Random musings of Scott McGregor

The Supreme Court recently decided that campaign finance laws that limited contributions made by corporations violated their constitutional guarantees of free political speech. By striking these laws down, the doors are open for unlimited amounts of corporate dollars to flow into campaigns. Many people are rightly concerned that this would effectively allow large corporations to spend so much money that they could buy the election results that they want, by effectively drowning out all the other voices.

Is there a constitutional way to prevent such an undesirable result, while still allowing corporations unfettered ability to exercise their freedom of speech?

I think so. In fact, I think that there is a way to do so that will actually increase access to effective political speech for everyone.

Here’s how:

Allow unfettered campaign contributions by any person, or corporation, domestic or foreign — but put a 50% tax on all contributions. Those tax receipts then form a public election campaign fund which all candidates in the race can draw from to help them spread their message. So anyone who has money and thinks that their message isn’t getting out, can make a donation to get that message out — but in doing so, they will also be enabling other candidates to get their message out too. This should be especially beneficial for candidates who might otherwise have limited funds and be unable to get out their message. Now it isn’t a question of which campaign has the money to get its message out, but there is actually enough money for a real battle of ideas from all candidates.

How would this work?

Let’s say that I am CEO of a large oil company, perhaps even one headquartered in Europe. I’m concerned that one of the California senate candidates, Al Green, is campaigning on the idea of a Carbon tax that is so onerous to oil companies such as mine that I believe my company’s US profits will be halved if this candidate is elected and this tax is enacted. I believe that in order to keep the trust of my company’s share holders — and to keep my own job — I am going to have to close 50% of the refineries and other marginal operations in California which will no longer be able to cover their cost. I believe that I’ll have to increase prices at the pump at least $0.50 per gallon, and lay off 25,000 employees in California alone. I’m worried that voters may not be aware of how this tax could affect their jobs and their pocketbooks. So I want to donate to the campaign of Red Pacaderm, a candidate that is opposed to a Carbon tax, and sympathetic to businesses such as mine, so he can get out the message of what the effects of such a carbon tax is.

Let’s imagine I contribute $10 million to my favorite candidate, Red Pacaderm. $5 Million of my contribution is taken as tax and goes to the California Senate Campaign Fund. Let’s say that there are 6 senate candidates registered on the ballot in California. There are the two major party candidates, Red Pacaderm (R), and Jenny Blue (D), but there are also 4 minor party candidates qualified: Al Green (Green Party), Connie White (Constitution Party), Violet Flowers (Libertarian Party), and Earl Gray (Tea Party).

These other 5 candidates will then split the $5 million in tax and wind up with $1 Million each that they can use to get their messages out. So, while Red will have another $5 Million to spend letting Californians know how a high Carbon Tax will affect the price they pay for gas, Al Green will have another $ 1 Million to spend explaining the consequences of Global Warming in the Carbon Tax isn’t implemented. Jenny Blue will have another $1 Million to talk about how a Carbon Tax could fund improved health care for all, and Violet Flowers will get a $1 Million to explain her view that we should not have a tax, but rather an incentive program (her “Let a 1000 flowers bloom” program) that encourages more entrepreneurs and new businesses to create new energy saving and alternative energy generating devices. Connie White and Earl Gray each use their $1 Million to make their names better known to more voters as well.

Whether this additional information from all candidates will result in a more informed electorate might be debated, but at least there is more information available to those who would choose to be better informed.

This same approach can also be used to govern contributions to organizations campaigning on one side or the other for voter initiatives, or even on money contributed to political action committees that run advertising, etc. independent of any specific candidates campaign.

Would such a tax be considered unconstitutional for the same reason’s campaign spending limits have been stuck down by the Supreme Court?

I don’t think so.

Here’s why:

As has been frequently emphasized in debates about open software, there are two very different meanings of the word “free”: 1) free meaning “zero cost” and 2) free meaning “unrestricted”. Freedom of speech refers to this latter meaning, and the Supreme Court pointed out that laws that forbid such speech, or limit how much can be spent on such speech are limits — the very thing the first amendment guarantees the government won’t limit.

But the first amendment does not address the cost of expressing your views. Historically those costs have been high, as printing presses, paper and distribution cost of information has have been high. Standing on a soapbox on a street corner wasn’t expensive but it didn’t reach many people. Printing was expensive but could reach many more people. Television was expensive, but it reached many more people. But today anyone can twitter or put up a facebook page, and cost of reaching millions of people might be much lower. But there is still a big imbalance in quality and quantity of information, voters receive about different candidates and issues. This tax does not put any upper limit on how much money can be contributed to getting anyone’s preffered message out — it ensures that all the other voices won’t be drowned out by large campaign contributions to any one candidate or issue campaign.

If you are in the innovation game, in Silicon Valley — high tech innovation central — you have to expect a lot of change, market turmoil, and financial ups and downs. But 2009 was harsher than any year we have seen before here in the valley. And it has take an emotional toll on many of our best and brightest. But we aren’t quitters here. Here in Silicon Valley, we create the change we want in the world. So in wishing us all greater prosperity in 2010, I thought it would be useful to review what made 2009 so tough and look forward to what we can do, or at least what I can do for you, to make 2010 better for all of us.

But first, if you are someone who wants to stay in the innovation game, and stay at the top of your game, you have to keep your creativity skills sharp and your attitude upbeat. To all those readers who found 2009 challenging, I offer you two humorous holiday videos that I created for two of the companies that I have been involved with in 2008 and 2009. If you like them, please share them with others. We can all use a pick me up!

• “Happy Holidays in Silicon Valley” for SWIFT Design Group, a Management Innovation Consulting practice.
• “Festival of Lights” for XooXooX, A Web Advertising Service That You Control.

What made 2009 so hard in Silicon Valley, and who was affected? Here’s a sampling of the kinds of people among my friends and colleagues who will be glad to see 2009 behind us.

Investors

If you were an investor, it was hard to predict how much “dry powder” you might need to set aside to help keep alive a start-up while the economy is stuck in slow gear.

Self Funded Entrepreneurs

If you were an entrepreneur and didn’t need funds, a recession can be your friend when it shakes out new competitors and causes established market leaders to focus internally on cost cutting. But unless you had deep pockets and were self-funding your start-up, or were already cash positive, you’ll eventually need to raise some cash.

Debt Financed Entrepreneurs

If you were an entrepreneur and did need funds, it is always tough to raise money, but 2009 was worse than usual. Even if you had some income, the credit crunch in the first half of the year made it tough to get debt financing as well. Your own customers were having trouble paying their bills, but without at least debt financing, you couldn’t keep the customer by extending payment terms.

