answered in the context of the people and cultures of the time, not current opinions. So when considering the France of Napoleon, it is in the context of his time, not current opinion.

Bobbitt is of the opinion that the purpose of the state has evolved through various forms over the past 500 years. He argues that the great wars reflect conflicts between old forms and new forms of legitimacy. Similarly, the great peaces reflect the stabilization of a new consensus. The drivers for change are changes in the sciences, technology, legal structures, and cultural structures.

One example of the great war theory is that the various conflicts that can be lumped together as World War II reflect a conflict between an emerging fascist state model and the then dominant nation state model. The war, and subsequent United Nations peace, established that the nation state model was the winner and the legitimate structure for states.

1. Phases of State Structure

His different phases of state legitimacy are:

Princely State (1494-1572)

The state confers legitimacy on the dynasty.

Kingly State (1567-1651)

The dynasty confers legitimacy on the state.

Territorial State (1649-1789)

The state will manage the country efficiently.

State Nation (1776-1870)

The state will forge the identity of the nation.

Nation State (1861-1991)

The state will better the welfare of the nation.

Market State (1989-)

The state will maximize the opportunity of its citizens.

Using these concepts of state legitimacy helps understand some aspects of history. The history of 17th-18th century Germany makes much more sense when you use these models. The people involved did not attach statehood to their concept of being German.

This also explains a lot of the historical mess in the Balkans. Nothing makes sense when you try to apply today’s nation state viewpoint the old structures of the Ottoman Balkans. When you think in terms of these transitions, the conflicts and behaviors make more sense. Instead of thinking "why were these people so crazy?" you see the issue of "how could they escape the conflicts left by the failing models of statehood?"

2. Predictions

Shield of Achilles was published in 2001 before 9/11, so there are some predictions that can be compared with actual events. I find:

• The emergence of the market state remains plausible. Many places and emerging political groups use this model.
• Bobbitt did not recognize the conflict with the Islamic state as an emerging conflict model. The conflict between the Islamic state model and the market state model is apparent in the Arab Spring and its aftermaths in different countries.
• His assertion that the Cold War and its many skirmishes was the long war that rejected the Marxist-Communist state seems to hold up. Deng, Xi, and others remain careful to preserve a public allegiance to Mao Thought, but the Chinese Communist Party ruling structure is increasingly separated from the details of Marxist state models. Similarly, Russia still has a Communist party, but the national structure is completely changed.
• He did not recognize the question of whether the parliamentary democracy will be the structure of the market state. China is quite clearly presenting public goals that are consistent with the market state model, while clearly not following the parliamentary democracy model.

GPGtools for MacOS - Small Review

I helped with the install of GPGTools onto a Mac this weekend.  It brings PGP email within the reach of an advanced non-programmer Mac user.   It should also support S/MIME email, but that looks beyond the reach of a non-developer at present.

Good points:

• Painless, vanilla install.  It was no different than any other Mac application.
• Reasonably good integration with the default Mac Mail app.  It adds some buttons for signing and encrypting.  It integrates the key storage dialogs into the default ap in a reasonably intuitive manner.
• Correct PGP implemetation.  This is based on very limited testing, but it seems to do the job.
• Reasonably good integration with the public key servers.

Bad points:

• No manual.  You are expected to figure it out by trying things in the menus and reading the FAQs.  This is a failing shared by many Mac applications.  It makes it extremely hard to provide any assistance by telephone unless you also have a Mac.  I will have problems providing telephone assistance because I don't have a Mac with email.
• FAQ does not cover very much.  The rudiments of install, send, and receive are OK.  Things like "how can I use S/MIME?" or "how can I exchange keys other than through a public keyserver?" are not well covered.
• It's easy to make mistakes and mis-understand things because basic terminology used in PGP, e.g., "fingerprint", are used but not explained.

In net, it's a really good start, but needs some serious help from some good writers to fill out the FAQ and provide a simple manual. 

Anti-fragility, a book review

Nassim Taleb's book Antifragility suffers badly from his writing style, but there are some important ideas here.  One way to get the highlights is from his lecture as part of the book tour.  His troublesome speaking style will prepare you for the writing style.

The core concept is the importance of a new concept in system design or description.  Anti-fragility is the opposite of fragility.  The conventional thinking is that robustness or resilience are the opposite of fragility.  But, fragility means damaged by external shocks.  The opposite is a system that is improved by external shocks.  So an anti-fragile device would be labelled, "Please handle roughly".  Robustness and resilience are forms of lower fragility, not anti-fragility.

