Government Executive - Authors - Allison Schrager

H.R. McMaster and Donald Trump: A Partnership That Was Never Meant To Be

Allison Schrager, Quartz — Mon, 19 Mar 2018 09:40:20 -0400

Herbert R. McMaster is the ideal National Security Advisor—for any administration but this one.

In some ways, McMaster seemed perfect: He’s a decorated general with a history of winning big battles (paywall). He is also known for successfully challenging groupthink and for taking chances that pay off. Unfortunately, the qualities that worked for him so well in the military proved less than ideal for the Trump White House. Trump is reportedly close to ousting him.

I interviewed McMaster a few weeks before he got the job, for a book I’m writing about risk. In hindsight, it seems obvious that this particular pairing wouldn’t work out, for two big reasons:

1. McMaster is a warrior intellectual

My exchange with McMaster was more like a debate with my graduate-school advisor than an interview. He peppers his conversation with quotes from Greek philosophers and references from books he loves. He also followed up by sending me reading assignments, alongside instructions to get back to him with notes. This is not surprising: McMaster has a PhD in history from University of North Carolina. Trump, by contrast, is notorious for preferring his information in short, digestible memos.

2. McMaster is a hawk

The general’s worldview could not be more different from Trump’s. Yes, McMaster also wants to pursue American interests, but he believes that’s best achieved with more global engagement, not less.

In our interview, I asked McMaster about the inherent risks of warfare, which he has been critical of the military for not fully appreciating. After the Gulf War, the U.S. military started subscribing to a philosophy known as the Revolution in Military Affairs. It was the idea that the U.S. military could win any war quickly and easily because of its size and technology. McMaster was critical of that notion from the start (pdf) because, he said, war is inherently uncertain; there is no cheap and easy way to win one. (He’s right.) These days, McMaster is critical of the idea the U.S. can achieve its military objectives with drones and special forces. War in inherently human, he believes, and wining takes human engagement.

Still, he’s hawkish. McMaster argues that the U.S. needs to be a stable, secure presence around the world, while also being culturally sensitive(paywall). He is keenly aware of the human cost of war, but believes that maintaining peace often takes more intervention, not less. His worldview could be summed up as: Intervene, but do it right, not on the cheap. This approach does not seem to square with Trump’s “America First” doctrine, which preaches less intervention and for American to recognize it will not always be “the policeman of the world”.

McMaster is thoughtful about his views, even if many people don’t agree with them. But the things that make him unique did not mesh well with Donald Trump. And the fact is, meshing with the president is a major job requirement for the national security advisor.

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Donald Trump’s Infrastructure Plan Won’t Work While He’s President

Allison Schrager, Quartz — Mon, 05 Dec 2016 09:40:27 -0500

One of the first rules you learn in economics is there is no free lunch. But for the last several years many economists made an exception when it came to infrastructure spending. Interest rates have been so low that the potential long-term national economic benefit from improving US infrastructure, such as roads, airports, bridges, and internet access, could easily outweigh the cost of borrowing money to do it. (Former US Treasury secretary Larry Summers nicely laid out that calculus here.)

Now US president-elect Donald Trump is pushing forward with infrastructure plans rooted in such analysis. But there are two vitally important wrinkles to the argument to consider:

The right kind of infrastructure spending will take several years to have any perceptible economic impact; there is no instant gratification here, given the nature of projects and the current low level of US unemployment.
Interest rates are rising in anticipation of such spending, making borrowing to fund it more expensive.

The result is that the projects will ultimately cost more and, if the right projects are selected, any economic benefits will take longer to arrive.

Solid infrastructure provides the foundation for growth for years to come. Where things get controversial is the question of whether all infrastructure projects—even those that offer little or no economic value directly in that way—increase economic growth just by putting to work people and resources that would otherwise languish.

Do the projects matter?