Equity Financed Entrepreneurs

Equity financing for star-ups wasn’t any easier. Not only did investors have no idea how long it would take for markets to rebound, but they also didn’t know when/if IPO markets will re-open and larger companies will go into acquisition mode. And any investments that they had in the stock market were under performing, and probably showed a loss early in the year.

Consultants

If you were a consultant to start-ups, Your client base was cutting back and cutting contracts. They didn’t have cash to pay you but you can’t keep afloat on all 100% equity deals. Large numbers of laid off executives were competing for an ever shrinking set of consulting opportunities.

Employees

If you were an employee, chances are that you felt very uncertain about your job. Whole companies were crashing. Acquisitions often resulted in transfer of products, but layoffs of the acquired team, part of the acquirer’s team or both. Sales were often down so much that no amount of belt tightening could reduce expenses sufficiently to match the new lower income numbers, so layoffs were inevitable.

The Unemployed

If you were a victim of a layoff in 2008 or 2009, 2009 was a difficult time to find a new job. The number of people on the unemployment rolls in the valley exceeded 10% and because many people had exhausted benefits or were no longer looking, quite a few analysts estimated that actual number of people who wanted to work in Silicon Valley, but couldn’t find a job, may have reached 20%. And the average amount of time on the unemployment rolls drifted upward of 6 months on its way toward 1 year of unemployment!

Here’s hoping that 2010 will be better.

Here’s what I am hoping for in 2010: a new consulting gig, or an executive role with a young (but funded) Internet, web and software Startup in Silicon Valley. As always, my goal is to build innovative strategies, teams and processes that create disruptive innovations that pioneer new markets. I enjoy all the steps of this process beginning with conception and product design and engineering all the way through successful product introduction, growth and resulting in product leadership in the new market. I’ve done this before several times, and I expect to do so again — I don’t know where I will do that right now, but I’m hoping to begin this accomplishment in 2010.

If you had a tough year in 2009, I hope 2010 is more prosperous for you too! Let’s renew our friendships and see what we can do for each other. Let’s reach out to new friends and see what we can do for them. The economy is just what we all collectively do. So if we all believe in and help one another, we will have that turn around we all want.

My offer to you:

If you are a CEO or senior executive at a start-up or innovative technology company and you need some help turning your advanced research into a market leading product, building a top technical team or product management team. I’d love to help you achieve that success.

If you are an investor with a promising young company that needs some seasoned management experience and startup expertise, I’d love to explore what we might accomplish together.

If you need consulting help in how to increase innovation in your company in general, or to lead a skunk works project to develop a radically different product or process, I can help you accomplish that.

And if you are a talented software engineer or product manager or product marketing manager who thrives to on innovation and start-ups, let’s keep talking: I always like to bring great talent to my employers, clients and companies. And who knows, maybe we’ll find we have the talent to found a new company ourselves.

On the Internet and the future of Civil Political Discourse

In today’s blog, I am referring to a number of incident of false information, spread by the Internet, which have achieved wide dissemination and resulted in increased polarization and scapegoating of individuals and groups in our society. This blog is now about these incidents per se, but about the mechanism and effectiveness of this approach and its potential impact on our society. Although the examples show various partisan bents, this is not a partisan post; we are all targets of such disinformation no matter what we believe, and we will all suffer the consequences if civil political discourse is destroyed by these measures, and we will all enjoy the benefits of increased mutual respect and cooperative action if civil political discourse can be encouraged.

Alarm bell 1: “You Lie” outburst

The other night Representative Joe Wilson (Republican, South Carolina) interrupted President Obama’s address to congress and to the nation by shouting “You lie!”. This story is all over the press, and I won’t repeat it because this blog entry is not about that outburst per se,nor the next 3 alarms that follow, but it is inspired by it. While the question of the cost of a national health care program is a real concern, as well as measures for controlling those costs, many hoax letters have been circulating with misinformation about mandatory death panels, guaranteed coverage for illegal aliens, etc. have been circulating widely, with the intent to alarm people not inform them.

Alarm bell 2: Bozeman Montana Townhall letter

Also, a few weeks ago I received an email from a family member that included a forwarded email reporting and commenting on events that supposedly occurred in conjunction with Obama’s recent town meeting in Bozeman,Montana. The sender was outraged by what he read about the wasteful ways and stifling of free expression by the administration as reported in the letter. This letter had passed from friend to friend to friend, and each recipient tacked on their own personal feelings of outrage at the administration after reading it. You may have received a similar letter. Indeed, I think that everyone who reads this letter would agree that the actions of the administration reported in the letter are indeed wasteful, oppressive, and outrageous, and that citizen action is necessary to ensure they don’t continue. The problem is, the events that reported that were true factual news reporting of when and where the event was held, etc., but the alarming parts of the letter, the reported outrages described, didn’t happen. It was a hoax hoax email.

Alarm bell 3: Presidential IQs

These letters aren’t just authored by radical conservatives. Back in 2001 I received an email from an alarmed colleague containing a letter purportedly reporting on IQ tests conducted on the 12 previous presidents, whose spans jointly covered 50 years. The letter reported the Lowenstein Institute as ranking William Clinton the highest, followed by Jimmy Carter and JFK, while Eisenhower, Ford, Reagan, George HW Bush and George W Bush were reportedly all at the bottom. The letter also reported the average IIQ of the 6 Republicans as 115.5 for all Republicans, and 156 for the Democrats. This letter was circulated again in 2007 during the election, from yet another source. This email too was a hoax.

Alarm bell 4: Average citizen IQs by states

It isn’t just politicians who are being smeared to make civil political discourse amongst each other impossible. In 2004, a hoax email reached me that gave out false Average IQs by states. Not surprisingly all the states whose electoral votes were won by the original author’s favorite candidate were in the top half of the list, while those on that went the other way all appear in the lower half of the list.

The consequences of these hoaxes

This is just a small sample of the emails that have been circulated to me through several hands. These were all hoaxes. And they took in many very bright, and normally skeptical people. But the sense of outrage toward the targeted scapegoat groups that resulted from their initial consumption was very real and persists today — making it even easier to believe more outrageous false reports in the future.

Even smart people are taken in

The people who have sent me this letter, and other alarmist letters in the past are not unsophisticated, naive, or unquestioning citizens; they include bankers, entrepreneurs, venture capitalists, and a former parter in charge of the international offices of one of the 4 accounting firms, and other people whose success is often dependent on retaining a fair amount of skepticism. And if these people can be manipulated in this way, we are all vulnerable to such manipulation.

The internet is not evil (but it can be used effectively for devise purposes)

Don’t get me wrong. I love the Internet. I have been working for 30 years to enable computers and networks to enable better communication among people in distant locations. Among the many products that I have helped to define and bring to market is the first commercially successful Web Conferencing product, today known as Microsoft Live Meeting. And I’m pleased to know that every day over a million people use it to meet with people at a distance, instead of having to hop on planes. I certainly don’t want to shut down that kind of communication.

