Three Sigma Systems

In an effort to get my feet back on the ground…

I recently decided to volunteer as a SCORE consultant to small business enterprises. This is basically doing what I have been doing for 30 years, but without the pay checks. I am hoping that this will provide me with the opportunity to get back down to the nitty-gritty of enterprise methods.

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” W. E. Deming

Speaking of knowing what you’re doing…

In a run of interesting articles (see my blog entry, “Risky Business“) “The New Yorker” has struck a resonant chord again, this time with the October 12th, 2009 article, “The  Secret Cycle”*  by Nick Paumgarten. (However unlikely, I can’t help but wonder if he read my my blog entry on the same subject.)

* Sadly, Paumgarten’s article can only be read (online or off) if you are a New Yorker subscriber. It is excellent and I recommend reading it if you can.

Paumgarten explores the numerological business-cycle theory of financial guru, Martin Armstrong. Armstrong dreamed up his theory by staring at patterns in financial data.— sort of like seeing cuddly animals in the shapes of clouds. Armstrong sees a financial cycle of 8.6 years and deduces that this cycle is a function of the universal constant PI, which he explains, is the “Geometry of time itself”.

Armstrong managed to parlay his theory into a financial consulting business that paid him as much as $10,000 per hour and, according to the U.S. government, a decidedly non-cyclical Ponzi scheme that defrauded investors out of more than a billion dollars. He sold “cycles” but invested in “pyramids”! He continues his good works from a prison camp at Fort Dix.

I offered up my thoughts on the subject of business cycles in my post, “Business Cycles – The Greatest Con Never Told“. The upshot is that cyclists pray on a trick of the human mind — to see meaning in patterns whether meaningful or not. The predators among us lie in wait, relying on our habitual thinking to make us easy prey. Enterprising and innovative minds understand that the patterns we see are not “out there”. Patterns are of our own making, and if we so choose, we can construct them in creatively useful ways. This idea lies at the core of Walter Shewhart’s concept of process behavior and the utility of 3-sigma.

And speaking of ambushes and enterprises…

At this very moment, our leader, Obama, is in the thick of the Afghanistan conundrum. I am following this story with great interest because, and I repeat myself pridefully, I was there before most people knew the place even existed. My brilliant cyber-colleague and friend, Greg Nixon, read my “Tom Cruise in Afghanistan” blog entry and suggested I read Steven Pressfield’s historical war novel, “The Afghan Campaign“. As always, I did as instructed.

As art, the book is a disaster — the dialog is almost unbearable. But the main point of the story strikes the right chords. If you can’t beat ‘em with your game, join ‘em in their own game.

Obama’s problem is figuring out to whom he, or proxy Tom Cruise, should propose marriage. Where is Roxana of Bactria when you need her?

The September 28th issue of The New Yorker contains an article worthy of note. In “A Life of its Own – Where will synthetic biology lead us?¹“, Michael Specter, a New Yorker staff writer, leads readers along a yellow brick road  assessment of the potential risks and benefits of bioengineering. His description of Frankensteinian science  is fascinating,  but when it comes his analysis of the economics and practical risks of the technology,  I can only say, there are “risks”, and then there are “RISKS!”  ²

New Yorker illustration accompanying article "A Life of its Own", 9/28/09

Specter cuts right to the chase in explaining a reductive world view that dominates much of contemporary science. He implies that developments in decoding DNA can be likened to reverse engineering low level, machine language computer code. Once we have decompiled the code sequence, we can repackage the machine instructions into a higher level, user friendly, programming language, and begin piecing together new genetic variations that can serve our every wish and desire.

For those uncomfortable with computer language analogy, he offers up the idea of Lego blocks that can assembled in myriad ways to create new life forms. This digital imagery — blocks of code and Lego blocks — entails a problematic view of the world that I discussed in my post, “Reductive Hubris“, some months back. The reductive digital analogy of decoding the low-level building blocks of life in order to engineer synthetic life, is worse than fallacious reasoning, it is a dangerously seductive illusion that entails unknown and potentially catastrophic risks. Read more…

The Next Evolution in Economics: Rethinking Growth – HBR Now – Harvard Business Review.

Stan Stalnaker uses an organic metaphor to suggest that growth-centered economic behavior is cannibalizing the whole of our economic interests but that change is in the offing.