During the height of the last recession, some economists argued that pretty much any public-works project would boost the economy—even digging and refilling a hole. Economist are sharply divided on whether that’s actually true. But many agree that when the economy is at near-full capacity (as it is now), spending government money on useless projects doesn’t really turbocharge the economy and only increases deficits.

One reason why is that unemployment is low right now and there are not many people who need an infrastructure job. True, it could be argued that unemployment may be low, but lots of people still need work. Labor-force participation still hasn’t recovered because many Americans dropped out of the labor force and, as research has documented, take pain medication. But it’s not clear that infrastructure spending would help them. Working on infrastructure projects takes technical know-how, and many members of the long-term unemployed probably don’t have the skills necessary to build a high-speed railroad.

If they do matter, how do we pick them?

Picking the right projects is hard and often comes down to political favors. That is one reason why most infrastructure spending is left to state governments (they may be more aware of local needs, though are also subject to political capture). Trump’s advisors advocate letting the private sector pick the projects by offering them favorable tax incentives. But there is concern that the most economically valuable projects take years, even decades, to pay off. The private sector can’t wait that long for a return on its investments.

Timing is a problem

The projects that provide the most value aren’t “shovel-ready,” Nobel-prize winning economist Joe Stiglitz pointed out during a recent panel discussion at Columbia’s School of International and Public Affairs. It will take a few years to identify and plan for them. And even if those projects do provide the foundation for long-term growth, they may harm the economy in the short run.

On the same panel Columbia University and PIMCO economist Richard Clarida explained that markets will anticipate a big increase in spending and interest rates will go up right away (they did with news of a Trump victory). Higher interest rates will make other kinds of investment more expensive and can dampen growth. Meanwhile, the benefits of the infrastructure projects won’t appear for several years.

It seems how well Trump’s infrastructure plan will work will depend on how patient he is. Given the state of the economy, boosting economic growth will require picking useful infrastructure projects. They have the potential to boost America’s productive capacity for years to come. They might also leave a powerful legacy (imagine the Trump dam or Donald Trump bridge). But odds are those kinds of projects won’t confer much economic benefit, only cost, during his reign as president. And just how comfortable will Trump and his administration be with delayed gratification?

(Image via Flickr user Gage Skidmore)

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What a Trump Victory Means For Your Retirement

Allison Schrager, Quartz — Thu, 10 Nov 2016 09:54:03 -0500

We are now in an uncertain world, and the markets are reacting accordingly. Dow futures fell 800 points overnight as the US presidential election was called for Donald Trump. But the markets quickly calmed themselves and then some; on the day after Election Day, the blue-chip index touched an all-time high of 18,648.41.

Yes, it seems clear that a Trump presidency will have implications for your retirement portfolio. But in the face of greater risks and uncertainties, often the best thing to do is nothing at all.

The outlook for stocks

Odds are some portion of your retirement portfolio is invested in the stock market. How stocks will fare over the next four years will depend on economic growth. Trump has promised a high growth rate, but how he’ll deliver it exactly is unknown. If he manages to renege on US trade deals and limit foreign trade, there will be less economic growth and the stock market won’t offer the kind of returns we are used to. If his leadership is erratic, there may also be bigger swings in stock prices.

The unusual behavior in bonds

Normally, when things look uncertain, the world turns to the safety of US Treasury bonds. The rush into fixed income pushes up prices and brings down yields. The Trump win had the opposite effect; yields on the 10-year note rose today by more than 20 basis points, to 2.06%. This might be due to Trump’s threats to default on the debt and run larger deficits.

Retirees normally move into bonds are they age and de-risk their portfolios. Trump may deliver the higher yields retirees have been waiting for, but it comes at a cost. The blip in yields could signal that the dollar is losing its status as a reserve currency. It will mean more expensive imported goods and a less stable bond market.

The future of Social Security

Another part large part of American retirement portfolio is Social Security. So far it seems Trump has no plans to alter the program—no benefit cuts or increasing the retirement age. That is great for near-retirees, but it leaves the program unable to finance full benefits in 2034. Ignoring the problem now means future retirees continue to be uncertain about the prognosis for the program and the possibility of benefit cuts in the future.