Why we need civil political discourse

This entry is about the importance of civil political discourse, propaganda, the influence of the Internet and social networks on political discourse and my serious concern that our ability to have a civil political discourse is being undermined. This is a non-partisan concern, as it effects all of us. The importance of political discussion is that many of the benefits and protections we seek from government can only come from mutual action and consent. And mutual action and consent requires mutual respect for the needs and desires of all people who participate in the political discourse, not just those we agree with.

The alternative is temporary stalemate, followed by unilateral action and domination by force, and at its extremes genocide, tribal warfare, civil wars and other conflicts such as the Hutus vs. Tutsis in Rwanda, Catholics vs. Protestants in Northern Ireland, Serbs vs. Croats and Muslims in Bosnia, Sunni vs. Shiite in Iraq, and the Nazis vs. the Jews in Nazi Germany, and lest we forget it can and did happen here in the US between abolitionist and slave states.

These chain letters are not designed to mobilize us to SOLVE problems by finding solutions that will work for everyone — They are designed to make any solution impossible, to push our buttons, not only to foster hate and distrust, but to get us so upset we have to mobilize our friends and enroll them in the campaign of distrust as well. It uses the same kind of social engineering tar computer virus writers use to temp us into infecting our computers and toy spread that infection to our friends. The fabrications are artfully interwoven with well known (and boring, not alarming, facts). The latter give them credibility, the former enrage us, and stir our anger at a class of people that the author wishes to identify as the scapegoat that is causing all the evil in our country.

Which individual or class we are supposed to hate varies with the author and their goal, but we are all likely to be exposed to ever more of these letters, and if they succeed, we’ll all be hating everyone like in Tom Lehrer’s “National Brotherhood Week” parody:

All the white folk

Hate the black folk,

And the black folk

Hate the white folk,

All my folk,

Hate all of your folk

And everyone hates the Jews.

But during National Brotherhood week…

The danger is not in the lie, but in the repeating…

It isn’t the specifics of the lies that upset me so. I don’t feel the need to debunk them all point by point. No, the thing about these letters is the speed and reach with which they are spread. Those perpetrating these hoaxes have learned well the lessons taught by Joseph Goebbels, Reichsminister of Propaganda in Nazi Germany from 1933 to 1945:

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it”

The role of the Internet in rapid reproduction and dissemination of alarmist hoaxes

The internet, which brings us instantaneous friend to friend emails, social networks, and blogs is the greatest tool for rapidly repeating and disseminating lies as any wannabe propagandist could ever want. It is nearly effortless to get your message repeated over and over and over by well meaning people in just a short period of time. And because our social networks overlap so much, we receive the same message (that might seem dubious from one source of unknown credibility) from multiple sources, friends and family and colleagues we trust. Surely they can’t all be deceived — so we become even more convinced of the truth of these lies. But that’s the scary part about which Goebbels spoke of, When we hear it repeated everywhere, we all quickly forget what the original source was, and then we accept it as truth without question.

A Need for Increased Skepticism

We need to wake up. We need to become more skeptical. And we need to put into place automated mechanisms that alert us that these kinds of messages can be hoaxes, just as we have created automated methods to alert us to potential Phishing emails and Spam. If we do not increase our skepticism, and counter the quick spread of such hoaxes, we will surely turn large portions of our scapegoats and solve the problem of having too many of these scapegoats — but not eradicate the evil we claim they caused.

No one is safe, everyone is a target of disinformation

It doesn’t matter who the identified scapegoat is: Now it isn’t just the blacks, whites and Jews that Tom Lehrer parodied. Everyone of us now has a target drawn on our back by some internet propagandists intent on creating hatred and distrust for Democrats, Republicans, Conservatives, Liberals, Right to Lifers, Right to Choose supporters, evangelicals, gays, lesbians and transgenders, illegal aliens, rich white men, blacks, skinheads, politicians, union leaders, central bankers, the CIA, the liberal press, George W. Bush, Dick Cheney, Barack Obama, Hillary Clinton and everyone else. Every one of these has been identified by some internet propagandist as the source of all the countries ills in these emails I have received, in blogs referenced by other blogs, and in web pages promoted through twitter and repeated in podcasts on YouTube and iTunes.

A lonely planet

No one group above is responsible which evil in our society, but the logic of these propagandists is that if we euthanize or deport all members of all of these groups we don’t like we will probably eradicate all our problems. Sadly if every one of them is successful, they will all be right, for there will beno one left to complain or care.

I am frightened to see how easily educated, well meaning and really caring folks are not only duped by these propagandist artists but actively enlisted in copying and disseminating these lies, and unconsciously supporting these campaigns to spread more hate and fear.

Remember “Never trust anyone over thirty”?

Folks, this has to stop. If it doesn’t, some of us will wind up victims of this hatred. We don’t have to go back to Nazi Germany to see what this kind of division does to a nation of people who hate and fear each other. We don’t need to look at Sunni and Shia violence in Iraq, we don’t even need to look all the way back to the Civil War. We have plenty of other examples closer to home, with millions of people who still remember what it was like. People who. saw what happened in the 60s, at Kent State, at the Democratic convention in Chicago, in Memphis and Missisippi, with the SLA, the KKK, the Weather Underground, Black Panthers, Jack Kennedy, Bobby Kennedy, Martin Luther King, and Malcolm X. It was a time when a common phrase in the youth culture was “never trust anyone over 30″. We know what happens when we can’t trust each other. It is not unthinkable that we will face that level of unrest again. Indeed, if we don’t start the hatred and scapegoating it may well be inevitable.

Break the cycle:

Look not for how your neighbor can deprive you, nor how you can deprive your neighbor, but how together you may both prosper.

If we are going to avoid revisiting such times of violence, we need to stop assisting the propagandists who foment fear and distrust and single out groups or individuals as the scapegoats we should blame. We must break with the idea that those who are not with us are against us. Instead we must ask ourselves what common needs and desires do we all have in common as Humans? How can we work together to find ways to increase the ability of all to secure their own needs and achieve their own desires together?

Look, we know the propagandists aren’t going to stop inventing all these alarmist stories, so we can’t expect these to stop at the source. Not if we want to continue to have freedom of speech. We have this same problem with Spam as well. But while we can’t eliminate Spam, we have created effective ways to limit its transmission and effects.

Let’s NOT just pass it on.

Since we can’t stop these hoaxes at their source, minimizing its impact means we have to find ways to stop the spread of propaganda at the earliest point in the distribution. It means we need to take the responsibility for spotting it, and not passing it on — no matter how artfully the authors weave the alarmist lies with the boring truths.