Anti-fragile systems occur in nature in many ways.  Muscle and bone tissue need external shocks.  A complete absence of loads or shocks leads to wasting away.  It's a major problem for long term space dwellers.  You strengthen muscle and bone by pushing them close to their limits at appropriate intervals.  The muscle and bone respond by growing stronger.  That's anti-fragility.  There are limits to how hard you can shock an anti-fragile system, but anti-fragile systems are superior to robust or resilient systems.

The book is many snippets and comments around that theme.  It's not well organized for taking the concept to the next level of discussing how to create anti-fragile systems.  There is a lot there, but it suffers from Nassim's presentation style.  As one reviewer put it, "He's a notorious jerk."

At least he's also introduced me to the word flâneur.  That's a fine goal for the enjoyable life.

 

Definitions matter (median income statistics)

Summary: definitions matter much more than I expected.

There have been lots of public opinions about the change in median income in the US, and what it means for policies.  It turns out that the definition of median income matters much more than I expected.

This table shows the increase in percentage from 1979 to 2007, for those who want the answer up front:

Income Included	Tax Unit	Household	Size Adjusted Tax Unit	Adjusted Household
pre tax, pre-transfer	3.2	12.5	14.5	20.6
pre tax, post-transfer	6.0	15.2	17.0	23.6
post tax, post-transfer	9.5	20.2	25.0	29.3
post both, plus health insurance	18.2	27.3	22.0	36.7

The widely reported figure is the 3.2.  This is used to argue that there has been no improvement.  All the gains have gone to the top 1%.  The middle class is being hollowed out.

The different definitions make for a more nuanced answer, and reflect difficulties in getting data.

The different terms are:

• Tax Unit is the tax filing unit.  This is what the IRS tax statistics report.
•  Household is what you would expect.  It's all the people in the house.  So everyone in the household is combined.  This captures the effects of grandparents, parents, and children all being potential earners and sharing income and expenses.  It also captures unmarried couples, shared custody, etc.  The IRS statistics don't capture this, but the monthly Census survey does.
• Size adjustment modifies the income using the same adjustment as is used for cost of living.   A family of four needs more income than a single person, but not four times more.
• The kinds of income reflect regular wages/dividends, transfer payments like social security or food stamps, and finally health insurance benefits.  These variations also reflect data gathering.  The IRS can measure some transfer income, like the EITC, but not other transfer income, like food stamps.  EITC and food stamps are two very large social welfare programs in the US.

A recent paper is interesting in that it works from the census bureau data rather than the tax data.  This lets it measure households, transfer payments, and health insurance.  The tax information can only measure tax units.  They compared their results with the tax data and confirmed that they matched when measuring the categories that the IRS can measure.

My Conclusions:

• There is no "right" number.  The proper issue is what is the question that you are trying to answer.  The shifts in households, with grandparents and adult children moving back together with parents may be a compensation for economic hard times.  These numbers show that it works and has more than compensated for income loss.  Health insurance costs have gone up dramatically, as these numbers show.  Transfer payments and a progressive tax rate do appear to have a significant effect.
• The "middle class is vanishing" is at best misleading. 

Paper is at http://www.nber.org/papers/w17164

There is some more data on trends in household sizes, etc.  There is also a breakdown of quintiles.  For the all included houehold category, the bottom quintile saw 26.4% growth and the top quintile saw 52.6% growth.  The top 5% saw 63% growth.  There is no data for the top 1% because privacy related data blinding was applied by the census bureau, and only larger aggregates are reported.

So you can argue that all parts of the population saw significant improvement, or that the rich saw a larger improvement, or that the middle class is suffering.  The data shows that the progressive tax rate (EITC included) does have an effect, transfer payments and the social programs do make a difference, and that healthcare benefits do make a difference.

 

Book Review: A Brilliant Invention: Inventing the American Constitution

"A Brilliant Invention: Inventing the American Constitution" is an interesting perspective on the creation of the US Constitution.  It concentrates on the people and process of creation, rather than provide historical analysis of causes and effects.  It's a fairly brief book at 210 pages.

It starts by setting the stage of the political context.  This is not a historical analysis with explanations and reasons.  It's a statement of what was happening politically and why the constitutional convention was called.  It covers the political context of why some people favored or opposed, attended or avoided the convention.  It also covers the technological limitations of the period, e.g., the need to organize your business affairs for being out of touch for several months because there is no telephone, telegraph, or fast post.  News and post took a few weeks to travel between cities.

Next, it covers the organization and process of the convention.  This is unusual, because it is an explanation of the organizational dynamics, not a discussion of how the convention affected history.  It explains how the documents were created, how the committees are structured, how the meetings are structured, and how this is affected by the personalities involved.  I was especially amused by the name of "Committee for Postponed Items", which reminds me a lot of DICOM's Working Group 6 in terms of it's internal structure.  You don't need to be an organizational dynamics expert to read this section.  It's at a level that the novice can understand. 