So what to do with your portfolio

No doubt about it, starting today the world is on less certain terrain. But that doesn’t mean there’s much you can, our should, do with your 401(k). If you are decades away from retirement, the next four years may not have much impact on our portfolio (assuming there’s not a total reset of all trade relationships). If you are closer to retirement, the normal safe asset is bonds, but if yields rise over the next few years, the value of your portfolio will fall. All you can do is have faith that institutions can survive uncertainty and that your retirement portfolio will too.

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Is the Collapse of Productivity in the Developed World Really Close at Hand?

Allison Schrager, Quartz — Thu, 27 Oct 2016 09:45:00 -0400

The developed world may be facing another Malthusian moment. The first came at the end of the 18th century, when Thomas Malthus predicted dire consequences for humanity if population trends continued on their trajectory. But along came something no one predicted: technology that helped humans use resources more efficiently and get more from the land they had.

Our modern Malthusian moment is the opposite problem—a shrinking and aging population might mean less growth and prosperity.

Economic growth comes from three potential sources: You can add more people (labor), you can add more machines (capital), or you can figure out new ways to use labor and capital more productively (innovation/technology).

An aging population means fewer bodies working, which lowers output. There’s not much you can do about it. You can add more machines to make up for fewer people, but that can only get you so far. Giving another computer to a worker who already has one won’t make him more productive.

An aging population depresses growth in other ways. There may be less capital for investment in new machines because retirees consume their wealth instead of saving it. And as baby boomers leave the labor force, they also take their experience and expertise with them. (It’s a common fallacy to think that retirees simply make way for young people to get jobs; in many jobs, the young and old compliment one another.) Maximizing productivity of the labor force requires finding the right ratio of young and old workers.

Another way to increase productivity is to increase education. Not all workers are equally productive; the more educated you are, the more productive (in economic terms) you tend to be. You can try and make individuals more productive by boosting their education levels. But we may be reaching diminishing returns from education now, too.

Economist Robert Gordon of Northwestern University estimates that between America’s aging population and static educational attainment, US growth will be 0.4% lower each year going forward. He and George Mason University’s Tyler Cowen both argue we’ll be lucky if new technology can restore old levels of productivity, let alone make up for an aging work force.

But this supposes, much as Malthus did, that the gains from technology are tapped out—when it may just be too soon to tell what technology today will mean for workers of tomorrow. Economics historian Joel Mokyr, also at Northwestern, notes it took more than 100 years for the invention of the the steam engine (responsible for the industrial revolution) to show up in productivity estimates. Similarly, a small, unnoticed innovation in artificial intelligence today might completely transform elder care tomorrow, or perhaps an innovation in molecular biology and genetics might alter the nature of aging.

And what of the advances to come? Technology might change to compliment a workforce with a different age structure, for instance. Other innovations might help make a smaller workforce more productive.

Depending on your point of view, one two things are true: We are on the verge of new technologies that will transform how we work and live, and maintain the richness and prosperity we are used to, or the aging population will mean the collapse of productivity in the developed world is close at hand.

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Ladies, Join the Military For Equal Pay

Allison Schrager, Quartz — Mon, 14 Dec 2015 09:23:38 -0500

On Dec. 3, US Defense Secretary Ashton Carter announced his intention to open up all military occupations to women. The military isn’t typically thought of as leading the charge for women’t equality, but in at least one way it is. There is no pay gender gap, even if there are fewer women: at every rank, men and women are paid for equally.

The military is notorious for sexual harassment. But what makes the military workplace different—for better or worse–is that its structure inherently overcomes the many sources of the pay gap. Here are some of the reasons why:

Pay is public knowledge. Employers in the private sector can get away with discrimination, and pay women less, because most women don’t know their male colleagues are paid more. In the military, pay for each rank is public knowledge (as all government jobs are) so you can’t get away with under-paying two people with the same job.