We have to learn to become skeptics and create automated mechanisms that assist us in identifying things we need to be skeptical of.

A FEW STEPS WE CAN ALL TAKE: AN EXAMPLE

Here’s how I try to verify or refute such letters.

First of all, anytime someone sends me a letter that has alarming information in it, which it blames on some political group, or prominent person, I try to check it out — even if it contains parts I already know to be true, or it blames groups or individuals that I currently dislike, fear or distrust. Maybe even ESPECIALLY if it seems perfectly targeted to appeal to my existing biases and beliefs and just make me more alarmed. Because that’s the one I am most vulnerable to. But if I get sucked in, I may burn bridges with the very people I need to enroll for mutual assistance and benefit.

Using snopes.com

If I identify the letter as having alarmist attributes, i immediately check to see if it has been verified or debunked. Most of these letters I see have already been reviewed by Snopes.com, the urban legend verification site.

Usually the way I check on such a letter is just to highlight a paragraph from it and search for that paragraph using Google. I almost always find some place where the veracity of the letter has been verified or refuted.

Using Google search

For instance, the Montana Town hall chain letter is covered in snopes.com at http://www.snopes.com/politics/obama/montana.asp. It was easy to find. I just highlighted a paragraph in the copy I received, copied the selected passage, and pasted it into the search field for the Google search engine. The snopes.com reference was 7th in the hit list. It took me less than 3 second to find the snopes article, and see that it is “mixed truth”. A couple of minutes more and I had read it and find out what was true and what wasn’t. I chose not to pass it on, but instead to write this blog entry.

I hope you will join me, not in hating propagandists, but in refusing to help them spread hatred and civil unrest. I hope you will also join me in a movement for more civil political discourse, and respect for those who disagree with us.

The American Plan – a new health insurance alternative

Abstract

This article describes a seven-point plan for a private health care insurance option that meets the goals that the proposed public health insurance option was designed to address, but which are not met by today’s existing private employer paid system. This article further challenges private insurers (and their supporters) to step away from mere criticism of a public option by stepping up to the plate and with a specific and credible alternative that meets the goals that the public option was designed to address: continuity, universality, comprehensiveness, affordability, and equity.

Proposed rules for such private universal care policies rules are described later in this article.

What American’s don’t like about today’s health insurance alternatives

Americans don’t want a health care insurance program like in Canada or Britain. We like to do things our own way.

Americans like private sector competition and believe that capitalism can be a force yielding lower costs, greater choice and higher value – at least when as the private sector investor’s goals are aligned with those of the consumers. Yet, we have seen also seen all to clearly how millions of ordinary Americans have suffered great economic setbacks when our nation’s laws or watchdogs have not ensured that they are so aligned.

Americans who have employer paid group health insurance plans value them and the choices the have to select among them, and competitive forces in this arena have resulted an ever growing choice of plans to help provide better health care coverage while simultaneously striving to slow the ever increasing cost of that care. Today we have HMOs, PPOs, HSAs, POS and many other plans.

Unfortunately, for those of us who do not have such plans and whose only alternatives today are individual and family coverage, the profit motives of private insurers and our individual needs are not as well aligned. In particular, insurers offering group plans compete to attract a company’s business by covering all members of the group equally. However, in the case of family plans, the insurer can pick and choose who to cover, when to cover them, and what not to cover.

The result is that millions of us, including many self-employed Americans, are without coverage, or have inadequate coverage. And those luck Americans who do have employer paid health care are constant at risk of losing it should their employment situation change.

That’s why congress is debating health care insurance reform right now.

Requirements of a credible plan

We all want to know that we will have coverage when we need it (universality), that we will able to maintain that coverage regardless of whether we change employers, become self employed or unemployed (continuity). We also want to know that our policy will be cover all our family member’s needs regardless of which chronic conditions any of them may have or may develop at some time (comprehensive) and that we will be able to afford it regardless of whether we are young and healthy, or older and infirm (affordability). Lastly, we want to know that equal coverage is be available to all (equity).

Of these 5 goals, continuity is the goal that is hardest to reconcile with private employer paid plans, because it is increasingly becoming a very rare situation for anyone to have lifelong employment with one employer that is continuously doing so well that they are not tinkering with which insurance plans they are offering (which employers often change when costs are growing rapidly, or the economy or their industry is not doing well).

Problems for people who can’t get employer paid health insurance

Families and Individuals applying for insurance on a personal basis, including the self-employed, often find that their options for insurance coverage are significantly worse than options available through employer paid plans:

• Insurers require Medical testing and patient medical records before coverage is underwritten – something that isn’t done with most employer based plans.

• Coverage can be denied outright to such individuals and family members.

• Premiums may be exorbitant compared to the cost of similar coverage through an employer-based plan.

• Coverage offered may be extremely limited in scope, and specific conditions (including most or all pre-existing conditions) may be excluded, even if they would not typically be so limited in an employer paid program.

• Coverage may be arbitrarily denied after expenses have already been incurred, and policy limitations are often so complicated that consumers have no idea whether their health care needs will be covered when they purchase a policy.
Problems for Americans who have employer paid health insurance

Even for Americans who are employed there are several problems with employer paid plans:

• Employers may find insurance policies so expensive that they do not offer insurance – this is especially true of new companies (who represent our economic growth opportunities of the future) and service industries such as restaurants and retail establishments who often provide employment to the unskilled, young people getting their first jobs, and others with incomes who might not be able to afford most personal policies.

• Employers may reduce coverage their plans offer as a money saving strategy – especially when the economy is in reverse. This can lead individuals to discover that a family member’s needs are no longer covered. And getting alternative coverage may be difficult or impossible to get for some pre-existing conditions afflicting family members.

• Employees may lose their jobs, and ultimately their employer paid insurance especially when the economy is troubled. Even if they are able to hold onto their insurance through COBRA, may find that without a job they can no longer afford it, or that if they are unemployed for a long time they may find out that even COBRA coverage has been exhausted. If an employee is no longer able to perform their previous job due to an accident or health problem, and yet they also do not qualify for Medicare, individual coverage may be impossible to acquire.

Assessing our fears and becoming proactive

Americans want a plan that gives us all the advantages of employer paid plans with multiple insurance companies competing for business, but which provides equal coverage for all Americans, and is not affected by the vagaries of their individual employment situation, or of the economy in general or prior conditions.

Some Americans are afraid that a public health care insurance option would result in a reduction in quality and flexibility of their current employer paid insurance programs.

Some seniors, disabled individuals and other Americans covered by Medicare are afraid that a new health care insurance option would result in a reduction in their benefits.

The congress is now debating how ways to provide health insurance that covers all Americans: regardless of whether they are currently unemployed, self-employed, or employed without employer paid coverage, which does not have the limitations of today’s individual and family plans.