Stalnaker’s article on systems optimization is notable primarily because it appears to be associated with HBR. His central idea — that the growth-centric economic model is metastatic and inherently unsustainable, is hardly revelatory. The logic of his position is sound and stands out in bold relief in our new technological age in which the interconnectedness of everyone and everything becomes increasingly apparent — and problematic.

Where Stalnaker errs, (and this is not a trivial error) is in suggesting that the transition from a growth model to a sustainability model is an “evolutionary” process and essentially naturalistic. This image of natural laws at work is misleading and destructive. The issues at hand are those of human intention in which the intentions of those committed to personal gain are pitted against those who intend to make a better world for the community as a whole. Regattably, current events indicate that the former group of “intenders” continue to hold the upper hand.

The conventional wisdom of free marketism is that the stock market is a “leading indicator” and employment is a “lagging indicator”. The message you are supposed to read from this is that, even though more and more people are being thrown out of work every day, when the stock market starts going up you should believe that happy days are just around the corner and that it’s time to get back into the game again by investing and spending whatever wealth you  still have or might have someday, or your children might have in the future.

Maybe you should step back for a moment and consider what stock the market numbers really mean and compare that meaning with with meaning of employment numbers.

Leading Indicators top center

• As even the free market crowd admit, the stock market is driven by traders seeking to produce nothing more than profits. The creation of real wealth is irrelevant to the players. It is the psychology of the market that drives the CONFIDENCE (i.e. con) GAME. If major players can lead you to believe that the stock market is in fact, a reliable predictor of the future of the economy, you will put money into the game. As the amount of money on the table increases, the price of stocks go up. If you catch the rise (the bubble) you might realize a bit on the return. The big players will, of course, realize a big return on profit taking, transaction fees, and eventually on renewed lending.¹

• The lagging indicator of employment has nothing to do with psychology. Employment numbers do not reflect what people THINK might happen, they reflect what IS ACTUALLY HAPPENING. Employers don’t hire people because they think they might need more people to produce real product and service. They hire people when they actually have real work producing real value that needs doing.²

Imagine this . . .

There’s this gambling casino owned by a cartel of very wealthy financial wheelers and dealers. About a year ago the owners were on a binge. So many people were playing that they figured there was no limit to the amount of money people would wager. They pulled out the stops and reinvested their money in more gaming tables, betting that the number and size of people’s wagers would continue upward forever. Then one day the players at the table just ran out of money and credit and walked away. The casino owners were left holding the bag.

Being no dummies, the incredibly wealthy casino owners took the huge amounts of money they had accumulated and buried under their mattresses. Their money stopped flowing to the borrowers who gambled at their tables, and the “free-market” economy came to a grinding halt. Scared stiff, the government stepped in and gave the casino owners a big infusion of taxpayer dollars to protect them against future losses and to “stimulate” them to open the tables again.

Now flush with taxpayer cash, the casino owners have reopened for business. Their first task is to LEAD the players out there to believe that the game is on again and everyone can be a winner! One way to do this is to manipulate the odds a bit to get the suckers in the door. Once in the door, they get the media pundits (i.e. shills) to start ringing the slot machine pay-off bells: “Hooray, everybody is winning!”

The stock market is not a “leading indicator” because it predicts a recovering economy in which the production of honestly valuable products and service is on the rise. It is a “leading indicator” because it leads people back to the gambling table of conspicuous consumption, blind speculation, and leveraged risk.

Here’s the big secret. It’s a  ”CON”fidence game. Bubble, bubble, toil and trouble. Why is it so hard for people to understand this?³

PS – As the confidence game suckers rush back to the gambling tables the real investments that would secure or national security and our children’s futures  —- healthcare, education, production of value, and wealth that benefits all — are deferred… again.⁴

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In my previous entry I put forth the idea that human beings are genetically compelled to communicate and that tweeting reflects this compulsion. Tweeting may or may not be useful communication.

Our compulsion to communicate was selected for because it enables us to make our lives better by creating knowledge that serves our needs and intentions, but the compulsion to communicate is built into us and our exercise of the impulse is not limited to that which is specifically useful.

For example, a young bird is compelled to flap its wings, though its wings are still incapable of flight. My puppy is compelled to hunt, though it is unlikely that her impulse to hunt will ever serve to get her a meal. Tweeting is part of our genetic programming irrespective of its utility in any given situation.