Finally, it covers the conclusion and publication, without too much extrapolation into reasons for subsequent historical events.

I noticed one interesting difference between the political structure of the American Revolution and the current structure of world governments.  They had no great leader.  Today's governments are all structured around a single leader. 

The American Revolution and the creation of the constitution were driven by experienced politicians with strong legal expertise and decades of experience, but nobody was the leader.  There were always multiple leaders with their own specialties.  All of the leaders also had major weaknesses, there were powerful arguments and disagreements, and they worked out an acceptable compromise because the alternative was defeat and destruction.  The closest to a single leader was George Washington, but he resolutely stayed out of the political process.  For the rest you have names like Jefferson, Franklin, Adams, Hamilton, etc. 

They expected the country to be led by a similar structure in Congress, with multiple powerful politicians but no single leader.  They expected an efficient but subservient executive similar to George Washington, who expressed his opinions but carried out the policies decided by Congress.

They would probably have been very surprised by how long it took for this structure to collapse in the US.  It was not until the 20th century that the US shifted to it's current process of selecting a single leader to make all important decisions.   They were wondering whether the Constitution would survive for more than a few decades.

Hurricanes and Global Warming

Since there is a hurricane approaching the US coast, it's time to finally write this one.

A few years ago a paper was published in Nature that basically said:

If A, and B, and C, .... then there would be more hurricanes globally.

This is a fairly typical structure for a hypothesis.  But it struck me as odd that it was published in Nature.  Simple hypotheses like this are usually published in more specialized journals where they can attract the interest of other specialists who can contribute analysis of the proposal and data to confirm or deny the hypothesis.  The synchronized PR campaign and publicity explained this anomaly.  I've seen this before where a hypothetical is used as the basis for political campaigns. 

This particular hypothesis included two initial hypotheticals:

1. It hypothesized that hurricane frequency and intensity would increase if the temperature gradient between equator and poles increased.  This is not proven.  There are theoretical reasons that this might be the case, but there are others that would indicate the contrary.
2. It hypothesized that global warming would increase this temperature gradient.  Again, there are good theoretical arguments for and against.

After lots of publicity came the big lie, and it's a whopper.  It's another example of facts being irrelevant.  Examination of global hurricane data shows no significant change in hurricane frequency.  At the same time the press were bellowing about the increase in hurricane activity, the actual level was slightly below average.  The difference was that Katrina and a few other hurricanes hit the US.  That generates lots of publicity.

There is a recent increase in North Atlantic activity, which definitely excites lots of publicity.   There are claims that this is evidence for global warming, but the hypothesis was about global affects, not a local Atlantic effect.  The North Atlantic variability is a known weather cycle, although the underlying physics remain a mystery.  The current higher levels were first predicted in a 1955 report to the US Insurance industry.  The only reason it's a surprise to the public is the unwillingness of the public to hear the associated message about the dangers of building in dangerous locations.

But this all has nothing to do with the understanding, reality, or characteristics of global warming.   The absence of a global increase in hurricanes does not mean there is no global warming.  It might mean that global warming does not increase the temperature gradient, or that increased temperature gradient does not increase hurricane activity.

This could have been a quiet internal working paper.  But instead it was turned into a big political campaign, complete with misrepresentation of the paper, the real data, etc. 

EMR Polling, a communications disconnect

My initial reaction to the link to a recent poll analysis showing how little the public understands the value of EMRs was their intended "ignorant public" reaction.  I then shift to an "ignorant pollsters"  reaction, with a bit of wondering about whether it was ignorance or deliberate.

I think that the public answered a different question than the pollsters thought they had asked.

It seems likely that the public answered the question "who will benefit from the US government spending and regulation on EMRs", not the polling question about the "benefits of EMRs".  For obvious reasons my mind turned to GOSIP.  A similar question mismatch about "benefits of an Internet" versus "who will benefit from US government spending and regulation of GOSIP" would have a similar result.  GOSIP was a multi-billion dollar waste that caused delay and harm to the acceptance and growth of the Internet.  The US spending on EMRs could go down the same path.

As with GOSIP, the problem with the present EMR push is not with the technical concept, the problem is with the government spending and regulation approach.  I think that is what the public answers reflect.  They do not think that this government spending and regulation will have the claimed benefits.

The advertised functional goals for the EMR are twofold:

• Reduce costs, and
• Improve patient outcomes.