The inadequacy of the current Individual and Family care coverage has led many in congress to support “a public option” and this is causing considerable concern among those who fear such a system will destroy the private option, or undermine the existing Medicare system.

The Proposed Private Alternative

Without commenting on whether these fears are well-founded or ill-founded, nor whether this public debate is being conducted in a way that will generate light or merely heat, I would like to address the concern in a constructive manner by offering a proposal which private insurance companies could endorse which would address the goals of the public option, but through a competitive private market system.

I call this proposed system, The American Plan.

The plan is simple, and it does not require congress to legislate it – it merely requires several large insurers to come together and petition existing state government insurance commissioners to grant them the ability to offer the following coverage to all residents of those states.

The policy is a group policy, voluntarily offered by private insurance companies, where the covered group is the currently uninsured or underinsured residents of each state, or those who find this plan more attractive than the plan their employer offers.

To ensure equity, universality, and continuity, the American Plan group policy should have the following characteristics:

1. For the first 5 years, the policy shall be underwritten based upon the demographics of all residents of the state in which the policy is offered and their immediate family members. Thereafter policies may be underwritten based upon the demographics of plan participants over the previous 5 years. (Equity)

2. The policy shall be offered to every state resident (and their immediate family members) on an equal basis. This means the price of the policy, and the conditions, care and treatments covered shall be the same for all covered persons, regardless of age, gender, or prior health conditions. (Universality)

3. The company shall offer at least one policy that provides coverage equal to the coverage provided by Medicare at that time. This is called the “reference policy”. The company may also offer one or more policies with less coverage for a lower premium, as well as policies with greater coverage at higher price points. (Comprehensiveness)

4. The insurer agrees to offer the reference policy on a most favored customer basis, that is, the expected underwriting profit margin on this policy may not be greater than any other policy written for any other group of the same or smaller size. (Affordability)

5. The policy shall include equivalent coverage for the resident and covered family members when traveling or while attending a school, college, or university anywhere within the US. (Comprehensiveness)

6. The company may not cancel the policy for any reason other than failure to pay the premium or fraud. If a policy is cancelled for failure to pay the premium on time, the policy shall be reinstated, effective immediately upon receipt of the full policy payment. (Continuity)

7. The company agrees to accept premium payments on behalf of an individual or family by either a state organization (if the state desires to subsidize health insurance premiums for some residence) or by any small business that wishes to provide paid insurance to their employees. (Affordability and Equity).

Time for action

Recently, opponents to the public option have been very vocal in their opposition, but their focus has largely been on opposing the proposed public option, but without offering a universal coverage alternative by the private sector. It is time to stop talking and start doing something constructive.

The above proposal is being offered with the hopes that those who favor private sector provided insurance will take a constructive approach by encouraging major insurers to commit to offering “the American Plan” now, demonstrating their ability to provide a credible alternative that provides universal coverage at affordable rates.

If competition in the private sector really can deliver on the promises of lower costs, greater choice and higher value, then because of the way the reference plan is defined, seniors and others on Medicare should have nothing to fear.

Nor should those who fear government’s ability to manage anything as efficiently as the private sector have anything to fear – for the private sector is left free to deliver as efficiently and affordably as it is able – the government in this model merely sets the minimum set of 7 requirements, and provides oversight to see that goals such as equity and continuity are met, and assists the needy with subsidized premiums.

A hidden benefit of Continuity: better preventative care and lower overall cost

One of the hidden benefits of a plan that has continuity is that it can improve both quality of life AND reduce health care costs. Because health insurance is not portable from employer to employer, an insurance company can’t be sure that those it insures today will continue to be policyholders in the future.

This can cause insurance companies to make decisions that save money in the short run but increases costs in the long run – because the insurance company knows it will have lower costs immediately, while the longer term cost might well fall on a competitor. For example, an expensive vaccine might be very effective at preventing a form of viral infection that often triggers cancer. By not paying for the vaccine expenses in the current year might be saved, but higher costs for later treatment if the vaccine is not given might not be experienced by the insurer, because the policy holder may have changed to a new employer and a competitor’s plan before that cancer is likely to be discovered.

The result, less preventative care, greater long term cost and poorer long-term health.

Or viewed the other way, if the insurance company spends the money today to pay for inoculations, it might be competitors who see the savings when the frequency of occurrence of those preventable cancers goes down.

The value of individual customer loyalty

With employer paid plans, insurance companies can’t build customer loyalty with their individual policy holders, because the policies are sold to employers and the policy holders switch employers. But when the insured can, and do maintain the same coverage every time they switch jobs or leave the workforce, the preventative care costs the insurer incurs today may be offset by even greater savings in the long term. And when individuals can make their own long term decisions, companies have an incentive to treat them well and build long term policy holder loyalty. Even procedures that are not merely preventative but restorative might become more cost effective. For instance, laser eye surgery might be costly in the short run, but save considerable money in the long run by eliminating the need for annual or biannual lenses and frames.

Thus creating the opportunity for individual policy holder loyalty better aligns the interests of the individuals and the insurance companies, encouraging insurers to offer better care coverage at lower costs as well.

Tax Savings

Lastly, if private sector competition does reduce costs and increase value, the reference plans these private companies offer provides the states and Federal governments with proof of concept approaches for providing Medicare equivalent coverage at lower cost – and that could contribute to better coverage for Medicare recipients at overall lower costs to taxpayers.

It is the best outcome possible, a Win-Win-Win: a win for the consumer, a win for the insurance companies and their shareholders, and a win for taxpayers. And that’s what we Americans like!

The American Plan – a new health insurance alternative

Summary

This article describes a seven-point plan for a private health care insurance option that meets the goals that the proposed public health insurance option was designed to address, but which are not met by today’s existing private employer paid system. This article further challenges private insurers (and their supporters) to step away from mere criticism of a public option by stepping up to the plate and with a specific and credible alternative that meets the goals that the public option was designed to address: continuity, universality, comprehensiveness, affordability, and equity.

Proposed rules for such private universal care policies are described later in this article.

What American’s don’t like about today’s health insurance alternatives

Americans don’t want a health care insurance program like in Canada or Britain. We like to do things our own way.

Americans like private sector competition and believe that capitalism can be a force yielding lower costs, greater choice and higher value – at least when as the private sector investor’s goals are aligned with those of the consumers. Yet, we have seen also seen all to clearly how millions of ordinary Americans have suffered great economic setbacks when our nation’s laws or watchdogs have not ensured that they are so aligned.

Americans who have employer paid group health insurance plans value them and the choices the have to select among them, and competitive forces in this arena have resulted an ever growing choice of plans to help provide better health care coverage while simultaneously striving to slow the ever increasing cost of that care. Today we have HMOs, PPOs, HSAs, POS and many other plans.