There’s no room for negotiation. Women often don’t demand to be paid what they’re worth. And when they do, it’s poorly received. Since military pay is pre-determined, there’s no scope for men to ask for, and receive, more.

Everyone must lean-in. Women are often paid less because they value flexibility more, especially once they have children. They are willing to take a less high-powered career path and choose less lucrative occupations because it means they can be there for their children. Flexibility explains the pay gap between male and female OB-GYNs: Male doctors get paid 15% more than women, despite the fact there are more women in the field and patients often prefer female doctors. But studies show the pay gap is due to the fact that male doctors are willing to work more obscure hours, deliver babies in the middle of the night and weekends. There is no room for flexibility in the military—either you’re all in, go where you are told, and sometimes put yourself in grave danger—or you leave. Soldiers and sailors, of both genders, sometimes spend months away from their kids.

But complete equality in the military presumes women are promoted at the same rate as men. That makes Secretary’s Carter announcement significant. Serving in combat offers women more avenues to more forward.

Right now women aren’t promoted at the same rate men are. A significant female presence has already been growing in the military every since 1993 when Congress made it possible for women serve on ships and squadrons and opened up more paths to promotion. The figure below is the share of women in the military, by rank, in 1998 and 2015

But women aren’t moving up the way men are. In 1998 about 17% of lieutenants, the entry point for officers, were women. If women rose through the ranks at an equal pace to men, more would be at least lieutenant colonels by now. A study from the RAND Corporation estimates that women are less likely to be promoted than men at most levels. About 45% of white men become majors in their careers, but only about 31% of white women do. It does not necessarily mean women are being passed over. The RAND study also found women are also more likely to leave the military. Their high rates of attrition could reflect discrimination or any number of professional and personal reasons. The lack of flexibility may be part of why the military achieves equal pay, but it also probably leads to higher rates of female attrition.

The military is trying to accommodate women with families. The Coast Guard offers two year sabbaticals in an effort to encourage young mothers to stay in. The Navy recently extended the length of its maternity leave to 18 weeks, more generous than many private sector jobs. But the nature of the work often means long deployments away from home, and there is not good way around that.

It is striking that the differences in promotion rates between men and women in the military are fairly modest, only a couple of percentage points. What’s happening at the top is also remarkable. The RAND study suggests once women in the military break through the glass ceiling, they are promoted at a faster rate. It is worth noting that in 1998 there was not a single woman general; now there are 38, which 7.8% of all generals. Among Fortune 500 companies, only 5.2% have women CEOs, suggesting that even if women aren’t moving up the ranks of the military as fast as men, it may still be better than the private sector.

Retired Vice Admiral Sally Brice-O’Hara rose through the ranks in her 37-year-career in the Coast Guard. Unlike the rest of the military, all positions in the Coast Guard have been open to women since 1978. She observed more women dropping out and says it was due to a number of reasons. The most cited was family concerns, but people often leave because they want more control of their lives and hate the frequent moving.

She admits when it comes to women, the Coast Guard isn’t perfect though. “I’ve encountered plenty of men who were not ready [to work with and see women as leaders]. I learned from it and was able to shake it off. Some peers had worse experiences and couldn’t shake it off.”

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Men Are Both More and Less Intelligent Than Women

Allison Schrager, Quartz — Thu, 09 Jul 2015 13:00:00 -0400

At a recent cocktail reception in Manhattan, a friend sketched two bell curves, one much wider than the other. The narrower one placed slightly to the right. He explained to me they represented the distribution of male and female intelligence. He speculated that male intelligence was the wider curve—the implication being that woman may be a little smarter than men, on average, but most are just average. Men are more likely to be extremely smart or stupid.

I might have written him off as a left-tail case, but something about his hypothesis felt familiar. I have a STEM PhD, yet I am still often asked in both professional and social situations if I found statistics hard. Meanwhile, I’ve noticed if a man has any type of graduate degree where he took almost any kind of math class that sounds vaguely difficult, he’s presumed to be a math whiz. If he dresses weird and is socially awkward people assume he’s an outright genius. If I acted that way, people would just assume I was rude and frumpy, not necessarily brilliant.