Here are a few observations of the tweeting impulse unchained:

• Babies babbling
• Mothers cooing
• Singing in the shower
• Muttering
• Dreaming
• Small-talk at parties
• Cursing bad luck
• Raging out-loud at other drivers

All of these examples of the tweeting impulse are largely devoid of conscious intention and purpose, though we can rationalize them after the fact. The fact remains, that we just tweet because we are genetically programmed to engage in symbolic behavior. Its the same as saying that we flap our wings even when flight cannot be attained and that we hunt even when we have no prey.

In this view, psycho-pathological explanations —- “Twittering stems from a lack of identity “or “Using Twitter suggests a level of insecurity” — are as silly as the idea that a baby bird’s flapping wings or a pet dog’s hunting behavior is somehow pathological. So much for psychological explanations!

It is not that “I tweet therefore I am”, it is that “I am, therefore I tweet”. Of course, putting our tweets to work to make a better world would make them more than tweets and that would be a fine thing. ¹

Pooh-tweet.
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:Pooh tweet, pooh tweet" - Kurt Vonnegut Bird

There is a theory of human mind that suggests that thinking  is really just a conversation in which we explore our ideas about the world with others.

We are all aware of our thinking when we converse with other people, but we seldom give much thought  to the  conversations we conduct in our minds. Conversations  with imagined “others” are going on in our heads all the time. When we read a book or read passed a headline in the newspaper, we are having a nice chat with the authors. Sometimes we argue with imaginary images of friends or family and other times we converse with others imagined out of thin air—day dreaming our way to new insights.

We could just as well have our chats with our imaginary friends right out loud, but then someone would make us take lithium pills.

When I think about conversation, I think of a back and forth process in which we try out our ideas, listen to the reactions of real and imagined others, and then rethink again and again. The process of thinking is more than just stating what we think we know, it’s a process of reformulating what we know in new ways. Our thought-conversations are a way for creating new knowledge.

When I get to thinking about the nature of conversation in our culture it seems to me that our conversations are growing shorter and shorter. Are we gradually shrinking into a “sound bite” approach to conversation? More and more, its seems that we state our ideas and that’s that. No replies required. No replies welcomed. Rather than converse, we “Tweet” like little birds.

I’ve been thinking, could the rise of tweeting be signaling the demise of thought?

A rogues' gallery of con artists -- (from left to right top then bottom) Marx, Spencer, August von Hayek, Adam Smith, Hank Paulson, Martin Feldstein, Milton Friedman, Jack Krugman, Alan Greenspan, John Maynark Keynes

Wheel of Fortune

CON ARTISTS ARE CUNNING FOLK. Their game relies on tricking their “Marks” into seeing as meaningful, supposedly natural patterns of events that are, in reality, meaningless. Once their Marks are hypnotized into seeing these patterns as filled with meaning, the con artist knows his Marks’ natural predilection toward pattern recognition will do the rest of the work. Thus, the confidence artists acquire the status of gurus, soothsayers, and shamans. The mystified Marks have become enslaved by the artist’s nonsense.

One of the most powerfully deceptive devices for imputing meaningful patterns to meaningless events are silly cycles–’round and ’round about. Rationally we know that time’s arrow does not go in cycles, but rather moves relentlessly forward toward unique futures. The world unfolds anew with each passing moment. Where it otherwise, I would happily contemplate my cycling back to my youthful self, when the girls thought me handsome.

Pattens in the night sky have provided fertile materials for the psuedoscience of astrology which has a long history of entrancing Marks into seeing fated futures in the meaningless celestial dots and the scratching of practitioners. Woe those who drink too deeply from this cup of nonsense.

But the con artist knows that it is not necessary to point to patterns in stars, tea leaves, palms, or chicken bones. The Numerologist relies on the meaningless patterns of arithmatic numbers to bamboozle his Marks into believing that the future can be decoded though mystical numerical cyphers–’round and ’round about.

Today, the greatest cons of all are leading us toward national and international destruction. The Economists’ game is the a thing called the business cycle. This cycle, they tell their Marks, represents the natural pattern by which wealth and power are allocated amongst men. The cycle dictates some few will wax wealthy while many wane poor. The cycle, they would have the Mark believe, makes sense of human misery. The are no actors, no cheaters, no strongmen, no con men. There is only the natural cycle of mystical economic forces—the ebb a flow of “market forces”—’round and ’round about.

When you hear the man talk “cycles” and find your attention riveted by pretty patterns in the sky, splash cold water on your face and then run like hell, lest you become the Mark.

Business Cycle Wheel