Unfortunately, for those of us who do not have such plans and whose only alternatives today are individual and family coverage, the profit motives of private insurers and our individual needs are not as well aligned. In particular, insurers offering group plans compete to attract a company’s business by covering all members of the group equally. However, in the case of family plans, the insurer can pick and choose who to cover, when to cover them, and what not to cover.

The result is that millions of us, including many self-employed Americans, are without coverage, or have inadequate coverage. And those luck Americans who do have employer paid health care are constant at risk of losing it should their employment situation change.

That’s why congress is debating health care insurance reform right now.

Requirements of a credible plan

We all want to know that we will have coverage when we need it (universality), that we will able to maintain that coverage regardless of whether we change employers, become self employed or unemployed (continuity). We also want to know that our policy will be cover all our family member’s needs regardless of which chronic conditions any of them may have or may develop at some time (comprehensive) and that we will be able to afford it regardless of whether we are young and healthy, or older and infirm (affordability). Lastly, we want to know that equal coverage is be available to all (equity).

Of these 5 goals, continuity is the goal that is hardest to reconcile with private employer paid plans, because it is increasingly becoming a very rare situation for anyone to have lifelong employment with one employer that is continuously doing so well that they are not tinkering with which insurance plans they are offering (which employers often change when costs are growing rapidly, or the economy or their industry is not doing well).

Problems for people who can’t get employer paid health insurance

Families and Individuals applying for insurance on a personal basis, including the self-employed, often find that their options for insurance coverage are significantly worse than options available through employer paid plans:

• Insurers require Medical testing and patient medical records before coverage is underwritten – something that isn’t done with most employer based plans.

• Coverage can be denied outright to such individuals and family members.

• Premiums may be exorbitant compared to the cost of similar coverage through an employer-based plan.

• Coverage offered may be extremely limited in scope, and specific conditions (including most or all pre-existing conditions) may be excluded, even if they would not typically be so limited in an employer paid program.

• Coverage may be arbitrarily denied after expenses have already been incurred, and policy limitations are often so complicated that consumers have no idea whether their health care needs will be covered when they purchase a policy.
Problems for Americans who have employer paid health insurance

Even for Americans who are employed there are several problems with employer paid plans:

• Employers may find insurance policies so expensive that they do not offer insurance – this is especially true of new companies (who represent our economic growth opportunities of the future) and service industries such as restaurants and retail establishments who often provide employment to the unskilled, young people getting their first jobs, and others with incomes who might not be able to afford most personal policies.

• Employers may reduce coverage their plans offer as a money saving strategy – especially when the economy is in reverse. This can lead individuals to discover that a family member’s needs are no longer covered. And getting alternative coverage may be difficult or impossible to get for some pre-existing conditions afflicting family members.

• Employees may lose their jobs, and ultimately their employer paid insurance especially when the economy is troubled. Even if they are able to hold onto their insurance through COBRA, may find that without a job they can no longer afford it, or that if they are unemployed for a long time they may find out that even COBRA coverage has been exhausted. If an employee is no longer able to perform their previous job due to an accident or health problem, and yet they also do not qualify for Medicare, individual coverage may be impossible to acquire.

Assessing our fears and becoming proactive

Americans want a plan that gives us all the advantages of employer paid plans with multiple insurance companies competing for business, but which provides equal coverage for all Americans, and is not affected by the vagaries of their individual employment situation, or of the economy in general or prior conditions.

Some Americans are afraid that a public health care insurance option would result in a reduction in quality and flexibility of their current employer paid insurance programs.

Some seniors, disabled individuals and other Americans covered by Medicare are afraid that a new health care insurance option would result in a reduction in their benefits.

The congress is now debating how ways to provide health insurance that covers all Americans: regardless of whether they are currently unemployed, self-employed, or employed without employer paid coverage, which does not have the limitations of today’s individual and family plans.

The inadequacy of the current Individual and Family care coverage has led many in congress to support “a public option” and this is causing considerable concern among those who fear such a system will destroy the private option, or undermine the existing Medicare system.

The Proposed Private Alternative

Without commenting on whether these fears are well-founded or ill-founded, nor whether this public debate is being conducted in a way that will generate light or merely heat, I would like to address the concern in a constructive manner by offering a proposal which private insurance companies could endorse which would address the goals of the public option, but through a competitive private market system.

I call this proposed system, The American Plan.

The plan is simple, and it does not require congress to legislate it – it merely requires several large insurers to come together and petition existing state government insurance commissioners to grant them the ability to offer the following coverage to all residents of those states.

The policy is a group policy, voluntarily offered by private insurance companies, where the covered group is the currently uninsured or underinsured residents of each state, or those who find this plan more attractive than the plan their employer offers.

To ensure equity, universality, and continuity, the American Plan group policy should have the following characteristics:

1. For the first 5 years, the policy shall be underwritten based upon the demographics of all residents of the state in which the policy is offered and their immediate family members. Thereafter policies may be underwritten based upon the demographics of plan participants over the previous 5 years. (Equity)

2. The policy shall be offered to every state resident (and their immediate family members) on an equal basis. This means the price of the policy, and the conditions, care and treatments covered shall be the same for all covered persons, regardless of age, gender, or prior health conditions. (Universality)

3. The company shall offer at least one policy that provides coverage equal to the coverage provided by Medicare at that time. This is called the “reference policy”. The company may also offer one or more policies with less coverage for a lower premium, as well as policies with greater coverage at higher price points. (Comprehensiveness)

4. The insurer agrees to offer the reference policy on a most favored customer basis, that is, the expected underwriting profit margin on this policy may not be greater than any other policy written for any other group of the same or smaller size. (Affordability)

5. The policy shall include equivalent coverage for the resident and covered family members when traveling or while attending a school, college, or university anywhere within the US. (Comprehensiveness)

6. The company may not cancel the policy for any reason other than failure to pay the premium or fraud. If a policy is cancelled for failure to pay the premium on time, the policy shall be reinstated, effective immediately upon receipt of the full policy payment. (Continuity)

7. The company agrees to accept premium payments on behalf of an individual or family by either a state organization (if the state desires to subsidize health insurance premiums for some residence) or by any small business that wishes to provide paid insurance to their employees. (Affordability and Equity).

Time for action

Recently, opponents to the public option have been very vocal in their opposition, but their focus has largely been on opposing the proposed public option, but without offering a universal coverage alternative by the private sector. It is time to stop talking and start doing something constructive.

The above proposal is being offered with the hopes that those who favor private sector provided insurance will take a constructive approach by encouraging major insurers to commit to offering “the American Plan” now, demonstrating their ability to provide a credible alternative that provides universal coverage at affordable rates.