It seems like many people agree women are just as smart—on average. A recent Pew survey claims a majority of Americans believe women display equal intelligence to men; women even have a slight edge on intellect perception. In the US, more women are in college. In 2012, 71% enrolled after high school, compared to just 61% of men. But when it comes to being exceptionally smart, funny , or talented, it feels like people still think that’s an exclusively male domain.

The male variability hypothesis, which seems to be driving what I’ve observed, claims men have a wider distribution of intellectual ability, which means there are more men in the upper tail of the intelligence distribution. It has been around since the 19th century, an idea buffered by the fact that most major scientific contributions in the 20th century came from men. But even 100 years ago, a fierce debate raged as to whether the difference reflected that men are indeed naturally smarter or if it was a byproduct of social conditioning, which includes access to education and society’s expectations. If it were social, you’d expect the distributions to look more similar today because attitudes and access to education have changed.

But even in these enlightened times, men still do display a wider range of intellectual ability. Using several different measures of intelligence including IQ and SAT scores, more men are found in the high and low tails, according to Josh Aronson, a professor of applied psychology at NYU. “Yes, the pattern that I see most often in the IQ literature, and the one that accords with my experience of nearly 40 years being near universities, is that you find more men at the extremes of performance, more among the mind-blowingly brilliant handful that you meet in a lifetime, and also more among the truly intellectually challenged handful. Within the extreme tails of the distribution, however, performance is generally equal between the sexes. But yes, men seem to have an edge at the extreme right end of of the bell curve.”

As to whether it is biological or environmental, “I think some of that is social,” he says, “but I would be surprised if it were all social.”

Researchers at Duke studied SAT scores of intellectually promising 7th graders (ages 12 to 13) over the last 30 years. The figure below took the ratio of boys to girls who scored in the top 1%, 0.5%, and 0.01% of the distribution in math scores (girls have a slight edge on the verbal SAT, but the differences are not nearly as large).

Up to the top 1%, boys and girls are nearly equal. But the higher into the tail you get, the bigger the differences emerge—and the boys dominate. In the 1980s, there were 13.5 boys for every girl in the top 0.01%, now there are only 3.8. The decline shows a large share of the gap was social conditioning, whether because of girls being told they could not be great at math or not being encouraged to take hard math classes. But a significant gap remains—some of if representing that we have further to go and some of it raising more uncomfortable questions about differences in innate ability.

Dave Lubinski, a psychology professor at Vanderbilt University, also studies the SAT scores of precocious 7th graders and tracks what happens to them in their careers. The oldest cohort is now 50 years old. He says once you narrow the population down to the 1 percenters in math, boys do score slightly higher. “But conditional on being in the 1% of math, the girls have better verbal skills.”

This suggests women may be less likely to be extreme math stars, but they display a more well-rounded intelligence. It’s hard to separate out what’s biological and environmental because intelligence reflects what you study and how intensely you pursue it. People are often drawn to what they are good at and what they have access to. Lubinski and his coauthors observed that women are more drawn to working with people and jobs that prize communication. Many talented women, for a number of reasons like discrimination or just their personal preferences, don’t end up as research scientists.

Perhaps this explains why a quantitative PhD does not buy me the same social allowances men seem to get. Lubinski stressed that men and women report similar levels of career satisfaction—though after speaking with him, part of me feels like I let my gender down by being a writer and not a micro-theorist.

( Image via albund / Shutterstock.com )

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Shaping the Workforce You Need: Lessons From a Manufacturing Innovator

Allison Schrager, Quartz — Wed, 02 Jul 2014 14:46:00 -0400

Shinola, a watch and leather goods maker, has done the impossible in its Detroit factory: cracked the code on how to skill up workers.