I will believe that a project will reduce costs when the project plan includes a proposed layoff size.  We are past the "let's build one and see what happens" stage for EMRs.  By now there should be a reasonable plan for layoffs of staff that will result from the EMR installation, where these layoffs result in savings that exceed the cost of installing and operating the EMR.  I'm not asking that these be perfect.  I've seen how things change as projects progress.  But if layoffs are not even in the plan at the beginning, there is no credibility for claims of cost savings.

I have seen plans like this in RIS/PACS installations and some EMR installations.  The systems are justified by layoffs of couriers, elimination of staff overtime, the elimination of warehousing, equipment maintenance, etc.  The results don't always match the plan, but in general there are real savings. 

I will believe the goal of improved patient outcomes when there are clinical trials and statistical evidence that show a reason to expect improved patient outcomes.  A blind faith of "technology will save us" is not accepted elsewhere in medicine, and should not be accepted here.  There is plenty of potential, but does it work in the field?  This needs to be evidence based.

Again, in RIS/PACS/EMRs there are sometimes situations where equipment is installed because it improves patient outcomes.  There are clinical trials and there is statistical evidence gathered showing that these technologies do improve patient outcomes. 

I will believe an outcomes motivations for an EMR project when I see sound scientific evidence in the justification for project features.

Book Review: Myth of the Rational Voter

I enjoyed The Myth of the Rational Voter: Why Democracies Choose Bad Policies by Bryan Caplan (ISBN-13: 978-0691129426)

He starts with an analysis that is a fair starting point for his thesis, although he debunks it in favor of a more complex and subtle thesis toward the end.  A "rational" voter will realize that their vote means nearly nothing.  It doesn't really matter.  Their one vote will not determine the outcome of anything.  So, to deal with the cognitive dissonance raised by the effort of voting, they choose their vote based on psychological satisfaction.  The "rational" voter does not attempt to consider their self-interest in the policy outcome.  They pick a vote that lets them leave the voting booth feeling happy.

This is followed by a fairly extensive analysis of data regarding public perceptions vs informed perceptions of various economic issues.  From there, various voting strategies and political strategies are considered against observations.  The "rational" voter described above is not a fully accurate predictor of voting behaviors, but it captures the general theory.  There is a kind of cascading of specificity both by politicians and voters.  For example, voters may select the "feel good" vote for the politician who does something for "jobs".  They don't inquire closely into the later decision that "jobs" means a regulatory deal to favor a particular industry and particular unions.  The politicians, industry, and unions understand that they cannot break the feel good illusion, but it will be safe to employ corruption to ensure that these jobs go to the highest bidder.

The book is primarily expository and tries to explain the voting thesis, explain the supporting material, and discusses some of the weaknesses of the theory.  It's not trying to push a "solution".  It's describing and explaining observed behavior, not selling any particular policy.

Second round rail transportation grants are more intelligent

The first first round of federal transportation grants was mostly PR and favored consulting grants, together with lots of federal employee funding.  More than half is for bragging rights over whose passenger trains are fastest.  These are a good way to funnel money to civil servants, consultants, and publicity agents.  This is all crucial to the re-election campaigns of congressmen who need that PR and public support.  But they are not what has been demonstrated to maximize utility.

The biggest improvement for the dollar comes from eliminating bottlenecks.  The Acela does not hit any speed records.  It spends most of its time running at 200 kph or below.  It made its big gains through taking slow turns a little faster, eliminating stops, better acceleration and braking, and eliminating the engine change in New Haven.  This cut the NYC-WAS time by about 30 minutes (with no change to top speed compared to the predecessor Metroliner), and the NYC-BOS time by about 1 hour.  Analysis of schedule impact continues to show that the biggest wins will be through upgrading the very slow track and signaling on NYC to New Haven, and through replacing worn out bridges and sections that require go slow orders.

Similar improvements in California have dramatically increased capacity and ridership in both the LA-SAN traffic and OAK-SAC traffic. 

Perhaps a third of the first round of grants went to this kind of project.  They tend to be small, plebian projects that add sidings, straighten track, bypass bottlenecks, add overpasses, etc.  Only the locals notice the improvement.  These are hard sells to national politicians.

The second round seems to have done much better.  The details are in their report (PDF).  In addition to eliminating passenger bottlenecks, it is funding many projects that eliminate freight bottlenecks and road-rail interference.  Replacing some at grade crossings with overpasses can eliminate long traffic delays on the roads and allow heavy freight traffic during commuting hours.  Both sides win.  The Long Beach port improvements several decades ago were the first to exploit this kind of improvement.  The CREATE project around Chicago is the current largest of these coordinated projects.  There are several smaller such projects also in progress and an East Coast corridor analysis looking at a huge series of bottleneck improvements for the Virgina to Massachusetts corridor of rail, road, sea, and air traffic.