If competition in the private sector really can deliver on the promises of lower costs, greater choice and higher value, then because of the way the reference plan is defined, seniors and others on Medicare should have nothing to fear.

Nor should those who fear government’s ability to manage anything as efficiently as the private sector have anything to fear – for the private sector is left free to deliver as efficiently and affordably as it is able – the government in this model merely sets the minimum set of 7 requirements, and provides oversight to see that goals such as equity and continuity are met, and assists the needy with subsidized premiums.

A hidden benefit of Continuity: better preventative care and lower overall cost

One of the hidden benefits of a plan that has continuity is that it can improve both quality of life AND reduce health care costs. Because health insurance is not portable from employer to employer, an insurance company can’t be sure that those it insures today will continue to be policyholders in the future.

This can cause insurance companies to make decisions that save money in the short run but increases costs in the long run – because the insurance company knows it will have lower costs immediately, while the longer term cost might well fall on a competitor. For example, an expensive vaccine might be very effective at preventing a form of viral infection that often triggers cancer. By not paying for the vaccine expenses in the current year might be saved, but higher costs for later treatment if the vaccine is not given might not be experienced by the insurer, because the policy holder may have changed to a new employer and a competitor’s plan before that cancer is likely to be discovered.

The result, less preventative care, greater long term cost and poorer long-term health.

Or viewed the other way, if the insurance company spends the money today to pay for inoculations, it might be competitors who see the savings when the frequency of occurrence of those preventable cancers goes down.

The value of individual customer loyalty

With employer paid plans, insurance companies can’t build customer loyalty with their individual policy holders, because the policies are sold to employers and the policy holders switch employers. But when the insured can, and do maintain the same coverage every time they switch jobs or leave the workforce, the preventative care costs the insurer incurs today may be offset by even greater savings in the long term. And when individuals can make their own long term decisions, companies have an incentive to treat them well and build long term policy holder loyalty. Even procedures that are not merely preventative but restorative might become more cost effective. For instance, laser eye surgery might be costly in the short run, but save considerable money in the long run by eliminating the need for annual or biannual lenses and frames.

Thus creating the opportunity for individual policy holder loyalty better aligns the interests of the individuals and the insurance companies, encouraging insurers to offer better care coverage at lower costs as well.

Tax Savings

Lastly, if private sector competition does reduce costs and increase value, the reference plans these private companies offer provides the states and Federal governments with proof of concept approaches for providing Medicare equivalent coverage at lower cost – and that could contribute to better coverage for Medicare recipients at overall lower costs to taxpayers.

It is the best outcome possible, a Win-Win-Win: a win for the consumer, a win for the insurance companies and their shareholders, and a win for taxpayers. And that’s what we Americans like!

Opportunities and threats in improbable events

I loved Nassim Nicholas Taleb’s earlier book Fooled by Randomness, and I am really loving The Black Swan as well. It has much of the charm of Malcolm Gladwell’s current NYT best seller, Outliers. — But while Gladwell leaves us with merely the understanding that the success of various prominent individuals such as Bill Gates or Steve Jobs is due largely to the “luck” of being born in the right place and at the right time, he gives us no greater insight into how a better understanding of luck (in the form of randomness and improbability forces at work upon us) might better guide us in choosing national and international policies or even actively choosing our life paths taking into consideration the improbable events such as birth date and birth place work that for our success as well as those that against it.

In contrast, Taleb’s The Black Swan sets its sights on providing us a theory and method to make such decisions in a way that better recognizes the role of randomness in our lives. Even more, it also shows us that any theory which simplifies real world complexity enough for us to see patterns also inherently blinds us to the risks hidden in the messy real world complexity which we have now simplified out.

Gladwell tells us that random chance defines our opportunities and the threats we will face; Taleb tells us how to seize the random opportunities that might occur in our lifetimes, and how to prepare for the improbable but catastrophic events that surely will happen someday and often change our lives in unimaginable ways.

To fully appreciate the Black Swan, it is useful to see how it builds upon insights set out in Taleb’s previous book, Fooled by Randomness.

Fooled by Randomness highlighted the failures of Wall Street market makers who mistook the correctness of their string of predictions as a sign of their own genius, rather than just random chance — at least until the financial markets changed and suddenly their predictions were consistently wrong and their were suddenly hoisted on their on petards. In Fooled by Randomness, Taleb points out an old investment scam where an investment advisor sends out 2^12 (4096) free investment newsletters predicting that the market will be up next month, and sends out another 2^12 free newsletters to other people predicting that the market will be down next month. Let’s say the market is down. Now the broker removes all the people he sent the (wrong) up prediction from his list. But he takes the four thousand plus people to whom he sent the (correct) down prediction newsletters into two parts and he send half another down prediction, and the other half an up prediction. A month later the market is up — and over two thousand people have seen this investment advisor make the right pick twice. So now he divides that group that got the two right picks into two halves and sends 1024 people an up prediction and the other 1024 the down prediction. Every month he drops off the half of his mailing list that got the bad pick that month , but the remaining half has seen him make one right pick after another! At the end of a year he has one newsletter recipient who has seen him make 12 correct picks in a row. That investors knows the probability of 12 correct picks in a row is very low (1 / 2^12) so they conclude that it isn’t chance alone that makes him a great stock picker — they conclude he is a genius, so they invest a bunch of money with him, and tell all their friends to as well.

While the sham newsletter is a well known scam, in Fooled by Randomness, Taleb points out it doesn’t require such an actively deceptive strategy to make 12 correct guesses in a row. Given enough investment advisors independently guessing each month’s market direction at random, say some number greater than 8096, one or two will surely make 12 lucky guesses in a row. And in fact, when we say they make their predictions randomly, we don’t mean that they don’t have a method — maybe they read tea leaves, counted sun spots or compared the month’s average temperature in Jackson Hole, Wyoming versus than the average for the month over the last 20 years. As long as these methods are independent, distributed widely, and uncorrelated with the actual factors that drive the market, there will still be a few lucky winners who will get it right. But now their results will be shown in Morningstar or Consumer Reports, and people will think that given their past track record was so good, so will their future be equally good! But because actually these were just random correlations, their futures aren’t always so rosy.

The point of Fooled by Randomness is that these investment advisors not only fooled unsophisticated small investors into thinking that they were brilliant (rather than just lucky and later unlucky), but they fooled their superiors at the trading firms, the financial press, and themselves as well. So all of these people were unprepared when the wheel of chance turned again — this time against them. This sets the stage for the Black Swan — not merely should we realize that we are prisoners of a chaotic environment full of randomness, but we should also realize that we actors in this environment and can use our improved appreciation of uncertainty to better shape our destinies.