Willie Holley is one of them. He used to be a security guard for the company. Two years ago, he asked if he could try making watches and underwent a rigorous training program that teaches the obscure art of fine-watch assembly. Now, two years later, he’s a line leader, managing other watchmakers, and gets full benefits and a higher salary.

As the US crawls out of a jobless recovery, it seems unbelievable that manufacturing companies claim they can’t fill jobs. But according to the 2014 ManpowerGroup survey, firms who employ manufacturing occupations report the biggest shortage of talent; according to a 2011 study by Deloitte, 5%n of manufacturing jobs go unfilled due to a shortage of appropriate skills.

The manufacturing industry in America now employs fewer people, but it’s still an important source of middle class jobs. In 1970, nearly a quarter of Americans worked in manufacturing—now only about 10% do. This isn’t a trend limited to America; it is in large part, due to technology. Manufacturing work now requires fewer hands, but even as the industry shrinks it can’t find people with the right skills to fill jobs at a price they can pay.

That’s because once upon a time, manufacturing jobs entailed more routine tasks. An auto assembly plan, traditionally a big employer in Detroit, could take someone with a high school diploma, train him fairly quickly, and provide him with a comfortable, benefit rich, middle-class life assembling cars. But now that’s less common. According to Kim Hill of the Center for Automotive Research, when it comes to auto assembly: “Certainly the jobs are more technical than they were 30 years ago, or even 10 years ago. In order to work on an assembly line, prospective employees must have an associate’s degree—or equivalent—before they are even considered for employment.”

This change in the manufacturing industry has polarized the economy. Jobs that pay a middle-class wage, which manufacturing used to provide, have been disappearing and replaced by either low-skill, low pay or high skilled, high pay jobs. This trend has been going on for decades and accelerated during the recession. And it makes vacant manufacturing jobs all the more frustrating.

The solution from the government and most employers is more education, the type of training available at community colleges or vocational high schools. But so far, the results haven’t been great. Manufacturers still have unfilled jobs and less than 20% of enrollees at many community colleges graduate within three years. We still don’t know how and where training can be done successfully and who should pay for it.

This is precisely why what Shinola has done is so remarkable. It took people with diverse backgrounds (employees’ previous jobs also include janitors, pizza delivery, manicurists, and autoworkers) and transformed them into fine watchmakers, a skill only gained through an intense, long apprenticeship with Swiss master craftspeople. The process started about two years ago when the factory opened with a mission to make top quality watches in Detroit. The founder, Tom Kartsotis,had already found success with watch making, from an earlier company he started, Fossil.

According to Shinola CEO Steve Bock, the key to training success was partnering with Swiss company Ronda. Ronda supplies most of the parts (assembly occurs in the Detroit factory) and provided training in the art of watch assembly. Bock credits the Ronda partnership since, while fine watchmaking can be taught, few people know how to do it well enough to train others. The skills are traditional passed down through years-long, intensive apprenticeships in Switzerland.

Bock estimates Shinola has successfully trained between 75 and 80 workers. But it took time and money. To be successful, workers must deliver consistent quality and be efficient. He explained, “You can assemble a watch after a few weeks, but achieving acceptable speed and quality takes time. We now feel confident enough to provide a lifetime guarantee and meet demand—we couldn’t the first year. “ It was more than a year before Shinola could make enough watches of acceptable quality to meet demand.

Shinola is selective about employment, accepting only about 20% of applicants. The primary and most discriminating attribute required is the physical dexterity necessary for watch assembly. Part of the interview process is a 10-step dexterity test, which determines if prospective employees have the innate physical ability to do the work. The test involves performing several intricate timed tasks using tweezers.

And so Shinola has managed to train a skilled staff, the Holy Grail in modern manufacturing. But is in-house training always the best approach and is it scalable? Other small manufacturers would struggle to carry the cost of a non-profitable worker for a year and employ master craftsmen to lead training. Also watchmaking is fairly specialized. Shinola needn’t worry that their workers will take their valuable skills to a competitor because companies using a similar technology are largely in Switzerland.