In The Black Swan, Taleb tackles how to take advantage of the deliberately take advantage of improbable, but not impossible events, not by being smarter about when they will happen, but simply by embracing randomness and the impossibility of making the right prediction in the next moment but also the certainty that ultimately the unlikely even will happen. He draws on a wide range of historical events that seemed unpredictable in advance — from the world of war, to big finance, to individual career decisions to illustrate the breadth of application of this theory.

Taleb’s appreciation of this theory and how to apply it goes much deeper than typical applications of this theory in business and economics.

For instance, we are all familiar with one major financial industry built on a probabilistic understanding of an event which is unlikely in the next moment, but which in the long run becomes increasingly certain: namely Life Insurance. When we buy life insurance we are essentially making a bet — we are betting that we will die so much sooner than our remaining life expectancy that our estate will make a bigger return on paying our premium to the insurance company and collecting the value at our death, compared to what we could earn if we just put that same amount of money into some other investment (e.g. an S&P index fund) and watching it grow ourselves. Of course the Insurance company uses actuarial charts and its expectations of future investment returns to calculate a premium that will be sufficient to earn it a healthy profit over time. Yes, the Black Swan underlies this business, but the beauty of Taleb’s analysis of the Black Swan is to see that this thought process can be applied to other things as well. Should you work at a “stable” middle of the road salary job for you life? Or should you take a high risk series of high risk / high reward jobs in the hope of hitting it big?

If you live in California, should you stockpile emergency supplies in San Francisco and LA to sell immediately to unprepared homeowners after the next big earthquake hits? How about stockpiling goods in Miami for unprepared Florida coast homeowners hit by the next hurricane?

Thinking about the Black Swan can give you some insight into some of these questions, but they can also give you some insight about the eventual failure of most any institution built to profit on them too. What are your estimates of frequency/probability and magnitude of the catastrophe or subsequent profit opportunity based on? Their frequencies and magnitudes in the past? If so, how much do they reflect all the uncertain ways that the past might be different from the future.

What if global climate change occurs, and the homes you were prepared to supply after a hurricane are now permanently abandoned and under water due to rising sea levels? Or what if a small asteroid hits the Pacific plate off the California coast: instantly releasing the pressure along the entire San Andreas fault — but also creating a huge Tsunami that wipes out the large portions of San Francisco and Los Angeles. Did your model take these unlikely events into consideration? What other possible events are missing from our oversimplified models?

For all of the above reasons, I find The Black Swan a book of timeless value. But ironically it is also a book of very timely value.

As we watch the unfolding aftermath of a global credit crisis that even former Federal Reserve Chairman, Alan Greenspan, admits that he never thought possible, the Black Swan theory is a great guide: It was not the stupidity of regulators and central bankers, nor the greed of bankers, investors, and prospective homeowners that caused such a precipitous turn of events — rather it was our reliance on models that simplify complex processes enough that we can understand them and predict them MOST of the time — and our failure to distinguish MOST of the time from ALL of the time. In particular, investors and regulators failed to anticipate the risks of the Credit Default Swap market and subprime mortgage crisis can be tied to an unreasoning belief in the power of DIVERSIFICATION in the standard investment MODEL to eliminate major risks. Diversification works MOST of the time, because most of the time institutions and individuals default on loans for reasons that are largely individual, or that at worst affect only a local or regional economy or just one industrial sector of an economy. That is, these defaults are mostly independent of each other. So at any given time some subgroup is affected and default rates in that group might be higher than normal, but some other region or sector is growing and default rates there are lower — therefore if you diversify widely enough, the standard investment risk models says you should be safe from large swings in the average value of your portfolio.

That is of course only true as long as the assumption or model is based upon — that failures and loan defaults are INDEPENDENT of each other — is still true.

And historically, independence of events has been a pretty good assumption to make. In 1900, if a shipper of grain in China lost a ship full of rice due to a severe storm at sea while it was on its way to Japan, his loss might affect the farmers that grew the grain in China, the merchants who were going to sell the rice in Japan, and perhaps even the fishermen who were going to buy and eat the rice in Japan. But that loss was almost assuredly independent of whether a shipload of leather sent by train from cattle ranches in Wyoming reached shoemakers in Boston.

But the world of finance and commerce today is very different. There are multinational corporations with revenues that exceed the Domestic National Product of more than 100 countries. There are multinational financial institutions which finance and insure these companies, and their are investors who seek to diversify their risk worldwide by investing outside their own native countries. There are financial institutions that have lent so much money to so many companies around the world that if they were to pull their loans in millions of jobs would be lost overnight, And they have also borrowed so much of this money from other financial institutions that if they were to become bankrupt overnight, then 100s of of lenders would no longer be solvent either.

With all this interconnected borrowing and lending, buying and selling, saving and investing among people all around the world — all connected by fiber cable trading systems that literally work at the speed of light, we have become more INTERDEPENDENT, not INDEPENDENT. And because of that interdependence, there is a greater possibility that some large shock could suddenly affect players all around the globe and in all kinds of industries, thereby undermining our assumption of independence. So instead of being like random waves where crests colide with troughs, and troughs with crests dampening the magnitude of each and cancelling each other out, these impulses become synchronized waves whose crests intersect with crests, and troughs with troughs to amplify themselves to even larger crests and troughs like a tsunami. Soon the entire world’s financial structure and economies are at risk of a simultaneous shutdown.

The occurrence of such an alignment may be infrequent and its likelihood improbably, but the magnitude when it does hit can be devastating, and all the more so because we failed to distinguish the improbable (the Black Swan) from the impossible and so we did not prepare for it at all.

If we all better understood the theory of the Black Swan, as well as its application to our own daily life choices, we could all profit more from unlikely events, and better prepare for the dangerous Black Swans that threaten to wipe us out.

Taleb deserves great credit, as a philosopher (his preferred vocation), psychologist, sociologist, financier, economist, mathematician and engaging author for establishing a powerful highly explanatory model, and a language and framework for further analysis. This is not merely an epistemological model of what we can know and what we cannot. It is a powerful model of how we can identify what we cannot know, and the how the means we use to systematize what we know blind us to risks from what we do not know.

Judged as a work of philosophy it surely will rank with both Wittgenstein’s earlier work (Tractatus Logico-Philosophicus) and his later (Philosophical Investigations) in terms of a crystallization of how our models of the world define us and limit us in what we allow ourselves to perceive; but as a work of literature he does this with far more wit, charm, entertainment and erudition.

Kudos to Nassim Nicholas Taleb on another insighfult book, for his exceptional view into randomness how it forms mankind’s greatest capabilities and greatest limitations, and for his ability to explain so much complexity so simply, in a way accessible to us all.

This is my personal blog. For my SWIFT blog, see www.swiftdesigngroup.com/blog