Poaching may be a problem at other firms though. For instance, Hill points out that auto manufacturing may require more skills, but it also has become more standardized. “Once you have this knowledge (and experience), it is relatively easy to move from one employer to another—such as moving from Magna to JCI, or Ford to Toyota.”

That may be why the more popular alternative is to train people at community colleges. This puts the cost of training on the prospective employee or the government, through grants and subsidies, instead of the employer. But being trained in a classroom, and not the factory, introduces the risk that the wrong skills are taught. Also, according to Simon McDonnell of the CUNY (the community college network in New York City) Office of Policy Research, the right curriculum is necessary, but not sufficient. He explained, “Training most for technical jobs require a basic math foundation and often calculus, and many of the students don’t have that.”

After many students enroll they have to be placed in remedial math classes and then they often get frustrated and drop out.” Remedial math classes are sometimes called the “killing fields” because of the high drop out rate they induce. Calculus may not be necessary for watchmaking, but it is for many manufacturing jobs.

McDonnell also says financing is important; many students drop out when they lose funding. The fact that Shinola employees get a paycheck, a supportive work environment, and a clear career path, probably accounts for low turnover in the last two years, even as workers experience a long, and frustrating, training period.

Figuring out how to transform a large part of the population into skilled workers is necessary to preserve much of the middle class. There is no shortage of people who want these skills and are willing to work hard for them. We can see from Shinola’s experience it is possible, but successful training is labor intensive, requires highly skilled people to do the training, and can be expensive.

Closer partnerships between factories and colleges will ensure the right skills are taught and the costs are evenly shared among everyone who benefits: employers, employees, and tax-payers. The future of the middle class is counting on it.

(Image via vladimir salman/Shutterstock.com)

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The Behavioral Economics Behind Americans’ Paltry Nest Eggs

Allison Schrager, Quartz — Mon, 13 Jan 2014 11:28:58 -0500

I recently met a four-star general. He one of the most interesting people I’ve ever met, but instead of talking about himself he took a sincere interest in everyone around him. A self-described “econ-nerd”, he asked me many questions about my work helping people invest for retirement. I explained my frustration:

“You can describe risk to people in simple terms they understand, but they still don’t really get it. For example: You can ensure a particular income level in retirement, with high certainty, if you reduce risk. People say they want this certainty—except when the stock market goes up and they feel they missed out. They still don’t get that the upside of risk comes at a cost.”

The general nodded and said:

“It’s the same thing planning a military operation. You explain to the politician in charge that there’s an objective and ensuring its success will require the following resources. Or we can do it cheaper, but there’s a higher probability of things going wrong. They always go with the cheaper option and then get upset when things go wrong.”

What hope do we have to make good financial decisions if even the smartest people running our country—when there’s more at stake than money—don’t fully comprehend basic risk concepts either? Even when we are educated, behavioral economics explains why we still make bad choices.

Dispelling the Myth of the Left-Handed Genius

Allison Schrager, Quartz — Mon, 09 Sep 2013 12:43:16 -0400

Ask left-handed people about their lot and they’ll probably tell you how special they are. They will list all of the famous and brilliant people who are left-hand dominant including every post-Cold War president (except George W. Bush), Joan of Arc and Michelangelo to name just a few.

Up until recently, in America and still in some Asian countries, lefties were vilified. They’ve been accused of being sociopaths and forced to use their right hand.

More recently, we’ve come to celebrate lefties as iconoclasts. The new narrative stresses that lefties’ brains work differently, which makes them more creative. When exposed to language, lefties are more likely to engage both sides of their brain, rather than just the left side. It has also been said that using your left hand engages the right side of the brain, which is associated with creativity. A recent blog post in the New Yorker points to several studies demonstrating how much smarter and more creative lefties are.

Read more at Quartz.

(Image via Anibal Trejo/Shutterstock.com)

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